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The View from Congress
DR. PRESS: Congressman Lee Hamilton has represented Indiana's 9th
District for 25 years and currently serves as chairman of both the Joint
Economic Committee and the Foreign Affairs Subcommittee on Europe and
the Middle East. On the Joint Economic Committee, Congressman Hamilton
also serves as chairman of the Task Force on Economic Goals and
Intergovernmental Policy. In addition, Lee Hamilton serves on the Science,
Space, and Technology Committee, where he is a member of the Subcom-
mittee on International Scientific Cooperation, an issue of great interest to
us at this symposium. He served for two years as chairman of the Intelligence
Committee during the 99th Congress. Often described as, and I quote, "one
of the most highly respected members of Congress on both sides of the
aisle," Lee Hamilton has served on the Foreign Affairs Committee since
1965, when he was first elected to Congress. Building a favorable reputation
early in his House career, Congressman Hamilton was elected president of
the huge and famous Freshmen Democratic Class in the 89th Congress. He
studied at Goethe University in Germany, received his law degree at Indiana
University, and was a practicing attorney before being elected to Congress.
Lee Hamilton has been characterized in one biographical write-up as "a
man who chooses his issues carefully and times his few speeches for maxi-
mum impact." Hamilton, in the course of more than 20 years' service, has
built a reservoir of respect that few members of Congress can match.
MR. HAMILTON: My task is to give you a perspective of the United
States Congress on the European Community. Those of you who are famil-
iar with the Congress know how difficult it is to try to sum up the views of
that diverse and representative body, but I will do the best I can.
The long-standing position of the United States government has been that
an integrated Europe is a more prosperous Europe and a stronger security
47
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EUROPE 1992
partner. With that in mind, the United States has very strongly supported the
idea of European integration from the very beginning, indeed, since 1957 and
the Treaty of Rome. Trade disputes such as "chicken wars" and "pasta wars"
have irritated U.S.-EC relations over a period of years. But the United States
and Eurone have. until now. always prevented these rlisn''tes from int~.rf~.rins'
with our greater commitment to shared political and security goals.
Congress's perspective on the European Community really revolves around
trade issues. The key issues for members of Congress concern U.S. exports,
the trade deficit, and the future of U.S. competitiveness.
blunt political terms, jobs for our constituents.
~ D
Or, to put it in
When the Angle European Market was agreed upon in 1986, the reaction
In the U.S. Congress was a big yawn. Why?
_ .,
For two reasons. First,
Congress pays attention to the hot spots in the world. Nicaragua and E1
Salvador, at that time at least, were far more important to members of
Congress than Brussels, Bonn, or Madrid. European integration was simply
not a question on the congressional agenda. Second, because of the enormous
internal disputes in the European Community about budget and agricultural
subsidies, members frankly doubted at the time whether Europe would make
much progress on 1992.
The subsequent pace and intensity of the European Community integration
caught everyone, including I might say the Europeans, by surprise. Begin-
ning in 1987 members of Congress heard constituents and lower-level ad-
ministration officials complain that 1992 would hurt U.S. access to European
markets. This crescendo of concern grew through 1988 and early 1989 and
became expressed in the term fortress Europe. The fears of our constituents
that EC 92 was protectionist, exclusionary, and discriminatory came through
for members loud and clear.
In 1989 the rising cry caught the attention of higher-level U.S. officials,
including Secretaries Baker and Mosbacher. The United States made its
view clear that the 1992 project should be an initiative to open markets and
expand free trade not to close markets. The European Community and the
United States then began an intense dialogue on these questions.
Today there's an acceptance in the Congress that Europe 1992 will take
place. Members' fears have been partially addressed. They no longer assume
that EC 92 means protectionism. But they will want to look carefully at the
development of the nearly 300 EC directives guiding the 92 process of which,
of course, more than half have already been adopted. Access by American
high-technology firms will be particularly important in the minds of members.
For now, then, the overall attitude in Congress is one of caution and warine.~.c
Today congressional attention is focused on the European continent for
the first time in recent memory. Members of Congress are watching devel-
opments in Europe to see how they will affect the United States in the
postwar world as we have known it.
