- PRESIDENT'S COMPREHENSIVE REVIEW OF THE NAFTA

[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]

PRESIDENT'S COMPREHENSIVE REVIEW OF THE NAFTA

=======================================================================

HEARING

before the

SUBCOMMITTEE ON TRADE

of the

COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

__________

SEPTEMBER 11, 1997

__________

Serial 105-58

__________

Printed for the use of the Committee on Ways and Means

----------

U.S. GOVERNMENT PRINTING OFFICE
51-944 cc WASHINGTON : 1999

COMMITTEE ON WAYS AND MEANS

BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri

A.L. Singleton, Chief of Staff

Janice Mays, Minority Chief Counsel

______

Subcommittee on Trade

PHILIP M. CRANE, Illinois, Chairman

BILL THOMAS, California ROBERT T. MATSUI, California
E. CLAY SHAW, Jr., Florida CHARLES B. RANGEL, New York
AMO HOUGHTON, New York RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
WALLY HERGER, California
JIM NUSSLE, Iowa

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.

C O N T E N T S

__________

Page

Advisories announcing the hearing................................ 2

WITNESSES

Office of the U.S. Trade Representative, Hon. Jeffrey Lang,
Deputy U.S. Trade Representative............................... 35
U.S. General Accounting Office, JayEtta Z. Hecker, Associate
Director, National Security and International Affairs Division,
International Relations and Trade Issues....................... 145

______

American Apparel Manufacturers Association, Larry Martin......... 136
American Farm Bureau Federation, Bob Stallman.................... 121
American Federation of Labor and Congress of Industrial
Organizations, John J. Sweeney, and Thea Lee................... 89
Beckman, Steve, International Union, United Automobile, Aerospace
and Agricultural Implement Workers of America.................. 200
Border Trade Alliance, Albert C. Zapanta......................... 193
Brown, Reginald L., Florida Fruit & Vegetable Association........ 212
Center for Strategic and International Studies, Sidney Weintraub. 173
Democratic Leadership Council, Edith R. Wilson................... 70
Dreier, Hon. David, a Representative in Congress from the State
of California.................................................. 11
Eastman Kodak Co., George M. King................................ 62
Florida Fruit & Vegetable Association, Reginald L. Brown......... 212
Florida Tomato Exchange, Wayne Hawkins........................... 216
General Motors Corp., G. Mustafa Mohatarem....................... 114
Hawkins, Wayne, Florida Tomato Exchange.......................... 216
Hills and Co., Julius L. Katz.................................... 67
Hoffman, Ann, Union of Needletrades, Industrial and Textile
Employees, presenting statement of Jay Mazur................... 208
International Dairy Foods Association, Janet A. Nuzum............ 132
International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America, Steve Beckman....... 200
Kaptur, Hon. Marcy, a Representative in Congress from the State
of Ohio........................................................ 18
Katz, Julius L., Hills and Co.................................... 67
Kolbe, Hon. Jim, a Representative in Congress from the State of
Arizona........................................................ 25
King, George M., Eastman Kodak Co., and National Foreign Trade
Council, Inc................................................... 62
King, Jerry, National Pork Producers Council..................... 128
Lee, Thea, American Federation of Labor and Congress of
Industrial Organizations....................................... 89
Levin, Hon. Sander M., a Representative in Congress from the
State of Michigan.............................................. 15
Liebenow, Larry A., Quaker Fabric Corp., and U.S. Chamber of
Commerce....................................................... 98
Martin, Larry, American Apparel Manufacturers Association........ 136
Mazur, Jay, Union of Needletrades, Industrial and Textile
Employees, as presented by Ann Hoffman, Union of Needletrades,
Industrial and Textile Employees............................... 208
Mohatarem, G. Mustafa, General Motors Corp....................... 114
National Foreign Trade Council, Inc., George M. King............. 62
National Pork Producers Council, Jerry King...................... 128
National Wildlife Federation, Mark Van Putten.................... 103
Nuzum, Janet A., International Dairy Foods Association........... 132
Quaker Fabric Corp., Larry A. Liebenow........................... 98
Schott, Jeffrey J., Institute for International Economics........ 79
Stallman, Bob, Texas Farm Bureau, and American Farm Bureau
Federation..................................................... 121
Sweeney, John P., Heritage Foundation............................ 176
Sweeney John J., American Federation of Labor and Congress of
Industrial Organizations....................................... 89
Texas Farm Bureau, Bob Stallman.................................. 121
Union of Needletrades, Industrial and Textile Employees, Jay
Mazur, as presented by Ann Hoffman............................. 208
U.S. Chamber of Commerce, Larry A. Liebenow...................... 98
United States-Mexico Chamber of Commerce, Albert C. Zapanta...... 193
Van Putten, Mark, National Wildlife Federation................... 103
Velazquez, Hon. Nydia M., a Representative in Congress from the
State of New York.............................................. 28
Weintraub, Sidney, Center for Strategic and International Studies 173
Wilson, Edith R., Democratic Leadership Council, and Progressive
Policy Institute............................................... 70
Zapanta, Albert C., United States-Mexico Chamber of Commerce, and
Border Trade Alliance.......................................... 193

SUBMISSIONS FOR THE RECORD

Abel, Martin, PROMAR International, Alexandria, VA, statement.... 272
American Chamber of Commerce of Mexico, Julio A. de Quesada,
joint statement................................................ 228
American Textile Manufacturers Institute, statement.............. 232
American Trucking Associations, Inc., statement and attachments.. 234
Arnett, Brenda F., Texas Department of Economic Development,
statement...................................................... 278
Bates, Christopher M., Motor & Equipment Manufacturers
Association, statement......................................... 263
Bernal, His Excellency Richard L., Ambassador, Government of
Jamaica, statement............................................. 260
Border Trade Alliance, San Diego, CA, statement.................. 240
Christensen, Lynn E., Motor & Equipment Manufacturers
Association, statement......................................... 263
Citibank Mexico, S.A., Julio A. de Quesada, joint statement...... 228
Citizens for a Sound Economy, Anita Sheth, statement............. 244
de Quesada, Julio A., American Chamber of Commerce of Mexico, and
Citibank Mexico, S.A., joint statement......................... 228
Dees, Stephen P., Farmland Industries, Inc., Kansas City, MO,
statement and attachments...................................... 250
diCicco, Peter, Industrial Union Department of the American
Federation of Labor and Congress of Industrial Organizations,
statement...................................................... 259
Farmland Industries, Inc., Kansas City, MO, Stephen P. Dees,
statement and attachments...................................... 250
Garza, Hon. Antonio O., Jr., Secretary of State, State of Texas,
statement...................................................... 281
Greater Houston Partnership, Houston, TX, Jim C. Kollaer,
statement and attachments...................................... 254
Industrial Union Department of the American Federation of Labor
and Congress of Industrial Organizations, Peter diCicco,
statement...................................................... 259
Jamaica, Government of, His Excellency Richard L. Bernal,
Ambassador, statement.......................................... 260
Koelfgen, Chris, National Association of Foreign-Trade Zones,
statement...................................................... 267
Kollaer, Jim C., Greater Houston Partnership, Houston, TX,
statement and attachments...................................... 254
Motor & Equipment Manufacturers Association, Robert R. Miller,
Christopher M. Bates, and Lynn E. Christensen, statement....... 263
National Association of Foreign-Trade Zones, Chris Koelfgen,
statement...................................................... 267
National Housewares Manufacturers Association, statement......... 268
PPG Industries, Inc., statement.................................. 270
PROMAR International, Alexandria, VA, Martin Abel, statement..... 272
Public Citizen's Global Trade Watch, statement................... 273
Ramstad, Hon Jim, a Representative in Congress from the State of
Minnesota...................................................... 276
Reyes, Hon. Silvestre, a Representative in Congress from the
State of Texas, statement...................................... 277
Sheth, Anita, Citizens for a Sound Economy, statement............ 244
Texas Department of Economic Development, Brenda F. Arnett,
statement...................................................... 278
Texas, State of, Hon. Antonio O. Garza, Jr., Secretary of State,
statement...................................................... 281

PRESIDENT'S COMPREHENSIVE REVIEW OF THE NAFTA

----------

THURSDAY, SEPTEMBER 11, 1997

House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10 a.m., in
room 1100, Longworth House Office Building, Hon. Philip Crane
(Chairman of the Subcommittee) presiding.
[The advisories announcing the hearing follow:]

ADVISORY

FROM THE
COMMITTEE
ON WAYS
AND
MEANS

SUBCOMMITTEE ON TRADE

CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE

July 3, 1997

No. TR-11

Crane Announces Hearing on the President's

Comprehensive Review of the NAFTA

Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade
of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on the President's comprehensive study
of the operation and effects of the North American Free Trade Agreement
(NAFTA). The hearing is the second in a series which began March 18,
1997, to consider major U.S. trade initiatives. The hearing will take
place on Wednesday, July 16, 1997, in the main Committee hearing room,
1100 Longworth House Office Building, beginning at 10:00 a.m.

BACKGROUND:

The NAFTA entered into force on January 1, 1994. Section 512 of
P.L. 103-182, the NAFTA Implementation Act, requires the President to
provide to Congress, by no later than July 1, 1997, a comprehensive
report on the operation and effects of the Agreement, including an
assessment of: (1) the net effect of the Agreement on the economy of
the United States, (2) the industries in the United States that have
significantly increased exports to Mexico and Canada as result of the
Agreement, or in which imports into the United States from Mexico and
Canada have increased as a result of the Agreement, (3) the extent to
which investment in new or existing production in the United States has
been redirected to Mexico as a result of the Agreement, (4) the extent
of any increased investment in new or existing production in the United
States as a result of the Agreement, and (5) the extent to which the
Agreement has contributed to an improvement in real wages and working
conditions in Mexico, effective enforcement of labor and environmental
laws in Mexico, and the reduction or abatement of pollution in the
United States-Mexico border region.

In announcing the hearing, Chairman Crane stated: ``In addition to
creating the largest tariff-free zone comprising 370 million consumers
and over $6.5 trillion of production, NAFTA set new standards for the
protection of intellectual property rights, liberalization restrictions
on foreign investment, and elimination of non-tariff trade barriers
such as import licensing requirements. An accurate assessment of the
effects of the Agreement on the U.S. economy and U.S. interests
requires that, to the extent possible, the effects of NAFTA are
distinguished from the effects of other economic events and trends
which have occurred independently of this historic trade agreement.''

FOCUS OF THE HEARING:

The purpose of the hearing is to receive testimony from the
Administration and the public regarding the impact of the NAFTA on U.S.
industry, agriculture, labor, and other parties. Witnesses should
address whether the Agreement is serving the national interest of the
United States, and whether it is operating as U.S. trade negotiators
and Congress intended.

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

Requests to be heard at the hearing must be made by telephone to
Traci Altman or Bradley Schreiber at (202) 225-1721 no later than the
close of business, Wednesday, July 9, 1997. The telephone request
should be followed by a formal written request to A.L. Singleton, Chief
of Staff, Committee on Ways and Means, U.S. House of Representatives,
1102 Longworth House Office Building, Washington, D.C. 20515. The staff
of the Subcommittee on Trade will notify by telephone those scheduled
to appear as soon as possible after the filing deadline. Any questions
concerning a scheduled appearance should be directed to the
Subcommittee on Trade staff at (202) 225-6649.

In view of the limited time available to hear witnesses, the
Subcommittee may not be able to accommodate all requests to be heard.
Those persons and organizations not scheduled for an oral appearance
are encouraged to submit written statements for the record of the
hearing. All persons requesting to be heard, whether they are scheduled
for oral testimony or not, will be notified as soon as possible after
the filing deadline.

Witnesses scheduled to present oral testimony are required to
summarize briefly their written statements in no more than five
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full
written statement of each witness will be included in the printed
record, in accordance with House Rules.

In order to assure the most productive use of the limited amount of
time available to question witnesses, all witnesses scheduled to appear
before the Subcommittee are required to submit 200 copies of their
prepared statement and an IBM compatible 3.5-inch diskette in ASCII DOS
Text format, for review by Members prior to the hearing. Testimony
should arrive at the Subcommittee on Trade office, room 1104 Longworth
House Office Building, no later than Monday, July 14, 1997. Failure to
do so may result in the witness being denied the opportunity to testify
in person.

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit at least six (6)
single-space legal-size copies of their statement, along with an IBM
compatible 3.5-inch diskette in ASCII DOS Text format only, with their
name, address, and hearing date noted on a label, by the close of
business, Wednesday, July 30, 1997, to A.L. Singleton, Chief of Staff,
Committee on Ways and Means, U.S. House of Representatives, 1102
Longworth House Office Building, Washington, D.C. 20515. If those
filing written statements wish to have their statements distributed to
the press and interested public at the hearing, they may deliver 200
additional copies for this purpose to the Subcommittee on Trade office,
room 1104 Longworth House Office Building, at least one hour before the
hearing begins.

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.

1. All statements and any accompanying exhibits for printing must
be typed in single space on legal-size paper and may not exceed a total
of 10 pages including attachments. At the same time written statements
are submitted to the Committee, witnesses are now requested to submit
their statements on an IBM compatible 3.5-inch diskette in ASCII DOS
format.

2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.

3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.

4. A supplemental sheet must accompany each statement listing the
name, full address, a telephone number where the witness or the
designated representative may be reached and a topical outline or
summary of the comments and recommendations in the full statement. This
supplemental sheet will not be included in the printed record.

The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press
and the public during the course of a public hearing may be submitted
in other forms.

Note: All Committee advisories and news releases are available on
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.

The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-225-1904 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.

***NOTICE--HEARING POSTPONEMENT***

ADVISORY

FROM THE
COMMITTEE
ON WAYS
AND
MEANS

SUBCOMMITTEE ON TRADE

CONTACT: (202) 225-6649
FOR IMMEDIATE RELEASE

July 11, 1997

No. TR-11-Revised

Postponement of Subcommittee Hearing on

the President's Comprehensive Review of the

NAFTA Wednesday, July 16, 1997

Congressman Philip M. Crane (R-IL), Chairman of the Subcommittee on
Trade of the Committee on Ways and Means, today announced that the
Subcommittee hearing on the President's comprehensive study of the
operation and effects of the North American Free Trade Agreement
(NAFTA), previously scheduled for Wednesday, July 16, 1997, at 10:00
a.m., in the main Committee hearing room, 1100 Longworth House Office
Building, has been postponed and will be rescheduled at a later date.

In making the announcement, Congressman Crane stated, ``I am
postponing at the request of the Administration. I believe it is vital
for the Subcommittee to oversee the impact of NAFTA on our workers,
businesses, and consumers. Therefore, I look forward to holding the
hearing as soon as possible so that we may have an opportunity to
thoughtfully analyze and review the report.''

(See Subcommittee press release No. TR-11, dated July 3, 1997.)

ADVISORY

FROM THE
COMMITTEE
ON WAYS
AND
MEANS

SUBCOMMITTEE ON TRADE

CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE

August 13, 1997

No. TR-14

Crane Announces Rescheduling of Hearing

on the President's Comprehensive Review

of the NAFTA

Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade
of the Committee on Ways and Means, today announced that the
Subcommittee has rescheduled the hearing on the President's
comprehensive study of the operation and effects of the North American
Free Trade Agreement (NAFTA). The hearing was previously scheduled for
July 16, 1997 (Subcommittee press release No. TR-11). The hearing will
take place on Thursday, September 11, 1997, in the main Committee
hearing room, 1100 Longworth House Office Building, beginning at 10:00
a.m.

In announcing the hearing, Chairman Crane stated: ``I believe it is
important for the Subcommittee to examine closely the effects of the
NAFTA and to provide an opportunity to discuss the Administration's
report. In addition to creating the largest tariff-free trade zone
comprising 370 million consumers and over $6.5 trillion of production,
NAFTA set new standards for protection of intellectual property rights,
liberalization restrictions on foreign investment, and elimination of
non-tariff trade barriers such as import licensing requirements. An
accurate assessment of the effects of the Agreement on the U.S. economy
and U.S. interests requires that, to the extent possible, the effects
of the NAFTA are distinguished from the effects of other economic
events and trends which have occurred independently of this historic
trade agreement.''

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

Requests to be heard at the hearing must be made by telephone to
Traci Altman or Bradley Schreiber at (202) 225-1721 no later than close
of business, Thursday, September 4, 1997. The telephone request should
be followed by a formal written request to A.L. Singleton, Chief of
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102
Longworth House Office Building, Washington, D.C. 20515. The staff of
the Subcommittee on Trade will notify by telephone those scheduled to
appear as soon as possible after the filing deadline. Any questions
concerning a scheduled appearance should be directed to the
Subcommittee on Trade staff at (202) 225-6649.

In order to assure the most productive use of the limited amount of
time available to question witnesses, all witnesses scheduled to appear
before the Subcommittee are required to submit 200 copies of their
prepared statement and an IBM compatible 3.5-inch diskette in ASCII DOS
Text or 5.1 WordPerfect format, for review by Members prior to the
hearing. Testimony should arrive at the Subcommittee on Trade office,
room 1104 Longworth House Office Building, no later than Tuesday,
September 9, 1997. Failure to do so may result in the witness being
denied the opportunity to testify in person.

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit at least six (6)
single-space legal-size copies of their statement, along with an IBM
compatible 3.5-inch diskette in ASCII DOS Text or 5.1 WordPerfect
format only, with their name, address, and hearing date noted on a
label, by the close of business, Thursday, September 25, 1997, to A.L.
Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of
Representatives, 1102 Longworth House Office Building, Washington, D.C.
20515. If those filing written statements wish to have their statements
distributed to the press and interested public at the hearing, they may
deliver 200 additional copies for this purpose to the Subcommittee on
Trade office, room 1104 Longworth House Office Building, at least one
hour before the hearing begins.

FORMATTING REQUIREMENTS:

Note: All Committee advisories and news releases are available on
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.

The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.

Chairman Crane. The Subcommittee will come to order. Will
all of our visitors please take seats as quickly as possible. I
apologize for starting without our full representation on this
panel, but we're going to be hard pressed today because of
activity on the floor. As a result of that, I think we should
proceed with who is here.
This is a meeting in the Ways and Means Subcommittee on
Trade to consider the President's study on the operation and
effects of the North American Free Trade Agreement. While I
want to welcome Ambassador Lang to the Subcommittee, I do
regret that Ambassador Barshefsky and Secretary Daley will not
appear today. The President's report is a good one, and it's
unfortunate that the White House and cabinet officials are not
actively engaged in discussing the benefits of NAFTA so that
the many unfair, unsubstantiated allegations surrounding this
trade agreement can be laid to rest.
There is no doubt that NAFTA has taken a bum rap, receiving
blame for job loss in the United States, as well as for a host
of longstanding and serious problems we face along the border
with Mexico. The purpose of today's hearing is to get the facts
out on the table so that the many allegations about NAFTA can
be evaluated in a fair light.
The President's NAFTA report is an important document. It
confirms my view that NAFTA has had a decidedly positive impact
on the U.S. economy by increasing the competitiveness of U.S.
industry and contributing to the creation of high-wage jobs for
U.S. workers. In the 3\1/2\ years since implementation, trade
among Canada, Mexico, and the United States has grown about 50
percent, promoting intraindustry trade, specialization, and
improved United States productivity and performance in the
global economy. The annual rate of growth for United States
exports to Mexico is 23 percent, compared to 5 percent for
Japan and 4 percent for the European Union. Mexico is on the
verge of overtaking Japan as the second largest destination for
United States exports.
Today, we will hear from witnesses such as Larry Liebenow,
chief executive officer of Quaker Fabric Corp. in southwestern
Massachusetts, who will discuss the positive impact that NAFTA
has on small- and medium-sized businesses, and on their
capacity to create new well-paying jobs in the United States.
Equally significant is the beneficial effect NAFTA has had on
United States-Mexico relations and on our ability to ensure
that Mexico continues along a path of economic reform and
political stability. Weathering the peso crisis in the worst
recession in Mexico since the thirties, NAFTA disciplines
stopped Mexico from moving to restrict United States exports.
With the 10-percent tariff advantage over non-NAFTA suppliers,
the United States share of Mexico's import market jumped from
69.3 percent to 75.5 percent.
It's clear that under NAFTA, we face the next century
better equipped to stem the flow of illegal drugs and
immigration, and to address environmental problems along the
2,000-mile border the United States shares with Mexico.
Finally, our discussion today should not overlook the
dynamic relationship we have with Canada, our largest trading
partner with whom bilateral trade is now largely duty free by
virtue of the historical United States-Canada Free Trade
Agreement concluded in 1988. With these comments, I will yield
now to our ranking Democrat on the Full Committee, Mr. Rangel,
and then to other colleagues for their perspective on the
success of NAFTA, and on the outlook for the future of trade in
our hemisphere.
[The opening statement follows:]

Opening Statement of Chairman Philip Crane, A Representative in
Congress from the State of Illinois

Good Morning, this is a meeting of the Ways and Means
Subcommittee on Trade to consider the President's Study on the
Operation and Effects of the North American Free Trade
Agreement (NAFTA). While I want to welcome Ambassador Lang to
the Subcommittee, I do regret that Ambassador Barshefsky and
Secretary Daley will not appear today. The President's report
is a good one, and it is unfortunate that the White House and
Cabinet officials are not actively engaged in discussing the
benefits of NAFTA, so that the many unfair, unsubstantiated
allegations surrounding this trade agreement can be laid to
rest.
There is no doubt that NAFTA has taken a bum rap, receiving
blame for job loss in the U.S., as well as for a host of
longstanding and serious problems we face along the border with
Mexico. The purpose of today's hearing is to get the facts out
on the table, so that the many allegations about NAFTA can be
evaluated in a fair light.
The President's NAFTA report is an important document; it
confirms my view that NAFTA has had a decidedly positive impact
on the U.S. economy, by increasing the competitiveness of U.S.
industry and contributing to the creation of high-wage jobs for
U.S. workers. In the three and a half years since
implementation, trade among Canada, Mexico and the United
States has grown about 50%, promoting intra-industry trade,
specialization and improved United States productivity and
performance in the global economy. The annual rate of growth of
U.S. exports to Mexico is 23%, compared to five percent for
Japan and four percent for the European Union. Mexico is on the
verge of overtaking Japan as the second largest destination for
U.S. exports.
Today we will hear from witnesses such as Larry Liebanow,
CEO of Quaker Fabric Corporation in Southwestern Massachusetts,
who will discuss the positive impact that NAFTA has on small
and medium-sized businesses and on their capacity to create
new, well-paying jobs in the U.S.
Equally significant is the beneficial effect NAFTA has had
on U.S.-Mexico relations and on our ability to ensure that
Mexico continues along a path of economic reform and political
stability. Weathering the peso crisis and the worst recession
in Mexico since the 1930s, NAFTA disciplines stopped Mexico
from moving to restrict U.S. exports. With a ten percent tariff
advantage over non-NAFTA suppliers, the U.S. share of Mexico's
import market jumped from 69.3% to 75.5%.
It is clear that under NAFTA we face the next century
better equipped to stem the flow of illegal drugs and
immigration, and to address environmental problems along the
2,000 mile border the U.S. shares with Mexico.
Finally, our discussion today should not overlook the
dynamic relationship we have with Canada, our largest trading
partner, with whom bilateral trade is now largely duty-free, by
virtue of the historic U.S.-Canada Free Trade Agreement
concluded in 1988.
With these comments, I will yield to our Ranking Member,
Mr. Matsui, and then to other colleagues for their perspective
on the success of NAFTA, and on the outlook for the future of
trade in our hemisphere.

Chairman Crane. Mr. Rangel.
Mr. Rangel. Thank you, Mr. Chairman. I ask unanimous
consent that the statement to be made by Congressman Matsui,
the Ranking Member of the Trade Subcommittee, be entered into
the record.
Chairman Crane. Without objection so ordered.
[The opening statement of Mr. Matsui follows:]
[GRAPHIC] [TIFF OMITTED] T1944.001

[GRAPHIC] [TIFF OMITTED] T1944.002

Mr. Rangel. I just want to join with your statement that we
do need the facts to clarify just how many setbacks we've had
in expanding trade through the North American Free Trade
Agreement. I don't think anyone can challenge the fact that our
President needs the authority to continue to expand the
opportunity for trade for our great Nation. The question is,
How much pain is involved in this progressive move, and what
does the President intend to do about it?
I think to a large extent, those of us who are considering
supporting a fast track have to find out as to how many people
don't have access to these high-paying, high-tech jobs and
whether or not there are provisions being made that working
Americans and unemployed Americans not suffer all of the pains
of this progressive trade boom that we're enjoying.
I see now that Mr. Matsui has arrived. Even though his
statement has already been submitted in the record, at this
time, I would like to yield to Mr. Matsui.
Mr. Matsui. Well, thank you, Mr. Rangel. I would like to
thank the Chairman and Mr. Rangel and all the witnesses. I
think my statement that Mr. Rangel has placed in the record
speaks for itself. I supported NAFTA. I think it has worked. I
think it's something that has stabilized United States-Mexican
relations. In addition to that, I believe we will see the
benefits of NAFTA in the future as we have over the last few
years.
I look forward to the testimony of my colleagues sitting
here.
Thank you.
Chairman Crane. Thank you both very much. With that, we'll
begin this hearing with Congressman Dreier from California,
Congressman Levin from Michigan, Congressman Kaptur from Ohio,
Congressman Kolbe from Arizona, and Congresswoman Velazquez
from the State of New York.
Let me ask in the interest of trying to move the hearing
along, that you try in your oral presentation to confine it to
approximately 5 minutes. Your printed statements will be made a
part of the permanent record.
Mr. Dreier.

STATEMENT OF HON. DAVID DREIER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA

Mr. Dreier. Thank you very much, Mr. Chairman. So my staff-
prepared remarks will, as you said, appear completely in the
record.
It's a great honor to once again be summoned before this
very important Subcommittee to deal with an issue that has been
important. I congratulate you and Mr. Rangel and Mr. Matsui and
Mr. McNulty and other Members of the Subcommittee who have been
very, very diligent in looking closely at this issue.
I think back on the history of this very controversial
question. I go back to November 7, 1979, when Ronald Reagan
announced his candidacy for President of the United States. In
that announcement, he envisaged a North American accord which
would include our neighbors. Then 9 years ago, Mr. Kolbe asked
me to join with him as a cosponsor of his legislation which
would call for the elimination of tariff barriers. It took a
long time to bring this about. But clearly, we were on the
cutting edge of what I think is a very positive indication of
what is to come.
I want to say that as we look at the report that has come
out, I am encouraged by so many aspects of it, because as I
serve now in my ninth term, there are many many accomplishments
of which I am very proud. If not at the top, right near the top
of the list is passage of the North American Free Trade
Agreement.
But as we look at where we are going now, it seems to me
there are a number of questions that do need to be addressed
because as we look at the very harsh criticism that has been
leveled toward the North American Free Trade Agreement by a
very, very outspoken group, and they protested yesterday in
front of the White House during the event the President held,
it seems to me we have got to look at what the gauge of success
is.
One of the most important things that has really troubled
me is the fact that when you look at the true measure of an
administration's success on trade policy, it is the level of
public support that exists for it. Unfortunately, we have not
seen the kind of strong leadership that we really should have.
Unfortunately, we have not had the kind of strong and
passionate commitment for the North American Free Trade
Agreement from the President using the bully pulpit as we have
seen from those outspoken opponents. One of the reasons for
that, Mr. Chairman, is the fact that we have seen focus on the
issue of trade simply on that 18th century mercantilist view,
that the only benefit from trade happens to be in job creating
and exports. Half of the equation is so often ignored.
While the President gave a terrific speech yesterday in
talking about his commitment toward free trade and fast track,
unfortunately he failed to move beyond that half of the
equation, simply talking about exports and jobs, not talking
about the critical benefit to our economy of imports and
international investment.
NAFTA is one aspect. As Charlene Barshevsky has pointed out
time and time again, it's one aspect of our overall trade
policy, but that plays an important role in promoting
comparative advantage, which allows us to devote our resources
to producing the things that we produce most efficiently. It
increases competition, which clearly pushes American firms to
operate most efficiently and effectively. It increases access
to the lowest cost components which allows American firms to
produce the lowest cost final products for the world. Of
course, the greater flow of information and technology across
borders allows us to learn from other countries, and lower
prices helps keep inflation down and it raises the living
standards of working families.
Now 4 years after the tremendous debate that we saw on the
North American Free Trade Agreement, we are all still waiting
for the three words that probably ring out with most Americans
on that, the giant sucking sound of jobs that were going to
rush to Mexico. Millions of jobs were going to move to Mexico.
The report that this Subcommittee is considering and every
other serious analysis of the North American Free Trade
Agreement reveals that claim to be totally baseless.
NAFTA has promoted increased exports to Mexico. Even with
the severe economic downturn in 1995, trade between the United
States and Mexico reached $140 billion last year, which was a
record year. NAFTA has resulted in an increase in imports from
Mexico and Canada. That's not a failure of NAFTA. It's another
example of the success of NAFTA. Again, in talking about the
importance of imports to us.
During the debate, I remember Mr. Matsui and I raised this
issue several times during debate. We talked about the idea of
keeping so many of these jobs within our own hemisphere. To be
very direct about it, I would like to see more and more imports
coming to us from Canada and Mexico because clearly that
benefits our hemisphere. I know it's at the expense of the
Pacific rim, but frankly, keeping them here was one of the real
reasons we strongly supported the NAFTA.
International trade is a cornerstone of Mr. Matsui's and my
State of California, employing nearly a half a million of our
workers in California, and exports from our State have
increased $34 billion in just the past 3 years. It's been, as I
say, a very critical job creator. Nearly 20 percent of all of
California's manufactured exports are going to NAFTA partners.
The State's exports to Mexico have increased by $2.7 billion to
$9.1 billion under the NAFTA.
Now one of the things that is also very troubling is the
fact that as we look at the issue of NAFTA, it is not simply a
trade agreement. It's a very important foreign policy tool for
us. We saw the local election in Mexico City take place. While
we may not have been ecstatic at the outcome of the election
with the election of Mr. Cardenas as mayor, the fact is it
demonstrates that NAFTA is working. Why? Because the NAFTA
locked in privatization, further democratization,
decentralization. Those are the kinds of things I believe are a
great signal to the rest of the world that can not be ignored.
The presumed unpopularity of NAFTA among the American
people is not a reflection of economic reality. It's a
reflection of, as I said, those nonstop protectionist attacks
that are trying to use anti-Mexican racism to further their
antifree trade agenda. I think the recent Business Week poll
regarding NAFTA shows that not much has changed in the past few
years. In April 1995, at the heart of the peso collapse and
U.S.-sponsored recovery program, 48 percent supported the NAFTA
and 39 percent opposed it. Today, after 3 more years of
constant attacks by protectionists, 42 percent support NAFTA
and 36 percent oppose it. In other words, it's a plus nine
margin that's become a plus six margin, hardly massive
unpopularity.
So it seems to me, Mr. Chairman, that as we look at this
success record, it has been great, contrary to the attacks that
so many people have leveled against it. I believe that our goal
should be to expand rather than limit the scope of what has
been a very, very positive vision.
Thank you very much.
[The prepared statement follows:]

Statement of Hon. David Dreier, a Representative in Congress from the
State of California

Mr. Chairman, Members of the Committee, thank you for
holding this important hearing regarding the successes of the
North American Free Trade Agreement. It is always a privilege
to appear before the August House Ways & Means Committee.
Mr. Chairman, the true measure of a President's success on
trade policy is the level of public support for maintaining an
open international economy. It is appropriate to ask if the
President has adequately explained to the American people all
of the benefits of NAFTA. Has he worked as hard to defend NAFTA
and free trade as protectionists have worked to tear it down?
One major concern I have had with the Administration's
trade policy in general, and with its policy on NAFTA in
particular, has been the reliance on exports alone to justify
free trade. In short, it is a mercantalist myth that trade only
has value so far as it leads to exports. The President's speech
on fast track yesterday, while laudable, failed again to expand
the defense for free trade beyond exports and jobs.
Mr. Speaker, exports are important, but they are a small
part of the story. The reality is that NAFTA, as one aspect of
our nation's overall free trade policy, plays an important role
in promoting----
1. Comparative advantage, which allows us to devote our
resources to producing the things we produce most efficiently;
2. Increased competition, which clearly pushes American
firms to operate most efficiently and effectively;
3. Access to the lowest-cost components, which allows
American firms to produce the lowest-cost finished products in
the world;
4. A greater flow of information and technology across
borders, which lets us learn from other countries; and
5. Lower prices, which restrains inflation and raises the
living standards of working families.
These are the primary benefits of NAFTA and free trade.
These are the economic forces that have kept our nation's
economy strong, while other advanced economies around the globe
suffer high unemployment and slow growth.
Mr. Chairman, four years after the national NAFTA debate,
the one clear image that remains in our minds is Ross Perot
claiming that we would hear a ``massive sucking sound'' as
millions of American jobs moved to Mexico. The Administration's
NAFTA Report, as well as every other serious economic analysis
of NAFTA, reveals that claim to be baseless.
It is clear that NAFTA has promoted increased exports to
Mexico. Even with the severe economic downturn in Mexico in
1995, trade between the United States and Mexico reached $140
billion in 1996--a record year.
NAFTA has also resulted in an increase in imports from
Mexico and Canada. That is not a failure of NAFTA--that is
another example of its success. NAFTA was designed explicitly
to give Mexican products an advantage in the fierce competition
against similar products from other low-wage exporters,
especially those in Asia. To be blunt, it benefits the United
States more to create jobs and wealth across the border in
Mexico rather than across the Pacific Ocean.
In my home state of California, international trade is a
cornerstone of economic recovery, employing nearly a half
million workers. Exports from the state have increased $34
billion in just the past three years. NAFTA has clearly
contributed to job creation in California. Nearly 20 percent of
all of California's manufactured exports go to NAFTA partners,
and the state's exports to Mexico have increased by $2.7
billion, to a total of $9.1 billion a year.
Mr. Chairman, I also regret that the Administration Report
on NAFTA failed to mention that NAFTA is more than a trade
agreement, it is a cornerstone of our regional foreign policy.
As we saw this summer in Mexico, democracy and free markets are
moving forward together. NAFTA is a critical underpinning of
our relationship, which is based on mutual respect, friendship
and a commitment to prosperity and a healthier standard of
living in the 21st Century.
Finally, Mr. Chairman, I believe that the presumed
unpopularity of NAFTA among the American people is a reflection
of the non-stop attack by some protectionists who promote an
anti-Mexican bias to further their anti-trade agenda. With
unemployment at a three decade low, NAFTA is clearly not, in
reality, a massive job killer.
The recent BUSINESS WEEK poll regarding NAFTA shows that
public views on the agreement have not changed much in the past
3 years. In April 1995, at the height of the peso collapse and
U.S.-sponsored recovery program, 48 percent supported NAFTA,
and 39 percent opposed it. Today, after three more years of
constant attack by protectionists, 42 percent support NAFTA and
36 percent oppose it.
I look forward to the Committee bringing the facts before
the American people to show that NAFTA and free trade are vital
components of a pro-growth economic policy for the 21st
Century.

Chairman Crane. Thank you, Mr. Dreier. Before we yield to
Mr. Levin, we know that you have Rules Committee
responsibilities. So you excuse yourself when you have to
leave.
Mr. Dreier. Thank you very much, Mr. Chairman.
Chairman Crane. Sure thing.
Mr. Levin.

STATEMENT OF HON. SANDER M. LEVIN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF MICHIGAN

Mr. Levin. Thank you, Mr. Chairman and my colleagues. Mr.
Dreier has kind of given his notion of the broad context of the
dispute and discussion over NAFTA. I would now like to give
mine. It is quite different.
There is a central issue at the heart of the present
turbulence in the United States over international trade. It
was raised by some of us in the debate over NAFTA. It's
bubbling more vigorously to the surface regarding fast track.
This is the issue: Economic globalization for the United
States is increasingly moving from competition with Europe,
Japan, and other industrialized nations to trade and
competition with developing nations, from Mexico and Brazil to
China and India. These nations have vastly lower wage and
salary levels, usually embedded with tight central state
control over all aspects of their labor markets and state
subsidization of the instruments of production.
Trade with these developing countries has captured an
increasing share of total imports into the United States rising
from 36 percent in 1987 to almost 45 percent last year. It is
increasingly a major factor in the United States trade deficit
with Mexico as well as China.
This new reality has been occurring at the same time as
continued income stagnation and job insecurity in the United
States. There is increasing concern here about the connection
between these two phenomena, a stagnating American standard of
living for many, and increasing trade and competition from low
wage, highly centralized developing economies. I just want to
urge that we take this issue seriously.
Recent economic literature indicates that the negative
effects of trade on wages has been creeping up over time, today
accounting for up to 20 percent of the rise in wage
differential between skilled and unskilled labor in America.
In the polarized world of discussions about trade, it isn't
easy to discuss this issue. We heard some of the same cries
about protectionism when we raised issues of market access in
trade agreements, especially with Japan. It turned out that
these issues of market access with Japan were real ones, and
more and more have become accepted.
One cannot dismiss this issue of the basic ground rules of
competition with developing nations, including labor markets
and environment, as for example unrelated to trade. This is no
less a trade issue than safeguarding U.S. intellectual property
or negotiating rules regarding access to capital investments or
joint ventures. We can't dismiss this as a social issue. It's
an economic issue. Nor to dismiss this as an attempt, for
example, to set wages in Mexico and other countries. In fact,
in important respects, it is an attempt to do just the
opposite--stop governments like Mexico from artificially
holding down wages and other conditions of employment so that
their citizens are free to shape their own economic future.
We're not trying to apply our statutes to other countries, but
rather to establish certain minimum conditions for free labor
markets, to ensure that increasing productivity is reflected in
growing wages and in an expanding middle class that purchases
our goods and strengthens democracy and global peace. And for
these conditions to be effective, there must be more
enforcement mechanisms than those in NAFTA.
It is no answer, Mr. Chairman and Members, to say that the
United States is trying to impose its system and its values on
other nations. That is what we are in essence trying to do with
the IMF in terms of a free market system. If we support those
efforts, why not other vital features of our system like free
labor markets, where wages can rise with productivity, with the
right to organize and bargain collectively, and the absence of
state control over wages or the instruments of production.
It is not an answer to say that developing nations are
simply trying to use their comparative advantage. As I say in
my testimony, in a sense, they are trying to abuse, over a long
period of time, their comparative advantage.
It's not an answer, Mr. Chairman and Members, to say let's
leave these issues of a free labor market and environmental
issues in the case of labor standards to bodies like the ILO
and the WTO. They have been ineffective in addressing these
issues, even though the ILO ironically was fostered in part
because some countries in Europe feared that others would use
labor costs as an advantage in their competition.
It's not an answer to respond only with domestic programs
for training and retraining our work force. Nor is it an answer
to say that the only goods these countries send are low value-
added items like footwear and clothing. This is certainly not
the case with autos, televisions, and electronics from Mexico.
I want to close with this statement because it applied to
NAFTA and it applies to the issue of fast track as we face it
in the next days. We have just two real alternatives. Pursue
these issues in negotiations where they matter, or assume they
don't matter very much to our Nation and relegate them to the
shadows. As I have been urging on the administration and
others, there is no language that can finesse the issue. There
are no easy answers on the issue. But the American people
deserve a coherent policy on issues of labor standards, of free
labor markets, of environmental issues.
This is an issue and these are issues that directly affect
people's lives, whether workers or small- and medium-sized
businesses which can not pick up and leave for somewhere far
away. We did not face this issue adequately when it came to
NAFTA. I have supported other international trade agreements to
expand international trade. But I will oppose, as I did with
NAFTA, any fast track proposal that does not make clear and
assure that this Nation will address these issues in any new
negotiations.
Thank you, Mr. Chairman.
[The prepared statement follows:]

Statement of Hon. Sander M. Levin, a Representative in Congress from
the State of Michigan

Thank you, Mr. Chairman, for giving me this opportunity to
testify on a very timely issue.
There is a central issue at the heart of the present
turbulence in the U.S. over international trade. It was raised
by some of us in the debate over NAFTA; it is bubbling more
vigorously to the surface regarding fast track.

