Chairman CRANE. And without objection, so ordered with regard to your request. Mr. Houghton. Mr. HOUGHTON. Thank you, Mr. Chairman. I appreciate the testimony. It is enlightening. I just have two or three questions I would like to ask Mr. Weller. The Canadians are obviously concerned about their cultural heritage and feel sometimes overwhelmed about their proximity to the United States, so just to try to sort of depersonalize this thing and get into the guts I would like to ask you two or three questions. First of all, what is really the practical impact here of the Canadian cultural content rules? And second, does the United States prohibit broadcast distribution or sale of Canadian-produced programming? And third, really do the Canadian cultural context rules have a real impact on employment of actors and directors and things like that? You might want to turn to those questions. Mr. WELLER. Sure, Mr. Houghton, and thank you for your questions and I also want to thank you on behalf of all of us interested in the question of runaway production for your commitment to work with us and later this year conduct a hearing on the issue of runaway production with the Oversight Subcommittee. I thank you for your commitment to do that. When it comes to the impact of the Canadian cultural content rules, it could have a profound impact on U.S. producers of television and motion pictures. There is a recent Law Review article by publishers of Syracuse University Law Review. They noted that certain cable channels like the Disney Channel are prohibited as a result of cultural content rules enforced by the Canadian government. And the irony of this is that similar prohibitions have caused and forced many Canadian citizens who are interested in obtaining these channels to buy U.S. satellite dishes on the black market. And, moreover, Canada mandates that private stations must have a 60-percent Canadian content measured over the broadcast day and 50 percent over the evening hours, while the Canadian government-owned CBC must have 60-percent Canadian content at all times. It does have a very big impact on American film production as well as American television production. You had also asked whether or not the United States prohibits broadcast distribution or sale of Canadian-produced programs. Not at all. The United States of course has a free market for Canadian products. And not only do we permit their programming, but many Canadian television shows and television stars have been very successful. Let me list some of those. SCTV, Due South, and Road to Avalon, and performers like Rick Moranis, Dan Ackroyd, Jim Carrey, and Michael J. Fox have all been very successful in the United States precisely because we give our consumers the freedom and the right to choose the type of program that they want to watch and not have that enforced by the government. You had also asked if the Canadian cultural content rules have an impact on the employment of U.S. actors, directors and technical crews and others, and they do have an impact. Canada has adopted a point system that must be satisfied if a production is to achieve the cultural content designation. Under the point system six of 10 creative production positions must be performed by Canadians. In addition 75 percent of all expenditures have to be made to Canadians. Thus U.S. citizens are cut out of the action. They are cut out of the broad number of jobs in Canadian cultural content production. And of course Canada has those opportunities for the promises of wage rebates and tax incentives as well. That is really one of the key reasons why it is so important that the issue of runaway production as well as cultural content be addressed at the Seattle talks because it is having a real impact on an industry which is so important to the United States. Domestic film production is indigenous to our Nation. We have lost 20,000 jobs. Most of those have emigrated north as a result of not only the Canadian content rules but the vast array of incentives, particularly tax incentives, that the Canadians are offering to American film producers to relocate and go north. So thank you for those questions. They are important and basic questions. Mr. HOUGHTON. Thank you. Mr. Chairman, do I have just a minute more? I would like to ask Mr. Regula a question on 301. We are very concerned about 301 and also section 201. Clearly there are people that want to change that. Do you really hear the drums beating pretty loudly on that focusing on the ministerial in Seattle? Mr. REGULA. Well, I think this Subcommittee should address those issues. I believe Mr. English has a bill that tries to reflect the experience we have had and proposes some trade law changes. To summarize what I think will be the situation in Seattle is an effort by countries to change WTO rules to make it easier to dump into our markets. I think in anticipation of that, we want to hold firm because our laws are working. If anything, strengthen them and streamline them to make it easier for demostic companies to bring actions. Chairman CRANE. Mr. Neal. Mr. NEAL. Mr. Weller, is it your belief that what the Canadians are doing is legal under existing trade law? Mr. WELLER. We certainly believe there is some legitimate questions that should be raised. We believe that