.
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THE VIEW FROM CONGRESS
49
First, we realize that the European Community is becoming an increas-
ingly important institution whose power will grow in the years ahead. The
EC will play a key role in the new European order. In addition to promot-
ing the process of economic integration, the EC will serve as an all-important
anchor in the West for a new united Germany. It will be a central actor in
coordinating western policies toward the newly emerging democracies in
eastern Europe and toward a reforming Soviet Union.
Closer EC coordination in the political and security areas presents a
challenge for the United States. Increasingly the Europeans are consulting
among themselves on matters that were previously left to NATO. In many
respects this process has short-circuited trans-Atlantic cooperation. The
United States is being brought into key decisions now, after the Europeans
have decided among themselves what course they will take. This trend
away from NATO coordination is likely to be exacerbated in the current
transition to a new security regime in Europe. The nature of this new
regime is, of course, uncertain. It may be based on the Conference on
Security and Cooperation in Europe, also known as the Helsinki Process. It
is important that the United States take steps to guarantee its role in whatever
new security framework emerges.
Second, we recognize that European integration can be a potentially positive-
sum game, with advantages for the United States and for American business.
By removing existing barriers to the movement of goods, capital, technology,
and labor between the 12 EC member states, EC 92 should lead to new
investment, more jobs, and faster growth throughout the EC. In fact, I
expect that the revenues of EC 92 have already produced an investment-led
economic boom in the European Community.
As the Community's largest trading partner, the United States stands to
benefit from that process. With 320 million consumers, a unified EC will
have the largest single market in the world. If you include the rest of
Europe, we're talking about a "European economic space" of some 500
million generally middle-income and well-educated consumers with a total
economic output of $6 trillion, twice that of Japan and the four Asian tigers
combined. The likely investment surge should benefit a capital goods exporter
like the United States.
In addition to greater trading opportunities, European integration holds
out the promise of new technology for U.S. firms to acquire. The EC is
committed to a strong program of technology development and collaborative
R&D. These efforts, combined with corporate R&D performed by European
firms, fortified with such a strong domestic market, should enrich the international
storehouse of technology on which we can all draw.
Third, there is a growing uneasiness in the Congress that the United
States is being left behind in eastern Europe. The west Europeans, led by
the Federal Republic of Germany, are moving aggressively to take the ini-
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EUROPE 1992
tiative in eastern Europe. German, French, Italian, and British businessmen
and bankers, building on historic ties between their countries and the East,
are pursuing joint ventures and extending new credits in East Germany,
Hungary, and Czechoslovakia. The perception is that U.S. firms have been
slow to follow and that the United States has lagged behind its European
allies in offering trade and investment incentives to companies interested in
doing business in the East.
This view has been reinforced by the new French initiative to create a
European Bank for Reconstruction and Development for eastern Europe,
with EC majority interest. While the charter of this bank has not been
finalized, there is concern that U.S. interests will not be taken into account
and that the EC will control the policy.
Fourth, we are focusing attention on the impact of German reunification on
the European Community and the EC 92 programs. There is some danger that
Bonn's new focus on the East will slow the pace of European integration.
Such a development would not be in the U.S. interest. European integration
must keep pace with the process of German unification. This has become a
tall order because of the accelerating pace of change in Germany. We are
already beginning to see the jitters that German unity can give its neighbors.
Unity within an integrated EC will be a key to future stability in Europe.
Some EC officials have expressed optimism that the decision to move
toward a common currency between the two Germanys will actually boost
the EC drive for the European Monetary Union, rather than slow it as many
feared. EC officials hope that by displaying how it can be done, German
monetary integration will silence the critics of the European Monetary Union.
Fifth, we note the issue of the future depth and breadth of the European
Community and the importance to the United States of how this question is
resolved. As the major economic force on the continent, Brussels will serve
as a magnet for other countries on the continent interested in trade. The
neutral countries, EFTA, and the emerging democracies in the East are
already setting their domestic economic agendas to the tune of Brussels.
