basic human rights, and legitimate national regulations protecting the environment, consumer standards and workplace health and safety have been challenged as disguised restraints on trade.

Development policy has been inadequate, inefficient and misguided. If the global economy does not generate more equitable outcomes in the developing world, then the entire global system will become increasingly unstable and unsustainable. We must use trade and investment agreements to reward those governments that respect workers' rights, protect the environment, and allow democracy to flourish, not those that create the most hospitable climate for foreign investment, regardless of social concerns.

WTO Priorities

When the world's trade ministers gather in Seattle later this year, the U.S.government should insist that the WTO take concrete steps to achieve the following goals:

• Review the impact of trade liberalization on income distribution, economic development and financial instability before launching major new negotiations.

• Incorporate enforceable rules on core labor standards (including the freedom of association, the right to bargain collectively and prohibitions on child labor, forced labor and discrimination in employment).

• Establish accession criteria requiring that new WTO members are in compliance with core workers' rights.

•Overhaul existing rules to strengthen national safeguard protections in the case of import surges and ensure that trade rules do not override legitimate domestic regulations. It is essential that WTO rules not infringe on the ability of national or state governments to use their purchasing power to protect human and workers' rights.

•Ensure that WTO rules do not create pressure on governments to privatize public services.

• Carry out institutional reforms, enhancing transparency, accountability and access, so that citizens can understand the basis for WTO decisions, as well as provide meaningful input to this process.

• Provide more technical and legal support to developing countries so their participation in negotiations is not hampered by lack of resources or technical expertise. In addition, the AFL-CIO believes that new negotiations on investment and competition policy are headed in the wrong direction-toward shoring up the rights of investors at the expense of other members of civil society and U.S. laws.

Coordinating the Work of the International Organizations

The AFL-CIO supports the International Labor Organization's (ILO) 1998 Declaration on Fundamental Principles and Rights at Work and urges the ILO to move forward speedily with a strong and energetic follow-up mechanism. Now that the ILO and the international community have succeeded in building consensus around the universality and importance of the core labor standards, it is crucial that these core standards be incorporated into the work of the other international organizations, including the WTO, the International Monetary Fund (IMF), and the World Bank

The IMF, the World Bank and the regional banks must fundamentally rethink the conditionality they impose on developing countries. Rather than forcing austerity, privatization, deregulation, export-led growth, trade and investment liberalization and weakening of labor laws, the international financial institutions must emphasize domestic-led growth, democratic institutions and the observance of core labor standards.

The international financial institutions and the governments of the industrialized countries must take urgent steps to grant deep debt relief to the least developed countries that are in compliance with core labor standards so these countries can meet the basic human needs of their populations and lay the foundation for future growth.

The Economic Imperative

The current regime of international trade and investment rules has failed on economic as well as moral terms. Aggregate global growth is slowing, not accelerating. Global inequality is growing. And many of the nations heralded in the recent past as stars of the global economy have found that repressing political dissent, stifling an independent labor movement and concentrating economic and political power in the hands of the corrupt few do not provide a basis for long-term growth and stability.

The AFL-CIO is facing the challenges of the global economy in three ways: by building international solidarity, working to change the rules of the global economy and fighting on the home front to build strong, effective unions and ensure that workers have a voice in the national political debate.

Thank you for your time and attention. I look forward to answering any questions you may have.

Chairman CRANE. Mr. Lake.

STATEMENT OF CHARLES LAKE, VICE PRESIDENT AND COUNSEL, AFLAC JAPAN, ON BEHALF OF AMERICAN COUNCIL OF LIFE INSURANCE, AMERICAN INSURANCE ASSOCIATION, HEALTH INSURANCE ASSOCIATION OF AMERICA, INTERNATIONAL INSURANCE COUNCIL, AND THE REINSURANCE ASSSOCIATION OF AMERICA

Mr. LAKE. Mr. Chairman, I am Charles Lake, vice president and counsel of AFLAC Japan. AFLAC is the largest foreign financial services company in Japan in terms of profits, and the second most profitable foreign company of any industry in Japan. AFLAC now insures almost 25 percent of Japan's overall population.

My testimony is presented on behalf of the American Council of Life Insurance, the American Insurance Association, the Health Insurance Association of America, the Reinsurance Association of America, and the International Insurance Council where I serve on the board of directors. Collectively, these associations represent the major U.S. insurance and reinsurance companies with international operations.

As a former USTR negotiator involved in the completion of the General Agreement on Trade and Services, I am very honored to appear in front of this distinguished Subcommittee to present the insurance industry's views regarding the negotiating objectives for the WTO Seattle Ministerial.

U.S. insurance providers are among the most competitive in the world. Our cutting-edge products, services, and technologies allow us to offer customers the highest quality products in the world at competitive prices when the playingfield is even and a fair competition is permitted. Today I wish to address how our industry believes the WTO 2000 round of negotiations can enhance our ability to compete overseas while encouraging sound and consistent regulation that protects policyholders.

