agencies and industry in this process, much more of a sunshine process that goes on between industry and government.

Senator BAUCUS. What are the principal objections that your industries are aware of if the United States, if it does, presumably argues for as the last resort some retaliation?

What are some of the objections that your industry would have? Mr. BALE. What those objections are, as Jay has indicated, are typically foreign policy concerns.

And I think there is a feeling on the part of some agencies in the government that the Congress did not consider foreign policy when it developed the legislation in the first place.

And I think that needs to be the approach, that basically those were taken into account. And these are the issues, just as Jay has indicated.

There is a foreign policy dimension that should be segmented. That should be segmented out. And this is an economic decision.

And those are the issues that should be focused on, and a much more thorough analysis of the industry's figures from the point of view of getting the necessary measures changed in this country.

That should be the basis of the level of response, not some whittling down of the

Senator BAUCUS. I think you have the point that these issues of foreign policy should not be linked because we are not talking about a commercial transaction here where there is give and take in negotiation. Rather, we are talking about an illegal activity.

Mr. BALE. Exactly right.

Mr. CUMMINS. Mr. Chairman, it seems to me you also have an economic argument being made on the other side that we are protecting our local industries and illegal as they may be or improper as they may be.

And I think the message that has to get across is that it is to the betterment of the consuming public of your country to have the good products because inevitably, the counterfeit and the rip-off is an inferior product.

So it is important to your consumer. And it is also important to your country's economy from the standpoint of transfer of technology and encouraging investment.

Mr. BERMAN. Mr. Chairman, one of the ironies in that whole process where so-called foreign policy concerns may impinge upon the economic issues involved, it always struck me as kind of backwards. We should actually be asking more of our friends in terms of their willingness to enforce the law and to protect our products, not less.

In fact, that is what friendship might be all about. And if these countries have an importance and in many cases, they are also quite dependent on U.S. assistance for that strategic importance, it seems to me we have a right to ask that U.S. industries be protected.

We are not asking for something that is so out of the extraordinary. We are not asking to be protected against somebody's penetration of the market place.

What we are asking for is access, fair access to a market place and then for the ability to protect our product in that market place. Senator BAUCUS. Mr. Smith.

Mr. SMITH. Senator, this administration came into office on the belief that foreign economic policy has now become critical in a new world order.

We are very encouraged that Secretary Christopher and Secretary Bentsen, as this committee knows so well, will put foreign economic policy first as essential to U.S. foreign policy generally. And we hope that that will be the case. And we hope that former instances of the State Department or other agencies in the administration taking negative views toward tough action in this area will diminish.

And with your help, we hope that will happen.

Senator BAUCUS. I will ask you about the TRIP's provisions, the Dunkel text and how that can be improved upon, what action our country can take to help make that happen.

The administration is now about to send up a request for fast track extension.

Mr. BERMAN. I would say one phrase: that national treatment is the catch word. The Dunkel text is absolutely inadequate and unacceptable on the basis of the issue of national treatment.

Dr. BALE. I would add to that the transition provisions, the 20year figure, that you had mentioned earlier, Mr. Chairman, is, in fact, the risk that we run in the text, a minimum of a 10-year transition in the pharmaceutical area.

Such countries as Brazil, Argentina, and India are why Special 301 is so important. The extra 10 years comes about because that text is structured so that if copied products come on in the market in the interim, that protection just extends right out to the next cycle of products.

And so the fact of the matter is the risk is that before protection ever comes about in some of these markets, it could be 20 years. It depends on who is important.

Senator BAUCUS. Mr. Smith.

Mr. SMITH. In the copyright area, no question about it, Mr. Berman hit the nail on the head. The issue is national treatment. That is certainly the key issue in TRIP's.

I would add also for the services text, the whole issue of possible culture exceptions and quotas-these issues affect both the recording industry and the motion picture industry.

Senator BAUCUS. Well, you have identified deficiencies. You have not yet identified the associated strategy.

How do we accomplish our goals? How do we get there? Any ideas? How do we get better intellectual property provisions in the Uruguay Round?

Dr. BALE. I think here that Special 301 plays a particular useful role. I am afraid that in the last couple of years, there was only a restricted use of Special 301 because of a concern that the Special 301 process might upset the drive toward the end of the Uruguay Round.

I think Jay would agree with me in this respect. I think we saw a certain reluctance on the part of the administration to use Special 301.

Senator BAUCUS. Because it might upset somebody?

Dr. BALE. It might upset somebody in the GATT negotiation.