The Basic Issue

The issue is this: Economic globalization for the U.S. is
increasingly moving from competition with Europe, Japan and
other industrialized nations to trade and competition with
developing nations--from Mexico and Brazil to China and India.
These nations have vastly lower wage and salary levels usually
embedded with tight central, state control over all aspects of
their labor markets and State subsidization of the instruments
of production.
Trade with these developing countries has captured an
increasing share of total imports into the U.S., rising from 36
percent in 1987 to almost 45 percent last year. It is
increasingly a major factor in the U.S. trade deficit, with
Mexico as well as China.
This new reality has been occurring at the same time as
continued income stagnation and job insecurity in America.
There is increasing concern among the American public and in
this Congress about the connection now and in the future
between these two phenomena--a stagnating American standard of
living and increasing trade with and competition from low-wage,
highly centralized developing economies.
One aspect of this, as noted by former presidential chief
economic adviser Laura D'Andrea Tyson, is reflected in recent
economic literature, which finds that the negative effects of
trade on wages has been creeping up over time, today accounting
for up to 20 percent of the rise in wage differential between
skilled and unskilled labor in America.
As one who has favored and worked for expanded
international trade, I have been urging the Administration for
several months to address this new reality as it shaped any
request for renewed fast track authority. I oppose any fast
track proposal that does not make clear and assure that it will
be addressed in any new negotiations.

The Resistance to Change

We see some of the same objections and hear some of the
same rhetoric about ``protectionism'' as were raised in the
early 1980's when some of us proposed including market access
issues in trade agreements, especially with Japan. Before then,
trade was primarily among industrialized nations with economies
somewhat like our own, and the main issue was tariffs. But
Japan and other industrialized nations presented a new set of
issues in the '80's. Even when tariffs were low in those
countries, we couldn't get into their markets because of non-
tariff barriers. A decade later, it is agreed, even among many
economists and among the solid phalanx in the media that
opposed any action, that market access issues should be an
intrinsic part of our trade agenda.
Now, the nature of trade is changing again, and it's time
to overcome closed minds and open them to another change in
trade policy.

The Issue Can't Be Dismissed

It is not an answer to dismiss this as unrelated to trade.
It is no less a trade issue than safeguarding U.S. intellectual
property or negotiating rules regarding access to capital
investments or joint ventures.
It is not an answer to dismiss this as a ``social issue.''
Setting the basic ground rules for competition is a core
economic issue.
It is not an answer to dismiss this as an attempt to ``set
wages in other countries.'' In fact, in important respects it
is an attempt to do just the opposite: Stop governments from
artificially holding down wages and other conditions of
employment, so that their citizens are free to shape their own
economic future. We're not trying to apply our statutes to
other countries, but rather to establish certain minimum
conditions for free labor markets to ensure that increasing
productivity is reflected in growing wages and an expanding
middle class that purchases our goods and strengthens democracy
and global peace. And for these conditions to be effective,
there must be enforcement mechanisms far more meaningful than
those in NAFTA.
It is not an answer to say that the U.S. is trying to
``impose its system and its values on other nations.'' After
all, the purpose of institutions like the International
Monetary Fund (IMF) and the World Bank, which the U.S. helped
to create, is to ``impose'' important features of our free
market system, including capital and investment structures, on
developing nations. If we support those efforts, why not other
vital features of our system like free labor markets, where
wages can rise with productivity, with the right to organize
and bargain collectively, and the absence of State control over
wages or the instruments of production?
It is not an answer to say that a developing nation's low-
wage, state-control structure is simply their use of a
``comparative advantage.'' What is at stake is their abusing
that comparative advantage to perpetuate an unlevel playing
field. We have heard a similar argument that developing nations
should be able to operate for a long stretch of time under
different environmental standards since that is one of the
comparative advantages they need to catch up with
industrialized nations. But the U.S. has rejected that argument
because a developing nation's environmental practices can
affect our health and welfare, and the same logic applies to
economic practices that affect our economic health. A 1996 OECD
study concluded that the observance of minimum labor standards
by developing nations is good economics. If a country wants to
get rich, it can't afford not to implement these standards.
They create a bigger pie by spreading the gains and incentives
of trade.
It is not an answer to leave these issues to international
bodies like the I.L.O. and the W.T.O. At its Singapore meeting,
the W.T.O. bounced issues relating to labor market standards to
the I.L.O.; the latter, which interestingly enough was created
in part by some countries which feared lower labor costs in
other industrialized nations would hurt their economies, has a
record of inaction on these matters.
It is not an answer to respond only with domestic programs
for training and retraining our workforce. These are necessary
but insufficient.
It is not an answer to say that the only goods these
countries send us are low-value-added items like footwear and
clothing. This is certainly not the case with autos,
televisions and electronics from Mexico. And, as I saw
firsthand during a recent trip to Shanghai and Beijing, it is
not the case with China either. Today, 75 percent of the auto
parts used by Big Three plants there are made in the U.S. But
as Beijing enforces its domestic content restrictions and
squeezes technology transfers out of foreign investors, those
auto parts increasingly will be produced in and will be
exportable from China.
There are just two real alternatives: (1) pursue these
issues in negotiations where they matter or (2) assume they
don't matter very much to our nation and relegate them to the
shadows. As I have been urging on the Administration, there is
no language that can finesse the issue. There are no easy
answers on this issue, but the American people deserve a
coherent policy. This is an issue that directly affects
people's lives, whether workers or small and medium sized
businesses which cannot pick up and leave for somewhere far
away. In my opinion, we will have to face up to it sooner or
later--and the best time is now, when we have general economic
prosperity.

Conclusion

The changing nature of trade demands a new trade policy
that advances the United States' core economic self-interest in
maintaining our standard of living. This basic issue cannot be
finessed or ducked. Addressing it also has collateral benefits
for the United States, because nations that spread the wealth
from trade will more rapidly develop middle classes that can
buy our goods and strengthen their own democracies, which in
turn contributes to global peace and stability. Therefore, we
should address this issue this fall in the context of fast
track trade negotiating authority legislation

Mr. Shaw [presiding]. The time of the gentleman has
expired. The Chair now recognizes the gentlelady from Ohio,
Marcy Kaptur. We have all of your full statements, which will
be made a part of the record. You may proceed as you see fit.

STATEMENT OF HON. MARCY KAPTUR, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF OHIO

Ms. Kaptur. Thank you, Mr. Shaw and Mr. Matsui and Members
of the Subcommittee. It is a pleasure to appear before you
today. I will summarize in view of the time, and want to thank
you very much for the opportunity to hear Members who do not
serve on your very prestigious Subcommittee.
Since NAFTA's enactment 3\1/2\ years ago, our continent has
now had the opportunity to witness the early results of
integrating the economies of the United States, Mexico, and
Canada. In my own judgment, the agreement certainly has fallen
far short of its promises. Job losses in our country alone now
exceed over 300,000, with over half of those individuals
qualified for some form of trade adjustment assistance.
Menacing and growing trade deficit over the past 4 years now
cumulatively totals over $100 billion with our trading
competitors on this continent. It has been rising each year in
nominal and real terms and has quadrupled since 1994.
Now let me say that $100 billion just with those two
countries constitutes about one-third of our rising trade
deficit with the world. Economists now agree that the
cumulative trade deficit with the world costs us probably 1
percent, 1 point, on our GDP, 1 point. So, if we were to have
balanced trade accounts for the country as a whole, our GDP
would rise by an additional point, which would be a tremendous
kick here at home for rising incomes and rising wealth within
the United States. If this deficit constitutes about one-third
of the overall deficit with the world, it is a significant and
rising problem with our inability to generate significant
income increases here at home that can be spread across the
broad middle and lower classes of our country.
The agreement has resulted in new threats to our standard
of living in the form of unsafe trucks, which we have heard
plenty of, especially people living at the border. The
increased flow of illegal narcotics across that border at so
many points that are inspected and not inspected. We can't
control the border. Transporter pollution, which is rising.
NADBank hasn't even made any significant environmental
investments down there. The problem of contaminated food and
our inability to protect our own consumers are unaddressed by
the current NAFTA.
In fact, in terms of the wheat production of this country,
we have had carnal bunt for the first time in our generation
coming north of the border. We have had the U.S. Department of
Agriculture to put special alerts in Texas, California, and
Arizona. We have new line items in our agriculture budget now
dealing with carnal bunt problem, which is all over northern
Mexico. We have not been able to protect our own country in the
southwest. It has gone through the transportation chain of this
country, and it is a significant and growing problem for us in
the agricultural sector. Bovine-related tuberculosis is on the
rise, and tainted strawberries and raspberries have now made it
to the front pages of the paper, those imported from points
south.
I just mention those because they are all attendant to our
inability to deal with the results of trade. We all want open
and free trade, if only it were that. But our inability to
adjust to these volumes has caused significant problems in
various sectors in this economy.
I wanted to make a note about the collapse of the Mexican
peso and the bail-out that occurred, which has now been paid
back. But I want to say only paid back, because Mexico borrowed
on international markets. Those bills will come due in the
future. If you look at the internal and external accounts of
Mexico, we've had a cyclical pattern of peso collapses and
another one will come due. It will be bigger. So please do not
take the administration's word that the bills are all paid as
in fact a predictor of what will happen in the future.
On the job front, the great myth is that NAFTA merely
trades low-wage jobs in the United States for high-tech
opportunity. The fact is, we are losing high value-added jobs
throughout our economy. Our wages are being pushed down by the
continuing low-wage competition, not just with Mexico, but with
other nations around the world. Mr. Levin eloquently talked
about this problem.
We also know that since NAFTA's passage, the wages in
Mexico have fallen another 25 percent. At the time of NAFTA's
passage, they were 30 percent below where they had been in
1980. So this is not obviously a simple question of merely
trade in goods that we're talking about.
I wanted to make this statement. I know that time is very
short. But if you look at what has been happening to the
relationship between imports and exports, particularly with
Mexico since this agreement was signed, the change in the
character of our exports there has changed dramatically. Two-
thirds of them are now U-turn goods or industrial tourists,
that go down there and then are shipped back here, two-thirds,
which means you are not getting the development of real
consumer market inside Mexico. But rather, what you are doing
is you are ratcheting down the standard of living in this
country. It is a real and serious issue that we are dealing
with here with long-term impacts on our ability to develop a
consumer market down there. The maquiladora plants were
supposed to disappear under NAFTA. They have now increased to
well over 2,000 companies, employing over 800,000 workers
projected by the year 2000, to employ over 1 million workers.
So these trends are not going to change unless we as a country
assume leadership to try to get more balance in these
relationships.
Mr. Chairman, I know that my time is up. I only wish to say
that I am going to submit for the record, and I hope someone
from the Clinton administration is sitting in the audience,
because I have the story of just one of thousands of workers
that have been displaced in this country. When they wrote the
President of the United States that they were a victim of
NAFTA, he sent them a letter saying NAFTA is working. They
wrote back, they e-mailed. The kind of insensitive response
this administration is responsible for is an embarrassment to
me as a citizen in a democratic republic. It seems to me that
the people who are paying the price in our country deserve
better treatment by our own government.
I have recommendations at the end of my testimony,
including changes in the way we deal with these dislocated
workers.
I thank you for your attention.
[The prepared statement follows:]

Statement of Hon. Marcy Kaptur, a Representative in Congress from the
State of Ohio

Overview

Thank you for the opportunity to be here today. Since
NAFTA's enactment three and a half years ago, our continent has
witnessed the early results of integrating the economies of the
United States and Mexico. Economist Sidney Weintraub has
observed, one of the major accomplishments of NAFTA has been to
bring the people of our two countries closer together as a
result of numerous commercial transactions. However, in my
judgment, the nature of relationships being forged is very
lopsided. Today, since the well-funded beneficiaries of NAFTA
will present their case, I want to convey to you the hopes and
concerns and the real impact felt by thousands of Americans who
have not benefited from the North American Free Trade
Agreement.
In the 44 months since NAFTA took effect, we have seen the
agreement fall far short of the promises made by its proponents
back in 1993 when the historic debate occurred in the House.
Already, job losses in the U.S. exceed 300,000 workers and
sweatshop maquiladora zones in northern Mexico--which was
supposed to have disappeared as a result of NAFTA--has grown
even further, employing over 800,000 low-wage workers in nearly
3,000 firms. Northern Mexico has become the massive export
platform to our economy that we feared *** A menacing and
growing trade deficit over the past four years totaling more
than $100 billion of lost economic power inside our marketplace
has been accumulating with our NAFTA partners. New threats to
our standard of living in the form of unsafe trucks, illegal
drugs, transborder pollution, and contaminated food are real
and unaddressed by the current NAFTA. And the fast track
proposal will do nothing to alleviate these severe
shortcomings.
We now have 44 months worth of evidence about the effects
of NAFTA-style trade agreements--a menacing and growing trade
deficit, problems along the border, questions about truck
safety and food safety and drugs, a collapse of the Mexican
peso and an unprecedented bailout by the U.S. taxpayers that
was paid back only because Mexico borrowed more at higher rates
on international money markets. These bills again will come due
in the future, as currency crises in Mexico area recurring
phenomenon, and our taxpayers will again be thrown into a
siilar position of being a bailout insurance company for what
the private sector should insure on its own.
The great myth is that NAFTA is merely trading low-wage
jobs from the United States to Mexico for high-tech replacement
job opportunities here at home. The fact is our nation is
losing high value-added jobs throughout our economy while U.S.
wages are being pushed down by the growing low-wage competition
with Mexico.
Real hourly wages in Mexico, which at the time of NAFTA's
passage were trailing their 1980 levels by almost 30 percent,
have fallen another 25 percent since the peso collapse.

The Character of Exports

This past April, the U.S. Commerce Department, as usual
ignoring the actual trade deficit and looking at only one side
of the ledger, made much of the fact that Mexico had become the
second-largest importer of U.S. goods. What this lopsided view
of U.S. exports obscures is the dramatic change in the
character of U.S. exports to Mexico over the last three and a
half years.
The vast majority of U.S. export growth has occurred in
what Professor Harley Shaiken calls ``revolving door''
exports--goods shipped to Mexico for assembly in maquiladoras
or similar plants and then sold back in the U.S. markets. These
goods in fact are ``industrial tourists.''
These U-turn exports now account for five of every eight
dollars worth of U.S. exports to Mexico, up from only three of
every eight dollars in 1993. Thus we witness not a real
consumer market in Mexico but the triangulation of U.S.
production and the relocation of other foreign production to
Mexico to back-door goods into the U.S. by avoiding tariffs
normally paid at our borders.
We have seen a surge in exports not because Mexico has
developed a viable middle class, but rather because the
maquiladora factories along the border have churned out
billions of dollars in products aimed at our consumer market.
There is no question that whatever the character of U.S.
exports to Mexico, they have been completely overwhelmed by
imports from Mexico during each year of NAFTA's existence.
In the automobile industry, which represents two thirds of
the expanding trade deficit in high value-added products, we
have witnessed a growing stampede of Mexican-made vehicle and
part imports to the U.S. [Chart]
The continued combination of high productivity in Mexico at
low wages contributed to the record $17.5 billion U.S. trade
deficit with Mexico last year. In the automobile industry, the
U.S. deficit with Mexico is in the neighborhood of $15 billion
a year. The vehicle and parts deficit with Mexico now is almost
half as large as our deficit in that sector with Japan. While
the Administration is alarmed by the deterioration of our trade
position with the Japanese, it is strangely silent about the
same crisis in our trade relations with Mexico.
In 1996, Mexico was the third largest exporter of motor
vehicles to the U.S., exporting a total of more than three
quarters of a million cars and trucks. This number is more than
double Mexico's exports of 340,000 vehicles before NAFTA. The
U.S. exported only 91,000 vehicles to Mexico last year. That's
a deficit of more than three to one.
Workers in electronics and other high value-added
industries continue to see good-paying jobs flow south--jobs on
which families could buy a house and car and send their kids to
college. There is a flood of imports in the auto and
electronics sectors.
The net result, as Kenneth Lewis recently pointed out in
the New York Times, is that from 1979 to 1994, twice as many
high-paying jobs in the United States economy were lost to
imports as were gained from exports.
If you look at the companies who have set up shop in the
border area, you will find many of the high-tech leaders--
indeed the very companies whose corporate bosses launched the
fast track campaign yesterday at the White House.
I don't know about your district, but in northwest Ohio I
can name dozens of communities who would give anything if they
could land a new General Electric or Alcoa plant, or a General
Motors plant or Allied Systems plant. While these firms expand
in Mexico, they downsize in the U.S.
Structural damage has hit entire sectors of our economy, in
apparel, electronics, television, automobiles, and automotive
parts. And the people who have paid the heaviest price often
have been women and minorities, and people living in rural
areas across our nation where replacement jobs are hard to
find, and wage levels are being ratcheted down.

One Woman's Story

Day by day a steady destruction of thousands of jobs in the
apparel industry occurs, in Missouri and the Carolinas and
Tennessee and throughout the South.
The only way thousands of working Americans who have lost
their jobs due to unfair rules of global engagement and low-
wage competition can match the lobbying power of the
multinational corporations is to speak out--locally and
nationally. Their hope is that some group of conscientious
officeholders here in our nation's capital will recognize their
plight and act in their interests.
Wanda Napier is one such person. She represents tens of
thousands of our citizens whose livelihoods have been destroyed
by NAFTA. She is important, and her life as valuable as the
chief executive officer of General Motors, or Alcoa, or GE, or
the host of other corporations that are spending three million
dollars to tell their side of this one-sided story.
Wanda Napier worked for 14 years at an apparel plant in
Seymour, Missouri, where the workers were making an average of
$7.84 an hour. Then their employer, Lee Apparel Company, a
subsidiary of VF Corporation, announced it was pulling out and
heading to Mexico, destroying her job, 350 in total at that
Missouri plant, and more than 2,000 jobs around our nation.
What do you say to the thousands of Wanda Napiers out
there? Working Americans who played by the rules, worked hard
to stay off welfare--then got the rug pulled out from under
them?
Do you say, ``Too bad, Wanda, that's the way it goes in the
global economy''?
Do you point to a sky-high stock market and say surely some
of its benefits have overflowed to her?
Or do you simply tell her that in the new world economy she
and other Americans like her are simply expendable?
Let me tell you, Mr. Chairman, Wanda Napier is not
satisfied with being just another statistic of a failed trade
policy.
Late last year, after Lee Apparel Company dropped the bomb
on 350 employees--many of them women--Wanda dried her tears,
then sat down to write to the President, to her U.S. Senators,
to her Congressman, her state legislators--pleading to anybody
who would listen, anybody who would care.
On January 14, from the White House, she got back a reply,
a form letter that basically told her NAFTA was working.
``NAFTA represents a great opportunity to create new, high-wage
jobs here in America''
Wanda was flabbergasted. And she even went high tech. She
e-mailed the President. She e-mailed Trent Lott, too. From the
White House, she got back a message noting that the volume
precludes personal responses.
She went back to the old-fashioned route and wrote the
President another letter about the dire situation facing the
workers in Seymour, Missouri. She wrote, ``I would like to know
if you, personally, even care that I and others like me have
lost their jobs because of NAFTA.''
On May 5, from the White House, she got the same form
letter that she had received the first time.
Wanda is not alone. In St. Joseph, Missouri, Lee Apparel
Company eliminated almost 500 jobs. A survey of employees at
this factory revealed that 91 percent of them were women. Forty
two percent of them were single parents. And they made $8.26 on
average.
One of these victims, Diana Richardson, worked at the Lee
Apparel plant for 23 years, ever since she left high school.
She told the St. Joseph News-Press that the company's offer of
$2,300 in severance pay was a ``slap in the face.'' According
to the Department of Economic Development for the State of
Missouri, the average wage at placement of Lee workers has been
$6.70 per hour, and the average wage at dislocation was $8.26
per hour.
I am here today to speak out on behalf of Wanda Napier and
Diana Richardson and all the men and women who lost their jobs
in Seymour and St. Joseph and in communities throughout
Missouri and throughout America.
Who's going to plead their case?
(Mr. Chairman, I would like to submit for the record a copy
of Wanda Napier's correspondence and the sorry and insensitive
replies that she received.)

NAFTA's Failed Promises

Mr. Chairman, four years ago we all listened intently to
the proponents of NAFTA. When they weren't singing the praises
of Carlos Salinas, they were promising that NAFTA would create
hundreds of thousands of new jobs.
It didn't happen.
Instead, we saw Mexico develop into an export platform
rather than a promising consumer market.
We've seen the loss of more than 300,000 jobs (and that's
using the Administration's own methodology). We've watched our
worst nightmares come true--the acceleration of U.S. plant
relocation to the maquiladora areas south of the border and the
loss of U.S. jobs. The maquiladora industry employs
approximately 900,000 workers in more than 2,600 plants. It is
Mexico's leading growth industry.
We've also seen Mexico's chief export of illegal drugs
overwhelm our border agents like an avalanche, with Mexico
taking its place as the leading exporter of heroin and cocaine
to the United States.
And we've seen the utter failure of the agricultural
inspection system along the border. The result? An
unprecedented threat to the safety of our food supply.
We've seen karnal bunt for the first time inside our
border; bovine-related tuberculosis on the rise; and tainted
strawberries and raspberries from points south.
Please do not parrot the delusion of U.S. exports to
Mexico. Northern Mexico has become an export platform back to
the United States--a cheap wage haven of rising pollution.
The fact is the trade deficit with Mexico and Canada has
quadrupled since NAFTA was implemented in 1994 and is rising
each year, in nominal and real terms. In 1994 the trade deficit
with our NAFTA partners was $13.3 billion; in 1995, it was
$33.5 billion; and in 1996 it was $39 billion. [Chart]
You and I know the havoc that NAFTA has caused in
communities throughout our country: runaway plants, lost jobs,
declining tax bases, and increased downward pressures on the
wages and benefits of every single worker in our country.
Trade agreements have a human face. Before we pass an
expanded NAFTA or act on fast track, we should look at some of
these faces.
The faces of children in Michigan who got hepatitis by
eating contaminated strawberries--likely grown in Mexico.
The faces of families in Texas and California who are
threatened on the highways by unsafe trucks that are streaming
across our borders from Mexico, that are completely
overwhelming our inspection system at all border checkpoints
and that are sometimes carrying contraband, including illegal
drugs.

Abandoned Plants, Abandoned Workers

Finally, we should look at the faces of thousands of
workers whose bosses threaten to move to Mexico unless they
accept lower wages and benefits.
Nationally, we have seen the loss of hundreds of thousands
of jobs due to NAFTA, including 19,400 in my own state of Ohio.
That figure comes from a study that will be formally released
next week by the Economic Policy Institute.
Even the shoddily-run program of adjustment at the U.S.
Department of Labor has identified at least 136,802 workers who
have lost their jobs due to NAFTA. That much is inarguable,
because each of those one hundred thirty six thousand workers
has been certified under the strenuous tests used by the
Department of Labor under the NAFTA Trade Adjustment Assistance
program.
But that number grossly understates the dimension of the
job problem. Let me illustrate: Guess Jeans cut the percentage
of its clothes sewn in Los Angeles from 97 percent prior to
NAFTA down to a mere 35 percent, sending the work to factories
in Mexico, Peru and Chile. More than 1,000 Guess workers in
southern California lost their jobs in the fall of 1996 alone.
Of course, the majority of these workers were minorities and
women.
But NAFTA-TAA has no record of any of those workers having
applied for NAFTA-TAA, much less having received assistance
under the program.
Where did they go? What are they doing? Who will speak for
them? Certainly not the Clinton Administration. But I still
have hope for Congress.
Now the same people who brought us a flawed NAFTA are back
before the Congress, demanding fast track authority so the
President can extend NAFTA to the other countries in the
hemisphere and implement a far-reaching Multilateral Agreement
on Investment--and we are uncertain of what else is contained
in the proposal.

Recommendations

Instead of putting these trade agreements on the ``fast
track,'' we should slow down and make sure we iron out the
bumps in the road so we assure we arrive at the destination
NAFTA intended.
I have introduced legislation to that end. H.R. 978, the
NAFTA Accountability Act, would require that NAFTA live up to
the promises that its proponents made back in 1993 in the areas
of jobs, labor and environmental standards, illegal drugs,
immigration, and currency valuation, among other things.
If it turns out that NAFTA is working as they had planned,
fine. But if it's not, then we have to go back and fix it.
After all, it is intended to be a blueprint for future accords.
And if we can't fix it, then we should junk it.
We should reform the NAFTA-TAA program so that it's there
for people when they need it. Currently, only 57 percent of the
petitions for help from dislocated workers are approved by the
Labor Department.
The Labor Department should require that companies who move
jobs out of the United States because of NAFTA must make
information available to displaced workers about the NAFTA-TAA
program. Currently, employers are not required to post
information about the NAFTA-TAA program for workers who have
lost their jobs due to NAFTA.
Only those workers who know about the program and choose to
apply for it are even given consideration by the federal
government.
We should expand the coverage of the NAFTA-TAA assistance,
because the job losses are bound to continue. Currently, only
certain types of workers in certain types of industries can
qualify. Moreover, only workers who produce a product--not a
service--that is directly related to NAFTA are eligible for
assistance.
As the late Sir James Goldsmith pointed out, in today's
global economy a multinational company can employ 47 workers in
Vietnam or the Philippines for the cost of one person in a
developed country, such as the United States. With completely
unregulated free trade, working families in developed countries
are pitted against working families in underdeveloped
countries.
``You don't have to be a genius to understand who will be
the winner in such a contest,'' Goldsmith said. ``It must
surely be a mistake to adopt an economic policy which makes you
rich if you eliminate your national workforce and transfer
production abroad, and which bankrupts you if you continue to
employ your own people.''
Mr. Chairman, Congress has a constitutional responsibility
handed down to us from the Founding Fathers for the way in
which our nation conducts international trade. We certainly do
not assume that responsibility by ceding our constitutional
authority over trade to the Executive Branch via the fast
track.
Especially in today's so-called global economy, it is
imperative that we take our congressional and constitutional
responsibilities seriously.
We also have ultimate responsibilities to the people who
have been left behind by the fast track approach to trade
agreements. Isn't it time someone in authority here in
Washington acknowledged their plight?
As Professor Shaiken said in an op-ed piece in yesterday's
Los Angeles Times, ``Fast track without labor and environmental
protections is a bridge back toward the 19th century rather
than a link forward to the 21st.''
Thank you for your time.

[The attachments are being retained in the Committee
files.]

Mr. Shaw. Thank you, Marcy.
The gentleman from Arizona, Jim Kolbe, is recognized.

STATEMENT OF HON. JIM KOLBE, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF ARIZONA

Mr. Kolbe. Thank you, Mr. Chairman. Well, I guess the
testimony you have heard indicates that people that were for
NAFTA are still for it, and those that were against it are
against it. So some things don't ever change I guess. But I do
appreciate the opportunity to testify this morning. I think
this is an important hearing.
First let's put this thing in the context. Trade agreements
in general, and NAFTA is no exception to that, are long-term
propositions. NAFTA itself gets phased in over the course of 15
years. A lot of its key provisions haven't been implemented. I
think it's premature to say, unequivocally, one way or the
other that NAFTA is a complete success or failure. We need more
time.
Nonetheless, this hearing is important because I think that
any objective examination is going to conclude that NAFTA in
its preliminary phases, first 3 years, has worked and worked
very well. We all know that over the last 2 years, Mexico has
experienced a severe economic crisis. There is a misconception
among a lot of people, and I think sponsored by a lot of people
who opposed NAFTA in the first place that NAFTA caused this
crisis, but nothing could be further from the truth.
The financial crisis in Mexico in 1995 was caused by an
over dependence on foreign capital, coupled with protracted
overvaluation of the peso. That overvaluation occurred during
an election year for political reasons. That's been known to
happen in other countries, I might add. Then they bungled the
devaluation. That caused foreign investment to take flight, and
the government needed outside assistance to prevent a default.
I have said repeatedly that the best test of a trade
agreement is not just how it works in good times, but how it
works in bad times. I think under these circumstances, NAFTA
did exactly what we wanted it to do. Far from worsening the
crisis, it has helped stabilize both the political and the
economic situation in Mexico, and Mexico's response to the
crisis. It prevented Mexico from resorting to the standard
solution of developing countries had heretofore used, which is
impose import barriers, restrict capital movements, limit
economic activity with other countries. That was precisely
Mexico's response in 1982 during the last major peso
devaluation. Then they imposed 100 percent duties on American
products and set strict licensing requirements on foreign
producers. What was the result? Our exports plunged 50 percent
between 1981 and 1983. Export-supported jobs were cut by more
than one-half. It took 7 years to get back to the level that we
were before that peso devaluation.
In this case, however, we got back within 1 year, and we
only had an 8.9-percent drop in the exports. I think NAFTA has
worked to stabilize, to make the ups and the downs much less.
I think there's another serious misconception about what
NAFTA has and has not done. Many of NAFTA's critics point to a
bilateral trade balance which has shifted from a U.S. surplus
to a U.S. deficit after NAFTA was signed into the law. Now I
don't subscribe to the mercantilist concept, that a trade
surplus with a particular country is always good, while a trade
deficit is always or necessarily bad. We know that trade
balances shift over time from one region or country to another,
shifts that are dependent on a lot of different economic
factors. Still, opponents of NAFTA view the shift in the trade
balance with our NAFTA partners after the passage of NAFTA
through a mercantilist lens, asserting that our deficit with
Mexico is necessarily bad for the United States economy.
Drawing on the sequence of events, these critics argue that
NAFTA somehow caused the bilateral balance of trade to shift.
That is simply not true. It has no foundation. Any cursory
analysis of the factors in play over the last 3 years
demonstrates that NAFTA had little, if anything, to do with the
shift.
Let me again make the point that I made before. The swing
in the bilateral trade balance resulted from the peso crisis
and the resulting recession, not from NAFTA. The recession
drastically reduced Mexican domestic demand, making more of its
domestic output available for export while simultaneously
reducing demand for United States exports--by dramatically
increasing the dollar prices of those goods and services. A
furthering shift was that Mexico's exports were enhanced by a
cheaper devalued currency, which made Mexican goods cost less
in the United States, about one-half as much as they did before
the devaluation.
During the debate on NAFTA, there was a lot of concern
among opponents about the number of jobs that would be lost due
to a rush of American companies moving south of the border, the
great sucking sound that Dave Dreier referred to earlier. The
best estimate based on those that have qualified for assistance
is that 120,000 jobs have been lost. Now during the same time,
we have created 8.9 million new jobs. In fact, the weekly shift
up and down in employment in the United States is 60,000. Our
unemployment rate is currently 4.9 percent. That is the lowest
we have had in 25 years. The Clinton administration reminds us
of that frequently. We are at close to full employment as we
have probably been in a long time. So I don't see how you can
assert that NAFTA has caused this extensive job loss.
One thing is for sure: Two-way trade with Mexico has boomed
in the last 3 years. In the first full year of operation, our
trade was $100 billion, up from $80 billion in 1993. The last
year, 1995, we had a glitch on our side because of the peso
devaluation. But in 1996 it reached $140 billion. These numbers
are pretty significant, it would seem to me.
There is no question that Mexico is undergoing
unprecedented economic and political liberalization. We have a
congress for the first time in 70 years in Mexico that is
controlled by the opposition. What NAFTA did was help to lock
in place Mexico's economic reforms, secure a stable export
market for the United States products, even in difficult times.
Are there still trade issues that need to be resolved with
Mexico? Of course there are. I personally believe our countries
need to come to agreement regarding the border trucking issues
and small package delivery. But these are relatively minor
irritants in a complex and growing economic partnership, a
partnership which I believe benefits Mexican and American
workers and consumers while enhancing the international
competitiveness of both of our countries.
Trade is not a zero sum game where one country wins while
another has to lose. Under NAFTA, both the United States and
Mexico win. Mr. Chairman, I am confident that's precisely what
you are going to determine from this hearing today.
I thank you.
[The prepared statement follows:]

Statement of Hon. Jim Kolbe, a Representative in Congress from the
State of Arizona

Mr. Chairman, members of the Commission, thank you very
much for allowing me to testify this morning. I am pleased to
be a part of this important and timely hearing.
First, I think it is important to put this hearing in
context. Trade agreements in general, and NAFTA is no
exception, are long-term propositions. NAFTA itself is to be
phased in over fifteen years and many of its key provisions
have yet to be implemented. Its probably more than a little
premature to say unequivocally that NAFTA is a complete success
or failure.
Still, I do believe any objective examination will conclude
that NAFTA has worked, and worked well, over the past three
years. We all know that over the past two years Mexico has
experienced severe economic crisis. Unfortunately, there is a
common misconception among some that NAFTA caused this crisis.
I don't think anything could be further from the truth.
Mexico's financial crisis was caused by an over dependence
on foreign capital coupled with protracted overvaluation of the
peso. When a bungled devaluation caused foreign investment to
take wing, the government needed outside assistance to prevent
a default. I have said repeatedly that the best test of a trade
agreement is how well it works in bad times. And I think NAFTA
has worked well. Far from worsening the crisis, NAFTA helped
stabilize Mexico's political and economic response to the
crisis. It prevented Mexico from resorting to the standard
solution of developing countries in economic crisis--imposing
import barriers, restricting capital movements and limiting
economic activity.
This, in fact, was precisely Mexico's reaction to their
financial crisis in 1982. Then, in response to a similar
overvaluation, Mexico imposed 100% duties on American products
and set strict licensing requirements on foreign producers. The
result? U.S. exports plunged by 50% between 1981 and 1983. U.S.
export supported jobs were cut by more than half. It took
nearly seven years for U.S. exporters to recover. Based on this
experience, without NAFTA, in the wake of the peso crisis, U.S.
exporters could have faced a $25 billion plunge in sales to
Mexico and not recovered before 2000. Instead of causing the
Mexico financial crisis, NAFTA lessened its impact and helped
Mexico quicken its economic recovery.
I think there is another serious misconception about what
NAFTA has and has not done. Many of NAFTA's critics point to a
bilateral trade balance which shifted from a U.S. surplus to a
U.S. deficit after NAFTA was signed into law. Now I personally
do not subscribe to the mercantilistic concept that a trade
surplus with a particular country is always good while a trade
deficit is necessarily bad. We also know that trade balances
tend to shift over time from one region or country to another,
shifts which are dependent on a number of economic factors.
Still, opponents of NAFTA view the shift in the trade balance
with our NAFTA partners after the passage of NAFTA through a
mercantilistic lens, asserting that our deficit with Mexico is
bad for the U.S. economy. Then, drawing on the sequencing of
events, these critics argue that NAFTA somehow caused the
bilateral balance of trade to shift. Such an assertion is
without any foundation.
Any cursory analysis of the factors in play over the past
three years demonstrates that NAFTA had very little, if
anything, to do with this shift. Let me make one point
absolutely clear: the swing in the bilateral trade balance
resulted from the peso crisis and its--not from NAFTA. The
recession drastically reduced Mexican domestic demand, making
more of its domestic output available for export while
simultaneously reducing demand for U.S. imports. Furthering the
shift was the fact that Mexico's exports were enhanced by a
cheaper, devalued currency which made Mexican goods cost about
half as much for the American consumer as before NAFTA. Given
these conditions, it is no wonder that U.S. imports to Mexico
declined while Mexican exports to the United States increased.
During the debate on NAFTA, there was great concern among
opponents about the number of jobs that would be lost due to a
rush of American companies moving across the border to take
advantage of Mexico's comparatively lower wages a phenomena
summed up in terms of a ``great sucking sound.'' But what have
we seen over the last three years? The best estimate of
displaced workers that can be traced to imports from Mexico and
Canada is approximately 120,000. Note that this job
displacement is not necessarily caused by NAFTA, but job losses
related to imports from Mexico and Canada. Many of these
workers would probably have been displaced without NAFTA.
Whatever the cause, there is no question that to each one of
these workers, any job loss is a major job loss.
But to assert that NAFTA caused wholesale unemployment in
the United States, as many of its critics did and continue to
do, simply flies in the face of the facts. Since NAFTA, the
U.S. economy added approximately 8.9 million net jobs. In fact,
the weekly shift--up or down--in aggregate employment in the
U.S. is about 60,000 workers. Our unemployment rate hit 4.9% in
1996--the lowest rate in 25 years. Many economists now consider
the U.S. to be at or very near full employment. Given these
facts, it is unclear to me how NAFTA's opponents can continue
to assert that NAFTA has caused extensive job loss in the
United States.
One thing is clear however. Two-way trade under NAFTA has
boomed over the past three years. In its first full year of
operation, Mexico-U.S. trade topped 100 billion dollars, up
from 80 billion in 1993. In 1996, two way trade with Mexico
reached a record high of $140 billion dollars. These numbers
are significant. Growth in two-way trade represents increased
specialization which results in maximum utilization of each
country's resources. And maximum utilization of resources leads
to greater competitiveness.
There is no question that Mexico is undergoing
unprecedented economic and political liberalization. What NAFTA
did is to lock-in-place Mexico's economic reforms and secured a
stable export market for U.S. products, even in difficult
times. Are there still trade issues that need to be resolved
with Mexico? Of course. I personally believe that our countries
need to come to agreement regarding border cross-trucking and
small package delivery. But these are minor irritants in a
dynamic, complex and growing economic partnership--a
partnership which I believe benefits Mexican and American
workers and consumers while enhancing the international
competitiveness of both our countries. Trade is not a zero sum
game where one country wins while another loses. Under NAFTA I
believe both the United States and Mexico win. And, Mr.
Chairman, I am confident that this is precisely what this
hearing today will bear out. Thank you.