In the upcoming WTO services negotiations, the insurance industry believes that all WTO countries should commit to procompetitive regulatory principles-sound insurance regulation that allows free and fair competition.

GATS recognizes the right of its signatory jurisdictions to regulate their domestic service industries. Regulations should be justified by an objective and clearly defined need, not by whim or domestic political circumstances. Unfair and unequal regulatory requirements and restrictions often deny foreign_firms the opportunity to compete on an equal basis with local firms. In addition, lack of transparency can provide the domestic industry with a distinct and unfair competitive advantage. A detailed explanation of

all of our insurance regulatory principles is contained in my full written statement.

With my remaining time I would like to highlight several key points that we feel are particularly timely and appropriate with our priority emerging markets.

Solvency and prudential focus: Regulation should focus on ensuring that institutions meet reasonable solvency and prudential requirements as the primary means of protecting consumers. In most cases governments should allow the markets to determine the most effective products and pricing of those products in a competitive regulatory environment that encourages innovation and product diversity.

A transparent legal, administrative and regulatory environment: Standards, requirements, and codes of practice need to be promulgated with consultation, full documentation and accessibility to all market participants. Regulators should be impartial and an independent government entity.

Income security: The U.S. insurance industry supports the development of a WTO mechanism that encourages global pension reform based on free market principles with sound regulation and tax treatment that encourages citizens to offset the forecasted large gaps in public expenditures.

Access to international reinsurance markets: All insurers, domestic and foreign, should have access to the international reinsurance market with cross-border transactions authorized and monopolistic mandatory cessation requirements prohibited.

Taxation stability: The agreement should require the scheduling of all future taxation of insurance products.

Improving definitions: USTR should determine the extent to which all United States insurance industry export product lines are currently covered by existing definitions.

Dispute settlement: The U.S. should work to ensure that the WTO dispute settlement process provides a meaningful mechanism to challenge practices that are inconsistent with all current and future commitments.

In conclusion, while these principles are ambitious, they are intended to build on the Financial Services Agreement so that the WTO 2000 negotiating objectives will not only improve traditional market access commitments, but improve regulatory standards to foster financially sound and competitive insurance markets worldwide.

Our European insurance industry colleagues support these policy objectives. We are currently working with our Latin American and Asian counterparts to gain their support as well. Also we have begun consultations with U.S. State regulators and their international counterparts to seek their support for our mutual objectives. We believe we have a historic opportunity to improve our ability to provide our products and services to the people of the world, and we look forward to working with the Congress as well as international trade negotiators to achieving these objectives.

I thank you, Mr. Chairman and Members of the Subcommittee, for this opportunity to outline our negotiating objectives for the WTO Seattle Ministerial, and I would be pleased to answer any questions you may have.

Chairman CRANE. Thank you, Mr. Lake. [The prepared statement follows:]

Statement of Charles Lake, Vice President and Counsel, AFLAC Japan, on behalf of American Council of Life Insurance, American Insurance Association, Health Insurance Association of America, International Insurance Council, and the Reinsurance Asssociation of Ámerica

Mr. Chairman, I am Charles Lake, Vice President and Counsel of AFLAC Japan. AFLAC is the largest foreign financial services company in Japan in terms of profits, and the second most profitable foreign company of any industry in Japan. My testimony is presented on behalf of the American Council of Life Insurance, the American Insurance Association, the Health Insurance Association of America, the Reinsurance Association of America, and the International Insurance Council, where I serve on the Board of Directors. Collectively, these associations represent the major U.S. insurance and reinsurance companies with international operations.

As a former USTR negotiator involved in the completion of the General Agreement on Trade in Services (GATS), I am very honored to appear in front of this distinguished committee to present the insurance industry's views regarding the negotiating objectives for the WTO Seattle Ministerial.

U.S. insurance providers are among the most competitive in the world. Our cutting edge products, services and technologies allow us to offer customers the highest quality products in the world at competitive prices when the playing field is even and fair competition is permitted. AFLAC has built upon product knowledge and underwriting expertise learned in the U.S. and created in 1974 an entirely new category of products in Japan. AFLAC now insures almost 25% of Japan's overall population.

AFLAC Incorporated is a Fortune 500® company which insures more than 40 million people worldwide. AFLAC was ranked as the top insurance company in Forbes Global Business & Finance magazine's "A-plus" list of the world's best companies. AFLAC's experience is often used in MBA curriculums as an example of what U.S. companies can do if they take their unique and innovative products overseas.

When allowed to fairly compete in foreign markets, our industry provides substantial benefits to foreign consumers and economies, to domestic policyholders through increased financial resources and risk diversification, to stockholders, and the U.S. services trade surplus through return on investments. Since the U.S. market's ability to absorb our wide range of insurance products is limited, an increasing number of life pension and annuity, property and casualty, reinsurance and surety companies have significantly strengthened their commitment to conducting business overseas or have for the first time established an international presence to begin offering their products outside of the U.S. This trend will only intensify, in part because of the success of the upcoming WTO round. In that regard, we deeply appreciate the Committee's leadership in establishing tax policy that supports Û.Š. trade policy. The extension of the exemption from Subpart F for active financing income is crucial in allowing U.S. financial companies, in general, and insurance companies, specifically, to compete in the global marketplace.

