One Solution: Traditional Import Bonds

The United States and many of our major trading partners permit the posting of a bond written by a government-approved surety company in order to permit the immediate release of imported goods securing or guaranteeing all of the government obligations involved in the importations while the government agencies make their final determinations. This approach allows the importing country to make its final decision over a reasonable period of time, while permitting businesses to efficiently move goods into the foreign commerce. This system of customs surety bonds is approved by the Kyoto Convention and the Customs Valuation Code (Article XIII), but has gone largely unused.

The role of the traditional surety is to guarantee the importer's obligations to pay duties, fees and taxes on the importation, and to comply with all other government obligations. The traditional bond would secure liquidated damages-but not fines and penalties for misconduct-assessed for failure to comply with a broad range of government_obligations enforced at the border (i.e., all of the health and safety measures). The government would continue to look to the importer-at least initially to fulfill its obligations under the law, but upon default by the importer, would have recourse against the surety to collect its revenues and enforce its laws. The traditional import bond is made available by the insurance or surety industry in the country of importation. Any country with a large pool of importers and an insurance or finance industry with access to information necessary to underwrite the risk of writing bonds for a particular company is capable of instituting a bond system very quickly and successfully.

In addition, a sound surety system relies upon a national legal and judicial system which permits seeking reimbursement from defaulting or bankrupt bond principals (i.e., importers), and administrative and judicial procedures which allow the surety to evaluate, accept or contest demands made upon it by customs authorities. United States insurance and surety companies have long worked successfully in providing security for United States Customs obligations, and are likely to be able to participate in an expanded international marketplace for customs surety bonds. The efforts by the Administration to open the world's insurance markets to foreign investors provides an important platform for United States participation in an expanded use of the surety system to facilitate international trade.

Another Solution: Non-Traditional Bond

It is recognized that a traditional import bond may not be a viable alternative in many of the developing counties due to the lack of the necessary industry and legal structures described in the preceding section of this statement. Accordingly, we urge consideration of new, non-traditional approaches to bonding systems which could establish "quick release" systems to complement or substitute for a traditional bonding system. One such Non-traditional system is an exporter bond.

Under an exporter bond system, the importing country would agree to accept the bond written by a surety approved by that country and posted with it by the exporting company. The bond could also be signed by the importer. The bond could secure all (or designated) obligations to the importing country. It could provide recourse by the importing country against the exporter-with benefit of the surety obligationswhile continuing its recourse against the importer. It would not alter the commercial terms of the transaction (e.g. title would pass wherever designated by the parties).

The Non-traditional concept has many advantages. It serves the traditional roles of import bonds: immediate release of goods while customs authorities take additional time to make proper decisions; enforcement of laws against the importer with reliable security available from the bonding company to both satisfy the government obligation and to have private industry continue to pursue the importer-of-record. It has several added advantages over those available in a traditional bond program: it provides a unique assurance to the importing country that it has recourse against the exporter as well as the importer, and a better means to appreciate and evaluate the transaction value reported for the transaction. In related party transactions, validation of the transaction value is particularly significant-involvement of the exporter in the security arrangement could improve the possibility that related party transaction values will be more readily accepted by new signatories to the Customs Valuation Code. Further, the non-traditional exporter bond would foster a favorable environment for foreign investment to build industrial capacity within the importing country by establishing a more reliable and predictable customs procedure for multinational companies.

An exporting bond system could be established in developing countries much faster than a traditional bonding system. Since the bond principal is in the country of

exportation, the surety need not rely upon the country of importation for the pool of companies needing bonds, access to underwriting information, and legal and judicial systems in place to permit seeking reimbursement from the principal. The importing country would be required only to establish procedures to certify companies eligible to write bonds, and to provide reasonable administrative and judicial procedures for evaluating and contesting demands made on the bonds by the customs authorities.

SUMMARY AND CONCLUSION

One of the most significant regulatory impediments to United States competitiveness in worldwide product markets is the inability to have our exports released timely by foreign government agencies. We urge that this problem be attacked at the Ministerial Meetings by encouraging the adoption of surety-based quick release procedures. We believe that such procedures are also important to the United States insurance and surety industries, as they seek to compete in worldwide markets, and to our trading partners as well, as a necessary part of their efforts to compete for foreign investment and a larger role in global manufacturing and distribution.

Mr. PORTMAN. Mr. Dawson.

STATEMENT OF RHETT DAWSON, PRESIDENT, INFORMATION TECHNOLOGY INDUSTRY COUNCIL

Mr. DAWSON. Mr. Chairman, I am Rhett Dawson, president of the Information Technology Industry Council, and I want to leave with you three thoughts today if I could. Information technology is one of the key sectors of the economy driving growth and increasing jobs. Second, we are delighted that we have been the recipient, the beneficiary of the past efforts to improve trade and eliminate barriers in information technology products and services. And we are happy that we have contributed to that success ourselves in our leadership.