Mr. Shaw. Thank you, Mr. Kolbe.
Our last witness in this panel is Ms. Velazquez. Please
proceed.

STATEMENT OF HON. NYDIA M. VELAZQUEZ, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK

Ms. Velazquez. Good morning, Mr. Chairman, Mr. Matsui, and
other Members of the Subcommittee. Thank you for this
opportunity to testify before your distinguished panel. As this
Subcommittee begins consideration of fast track legislation, I
am here today as a Member of the Small Business Committee to
bring to your attention an issue that often is overlooked, the
impact of NAFTA on small businesses. I am sure each of my
colleagues has heard the stories from suppliers and
distributors, typical small businesses who have seen their
larger clients relocate to Mexico or Canada. The disruption in
these business relationships can be devastating for many small
businesses and their communities. Many large companies have
downsized or outright moved away to keep their costs down. A
large company can afford to make such a move. A small business,
however, usually cannot nor will not relocate. Family-owned
small businesses which have been operating for generations are
in serious jeopardy.
To complicate matters, there is the lack of information
about effects of NAFTA on small businesses. The
administration's 140-page study on the operation and effect of
the North American Free Trade Agreement did not look at the
impact of the trade treaty on our small firms. The 800-page
report released by the International Trade Commission which
took an exhaustive look at the impact of NAFTA on over 200
industries did not dedicate even one page to the effect of
NAFTA on small business.
The Labor Department's NAFTA trade adjustment assistance
program does not track whether dislocated workers worked for
large or small businesses. This concerns me, Mr. Chairman.
Small businesses employ 53 percent of the private work force
and account for 47 percent of all sales in this country. Small
business-dominated industries were responsible for an estimated
75 percent of the 2.5 million new jobs created during 1995.
This lack of attention of the effect of NAFTA on small business
is of particular concern to me because of the opportunities
these ventures provide to women and aspiring entrepreneurs from
disadvantaged communities.
As of 1996, there were 7.7 million women-owned firms that
provided jobs for 50.5 million persons, more than that employed
by the Fortune 500 industrial firms. Blacks, Latinos, and
Asian-Americans are playing key roles in our economy with their
enterprising spirit and hard work. We must protect and
encourage this trend.
The Members of the Small Business Committee recognize that
the consequences of NAFTA on small business must not be
ignored. Last month during reauthorization of SBA, that
Committee unanimously adopted my NAFTA Small Business Relief
proposal. This instructed SBA to take actions through
assistance programs to address the needs of small businesses
harmed by NAFTA.
As many of you know, the needs of small businesses are
unique--access to capital needs, basic technical and managerial
counseling. Many need help to market their products. But we
must act now. We must include special provisions to address the
effect on small businesses in any fast track or NAFTA
legislation. Small businesses and the families and communities
they support have too much at stake. It will be too late after
the damage is done to correct the worst impact.
Recently, the administration finally implemented a NADBank-
related program to provide loan and credit assistance to
businesses in 35 communities adversely affected by NAFTA. That
is a good beginning. However, the assistance is limited and
comes almost 5 years after NAFTA was enacted. My colleagues, I
believe we have a special responsibility to address the effects
NAFTA has had on small business. Too many jobs are involved,
too many communities are in fear of being the next ones hit by
mom and pop shops closing down. Our small businesses must
continue to be the engine that drives this economy.
I look forward to working with you, Mr. Chairman, Mr.
Matsui, and the rest of the Subcommittee to address this
important matter. We must do whatever we can to help the
backbone of our economy, our family-owned businesses and small
businesses deal with NAFTA and expanded world trade.
Thank you very much, Mr. Chairman.
[The prepared statement follows:]

Statement of Hon. Nydia M. Velazquez, a Representative in Congress from
the State of New York

Good morning. Mr. Chairman, Mr. Matsui and other Members of
the Subcommittee, thank you for this opportunity to testify
before your distinguished panel.
As this Subcommittee begins consideration of fast track
legislation, I am here today as a Member of the Small Business
Committee to bring to your attention an issue that often is
overlooked--the impact of NAFTA on small business.
I am sure that each of my colleagues has heard stories from
suppliers and distributors--typical small businesses--who have
seen their larger clients relocate to Mexico or Canada. The
disruptions in these business relationships can be devastating
for many small businesses and their communities.
Many large companies have downsized or outright moved away
to keep their costs down. A large company can afford to make
such a move. A small business, however, usually cannot nor will
not relocate. Family-owned small businesses, which have been
operating for generations, are in serious jeopardy.
To complicate matters, there is a lack of information about
the effects of NAFTA on small businesses----
The Administration's 140-page Study on the Operation and
Effects of the North American Free Trade Agreement did not look
at the impact of the trade treaty on our small firms.
The 800-page report released by the International Trade
Commission, which took an exhaustive look at the impact of
NAFTA on over 200 industries, did not dedicate even one page to
the effects of NAFTA on small business.
The Labor Department's NAFTA-Trade Adjustment Assistance
(TAA) program does not track whether dislocated workers work
for large or small businesses.
This concerns me, Mr. Chairman. Small businesses employ 53
percent of the private work force and account for 47 percent of
all sales in the country. The small-business-dominated
industries were responsible for an estimated 75 percent of the
2.5 million new jobs created during 1995.
This lack of attention of the effect of NAFTA on small
business is of particular concern to me because of the
opportunities these ventures provide to women and aspiring
entrepreneurs from disadvantaged communities. As of 1996, there
were 7.7 million women-owned firms that provided jobs for 15.5
million persons--more than that employed by the Fortune 500
industrial firms. Blacks, Latinos, and Asian-Americans are
playing key roles in our economy with their enterprising spirit
and hard work. We must protect and encourage this trend.
The Members of the Small Business Committee recognize that
the consequences of NAFTA on small business must not be
ignored. Last month during reauthorization of SBA we adopted a
proposal to instruct SBA to take action through its existing
assistance programs to address the needs of small businesses
harmed by NAFTA.
As many of you know, the needs of small business are
unique. Many need access to capital. Some need basic technical
and managerial counseling. Many need help to market their
products. Thus, we should tailor a federal response to meet
these special needs.
But we must act now. We must include special provisions to
address the effects on small businesses in any fast track or
NAFTA legislation. Small businesses and the families and
communities they support have too much at stake. It will be too
late after the damage is done to correct the adverse impact.
Recently, the Administration finally implemented a NADBank-
related program to provide loan and credit assistance to
businesses in 35 communities adversely affected by NAFTA. That
is a good beginning. However, the assistance is limited and
comes almost five years after NAFTA was enacted. That is
unacceptable.
My colleagues, I believe we have a special responsibility
to address the effects NAFTA has had on small business. Too
many jobs are involved. Too many communities are in fear of
being the next ones hit by ``mom and pop'' shops closing down.
Our small businesses must continue to be the engine that drives
this economy.
I look forward to working with you, Mr. Chairman, Mr.
Matsui, and the rest of the Subcommittee to address this
important matter. We must do whatever we can to help the
backbone of our economy--our family-owned and small businesses
deal with NAFTA and expanded world trade.
Thank you, Mr. Chairman.

Mr. Shaw. Thank you.
Mr. Matsui.
Mr. Matsui. Mr. Chairman, I have no questions. I want to
thank the four witnesses here and Mr. Dreier, who left.
Mr. Shaw. Do any of the Members on the Republican side have
any questions? On the Democrat's side?
I guess we had pretty complete testimony. We thank you all
for testifying. I would like to mention just one thing though
that the effect of side agreements and what not. They really
have not been affected. Yesterday at a Florida delegation
meeting, I'll direct this to you, Mr. Kolbe, I guess, more than
anyone else. Is that it became apparent that Mexico was
blocking all Florida citrus into Mexico and for what they call
sanitation reasons. I think we need to--and I think if we are
going to get a treaty with Chile or anyone else that we want
to, that we are going to have to see, we are going to have to
vigorously enforce what we have with Mexico. Truly, I think if
anything could have gone wrong, it did go wrong with Mexico's
economy during the first years of NAFTA. There's no question
about that, everything from corruption to the collapse of the
peso. We are not dealing with Mexico now. I understand that
Chile is quite a different country. It is much more like ours,
with a strong economy, environmental protections, labor
protections, things that we just don't see in Mexico. I think
it would be wrong to play politics on this.
However, I think there are many of us that will see this as
an opportunity to do some cleanup under the Mexico fast track
vote in which we feel that some of our in some areas that we
were short changed.
Do you have any comment on that? I know you worked on me
very hard to get my vote on NAFTA. Now I'm asking you to
explain what we might be able to do to correct that situation.
Mr. Kolbe. Mr. Chairman, yes. I am not familiar, well, I am
somewhat familiar with the particular thing you are talking
about. It illustrates exactly what we have been talking about
and we have heard from some of the other panelists here today,
how countries use as a political tool sanitary standards. Now
they should be based on science, pure and simple based on
science. We ought to have an international way of doing that.
But countries all too often, whether it's Mexico and
sometimes the United States, base them on political reasons,
not on scientific reasons. We should make sure countries aren't
allowed to do that, whether it is Mexico, the United States,
the European Union that blocks all United States beef because
of hormones. You can't sell beef in Europe. We should be
saying, No, no, look, there's a scientific standard here and
even they acknowledge the scientific standard, but for
political reasons they can't do that.
I want to just also make it clear that we're really not
talking about further trade just with Chile. For example, 1999
is the year that we are going to have massive negotiations on
agriculture. We want to open up European and other regions of
the world markets to the U.S. agricultural sector. We're the
largest exporting agricultural country in the world. Those
talks are vital to us.
Mr. Shaw. But the point I am making, and I think it's a
point that needs to be made, at least I think the Florida
delegation is one of the largest in the Congress. In a meeting
yesterday, looking around the table, I think I was closer to
voting yes than anyone else who was present at that meeting. I
think in order to get the votes, it's going to be incumbent
upon the administration in the next month or whenever it is
that they are going to finally come to us with the fast track
legislation, that we are going to have to see some movement by
the administration toward enforcing the rights of the United
States under the NAFTA with Mexico.
Mr. Kolbe. I agree.
Mr. Shaw. Because if they don't, I am afraid the fast track
is going to go down. I think the fast track is important, but
it's only important if we enforce and our government enforces
the rights of the United States under that agreement.
Mr. Levin. Mr. Shaw, could I comment very briefly on that?
Mr. Shaw. Yes.
Mr. Levin. I am very glad you raised it. You have a habit
of raising such cogent issues.
I just want to comment on it.
Number one, your comment assumes the relevance of these
issues in trade negotiations. That's what part of this argument
is about. These issues are economic issues. They are relevant,
including the standards both as to labor markets and the
environment, as to health statutes and so forth, in developing
nations like Mexico.
Number two, enforcement is critical. We argued about that
when we were discussing NAFTA. I favor expanding trade as long
as the rules of competition are addressed, clearly addressed,
and there's enforcement. With Mexico, it was clear in the
discussions that there were totally inadequate enforcement
procedures to carry out what was in that agreement. We not only
wanted there to be agreements within the major context, but
also enforcement procedures that were meaningful. There were
not any. At least there were very few. Where you had
enforcement procedures, they were essentially subject to a veto
by Canada, in the few places where you had enforcement
mechanisms.
I hope that as we face these issues, as the Republicans do
as well as Democrats, as the administration does, that we
recognize these as economic issues where enforcement as you
have suggested is critical.
I want to say one last thing quickly. We need further
agricultural discussions and negotiations. If fast track were
related to renewed agricultural discussions through WTO, we
wouldn't be having this controversy.
Mr. Kolbe. This?
Mr. Levin. We are having this controversy essentially
because of these burgeoning relations and competitive
conditions with developing countries that have very different
structures than the United States of America. So I hope, Mr.
Chairman, that your comment will be taken very, very seriously
and we will address this issue of enforcement within the body
of discussions in any agreement.
Ms. Kaptur. Mr. Chairman, might I just comment? I was one
of the Members that opposed side agreements because I thought
issues of significance should be in the body of the main
agreement.
Mr. Shaw. I think we found that out.
Ms. Kaptur. I just wanted to say that I do not favor the
administration's current references that some of these issues
can be dealt with in side agreements, because in such critical
areas as agriculture, we have been gravely disappointed.
In our testimony, we reference a bill we have authored
which now has close to if not 100 cosponsors, H.R. 978, the
NAFTA Accountability Act. In that act, and I would ask Members
of the Subcommittee to reference that as they study, we talk
about the administration reporting back on the results of
different provisions of NAFTA, including agriculture. For
example, in your tomato industry in Florida, we have no good
information that has been prepared from the administration. We
have lots of victims. I think for us to legislate more fast
track without fixing what's wrong with the current arrangements
is truly not fair to our people.
I thank you for your interest in that, and would merely
recommend that Members take a close look at H.R. 978, the NAFTA
Accountability Act.
Mr. Shaw. Thank you. Well, I think the Members, many of the
Members, I know the Florida Members are going to be watching
the enforcement in the next month before the final vote. That
could be, and the administration should be very much aware that
that could very seriously influence many of our votes on this
fast track. I hope they do because I think fast track authority
with dealing with Chile and some of the other South American
countries is very important to the trade in the United States,
but we have to find that there is a willingness, a desire to
aggressively enforce the rights of Americans under the
agreement with appropriate sanctions.
I thank you.
Mr. Nussle. Mr. Chairman. Excuse me. I have no knowledge
about the Florida citrus issue, but I am curious. Certainly,
there are growing pains as we move through this, but I am
wondering about the process that Florida would have at its
disposal if in fact there was a problem with Mexico not
allowing in citrus before NAFTA. What would be our remedy? We
know what it is. And maybe this goes to the panel. The thing I
have observed is that at least we have a beginning, a starting
point. We have an opportunity for looking whether it's inside
agreement or in the body, at least there is something there.
Before NAFTA, my understanding is that your----
Mr. Shaw. There is enforcement proceedings that are in
there. Obviously, any trade agreement is a two-way system. They
say you know what it was before and is it any different after.
You are supposed to get something when you give something. We
gave something and we want to be sure we get something. To get
something is to get fair trade.
Perhaps I should have held my remarks for the U.S. Trade
Representative, who is the next one. Perhaps you would like to
direct those questions to the trade representative. There is a
process for enforcement. Whether a complaint has been filed by
the Florida people, I do not know. But I think that is an
appropriate question.
Mr. Kolbe. Mr. Chairman, the Chairman is correct. There are
enforcement mechanisms. They do have limitations on them. Both
the countries involved have to have a will to make them work.
I would just point out we have arbitrarily refused to
implement the trucking provisions of the NAFTA, even though
there is no legal provision for us not to implement those. We
have just said we are not going to allow the trucks in, even
though they were supposed to have been allowed in 2 years ago.
Mr. Levin. But do ask the U.S. Trade Representative, Mr.
Nussle, because I think one of the problems is that the NAFTA
essentially set up a structure that superseded other abilities
of the United States to act. It set up a new structure. But the
problem was there were no meaningful enforcement provisions.
As Mr. Kolbe has said, it depended on the will of both
nations except in a few areas, but there Canada had essentially
veto power. You cannot have a meaningful bilateral agreement
where it simply leaves the enforcement up to consensus because
the nation that wants to take advantage will do so with
impunity.
Before NAFTA, we had more abilities to act. Mr. Kolbe is in
a sense correct. We have refused to enforce some provisions in
part because there has been a lack of an overall enforcement
mechanism. We have to do better in fast track legislation next
time around within the body of agreements that are reached with
other countries, especially developing countries.
Mr. Shaw. Mr. Matsui.
Mr. Matsui. I would like to just make an observation. I
know we have a long series of speakers, and so we want to move
this along. But I think what Mr. Nussle says is correct.
Frankly, we still have trade sanctions, such as section 301
available to us. Our problem is is that if one country refuses
to cooperate, the option open to us then is some kind of
sanctions, trade sanctions. Then all of a sudden you see
retaliation. Before you know it, we can find ourselves in a
trade war with a country. Obviously, they might hit Michigan or
may hit California. Who knows where they might hit. When that
happens, then Members start saying, Gee, maybe I don't want to
do this. That's what our frustration is.
The reality is that ultimately, as Mr. Kolbe says, it still
requires a cooperation of the countries. But you do have a
framework and you have dialog going on. But you don't have any
built-in sanction like a world court and a police force that
enforces these things. As Mr. Kolbe says, we're not complying
with the trucking provisions now because we have grave
reservations about them.
Mr. Kolbe. And the agreement permits Mexico, as a result of
that, to sanction some of our products. They came up with a
whole list. A number of United States exports to Mexico were
badly hurt, a number of agricultural exports to Mexico were
badly hurt because of our failure to implement the trucking
provisions. They were allowed to do that under the NAFTA.
Mr. Levin. But Mr. Matsui, when you reach an agreement and
do not have a provision for enforcement, you are essentially
withdrawing from yourself other means of enforcing those
provisions.
Mr. Matsui. Sander, the problem is that we had this debate
during the implementation of the WTO. We didn't want to give
up, we the United States, did not want to give up our
sovereignty. So we're not going to let the WTO tell us that if
you don't comply United States, we're going to do this to you.
Now, you can't have it both ways.
Mr. Levin. Except with the WTO----
Mr. Matsui. Either we're going to have a world body that's
going to have an enforcement mechanism, or you are going to say
it's going to have to be worked out by the countries. But you
do have an agreement, your framework, and obviously public
opinion. Then if it comes down to it where you finally get
frustrated, then you impose economic sanctions. You don't want
to do that because I guarantee retaliation will occur, and they
will come at us at a very vulnerable situation.
Mr. Shaw. I am going to let that be the last word. Once
again, thank you to this panel.
Mr. Levin. Thank you for raising your question, Mr. Shaw.
Mr. Shaw. Our next witness, who has already been sort of
introduced, is Hon. Jeffrey M. Lang, who is the Deputy U.S.
Trade Representative. Again, we have your full testimony. We
invite you to proceed as you wish. As you can already guess, we
will have some questions for you at the end of your testimony.
Ambassador Lang.

STATEMENT OF HON. JEFFREY LANG, DEPUTY U.S. TRADE
REPRESENTATIVE

Mr. Lang. Good morning, Mr. Chairman. Thank you, Members of
the Subcommittee. I will try to briefly summarize, Mr.
Chairman, because I know time is short.
Over the last 4 years, a period which achieved the lowest
combined rates of unemployment and inflation since the sixties,
and unprecedented investment-led expansion, one-third of our
economic growth has come from exports. The NAFTA was created to
help the United States capitalize on the changes in the global
economy by opening up the North American economy. The
President's July study, which is the subject of this hearing,
indicates the NAFTA has had a positive effect on our gross
domestic product: employment, income, investment, and wages.
Let me just talk about a couple of the highlights of the
testimony in the report. First, the effect on trade barriers.
NAFTA was designed to gradually eliminate the tariff and
nontariff barriers to trade and investment in North America.
Under the NAFTA, for example, Mexico has reduced its trade
barriers significantly and dismantled protectionist rules and
regulations. In contrast, the United States, which started with
much lower tariffs and market access barriers generally, has
made only slight reductions.
Let me put this in specific terms. Before the NAFTA,
Mexico's applied tariffs, the actual tariffs on United States
goods, averaged 10 percent ad valorem. United States tariffs on
Mexican imports into the United States, their applied rates,
averaged 2.07 percent ad valorem, and over one-half of Mexican
imports already entered the United States duty free. Since
NAFTA, Mexico has reduced its average applied rate from that 10
percent by 7.1 percentage points. The reduction in the United
States for comparison is 1.4 percentage points. Some of these
U.S. tariff reductions would have occurred anyway under the
Uruguay round, even if NAFTA had not been in effect.
Beyond tariffs, NAFTA requires improvements in Mexico's
intellectual property rights regime, its standard setting, the
elimination of trade balancing requirements, all kinds of
performance requirements, and significant additional
modifications. Again, the United States is required to do
relatively little in regard to these matters.
Now second, the NAFTA effect on this economy. I am not an
economist, but as you can see from the NAFTA study and from the
other materials that have been submitted in aid of this
hearing, isolating NAFTA's effects on the U.S. economy is a
real challenge. It's only been in effect for 3 years. There has
been a severe recession in Mexico, a depreciation of their
currency, and United States reductions of tariff rates in
connection with the Uruguay round. Remember, 50 percent of the
U.S. schedule will be at zero when the Uruguay staging is fully
in place 3 or 4 years from now. That applies to the whole
world, including Mexico.
The administration view is that the NAFTA has contributed
to our current economic expansion and had a modest net effect
on exports, income investment, and jobs supported by exports.
It's facilitating investment and the creation of higher than
average paying United States jobs supported by these exports to
Mexico and to Canada.
Now the effect on the Mexican economy: Our view is that the
NAFTA has helped in the Mexican economy. The best standard I
can find is to compare Mexico's recovery in 1996 with its
recovery from its previous financial crisis in 1982. The NAFTA,
of course, was not in effect then. That reveals that both the
Mexican economy and American exports recovered rapidly. You
might even say much more rapidly following the 1995 crisis than
it did earlier. That was in part because of the economic
reforms that were locked in by NAFTA, and in part due to the
market opening requirements of NAFTA.
Now a few comments on sectoral effects: In general, United
States suppliers have seen their share of Mexico's imports grow
since NAFTA has gone into effect, from 69.3 percent to 75.5
percent. That mostly reflects an average tariff advantage over
non-NAFTA exporters of about 10 percentage points. Just a few
examples in sectors I picked out from the report: In the
textile sector, Mexico has cut textile tariffs by 10.7
percentage points. The United States share of Mexican imports
is up 17.2 percentage points to 86.4.
Transport equipment sector: Mexico cut tariffs 10.2
percentage points under NAFTA. The U.S. share is up 19.2
percentage points to 83.1 percent. Electronic goods and
appliances: The Mexican tariff cut was 9.0 percentage points.
The U.S. share is up 5.7 percentage points, about 75 percent.
Several industries have experienced strong United States
import growth from Mexico. But in many cases, as the report
shows, Mexican imports have displaced imports for other
regions. Let's take a really sensitive sector, apparel. The
share of United States imports supplied by Mexico rose from 4.4
percent of our global imports to 9.6, from 1993 to 1996. But at
the same time, the share of United States imports from China,
Hong Kong, Taiwan and Korea, the big exporters, fell from 39
percent of our imports in 1993 to 30 percent in 1996. Just
about two-thirds of the value of Mexican apparel imports in
1996, by the way, was comprised of United States content.
Finally, Mr. Chairman, let me say a brief word about labor
and the environment. Under the North American Agreement on
Labor Cooperation, there is this unique submission process
which subjects member governments to public and international
attention for alleged failure to enforce labor laws. The
submission process has contributed to some interesting outcomes
which we think are useful, such as the recognition of a union
previously denied recognition, and permitting secret union
ballots at two companies where previously union votes were not
secret. In the period between 1993 and the end of 1996,
Mexico's Secretariat of Labor and Social Welfare has increased
funding for enforcement of labor laws in Mexico by 2\1/2\
times, 250 percent.
In environment, the environmental institutions established
under NAFTA are certifying and financing infrastructure
projects designed to improve the environment along the United
States-Mexico border. To date, 16 projects with a combined cost
of nearly $230 million have been certified by the BECC, Border
Environment Cooperation Commission, and more generally, the
North American Development Bank, so-called NADBank, will be
able to leverage its capital into $2 or $3 billion in lending.
In fact, some important projects are about to come before the
NADBank in the coming week or two.
Through the NAFTA mechanisms, Mexico has agreed to join the
United States and Canada in banning the pesticides DDT and
chlordane. That will ensure that these toxic substances which
are long lived will no longer cross the southern border.
The United States and Mexico have launched a Border XXI
Program which establishes 5-year objectives for cleaner border
environment and some specific blueprints for achieving them.
Finally, Mexico itself has established a voluntary
environmental auditing program. It has completed audits of 617
facilities to date. Of these, 404 have signed environmental
compliance action plans. That represents a little more than
$800 million in environmental investments in Mexico.
In conclusion, Mr. Chairman, we believe the NAFTA is
gradually accomplishing its central objective of opening the
Mexican market, our second largest export market. Open trade is
not an end in itself. We seek the long-term economic security
of American workers. That is always paramount. We continue to
believe that appropriate improvements are desirable.
Let me say one final general word. That is, NAFTA is not
the prism through which all elements of U.S. trade and
investment policy and the future should be viewed. It is
important, but we need to be global and multifaceted in our
trade policy and in our strategies for getting agreements in
order to succeed in this global marketplace. We are convinced
the NAFTA and the other market opening agreements we have
negotiated, and will negotiate in the future working with you
and other Members of Congress, are in the interests of the U.S.
economy and its work force. We look forward to working with
you.
Thank you very much, Mr. Chairman. I would be glad to take
your questions.
[The prepared statement follows:]

Statement of Hon. Jeffrey Lang, Deputy U.S. Trade Representative

Mr. Chairman, Members of the Committee, thank you for this
opportunity to discuss the North American Free Trade Agreement.

Trade and the U.S. Economy

Trade expansion is a key component of the President's
economic policy program for The U.S. Over the last four years--
a period which achieved the lowest combined rates of
unemployment and inflation since the 1960s and an unprecedented
investment led expansion--one third of our economic growth has
come from increased exports. With this in mind, this
Administration is determined to continue the vigorous effort to
both open foreign markets and level the global commercial
playing field and promote the expansion of our exports and
trade.
More than 11.5 million U.S. jobs now depend on exports--an
increase of 1.7 million from just four years ago. These are
good jobs: the wages of jobs supported by goods exports are 13-
16% higher than non-trade-related jobs in the economy. It is
imperative we continue our efforts to generate more of these
jobs for The U.S. as we enter the 21st century.
The U.S. is competing successfully across a wide array of
sectors. In fact, our economy has been judged to be the most
competitive large economy in the world for the last five years.
Our economy is the envy of the world, and positions us to
succeed to an unparalleled degree as we enter the next century.
In the last four years, exports of manufactured goods increased
42%; high technology exports increased 45%, services exports,
33%; and agricultural exports, 41%; all to record highs.
Our ability to sustain growth and prosperity in the years
to come depends significantly upon our ability to tap
effectively into emerging markets, particularly in Asia and
Latin America which are projected to grow at rates three times
the U.S. growth rate, while at the same time remaining vigilant
in our efforts to open the mature economies of our traditional
trading partners. In the global economy, more than 95 percent
of the world's consumers reside outside the United States. Of
the more than 30 million annual additions to the world's
middle-class and upper-class consumers, an estimated three
quarters are found in emerging markets and other low and middle
income countries. Latin America alone, if current trends
continue, will exceed both Japan and Western Europe combined as
an export market for U.S. goods by the year 2010. Already,
Latin America is our fastest growing export market, even though
the tariffs within the region average four times higher than
the average U.S. tariff. Similarly, the Asian Pacific Rim has
been our second fastest growing export market in recent years,
but again its market access barriers are also significantly
higher than U.S. barriers. The elimination of market access
barriers in the global marketplace is fundamentally in the
interests of The U.S. given that The U.S. is the most
competitive large economy, and the most open large economy in
the world.

NAFTA and U.S. Trade

The NAFTA, which encompasses the world's largest free trade
area, was created to help the United States capitalize on the
changes in the global economy by opening the North American
economy. Unprecedented in scale and complexity, the NAFTA was a
strategic step forward for U.S. trade policy. Only three and
one-half years into its fifteen year implementation process, it
has already yielded benefits for U.S. citizens. The President's
July Study indicates the NAFTA has had a positive impact on our
GDP, employment, income, investment, and wages.
Two-way trade with our NAFTA partners has grown 44 percent
since the NAFTA was signed, compared with 33 percent for the
rest of the world. U.S. trade with our North American partners
accounts for nearly one-third of our trade with the world.
Between 1993 and 1996, U.S. goods exports to Canada were up
by 33.6%, to $134.2 billion. U.S. exports to Mexico grew by
36.5%--or $16.2 billion--from 1993 to a record high in 1996,
despite a 3.3% contraction in Mexico's domestic demand and a 14
percent drop in 1995 alone.
Outstanding progress has continued into this year. In the
first six months of 1997, Mexico and Canada accounted for 49
percent of the growth in total U.S. exports. U.S. exports to
Mexico were up nearly 23 percent from the same period in 1996,
and 1996 was a historic high--a remarkable accomplishment
considering Mexico underwent its worst economic downturn in
modern history in 1995. U.S. exports to Canada in the first six
months of this year are up 12 percent over last year's historic
high as well. Perhaps even more remarkable, U.S. exports to
Mexico in the second quarter of this year exceeded U.S. exports
to Japan, even though Mexico's economy is one-twelfth the size
of Japan's.

NAFTA's Effect on Trade Barriers

The NAFTA is accomplishing what it was designed to do:
gradually eliminate the tariff and non-tariff barriers to trade
and investment in North America. This is particularly important
to the U.S. given the historic inequity that exists in the
relative openness of the markets in North America. Under the
NAFTA, Mexico has reduced its trade barriers significantly and
dismantled protectionist rules and regulations, while the
United States--which started with much lower tariffs and market
access barriers generally--has made only slight reductions.
For example, before the NAFTA, Mexican applied tariffs on
U.S. goods averaged 10 percent. U.S. tariffs on Mexican imports
averaged 2.07 percent, and over half of Mexican imports were
already entering the United States duty-free.
Since the NAFTA, Mexico has reduced its average applied
tariffs on U.S. imports by 7.1 percentage points, compared with
a reduction of 1.4 percentage points by the United States. The
United States, it should be noted, would have reduced some of
these tariffs under the Uruguay Round, even in the absence of
NAFTA.
Beyond tariffs, the NAFTA requires improvements in Mexico's
intellectual property rights regime, standards setting, the
elimination of trade balancing requirements and other
performance requirements. The United States is required to do
relatively little in this regard given our longstanding
openness to commerce that has served us well, our advanced
intellectual property rights regime, transparent standards
setting procedures, open investment regime and relative lack of
non-tariff trade barriers more generally.

NAFTA's Effect on Jobs in the U.S. Economy

The President's Study reviewed findings from a variety of outside
studies and analyzed both Mexican and U.S. data, attempting to isolate
the effects of the NAFTA from other factors. Isolating NAFTA's effects
on the U.S. economy is challenging since it has only been in effect for
three years and events such as Mexico's severe recession, the
depreciation of the peso, and U.S. tariff reductions under the Uruguay
Round occurred during the same period. However, the NAFTA's results and
resilience so far give us plenty of reason for optimism.
Based on a careful review of studies from a variety of prestigious
institutions, the Administration concludes that the NAFTA has
contributed to our current economic expansion and has had a modest
positive effect on net exports, income, investment and jobs supported
by exports. The Study finds that the NAFTA is facilitating investment
and the creation of higher than average paying U.S. jobs supported by
exports to Mexico.
Goods exports to Canada and Mexico supported an estimated 2.3
million jobs in 1996. This represents an increase of 311,000 jobs since
1993--189,000 supported by exports to Canada, and 122,000 by exports to
Mexico. DRI estimates that NAFTA contributed $13 billion to U.S. real
income and $5 billion to business investment in 1996, controlling for
Mexico's financial crisis. These estimates suggest that the NAFTA's
impact, isolated from other factors, has boosted jobs associated with
exports to Mexico between roughly 90,000 and 160,000.
An earlier study by the Dallas Federal Reserve finds that NAFTA
raised exports by roughly $7 billion and imports by roughly $4 billion.
The relatively greater effect on exports partly reflects the fact that,
under NAFTA, Mexico reduced its tariffs roughly 5 times more than the
United States.
In implementing NAFTA, both the Administration and the Congress
recognized that while expanded trade provided real opportunities, there
would also be some worker dislocation. The Trade Adjustment Assistance
Program and the new NAFTA Transitional Adjustment Assistance Program
provide the tools for trade-impacted workers to obtain the skills they
need to adapt to the global economy. These programs are an important
commitment to American workers.

NAFTA's Effect on Wages

The President's Study indicates that the NAFTA is helping
to generate additional U.S. export supported jobs paying higher
than average wages by providing competitive enterprises and
workers with new opportunities. Increased exports and trade
leads to greater productivity, and greater productivity is the
key to higher incomes.
In the United States, real earnings are up over the period
from 1993 to July 1997, with the gains coming in recent
quarters: real hourly earnings, up 1.9%; real weekly earnings,
1.6%. The real incomes of every quintile of the workforce
increased between 1993 and 1996, with the largest percentage
increase for those in the lowest quintile. Furthermore, a CEA/
Department of Labor study found that from February 1994 to
February 1996 more than 68% of the new jobs created paid above
the median wage.

NAFTA's Effect on The Mexican Economy

The NAFTA has also helped Mexico's economy, which is in our
interests, both indirectly and directly. In 1995, Mexico
experienced its most severe economic recession since the 1930s.
Comparing Mexico's recovery in 1996 with its recovery from its
financial crisis in 1982, when the NAFTA was not in effect,
reveals that both the Mexican economy and U.S. exports
recovered more rapidly following the 1995 crisis, in part
because of the economic reforms locked in by the NAFTA and its
market opening requirements. Mexico's strong economic
adjustment program and bilateral and multilateral financial
support were also important.
Following the 1982 financial crisis, Mexican output drifted
down for nearly two years before rising again and did not
recover to pre-crisis levels for five years. Although Mexican
economic output dropped more quickly in 1995, it also rebounded
more quickly, reaching pre-crisis peaks by the end of 1996.
Similarly, following the 1982 crisis, it took Mexico seven
years to return to international capital markets, while in 1995
it took seven months.
Following the 1982 financial crisis, Mexico raised tariffs
by 100 percent and clamped down on imports with severe
licensing requirements; U.S. exports to Mexico fell by half and
did not recover for nearly seven years. In 1995, Mexico
continued to implement its NAFTA obligations even as it raised
tariffs on imports from other countries. As a result, U.S.
exports recovered in 18 months and were up nearly 37% by the
end of 1996 relative to pre-NAFTA levels, even though Mexican
demand over the period was down 3.3%. Furthermore, the U.S.
gained an even greater share of Mexico's import market through
this period. For example in agriculture:
U.S. agricultural exports to the NAFTA countries
have increased from $8.87 billion in 1993 to a record $11.59
billion in 1996. The United States had an agricultural trade
surplus of over $1 billion with its NAFTA partners in 1996.
U.S. export performance with Mexico has been
particularly strong, with exports increasing nearly 15 percent
per year, on average, between 1993 and 1996, to a record $5.4
billion. The twelve fastest-growing commodities--corn, pork,
soybeans, wheat field seeds, vegetable oils, cotton, sugar and
related products, barley, pulses, beef and veal, rice, and
soybeans--together increased $2 billion, more than 150 percent.
U.S. agricultural exports to Canada grew nearly 5
percent per year between 1993 and 1996, to a record $6.1
billion. Twelve commodities--corn, pork, cotton, orange juice,
sugar and related products, hides and skins, beverages except
juice, soybean meal, wine, peanuts, field seeds, and rice--as a
group, increased $382 million, up 42 percent from 1993.
Some of the biggest gains in U.S. exports to
Mexico due to NAFTA have been for sorghum, cattle, beef, dairy
products, apples and pears. U.S. exports of these products were
10 to 30 percent higher in 1996 than they would have been
without the agreement.
U.S. agricultural suppliers hold dominant market
shares in both Canada and Mexico. In 1996, the U.S. share of
Canada's total agricultural imports was 65 percent and the U.S.
share for Mexico was 76 percent. NAFTA preferential tariff
rates helped U.S. suppliers solidify, and expand, their market
share.