Austria and Turkey have applications for EC membership pending, and
Hungary, Czechoslovakia, and Poland are likely to be close behind.
The European Community has not yet decided how it will proceed on
these applications. For the time being, Brussels has said that there will be
no expansion until after 1992. But the pressure to open its doors to new
members will only build in the coming years. How the EC acts will deter-
mine the future nature of the Community. Further enlargement is likely to
limit political integration and security cooperation within the Community.
Sixth, we are aware in the Congress that the new developments in Eu-
rope are shifting U.S. relationships with our European allies. There's a
growing recognition within the administration of the need to work more
closely with Brussels on political as well as economic matters. In addition,
the pace of developments in Germany has increased the urgency of U.S.
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THE VIEW FROM CONGRESS
51
cooperation with Bonn. In contrast, Prime Minister Thatcher's opposition
to the European Monetary Union and her more reticent position on German
unification have set her apart from her European allies. It is too early to
predict what the implications of this trend will be for the future of the
Anglo-American "special relationship."
While knowledge of the EC and opinions about it vary, most of us on
Capitol Hill have genuine concerns about the impact that Europe 92 will
have on American firms. Specifically, what are those concerns? Let me
give you a flavor:
.
The EC standards-setting process does not allow sufficient participa-
tion by U.S. exporters. For example, the EC mandated a battery cable
standard for forklift trucks to which only European-manufactured cables
were able to conform.
.
Government procurement rules favor EC products and services in cer-
tain sectors. As a result, U.S. exporters of telecommunications and electri-
cal equipment cannot sell to European governments.
· Local content requirements may result in American movies and televi-
sion programs being taken off the air to reserve programming for "European
works."
· Approval to market biotechnology products may involve a "fourth
hurdle," in addition to the normal criteria of safety, efficacy, and quality.
This fourth hurdle would take into account whether the product would cause
economic harm to segments of European society, such as small farmers, that
have received special concessions from national governments.
· The EC has recently tightened its guidelines for suspending tariffs on
pharmaceuticals and electronic products. The guidelines appear to dis-
criminate against a U.S.-made product if the firm's EC subsidiary could
produce it.
To many members of Congress these practices appear to add up to fairly
strong encouragement that U.S. firms manufacture in Europe. Congress is less
worried about American multinationals. Most members believe that the giants
of American industry are well positioned to benefit from a single market. But
we are concerned that American exporters, particularly small and medium-
sized firms, could be hurt by a change in the rules. Until their access to EC
markets and technology is assured, Congress will remain skeptical.
Let me focus on one particular industry, one I'm sure is familiar to
you semiconductors to illustrate our apprehension.* I'm no expert in
electronics, but here's my understanding of what's happened.
Thor more detail, see Kenneth Flamm's chapter on semiconductors in Europe 1992:
An American Perspective by G.C. Hufbauer, ea., Washington, D.C.: Brookings In-
stitution, 1990.
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EUROPE 1992
In February 1989 the EC approved a regulation that drastically altered
the rules for determining the origin of semiconductors. That change, com-
bined with the EC's implementation of recent antidumping settlements against
Japanese electronics producers, means the following. Chips fabricated in
the United States but tested and assembled in Europe no longer receive
favorable treatment. As a result, EC-based firms are pressuring their U.S.
chip suppliers to manufacture in Europe or, worse, are switching to Euro-
pean suppliers altogether.
Electronics industry representatives tell me that the use of antidumping
regulations will become increasingly important as the 1992 deadline approaches
for abolishing national quotas and voluntary export restraints. There are
other problems for semiconductors as well. A 1989 change in the rules that
will reduce the ability of member countries to suspend tariffs on semiconductors
promises to leave higher walls around the market for semiconductors after
1992.
Finally, let me mention the flow of public subsidies into joint research
and development activities in information technology in electronics, including
semiconductors. Projects such as ESPRIT and JESSI are highly commend-
able as a way to overcome the inability of private firms to capture the full
benefits of R&D. I believe the United States should itself be doing more to
promote cooperative R&D in civilian technology. But subsidies to R&D
can be problematic when used as a means of selectively helping national
firms in world markets, that is, as an alternative to production subsidies,
which are illegal under GATT.