The third point I want to leave with you today is that in Seattle we hope that the ministers will kick off something we call the Trade Framework for the Information Economy. My organization, the Information Technology Industry Council, represents the leading providers of information technology products and services, and we have been very deeply involved in the past trade agenda, and we have a big stake in this one as well. Our members had worldwide revenues of $440 billion in 1998, and we employ 1.2 million people in the United States.

A recent administration report put it this way: Over the past 4 years, information technologies industry output has contributed more than one-third to the growth of real output of the overall economy.

The ubiquity of the Internet is altering the way our economy operates. Growth in electronic commerce is astounding everyone, and it is not a sector of the economy that is reserved just for the socalled Internet companies. There is now recognition that to be competitive in any business, companies must understand how to effectively utilize information technology and the Internet.

Let me give you a perspective on what is called the connected economy. The 1999 estimate is that 200 million PCs, in homes and businesses, are going to be connected worldwide. The number is going to double in 2 years. And, we are on our way to 1 billion connected personal computers worldwide.

There is recognition that not only is this good for business, but it is also good for consumers. And it is also good for expressing where we are and what we stand for as a country. The information revolution makes freedom more attainable because it makes it more difficult for governments to control, censor and centralize the free flow of information.

American consumers and businesses have benefited greatly from past successes on opening up global trade and information technology goods. Let me give you two conspicuous examples. First, of great significance to our country and our industry was the negotiation of 1996 Information Technology Agreement. The ITA currently has 44 signatory countries and represents well over 90 percent of the world market for IT products, and we are hopeful that we can add China to that list when they become a member of the WTO. Full implementation of the ITA next year will bring tariffs on a broad range of information technology products to zero. Already the information technology agreement has stimulated over $500 billion in trade.

We also benefited from the 1998 WTO Ministerial agreement not to impose customs duties on electronic transmissions, the so-called duty-free cyberspace declaration. This gives us more breathing space in other countries to see the benefits of IT and better understand how electronic commerce is changing international business opportunities for our citizens.

The Seattle Ministerial offers an opportunity to pull all of these elements together, recognize the role of electronic commerce in promoting and facilitating international trade, and articulate what I called before, the Trade Framework for the Information Economy. We propose that the WTO ministers when they meet in Seattle endorse this Trade Framework for the Information Economy and take on four commitments: First, to agree to continue the May 20, 1998, moratorium on customs duties on electronic commerce-that is duty-free cyberspace-and do that for the duration of the next round, and that applies to both the transmissions themselves and to their content.

Second, we want the ministers to reaffirm that current WTO obligations, rules, disciplines and commitments, namely the GATT, GATS and TRIPS agreement, are technology-neutral and apply to e-commerce. We do not need to invent new trade rules when existing rules may serve.

Third, we want ministers to commit to refrain from taking measures that would inhibit the growth of e-commerce and access to information technology. Forbearance is a very tough thing for governments to do, but that is what is needed and what we are seeking. But even when domestic measures in a country are taken, we think even when that happens, the measures should be such that they are the least trade-distortive as possible and subject to WTO principles.

Fourth, we want ministers to begin work on the trade framework, but here we ought to be explicit. We are not proposing that the WTO embark on negotiations on issues that are not yet ripe for international agreement. There is a lot of work to be done to broaden the understanding of the connected economy and how it is changing business, and they should also examine how current

trade rules apply and to assess whether new regimes are necessary to provide a strong underpinning for the global information economy.

A political commitment to forbear from taking measures that would inhibit access to or use of the Internet would provide the measure of confidence that all businesses seek from every part of the globe.

In the last several months, ITI has participated in seminars in Geneva to acquaint WTO representatives there from over 60 countries with the benefits of information technology and electronic commerce. We strongly encourage that the WTO work on e-commerce continue, and we are delighted to have an opportunity to have testified today. Thank you.

Mr. PORTMAN. Thank you, Mr. Dawson. [The prepared statement follows:]

Statement of Rhett Dawson, President, Information Technology Industry

Council

Thank you Mr. Chairman for inviting me to testify today on the upcoming World Trade Organization Ministerial and the agenda for the New Round.

In my brief comments today, I want to leave you with three thoughts:

Information technology ("IT") is driving US economic growth, increasing productivity, creating better paying jobs and expanding opportunities for all Americans. A substantial part of the growth is due to strong exports of information technology products and services.

• The IT industry and consumers and businesses around the world have benefited from past successes to eliminate barriers to trade in IT products and services.

• In order to further extend the benefits of IT to developing countries in the 21st Century, we are putting forward an initiative we call the "Trade Framework for the Information Economy".