NAFTA's Effect in Key Sectors

Under the NAFTA, U.S. suppliers in many other sectors hold
dominant shares of Mexico's import markets and, in some cases,
have expanded their shares significantly at the expense of
suppliers from other countries. These increases are indicative
of the NAFTA's effects, since they control for factors that
affect all foreign suppliers similarly, such as Mexico's
recession.
U.S. suppliers have seen their share of Mexico's import
market grow from 69.3% to 75.5%, a reflection of their 10
percentage point average tariff advantage over foreign
suppliers. Mexico's share of U.S. imports has risen from 6.9%
to 9.3%, is less than half the percentage point gain in market
share attained by U.S. suppliers.
In key sectors where Mexico has cut tariffs, the U.S. has
gained market share. In the textiles sector, where Mexico has
cut textiles tariffs by 10.7 percentage points under the NAFTA,
the U.S. share of Mexican imports is up 17.2 percentage points,
to 86.4%. In the transport equipment sector, where Mexico has
cut tariffs 10.2 percentage points under the NAFTA, the U.S.
share is up 19.2 percentage points, to 83.1%,. And in the
electronic goods and appliances sector, where Mexico has cut
tariffs by 9.0 percentage points, the U.S. share is up 5.7
percentage points, to 74.3 percent.
In industries such as autos, chemicals, textiles and
electronics, NAFTA is permitting U.S. companies to achieve
synergies across the North American market, improving their
strategic positions abroad and contributing to strong growth in
employment, production, and investment at home.
In several industries that have experienced strong U.S.
import growth from Mexico, Mexican imports have largely
displaced imports from other regions, which have lower U.S.
domestic content. In the textile and apparel industry, the
share of U.S. imports supplied by Mexico rose from 4.4% in 1993
to 9.6% in 1996, while the share of U.S. imports from China,
Hong Kong, Taiwan and Korea fell from 39% in 1993 to 30% in
1996. Close to two thirds of the apparel imports in 1996 was
comprised of U.S. content whereas the U.S. content of apparel
imports from these Asian suppliers is minimal or zero.

Labor Protection

The NAFTA is working for both industry and labor. The North
American Agreement on Labor Cooperation (NAALC) that was
established by the NAFTA has generated cooperation on
fundamental labor issues and enhanced oversight and enforcement
of labor laws.
The NAALC submission process subjects member governments to
public and international scrutiny for alleged failure to
enforce of labor laws. The submission process has contributed
to such outcomes as the recognition of a union for the first
time and the holding of secret representation union ballots at
one company and one federal government department where union
representative votes previously were generally not secret. The
combination of stepped up cooperation on a variety of labor
issues and the submission process is contributing to progress.
Between 1993 and 1996, Mexico's Secretariat of Labor and
Social Welfare increased funding for the enforcement of labor
laws by almost 250% in real terms. Mexico has reported a 30
percent reduction in the number of workplace injuries and
illnesses since the NAFTA was signed. Mexico has issued new
occupational safety and health regulations that break new
ground in providing protection to workers, including
construction and agricultural workers and pregnant women.
Under the NAALC, the Canadian, Mexican, and U.S.
governments have initiated cooperative efforts on a variety of
labor issues, including occupational safety and health,
employment and training, industrial relations, worker rights
and child labor and gender issues. As these efforts continue,
the capacity of our respective governments to effectively
enforce fundamental labor laws and improve working conditions
and worker protections increases.

Environmental Protection

The NAFTA also includes mechanisms to address environmental
problems that have long challenged communities along our 2000-
mile border with Mexico. In many respects, the NAFTA's
environmental agreements are generating unprecedented regional
cooperation on broad environmental issues and improved
enforcement of environmental laws in North America.
Environmental institutions established under the NAFTA are
certifying and financing infrastructure projects designed to
improve the environment along the U.S.-Mexico border. To date,
16 projects with a combined cost of nearly $230 million have
been certified by the Border Environment Cooperation Commission
(BECC). More generally, the North American Development Bank
(NADBank) will be able to leverage its capital into $2 to $3
billion in lending. Construction has already begun on seven
projects, including a water treatment facility in Brawley,
California and a water supply project in Mercedes, Texas.
The NAFTA Commission for Environmental Cooperation, or CEC,
has strengthened trilateral cooperation on a broad range of
environmental issues, including illegal transboundary shipments
of hazardous wastes, endangered wildlife, and the elimination
of certain toxic chemicals and pesticides.
Through the CEC, Mexico has agreed to join the United
States and Canada in banning the pesticides DDT and chlordane,
helping ensure that these long-lived, toxic substances no
longer cross our border from Mexico. Also, the CEC recently
released the first annual pollutant release and transfer
register published for North America.
The United States and Mexico have launched a Border XXI
Environmental Protection program establishes five-year
objectives for a cleaner border environment and a blueprint for
achieving them. U.S. and Mexican officials are continuing to
reduce emissions from vehicles at border crossings, tracking
transboundary shipments of hazardous wastes, and operating and
U.S.-Mexico Joint Response Team to minimize the risk of
chemical accidents, among other activities.
Mexico has established a voluntary environmental auditing
program, which has completed audits of 617 facilities to date.
Of these, 404 companies have signed environmental compliance
Action Plans representing more than $800 million in
environmental investments in Mexico.
Mexico reports a 72% reduction in serious environmental
violations in the maquiladora industry since the NAFTA was
signed, and a 43% increase in the number of maquiladora
facilities in complete compliance.
Clearly the longstanding problems in the border region have
not all been resolved. But the NAFTA's environmental
institutions are providing new and powerful tools to address
many of these problems that were decades in the making.

Conclusion

The NAFTA is bringing fairer trade to North America. No one
can dispute the fact that the NAFTA is gradually accomplishing
its central objective of opening the Mexican market--our second
largest export market in the second quarter of 1997, with
plenty of room to grow--to a far greater degree. Mexico's
economic reform process is largely locked in by the
comprehensive rules of the NAFTA, and the agreement encourages
even more market-oriented reforms. Furthermore, the NAFTA
expands upon the previous U.S.-Canada Free Trade Agreement by
increasing U.S. capacity to service the Canadian market.
Open trade is not an end in itself; the long-term, well-
being of the American people, including the economic security
of U.S. workers must always be paramount. Furthermore, the
NAFTA--as important as it is--is not the prism from which all
elements of U.S. trade and investment policy now and in the
future should be viewed. We need to be global and multifaceted
in our trade policy and agreement strategies to succeed in the
vast world marketplace. We are also convinced that the NAFTA
and other market opening agreements as well as those we will
negotiate working with Congress are in the interests of the
U.S. economy and its workforce.
Mr. Chairman, we must continue to chart the important
course that builds on our strength to ensure that we open
markets around the world and fight for fairness in the global
trading arena. I will be happy to take questions.

Chairman Crane. Thank you, Jeff. And to start out, Ross
Perot, you remember, confidently predicted that NAFTA would
lead to that great sucking sound of United States jobs and
investment relocating in Mexico. I have heard from some of my
colleagues here that the sucking sound took the jobs to Texas.
Mr. Lang. Took the jobs from Texas?
Chairman Crane. Right. No. It took the jobs down to Texas.
They are now the second largest export State in the Union.
But according to your figures, have U.S. living standards
improved during the years NAFTA has been in effect?
Mr. Lang. Yes. We have added a huge number of jobs. I am
not sure I can come up with a number right now. I am sure it's
in this book. Over the last 5 years, the added number of jobs
is around 11.5 million. That would overwhelm any effect. The
important thing is that the export jobs are paying considerably
better than any other jobs in the economy. The estimates are 13
to 16 percent above the national average for nonsupervisory
production workers. Those are the jobs I am talking about.
We have some estimates of jobs that are supported by
exports to Canada and Mexico, but I think it's very difficult
to work with these numbers. All we can say is that the economy,
as a whole in terms of jobs, is growing very effectively, and
that overwhelms any effect of NAFTA which is slightly positive
according to the studies we have cited in the President's
study.
Chairman Crane. Since the NAFTA, can you give us some input
on the impact of that sucking sound that Ross Perot talked
about with job loss? What are the unemployment levels going
back over the last 2 or 3 years?
Mr. Lang. The unemployment levels in the United States have
been coming down quite dramatically.
Chairman Crane. Coming down since NAFTA?
Mr. Lang. Oh yes, absolutely. Today, the unemployment level
is, I think, in the neighborhood of 4.9 percent.
Chairman Crane. I heard 4.8, but the thing that is
interesting in response to Mr. Perot's charges at the time we
were debating NAFTA was that great loss of jobs that would be
sucked down to Mexico. If that is correct, why is it we have
continued to have reduced unemployment rates, and I think we
are at record lows in the last 27 years.
Mr. Lang. Yes, that is true, Mr. Chairman.
Chairman Crane. NAFTA opponents contended that Mexico would
always be too poor to be a significant market for United States
exports as well. Has this allegation been borne out by the
facts?
Mr. Lang. No, quite the contrary. It is true that in 1995,
Mexico had a peso crisis and a resulting recession. But exports
have already begun to recover, in great part, I think, because
NAFTA kept that market open for U.S. exports.
I remember, because I lived through it at the time, the
effects of the peso crisis in 1982. It took 7 years for our
exports to recover. Under NAFTA, it took about 7 months. We are
now improving our trade balance with Mexico. It has moved from
number three to number two as an export market for us.
Chairman Crane. Ahead of Japan, right?
Mr. Lang. Ahead of Japan. And we in the first 6 months of
this year, compared to the first 6 months of last year, the
data show that we are running a smaller trade deficit with both
Mexico and Canada.
Chairman Crane. In February 1995, under pressure created by
that peso devaluation, Mexico imposed high tariffs on imports
of apparel, leather, and footwear, to name just a few sectors.
Why were U.S. exports exempted from these tariff hikes?
Mr. Lang. Because of NAFTA.
Chairman Crane.How does this contrast to the treatment of
U.S. exports in 1982 with that peso crisis?
Mr. Lang. Well, what happened in 1982 is that Mexico
greatly increased its tariffs, essentially made them
prohibitive and applied them on an MFN basis. We were subject
to them just like everybody else. I might say that exacerbated
the problem in Mexico, as well as creating a problem for us.
Today, Mexico is stronger because it did not have some of
those bad options to solve the problems that had caused its
recession.
Chairman Crane. Thank you, Jeff.
Mr. Matsui.
Mr. Matsui. Thank you, Mr. Chairman.
Ambassador Lang, I want to thank you for your testimony
today. I appreciate the report. One of the problems I think the
proponents of the NAFTA are facing now is that the job
increases that some talked about back in 1993 never occurred.
Now people are saying that claims of job claims were
exaggerations. I went back and looked at the news clips and had
my staff as well. Ross Perot said we would lose 5 million jobs;
the giant sucking sound would lose 5 million jobs.
Ambassador Kantor, myself, Kolbe, Dreir, and a number of
others, Rostenkowski, Gibbons, Mr. Crane, I checked their
statements and not one of them talked about significant job
gains or losses. In fact, the most I believe any one of those I
mentioned talked about was a net positive or negative in the
range of 200,000; and I believe your report speaks of 90,000 to
160,000 net job gains in terms of the additional exports to
Mexico. We all knew this back in 1993 and Mr. Kantor,
Ambassador Barshefsky, and others, knew this because the
Mexican economy was 2 to 4 percent the size of the United
States economy. We knew, no matter what, it could not have a
significant impact on the U.S. job market.
In fact, if I recall, Mr. Reich talked about 2 million jobs
changing their description--job description--every year in the
United States, which he attributed to a dynamic economy,
because that means we were seeing technological advancement.
Unlike what some Luddites might say in the 1890's, and couple
that with the additional 2 million jobs that has been created
under this administration, you're talking about 4 million jobs,
either changing their descriptions or being added.
The reality is that any exaggeration was really caused by--
and I don't want to say the opponents--Mr. Perot and perhaps
Mr. Buchanan, but certainly Mr. Perot. I think your report
reflects, frankly, what Mr. Kantor and the spokespersons,
people for the administration, have been saying all along: This
would have a positive effect on the United States economy over
time because high-tech goods would be sent to Mexico; they're a
young market with 80 million people and would be expanding and
72 percent of Mexicans wanted United States goods, if I recall
the statistics.
I don't think the results in your report is much different
than what you had all predicted would ultimately happen, what
we all predicted, the proponents of NAFTA ultimately predicted.
Is that your sense and analysis of this?
Mr. Lang. Yes, I agree. I think at the time NAFTA went
through, the predictions were as you said; I think 200,000 is
the right number. The report confirms these modest effects.
When you look at the relative size of the economies involved,
it's fairly straightforward why that's true. This is a $7.5
trillion economy; a trillion dollars is a thousand billion. The
Mexican economy is $350 billion maybe. You've cut the budget
deficit of the United States in the last 5 years by almost
three times the size of the Mexican economy. So, the likelihood
that lowering our tariffs by 1.5 percentage points would create
an enormous job effect would have been an unlikely assumption
to make at that time, and that's confirmed by the report.
Remember, if you look at our GSP Program, for example,
which provides a zero-duty benefit to two-thirds, roughly 60
percent of our tariff schedule, to the whole developing world,
the average reduction in tariffs under that program is double
the cut we have made in NAFTA; and it's hard to find the job
effects there.
I think what you said is an accurate description of both
the report and our position 3 or 4 years ago.
Mr. Matsui. One other matter, as well, is the fact that we
tend to forget, 4 years later, what our goals were. Our market
to the Mexican economy was relatively open, if I recall. I
remember everybody was talking about maquiladoras. I would go
down to San Diego and say maquiladoras are going to ruin our
country and that was because our market was open to Mexican
products. What we did, if I'm not mistaken--perhaps you can
confirm this--is the whole goal of the NAFTA was to reduce
Mexican tariffs, and I believe that the Mexican tariffs have
been reduced five times as much as United States tariffs over
this last 4-year period, or 500 percent more than United States
tariffs. Is that a correct statement?
Mr. Lang. Yes, that's about right. Their tariffs have gone
down 7.1 percentage points; ours about 1.5 percentage points.
So that's just about exactly the order of magnitude of the
relative reduction, but remember if you gain a 7-percent margin
in selling a product to a large market--this is 90 million
people--you're really gaining a significant price advantage.
It's very hard to have almost any economy of scale and take
advantage of 1.5 percentage points. That's takes a really long
production time.
Mr. Matsui. The last question or line of thought on this is
I know some of the opponents of NAFTA have suggested that
because we have a United States, Mexican, Canadian trade
agreement now, the Mexican economy is stabilized, their
government is stabilized, and so we're losing investments. All
these investments now are going to Mexico.
Perhaps I should be asking the State Department this, but
isn't it in our interest to have a stable Mexican Government
and a stable Mexican economy, be the fact that 80 million
people border the United States? Wasn't that one of the goals
of the NAFTA?
Mr. Lang. Well, it surely is in our interest to have a
stable Mexico. We're the only industrialized country in the
world that shares a 3,000-mile border with a developing
country, and we need economic growth and stability there badly.
I would say on the investment point, in fact, we are
actually importers of capital. That rate of importing capital,
of course, is invested in plant and equipment here in the
United States. It makes up for our savings rate, which is low
relative to other industrialized countries. We import capital
at something like five or six times the rate, maybe greater
than that, that we have exported to Mexico. We're bringing in
much more capital than we are investing down in Mexico, and I
can get you the exact numbers if you need them.
Mr. Matsui. I want to thank you for your testimony and look
forward to working with you.
Mr. Lang. Yes, sir.
Chairman Crane. Mr. Herger.
Mr. Herger. Thank you, Mr. Chairman.
And Ambassador Lang, it's good to have you with us. The
district I represent in northern California is very much
dependent on the export of our agricultural commodities,
particularly, our specialty crops.
I'd like to just ask: Following the 1994 peso devaluation
in Mexico, in your opinion, did NAFTA help to limit the
deterioration in the bilateral trade balance with Mexico that
it would have been had we not have had it?
Mr. Lang. Yes, sir, absolutely. For one thing, it kept the
Mexican market open and continuing to open in a way we would
have had difficulty doing otherwise, because there's such a
deep tariff reduction schedule for Mexico relative to the
United States. In other words, they had higher rates to start
out with than we did, so they have to come down more each year
in order to get to zero by the end of the 15-year period.
More than that, NAFTA's a much deeper agreement than
virtually any trade agreement we've entered into. It has
standards issues: It covers intellectual property, all kinds of
issues that were leading-edge issues in multilateral
negotiations. All those things help to stabilize the situation,
deny bad policy alternatives to a developing country that might
otherwise have adopted them, help to right the Mexican economy
more quickly, and then bring back incomes in that country so
that they can continue to grow and become a good market for us.
So it helped in a lot of ways.
Mr. Herger. I believe you mentioned in your testimony,
compared to the 1980 evaluation, that there was a major
difference in how quickly we were able to come back.
Mr. Lang. Yes, the striking difference is time. In 1982 it
was 7 or 8 years. For most products in Mexico, it was on the
order of 7 months. That's a pretty striking difference.
Mr. Herger. Thank you. In February 1995 under pressure
created by the peso crisis, Mexico did impose some high tariffs
on imports of apparels, leather goods, footwear, to name a few.
Were U.S. exports exempted from these tariff hikes that they
were putting on these goods from other countries?
Mr. Lang. Yes, they were, and more than that, there were
other tariff increases, too, which NAFTA protected us from. And
as a result, we have increased our share--in that sector, for
example, from maybe 75 percent to something like 85 percent of
Mexico's imports.
Mr. Herger. So, just in these areas and comparing what had
happened in the early eighties and what had happened now, we
can really see some very dramatic differences in our ability to
be able to trade and to continue to trade that were not there
prior to the NAFTA?
Mr. Lang. Yes, sir, I agree with that statement.
Mr. Herger. Thank you.
Mr. Lang. Thank you.
Chairman Crane. Mr. Jefferson.
Mr. Jefferson. Thank you, Ambassador Lang, and thank you,
Mr. Chairman.
I just have two questions, unrelated.
The first is, I don't know if you were in the room, I guess
you were, when a question was raised about enforcement and
about the enforceability of side agreements. I want to ask you
whether the fact that the NAFTA had some side agreements on
labor, environment, and maybe some other issues--that weren't a
part of the core agreement as we are describing it--limited the
capacity of your office to enforce those aspects of the
agreement; whether they had any affect on enforceability of it
at all.
Mr. Lang. No, I don't think so. Some of the environment
provisions are actually in NAFTA. For example, not using
environmental regulation in discriminatory ways, so they're
subject to the normal chapter 20 enforcement mechanisms.
With respect to the side agreements, there is a separate
dispute settlement mechanism, but it is a dispute settlement
mechanism and it is being used. It's being used on the
environmental side more than on the labor side. We're not sure
exactly why more labor complaints are not being brought, but I
cited a few examples in my testimony about things that have
been done with respect to organizing and plans and that sort of
thing. In any event, those dispute settlement mechanisms exist.
We expect them to be vigorous. If necessary, they can result in
monetary damages against governments, and if those damages
aren't paid, there are remedies provided for on the trade side.
So, while we are only at the beginning of this process, there
is a dispute settlement mechanism available with respect to the
side agreements. That was essential to getting the President's
support for the NAFTA in the first place, and I have confidence
they will work when fully tested over time.
Mr. Jefferson. As far as you're concerned then, though you
haven't seen the side agreement enforcement mechanism fully
tested because time hasn't permitted for it, you see no
difference between the capacity of those enforcement agreements
in your results than the other enforcement mechanisms in the
core of the agreement.
Mr. Lang. Well, I guess, to be absolutely sure, we'll have
to see what happens over time. We're 2\1/2\ years into this,
but I don't see any reason why they can't work effectively to
achieve their objectives with the enforcement of Mexican law.
I'm pleased to see the Mexicans have actually increased the
enforcement dollars and the number of enforcement people, in
both environment and labor. I think that's obviously a response
to the side agreements. It's a way of assuring they don't get
in trouble under the side agreements, I think.
Mr. Jefferson. Changing subjects, I want to follow up a
little bit on something that Mr. Matsui brought up about the
investment issue.
Wouldn't you say that the United States is a net importer
of capital? Does it really answer the question of whether there
have been capital outflows to Mexico that otherwise would have
been invested in the United States?
Mr. Lang. Well, I'm not any kind of economist. I'm
certainly not enough of an economist to know what the
opportunity costs are. Mexico did attract some outward
investment. I don't have anything that suggests what would have
happened to those dollars if they hadn't gone to Mexico, but I
would guess those were dollars that were seeking higher returns
than were available in the United States with a somewhat higher
level of risk. So, I would guess, and maybe the economists who
are on subsequent panels can help me with this, the alternative
for many of those dollars would have been to go to other
developing countries where the returns and risks were higher.
What NAFTA did, I suppose, was attract some of those
outward investment dollars because NAFTA created a floor of
security for those investors and lowered the risk premium. The
reason dollars are invested in the United States, by both
Americans and foreigners, is because the risk premium is so low
and the return is so certain because we have managed our fiscal
affairs in an appropriate way. I don't know that the two things
are related, except to say that we are attracting inward
investment dollars that are obviously making equipment and
plants that enable our workers to be the most productive in the
world.
Mexico's trying to import that kind of capital too, some
from us, some from other places, but they have a long way to go
to come up with the productivity scale to us, and our exports
of capital to them are relatively small.
Somebody just handed me some figures: World foreign direct
investment in the United States went from $46 billion to $77
billion between 1994 and 1996; and United States foreign and
direct investment in Mexico, in the same period, went from $3.7
billion down to $2.7 billion. Those are significant numbers,
but they're relatively small compared to our importing of
capital.
Mr. Jefferson. Now my time is up, Mr. Chairman, but one
last thing, if I might.
Mrs. Velazquez, when she testified 1 minute ago, talked
about the concerns about small- and medium-sized businesses.
How does NAFTA work with respect to encouraging more small- and
medium-sized businesses to enter the international market,
particularly the market with Mexico? And I'm done.
Mr. Lang. I did have a--if you'll just bear with me 1
minute, I need to get a little more information for you on
that, Mr. Jefferson. My impression is that in both Mexico and
the United States, NAFTA has made it possible for small
businesses to take advantage of productivity improvements that
they might not have been able to otherwise. But it is very
difficult to carve that effect out of the overall effects of
the improving productivity of both economies, particularly, the
economy of the United States. I'll just have to try to get you
a little more information later on. I'm sorry, I don't have the
data with me now.
[The information follows:]

Response:
USTR is not aware of any analysis of the specific impact of
the NAFTA on the role of small and medium-sized businesses in
the international market. However, research done for all U.S.
exports demonstrates the large role such firms play.
According to the Department of Commerce, 96
percent of US exporters were small and medium-sized businesses
with fewer than 500 employees, and 59 percent has less than 20
employees in 1992.
Between 1987 and 1992, the total number of U.S.
firms exporting increased from 104,564 to 127,000. Virtually
all of this increase is associated with small-firm entry to
exporting.\1\
---------------------------------------------------------------------------
\1\ 1Testimony of Lara J. Fitz-Pegado, Assistant Secretary of
Commerce and Director General of the U.S. Foreign Commercial Service,
March 29, 1995 before the Subcommittee on Procurement, Exports and
Business Opportunities. House Committee on Small Business.
---------------------------------------------------------------------------
A 1994 survey found that of 750 companies with
fewer than 500 employees found that 20 percent exported goods
and services that year, up from 16 percent in 1993 and 11
percent in 1992.\2\
---------------------------------------------------------------------------
\2\ Arthur Andersen, ``Survey of Small and Mid-Sized Businesses:
Trends for 1994.'' 1994.
---------------------------------------------------------------------------
A March 1995 study found that women-owned
businesses are more likely to develop a new product or service
or expand domestic operations than those women-owned firms
which do not export or import.\3\
---------------------------------------------------------------------------
\3\ National Foundation for Women Business Owners, March 1995.
---------------------------------------------------------------------------
While exports has risen dramatically in recent
years, small and medium-sized businesses have maintained their
share of U.S. exports, at over 70 percent in 1994.
The provisions of the NAFTA provide substantial advantages
for small and medium-sized businesses exporting to Canada and
Mexico:
Canada has long been our largest trading partner,
and Mexico recently passed Japan to become our second largest
trading partner.
All tariffs on qualifying goods trade with Canada
have now been eliminated, while tariffs with Mexico have been
reduced by over 60 percent to date, with additional reductions
each January 1.
NAFTA ended requirements that services providers
must establish themselves in Mexico, a restriction which is
especially costly for small and medium-sized businesses.
Under NAFTA labeling and standards requirements
are non-discriminatory. U.S. suppliers now have the ability to
comment on proposed standards related measures and participate
in standards development in Mexico and Canada.
NAFTA has also led to the development of
standardized customs procedures and regulations, including the
creating of a Customs NAFTA help desk with both U.S. and
Mexican staff.
Small and medium-sized businesses also are sharing in the
economy-wide benefits the NAFTA is providing for the U.S.
economy. A Presidential Study released in July 1997 notes that
NAFTA has boosted real exports to Mexico an estimated $12
billion in 1996, and an increase in imports of a more modest $5
billion. NAFTA also contributed $13 billion to U.S. real income
growth and $5 billion in business investment in 1996.\4\
---------------------------------------------------------------------------
\4\ ``Study on the Operation and Effects of the North American Free
Trade Agreement,'' 1997, page iii.
---------------------------------------------------------------------------
While analysis on the specific impact of the NAFTA on small
and medium-sized businesses has yet to be done, there are a
number of real-world success-stories that attest to the
opportunities created by the NAFTA and being utilized to the
fullest by U.S. firms. Several examples are attached.

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Ms. Dunn. Thank you, Mr. Chairman.
Mr. Lang. Sorry.
Ms. Dunn. Welcome, Ambassador; it's always good to have you
here. It's especially timely, from my point of view, because I
want you to focus on an issue of great concern to constituents
of mine back in Washington State and to all apple growers
throughout the United States. Last week, on September 1, the
Government of Mexico imposed a 101.1-percent duty on imports of
all United States red delicious and golden delicious apples,
and this is in addition to the 20-percent fee we already pay to
export those items into Mexico that will last through the end
of this year.
We believe it's a direct violation of the WTO obligations
that Mexico has, of the NAFTA, of Mexico's own antidumping
standards, and it is going to have a very severe effect on our
applegrowers and those who are trying to do business with a
neighbor who has accepted a great amount of our apple business
over the years. Particularly, it's going to have a very
deleterious effect on our apple growers in the State of
Washington. I would hope, Mr. Ambassador, you can tell us what
the USTR is doing in terms of activities to impress Mexico with
how important it is to withdraw the imposition of this
additional tax on our apples that is killing the industry. I
wonder if you could enlighten us on what's going on there?
Mr. Lang. Yes, ma'am. I have personally talked with the
representative of the industry in Washington State. Both,
Ambassador Barshefsy and Peter Scher, who we hope will shortly
be confirmed as our agricultural representative, have had
discussions with our Mexican colleagues about this. We've
encouraged the industry to give us the necessary information to
move forward, if necessary, into dispute settlement, which we
will do on our own initiative and quickly, if we can't resolve
this matter quickly. We obviously need the underlying
information to support the litigation posture.
As you can see from a similar--evidently similar--
situation, with respect to high fructose corn syrup, a couple
of--1\1/2\ or 2 months ago. Confronted with that information,
we will very quickly get into the dispute settlement system.
Our experience, as you know, with respect to a dispute
settlement is that in something like 75 or 80 percent of the
cases, we are able to favorably settle the matter before we
have to get to a panel. I would hope that Mexico could work
with us quickly to resolve this problem. We are still awaiting
some information from the industry about what they have
provided to the Mexican authorities at Secovi in connection
with the investigation, but we're ready to move aggressively on
this matter.
Ms. Dunn. There's no question that we need to do that. I
think that would be in the administration's best interest, and
I'm sure you agree as we move up against the fast track
authority that the administration is requesting. I will watch
with great interest. I have a lot of faith in your
effectiveness and in Ambassador Barchefsky's effectiveness, and
we'll wait with bated breath to see that this comes out well
for our industry, as quickly as possible.
Mr. Lang. I appreciate that; I'll take it back.
Ms. Dunn. Thank you, Mr. Chairman. Thank you.
Chairman Crane. Are you finished, Ms. Dunn?
Mr. Levin.
Mr. Levin. Mr. Chairman, I had my turn earlier, so I wasn't
going to participate at this moment, but I just wanted to say
something to the ambassador about your description on
enforcement. I reviewed the enforcement provisions a few days
ago and I really believe we need to be careful about how
they're described, because except in terms of labor market
areas--except in three areas--there essentially is no effective
enforcement provision; it's consultation. In those three areas,
it essentially gives Canada veto power. Isn't that correct?
Mr. Lang. Well, not Canada; it gives a panel list.
Mr. Levin. But Canada has to----
Mr. Lang. Maybe we ought to discuss this in more detail, so
that I understand fully the concern, but I think I agree with
the premise that expanding the scope of our labor agreements to
other subjects would be a useful thing to do, and guidance from
the Subcommittee would be welcome in which subjects we should
take up next.
With respect to the three subjects that are covered, being
able to get a country to enforce its own laws is the purpose of
the agreement. I'm willing to be educated; I don't claim to be
the world's leading expert on this, but I do think this is
within those three areas which are not unimportant. A
significant improvement over the situation that would exist
without it, and it is enforceable in the sense of side
agreements and environment.
Mr. Levin. Well, I suggest you look at the articles. For
example, article 29, which provides for enforcement in three
areas only: Occupational safety, child labor, or minimum wage/
technical labor standards. Outside of that, there really is no
enforcement mechanism. In those three areas there has to be a
two-thirds vote.
Let's be realistic. What it means is that since it's likely
that Mexico, if we were complaining, would vote no--otherwise
the issue wouldn't be there--essentially, it gives Canada veto
power. So, where you say it would be nice or you would be
interested in further action on enforcement, let me suggest
that everybody needs to be more clear and more direct on this
issue. There's no need addressing these matters, whether
they're in supplemental agreements or in the major agreement,
if there isn't enforcement, and meaningful enforcement in
there. That's one of the issues before us.
I don't understand the argument that these issues aren't
trade related to start with. They're economic issues. I also
don't understand the resistance to having these provisions
enforceable, meaningfully enforceable, like other provisions of
an agreement. I don't understand why people think it's not
considered germane and even vital. We're talking about
competition with countries that have very different standards.
We're not talking about imposing our standards. We're talking
about a system where the differences narrow over time and
starting with enforcement of their own laws and our ability to
make sure that that happens, both in labor, market issues, and
in environmental issues. I would hope you take another look and
that the administration would derive a clear position on it.
Thank you.
Chairman Crane. Mr. Watkins.
Mr. Watkins. Thank you, Mr. Chairman. I would like to
follow up on something Mr. Levin said, and Dr. Lang, welcome
you back.
I've got a concern about some of the enforcement
limitations. For instance, yes, NAFTA went into effect January
1, 1994. In some of the working groups, for instance, the
technical work group on pesticides met for the first time in
March 1996. We talk about fast track; I think we're talking
about slow track on some enforcements, and Mr. Levin is
correct; this is totally unacceptable. In fact, I think it's a
step further; it's human rights. I know Mr. Levin said we don't
want to enforce our standards. Let me say, if we put standards
on our business and industries and say this is a must for the
health and safety of our employees, then we should be
requesting some kind of standardization, some type. If not,
we're accepting an environment for their people, for their
citizens to work, in order to just get cheaper goods or
something in here. I think we should work to standardize, try
to work because we said its a human rights problem.
As I looked at this package that said they met the first
time in March 1996 and agreed to work on the technical problem
of pesticide restoration--to me, Dr. Lang, we need to start
saying how do we move that quicker and all. For instance, I'd
like to ask you when--on the executive summary--it talks about
how Mexico has agreed to join the United States in abandoning
pesticides DDT and chlordane. If agreed, when is that in
effect? Now, we banned it in the United States probably 20
years ago.
Mr. Lang. I'll just have to get the answer; I'm sorry, I
don't know. I'm told that probably it has gone into effect, but
I will check and make sure and send you a letter.
Mr. Watkins. Well, this is what's alarming to a lot of our
agriculture people, or farmers and ranchers, across this
country. It should be alarming to the consumers, because we've
said this is not acceptable to our health standards in the
United States and we pull that from our farmers and ranchers,
but we are allowing it to continue, if I put the dates and all
together.
Dr. Lang, I'm alarmed and the fact that there is a certain
amount of animosity out there, evidently, is very, very true.
So, some of us who have felt, yes, we've got to have this
hemisphere of common working together and all that; it's making
some of us a little bit nervous about fast track.
Mr. Lang. Well, I think, two comments if I may: One is the
basic idea of sanitary and phytosanitary protection, meaning
essentially anything in the food supply, is that all of us
ought to be able to set our own risk levels. That was an
original with NAFTA. It had never existed in our international
trade agreements before that. The only requirement is that the
measure we take in aid of the risk level we choose be
scientifically related to that risk level. So we have a product
that we don't allow in this country, because it's a risk to
human health and the environment.
Mr. Watkins. Dr. Lang, I hope you--and I try to be
positive--I hope you are hearing what you are saying. Let us
set up our own risk level.
Do you think OSHA requirements add to the cost of products
produced in this country? I was in business, and I can
guarantee you it costs a lot more, so it becomes an economic
problem, too. Does the discontinuation of use of certain
pesticides and insecticides and everything of this nature for
our farm ranchers affect their stocks. It's a risk level; it
affects the economic level. If we come in with that attitude,
we're just contributing to the lack of equity in our
environmental studies and environmental activities out there,
as well as inequity in our economic situation.
Mr. Lang. I'm sorry, I wasn't clear. We can apply that risk
level to the imports. That's what I meant to say. The risk
level we choose for ourselves, we can apply to imports. Without
this NAFTA mechanism, we wouldn't have had a way of raising
these pesticides issues with the Mexican folks. I'll find the
dates that everything went into effect for you, and give you a
letter on it, but I believe what we are doing is equalizing
that burden for our farmers, as between them and their
competitors.
[The information follows:]
Response:
The Council for Environmental Cooperation (CEC) reached
agreement in June 1997 on a North American Regional Action Plan
(NARAP) on chlordane and DDT. The goal of the NARAP on
chlordane is to end use, production, and trade among the three
countries (United States, Canada and Mexico) by 1998.
Recognizing the health need in Mexico to control malaria, the
DDT NARAP goal is to reduce DDT use by 80% in five years while
seeking another mosquito-control mechanism. Both the United
States and Canada have discontinued use of both chemicals
(except for lab testing). The CEC also facilitated agreement on
a protocol under the Sound Management of Chemicals Initiative
(SMOC) for identifying other substances for future NARAPs.