One way to avoid that problem is through reciprocal access to R&D, that
is, by permitting firms from other countries to join one's own subsidized
R&D programs in exchange for comparable access by the other country.
This represents a departure from current practice in both the EC and the
United States, and there are obstacles to implementing it. Nevertheless, it's
an idea worth exploring in the name of creating a more open international
trading system, from which we all would gain.
Congress is also concerned about U.S. policy toward the EC. Sweeping
changes in eastern Europe as well as the EC have underscored the need to
update our own government's policies and priorities for a world in which
economic strength is increasingly more important to our nation's security
than military strength.
First, we are concerned about the inadequacy of U.S. resources assigned
to EC 92. The U.S. trade representative has only one person assigned to the
U.S. mission to the EC in Brussels. The Treasury and Commerce departments
have no one. Last spring the Commerce Department asked permission to
assign three foreign commercial service officers to the mission in Brussels,
but it took many months for the mission, which is dominated by the State
Department, to agree, and the three officers are still not in place.
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THE VIEW FROM CONGRESS
53
Because of this staff structure, we rely heavily on U.S. multinational
companies for economic intelligence and information. Their information is
obviously important to us, but the private interests of U.S. multinationals
may on occasion diverge from the U.S. national economic interests, including
the interests of U.S.-based exporters. IBM Europe is arguably as much a
European company as an American one, which is as it should be.
Insufficient resources are not the only problem with U.S. colicv toward
EC 92. We suffer from a common Washington problem: ~ ~
issue, it's often not clear who's in charge. Fragmentation of executive
authority leads to turf battles. Different agencies, each with its own valid
interest, invariably clash, and the internal conflicts sap our strength for the
trade fight going on outside. Why did it take the Commerce Department six
months to get approval to place three foreign commercial service officers in
Brussels? I suspect that the State Department resisted sharing its authority
toward the EC. As industry's watchdog, the Commerce Department clearly
has a different view and a more critical view of EC 92 than does the
State Department.
On any seven
This tension between departments may be unavoidable and even healthy,
but it reflects the lack of overall direction concerning Europe 92. U.S.
government actions to promote trade and investment in the EC have proceeded
on one track, led by the U.S. trade representative, while our government's
political dealings with the EC have proceeded on another track, led by the
State Department. Various interagency groups are at work to coordinate
one track with the other, but no single Cabinet member has responsibility
for both.
Among other problems, this results in a lack of accountability, and those
of us in Congress don't know whom to call on EC policy. Industry officials,
perhaps more than members of Congress, have been frustrated by the same
problem.
Finally, we are concerned with the dominance of military interests over
economic interests. In the case of EC 92, many members of Congress are
concerned that the United States is not getting the leverage it should from
the memoranda of understanding that the Department of Defense maintains
with European nations. Although these memoranda are the major bargaining
chip we have in EC 92 negotiations, the Defense Department has been
unwilling to let our U.S. trade representative use them as a bargaining tool.
Military interests often dominate economic interests. Federal support for
advanced technology development goes largely for defense technology. That
approach, which relies on defense spinoffs to civilian technology, worked
well during the 1950s and 1960s, but I question whether it does any longer.
Military technologies have steadily grown more specialized and the defense
sector more isolated from the rest of the economy. The direction of influ-
ence has even been reversed in many areas, where military applications now
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EUROPE 1992
depend on advances in civilian technologies. Despite that the United States
continues to spend a far smaller percentage of its GNP on civilian R&D
than West Germany or Japan. Historically, the U.S. ratio of defense to
civilian R&D was 50/50. In the 1980s that ratio became 70 percent defense
and 30 percent civilian.
In Europe the ESPRIT and EUREKA programs provide support for civilian
technology development. In this country there is enormous debate over
such support. Under the policy of the Bush administration, we do not
support advanced civilian technology development unless there is a clear
national security rationale. But what constitutes national security is not
entirely clear. The Department of Defense, for example, recently funded
R&D efforts on food processing and apparel.