First, though, a few words about the association I represent. The Information Technology Industry Council represents the leading U.S. providers of information technology products and services (a membership list is attached). We advocate expanding economic growth through innovation and support free-market policies. Our members had worldwide revenue of more than $440 billion in 1998 and employ more than 1.2 million people in the United States.

I. INFORMATION TECHNOLOGY'S CONTRIBUTION TO US ECONOMIC GROWTH As Federal Reserve Chairman Alan Greenspan recently told the Joint Economic Committee, "Something special has happened to the American economy 1."

1

Information technology jobs are high paying jobs, averaging $53,000 per year, compared to an average of $30,000 per year for all private sector jobs.2

• Technology has played a key role in restraining inflation. Price changes in ITproducing industries, compared with the rest of the economy, have resulted in a lowering of domestic inflation by one full percentage point per year during both 1996 and 1997.3

• Investment in computers and information technologies in the 1990s by every sector of our economy-from carmakers to farmers-has cut production costs and boosted output. The result has been to hold prices down and increase American competitiveness internationally.

• IT contribution to real domestic economic growth continues to increase. The Commerce Department's recent report, The Emerging Digital Economy II, put it this way: "Over the past four years, IT industries' output has contributed more than onethird to the growth of real output for the overall economy." 4

1 Testimony of Federal Reserve Chairman Alan Greenspan before the Joint Economic Committee, June 14, 1999.

2 The Emerging Digital Economy II, US Department of Commerce, June 1999, page 39

3 Ibid., page 18

4 Ibid., page 19

Again, quoting Chairman Greenspan, "The newest innovations, which we label information technologies, have begun to alter the manner in which we do business and create value, often in ways not readily foreseeable even five years ago."

"5

The increasing ubiquity of the internet is promising to significantly alter the way our economy operates. Growth in electronic commerce is astounding-and this is not a specialized sector of the economy reserved for the so-called "internet companies." There is now recognition that to be competitive in any business, companies must understand how to effectively utilize information technology and the Internet.

Some industry analysts estimate that e-commerce will generate more than $3 trillion in sales by 2003. This is due in large part to the United State's world leadership in the information technology sector as well as policies that promote minimal regulation and free trade.

II. IT HAS BENEFITED FROM PAST SUCCESSES

American consumers and business have benefited greatly from past successes to open global trade in information technology goods, establish ground rules for competitive telecommunications services, intellectual property protection, and the moratorium on customs duties on electronic transmissions. ITI and its member companies have been in the vanguard of these and other trade policies and intend to continue our leadership role.

Let me give you two conspicuous examples:

The ITA

Of great significance to our industry was negotiation of the 1996 Information Technology Agreement. The ITA currently has 44 signatory countries, representing well over 90% of the world market for IT products. We are hopeful that we can add China to the list of signatories when China becomes a member of the WTO.

Full implementation of the ITA next year among the signatories will bring tariffs on a broad range of information technology products to zero. Already, the ITA has stimulated over $500 billion in trade, and facilitated access to state-of-the-art information technology in both developed and developing countries.

In addition to eliminating duties on IT products, the ITA has a built-in review mechanism that ensures it will be expanded over time to include other countries and products. This is a critical point for our industry. In just the past three years we have seen the convergence of computing, telecommunications and consumer electronics technologies, and the creation of a range of fascinating new products and applications. The ITA must be updated to include these new products. In addition, there is opportunity to further open trade at the level of parts, components and other inputs.

We strongly advocate completion of the ITA II negotiations to expand product coverage and establishment of an aggressive work program to address trade issues arising from convergence and non-tariff barriers, particularly technical standards. In that respect we have been especially active in advancing an agenda to eliminate duplicative testing and certification requirements for IT products in foreign markets. Trade and Electronic Commerce.

Our industry benefited from the 1998 WTO Ministerial agreement not to impose customs duties on electronic transmissions, the so-called "Duty-free Cyberspace Declaration." This action and the ensuing year-long work program have given countries "breathing space" to examine the benefits of IT, better understand how electronic commerce is changing international trade and business opportunities for their citizens, and think through appropriate next steps.

Some have said that e-commerce is simply another form of trade. This is true, but that description does not go far enough. Information technology makes e-commerce possible, transforms old ways of doing business (including entire industries), and creates new economic opportunities. People all over the world are "connected" with one another like never before.

Too often we have a tendency to think about and address each WTO agreement or work program in isolation from all of the others-the Information Technology Agreement separate from the Basic Telecom Agreement; the Agreement on TradeRelated Aspects of Intellectual Property separate from the Agreement on Technical Barriers to Trade; and so on. As we bore down even deeper into the details of each individual subject, we lose sight of the interrelationships between and among the agreements. For a cross-cutting industry like information technology, this approach

5 Federal Reserve Chairman Alan Greenspan, May 6, 1999.