Mr. Watkins. My time is up and the Chairman has been very
kind to let me come here, and I want to thank him and the
entire Subcommittee. Just raising the issue is not enough. I
think, as Mr. Levin said, we've got to start some fast track
movement because a lot of people are alarmed out there. I thank
the Chairman of the Subcommittee for letting me come by and
join them today.
Thank you, Dr. Lang.
Mr. Lang. Thank you. I'll get back to you.
Chairman Crane. Ms. Thurman.
Ms. Thurman. Mr. Chairman, I, too, thank you for letting me
join this discussion this morning. I certainly welcome
Ambassador Lang again. We've had some of these conversations
before. We've talked actually with the agriculture and things,
but I just need to put some of this on the record.
Actually, in some testimony that was given before the ITC
in a matter of an investigation, 332381, our Commissioner of
Agriculture actually put in some testimony that, basically, had
some real concern to some of us in Florida and some concerns
that have already been raised by Mr. Shaw, where it said, in
1993, the ITC Chairman, Don Newquest, in an eloquent speech
delivered to the southern Commissioners of Agriculture in San
Antonio, stressed his support of NAFTA, but openly recognized
the big loser would be Florida agriculture. Unfortunately, some
of us believe those words have rung true.
Again, on March 24, there was a letter to Gloria Blue that
actually talked about in the early negotiations and discussions
of NAFTA that there was some need to look at several items,
provide safeguard mechanisms for perishable products, gain
harmonization of pesticide and technical regulations, consider
sanitary, photosanitary and food safety concerns, factor in
varying environmental, labor, and infrastructure requirements
among nations, allow for snap-back or other adjustments if one
nation's currency changes radically compared to close trading
partners, consider all forms of subsidy in support of products,
and refrain from serious damage to any sector of the economy of
our Nation.
The concern that I have and from what I've gathered more
recently in a more indepth study, is that none of these or many
of these documents and negotiation issues have not been
resolved. Yet, as some of us would tell you, Florida we believe
has really been hurt by this and some of these issues, had they
been addressed, had been looked at. We're now 3 or 4 years into
this. When can we expect some of these items to be put on the
table and considered and resolved to some satisfaction?
With that, let me ask one question, because this will bring
it to an area where there is some legislation being looked at.
The administration has testified in support of the change in
the seasonality legislation. So does that support still exist?
Is that something we could go forward with? It certainly would
have an impact on some of those issues I've just raised.
Mr. Lang. Let me say, with respect to the first question,
some of the crop issues you talked about have already been
addressed. For example, on tomatoes, we seem to have worked out
an agreement with the Mexicans to the satisfaction of the
industry in Florida. I know citrus was mentioned earlier. We
have now worked out an agreement on Arizona citrus. We have a
work plan that the USDA and the Mexican officials are working
out on citrus. I think we can look forward to that moving
forward here in the near future. I'll have to stay in touch
with you about the exact dates, because there are some wrinkles
to iron out, but we've been working very hard to get that
resolved.
Ms. Thurman. Is this with Arizona or with Florida citrus?
Mr. Lang. Florida. Arizona's done; we're working on Florida
now, and we need to move forward quickly on that because of the
upcoming season. We're encouraging Mexico to do that in every
way possible. Any other of these agricultural issues you have,
we should move forward quickly on them. It is a difficult area,
but we are trying to get these work plans together so that the
trade can flow.
On the legislation, I think I'll have to get back to you
because I'm not familiar with it, unless someone who's here
with me----
[Pause.]
Mr. Lang. I'm sorry for the delay.
Ms. Thurman. That's OK.
Mr. Lang. I have been refreshed on this legislation, which
is essentially an additional commodity safeguard. I think we
may have to talk to you a little bit about the language, but I
think we have supported it in the past and we'll continue to
try to work with you on it now.
Ms. Thurman. Ambassador Lang, there is also going to be
some testimony later on this afternoon from the fruit and
vegetable folks that will argue that the section 201-202 is not
working in their industry and they are very concerned about it.
Quite frankly, we've spent hundreds of thousands of dollars in
a very expensive move, in attempts to seek that relief. I think
in some of the conversation we've heard up here on the remedy
issues, I guess the frustrating thing for us is--and I can give
you these numbers--while we say we're moving toward them, by
the time we get to the final end of this, we potentially won't
have Florida agriculture around to worry about in any
agreements, and I think that would be just an awful thing to
happen to this country and to the safeguard of the food and the
quality and the quantity of food that we provide. So, while it
may sound good that we're working toward an end, I would just
urge that we do this with some urgency before we lose an
industry.
Mr. Lang. I'll certainly take the point back. I would say
that what we attribute to NAFTA in these contexts--certainly,
no one wants to harm Florida agriculture, but NAFTA's effect in
agriculture, in many of these crops, has been small because our
rates of duty were so low and our protection was so small.
Anyway, with tomatoes as the example, where the industry
felt that the legal mechanisms didn't work, we were able to go
ahead, notwithstanding that fact, and find a way to make it
helpful; and we'll try to be helpful on all these other
products you have.
Ms. Thurman. Mr. Ambassador, I do believe that when we were
doing some of the negotiations through NAFTA, the tariffs issue
was brought up as a concern over the 15-year period of time,
and there was only in one instance, I think frozen orange
juice, that we were given that safeguard at all, understanding
and recognizing what we potentially thought would be a problem.
So, I don't think it's because of a lack of not trying to get
that point across.
Chairman Crane. Is the gentlelady finished?
Mr. English.
Ms. Thurman. Yes, thank you, Mr. Chairman.
Mr. English. Thank you, Mr. Chairman, and I also thank you
for an opportunity to participate here today with the
Subcommittee.
Welcome, Ambassador Lang.
When your report came out in July, I read it, and it
actually left me with a lot of questions which I will try to
pose to you quickly and get a quick answer. The report touts,
``a dramatic increase in exports to Mexico.'' What proportion
of these exports would you be willing to characterize as part
of the revolving-door phenomenon; that is, things that are
manufactured in America, sent to Mexico for some assembly or
value added, and then exported back--imported back--into the
United States?
Mr. Lang. About, I'm told, one-quarter of our exports are
returned.
Mr. English. One-quarter? OK. How did that compare to the
character of the exports to Mexico prior to NAFTA?
Mr. Lang. It was much less.
Mr. English. I noticed in your description of the impact of
NAFTA you didn't try to quantify the regional effect of NAFTA
within the United States. I noted that Pennsylvania has the
highest number of NAFTA TAA claims filed, at least in the
latest figures I saw. Can you give us any sense of the regional
effects of NAFTA, and specifically did the administration
review the impact on individual States?
Mr. Lang. I don't believe an effort was made by an
individual State. There were some products in which a regional
implication was fairly clear. For example, in potatoes there
was a clear distinction between the States along the northern
border in the West and the States in New England, particularly
Maine. But product by product, State by State, I don't believe
the ITC or any of the other studies--
[Pause.]
Mr. Lang. So that kind of information I don't think exists
and would be very difficult to come up with. I might express
one caution here, and that is the use of the these trade
adjustment assistance statistics.
Mr. English. I note your caution and I recognize the
problem with that. I'd like to move on. With regard to the
maquiladora phenomena, there have been some predictions that
NAFTA would change the nature of maquiladora activities which
seem to be associated with very low wages and also an extremely
high turnover in personnel. So we're not really talking about a
work force that develops substantial skills or really has
access to a lot of worker rights. Has there been any increase
in wage scales in the maquiladora since NAFTA, and has there
been any decline in turnover rates in the work force?
Mr. Lang. Yes. Let me see if I can--the first thing to
remember about the maquiladoras is that the phaseout runs
through, I think, it's 2001. Since NAFTA went into effect, the
maquiladores have been providing a decreasing share of United
States imports from Mexico. They're down from 49 percent in
1993 to 38 percent in 1996, and they're also--over the last 2
years, the exports have increased, but not as much as
nonmaquiladora exports of Mexico. Maquila exports have
increased I think 18 percent, and nonmaquila by 34 percent.
But the important thing is that the maquilas are no longer
insulated from competition the way they once were. They were
originally designed not to compete in Mexico, but now several
things have to happen by January 1, 2001, that are being phased
in.
First, they have to pay full Mexican duties on parts and
components imported from outside North America.
Second, all the import incentives and restrictions on
domestic sales are being eliminated. And, as I said, that's
happening gradually. As of January 1 of this year, 70 percent
of the value of a maquila's exports in the previous years could
be sold in the Mexican domestic market. This will go up by 5
percentage points a year until it reaches 100 percent in 2001.
And, third, the maquilas would operate under tax
obligations that are comparable to plants throughout the
country.
Now on your wage question, maquilas did pay less than both
domestically oriented and export-oriented firms in 1993.
However, by the end of 1996, the average monthly real wages
surpassed non-export-oriented manufacturing wages in Mexico,
real wages in Mexico, by something like 17 percent, and they
were nearly the same as export-oriented firms in the general
economy. That is, firms with between 40 and 50 percent of their
sales are being exported.
There's still a differential, but it's much narrower, with
firms that mainly export. Sixty to eighty percent of their
sales are exports. There's still a wage differential there, but
it's getting narrower.
One other interesting thing about maquila wages is that
they declined less during the peso crisis than wages of
manufacturing firms that were mainly focused on selling
domestically, which you might expect, but it is not
insignificant because employment is substantial: a 12-percent
decline versus something like a 25-percent decline in the
general economy.
Mr. English. Well, thank you very much, Ambassador.
Mr. Chairman, I appreciate the chance to ask these
questions. My time is up. I have other concerns about the
operating of the North American Agreement on labor cooperation
and the Commission for Environmental Cooperation. I feel that
in your report you talk a great deal about process things, like
meetings, seminars, and study tours, but I have not really seen
concrete results coming out of the labor and environmental side
agreements, and this troubles me greatly.
I appreciate the chance to ask questions here, Mr.
Chairman. And Ambassador Lang, I very much appreciate the good
working relationship you have had with our office over the
years.
Mr. Lang. Thank you very much. We'll be glad to keep it up.
Mr. English. Thank you.
Chairman Crane. Well, thank you very much, Jeff. We
appreciate your insights on the effects of NAFTA, and we look
forward to working with you and the administration in advancing
overall the free trade concept. Unfortunately, there is a
profound lack of understanding of the significance of it, and
we need your professional input to go beyond just the
Subcommittee and to get this message out to the public. We
appreciate the work you've done and look forward to working
with you in the future.
Mr. Lang. Thank you, sir. I do, too.
Chairman Crane. I would now like to introduce our next
panel of witnesses, beginning with George King, vice president
of Eastman Kodak and general manager of the Latin American
Region, on behalf of the National Foreign Trade Council; Julius
Katz, the president of Hills and Co.; Edie Wilson, trade
project director of the Democratic Leadership Council; and
Jeffrey Schott, senior fellow at the Institute for
International Economics.
And I would like to ask our panel to please try and
condense their written statements in oral presentation to 5
minutes, but your complete statements will be inserted into the
record. I look forward to your testimony.
And we will proceed first with Mr. King, and in the order
in which I presented you to the Subcommittee.

STATEMENT OF GEORGE M. KING, GENERAL MANAGER, LATIN AMERICAN
REGION, AND VICE PRESIDENT, EASTMAN KODAK CO.; ON BEHALF OF
NATIONAL FOREIGN TRADE COUNCIL, INC.

Mr. George King. Thank you. It's a pleasure to be here
today, Mr. Chairman.
Mr. Chairman and distinguished Members of the Subcommittee,
my name is George King. I'm a general manager of the Latin
American Region for the Eastman Kodak Co., and I am a vice
president of the company.
I'm appearing before you today on behalf of NFTC, the
National Foreign Trade Council, a broad-based group of more
than 550 U.S. companies with substantial international
operations or interests. I appreciate the opportunity to
testify on NAFTA's record.
Kodak and the NFTC strongly supported NAFTA when Congress
voted on it in 1993. In our view, NAFTA is working, and working
well. It is in our strong national interest, therefore, to keep
this landmark agreement intact, and, in fact, see it flourish
in the years ahead. And I'll tell you why.
There are several important benefits this country has
realized from NAFTA so far, each one measurable, each one in
the American national interest, each one a benefit that would
not have occurred without NAFTA.
Most importantly, NAFTA's basic goals are being achieved.
Primarily, this means leveling the playingfield for trade
between Mexico and the United States. Moreover, NAFTA has
contributed significantly to progress in overall United States
relations with Mexico and has provided strategic benefits as
this country implements its broader trade objectives.
But back to my first point about leveling the playingfield
for United States-Mexico trade. NAFTA's principal goal was to
eliminate Mexico's tariff and nontariff barriers to trade and
to establish a trade relationship based on reciprocity. Before
NAFTA, Mexican tariffs on United States goods were nearly five
times higher than United States tariffs with 50 percent of
United States imports from Mexico entering the United States
duty free. Mexico has had a variety of rules, requirements, and
quotas that inhibited United States sales, and some markets,
like telecommunication services, were essentially closed to
United States companies.
Despite this recent economic crisis, Mexico has kept its
NAFTA commitments to reduce tariffs. Average applied tariffs on
United States exports to Mexico now average less than 3
percent, down from 10 percent, with duties eliminated
altogether on half of all United States exports to Mexico.
Mexico also has removed nontariff barriers, as agreed under
NAFTA.
These tariff and nontariff changes, all due to NAFTA, have
significantly boosted United States exports to Mexico. The
first year of NAFTA exceeded all expectations with U.S. exports
growing by 22 percent to $50.8 billion.
Looking at this from Kodak's perspective, my company's
experience with NAFTA has been very positive. Since NAFTA,
Kodak has saved over $100 million in tariffs on trade among the
United States, Mexico, and Canada. This has allowed us to make
production decisions based on rational economic grounds instead
of tariff or political considerations.
For example, because our United States exports no longer
face steep tariffs when entering Mexico, Kodak did not have to
manufacture in Mexico to get around trade barriers. NAFTA
enabled us to transfer a high-cost photographic manufacturing
operation from Mexico to our Rochester, New York, facility, and
this has increased efficiency, lowered cost, improved our
quality, and made us a much tougher global competitor in the
process.
Kodak's overall exports to Mexico have increased roughly
114 percent since 1993 to over $250 million annually, and our
exports to Canada have increased 12.5 percent. Taken together,
Mexico and Canada buy over $600 million in Kodak exports every
year, helping to make our company one of New York State's
largest manufacturing exporters. Kodak's imports from Mexico
have also increased, providing clear evidence that NAFTA is a
win-win proposition for the United States, as well as for its
NAFTA partners.
Next, to my point about NAFTA's broader benefits: Although
NAFTA is a trade agreement, the closer cooperation it has
created in our trade relationship with Mexico has manifested
itself in other areas. For example, the rapid turnaround in the
Mexican economy, made possible in part by NAFTA, helped Mexico
repay early and in full the substantial loan package provided
by the United States.
It is also important to note that NAFTA is the most
comprehensive trade agreement ever negotiated by the United
States. It has served as a guidepost for various other trade
negotiations, ranging from intellectual property rights to
technical and technological standards. For example, the NAFTA
rules for marking country of origin for photographic film are
now being adopted by the World Customs Organization, leading to
more uniformity and integrity in film labeling.
Consider also the strategic benefit NAFTA provided the
Uruguay round of multilateral trade negotiations. NAFTA sent a
strong signal that the United States was prepared to eliminate
trade barriers on a comprehensive and preferential bilateral
basis, and NAFTA also has triggered the spread of trade
agreements in our hemisphere, which we hope will serve as
building blocks for a Free Trade Agreement of the Americas.
NAFTA doomsayers and fear mongers will tell you the sky is
falling. It is not. For Kodak, NAFTA has increased United
States exports to Mexico, helped us to avoid costly investments
in redundant manufacturing facilities, and focused our high
valued-added operations in Rochester. One need only examine the
facts as we have outlined them to understand why NAFTA is a
win-win situation, and now is the time for us to build on that
success, to empower this country further in the international
trade by providing fast track authority to negotiate other
trade expansion agreements like NAFTA.
Thank you again for this chance to testify on behalf of
NAFTA.
[The prepared statement follows:]

Statement of George M. King, General Manager, Latin American Region,
and Vice President, Eastman Kodak Co.; on Behalf of National Foreign
Trade Council, Inc.

Mr. Chairman and distinguished members of the Subcommittee,
I am George King, General Manager, Latin American Region, and
Vice President of Eastman Kodak Company. I am appearing today
on behalf of the National Foreign Trade Council, a broad-based
organization of more than 500 U.S. companies having substantial
international operations or interests.
I appreciate the opportunity to testify on NAFTA and its
record after three years. Kodak and the NFTC were two leading
voices in strong support of enacting NAFTA in 1993 and so it is
with great interest that I appear before you today to reflect
on this landmark trade agreement. In our view, NAFTA is working
well, it is an agreement we should be proud of, and it remains
very much in our national interest.
I would like to focus my remarks on three central issues
that, in the view of the NFTC and its member companies, are key
measurements in gauging the impact of NAFTA: 1) the achievement
of NAFTA's basic goals; 2) NAFTA's catalytic effect on the
overall bilateral U.S.-Mexican relationship; and 3) the
strategic benefits of NAFTA on broader U.S. trade policy
objectives. Although NAFTA is a free trade agreement among all
three North American countries--the United States, Canada and
Mexico--my testimony will focus more on Mexico than Canada in
light of the ongoing attention given to that part of the
agreement.

The Record is Clear--NAFTA's Goals Are Being Met

The principal goal of NAFTA was to eliminate Mexico's tariff and
non-tariff barriers to trade and to establish a bilateral trade
relationship based on reciprocity. Opponents of the agreement tend to
forget that the United States is the largest, most open market in the
world that was already easily accessible to Mexico before NAFTA. Before
NAFTA, Mexican tariffs on U.S. goods were several times higher than
U.S. tariffs. Mexico's applied tariffs averaged 10 percent, while U.S.
applied tariffs on Mexican imports averaged 2.07 percent, with 50
percent of U.S. imports from Mexico entering the U.S. duty-free.
Moreover, in sharp contrast to the U.S., Mexico had local content and
export requirements, quota and trade-balancing rules, all of which
inhibited U.S. sales to Mexico. Some Mexican markets, like
telecommunications services, were essentially closed to U.S. companies.
NAFTA is leveling the playing field for trade between Mexico and
the United States, and despite its recent deep economic crisis, Mexico
has kept its NAFTA commitments to reduce its tariffs. Several rounds of
tariff cuts have taken place and Mexico's applied tariffs on U.S.
exports now average less than 3 percent, with duties eliminated
altogether on 50 percent of U.S. exports to Mexico. Our average applied
tariff on imports from Mexico is now 0.65 percent. Under NAFTA so far,
Mexico has reduced average applied tariffs by more than 7 percent,
while the U.S. has reduced its average applied tariff by just 1.4
percent.
Mexico has also moved ahead to remove non-tariff barriers as agreed
in NAFTA. For example, before NAFTA, Mexico had in place a highly
restrictive auto regime of non-tariff barriers, which effectively
limited U.S. exports to Mexico to 4,000 cars and 2,000 trucks per year.
As a result of the new access provided for in NAFTA, U.S. exports of
motor vehicles have grown more than five times.
NAFTA's tariff and non-tariff reductions have significantly boosted
U.S. exports to Mexico. The first year of NAFTA exceeded all
expectations, with U.S. exports growing by 22% to $50.8 billion. Even
in 1995, following the Mexican peso crisis, U.S. exports to Mexico were
11 percent higher than 1993, the year before NAFTA went into effect,
and Mexico remained our third largest partner. Since the recovery of
Mexico in 1996, U.S. exports have reached record levels--36.5 percent
higher than pre-NAFTA levels. Mexico has already begun to replace Japan
as our second largest export market for U.S. goods on an annual basis.
Kodak's experience with NAFTA has been very positive. In the three
years since NAFTA has been in existence, Kodak has realized significant
benefits. We have saved more than $100 million in tariffs on trade
among all the U.S., Mexico and Canada. This has enabled us to make
production decisions based on rational economic grounds rather than on
tariff considerations. For example, because our U.S. exports no longer
face steep tariffs when entering Mexico, Kodak was able to transfer a
high-cost photographic sensitizing operation from Mexico to our
Rochester, New York facility. This has increased our efficiency,
lowered our costs, improved our quality, and made us fiercer global
competitors in the process.
In addition, the expanded worldwide demand for Kodak's one-time-use
cameras, which are produced in Mexico, New York and France, has
increased overall demand for 35 millimeter color negative film. This
film is produced in our Rochester plant.
Kodak's overall exports to Mexico have increased roughly 114
percent since 1993 and are now more than $250 million annually. Our
exports to Canada have increased 12.5 percent. Kodak's imports from
Mexico have also increased, providing clear evidence that NAFTA is a
win-win proposition for our company and for all three NAFTA partners.
Importantly, our facilities in Mexico manufacture goods for Mexico, the
United States, Latin America and other world markets.
Other NFTC member companies have had similar positive experiences
with NAFTA. For example, Fluor Daniel, one of the world's leading
engineering, construction and diversified service companies formed a
joint venture company in Mexico in 1993, ICA Fluor Daniel, which has
seen its revenues grow an average of 30 percent for the past three
years. NAFTA is also benefitting Fluor Daniel's U.S. suppliers. On a
major project for Pemex, Mexico's national oil company, the lower
tariffs under NAFTA were cited as a primary reason why American
equipment was the first choice for the project under consideration.
Lower tariffs under NAFTA also resulted in a decision by ICA Fluor
Daniel's European partner on a separate Pemex project to ship key
components from Europe to the U.S. for final manufacturing and assembly
prior to final shipment to Mexico. This is work that would otherwise
have been performed in Europe.
Not only is NAFTA breaking down Mexico's very high trade barriers
to us and leveling the playing field, it has also promoted U.S.
dominance in the Mexican market. Our share of Mexico's imports has
grown from 69 percent before NAFTA to 76 percent today. At the same
time, our non-NAFTA European and Japanese trading partners have seen
their market shares decline.
It is also important to note that NAFTA kept Mexico on the path
toward open reform and trade liberalization with the United States
during its worst recession in recent history. This is in sharp contrast
to what happened during the financial crisis of 1982 when Mexico
imposed 100 percent duties and other trade restrictions on American
products. It took seven years for our exports to recover then. This
time it took only eighteen months. In good times and bad, NAFTA has
been a safety net for the over 700,000 U.S. workers whose jobs depend
on exports to Mexico.

NAFTA's Broader Benefits

Although NAFTA is a trade agreement, the closer cooperation it has
created in our trade relationship with Mexico has manifested itself in
other areas. There has been major progress in our bilateral relations
in one issue area after another.
Mexico has taken unprecedented steps in major areas of great
interest to the United States. On immigration, for instance, Mexico has
agreed to allow the United States to airlift some illegal immigrants
back into the interior of Mexico, rather than just across the border.
In helping Mexico to develop and grow, moreover, NAFTA is one of the
long-term solutions to the ongoing problem of illegal immigration
between our two countries.
The same can be said for improving the environment in Mexico. Not
only has NAFTA encouraged enhanced cooperation on bilateral
environmental issues of concern, but as Mexico prospers and grows, it
will have greater resources to increasingly address environmental
matters that deserve ongoing attention.
Another important bilateral benefit of NAFTA was the role it played
in helping Mexico recover quickly and strongly from its economic
crisis. The rapid turnaround in the Mexican economy made possible, in
part, by NAFTA, enabled Mexico to repay early and in full the
substantial loan package provided by the United States.
The historic July 6 mid-term elections in Mexico point to another
significant indirect benefit of NAFTA--promoting a more open and
democratic country. By helping to lock in Mexico's economic reforms and
creating a more open trade regime, NAFTA has been part of the difficult
transition underway in moving Mexico from a closed economic and
political system to an open, capitalist democracy. After 68 years of
one-party rule, Mexico has now embarked on a path toward greater
political pluralism. President Zedillo should be congratulated for his
leadership and dedication to the remarkable reforms and changes that
have taken place.

NAFTA Has Been of Strategic Importance to the Overall U.S. Trade Agenda

NAFTA has been of strategic benefit to the United States in
implementing its broader trade objectives. It is the most comprehensive
trade agreement ever negotiated by the United States and has been the
standard against which all other agreements are measured. This is not a
trade agreement we should shy away from. Rather, it has actually served
as a guidepost for various other trade negotiations in areas ranging
from intellectual property rights to standards. While the NFTC and its
member companies hope that future trade agreements will break new
ground in adopting even tougher disciplines on trade, NAFTA is a very
solid trade agreement.
Another strategic benefit NAFTA provided early on was its impact on
the Uruguay Round of multilateral trade negotiations. NAFTA sent a
strong signal to our major trading partners outside of North America
that the United States was prepared to eliminate trade barriers on a
comprehensive and preferential bilateral basis. The strong concern by
other countries, especially in Europe and Japan, that the United States
was losing interest in opening up trade on a multilateral basis,
instilled greater interest in and urgency to bringing the Uruguay Round
to a successful conclusion.
I might add on behalf of Kodak that the WTO, which was created by
the Uruguay Round trade agreement, is about to face a major test of its
ability to handle systemic Japanese trade barriers when it decides the
landmark photographic film case this fall. Kodak is confident that the
WTO will not allow pervasive--yet subtle--Japanese protectionism to go
unchallenged. Indeed, the film case has important implications for a
wide range of American industries, and if we are successful at the WTO,
this powerful and important new multilateral tool for dealing with
Japan may prove to be one of the Uruguay Round's greatest achievements.
NAFTA also triggered the spread of trade-expanding agreements in
our hemisphere, which hopefully will be the building blocks of a Free
Trade Agreement of the Americas. NAFTA can also take some credit for
the Asia-Pacific region's growing interest in regional trade-expanding
efforts sought by the United States, such as the Asia-Pacific Economic
Cooperation (APEC) forum. Unfortunately, other countries are now moving
ahead to conclude preferential trade agreements that exclude the United
States because the U.S. government lacks of fast-track trade
negotiating authority.
Without fast-track trade negotiating authority, our ability to
access foreign markets is seriously compromised and places us at a
competitive disadvantage. Renewal of fast-track must be a top priority
for our government. It should be broad in coverage and long-term.
The issue of linking labor and environmental issues to fast-track
is controversial. While non-trade objectives are worthy in themselves,
they should not be linked to trade expansion nor impede the progress of
opening markets around the world. Trade expansion itself brings
economic development for our trading partners, which supports improved
environmental and labor conditions.
In conclusion, NAFTA has been in our view an unqualified success.
NAFTA doomsayers and fear mongers are wrong and one only needs to look
at the facts to understand why. The U.S. economy is strong and
worldwide competitive. NAFTA--thanks to the willing partnership of our
close neighbors--is part of that economic strength. Clearly, we have
nothing to fear from Mexico, which is just 1/25th the size of our
economy. Now is the time to build on our economic strength by enacting
new fast-track authority to negotiate other trade-expanding agreements
multilaterally, regionally and bilaterally.
Thank you again for the opportunity to testify on NAFTA.

Chairman Crane. Thank you.
Mr. Katz.

STATEMENT OF JULIUS L. KATZ, PRESIDENT, HILLS AND CO.

Ms. Katz. Mr. Chairman and Members of the Subcommittee,
thank you for the opportunity to appear before the Subcommittee
which is considering the President's comprehensive study of the
operation an effects of the North American Free Trade
Agreement.
I believe that the President's report is a fair and
accurate appraisal of the effects of the NAFTA to date. From my
perspective, as the chief U.S. negotiator of the NAFTA, the
report's main conclusion--that the NAFTA has had a modest
positive effect on U.S. net exports, income, investment, and
jobs--is entirely reasonable and unsurprising. In our analysis
of the NAFTA's probable effects, prior to starting the
negotiations, we expected that the impact on the U.S. economy
would be positive, but small. Positive, because Mexico had a
much higher level of protection against United States goods
than we applied to Mexican products. Thus, we could only gain
from an agreement that would bring down Mexico's
disproportionately high trade barriers.
At the same time, the direct, measurable effects were
expected to be small because the United States economy is 10
times the size of Canada's economy and 20 times the size of
Mexico's. Apart from increased exports which would result from
a faster growing Mexican economy, and benefits to particular
sectors of our economy, the impact on United States economic
growth in the aggregate was bound to be modest in percentage
terms.
Nonetheless, we also believed that the achievement of a
North American free trade area would promote a number of
important strategic objectives.
First, the NAFTA would establish new world standards in
areas such as services, intellectual property rights, and
investment. Second, it would encourage and lock in the economic
reforms in Mexico, and help promote a model for reform that
others might follow.
Third, it would encourage economic reform and emerging
democratization measures in Mexico which would foster economic
growth and progress in an important neighbor.
Finally, the NAFTA would strengthen our global leadership.
In its first 3 years, the NAFTA advanced these strategic
goals. The NAFTA constitutes the most highly developed set of
rules contained in any trade agreement. It has established a
standard by which all other agreements are judged.
The NAFTA has helped to further and solidify economic
reforms in Mexico. During the peso crisis, Mexico did not close
its borders to trade, as it had previously done. While Mexico
raised some duties, as it could do under the GATT, it fully met
its NAFTA obligations, keeping most of its trade unrestricted.
Moreover, by undertaking tough domestic measures, the Mexican
economy has almost fully recovered from the crisis and is now
again growing at a very healthy rate.
Mexico has faced tremendous challenges over the past 3
years--the worst economic decline since the thirties, political
turmoil; and corruption resulting from drug trafficking, fed by
a huge, unremitting demand in the United States. These events
have cast Mexico in a very unfavorable light.
Despite the NAFTA's critics, the agreement is not
responsible for Mexico's ills. Rather, a series of policy
errors by the Mexican Government led to the 1995 economic
crisis. Nor was NAFTA responsible for, or intended to, remedy
by itself social and political challenges such as extreme
poverty, narcotics, and a political system dominated for
decades by one party.
A fair appraisal of Mexico would balance the problems
Mexico faces with the successes it has enjoyed. Despite
seemingly overwhelming odds, the Zedillo government has
continued to promote political, judicial, and economic reform.
Elections since 1994, including those held earlier this summer
for a variety of national, State, and local positions, were
free of fraud. And for the first time in decades, the ruling
PRI lost its majority in the Congress, as well as the important
position of mayor of Mexico City.
It is unreasonable to blame or to credit the NAFTA for
these events. But the motivations underlying Mexico's and our
interest in NAFTA are the same as those that inspire President
Zedillo to reform Mexico's political system. A growing and
prosperous Mexico depends on a functioning democracy and the
rule of law which the NAFTA, and the attention in the United
States that the agreement has brought to Mexico, helps support.
Beyond Mexico, the NAFTA has been a watershed event for
trade policy. Throughout the world it caused excitement,
anticipation, and in some quarters, anxiety. The practical
result was to give the United States important negotiating
leverage.
There were some immediate consequences. One was to provide
a catalyst for the conclusion of the Uruguay round. Another was
to stimulate commitments by Asian-Pacific and Western
Hemisphere heads of government to achieve free trade in their
regions over the next decade or so.
Unfortunately, we have not pressed our advantage and have
thereby lost ground. We have failed to carry out commitments
made by Presidents Bush and Clinton to bring Chile into the
NAFTA.
The reason, of course, is the lapse of fast track
negotiating authority since 1994. While the United States has
been inactive during this period, others have filled the
vacuum. Mexico, which had earlier concluded a bilateral free
trade agreement with Chile, has concluded agreements with most
countries of the hemisphere and is negotiating the MERCOSUR.
Canada now has an agreement with Chile and has announced an
intention to negotiate with MERCOSUR. Chile has also concluded
free trade agreements with a number of countries in the region,
the most important of which is with MERCOSUR.
The Congress should grant President Clinton's request for
new fast track authority, so that the United States can resume
its position as a trade policy leader.
Thank you, Mr. Chairman.
[The prepared statement follows:]

Statement of Julius L. Katz, President, Hills & Co.

Mr. Chairman and Members of the Committee:
Thank you for the opportunity to appear before the
Committee which is considering the President's comprehensive
study of the operation and effects of the North American Free
Trade Agreement (NAFTA).
I believe that the President's report is a fair and
accurate appraisal of the effects of the NAFTA to date. From my
perspective as the Chief U.S. Negotiator of the NAFTA, the
report's main conclusion--that the NAFTA has had a modest
positive effect on U. S. net exports, income, investment and
jobs--is entirely reasonable and unsurprising.
In our analysis of the NAFTA's probable effects, prior to
starting the negotiations, we expected that the impact on the
U.S. economy would be positive, but small. Positive, because
Mexico had a much higher level of protection against U.S. goods
than we applied to Mexican products. Thus, we could only gain
from an agreement that would bring down Mexico's
disproportionately high trade barriers.
At same time, the direct, measurable, effects were expected
to be small because the U. S. economy is ten times the size of
Canada's economy and twenty times the size of Mexico's. Apart
from increased exports which would result from a faster growing
Mexican economy, and benefits to particular sectors of our
economy, the impact on U.S. economic growth in the aggregate
was bound to be modest in percentage terms.
Nonetheless, we also believed that the achievement of a
North American free trade area would promote a number of
important strategic objectives.
First, the NAFTA would establish new world
standards in areas such as services, intellectual property
rights, and investment.
Second, it would encourage and lock-in the
economic reforms in Mexico, and help promote a model for reform
that others might follow.
Third, it would encourage economic reform and
emerging democratization measures in Mexico which would foster
economic growth and progress in an important neighbor.
Finally, the NAFTA would strengthen our global
leadership.
In its first three years, the NAFTA advanced these
strategic goals.
The NAFTA constitutes the most highly developed set of
rules contained in any trade agreement. It has established a
standard by which all other agreements are judged.
The NAFTA has helped to further and solidify economic
reforms in Mexico. During the peso crisis, Mexico did not close
its borders to trade, as it had previously done. While Mexico
raised some import duties as it could do under the GATT, it
fully met its NAFTA obligations, keeping most of its trade
unrestricted. Moreover, by undertaking tough domestic measures,
the Mexican economy has almost fully recovered from the crisis
and is now again growing at a very healthy rate.
Mexico has faced tremendous challenges over the past three
years--the worst economic decline since the 1930s; political
turmoil; and corruption resulting from drug trafficking, fed by
huge unremitting demand in the U.S. These events have cast
Mexico in a very unfavorable light.
Despite the NAFTA's critics, the agreement is not
responsible for Mexico's ills. Rather, a series of policy
errors by the Mexican Government led to the 1995 economic
crisis. Nor was NAFTA responsible for, or intended to, remedy
by itself social and political challenges such as extreme
poverty, narcotics, and a political system dominated for
decades by one party.
A fair appraisal of Mexico would balance the problems
Mexico faces with the successes it has enjoyed. Despite
seemingly overwhelming odds, the Zedillo Government has
continued to promote political, judicial, and economic reform.
Elections since 1994, including those held earlier this summer
for variety of national, state, and local positions, were free
of fraud. And for the first time in decades, the ruling PRI
lost its majority in the Congress as well as the important
position of mayor of Mexico City.
It is unreasonable to blame or credit the NAFTA for these
events. But the motivations underlying Mexico's--and our--
interest in NAFTA are the same as those that inspire President
Zedillo to reform Mexico's political system. A growing and
prosperous Mexico depends on a functioning democracy and the
rule of law, which the NAFTA, and the attention in the United
States that the agreement has brought to Mexico, helps support.
Beyond Mexico, The NAFTA has been a watershed event for
trade policy. Throughout the world it caused excitement,
anticipation and, in some quarters, anxiety. The practical
result was to give the United States important negotiating
leverage.
There were some immediate consequences. One was to provide
a catalyst for the conclusion of the Uruguay Round. Another was
to stimulate commitments by Asian-Pacific and Western
Hemisphere Heads of Government to achieve free trade in their
regions over the next decade or so.
Unfortunately, we have not pressed our advantage and have
thereby lost ground. We have failed to carry out commitments
made by Presidents Bush and Clinton to bring Chile into the
NAFTA.
The reason, of course, is the lapse of fast-track
negotiating authority since 1994. While the United States has
been inactive during this period, others have filled the
vacuum. Mexico, which had earlier concluded a bilateral free
trade agreement with Chile has concluded agreements with most
countries of the Hemisphere and is negotiating with MERCOSUR.
Canada now has an agreement with Chile and has announced an
intention to negotiate with MERCOSUR. Chile has also concluded
free trade agreements with a number of countries in the region,
the most important of which is with MERCOSUR.
The Congress should grant President Clinton's request for
new fast-track authority so that the United States can resume
its position as a trade policy leader.
Thank you, Mr. Chairman.

Chairman Crane. Thank you, Mr. Katz.
Ms. Wilson.

STATEMENT OF EDITH R. WILSON, TRADE PROJECT DIRECTOR,
DEMOCRATIC LEADERSHIP COUNCIL, AND SENIOR FELLOW, PROGRESSIVE
POLICY INSTITUTE

Ms. Wilson. Mr. Chairman, support for trade liberalization,
like other aspects of American foreign affairs, has usually
been handled on a bipartisan basis, as it should be. Today,
with your permission, I would like to speak as a Democrat.
I'm here on behalf of the Democratic Leadership Council,
which endorsed NAFTA 3 years ago, to explain why we did so, and
why Americans should be proud of President Clinton's and
President Bush's historic achievement in expanding ties with
our neighbors in North America. By explaining why we believe,
based on the evidence to date, that NAFTA has been good for
ordinary Americans and serves overwhelmingly the national
interest, we hope to demonstrate also why we support further
trade expansion.
Maintaining growth in trade is essential to maintaining our
robust growth overall, and particularly important to
maintaining a surge in manufacturing jobs. That, in a nutshell,
is why Americans, Republicans, and Democrats cannot be
progrowth without being protrade. Trade is critical to our
economy at this moment.
Today the Progressive Policy Institute is releasing a
study, ``The NAFTA Success Story: More than Just Trade,'' by
former trade official Rebecca Reynolds Bannister. I draw
substantially on that report in making my own analysis, and I
will be brief.
[The study is being retained in the Committee files.]
I'm glad to hear the point made, as we go into this
analysis, by other witnesses that we must remember in
evaluating NAFTA at this time that it has not yet been fully
implemented. The benefits to the United States will improve as
implementation continues for the full 15 years provided and as
NAFTA provides more conditions for increased economic growth in
Mexico and Canada.
There are three main lessons to be learned from the NAFTA
experience to date which are relevant as Congress considers
future agreements. First, the United States can liberalize
trade with developing countries, if agreements go beyond
reducing tariffs on merchandise trade and cover other essential
aspects of a sound and fair trading relationship.
Second, trade does follow trade agreements, and dramatic
increases in trade are possible from agreements committed to
lowering barriers on both sides.
Third, lowering trade barriers between neighboring
countries is one of the most effective ways to increase trade
rapidly.
NAFTA is fulfilling its promise. Our trade relations, the
benefits to our consumers, the competitiveness of our workers,
and the security of our investments are stronger for having
concluded NAFTA. It helped increase trade and investment in
North America. It has put in place rigorous rules for governing
trade, setting a higher standard than previous agreements.
NAFTA to date has not produced a flight of U.S. investment
or jobs, and this summer North America was ranked as one of the
world's fastest growing regions.
When we look at the agreement's results, however, we are
continually reminded that NAFTA was more than trade. It was a
path-breaking, comprehensive trade and investment accord that
locked in not only a steadily decreasing tariff rate on almost
all products, but also significant market reforms, dispute
settlement, investment guarantees. These features of NAFTA
don't just safeguard American businesses; they protect the
technology, the innovation, the processes, and the markets that
provide employment for our workers, too.
I would call your attention in our written statement to a
comparison of how NAFTA has worked for two key States and two
key sectors: Michigan with regard to automobiles, South
Carolina with regard to textiles. I'll summarize briefly by
saying that in both States, since we signed NAFTA--and, of
course, not due simply to NAFTA by any means, unemployment has
fallen dramatically. Michigan unemployment is at its lowest in
30 years. Both States have experienced sharp increases in
exports, and specifically in exports to Canada and Mexico. Both
have benefited specifically from NAFTA's design in regard to
content and components made in North America. And we believe
they are extremely interesting stories for consideration as we
try to understand how NAFTA has not only helped expand markets
for United States goods, but has helped position U.S.
industries for future competitiveness by strengthening our
productive capacity on the North American continent and
allowing the three NAFTA partners to benefit from their
comparative advantages.
As alluded to by other witnesses, NAFTA has been
accompanied by other positive trends, particularly with regard
to Mexican democracy. I would also call attention to how NAFTA
has introduced to Mexico principles of transparency, the right
to appeal government decisions, public access to information,
and other processes that are the foundations of open,
pluralistic, and democratic societies.
The fundamental conclusion we should draw from NAFTA is
clear. The prospect of increased trade without the kinds of
guidelines, safeguards, and predictability epitomized in NAFTA
should be far more alarming to the American people than the
proposal to initiate new trade negotiations. If we can
negotiate similar comprehensive agreements with other
countries, it is in our interest as the world's leading
exporter to pursue them expeditiously.
At the same time, the American public is right to feel that
there is some unfinished business from NAFTA, GATT, and other
developments. We must expand the winners' circle of those who
can benefit from the new global economy through shared
responsibility by government, business, and workers for those
Americans who may be left behind.
And, finally, we must move ahead, grant the President broad
negotiating authority, and remember that renewed negotiating
authority is as vital to U.S. leadership in world affairs as it
is to sustaining our economic growth. If America can't
negotiate, Americans lose.
[The prepared statement and attachment follow:]

Statement of Edith R. Wilson, Trade Project Director, Democratic
Leadership Council, and Senior Fellow, Progressive Policy Institute

Introduction

Mr. Chairman, support for trade liberalization, like other
aspects of American foreign affairs, has usually been handled
on a bipartisan basis, as it should be. We hope this tradition
continues as Congress considers fast track negotiating
legislation this fall, and that the new `vital center' of
American politics will hold. I am here on behalf of the
Democratic Leadership Council, which endorsed NAFTA three years
ago, to explain why we did so and why Americans should be proud
of President Clinton's historic achievement in expanding ties
to our neighbors in North America.
By explaining why we believe, based on the evidence to
date, that NAFTA has been good for ordinary Americans and
serves the national interest, we hope also to demonstrate why
we support further trade expansion. We believe a successful
trade policy recognizes three core components: the significance
of international trade to domestic growth; the importance of
leadership in trade to America's international leadership
overall; and the need to help American workers adjust and
compete to changing economic conditions. Trade currently
represents one third of America's economic growth.\1\
Maintaining growth in trade is critical to sustaining our
robust growth overall, and particularly important to
maintaining a resurgence in manufacturing jobs.\2\ That, in a
nutshell, is why Americans cannot be pro-growth without being
pro-trade. Trade is critical to the new economy.
---------------------------------------------------------------------------
\1\ Trade, as a percentage of Gross Domestic Product, is
approximately 14 percent when counting only exports.
\2\ Bergsten, C. Fred, Director of the Institute For International
Economics. Testimony before the Senate Finance Committee (June 1997).
---------------------------------------------------------------------------
Our goal in expanding trade should be a more dynamic and
compassionate economy in which companies, workers, and
government share responsibility for helping working Americans
adapt to the changing economy. The burdens of change must not
fall solely on the shoulders of working Americans. Government,
business, and other institutions share responsibility for the
security of those few who might be left behind. We will be
looking to new models, such as business and jobs consortia, to
help workers and companies to succeed and share in the benefits
of expanded trade, and thus ``expand the winner's circle.''