they are using their cultural content rules to put the United States at a great disadvantage, particularly when it comes to film production. When you think about it, the average film production has about $25 million in economic impact. The average film industry worker makes $26,000 a year. We have lost 20,000 jobs, most of which have gone north because of Canadian tax incentives as well as the Canadian content rules. And when cable channels that you and I have the opportunity just through freedom of choice if we have cable at home, Disney, HBO, are prohibited as a result of cultural content, something is wrong and we should raise that issue and it should be put on the table. Mr. NEAL. The U.S. film industry still remain a net exporter. Is it your understanding that they would be reluctant to bring a case? Mr. WELLER. I can't speak specifically for the U.S. film industry. I will let them speak for themselves. But our belief is that there are abuses that do need to be raised. We have seen a growth in film production, but if you see how those jobs have grown, more and more of them are shifting to Canada. And we have seen in my city of Chicago, and I imagine if you look at the economic impact in the Boston area you have probably seen an impact as well, in Chicago we have seen a 20-percent reduction in the amount of production activity as a result of runaway production. In Texas, which has been extremely hard hit, almost a third of their film production has been lost and runaway production has clearly been identified. And I would urge you to take a look at the monitor study that was done by the Directors Guild and the Screen Actors Guild, which we would be happy to provide you a copy of, which numbers the impacts in the communities such as Boston and Chicago. It is not just a Hollywood issue. Mr. NEAL. Thank you, Mr. Weller. Thank you, Mr. Chairman. Mr. FOLEY. Thank you, Mr. Chairman. Mr. Chairman, I want to thank Congressman Weller and Congressman Becerra for focusing on the runaway production issue. In the House Entertainment Task Force we are going to be doing, we hope, extensive study and have extensive dialog on the issue and I think you raise some very, very important points and I would like to ask you both, if you can in the brief time, to comment on some of the incentives that Canada provides as a tax motivation to bring films to Canada. First Mr. Weller and then Mr. Becerra. Mr. WELLER. Sure. And Mr. Foley, of course I want to thank you for your leadership and involvement on this issue. Folks a lot of times when they think of the film industry and movies and television production they always think of Hollywood and this is not just a Hollywood issue. This is a constituent issue for me in Illinois and I know it is for you in Florida and for Mr. Becerra in California, but it impacts dozens of urban areas, rural areas as well as many, many States have found domestic film production to be a job generator and a job creator. In fact, in Illinois we had 55 productions that were either fully or partially filmed in Illinois. So we are one of those States that recognizes the importance of the film industry. However, we have a challenge, and the Canadian government, both the Federal and provincial governments, have been very, very aggressive in offering financial incentives to television as well as film production. And these include wage credits, as well as other forms of tax subsidies which could reimburse in some provinces up to 40 percent of the cost of the production. Now from the standpoint of any businessperson if they could find a way to reduce costs by 40 percent, they are going to consider that other area to do busi ness. So my belief is that we really need to work in a bipartisan way to find ways of reducing the cost of production in the United States and keep these jobs here. As I noted in my testimony in this Congress in the last 9 years, and I represent an area with significant amount of steel production so it is an issue I am very concerned about, but we have lost 10,000 steel jobs in the past year and this Congress has given a tremendous amount of attention to that issue. But unfortunately the administration nor Congress have paid little attention to the issue that needs to be on the radar screen and that is the issue of runaway production. When you have lost 20,000 jobs, that is serious. That is twice as many jobs as have been lost in the steel industry alone. So clearly the tax incentives as well as the weaker Canadian dollar have contributed to the loss of jobs that have headed north. Mr. BECERRA. Good question, and thank you again for the role you are playing in this as well. Certainly Florida should be very concerned because it is one of the States that does have major production facilities and sites. More specifically, because I think Mr. Weller did a very good job of answering the questions, if the government in Canada provides an 11 percent rebate-they don't call it a tax credit, they call it a rebate-on all production costs that are related to labor. So someone who works there, you pay that person a salary, you get to reduce that in your costs by 11 percent. The Federal Government in Canada will give you back 11 percent. On top of that the provincial governments provide a number of incentives, rebates, tax