Mr. BERMAN. Or alternatively, the administration would say, well, you know, so and so is really helping us on the QT in the Uruguay Round. We do not want to rock the boat.

Dr. BALE. So certainly, one part of the strategy here that has certainly accelerated the drive in the beginning of the Tokyo Round— the Uruguay Round-excuse me-was at that time in 1985, the administration was on the theme of the use of Section 301. It propelled it forward.

I think here, a particularly targeted and well-used Special 301 process can be something to drive it forward.

I think also we have to be aware of what some of our trade partners really want out of this round. What they really want out of this round is to defang Super and Special Section 301.

We have to be very careful about that. And I am afraid right now in the Dunkel text, there are the seeds of the destruction of the bilateral 301 approach.

Senator BAUCUS. I very much agree with you. And frankly, I have forgotten the exact data here and the instances, but I have a very strong impression that it has been our trade laws which have helped reach agreements worldwide, that is, the use of 301, Super 301 and in some cases, I hope, Special 301.

But anyway, Super and regular 301 have helped reach agreements worldwide. Even the Uruguay Round, there is a large part propelled because of the United States use of Super 301 and the regular 301. Without those statutes, an argument could be made that there would not even be the beginnings of Uruguay Round negotiations.

We are helping make things happen. And we are standing up for our rights. And frankly, that adheres to the benefit not only to Americans, but to people worldwide.

Mr. BERMAN. I think we often lose sight when we get into global negotiations of the leverage we actually have. We are still, in most instances the world's single most important market for everybody else.

And that is what we bring to the table. And so if you are asking for a strategy that moves the Uruguay Round in terms of the Dunkel text where it is now to where it needs to be, that is the key to it. Special 301 has had a role to play in it.

Ambassador Lavorel has gone back to the table on a couple of occasions with suggested changes in language.

We have gotten past the critical period. There was a time when it appeared that an agreement for the sake of an agreement might jeopardize our larger concerns and our goals. And I think we have gone beyond that.

Senator BAUCUS. And I frankly think that is another reason why Super 301 should be part of fast track extension, that is, if Super 301 is enacted along with the extension of fast track negotiating authority for the Uruguay Round, then, our trade partners are going to know that they better negotiate something that is really good. Otherwise, they are going to be faced with Super 301 retaliation.

I thank you all. This has been a helpful hearing. And I appreciate your suggestion, Mr. Berman, of a followup hearing at a later

date to see whether these countries actually do what they say they are going to do.

Mr. BERMAN. There is May 30th and June 30th and July 30th. Senator BAUCUS. Right.

Hearing adjourned.

[Whereupon, at 11:59 a.m., the hearing was concluded.]

APPENDIX

ADDITIONAL MATERIAL SUBMITTED

PREPARED STATEMENT OF HARVEY E. BALE, JR.

Mr. Chairman and Members of the Subcommittee:

I am Harvey Bale, Senior Vice President International of the Pharmaceutical Manufacturers Association (PMA). Thank you very much for providing me the opportunity to testify on behalf of the PMA at this important hearing today on the Special 301 trade remedy law and its vital importance to the research-based pharmaceutical industry as means by which to improve intellectual property protection around the world. PMA is a non-profit scientific and professional association that represents over 100 U.S.-based companies which research, develop and market the majority of prescription medicines sold in the United States and a substantial portion of those sold throughout the world.

PMA is grateful for the decade-long bipartisan support, in both the Congress and the Executive Branch, in helping to ensure that the international trade environment becomes more conducive to the sale of U.S. research-based medicines and U.S. goods and services in general. Mr. Chairman, you and the members of this committee have been strong leaders in the battle against global patent piracy, and we look forward to working closely with you and the Subcommittee. We also believe that Ambassador Kantor is sonally committed to a pro-intellectual property strategy, and ..e is supported ably by his staff and other Executive Branch agencies.

The U.S.-based international research-based pharmaceutical industry is one of this country's premier hightechnology manufacturing industries. In 1992, the U.S.-based industry registered a trade surplus exceeding $1.3 billion. The key to the U.S. industry's past and future success is based on an extraordinary commitment to high levels of research and development spending. R&D spending by the U.S. pharmaceutical industry has doubled every five years since 1980. R&D spending is expected to reach a record $12.6 billion in 1993 (see, Chart 1).

The ratio of R&D spending to sales is now at 16.7 percent, whereas other U.S. industries with established R&D programs average only 3.6 percent (see, Chart 2).