Assessing NAFTA Three Years Out

Today the Progressive Policy Institute is releasing a
study, The NAFTA Success Story: More than Just Trade, by
Rebecca Reynolds Bannister, a former trade official. I draw
substantially on that research in making my own analysis.
One point must be clarified at the beginning. Contrary to
popular impression, NAFTA has not yet been fully implemented.
While many NAFTA provisions went into effect immediately in
1993, others phase in over five, ten, and even fifteen years
for the most sensitive sectors. This was intended to permit the
workers and industries of all three countries ample time to
adjust. At this point, no NAFTA study can adequately measure
the agreement's full results because much of NAFTA's impact
still lies ahead. The benefits to the United States will
improve as implementation continues, and as NAFTA provides the
conditions for increased economic growth in Mexico and Canada.
Nonetheless, the 1997 congressionally-mandated assessment
of NAFTA by the Administration released this July is useful and
timely. It provides Congress with a snapshot of this work in
progress and allows it to determine if anything is dramatically
wrong. Most importantly, the Clinton Administration report and
hearings such as this provide an excellent opportunity to
examine the facts.

NAFTA Lessons and Results

There are three main lessons to be learned from the NAFTA
experience to date. First, the United States can liberalize
trade with developing countries, if the agreements go beyond
reducing tariffs on merchandise trade and cover other essential
aspects of a sound and fair trading relationship. Longer phase-
in periods are also necessary in such cases. This is critical
information for the future, since the fastest growing markets
lie in developing countries. Second, trade does follow trade
agreements, and dramatic increases in trade are possible from
agreements committed to lowering barriers on both sides. Third,
lowering trade barriers between neighboring countries--those
who can through proximity and familiarity easily, quickly, and
at lower cost become better customers and partners--is one of
the most effective ways to increase trade rapidly.
We have learned from the Clinton Administration report and
the Progressive Policy Institute examination that NAFTA is
fulfilling its promise. Our trade relations, the benefits to
our consumers, the competitiveness of our workers, and the
security of our investments are stronger for having concluded
NAFTA. It helped increase trade and investment in North
America. It put in place rigorous rules for governing trade,
setting a higher standard than previous agreements.
Institutions, working groups, and mechanisms that NAFTA created
have smoothed the path to allow North American businesses to
trade, invest, and position themselves for better productivity
and comparative advantage, making our economies stronger
against shocks such as Mexico's 1994-95 crisis.
This summer, North America was ranked as one of the world's
fastest growing regions, with growth projected at 3.5 percent,
compared to the average 2.7 percent growth rate for the rest of
the industrialized nations. Not only is there strong economic
growth in all three countries, but Mexico's economic growth has
been particularly impressive this year, with 8.8 percent GDP
growth in the third quarter of 1997 and a projected aggregate
rate of between 5 and 6 percent GDP growth.\3\ Canadian GDP
growth for this year is projected at 3.3 percent. In 1996,
nearly one-third of U.S. trade in goods was with Canada and
Mexico ($421 billion). When our two top customers grow, we
grow, and vice versa: our NAFTA partners accounted for 53
percent of the growth in total U.S. exports in the first four
months of 1997. Trade is not a zero-sum proposition, as some
would suggest.
---------------------------------------------------------------------------
\3\ ``Mexican Growth Is Fastest in 16 Years As GDP in Second
Quarter Soared to 8.8 percent,'' The New York Times (August 19, 1997).
---------------------------------------------------------------------------
Despite dire predictions, NAFTA to date has not produced a
flight of U.S. investment or jobs. The U. S. economy now
creates in approximately one month the total number of jobs
lost due to NAFTA in three years. Today we find that despite
NAFTA's reduced tariff barriers and an economic crisis in
Mexico in 1995 that lowered the value of the peso and made
Mexican labor comparatively even cheaper, the United States has
not lost even a small fraction (1/40) of the 6 million jobs
that Ross Perot predicted. In fact, under President Clinton's
leadership, the U.S. economy has created 8.6 million jobs since
NAFTA's inception. NAFTA's impact on jobs in the U.S. economy
has been negligible in most sectors with positive job growth in
others. Quite simply, neither NAFTA nor GATT nor any of our
other lesser trade agreement has hurt the U.S. economy.
Instead, they have been a vital component in our economic
growth by opening new markets and eliminating barriers.
But when we look at the agreement's results, we are
continually reminded that NAFTA was about more than trade. It
was a pathbreaking, comprehensive trade and investment accord
that ``locked in'' not only a steadily decreasing tariff rate
on almost all products but also significant market reforms, as
well as dispute settlement and investment guarantee procedures.
It has increased certainty and stability in our commercial
relations with our two top customers. No less than fifteen non-
tariff accomplishments of the agreement are truly significant,
covering areas such as inputs, transparency, services,
investment, conflict resolution resolution/protections, and
environment.\4\ These features of NAFTA don't just safeguard
U.S. businesses; they protect the technology, processes, and
markets that provide employment for our workers, too.
---------------------------------------------------------------------------
\4\ Bannister, Rebecca Reynolds, The NAFTA Success Story: More Than
Just Trade, (Washington, DC: The Progressive Policy Institute, DC,
September 1997).
---------------------------------------------------------------------------
So, what do we find when we look at this section of the
agreement four years later? Trade and investment disputes are
now being handled with relative transparency and according to
the established procedures agreed to in NAFTA. The agreement
was, in particular, a step forward in enhancing the ability of
small businesses to participate in international trade. Under
NAFTA, small businesses as well as large firms have been given
secure market access as well as methods for resolving
commercial disputes in a developing country market. No other
agreements do this. When the scope of the agreement is
considered as well as the vast amounts of trade and investment
flows covered under NAFTA's legal boundaries, the number of
disputes since 1993 has been surprisingly low. Congress should
consider this lack of conflict as a particular endorsement of
how well the agreement is working.

States and Sectors: Michigan and South Carolina

Nearly all states have posted gains in exports with Mexico
since NAFTA. Key industries such as autos, electronics, and the
service sector have benefitted from NAFTA's provisions--despite
Mexico's economic crisis of 1994-95. Let us examine for a
moment two states that were particularly concerned about
negative impacts when NAFTA was signed: Michigan and South
Carolina. Both are excellent examples of how states and sectors
have benefitted generally from increased trade and specifically
from the terms of NAFTA.
As overall unemployment and inflation have fallen to their
lowest levels since the 1960s, Michigan's economy has
prospered. Michigan's unemployment is at its lowest level in
nearly 30 years. Michigan's unemployment rate has fallen from
6.8 percent in November 1993, to 4.4 percent in April 1997,
since the passage of NAFTA. Michigans et state exporter of
goods. Michigan's export-related jobs--which pay, on average,
13 to 16 percent more than non-export related jobs--increased
by an estimated 40 percent, or 147, 883 jobs, since 1992.
Michigan's exports to NAFTA countries increased by 40
percent between 1993 and 1996. During 1996, Canada was
Michigan's largest export market and Mexico was its second
largest. Between 1993 and 1996, Michigan's exports to Canada
rose by 56 percent. During this same period, Michigan's exports
to Mexico declined by 2 percent, due to the deepest but
shortest lived recession in Mexico in 50 years. Transportation
equipment accounted for 63 percent of Michigan's total exports.
Some U.S. sectors--such as the automotive industry--have
experienced large net import and export growth as well as job
growth. U.S. employment in the automotive industry grew by 14
percent between 1993 and 1996, including a 10.6 percent
increase in employment in automotive assembly. This job growth
was accompanied by a 5.6 percent increase in hourly earnings
for automotive production workers. While U.S. imports of
Mexican automotive vehicles and parts nearly doubled, thanks to
NAFTA provisions, those imported vehicles now include a high
percentage of components made in the United States. In fact,
U.S. exports to Mexico of automotive vehicles and parts
increased 11 percent, from $7.5 billion in 1993 to $8.4 billion
in 1996. These positive developments in the automotive sector
have certainly helped the state of Michigan, which is the
leading manufacturer of automobiles in the United States.\5\
---------------------------------------------------------------------------
\5\ All data on the state of Michigan is from the following
sources: BLS, USTR (based on data from the Massachusetts Institute of
Social and Economic Research), ITC, and U.S. Department of Commerce.
---------------------------------------------------------------------------
In South Carolina, unemployment in 1993 stood at 7.6
percent. In April, 1997, it was 4.6 percent, a decline of 2.9
percent. In this state, we find that record levels of foreign
investment have supported 21,000 additional high-paying, high-
skilled jobs since 1992. During 1995, Canada was South
Carolina's largest export market, while Mexico was South
Carolina's second largest export market. Since 1993, exports to
Canada have increased by 23 percent, from $1.3 billion in 1993
to $1.7 billion in 1997. South Carolina's exports to Mexico
have increased by 58 percent, from $300.3 million in 1993 to
$719.0 million in 1995.
Moreover, South Carolina's textile industry illustrates the
benefits of integration under NAFTA. Textile and apparel goods
production have shifted from the Far East to North America.
South Carolina's textile exports to Mexico increased 143
percent, 1993 to 1995, and textile imports to Canada have
increased 40.2 percent between 1993 and 1996. Due to NAFTA
requirements, Mexican-made apparel and footwear exported to the
United States have higher U.S. content, on average, than
imports of these products from Asia and other countries. With
Mexican plants now purchasing large amounts of U.S. components,
U.S. firms are increasing profits and efficiencies. After years
of decline, the textile and apparel industries are thriving on
the challenges presented by the global economy. Now highly
automated and requiring skilled workers, South Carolina's
textile industry accounts for 10 percent of the state's total
exports ($388.9 million) and employs 22 percent of its
workforce.\6\
---------------------------------------------------------------------------
\6\ All data on the state of South Carolina is from the following
sources: USTR (based on data from the Mass. Institute of Social and
Economic Research), U.S. Department of Commerce, U.S. Department of
Agriculture, South Carolina Department of Commerce, and Study on the
Operation and Effects of the NAFTA, Executive Office of the President,
July 1997.
---------------------------------------------------------------------------
Similar success stories are found in every state and in
sectors such as in computers and electronic machinery and
related software, government procurement, and agriculture. In
all these critical areas, NAFTA has not only expanded markets
for U.S. goods, but has helped position U.S. industries for
future competitiveness by strengthening our productive capacity
on the North American continent, and allowing the three NAFTA
partners to benefit from their comparative advantages.

Economic Reform and Political Reform

NAFTA has been accompanied by other positive trends. This
summer, Mexican democracy took a large, peaceful step forward
as voters in state and local elections redistributed power
among the three political parties. The PRI, after having been
in power for over 60 years, no longer has a majority in the
Mexican Congress. Mexican labor unions have moved toward
independence from government control, and are becoming more
vocal on behalf of their members.\7\ These changes make the
obvious point: economic reforms symbolized by NAFTA have been
accompanied by a process of significant political reform in
Mexico.
---------------------------------------------------------------------------
\7\ ``Mexico's Unions Form New Coalition,'' Journal of Commerce
(August 26, 1997), p.5A.
---------------------------------------------------------------------------
There is much discussion about how and whether free trade
encourages the growth of democracy. In NAFTA, we find a very
specific example of how this process works. Through the vehicle
of trade liberalization and for sound commercial reasons, NAFTA
has introduced to Mexico principles of transparency, the right
to appeal government decisions, public access to information,
and other processes that are the foundations of open,
pluralistic and democratic societies. Two examples: The Mexican
government must now publish every federal regulation for review
and comment, and an open bidding process is required for
government procurement. These are dramatic changes from prior
practices. As a result, Mexicans expect increased openness in
other areas as well. Finally, to demonstrate how NAFTA has
already served as a template for other trade agreements, many
of these same provisions have been incorporated by Mexico into
recent free trade agreements with Central and South American
countries.

Should NAFTA Be Expanded?

The fundamental conclusion we should draw from NAFTA is
clear: The prospect of increased trade without the kinds of
guidelines, safeguards, and predictability epitomized in NAFTA
should be far more alarming to the American people than the
proposal to initiate new trade negotiations. If we can
negotiate similar comprehensive agreements with other
countries, it is in our interest as the world's leading
exporter to pursue them expeditiously.
We need to extend the principles embodied in NAFTA to the
rest of the hemisphere soon because we have much to gain from
increased trade and investment with Latin America, one of the
fastest growing regions in the world. How is this to be
accomplished? NAFTA contains a ``docking'' or accession clause
that other developments have occurred in our hemispheric
trading environment. It behooves the United States to ensure
that any future trade agreements meet the standards included in
NAFTA. They should also cover current conditions with the
proposed trading partner(s) and anticipate future needs. The
founding principles and comprehensive approach epitomized by
NAFTA should be used in the basic hemispheric agreements. But
it is increasingly clear that future agreements--with Chile and
Latin America, among others--may be able to raise the bar even
higher than NAFTA. Fresh negotiations may be in order and
expanding NAFTA in the literal sense may not be the most
productive or appropriate approach at this point.

Expanding the Winner's Circle at Home

The American public is right to feel that there is some
unfinished business from NAFTA, GATT, and other developments
that have changed our economy. Trade, of course, is not the
only factor responsible for these changes; actually, technology
accounts for more of the economic restructuring we are
experiencing.
As our stake in the new global economy increases, so does
our responsibility to ensure that all Americans have the
opportunity to compete effectively. Our efforts to accommodate
technological progress and trade expansion for the sake of
economic growth must go hand-in-hand with a new social compact
that offers all U.S. workers lifelong access to career
training; provides more effective public support for workers in
transition; equips them with the tools to manage their career
security by controlling their own health and pension resources;
and redefines corporate responsibility in a world of borderless
markets.\8\ We must expand the winner's circle through shared
responsibility by government, business, and workers for those
Americans who may be left behind in the New Economy.
---------------------------------------------------------------------------
\8\ Rodrik, Dani, Has Globalization Gone Too Far?, Institute For
International Economics (Washington, DC, March 1997); I.M. Destler,
Renewing Fast-Track Legislation, Institute For International Economics
(Washington, DC, September 1997), p.47; and ``Expanding the Winner's
Circle,'' Fact Sheet, (Democratic Leadership Council, Washington, DC),
July 1997.
---------------------------------------------------------------------------
In the same session of Congress that passed the NAFTA
implementing legislation, Congress and the Administration were
unable to agree on any major proposals to modernize our
nation's job placement and worker training systems. A NAFTA
trade adjustment assistance program was established but with
limited scope and effectiveness. As a consequence, many
Americans feel that their needs have been ignored. The United
States needs to do better. We must substantially improve our
efforts to equip all Americans with the education and skills
they need to be as competitive as individual citizens as we now
are as a nation, and we must extend a helping hand at key
moments. Congress has recently made progress in areas such as
health care and pension portability. Now that the budget is
balanced, we must turn our attention to the rest of this
domestic agenda. In particular, we hope Congress will consider
the G.I. Bill for Workers and consider replacing outdated
adjustment assistance with comprehensive training programs
available through individual vouchers.

Maintaining U.S. Momentum and Leadership in Trade

In closing, I would like to add one word about the debate
over fast track authority. It can be hard to distinguish
between the genuine and the disingenuous in concerns raised
first about NAFTA and now about fast track authority. This is
because protectionism mutates in every generation and finds
new, socially acceptable ways to hinder trade. Special
interests work to protect their gains even if at cost to the
national interest. Again, many concerns about issues such as
labor rights and environmental protection are utterly sincere.
Indeed, we share them.
But it is simply unfair to use such concerns or other means
to elevate the interests of industries or groups that seek
protection from international competition above the interests
of workers in exporting industries, of consumers, of
communities that benefit from foreign investment, and of every
American who benefits from steady growth, low unemployment, and
low inflation. There are many approaches to industrial
relations, labor rights, pollution prevention, and conservation
that can be pursued productively, particularly through
international cooperation. There are connections between trade
liberalization and these same issues, but they must be explored
cautiously.
Further delay in fast track renewal, with all that is ahead
on the trade calendar, will be protectionism in a new and
virulent form and could cost Americans dearly. In fact,
legislative rejection of President Clinton's request for fast
track authority this fall would send a message around the world
that America has abdicated international economic leadership--
and damage our political leadership as well.
The United States must move forward to lead the world in a
new era of open and fair trade. At the global, sectoral, and
regional level, many of our key trading partners are about to
move ahead without us in critical new trade negotiations.
Congress should give President Clinton the same broad authority
to negotiate new trade agreements under fast track procedures
that every U.S. President since Gerald Ford has received.
Renewed negotiating authority is as vital to U.S.
leadership in world affairs as it is to sustaining our economic
growth. The message about fast track is clear: If America can't
negotiate, Americans lose.
Thank you.

[GRAPHIC] [TIFF OMITTED] T1944.010

[GRAPHIC] [TIFF OMITTED] T1944.011

Chairman Crane. Thank you, Ms. Wilson.
Mr. Schott.

STATEMENT OF JEFFREY J. SCHOTT, SENIOR FELLOW, INSTITUTE FOR
INTERNATIONAL ECONOMICS

Mr. Schott. Thank you, Mr. Chairman. I appreciate the
opportunity to come before the Subcommittee and present views
that were prepared by me and my colleague, Fred Bergston, who,
unfortunately, is unable to attend because of conflicts that
arose when this session was rescheduled.
As the cleanup hitter on this panel, let me try, instead of
summarizing my statement completely, to drive home a few key
points made by previous statements and by previous witnesses,
and by yourself and Congressman Matsui. They deal with both how
NAFTA has supported strategic U.S. interests and two key areas
that are central to the NAFTA debate that also will dominate
the upcoming debate on fast track: Employment effects and labor
and environmental issues. I can be quite brief on the strategic
issues because Julius Katz and others have covered them quite
well.
First, NAFTA has met a strategic United States goal in
promoting pluralism and democratization in Mexico, and NAFTA
has contributed to enhancing both political and economic
stability. Obviously, there is a lot more that needs to be
done, but the economic opening in Mexico that the agreement has
reinforced has helped push developments in the right direction.
Second, the lock-in effect has been very important. We've
talked about it in relation to the peso crisis, but it will
become particularly important in the future in light of the
increasing democratization of the Mexican political process.
There are going to be more debates in Mexico, just as we're
seeing here today in the United States, about the direction of
trade policy. NAFTA obligations will raise the cost of any
policy reversals that would impose new protection against the
United States and other imports into the Mexican economy, and,
thus, will protect both United States and Mexican trading
interests. I think that aspect of the lock-in has not been
raised today and deserves some attention.
Third, the NAFTA typifies the U.S. pursuit of an
asymmetrical trade strategy. As has been mentioned by a number
of speakers, our markets are generally open. What we have been
doing in the NAFTA, and what we propose to do in future trade
agreements, is basically get countries to agree to lower their
barriers in return for an ``insurance policy'' that we will
maintain the good access to our market for their goods that
they already have. It would seem to be a no-brainer that this
is a good deal for the United States because almost all of the
reforms are being taken by our trading partners.
If we don't engage in these talks, our market will still be
open. We're obligated to keep it open under the WTO and other
agreements, and, therefore, we're not losing much by entering
these agreements and trying to knock down more trade barriers.
There are a number of other strategic points raised in my
statement, but let me turn to the important issue of employment
and labor and environment. As has been said by a number of
witnesses, neither NAFTA nor any trade agreement should be
judged by its contribution to achieving full employment. The
total level of jobs in the U.S. economy is basically determined
by macroeconomic and monetary policy, and the current period
presents dramatic evidence of this fact. We are essentially at
full employment, and this positive development has occurred
despite a large and growing trade deficit, including an adverse
shift in our trade balance with our NAFTA partners. So any
simplistic relation between the U.S. trade deficit and U.S. job
losses just doesn't make any sense.
Trade, rather, helps to determine the quality of jobs in
the economy. It shifts output from sectors where we are less
productive into those where we are more productive, and those
more productive sectors create more high-paying jobs. And,
indeed, the export boom of the past decade has stopped the
decline of high-wage manufacturing jobs in our economy. Now, of
course, progress costs jobs, but progress also creates more and
better paying jobs, and we need to keep that in mind.
Finally, on the labor and environmental points, I actually
have some sympathy concerning comments by Mr. Levin. Labor and
environmental issues should be an integral part of our overall
bilateral relations and should be pursued in a variety of
forums. WTO agreements already cover several important problems
in these areas. But we also need to recognize that trade
agreements are not the only channel for achieving our goals,
and WTO members have explicitly rejected the further
negotiation of labor issues in the WTO at the Singapore
ministerial last December.
Critics of NAFTA are actually wrong in saying we have a
great deal of leverage in forcing countries to adopt higher
labor standards through our trade agreements. Because our
market is open, we basically have limited leverage to tell them
that, if they don't adopt higher standards, we will close our
market, because we are already committed to keeping out market
open.
What we could have done is argued that, if countries
cooperate with us in a wide variety of forums to improve labor
standards and environmental conditions, that we would work with
them through technical cooperation and other means to support
their economic development. Instead, but the trade stick has
actually been detrimental to the interests of the proponents of
improved labor and environmental standards because it's scared
countries away from the negotiating table. I think that's a
very important point that has been left out of the NAFTA debate
that deserves attention.
I'm sorry I've exceeded my time, and I thank you again for
the opportunity to present my views.
[The prepared statement follows:]

Joint Statement of C. Fred Bergsten, Director, and Jeffrey J. Schott,
Senior Fellow, Institute for International Economics *

Any evaluation of NAFTA to date must analyze the detailed
trade and investment flows among the three member countries
since the agreement was implemented at the outset of 1994. We
will do so in this statement. We will also offer our evaluation
of the Administration's official report on the agreement.
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* The views expressed in this statement are those of the authors
and do not necessarily reflect the views of individual members of the
Institute's Board of Directors or Advisory Committee.
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Before proceeding, however, we wish to emphasize several
broad strategic considerations that must be accorded
substantial weight in assessing the results to date. NAFTA must
be judged against a series of fundamental US policy goals
rather than simply on a narrow assessment of changes in trade
and investment, and their effects on the American economy.
Indeed, we believe that NAFTA shall be evaluated primarily on
these broader considerations. We feel compelled to emphasize
these factors in our own evaluation because the
Administration's report, like its overall trade policy, gives
short shrift to these strategic perspectives.
Even before addressing the strategic impact of NAFTA,
however, three caveats must be stressed. First, it is far too
early to reach a considered judgment on the success or failure
of the arrangement. Like any trade agreement, NAFTA aims to
improve the economic structures of the participating countries.
It is not a cyclical or short-term tool for creating jobs or
anything else. It will be years, if not decades, before anyone
can objectively reach a comprehensive judgment on the impact of
NAFTA.
Our assessment covers a longer period than the 3\1/2\ years
since the agreement was formally launched. The reason is that
much of Mexico's liberalization and deregulation in the late
1980s and early 1990s was undertaken at least partly to enable
it to enter into NAFTA negotiations. From the time that Mexico
proposed the idea in 1990, the United States made clear that
Mexico would have to greatly improve its trade, investment and
related policies before an agreement could be concluded. Hence
NAFTA deserves credit for a substantial part of the Mexican
economic reforms implemented since 1990 as well as the
substantial further reduction of Mexican tariffs, and other
trade and investment barriers, since NAFTA formally took
effect.
The second caveat is that NAFTA necessarily has a very
small impact on the American economy. The addition of Mexico to
the Canada-United States Free Trade Agreement essentially
expanded our free trade area by 4 percent--the ratio of
Mexico's GDP to our own. Any impact is therefore inherently
modest. For example, the US economy has created 7.5 million
jobs since NAFTA went into effect, swamping any conceivable
``NAFTA effect.'' \1\ Neither judgments about the American
economy nor about future American trade policy can be driven
very far by NAFTA.
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\1\ Data cover the period January 1994 through June 1997.
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The third caveat is that much of the NAFTA debate,
certainly during the Congressional approval process and even
today, addresses the wrong questions. Neither NAFTA nor any
trade agreement should be judged on its contribution to
achieving full employment in the United States. The total level
of jobs in our economy is basically determined by macroeconomic
and monetary policy. The current period presents dramatic
evidence of this conclusion: we are at ``full employment,'' and
the unemployment rate has dropped far below the level that most
economists had felt was safe from the standpoint of price
stability. This positive employment situation has developed
despite a large and growing trade deficit, including an
``adverse'' shift in our trade balance with our NAFTA partners.
Trade rather helps to determine the quality of jobs in the
economy. It shifts output from sectors where we are least
productive into those where we are most productive. Hence it
increases wage levels and standards of living; export jobs pay
about 15 percent more than the national average. Indeed, the
export boom of the past decade has stopped the decline of high-
wage manufacturing jobs in our economy and, if it continues at
the recent pace, could even restore the level of manufacturing
employment to its previous high over the next decade or so.
Since our major national economic problem has been a long-term
stagnation of per capita incomes and wage levels, increased
trade--including via agreements like NAFTA--clearly contributes
positively to our national economic interest.

NAFTA's Strategic Objectives: An Early Appraisal

With those very important caveats in mind, let us begin the
evaluation itself by analyzing the record of NAFTA to date in
achieving seven of its central strategic objectives:
1. A key American strategic goal was to promote pluralism
and democratization in Mexico, on the (correct) view that this
would enhance both political and economic stability in Mexico
over the long run. There is still a long way to go, and obvious
problems remain, but the recent election suggests that there
has been solid progress on this front. NAFTA obviously cannot
take credit for this evolution but the economic opening that
the agreement has reinforced has helped push developments in
the right direction.
2. A central Mexican goal, strongly shared by the United
States, was to lock in the de la Madrid-Salinas reforms against
the risk that future Mexican governments would undo them. Such
policy renewals have occurred frequently in Mexican history and
could resurface in the future in light of the increasing
democratization of the Mexican political system. NAFTA
obligations raise the cost of such a policy backlash and thus
protect both US and Mexican trading interests.
This key purpose of NAFTA was unfortunately put to a very
early test with the peso crisis less than one year into the
agreement. But NAFTA and the Mexican reforms clearly held:
unlike virtually all previous cases, such as the debt crisis of
1982, the Mexican government responded with an appropriate
package of macroeconomic and further structural reforms rather
than by rolling back its past liberalization. Open access to
the US market, reinforced by NAFTA, helped prevent an even more
drastic recession and thus still greater pressure to reverse
the reform program.
At the same time, Mexico should be faulted for paying too
little attention to the macroeconomic and monetary implications
of its trade liberalization. To be sure, NAFTA-related
liberalization was only a minor factor in bringing on the peso
crisis, and the United States responded properly by helping
finance a constructive Mexican policy response, but preemptive
action would have been far better and should have resulted from
ongoing consultations between the US Treasury and its Mexican
counterparts.
The results have been notable, although more progress needs
to be made in restoring the real income levels of the poorer
segments of Mexican society. Mexico already achieved 5 percent
growth already in 1996, in stark contrast to the five-year
recession that followed its 1982 crisis. Since mid-1996, the
Mexican recovery has been led by a revival of domestic demand,
primarily in the labor intensive construction sector. United
States exports to Mexico exceeded their 1994 level by 11.8
percent in 1996. This stands in stark contrast to the 50
percent cut in US exports from their 1981 level in the
aftermath of the Mexican debt crisis of 1982-3 when our sales
did not recover to their pre-crisis levels until 1988. NAFTA
thus passed its first major test with flying colors.
3. Another central purpose of NAFTA was to provide both
Mexico and the United States with insurance that their market
access would not be curtailed in the partner country. As noted,
the United States has already cashed in on that policy. Mexico
did raise its duties against some other countries in response
to the peso crisis but could not do so against the United
States because of NAFTA; the United States in fact increased
its share of the Mexican import market from 69 percent to 76
percent as a result of the agreement.
4. A related Mexican goal was to convince multilateral
firms via NAFTA that its liberalized regime would be sustained
and that Mexico would thus be an attractive site for foreign
direct investment (FDI). This objective too has been realized:
flows of FDI into Mexico from all countries rose from an annual
average of $3 billion in 1988-90 and $4.5 billion in 1991-93 to
$9.4 billion during 1994-96 (despite the peso crisis). This
relatively stable source of foreign funding for Mexico of
course also serves US interests by promoting economic growth
and creating a more sizable market for US products.
5. NAFTA must also be seen in the broader context of
overall US trade policy. The startup of NAFTA negotiations in
1991 gave renewed impetus to the Uruguay Round in the GATT,
which had stalled in 1990 because of US-Europe differences over
agriculture, by reminding the Europeans that the United States
could pursue alternative trade strategies. Congressional
passage of NAFTA in November 1993 enabled President Clinton,
only two days later, to launch a new era in Asia-Pacific
economic cooperation via the APEC summit in Seattle; the two
events together played a critical role in completing the
``trade triple play'' of 1993 by bringing the Uruguay Round to
a successful conclusion in the following month. Moreover, both
Presidents Bush and Clinton used NAFTA to launch their
Enterprise for the Americas Initiative/Free Trade Area of the
Americas that promises to broaden trade liberalization to the
entire hemisphere.
6. NAFTA also represents an initial test of the US strategy
of asymmetrical trade liberalization with important developing
countries. Since the United States has already eliminated most
of its own barriers, the only way it can achieve truly fair
trade and a level playing field with the large, rapidly growing
nations of Asia and Latin America that still have high barriers
is by negotiating free trade pacts. The key question is whether
the other countries will agree to such arrangements and NAFTA
represented a first step down this path.
Here too, NAFTA has worked well. Mexico will eliminate
tariffs that averaged about 10 percent on US goods compared
with US tariffs that averaged about 2 percent on Mexican
products. The NAFTA ratio is thus about 5 to 1 in our favor
and, at least to date, full implementation (7 percentage points
of Mexican tariff cuts, 1.4 percentage points for the United
States) is proceeding on schedule. Even more important, NAFTA
has provided a model for the proposed Western Hemisphere and
APEC free trade arrangements where the ratios are even higher
and where free trade is thus so clearly in the US interest.
7. Finally, the United States sought to increase its
imports from Mexico as a result of NAFTA. In particular, we
wanted to shift imports from other countries to Mexico--since
our imports from Mexico include more US content and because
Mexico spends much more of its export earnings on imports from
the United States than do, say, the East Asian countries. That
shift is occurring and helps, not hurts, the American economy.
During its first 3\1/2\ years of existence, NAFTA has thus
already fulfilled its most fundamental strategic goals to a
considerable extent. On these criteria, it must be viewed as a
major success for the United States (and for Mexico and
Canada). We now turn to a more detailed examination of the
trade and investment flows that have occurred, framed in terms
of an appraisal of the official evaluation offered to the
Committee today by Ambassador Barshevsky and Secretary Daley.

Evaluating the Administration's Evaluation

NAFTA assessments often confuse what has happened since
NAFTA entered into force with what has happened because of the
implementation of NAFTA-mandated reforms. Doing so attributes
to the trade pact many developments that essentially are
unrelated to the pact and would have occurred anyway. To its
credit, the Administration report on NAFTA tries to parse out
the effects of the Mexican peso depreciation from the effects
of the NAFTA trade reforms to estimate what difference the
NAFTA has made for the North American economies.
Overall, the Administration reports that NAFTA has had a
very modest impact on the US economy. This conclusion is
markedly different from its rhetoric during the NAFTA
implementation debate in 1993 but unremarkably similar to most
economic projections that forecast modest trade gains and
insignificant employment effects. The following subsections
review the key findings on trade and employment effects, as
well as the operation of the side pacts. We also include an
evaluation of the dispute settlement provisions of the NAFTA,
which the Administration report ignored despite their
surprisingly strong track record.

Trade

The report accurately records the impressive growth in US
bilateral trade with Mexico and Canada since NAFTA entered into
force. Total trade with our NAFTA partners increased by 43.3
percent since 1993 (the year before NAFTA took effect),
significantly faster than US trade with the rest of the world
(32.4 percent) over the period 1993-1996. US exports to Mexico
and Canada increased by 37 percent and 33 percent, and US
imports from our NAFTA partners grew by 83 percent and 41
percent, respectively. This growth continues a trend that
preceded the NAFTA trade reforms. During the three-year period
prior to NAFTA, US trade with Mexico and Canada also grew much
faster than our trade with other countries (25.5 percent versus
14.9 percent).\2\
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\2\ This earlier period (1990-1993) covered the initial
implementation of the US-Canada Free Trade Agreement, which led to
faster growth in US-Canada trade despite the sharp recession in Canada
in the early 1990s.
---------------------------------------------------------------------------
What this means is that the economic integration of the
North American economies had been advancing long before the
NAFTA, spurred by the new trade and investment opportunities
created by the domestic economic reforms in Mexico since the
mid-1980s and the inflation and budget-cutting initiatives in
the United States and Canada. The NAFTA reinforced this trend,
but regional trade and investment would have continued to
expand even if NAFTA had never been broached.
How much of this trade growth is due to trade
liberalization mandated by NAFTA obligations? The report
acknowledges the difficulty of isolating the NAFTA effect,
particularly in light of the 1995 peso crisis and sharp Mexican
recession, the concurrent implementation of tariff cuts
negotiated in the Uruguay Round, and the robust growth of the
US economy over the past few years. It states that the effects
of the peso depreciation and the relatively faster growth of
the US economy were much more important than NAFTA trade
reforms in explaining the increase in post-NAFTA trade, and
references other studies that suggest that NAFTA reforms by
themselves actually increased US net exports to Mexico since
1994.\3\ Those results are then used to calculate net US job
gains generated by NAFTA-related reforms (see below).
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\3\ Of course, if one focused primarily on the impact of the NAFTA
tariff cuts, the more sizable cuts by Mexico would lead to a positive
trade balance effect for the United States.
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What the report also could have noted is that, even before
the NAFTA entered into force, the overvalued peso further
complicated the analysis by dampening Mexican export growth to
the United States and promoting larger US exports to Mexico
than otherwise would have occurred. Hence, the shift in the US
bilateral trade balance with Mexico since NAFTA took effect
would have been substantially smaller, absent the peso
misalignment that emerged well before the peso crisis of
December 1994.\4\
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\4\ Our colleague John Williamson raised concerns about the peso
overvaluation in testimony before the House Committee on Small Business
on May 20, 1993. Hufbauer and Schott also suggested that Mexico would
have to take steps to avoid the further real appreciation of the peso
in their widely-cited study, NAFTA: An Assessment, published by the
Institute for International Economics in 1993.
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Investment

The report provides a straightforward and accurate
assessment of the impact of NAFTA on regional investment and
the minimal effect US foreign direct investment (FDI) in Mexico
has had on the US economy. It demonstrates persuasively that
the alarmist fears of Ross Perot and others have not
materialized, i.e. there has been no ``giant sucking sound'' of
US plants and jobs heading south of the border.
To be sure, NAFTA has made it easier to invest in Mexico by
cutting red-tape and removing key ownership restrictions,
particularly in the financial services sector. In fact, Mexico
accelerated the implementation of its NAFTA obligations to
liberalize investment in the banking sector as part of its
response to the peso crisis. However, these reforms will only
attract foreign investors if those companies believe that the
climate for economic growth is favorable, i.e. that domestic
economic policy is sound and commands political support.
As noted earlier, Mexico's reforms have contributed to an
increasingly strong inflow of FDI in Mexico. Since NAFTA
entered into force, the US share of new FDI in Mexico \5\ (new
investment and reinvested earnings) has been slightly more than
50 percent (down from 60 percent historically); these funds
represent about one-half of one percent of the total investment
in plant and equipment in the United States in 1996.
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\5\ New FDI comprises new investment plus reinvested earnings of US
companies in Mexico.
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Employment

The report provides a half-step back from the
Administration's persistent and exaggerated claims that the
NAFTA would be an engine of job creation. Nonetheless, the
authors seem obliged to link NAFTA reforms to net gains in US
employment and thus rely on commissioned studies from DRI (that
calculated that US net exports were $7 billion higher in 1996
than otherwise would have occurred due to NAFTA) to estimate
export-related US job gains of 90,000 or more. This is small
potatoes in an economy that counts a labor force of 136 million
people.
Scant attention is given to job displacements due to import
growth: the report correctly states that ``imports do not
necessarily displace U.S. production'' and that the workers
certified under the NAFTA-TAA program ``overstate the number of
workers displaced because of trade with Canada and Mexico, and,
in any event, do not provide estimates of job losses due to
NAFTA.'' This conclusion is a bit cavalier. Clearly, the
program does not require a clear link to NAFTA reforms and
reportedly has certified workers displaced for reasons other
than increased trade and investment with our NAFTA partners.
Equally obvious, however, is that not all workers eligible for
the program have taken advantage of it, so the number of
certifications likely understates the number of affected
workers.
However, any way one slants the numbers, the problem of job
displacement due to NAFTA is very small relative to the total
number of jobs displaced each year in the US economy (about 1.5
million), which as noted above have been more than offset by
the substantial US job creation in recent years. Labor
adjustment is an important issue for US policy, but it is not
primarily a NAFTA or trade-related problem.