Today I wish to address how our industry believes the WTO 2000 Round of Negotiations can enhance our ability to compete overseas while encouraging sound and consistent regulation that protects policyholders, and increases trust in the private insurance industry. In the upcoming WTO services negotiations, the insurance industry believes that all WTO countries should commit to pro-competitive regulatory principles-sound insurance regulation that allows fair and free competition.

The December 13th 1997 WTO Financial Services Agreement, created the first multilateral, legally enforceable, and permanent agreement covering insurance trade and investment. The agreement is designed to reduce and/or eliminate governmental actions that prevent financial services, including insurance, from being freely provided across national borders or that discriminate against foreign-owned financial services firms. When it came into force on March 1, 1999, the agreement created a floor of specific insurance market access, national treatment, and transparency commitments, below which countries will not be able to act without facing binding adjudication and sanctions. However much more liberalization needs to

occur.

The WTO's GATS has a built-in requirement for progressive liberalization negotiations, the first of which must begin no later than January 1, 2000. In contrast to the 1997 negotiations on basic telecommunications and financial services, these negotiations will cover a large spectrum of sectors. Since this is the beginning of a new round, the negotiating format and structure of the agreement are now open to redesign. My industry colleague, Dean O'Hare, Chairman of the Coalition of Serv

ices Industries, will address the overall services negotiations, so I will limit my comments to our insurance-specific objectives and consensus building activities to promote sound, pro-competitive insurance regulatory principles.

GATS recognizes the right of its signatory jurisdictions to regulate their domestic service industries. Many services are regulated by governments to ensure the fundamental goals of consumer protection and guarantee the supply of services to consumers. These fundamentals are not disputed by the U.S. private sector, although there are different ways of ensuring such fundamental goals through regulation. Some of these ways will be more restrictive than others. Regulations should be justified by an objective and clearly defined need, not by whim or domestic political circumstances.

An essential element of true financial services liberalization should be the global development of pro-competitive regulatory principles. Open, well-regulated service markets are the necessary foundation for a country's ability to compete in global markets for goods, agriculture and services. Market access alone does not guarantee liberalization.

We believe that the negotiations should continue to focus primarily on market access and national treatment needs. However, they should also focus on another significant barrier to trade that transcends both market access and national treatment objectives-burdensome regulatory systems that can serve as major impediments to free trade.

While traditional market access and national treatment liberalization commitments are a significant step toward market liberalization, these principles alone do not assure fair competition. Unfair and unequal regulatory requirements and restrictions often deny foreign firms the opportunity to compete on an equal basis with local firms. In addition, a lack of transparency, combined with uneven enforcement of regulations, can provide the domestic industry with a distinct and unfair competitive advantage.

Regulation of financial services markets must protect consumers; however, some regulatory systems may actually deprive consumers of better products, lower costs, and improved service. For example, restrictions on the types of products that can be offered by a company or unreasonably lengthy product approval procedures prevent firms from introducing new products or developing products that are tailored to the needs of local customers. Moreover, restrictions on the pricing of products limit the ability of companies that are run more efficiently to offer consumers better prices. Other types of regulations that prevent foreign firms from competing fairly with local businesses include: exchange controls, deposit and lending rate ceilings, investment restrictions, qualitative lending controls, privileged access to credit, and restrictions on business powers.

Lack of regulatory transparency is another barrier to fair and open competition in financial services. In some countries, regulations are not published in a way that is easily accessible to all businesses. In other countries, the process for developing regulations is opaque and there is no opportunity for local private sector input. Even if the regulations are available, the inconsistency of enforcement (or even non-enforcement) against local firms can handicap foreign competitors. Financial services firms that dutifully comply with domestic regulations simply cannot compete fairly or successfully with local companies that can lower costs by ignoring those same regulations. Political interference in the development and implementation of regulations adds yet another impediment to fair competition as local leaders intervene on behalf of local businesses, often resulting in disparate regulatory treatment for a foreign firm.

It is a difficult task to draw a clear line between market access issues, national treatment concerns and domestic regulation principles. Countries may disguise a market access issue, such as restricting new products under domestic regulation arguments, by characterizing it as consumer protection. It is the role of the private sector to assist government negotiators in assessing market situations, identifying protectionism and discriminatory regulations, and persuading countries to commit to regulation that allows fair and free competition.

While considering areas of possible liberalization under the pro-competitive theme, we are conscious that as this is the beginning of a new round of negotiation it is now possible to address areas that have traditionally not been included in the WTO. Now is the appropriate time to consider building upon the Financial Services Agreement to create a second generation of trade agreements that will not only allow U.S. insurance providers to compete more effectively in international markets but which will continue the relevancy of the WTO in the future.