In conclusion, Congress is watching EC 92 developments carefully, and
members are, in a word, concerned. Despite assurances from the administration
that negotiations are moving in the right direction, members are frustrated
about specific developments.
My own view is that, on the whole, the United States has benefited from
the past expansion of the European Community. These benefits have not
been automatic. We were vigilant in the mid-1970s and again in 1981, and
our vigilance was met with success in the form of trade barriers that were
lower than they otherwise would have been. We need to approach Europe
92 with the same kind of vigilance.
DR. PRESS: We wanted the views of Congress and we got it straight
from the shoulder. Thank you, Lee. We have time for three or four questions,
and Congressman Hamilton has consented to respond.
DR. REMBSER: Do you in the U.S. Congress have contact with the
European Parliament?
MR. HAMILTON: Yes. we do on a number of occasions during the
year, and different members have a variety of contacts. We also have
contacts with other European organizations of parliamentarians. For example,
this afternoon I met with 15 members of the Council of Europe. I think
those contacts are improving. After a kind of dry spell, they're becoming
more substantive and vigorous and I hope more useful.
PARTICIPANT: At times we are our own worst enemy. What can be
done to give a more unified U.S. government approach to negotiations with
the EC?
MR. HAMILTON: My own sense of that is that we're improving on it.
The real key is raising the level of visibility of the European Community
problem in the government. We're moving in that direction. Secretaries are
beginning to pay more attention to it now. And I think the president is. If
that happens, you'll see some of these areas that I referred to as being
problems beginning to be ironed out.
We had better get it through our heads that we're in for the economic
fight of our lives. The competition is going to be very tough and keen for
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THE VIEW FROM CONGRESS
55
American businesses, and we're going to have to reorder our house and
become more aggressive in asserting the American national interest in these
economic matters. So I am pleased to see the moves that I think are now
under way to raise the priority and the visibility of these matters within the
government and to assert that interest more directly and strongly.
PARTICIPANT: Isn't the best way to improve our competitive position
to get the budget down and thereby, of course, increase our savings?
MR. HAMILTON: I thoroughly agree with you. I'm not sure all of my
colleagues do. The question is what are the prospects for that, and the
answer is not very good, I'm afraid. We are temporizing with the problem
of the deficit. We are dealing with it on the margins. We are not hitting it
foursquare. We had a disappointing year in 1989. We are headed for a
disappointing year in 1990, unless things change, so I don't think we have
yet gotten the message that the deficit has to come down.
As you all know, the Gramm-Rudman targets require a reduction each
year, not in the deficit but in the projections for the deficit. We have
become so skillful in this town at game playing and accounting tricks that
we persuade ourselves that the deficit is in fact coming down, when it is
not. The deficit has for the last three years been at the $150 billion level; if
you include the Social Security surplus funds, it's $220 billion. You're
going to hear an announcement in a few days increasing the deficit projec-
tions for this fiscal year in a very substantial way. ~ ~ ~
So, while we tool
ourselves and maybe that's not so bad—about getting the deficit down,
what is happening is we're eroding the economic strength of the country
and that's serious.
PARTICIPANT: I wonder if you could tell us about the views of the
Congress about the kind of research in SEMATECH?
MR. HAMILTON: I guess the views in the Congress with regard to that
are very much split. You would have, I think, very solid support for it
across the ideological divides of the Congress, if it has a national security
rationale. If it doesn't, then I think you very quickly move away from
consensus and you get a very divided view within the Congress.
As you know, we've backed away from using the term industrial policy,
but there's enormous concern in the Congress on the whole question of U.S.
competitiveness. Like others, we look intently at the trade deficit figures
month by month and year by year. We recognize that U.S. competitiveness
is not a matter that is going to be solved by the United States government
and certainly not by the United States Congress, but I think we also recog-
nize that our responsibility is to provide an environment in which our American
business community can compete. Many of us think we are not really doing
that as well as we ought to be doing it.
DR. PRESS: Please join me in thanking Congressman Hamilton. Thank
you all for being here this evening.
Representative terms from entire chapter:
european integration