Dispute Settlement

Inexplicably, the Administration report makes virtually no
mention of the results to date of the NAFTA dispute settlement
provisions, particularly chapter 19 reviews of final
antidumping and countervailing duty decisions.\6\ Through April
1997, NAFTA panels have been convened in 26 cases, of which the
United States was the plaintiff in 13 and the defendant in 10
cases. In general, the disputes have been handled expeditiously
and objectively. Panelists have not displayed national bias nor
have they ``rubber stamped'' decisions by national agencies.
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\6\ The general dispute settlement provisions of NAFTA chapter 20
and the innovative procedures of the chapter ll regarding investment
disputes have been used much more sparingly than chapter 19.
---------------------------------------------------------------------------
The NAFTA system has worked well for the United States.
Five of the eight cases that resulted in a panel finding (5
others were withdrawn during the panel process) led to the
reappraisal of the Mexican or Canadian antidumping action
against US firms by the national agency.

Labor and Environment Side Agreements to NAFTA

The Administration report provides a factual account of the
activities that have been undertaken pursuant to the North
American Agreement on Environmental Cooperation (NAAEC) and the
North American Agreement on Labor Cooperation (NAALC). The side
agreements have three specific objectives. First, the pacts
monitor implementation of national laws and regulations in each
country pertaining to labor and the environment, performing a
watch-dog role to alert countries about abuses of labor and
environmental practices within each country. Second, the pacts
provide resources for joint initiatives to promote stronger
labor and environmental practices. Third, the pacts establish a
forum for consultations and dispute resolution in cases where
domestic enforcement is inadequate.
Despite a slow and cumbersome start, the pacts have
recently begun to show some results. Both side agreements have
focused their efforts primarily on oversight of national laws
and practices, sponsoring comparative studies, training
seminars, and regional initiatives to promote cooperative labor
and environmental policies. These efforts seem small in
relation to the magnitude of the labor and environmental
problems confronting the three countries, but they have
directed additional attention and resources to these problems
that would have been lacking in the absence of the side pacts.
To be sure, the dispute settlement provisions were the
driving force behind the US initiative to secure the
agreements, which sought additional trade provisions to address
perceived labor and environmental problems in Mexico. In this
area, the record to date has been mixed.
Disputes concerning unfair labor practices (primarily
denial of right of association) have benefited from the glare
of publicity afforded by the pacts. Eight cases have been filed
with the NAALC secretariat--seven by the United States and one
by Mexico. Two of the eight resulted in changes in the
contested labor practices, two are the subject of ministerial
consultations, three were terminated, and one recent case is
under review. Trade sanctions have not been a factor in any of
the cases.
In the environmental area, none of the eleven cases filed
as of September 1997 has prompted changes in national practices
(although some of the charges were determined to be unfounded).
Five cases were terminated for various reasons, five are under
review by the NAAEC secretariat, and one case has advanced to
the stage of compiling a factual record of the dispute (which
presages the convening of a dispute panel). The process is
deliberately convoluted. Mexico and Canada staunchly resisted
the incorporation of dispute provisions in the side pacts and
only accepted a compromise process that was long on
consultation and short on adjudication. Interestingly, more
cases have been filed regarding US and Canadian practices than
Mexican practices.
In sum, have these pacts been worth the effort? The answer
is clearly ``yes'': cooperation among the three countries on
labor and environmental matters is greater than would have been
likely in the absence of the joint initiatives and dispute
panels established by the pact.
Could the United States have negotiated more detailed
obligations regarding labor and environmental practices and
enforcement procedures? and should we try to do more in these
areas in future trade negotiations? These questions lie at the
heart of the current debate over fast track authority, and they
deserve a direct answer.
Labor and environmental issues should be an integral part
of our bilateral relations, and should be pursued in a variety
of fora. WTO agreements already cover several important
problems in these areas but WTO members explicitly rejected the
further negotiation of labor issues at the Singapore
Ministerial meeting of December 1996. Fewtiate formal WTO
consultations on labor standards, preferring instead to handle
those matters in the International Labor Organization. In
August 1997, our Latin American neighbors reiterated their
opposition to the inclusion of labor issues in trade pacts,
including the prospective Free Trade Area of the Americas. The
reason for the almost universal reluctance to address labor
issues in trade talks is straightforward: other countries
recognize that the main reason US labor and environmental
groups want international obligations in their areas blended
into trade pacts is to take advantage of the trade sanctions
available under the WTO's dispute settlement process, and they
thus regard the US policy as a transparent threat of new US
protectionism.
As a practical matter, the United States has little
leverage to convince our trading partners to incorporate
enforceable obligations on labor and environmental issues in
new trade pacts. We basically want other countries to accept US
norms or standards, so are not suggesting changes in US
policies that would benefit our trading partners (unless we
abstained from using trade measures to coerce foreign
compliance with what we regard as appropriate policies and
practices). But, as we noted earlier, our market is already
generally open to their products, so the only threat we can
make is to reduce that access--that is, impose new
protectionist measures.
Whether they realize it or not, when US policymakers insist
that new trade pacts include enforceable obligations on labor
and environmental issues, they are effectively advocating
either the introduction of new US protectionism or the
withdrawal from new trade negotiations. For the myriad reasons
cited at the start of this statement, that would be a bad
result for the United States.

Concluding Remarks

The NAFTA today is still a work in progress, but it has
already produced tangible gains for the United States. Most
importantly, it has helped support the crucial economic and
political reforms in Mexico that have strengthened democracy
and stability in our southern neighbor. The United States
benefits when our neighbors prosper and deepen their democratic
institutions. Second, the NAFTA has lowered barriers to an
important and growing market of 90 million people, creating new
trade opportunities for US exporting firms that on average pay
wages about 15 percent higher than paid by non-exporting US
manufacturing firms. In that regard, NAFTA clearly contributes
to the improvement of our long-term problem of stagnant per
capita incomes and wage levels. To be sure, US imports from
Mexico have increased sharply, but this growth derived far more
from the strong performance of the US economy and the peso
depreciation than from the minimal US trade reforms required by
NAFTA.
In sum, NAFTA has been a good deal for the United States,
promoting crucial US economic and geopolitical objectives. We
should build on that success and reassert our leadership role
in the world trading system by launching new trade negotiations
both regionally and multilaterally. To do so requires new fast
track authority, and we urge the Congress and the
Administration to work closely together to provide new
negotiating authority as soon as possible.

Chairman Crane. Thank you, Mr. Schott.
Ms. Wilson, I am a former history professor, and one of the
things I've always reflected on is that you have retained a
historic position that your party embraced and ours didn't, and
that was the advancement of free trade. And when the McKinley
tariff was passed, it brought on the panic of 1993, and,
unfortunately, President Cleveland took the rap for that, but
it was directly related to that McKinley tariff. And so
Cleveland immediately worked to reduce it and restore a sound
economy, but he said at that time, When you put those walls
around your country, you inflict the greatest injury on that
man who earns his daily bread with the sweat of his brow. And
that is profoundly correct, and the Smoots and the Hawleys on
our side of the aisle not only guaranteed we went into a
depression in the thirties, but that it went worldwide. And so
we admire your contribution to working together with
Republicans because these are not Republican and not Democrat
issues; they're American issues.
And one of the problems, though, is there have been some
polls that indicate the overwhelming majority--well, not
overwhelming, but a majority--of the American people are not
enthused about advancing free trade, and it's in part because
of ignorance. I am proposing to you, because I know you're
doing your share, to get the administration and the business
community together to try and educate and advance these ideas.
Have you been aware of any concerted cooperation in that
regard to educating the public on the importance of it?
Ms. Wilson. Well, first, Mr. Chairman, if you are implying
that it took a while for Republicans historically to catch onto
the benefits of----
Chairman Crane. Until World War II.
Ms. Wilson [continuing]. Free trade, I would associate
myself with that thought. One could say they were latecomers on
that----
Chairman Crane. Yes.
Ms. Wilson [continuing]. And that the Democratic Party's
historical position, including every Democratic President since
FDR and, as you said, even before, has been that increased
trade and opening markets were in the benefit of ordinary
working Americans, which is exactly our own position.
I have been working in the area of educating Americans
about issues like trade and similar international issues for
quite a while, and I think in a way we're making progress. I
was very encouraged yesterday by the Wall Street Journal
article about how more and more manufacturing workers are
coming to realize where their products are going; that they're
going overseas.
With regard to polling, there's obviously a lot of polling
being done at the moment on American attitudes toward trade.
Mark Pen did a poll for the Democratic Leadership Council this
summer in which we oversampled Democrats. It was a wide-ranging
poll on a number of issues, but one of the things we're very
encouraged about was that when you asked Americans if they were
in favor of free trade, 62 percent just said yes. If you asked
them if they were in favor of fair trade, 82 percent of them
said yes. Now they did express some concerns, which is why we
think it was a fair and balanced poll, about whether the
benefits of trade were going as much to them as they were to
large companies, and there's clearly work that we all have to
do in that area. But I think it's interesting that, since they
had those concerns, they still supported trade expansion. The
way we summarize it is that we think Americans are very much
supportive in theory of continuing of our free trade policies;
in practice, they, like many Members of Congress, have a lot of
specific issues to raise about how it works.
Chairman Crane. Well, thank you very much, Ms. Wilson. I
look forward to working with you on a continuing basis.
I'd like to ask a quick question of Mr. King, and that is,
How do you respond to allegations that NAFTA protects the
interest of multinational corporations, to the exclusion of
everyone else, and what's been the impact of the agreement on
job creation in your industry and on small business suppliers?
Mr. George King. Well, let me first address the issue of
the job creation in our industry. When we first started
addressing this issue back in 1992-93, when we were discussing
NAFTA--or at the beginning--we came up with the conclusion that
NAFTA for the Eastman Kodak Co., and I can talk very
specifically about that, was going to create somewhere in the
neighborhood of around a thousand jobs. And the reason we came
to that conclusion was because, if we could get the duty
reductions going from Mexico into the United States--and by
that time the film, for instance, color film, has paid an
import duty of about 15 percent; today it pays zero--and if we
could have that kind of a reduction, we would then be able to
take some very high-value manufacturing processes that were
taking place in Mexico and transfer them back into Rochester,
New York.
The reason we wanted to do that is because in the early
sixties and the seventies many multinational companies put
manufacturing operations in Mexico, not only to serve and have
access to the Mexican marketplace, but also to have access to
the Latin American marketplace. That was to take advantage of
the LAFTA, Latin America Free Trade Association, which was
begun in the sixties and created a free trade agreement with 10
other Latin American countries. However, to do that, because of
the low volumes that the Latin American area has, we did not
necessarily have the most efficient manufacturing processes. We
did have a cost for getting that market access in those days.
So with LAFTA, we were able to take a less-than-
satisfactory manufacturing process, send it back to Rochester,
and what that meant was that we were able to reexport those
things that were being manufactured in Rochester back to
Mexico, but also back to all the Latin American countries. And
we sometimes forget the impact that Mexico has on trade, not
only with Mexico, but also from trade with other Latin American
countries, and this was particularly the case in Kodak. I think
that was very beneficial for the United States in that sense.
Chairman Crane. Well, panelists, I had questions in mind
that I'm going to discuss later with Mr. Katz and Mr. Schott,
because that was second bells, and we're starting our Mickey
Mouse routine over on the floor with a motion to adjourn. So,
I'm going to have to recess at this point, subject to call of
the Chair. We will resume the hearing, but I won't make you
folks just sit around and wait indefinitely, and I'll contact,
as a followup, Mr. Schott and Mr. Katz, as I'm sure Mr. Neal
and Mr. English would like to do, too.
Mr. Neal. Mr. Chairman.
Chairman Crane. Yes.
Mr. Neal. Would you yield for 1 minute?
Chairman Crane. Certainly.
Mr. Neal. I recall when your side was in the minority you
perfected those tactics. [Laughter.]
Chairman Crane. I don't recall those motions to adjourn or
I would have voted for them. [Laughter.]
And so, with that, the Subcommittee stands in recess
subject to call of the Chair. Thank you all.
[Recess.]
Chairman Crane. The Subcommittee will reconvene, and if
everyone will please be seated, we would now like to welcome
before the Subcommittee our next panel of witnesses, and we'll
begin with John Sweeney, president of the AFL-CIO; Larry
Liebenow, president and chief executive officer of Quaker
Fabric Corp.; Mark Van Putten, president and chief executive
officer of the National Wildlife Federation; and Mustafa
Mohatarem, chief economist for General Motors Corp.
And I would like, panelists, if you would yield to Mr.
Sweeney to go first, and then we will question him and let him
be excused, because I think he's got a conflict and has to make
a press conference. And so we'll proceed first with you, Mr.
Sweeney, and then you can be excused.

STATEMENT OF JOHN J. SWEENEY, PRESIDENT, AMERICAN FEDERATION OF
LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS; ACCOMPANIED BY
THEA LEE, ASSISTANT DIRECTOR OF PUBLIC POLICY, AMERICAN
FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATION
(AFL-CIO)

Mr. John Sweeney. Thank you very much, Mr. Chairman. I
appreciate that.
Members of the Subcommittee, the AFL-CIO appreciates this
opportunity to present its views on the impact of the North
American Free Trade Agreement. I'd like to take this
opportunity to offer both our assessment of NAFTA's impact on
America's working families and to discuss the lessons that can
be learned from our experience with NAFTA, as this Congress and
the Nation consider the wisdom of granting the President
additional fast track negotiating authority.
Let me say, first of all, the labor movement considers the
fast track legislation to be of crucial significance to working
people both here and abroad. We sincerely believe this is a
historic moment when the current generation of leaders in this
country have the opportunity and the responsibility to reshape
America's role in the global economy, laying the groundwork for
global trade and investment to flow well into the 21st century.
Trade agreements we put in place now will determine the
relationship between global labor and capital, and the fortunes
of working people, who are the backbone of our democracy and
our economy, for years, if not decades to come. We must ensure
that the benefits of global growth are broadly shared by
working people, family farmers, small businesses, and
consumers. The alternative is to continue with business as
usual and to replicate failed trade policies of the past that
protect intellectual property rights, but do nothing to protect
ordinary citizens. To write more rules into agreements to
advance corporate interests at the expense of everyone else is
simply unacceptable.
We are prepared to mount a vigorous, nationwide, grassroots
campaign to oppose any fast track legislation that does not
guarantee enforceable environmental standards and workers and
human rights in the core of any new trade agreements. It is
important to note that the proposal put forth by Chairman
Archer to include labor and environmental provisions as
negotiating objectives in fast track authority only if they are
directly related to trade is completely unacceptable. This
proposal, incredibly, would be a big backward step from the
language included in the inadequate 1988 and 1991 fast track
legislation, which listed workers' rights among the negotiating
objectives, but did not limit their scope.
Earlier versions of fast track legislation must be
strengthened, not weakened. We ask the business community to
stand with us and support these provisions to ensure that
workers and the environment also benefit as the global economy
gathers steam.
International rules establishing minimum standards
protecting workers and the environment will prevent the good
corporate citizens in the global economy from being undermined
by those with few scruples and no shame. The question, of
course, is not whether we will be integrated into the global
economy, but how. We, as a nation, stand at a historic
crossroads. The business community may in the short run be able
to outspend and outshout critics of the current model of
globalization, but that victory would be short lived and would
come at a high price. A much better option would be for all of
us to work together to write the trade rules of the future and
recognize that trade policies of the past have placed a
disproportionate burden on working men and women, have taken a
heavy toll on the environment, and have had unintended side
effects in the areas of food safety, highway safety, and the
transport of illegal drugs.
Until we recognize the problems we have had with past trade
policies, we will repeat our mistakes and deepen our
difficulties. The administration's July report to the Congress
was incomplete and misleading. We need a thorough understanding
and analysis of the problems with NAFTA, and we need to take
steps to fix those problems before we rush to extend NAFTA to
Chile, South America, the Caribbean Basin, Asia, Africa, or
anywhere else.
NAFTA fulfilled virtually none of the promises made on its
behalf. It was to lead to a United States trade surplus with
Mexico, thereby creating hundreds of thousands of United States
jobs. The reverse occurred. It was to make Mexico rich, and a
rich Mexico was to easily solve all its promises with regard to
environment, drugs, democracy, and labor rights. Instead,
Mexico suffered one of the worst economic crises in its
history, and all of the above problems have worsened, not
improved.
Even as recovery begins, it is clear that only the export
sector is growing, leaving most Mexicans economically
vulnerable and in deep debt. The NAFTA institutions designed to
help those directly harmed by the agreement and to smooth
transition have been a major disappointment. NAFTA also
affected the balance of power between employers and workers, as
well as the leverage of working people to bargain for decent
pay and working conditions, and to form unions when they judge
that is in their best interest.
Jeansmaker, Guess, Inc., provides a startling example of
global competitive pressures at work. Up until 3 years ago,
Guess produced 97 percent of its clothing in Los Angeles,
employing several thousand workers. Now only 35 percent of
Guess' production remains in Los Angeles; the rest has moved to
Mexico, Peru, Chile, and some Asian locations.
Maurice Marciano, the chief executive of Guess, told the
Wall Street Journal that the production shifts were designed to
help companies stay competitive and lower costs. He admitted,
however, that the Labor Department's aggressive enforcement of
overtime and minimum wage laws and the workers' attempts to
organize a labor union were a factor as well. Mr. Marciano's
message is clear: If the U.S. Government takes steps to enforce
U.S. labor laws that protect working people from exploitation,
he and his company will flee, leaving thousands of workers
jobless, countless others afraid to ask too much from their
employers, and government agencies wondering whether or not to
enforce our laws aggressively.
The current set of trade rules creates a perverse incentive
that rewards chief executive officers like Mr. Marciano for
moving production overseas while punishing those who stay
behind. This situation must be corrected, so U.S. producers are
not encouraged to take advantage of workers in other countries
who lack basic human rights. Neither should the products of
child labor or forced labor enter our market under preferential
terms.
These rules inevitably drive U.S. living standards down;
yet, the old rules are not inevitable for Americans to
participate and prosper in the global economy. Let's slow this
process down and get the rules right this time. We need to
learn a solid lesson from our experiences under NAFTA, take
steps to fix those problems, and then talk about whether it
should be expanded to other countries. It is better to have no
deal than a bad deal that locks us into a flawed set of
policies for decades to come.
The AFL-CIO is open to expanding the trade through mounted
bilateral and multilateral agreements, so long as those
agreements reflect the legitimate concerns of workers and
communities, and not just of business. Past trade agreements
have taken care of employers' rights; future trade agreements
should protect the people who do the work and the environment
that we all share.
Mr. Chairman, we stand ready to work with you and Members
of the Subcommittee to structure legislation that will bring
shared prosperity to all the workers of our hemisphere and
beyond. And I'm sorry that I went beyond my time.
[The prepared statement follows:]

Statement of John J. Sweeney, President, American Federation of Labor
and Congress of Industrial Organizations (AFL-CIO)

Mr. Chairman, members of the Subcommittee, the AFL-CIO
appreciates this opportunity to present its views on the impact
of the North American Free Trade Agreement (NAFTA). I would
like to take this opportunity to offer both our assessment of
NAFTA's impact on America's working families, and to discuss
the lessons that can be learned from our experience with NAFTA
as this Congress and the nation consider the wisdom of granting
the President additional fast-track negotiating authority.
Let me say, first of all, the labor movement considers the
fast-track legislation to be of crucial significance to working
people here and abroad. We sincerely believe that this is an
historic moment when the United States must exhibit leadership
in the global economy, laying the groundwork for bringing the
rules governing global trade and investment flows into the 21st
century.
We can and we must rewrite those rules, so that the
benefits of global growth are broadly shared--by working
people, family farmers, small businesses, and consumers. The
alternative--to continue with business as usual, to replicate
the failed trade policies of the past, to write more rules to
protect corporate interests at the expense of everyone else--is
simply unacceptable.
Trade agreements we put in place now will shape the
relationship between global labor and capital, and the fortunes
of working people, who are the backbone of our democracy and
our economy, for years--if not decades--to come. Will our
citizens live in a world with basic environmental health and
safety protections? Will their human rights as contributing
members of society be respected? Will our trade agreements
protect the living standards of working families? Or will they
leave them to chance--and to the downward pressures of an
unregulated global marketplace?
Let me be clear: I believe that the economic status of the
next generation of average-wage Americans will be determined to
a large extent by how our government handles trade questions in
the coming months.
We are prepared to mount a vigorous grassroots campaign to
oppose any fast-track legislation that does not require
enforceable labor and environmental standards right in the core
of any new trade agreements. The core internationally
recognized labor standards that must be protected under new
trade agreements include those already defined under section
502(a)(4) of the Trade Act of 1974, as amended: freedom of
association; right to organize and bargain collectively; a
minimum age for the employment of children; prohibition on
forced labor; and acceptable conditions with respect to minimum
wages, hours of work, and occupational safety and health.
The proposal put forth by Chairman Archer to include labor
and environmental provisions as negotiating objectives in fast-
track authority only if they are ``directly related to trade''
is completely unacceptable. This proposal, incredibly, would be
a big backwards step from the language included in the
inadequate 1988 and 1991 fast-track legislation, which listed
``worker rights'' among the negotiating objectives, but did not
limit their scope.
Earlier versions of fast-track legislation must be
strengthened, not weakened. The preferential treatment allowed
by fast track--a no-amendment vote and a streamlined
timetable--should apply only to agreements that contain
enforceable provisions on labor and the environment. This would
be equivalent to moving back the closed rule until after the
President has certified that the labor and environmental
provisions are adequate. We have learned from the experiences
of the past twenty years that simply listing worker rights
along with other negotiating objectives is not sufficient.
Chairman Archer made it clear in his recent press
conference that he sees his proposed language as an opportunity
to negotiate away ``other countries' arbitrary labor standards
or environmental regulations'' if they inhibit market access.
Our aim, in contrast, is to use the leverage of trade
agreements to strengthen and enforce internationally recognized
labor and environmental standards, not negotiate them away.
We ask the business community to stand with us and support
these provisions, to ensure that workers and the environment
also benefit as the global economy gathers steam. We believe
that principled and conscientious businesses will benefit from
international rules establishing minimum standards on labor and
the environment. Such rules will prevent the good corporate
citizens in the global economy from being undermined by those
with few scruples and no shame.
And the truth is that new international protections for
labor and the environment may be the price of continuing to
play in the global economy. It is increasingly evident that our
domestic consensus on trade liberalization has broken down.
We, as a nation, stand at an historic crossroads. The
business community may, in the short run, be able to outspend
and outshout critics of the current model of globalization. But
that victory would be short-lived and would come at a high
price. A much better option would be for all of us to work
together to write the trade rules of the future and recognize
that the trade policies of the past have placed a
disproportionate burden on working men and women, have taken a
heavy toll on the environment, and have had unintended side
effects in the areas of food safety, highway safety, and the
transport of illegal drugs.
Until we recognize the problems we have had with past trade
policies, we will repeat our mistakes and deepen our
difficulties.
The Administration's July report to the Congress, ``Study
on the Operation and Effects of the North American Free Trade
Agreement,'' was incomplete and misleading. Rather than
providing a balanced assessment of NAFTA's positive and
negative impacts, the report focused exclusively on positive
economic developments since 1993, ignoring or assuming away any
of the concrete problems faced by American, Mexican, and
Canadian workers, small businesses, family farmers, and all
those adversely affected by environmental degradation, problems
with food safety, unsafe trucks, and illegal drugs since the
implementation of NAFTA in 1994.
The entire Administration report is premised on a single,
sweeping, and counterfactual assumption: that the devastating
economic crisis experienced by Mexico in 1994 and 1995 never
happened. All of the report's ``findings'' rest on this
premise: The United States would have added a small number of
net new jobs if the peso crisis had not occurred. American
exports to Mexico would have increased by an additional x
percent if the peso crisis had not occurred.
The report states, for example, ``Had the peso devaluation
and resulting dramatic drop in Mexican economic output and
domestic consumption not caused the Mexican automotive market
to collapse in 1995, it is likely that U.S. exports to Mexico
in that year alone would have reached 87,000 units and might
have reached well over 100,000 units. . . . ''(``Study on the
Operation and Effects of the North American Free Trade
Agreement,'' p. 48). I don't know about you, but our members
can't take that hypothetical assertion to the bank and deposit
it.
I, too, wish we lived in a world in which the Mexican
economic crisis had not occurred, but we don't. In fact, it is
impossible to separate the impact of NAFTA from that of the
peso crisis. NAFTA was presented as part of a package deal that
was designed to reward President Carlos Salinas's economic
reforms--privatization, deregulation, and wage repression, in
addition to trade liberalization. That set of reforms--
including NAFTA--did culminate in the peso crisis. NAFTA made
the crisis worse by encouraging speculative capital inflows.
The politics of passing NAFTA in the United States and of
electing Salinas's successor also delayed a necessary
devaluation, further exacerbating the crisis.
We need a thorough understanding and analysis of the
problems with NAFTA, and we need to take steps to fix those
problems before we rush to extend NAFTA to Chile, South
America, the Caribbean Basin, Asia, Africa, or anywhere else.
The NAFTA model has failed in every respect.
NAFTA fulfilled virtually none of the promises made on its
behalf. It was to lead to a U.S. trade surplus with Mexico,
thereby creating hundreds of thousands of U.S. jobs. The
reverse occurred. It was to make Mexico rich, and a rich Mexico
was to easily solve all its problems with regard to
environment, drugs, democracy, and labor rights. Instead,
Mexico suffered one of the worst economic crises in its
history, and all of the above problems have worsened, not
improved. Even as recovery begins, it is clear that only the
export sector is growing, leaving most Mexicans economically
vulnerable and in deep debt.
The NAFTA institutions designed to help those directly
harmed by the agreement and to smooth transitions have been a
major disappointment.
NAFTA also affected the balance of power between employers
and workers, as well as the leverage of working people to
bargain for decent pay and working conditions and to form
unions when they judge that it is in their interest. This shift
in the balance of bargaining power affects the millions of
workers who have kept their jobs as well as the hundreds of
thousands who have been directly displaced by NAFTA.
Jeans maker Guess Inc. provides a startling example of
global competitive pressures at work. Up until three years ago,
Guess produced 97% of its clothing in Los Angeles, employing
several thousand workers. Now, only 35% of Guess's production
remains in Los Angeles; the rest has moved to Mexico, Peru,
Chile, and some Asian locations.
Maurice Marciano, the chairman and chief executive of
Guess, told the Wall Street Journal (January 14, 1997) that the
production shifts were designed to help the company ``stay
competitive'' and ``lower costs.'' He admitted, however, that
the workers' attempts to organize a labor union, as well as the
Labor Department's aggressive enforcement of overtime and
minimum wage laws were ``a factor as well.'' Marciano also
claimed that Guess competitors are moving business to Mexico.
Mr. Marciano's message is clear. If the U.S. government
takes steps to enforce U.S. labor laws, and if American workers
exercise their legal right to form a union, he and his company
will flee, leaving thousands of workers jobless, countless
others afraid to ask too much from their employers, and
government agencies wondering whether or not to enforce our
laws aggressively.
The current set of trade rules creates a perverse incentive
that rewards CEOs like Mr. Marciano for moving production
overseas, while punishing those who stay behind. This situation
must be corrected, so U.S. producers are not encouraged to take
advantage of workers in other countries who lack the basic
human rights to form unions and bargain collectively that we
fought for in this country and that all workers deserve.
Neither should the products of child labor or forced labor
enter our market under preferential terms.
Let's slow this process down, and get the rules right this
time. We need to learn a solid lesson from our experiences
under NAFTA, take steps to fix those problems, and then talk
about whether it should be expanded to other countries. It is
better to have no deal than a bad deal that locks us into a
flawed set of policies for decades to come.
The AFL-CIO is open to expanding trade through bilateral or
multilateral agreements, so long as those agreements reflect
the legitimate concerns of workers and communities, and not
just those of business. Past trade agreements have taken care
of employers' rights. Future trade agreements should protect
the people who do the work and the environment we all share.
Mr. Chairman, we stand ready to work with you and members of
the Subcommittee to structure legislation that will bring
shared prosperity to all the workers of our hemisphere and
beyond.

Chairman Crane. That's quite all right, Mr. Sweeney. We
don't want to delay you in departing.
But let me just quickly ask you, on the question of the
environmental sidebar agreements with Mexico, when they came
into NAFTA, why have a majority of the dispute settlement cases
since that agreement on the environmental side agreement been
filed against the United States and Canada instead of Mexico?
Mr. John Sweeney. I thought that that was the process in
terms of the enforcement of the agreement.
Chairman Crane. Well, I mean the agreement was, and in
theory the rationale behind it was, that the violations were
going to be south of the border, and we wanted the
environmental cleanup there. But why have, as I say, the
majority of these cases been filed against us and Canada rather
than Mexico?
Mr. John Sweeney. I believe the complaints have also been
filed against Mexico.
Chairman Crane. Well, they have, but a majority against us
and against Canada. Have you any idea?
Mr. John Sweeney. No. I'd have to really get more
information on that.
Chairman Crane. Well, the other question is: Has NAFTA made
goods produced by your members more competitive in the Mexican
market against imports coming in there from Japan and Germany?
Mr. John Sweeney. I'm sorry, I missed the first----
Chairman Crane. Has NAFTA made our goods more competitive
in Mexico in contrast to goods coming into Mexico from Japan
and Germany?
Mr. John Sweeney. I believe that they have been very
competitive.
Chairman Crane. Our goods?
Mr. John Sweeney. Yes.
Chairman Crane. And, with that, I'll happily yield to our
distinguished Ranking Minority Member.
Mr. Rangel. Thank you. I know you have a time problem, and
I will make my statement very short.
But, first, thank you for the exciting leadership that you
brought to organized labor.
Mr. John Sweeney. Thank you.
Mr. Rangel. It surprises me how so many people who
benefited indirectly or directly from setting standards and
working conditions and pensions and health programs now believe
that all of a sudden that management is going to do the right
thing without organized labor there making certain that it's
done through negotiations. And in keeping up with the fact that
it's changing times, changing economy, and we have to be
engaged in international trade, if we're going to survive as a
nation and continue to have economic growth, then we as a
nation find labor once again trying to set some standards; that
our prosperity is not based on the misery and pain caused by
people in foreign countries.
It surprises me how our President can accurately detect
that America will be the beneficiary of high-tech, high-paying
jobs which we have, and will continue to have, and not even
acknowledge the fact that, through this tremendous progress and
expansion in trade, we cause people not dislocation, but pain
and hopelessness in this country. Some would say that it's
apples and oranges for me to advocate jobs now in rebuilding
our cities, our infrastructure, but, as far as I'm concerned,
Mr. Sweeney, you can't have effective trade abroad if you don't
have an anchor in our cities and our ports, at our airports,
and transportation and communication, to make certain that we
can hold onto our leadership in trade.
So I know, without even asking you, that we can depend on
your leadership to provide a more even playingfield for our
workers to deal with foreign trade. But there's no reason why
the President should not address the problem of the pain that
trade causes, not just for the workers who will lose their
jobs, but for their youngsters that would have no jobs to look
forward to. I look forward to working with you, and I'm pleased
to know you are working with the administration and the
majority party to see whether or not we can move forward in
this area without severely impacting the lives of the workers
that made this country as great as it is today.
Thank you for taking the time to share your thoughts with
us. Soon I'm contemplating putting in a bill, after talking
with my colleagues and the leadership on both sides, to see
whether or not we can incorporate the language that you are
seeking and broaden the debate, rather than it be us against
them.
Thank you so much for your leadership and your attendance
today.
Mr. John Sweeney. Thank you very much, and we would
strongly encourage you to continue to fight for jobs in the
inner city. The infrastructure of our cities needs so much in
terms of Federal programs. We would join you in any efforts in
that direction.
Mr. Rangel. Thank you.
Chairman Crane. Mr. Neal.
Mr. Neal. Thank you, Mr. Chairman.
Welcome, Mr. Sweeney. It's nice to see you again.
Two questions that are relatively brief. First, is it your
opinion that trade agreements can be utilized by foreign
countries that would enforce their own labor environmental laws
satisfactorily? Second, your experience with TAA benefits, have
they lived up to the promise of moving people in a transitional
stage back to the work force in another capacity?
Mr. John Sweeney. We would certainly agree in terms of
other countries, our trading partners, enforcing their own good
environmental laws and protections. With regards to the TAA
Program, we have found that it's not really used to the extent
that it has the potential, because of the restrictions in it,
and workers have felt excluded from the process and have not
really had the benefit of it that it was intended for.
Mr. Neal. Thank you, Mr. Chairman. I know he's in a hurry.
Chairman Crane. I'm sorry, was there a question? Oh, Mr.
English.
Mr. English. Thank you, Mr. Chairman, and I want to welcome
the panel.
Mr. Sweeney, I was intrigued by your testimony. I would
take it from your testimony that you would be generally
skeptical of the effectiveness of the so-called NAALC, the
labor side agreement, on having a significant impact on either
worker safety or worker conditions or workers' wages, and that
it has not proven to be a very effective instrument for upward
harmonization. Is that a fair characterization?
Mr. John Sweeney. That is correct.
Mr. English. Have you had an opportunity to review the
dispute settlement system that I believe Chairman Crane alluded
that there were relatively few complaints relative to Mexico?
Do you agree with your organization that the dispute settlement
system has been ineffective in any particulars?
Mr. John Sweeney. With me is Thea Lee, who is our principal
person on trade policy. I'd like to ask her to respond.
Mr. English. I'd welcome that. Thank you.
Ms. Lee. Good afternoon.
The dispute settlement process has, in particular, in terms
of the labor side agreement, been effective. It's done what it
is supposed to do in terms of enforcing the agreement on the
books. The problem is that the labor side agreement on the
books is too weak. Even in the cases where the workers have won
their case--for example, there is no effective remedy--the
workers in Nuevo Laredo brought a case against Sony, and the
National Administrative Office did find in favor of the
workers; that the Mexican Government had persistently failed to
enforce its own laws in the area of registering unions and
allowing workers the freedom of association.
There is no remedy under the NAALC. The remedy is for a
ministerial consultation to take place, and so the workers have
not been rehired; the company has not been fined; the
government has not paid any fines, either. And so the abusive
practices have continued. So the main problem with the NAALC is
that the agreement itself is too weak and does not allow for
effective enforcement mechanisms.
Mr. English. A more general question, Mr. Sweeney, and then
I know your time is limited, so I'll let you go. Have you found
that NAFTA has had a significant impact on collective
bargaining in this country? For example, the concern raised by
the AFL-CIO has been that, because of the low wages common to
Mexico, that this would put pressure on American wages
downward. Have you run into direct evidence of that, because I
know your organization is involved across the board in
collective bargaining?
Mr. John Sweeney. There is direct evidence of that in so
many different industries and so many different negotiations.
In the hearing room here today is Jay Mazur, who's the
president of UNITE, the needle trades union, and he could
certainly send you a long list of negotiations where this has
been a major factor.
Mr. English. Thank you. Knowing your time is limited, I
appreciate the opportunity to ask those questions.
Mr. John Sweeney. Thank you.
Chairman Crane. Thank you, and one final question from Mr.
Levin.
Mr. Levin. Thank you. Welcome.
I'm glad Mr. English asked the question about
enforceability because I think there's been a lot of
misconception and misunderstanding as to how inadequate the
enforcement provisions are on the labor market side. As you
leave, there's some discussion about whether ``labor rights,''
are a trade issue. Just in your own words, which can be so to
the point, just tell us what your concerns are all about. Why
do you see this as something that moves you to come here today
and tell us about your concerns? Labor rights--it isn't human
rights. What's the self-interest of your membership in it?
Mr. John Sweeney. Well, they see what's happened in their
respective industries in terms of plant closings, in terms of
jobs, good American jobs going to other countries, to countries
where labor laws are very weak and workers are exploited; in
many cases child labor exists, prison labor. There are so many
different examples and so many horror stories that could be
told, and labor rights are really interconnected with human
rights in many cases in many countries. But the American labor
movement strongly supports workers in their own countries
getting a decent living and having decent laws protecting their
environment, protecting their safety and health, as well as
their economic conditions.
Mr. Levin. Thank you.
Chairman Crane. Well, we thank you, Mr. Sweeney, for coming
and testifying, and you are honorably discharged----
Mr. John Sweeney. Thank you very much, Mr. Chairman.
Chairman Crane [continuing]. To make your press conference.
Mr. John Sweeney. And I thank the members of this panel as
well for allowing me to do this. Thank you.
Chairman Crane. Absolutely.
And our next witness is Mr. Liebenow.