credits. So you can get anywhere from 22 up to 46 percent of a rebate, tax credit, whatever you would like to call it, an incentive to do business. On top of that, Canada is now offering to production companies from abroad from other countries like the United States duty-free import of its stage facilities, of its production equipment, its photographic equipment, special effects equipment. All of this now gets to come in without any charge for importation. So they are saving quite a bit of money when they go to a place like Canada. We need to do something to make sure we have a level playingfield. Mr. FOLEY. Thank you very much and I thank you both for your hard work on this and hopefully, and I know Mr. Weller has asked Mr. Houghton to potentially have some hearings in depth in a variety of locations and I look forward to working with both of you. If I may, Mr. Miller, I cannot escape without a conversation on sugar. I didn't expect one today, but I might as well jump in. The price of sugar has remained stable without question in the last 9 years. There has been no increase in the wholesale price of sugar. Why then can you explain the price of the finished product going up so dramatically? There doesn't seem to be a nexus between the cost of sugar and the end retail price. Mr. MILLER. Basic economics 101 said that-you are talking about if we went to the world market 6 cents a pound you would not see a price change in products. But that is only one component of the price and I think you would see price changes in things that have high content of sugar. There is no justification for us to be paying 23 cents a pound for sugar in the United States and 6 cents a pound in Canada. How can we compete? It is the same way we can't compete when they have incentives for products like that. But the most important thing is to have the ability to have clean hands. We are protecting one product and when we go there and try to open up markets for dairy products and what have you, it is not a fair field. Mr. FOLEY. My time has expired, but I would love to continue the dialog. I am sure we will have a chance on the floor. Chairman CRANE. Gentlemen, we appreciate your participation today, and that concludes this panel. We now welcome our next panel, our witness, Hon. Susan G. Esserman, Deputy U.S. Trade Representative and you may proceed when ready. And we would also ask you to try and keep oral testimony in the neighborhood of 5 minutes and all written testimony will be made a part of the permanent record. Proceed when ready. STATEMENT OF HON. SUSAN ESSERMAN, DEPUTY UNITED STATES TRADE REPRESENTATIVE Ms. ESSERMAN. Thank you, Mr. Chairman, Members of the Subcommittee. I very much appreciate this opportunity to testify on the important issue of the U.S. agenda at the World Trade Organi zation. In 4 months, Ambassador Barshefsky will open the WTO's third ministerial conference in Seattle. This will be the largest trade event ever held in America, bringing trade ministers, business executives and citizen groups to Seattle from all over the world. It will highlight to the world our economic achievements and focus public attention as never before on the role that trade plays in the longest peacetime expansion in American history. We also expect at the ministerial to launch a new round of international trade negotiations. This round builds upon 50 years of bipartisan American commitment to a fair, open, and free international economy capped by the conclusion of the Uruguay round, which created the WTO in 1994. In the 5 years since, the WTO has fully proven its value to the United States and the world. For example, Americans have taken greater advantage of a more open world economy by increasing exports by over $200 billion, contributing to the economic growth we have enjoyed and helping us gain high-skill, high-wage jobs. The WTO's strong dispute mechanism has strengthened our ability to ensure compliance with trade agreements and has resulted in tangible gains for American companies and workers and the WTO has been vital to our ability to address the financial crisis as its rules-based system has helped to prevent the outbreak of a cycle of protection and retaliation which would have hurt the United States as the world's largest exporter as much as any other country in the world. As we look to a new round, we see immense promise to go further and as President Clinton has stated, to create a world trading system attuned to both the pace and scope of the new world economy and to the enduring values which give direction and meaning to our lives. We are now consulting with this Subcommittee, Members of Congress, interested Americans in business, agriculture, NGOs and others, about the objectives for the round. I am going to very briefly outline our core objectives. Our view is that the core of the negotiating agenda should address market access concerns, including tariffs, nontariff measures, subsidies and other measures, with benchmarks to ensure that the negotiations stay on schedule. These broad-based markets access negotiations would lead to immense new business and job opportunities for our workers, companies and farmers. The agenda and its results must unquestionably be broad enough to create a political consensus by addressing the market access pri |