STATEMENT OF LARRY A. LIEBENOW, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, QUAKER FABRIC CORP., FALL RIVER, MASSACHUSETTS; AND
CHAIRMAN, WESTERN HEMISPHERE TASK FORCE, U.S. CHAMBER OF
COMMERCE

Mr. Liebenow. Mr. Chairman, thank you for inviting me to
appear today. In my capacity as chief executive officer of
Quaker Fabric and as chairman of the Western Hemisphere Task
Force of the U.S. Chamber of Commerce, I've been able to
observe at closehand some of the effects of the North American
Free Trade Agreement. Today, I'd like to discuss four issues
concerning this agreement, its impact on small- and mid-sized
business growth, increased export opportunity, unresolved
issues, and momentum for the future.
NAFTA has provided a stable and secure framework for doing
business in Mexico and Canada for many Chambers of Commerce
members. In areas such as domestic content requirements,
measurement standards, labeling requirements, and other tariff
and nontariff barriers, governments can create enormous
obstacles that keep small- and mid-sized businesses from
exporting. NAFTA has dramatically improved conditions in North
America by eliminating many of these problems.
My own company, Quaker Fabric Corp., is a $200 million
publicly traded textile company with five manufacturing plants
in southeastern Massachusetts. Quaker has been in the
upholstery fabric business for over 50 years. It currently
employs about 1,750 people and markets its products in the
United States and in many international markets as well. Last
year about 20 percent of the company's sales were made outside
the United States, and some 350 of the company's employees owe
their jobs to Quaker's growing export operations.
Until 1992 we were unable to sell our products into the
Mexican market. If a domestic manufacturer could produce a
particular product, the Mexican market was basically closed to
outside competitors. However, in anticipation of NAFTA, Mexico
began the process of liberalizing these trade restrictions, and
we were able to take advantage of the new opportunities that
became available.
Clear trade rules have benefited U.S. companies in other
ways. The outcome of the Mexican peso devaluation is a case in
point. In response to this crisis, the Mexican Government
raised tariffs on European and Asian exporters, and the
resulting tariff hikes caused their exports to fall between 20
and 30 percent. A comparable tariff hike on U.S. business
probably would have had a similar effect. However, due to its
NAFTA obligations, Mexico could not unilaterally increase
tariffs on United States goods. NAFTA worked to protect over
700,000 U.S. jobs that depend on exports to Mexico. NAFTA's
protection sheltered many businesses like mine and allowed U.S.
companies to continue to compete, despite a very difficult
business climate.
NAFTA has also helped Mexico's recovery from its economic
crisis. Because Mexico kept its commitments to open markets,
the country's economy resumed growth quickly. Mexico's economy
grew 4.5 percent last year, and United States exports increased
23 percent, a $10 billion sales increase. In fact, since 1993,
United States exports to Mexico have increased by 62 percent
and are projected to hit $68 billion for 1997. To put this in
perspective, this will soon make Mexico our second largest
trading partner. In 3 out of the last 4 years, exports have
increased by more than 20 percent each year, and more than 3
out of every 4 dollars Mexico spends on foreign goods are spent
on United States products.
Let me try to set the record straight about our imports
from Mexico. Mexican businesses have increased their exports to
the United States, in many cases displacing Asian imports with
little or no United States content. On average, over 50 percent
of all of the content of goods imported from Mexico is United
States made. In the apparel industry, close to two-thirds of
the value of Mexican apparel imports in 1996 were comprised of
United States content. The Mexican share of United States
apparel imports has risen to 9.6 percent of the market, while
Asian apparel imports have fallen from 39 percent in 1993 to 30
percent of the market in 1996. NAFTA makes each of our
economies more competitive for the benefit of workers and
companies, just like Quaker in the United States, as well as
for the benefit of workers in Canada and Mexico.
While NAFTA has provided many benefits for the U.S. and
Chamber of Commerce members, there are still unresolved issues
on the table. Many important items remain outstanding. In
particular, the cross-border trucking dispute needs to be
resolved. The current system is cumbersome, very expensive and
frustrating for truckers and the many businesses using land
transportation to get the goods to the Mexican market. This
dispute has also held up progress on a number of other fronts.
Among the issues held hostage by the trucking industry is our
access to the Mexican market for small package delivery
companies, issuance of new rules authorizing the use of
standard 53-foot trailers in Mexico, and we must resolve these
issues as quickly as possible.
The evidence from NAFTA provides great hope for the future,
and frankly, a little impatience that we cannot accelerate the
process toward increased free trade throughout the hemisphere.
It's essential this movement toward zero-tariff barriers be
implemented across the Americas. The FTAA to be established in
2005 is vital, and I hope Congress will take immediate,
concrete steps to facilitate its establishment, starting with
approval of clean fast track authority.
Last year about 40 percent of Quaker's export sales went
into the Canadian and Mexican markets, including some $6
million into Mexico. Another $1 million went into Latin
American countries other than Mexico. There's clearly a large
and growing market in Latin America for our products. In Mexico
alone, our sales grew at a rate of 53 percent in 1996, and are
growing at 40 percent so far this year.
The rest of the hemisphere, exclusive of Mexico and Canada,
should provide us additional sales opportunities of some $25
million. The realization of this potential would create another
200 jobs in Massachusetts.
There are still trade barriers to break down. As recently
as last week, I was informed by our sales representative in
Chile that we had lost an opportunity for a $1.8 million a year
account to a competitor of ours in Mexico, solely as the result
of an 11-percent duty differential.
On its own, Quaker, like many Chamber of Commerce member
businesses, can compete successfully on the basis of design,
quality, and service with any of our Latin American
counterparts. What Quaker cannot do on its own is get its
products into Argentina, Brazil, Bolivia, or Chile duty free.
Quaker has already demonstrated that it's possible to prosper
as a textile manufacturer in New England. Quaker is not afraid
to play to win on a level playingfield in Latin America.
Passage of the fast track legislation needed to bring Chile
into NAFTA would help make that possible. Continuing to support
protrade legislation until the free trade era of the Americas
is a reality would virtually guarantee it.
The United States must lead this effort. Our government's
policymakers represent the interests of American companies of
all sizes. Unfortunately, without fast track negotiating
authority, the United States is forced to sit on the sidelines
while other nations negotiate trade pacts without us. NAFTA was
a vote for competitiveness. Fast track authority and the FTAA
will be important votes for competitiveness. The benefits of
NAFTA will only be increased with its extension to Chile. Give
our negotiators clean and broad fast track negotiating
authority now, put them back at the table, let them hammer out
a deal to add Chile to the North American Free Trade Agreement,
and bring the dream of a free trade zone spanning the Americas
one step closer.
Thank you.
[The prepared statement follows:]

Statement by Larry A. Liebenow, President and Chief Executive Officer,
Quaker Fabric Corp., Fall River, Massachusetts; and Chairman, Western
Hemisphere Task Force, U.S. Chamber of Commerce

Mr. Chairman, thank you for inviting me to appear before
this panel today. In my capacity as CEO of Quaker Fabric and as
Chairman of the Western Hemisphere Task force for the U.S.
Chamber of Commerce, I have been able to observe at close hand
the effects of the North American Free Trade Agreement (NAFTA).
Today, I would like to discuss five issues concerning this
agreement. Namely, its impact on (1) small and mid-sized
business growth, (2) increased export opportunity, (3) job
creation, (4) unresolved issues and (5) momentum for the
future.
Let me elaborate on these points.

1. Small and Mid-Sized Business Growth

What has NAFTA's impact been on the growth of U.S. small and mid-
sized business?
NAFTA has provided a stable and secure framework for doing business
in Mexico and Canada. It has meant that small and mid-sized businesses
like mine can husband scarce resources and use domestic bases of
operation, and yet still do business internationally. Instead of having
to spend money fighting through costly bureaucracies or building up
duplicate factories in remote locations, the agreement has allowed us
to expand our market opportunities and business horizons. In areas such
as domestic content requirements, different measurement standards,
labeling requirements, and other tariff and non-tariff barriers,
governments can create enormous obstacles that keep small and mid-sized
businesses from exporting. Instead, I am happy to say that NAFTA has
dramatically improved conditions in North America by eliminating many
of these problems.
To show how important NAFTA is, let me give you, as an example, a
case study concerning my own company.
Quaker Fabric Corporation is a $200 million publicly traded textile
company with five manufacturing plants in southeastern Massachusetts.
Quaker has been in the upholstery fabric business for over fifty years.
It currently employs about 1,750 people, and markets its products in
the U.S. and in many international markets as well. Last year, about
twenty percent of the company's sales were made outside the U.S., and
some 350 of the company's employees owe their jobs to Quaker's growing
export operations.
While many underestimate the potential of the U.S. textile
industry, Quaker is determined to be an outstanding performer. A key
component of the company's strategy is to be a leader in the worldwide
upholstery fabric market. Today, Quaker markets its products in 42
countries, has warehouse distribution centers in Mexico and the
Netherlands, and sells more than $36 million of fabric outside the U.S.
annually.
International trade has been a key component of the growth strategy
that has enabled my company to double its sales since 1990. In 1990,
Quaker employed 1,100 workers and was adrift and struggling to sell its
products in a mature and very competitive domestic market. Quaker chose
to grow and compete, not only in the U.S., but in foreign markets as
well. We decided that Mexico was a key market for our future plans.
Until 1992, we were unable to sell our products into the Mexican
market. At that time, Mexico had a policy of import substitution. If a
domestic manufacturer could produce a particular product, the Mexican
market was basically closed to outside competitors. However, in
anticipation of NAFTA, the Salinas government began the process of
liberalizing these trade restrictions, and we were able to take
advantage of the new opportunities that became available. NAFTA
consolidated and provided an institutional foundation for the Salinas
government reforms.
The establishment by NAFTA of clearly defined trade and investment
rules provided a framework, which we did not have before, for
businesses like mine. These trade and investment rules are particularly
important for small and mid-sized businesses like ours that cannot
easily overcome the barriers to U.S. exports.
There are other ways that the benefits of clear trade rules have
benefited U.S. companies. A good example of these benefits is reflected
by the outcome of the Mexican peso devaluation. After the Mexican
government devalued its currency in late 1994, the Mexican economy
shrank seven percent and U.S. exports fell nearly nine percent. It was
the worst economic crisis in Mexico since 1932. But the impact of this
crisis on U.S. exporters was mitigated by the existence of NAFTA.
In response to this crisis, the Mexican government raised tariffs
on European and Asian exporters. The resulting tariff hikes caused
their exports to fall between twenty and thirty percent. A comparable
tariff hike on U.S. business probably would have had a similar effect.
However, due to its NAFTA obligations, Mexico could not unilaterally
increase tariffs on U.S. goods. As a result, U.S. exports did not fall
nearly as dramatically; instead, NAFTA worked to protect over 700,000
U.S. jobs that depend on exports to Mexico. NAFTA's protections
sheltered many businesses like mine and allowed U.S. companies to
continue to compete despite a very difficult business climate.
This leads me to my second point.

2. Increased Export Opportunities

NAFTA also helped accelerate Mexico's recovery from its economic
crisis. Because Mexico maintained its commitment to open markets, the
country's economy has started to grow again. Mexico's economy grew four
and one-half percent last year and U.S. exports increased twenty-three
percent--a $10 billion sales increase.
In fact, since 1993, U.S. exports to Mexico have increased by
sixty-two percent and are projected to hit $68 billion for 1997. To put
this in perspective, this is slightly more than half of all of our
exports to Latin America, and makes Mexico our second largest trading
partner. In three out of the last four years, exports have increased by
more than twenty percent each year, and more than three out of every
four dollars Mexico spends on foreign goods are spent on U.S. products.
Of course, NAFTA is a two-way street and Mexican businesses have
been able to increase their exports to the United States as well. But
this is also positive in that some cases, this has meant displacing
Asian imports with little or no U.S. content. In contrast, close to
two-thirds of the value of Mexican apparel imports in 1996 was
comprised of U.S. content. During this period, the Mexican share of
U.S. apparel imports has risen to 9.6% of the market, while Asian
apparel imports have fallen from thirty-nine percent in 1993 to thirty
percent of the market in 1996.
Thanks to NAFTA, U.S. consumers are able to enjoy a wide variety of
products at lower prices than might otherwise be available. Competition
forces companies to continually improve their products and services in
order to survive. Consumers reap these benefits through lower prices,
products that meet their needs more effectively, and a wider range of
selection. Let's not forget that one of the reasons that U.S. inflation
has remained so low over the last five years is due to the competitive
economic environment. NAFTA is part of the institutional framework
underpinning this economic structure.
U.S. companies benefit from the increased purchasing power of
Mexican businesses and consumers. While the Mexican economic crisis had
a serious impact on the country's economic confidence, sales figures
from my own company and anecdotal evidence from other companies
indicate that, at the retail level, Mexican consumer confidence is
increasing. This increased purchasing confidence, ability, and power
will only continue to benefit U.S. producers in the long-term.

3. Job Creation

As I mentioned before, over 350 people employed by my company have
their jobs either directly or indirectly because of NAFTA and the other
alternative markets Quaker has developed. Thanks to NAFTA's rules of
origin, production that had been based in Asia is shifting back to
North America.
Contrary to Ross Perot's predictions, we have not had dramatic job
losses directly attributable to NAFTA. Trade is not a zero-sum game,
and the past few years have proven that NAFTA was a win-win proposition
for the U.S., Canada and Mexico.
The effects of Mexican growth aren't only felt in terms of
increased sales for U.S. business. As we have seen in Japan and the
newly industrialized nations of the Pacific Rim, economic development
will lead to higher wages and salaries in Mexico as well. This
phenomenon could well have a stabilizing effect on labor markets
throughout North America, and over time allay some of the concerns
which have been raised about the disparity in wage rates across the
border.

4. Unresolved Issues

While NAFTA has provided many benefits, there are still unresolved
issues on the table.
We have already built a great deal of momentum based on the
frameworks that have been established and implemented. We need to use
this momentum to deepen and expand NAFTA through full implementation of
the trilateral agreement between the U.S., Canada, and Mexico.
Many important items remain outstanding; in particular, the cross-
border trucking dispute needs to be resolved. An inefficient border
raises the cost of transporting goods, a cost that is inevitably passed
along to consumers. It seems that the United States has finally
developed the political will to seek implementation of this part of the
agreement--now suspended since December 18, 1995. The Mexican and U.S.
governments need to continue to make progress toward resolving this
issue. The current system is cumbersome, very expensive, and
frustrating for truckers and the many businesses using land
transportation to get their goods to the Mexican market.
This dispute has also held up progress on a number of other fronts.
Among the issues held hostage by the trucking dispute are access to the
Mexican market for small package delivery companies, and the issuance
of new rules authorizing the use of standard 53-foot trailers in
Mexico. We must resolve these issues quickly so that companies across
North America can benefit from the trilateral agreement.

5. Momentum for the Future

The evidence from NAFTA provides great hope for the future, and
frankly, a little impatience that we cannot accelerate the process
toward increased free trade throughout the hemisphere.
It is essential that this movement toward zero tariff barriers be
implemented not only in North America, but also across the Americas.
The Free Trade Area of the Americas (FTAA), to be established in 2005,
is a worthy, important goal, and I hope Congress will take immediate,
concrete steps to facilitate its establishment, starting with approval
of Fast Track Authority.
The Western Hemisphere represents one of our best growth
opportunities. However, U.S. trade policy to date has not made it
possible for us to fully tap the potential of this market--other than
in Mexico and Canada. We are leaving money--and jobs--on the table. To
achieve our growth objectives, we need NAFTA-like trade agreements in
place throughout the hemisphere.
Quaker already has an established position with its NAFTA trading
partners and in the balance of the Western Hemisphere. Last year, about
forty percent of the company's export sales went into the Canadian and
Mexican markets, including some $6 million into Mexico. Another $1
million went into Latin American countries other than Mexico. There is
clearly a large and growing market in Latin America for our fabrics
and, in Mexico alone, our sales grew at a rate of fifty-three percent
in 1996 and are growing at about forty percent so far this year. The
rest of the Hemisphere, exclusive of Mexico and Canada, should provide
us additional sales opportunities of some $25 million. The realization
of this potential would create another 200 jobs in Massachusetts.
Chile is a case in point. As recently as last week, I was informed
by our sales representative in Chile that we had lost an opportunity
for a $1.8 million a year account to a competitor of ours in Mexico
solely as a result of the eleven percent duty differential involved.
This happened because Chile already has trade agreements in place with
Mexico, Canada, and the Mercosur countries. It is possible that Chile
may strike a similar deal with the European Union next.
There are fabric manufacturers in Mexico, Canada, the Mercosur
countries and the European Union. They are Quaker's competitors. Quaker
has customers in Chile. So do they. Last year, Quaker sold
approximately $300,000 of product into Chile. But to do that, Quaker's
customers in Chile had to be convinced that our products were so good
that they were worth the extra eleven percent duty required to bring
them into Chile--eleven percent that is not a factor for our Mexican,
Canadian, or Mercosur competitors. Our products are so good that we can
do that in some cases--but it is an uphill battle--and hardly the level
playing field we have been counting on our government to create.
In the balance of Latin America, the situation is no different. For
example, there is an active and important fabric and furniture
manufacturing industry in the Mercosur countries. On its own, Quaker
can compete successfully on the basis of design, quality and service
with any of its Mercosur counterparts. What Quaker cannot do on its
own--is get its products into Argentina, Brazil, Paraguay, Uruguay,
Bolivia, or Chile duty-free. Even without the kind of level playing
field a trade agreement with the Mercosur countries would give Quaker,
Quaker still sold over $600,000 into those markets last year without
help. However, we need to smooth the way for Quaker and other U.S.
companies like Quaker to do their very best. We must let the
competitiveness of our products and our people--not trade barriers--be
the sole factor determining whether American businesses win or lose.
Quaker has already demonstrated that it is possible to prosper as a
textile manufacturer in New England. Quaker is not afraid to play to
win on a level playing field in Latin America. Passage of the Fast
Track legislation needed to bring Chile into NAFTA would help make that
possible. Continuing to support pro-free trade legislation until the
Free Trade Area of the Americas (FTAA) is a reality would virtually
guarantee it.
The United States must lead this effort in order to ensure that,
when the rules of the FTAA are written, our government's policymakers
represent the interests of American companies of all sizes.
Unfortunately, without fast-track trade negotiating authority, the
United States is forced to sit on the sidelines while other nations
proceed to negotiate their own trade pacts.
Wouldn't you hate to hear that a U.S. company lost a major contract
in Brazil or Argentina or Chile because they were a few percentage
points more expensive than a local competitor due to our delay in
negotiating equal terms for U.S. exporters?
NAFTA was a vote for competitiveness. Fast Track authority and the
FTAA will be important votes for competitiveness.
The benefits of NAFTA will only be increased with its extension to
Chile. Give our negotiators clean and broad fast-track negotiating
authority now, put them back at the table, let them hammer out a deal
to add Chile to the North American Free Trade Agreement and bring the
dream of a Free Trade zone spanning the Americas one step closer. Thank
you.

Chairman Crane. Thank you, Mr. Liebenow.
Mr. Van Putten.

STATEMENT OF MARK VAN PUTTEN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NATIONAL WILDLIFE FEDERATION

Mr. Van Putten. Thank you, Mr. Chairman and Members of the
Subcommittee. I appreciate this opportunity to testify on
behalf of the National Wildlife Federation on the
administration's review of NAFTA. In light of the President's
request for fast track negotiating authority, this topic is of
great importance and the NAFTA experience should guide our
thinking about the scope and nature of fast track legislation.
The National Wildlife Federation is America's largest not-
for-profit conservation education organization with over 4
million members and supporters. In addition to our individual
members, we count among our supporters our State affiliate
organizations such as the Michigan United Conservation Clubs,
Pennsylvania Federation of Sportsmen, and others. In fact, it
is the delegates elected by these organizations that establish
our policy positions.
The National Wildlife Federation is also America's
mainstream and main street conservation organization. Our
members understand the link between sustainable economic
development and environmental protection, and that is a
fundamental value that they understand is at stake as we view
fast track authority negotiating authority.
Finally, with respect to NWF, it's critical to state that
we supported NAFTA. We took a very courageous, a very difficult
position that separated us from many of our often-colleague
organizations in supporting NAFTA. We believed the promise of
NAFTA. We believed in the potential of trade as an instrument
to enhance environmental protection. It is against that
backdrop that I testify today on the administration's
comprehensive review.
We draw two lessons from this review and from our analysis
and experience with NAFTA. The first lesson we draw: That
parallel agreements are important and they are essential. The
second lesson we draw is that they are not enough, and that we
must have in fast track legislating authority a more closely
intertwined commitment to environmental protection. I would
like to elaborate on each of those points, if I may.
With respect to parallel agreements and the institutions
created by them as being essential, we believe there has been
some significant progress though the CEC, the BECC, and the
NADBank, and those institutions, and in my written statement we
cite some specific examples of ways in which we believe those
institutions have empowered citizens, have provided citizens
with additional access to important information, and have
provided a venue in which there can be international and
intergovernmental collaboration.
We are disappointed these institutions have gotten off to a
slow start. We are disappointed these institutions have not
produced more, but we continue to believe they are an important
component of trade arrangements to allow us to work with other
governments and enhance the institutional capacity of not just
those governments, but their citizens to participate in
enhanced environmental protection.
At our recent annual meeting in Tucson, Arizona, we had a
major session on this issue. Linda Taylor, who is a citizen
representative to BECC, was one of our award winners and she
participated in the discussion. She had some very interesting
stories about her Mexican colleagues for the first time having
to deal with citizen pressure through the BECC to address some
of the environmental problems in their communities. It was a
new experience for them. It was a democratizing experience for
them, and we believe those institutions present that sort of
promise.
But side agreements are not enough. As an organization that
supported NAFTA based on side promises and side agreements, we
are skeptical. We believe that this time around with fast track
it is essential to move beyond the promise of NAFTA, to make
the full integration of environmental concerns and trade
concerns a reality.
Given the current political environment that appears
somewhat hostile to this notion, given so far the
administration's unwillingness to stand for this principle, the
National Wildlife Federation is opposed to fast track
legislation without specific negotiating objectives that relate
for the environment and adequate evidence of a continuing
commitment to integrating the globalization of trade with the
enhancement of the world's environment.
Thank you very much.
[The prepared statement and attachment follow:]

Statement of Mark Van Putten, President and Chief Executive Officer,
National Wildlife Federation

I want to thank you for the opportunity to share our
evaluation of President Clinton's Comprehensive Review of the
NAFTA before the House Committee on Ways and Means,
Subcommittee on Trade. In light of the President's request for
fast track negotiating authority, it is a topic of great
importance. The NAFTA review offers lessons for future trade
and investment negotiations, and should therefore guide our
thinking as we consider the scope and nature of fast track. I
am Mark Van Putten, President and CEO of the National Wildlife
Federation. Our broad constituency of over 4 million members
and supporters includes sportsmen and women and a cross-section
of the American public. Our motto is ``people and nature--our
future is in the balance,'' a motto we believe applies equally
to trade agreements as to other aspects of the American
economic landscape.
Our message today is straightforward. After a review of the
President's Study on the Operation and Effects of the North
American Free Trade Agreement, and upon reflection on our own
evaluation of the environmental provisions found in the ``NAFTA
package,'' we offer the following evaluation:
NAFTA's supplemental agreements still represent
good first steps toward synthesizing environmental interests in
trade policy. This is especially true when evaluating the
performance of NAFTA's environmental organizations--the North
American Commission for Environmental Cooperation (CEC), the
Border Environmental Cooperation Commission (BECC) and its
funding wing the North American Development Bank (NADBank).
However, the environmental provisions of the NAFTA
itself fail to meet the commitment made to this Committee by
then-President George Bush to ensure the United States' ability
to safeguard the environment. NAFTA does not strike a balance
between trade and environmental objectives because it
establishes a trade regime that unfairly subjects legitimate
environmental laws, that may have incidental negative
implications for trade liberalization, to challenges by trade
advocates.
When we supported NAFTA's passage in 1993 we did so
believing we would continue our work with the Administration
and with Congress to improve upon NAFTA's environmental
provisions and forge future trade agreements that actively
promote sustainable development. Unfortunately, as we consider
President Clinton's request for fast track authorization to
negotiate and deliver to Congress new trade and investment
agreements, we face an entirely different situation. The high
water mark left by NAFTA's environmental provisions has long
since faded, and the scope and nature of trade and investment
policy negotiations since NAFTA cast doubt on the Clinton
Administration's commitment to an environmental agenda for
trade negotiations. Any effort by this Administration to
further the linkages between trade and the environment has been
met with a level of hostility from Congress--in particular from
this Committee--that `main street and mainstream' groups like
NWF simply do not understand. We are not asking for special
favor, only that negotiators recognize the complex
relationships between environmental protection and trade
liberalization, and negotiate rules that promote a more
equitable distribution of human wealth and environmental
quality. Given a political environment hostile to our efforts
to improve upon NAFTA's environmental provisions, and an
Administration unwilling to lead the world toward
environmentally responsible trade, we are forced to oppose fast
track unless it contains both specific negotiating objectives
for the environment and adequate evidence of the
Administration's commitment to environmentally responsible
trade.
The following testimony is informed by our experience with
NAFTA and its implementation. It relies on NWF's own analysis
of the performance of NAFTA's parallel institutions \1\ to
explain our goals for future trade and investment agreements.
---------------------------------------------------------------------------
\1\ Two reports--one an analysis of the performance of the BECC and
NADBank, the other an analysis of the CEC--will be completed by the
beginning of October. Upon their completion, I ask the Committee to
make these reports part of the permanent record of this hearing. John
J. Audley, Program Coordinator for Trade and the Environment of the
National Wildlife Federation, can furnish copies of these reports.
---------------------------------------------------------------------------

Parallel Agreements Work

The first lesson taught by the NAFTA package is that
parallel agreements designed to address the broader social and
environmental implications of economic integration are
essential if we are to ``ensure that North Americans do not
obtain the benefits of economic development at the expense of
environmental protection.'' \2\ NAFTA's environmental
organizations play an important role in promoting higher
standards of environmental protection. Despite their short time
on the job, all three organizations exhibit evidence of the
successful implementation of their programs:
---------------------------------------------------------------------------
\2\ The White House, Study on the Operation and Effects of the
North American Free Trade Agreement (The Study). (Washington, DC:
Office of United States Trade Representative, July 1997). Page 114.
---------------------------------------------------------------------------
CEC and BECC decision-making processes empower
citizens to play an active role in efforts to define and
prioritize environmental problems, and to develop and implement
concrete solutions to these problems.
--The BECC has certified 16 environmental
infrastructure projects, with a combined cost of nearly $230
million dollars.
--The NADBank created funding packages for four of
these projects, two on each side of the border, and is
currently working on developing technically and financially
sound packages for three other projects. Four other BECC-
certified projects sought funding from sources other than the
NADBank.
--The CEC's agenda for 1997 is designed to facilitate
cooperation and public participation in environmental
conservation efforts. Five of the eight project areas
--Habitat and Species; Reducing Risk from Chemical
Exposure; Climate Change and Energy Efficiency; Cooperative
Enforcement Programs; and Technology Cooperation--work hand in
glove with this nation's environmental protection program.
Environmental agencies at the local, state, and
national levels collaborate to help build agency capacity to
enforce environmental laws.
--In 1996, the EPA held 20 workshops, training over
220 inspectors from U.S. and Mexico.
--NADBank has set aside $2 million of its earnings to
establish an institutional development program to help
communities operate environmental infrastructure systems more
efficiently.
--BECC established a technical assistance program to
help communities develop stronger infrastructure project
proposals.
CEC investigations, reports, and programs collect
and disseminate information useful to citizens interested in
monitoring the behavior of both governments and industries.
--The CEC has received eleven requests from citizens
to investigate government enforcement of its environmental
laws; four have resulted in formal investigations or the
completion of factual records. And while the balance of the
petitions did not result in formal action by the CEC, they did
serve to broaden public interest in the relationship between
trade rules and environmental protection.
Perhaps of even greater importance is the ability of these
organizations to develop the capacity of citizens and
governments to protect their own environment. For example, the
BECC and NADBank created programs to provide communities with
the necessary technical and management skills to develop and
implement sound solutions to environmental problems. The CEC's
programs and public reports help citizen's groups perform the
essential role of ``watch dog'' over agency and industry
performance. For example, pilot projects begun along the
borders between in Maine and New Brunswick in the northeast,
and between California and Baja California in the southwest
involve citizens groups in an effort to reduce sewage discharge
to the oceans by fifty percent in five years.\3\
---------------------------------------------------------------------------
\3\ See, The Commission for Environmental Cooperation, Global
Program of Action for the Protection of the Marine Environment from
Land Based Activities. (Montreal: Commission for Environmental
Cooperation, 1997).
---------------------------------------------------------------------------
While we believe these institutions on the whole are acting
responsibly, we also acknowledge their deficiencies. The CEC
took too long to develop such a specific work program, and it
continues to struggle against efforts by some NAFTA parties to
resist the implementation of their program. In particular, the
government of Mexico has consistently blocked the CEC's efforts
to develop consensus on environmental issues that are of common
concern to all North Americans.\4\ We also recognize that the
NADBank's ability to fund badly needed infrastructure projects
for poor communities is constrained by its mandate to fund only
``economically viable'' projects. While the BECC and the
NADBank continue to struggle to coordinate their own
relationships, not enough is being done to clean up the Mexico-
U.S. border. It is unfair to border residents to promise them a
solution to the environmental problems and then not fully
empower the resulting body to meet that promise.
---------------------------------------------------------------------------
\4\ See letter endorsed by Defenders of Wildlife, the Community
Nutrition Institute, the National Audubon Society, the National
Wildlife Federation, the Sierra Club, and the World Wildlife Fund, to
the Honorable Carol M. Browner, Administrator, United States
Environmental Protection Agency, July 10, 1997.
---------------------------------------------------------------------------
We are also disappointed that the Administration claims to
have ``revitalized a long history of bilateral cooperation''
\5\ with the creation of these new organizations. For decades
Mexican, Canadian and U.S. citizens have worked hard to resolve
their own environment and development problems, and in many
circumstances this was in spite of efforts by national
governments to constrain them. At the same time we must
recognize that the environmental problems facing these three
nations were decades in the making; to expect to resolve them
all in only three short years is an unrealistic demand. In
short, we believe that the BECC, NADBank and CEC are fragile
institutions that are unique in character and experimental in
many of their programs. They have made much progress over the
past two to three years and they deserve our praise. They do
not deserve the unrelenting criticism directed against them for
failing to meet unrealistic expectations.
---------------------------------------------------------------------------
\5\ The Study. Page 111.
---------------------------------------------------------------------------
The most important lesson we draw from NAFTA is that, if
negotiated properly, and in conjunction with trade and
investment agreements, parallel environmental organizations
perform the essential function of addressing the broader
implications of economic integration. They help ``[e]nsure that
the public's concerns regarding environmental matters will be
heard and facilitat(e) joint efforts to address common
environmental problems.'' \6\ These are values I believe we all
share in common, values that promote American ideals of how
governments can and should respond to citizen's demands.
Because I believe we share these values, I am puzzled when I
consider your unwillingness to support our call to the
Administration to negotiate supplemental agreements to help
ensure that people benefit from trade liberalization without
doing harm to their environment. Why would we want to constrain
the President from negotiating trade agreement packages that
expand trade while protecting the environment, and in turn
create mechanisms designed to hold governments accountable for
their actions?
---------------------------------------------------------------------------
\6\ The Study. Page 111.
---------------------------------------------------------------------------

The NAFTA Text: A Lesson on How Not to Negotiate Green Trade Agreements

While we are generally supportive of the performance of
NAFTA's parallel institutions, we disagree with the
Administration's claim that the NAFTA text meets the commitment
made to Congress by President Bush to ensure the right to
safeguard the environment.\7\ Based on our analysis we believe
NAFTA's trade regime subjects legitimate environmental
regulations to unfair challenge by trade advocates.\8\
---------------------------------------------------------------------------
\7\ See ``Response of the Administration of George Bush to Issues
Raised in Connection with the Negotiation of a North American Free
Trade Agreement,'' published in Daniel Magraw, editor, NAFTA and the
Environment: Substance and Process. (the American Bar Association,
1995). Page 163.
\8\ See letter from John J. Audley, Program Coordinator for Trade
and the Environment, the National Wildlife Federation, to Jennifer
Haverkamp, Assistant U.S. Trade Representative for Environment and
Natural Resources, Office of the United States Trade Representative.
September 8, 1997.
---------------------------------------------------------------------------
Nowhere is this more evident than in the recent case
brought by the Ethyl Corporation against the government of
Canada.\9\ A U.S. corporation, dissatisfied with a Canadian
environmental regulatory decision, is seeking to obtain
compensation for the alleged ``expropriation'' of its property,
through NAFTA's dispute resolution mechanism--compensation
which would not be available under the constitution and laws of
Canada, nor for that matter, of the United States if such a
case were brought here. More recently, efforts by environmental
organizations to promote the use of private third party
environmental labels as part of the EPA's government
procurement procedures have been stymied because EPA officials
fear such recommendations may be in violation of NAFTA and GATT
trade provisions. Finally, in a challenge brought by the United
States and Canada, the WTO overturned a European ban on beef
treated with growth hormones.\10\
---------------------------------------------------------------------------
\9\ Please refer to the Ethyl Corporation v. the Government of
Canada, UNCTRAL. Filed April 14th, 1997. See also Michelle Sforze,
Preamble Center for Public Policy and Mark Vallianatos, Friends of the
Earth, ``Ethyl Corporation vs. Government of Canada: Chemical Firm Uses
Trade Pact to Contest Environmental Law,'' (Washington, DC: The
Preamble Center, 1997).
\10\ See Mark Abley, ``World Trade Organization: The Whole World in
its Hand,'' Toronto Gazette, April 19, 1997. See also an internal
memorandum prepared by Jake Caldwell, the Community Nutrition
Institute, ``WTO Panel Decision on EU-US Beef Hormone Dispute--
Preliminary Analysis,'' (Washington, DC: The Community Institute, (202)
776-0595). 5/13/97.
---------------------------------------------------------------------------
Each of these cases underscores an important lesson learned
by citizens groups engaged in trade policy advocacy. While the
NAFTA ``[i]includes numerous provisions designed to safeguard
the environment,'' \11\ these provisions are essentially only
hortatory language promoting sustainable development, and
admonishing governments not to weaken environmental laws to
encourage investment. They are inadequate measures to guarantee
a nation's right to safeguard its own people and environment,
and they are no match for trade dispute resolution panels with
clear rules and narrow goals. We need parity between
environment and trade priorities.
---------------------------------------------------------------------------
\11\ The Study. Page 114.
---------------------------------------------------------------------------
In a letter recently sent to USTR officials, NWF staff
presented to the Administration a list of environmental
objectives for negotiations we believe must be a part of the
fast track authorization package. These recommendations are
attached, as an important part of this testimony because they
challenge this Committee to rethink its position on environment
and trade. We encourage you to stop asking whether environment
should be an issue for trade negotiations and instead to ask
how best to incorporate it to actively promote sustainable
development. We need to include environment in trade
negotiations to make certain that US firms operating in
compliance with environmental laws are competing on a playing
field made level by trade rules that compel companies to
internalize environmental costs, and governments to enforce the
environmental regulations. We need parallel agreements that
actively promote capacity building and democratic reform.
Finally, we need fast track only if it guarantees that such
objectives are an integral component of US negotiators' goals,
and provides both Congress and the American people adequate
avenues to hold those negotiators accountable. With your help,
together we can make this happen.

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Chairman Crane. Thank you.
And next is Mr. Mohatarem.

STATEMENT OF G. MUSTAFA MOHATAREM, CHIEF ECONOMIST, GENERAL
MOTORS CORP., DETROIT, MICHIGAN

Mr. Mohatarem. Thank you, Mr. Chairman and Members of the
Subcommittee. My name is Mustafa Mohatarem. I'm chief economist
for General Motors Corp. I welcome the chance to be here today
on behalf of General Motors to discuss the positive impact of
the North American Free Trade Agreement on GM, its employees,
and customers, and to state GM's strong support for granting
fast track trade negotiating authority to the President.
GM was an early and strong supporter of NAFTA. NAFTA
promised to deliver more rapid economic growth, improve living
standards, increase prosperity, and an increase in higher
paying jobs. It also carried with it the prospect of enhanced
cooperation and goodwill among the United States, Mexico, and
Canada.
Although NAFTA will not be fully implemented for another 12
years, it is already living up to these promises. The United
States auto industry has long benefited from free trade with
Canada, but prior to NAFTA, Mexico's market was effectively
closed to exports of autos from the United States. In 1993, the
year before NAFTA went into effect, GM's vehicle exports to
Mexico from the United States were close to zero. In 1996 GM
exported over 32,000 units valued at $650 million to Mexico
from the United States, and we expect that number to double
this year.
This increase in exports from the United States augmented
our product line in Mexico and was a major factor in GM
becoming the largest seller of vehicles in Mexico for the first
time in their 70-year history in that country. What is truly
remarkable is that this increase in exports has occurred in the
face of one of the deepest recessions in Mexican history. We
expect United States exports to rise even more as Mexico's
economy recovers. Indeed, Mexico is rebounding far more quickly
and strongly than anyone could have imagined. Clearly, Mexico's
decision to honor its NAFTA commitment, despite the plunge in
domestic demand, ultimately served to accelerate recovery.
I want to emphasize that, prior to NAFTA, GM, along with
Ford and Chrysler, all had assembly operations in Mexico that
served the United States and Mexican markets. Although exports
from these facilities have increased since the effective date
of NAFTA, the driving force for this change is not NAFTA, but
the high demand for vehicles in the strong U.S. economy.
Indeed, contrary to the fears of NAFTA opponents,
employment in the United States auto industry has increased by
110,000 between 1993 and 1996. The enormous increase in high-
productivity, high-wage jobs in the U.S. auto industry is quite
significant when one considers the competitive pressures on
automakers to do more with less. The globalization of the U.S.
motor vehicle industry has forced GM and other U.S. auto
producers to rationalize operations in order to compete with
competitors from around the world. NAFTA has been an important
force in facilitating the necessary rationalization.
For example, because of GM's increased ability to import
vehicles into Mexico, GM has been able to reduce the number of
models produced in Mexico to achieve better economies of scale.
At the same time, we are better able to coordinate the
production in all three NAFTA countries to achieve more level
production scheduling. This helps overall competitiveness,
which in turn benefits our workers and other GM stockholders.
Certainly, enhanced competitiveness is the best way to
assure high-wage jobs, and one important measure of
competitiveness is whether the company exports or not. In this
context, it is important to note that on the average, wages in
U.S. companies that export tend to be 10 to 15 percent higher
than wages in nonexporting companies. That is certainly true
for the U.S. motor vehicle industry, which in the face of
growing international competition has been able to offer
employees higher wages. Wages of the industry increased 74
percent above the average increase for the U.S. private sector
over the last 3 years.
Unfortunately, it is difficult to completely sort out the
pure effects of NAFTA from the positive effects of a strong
United States economy, especially because trade between the
United States and Mexico is such a small percentage of the U.S.
economy. But I believe few would argue with the proposition
that open markets of the United States created by NAFTA and
other trade agreements have allowed the Federal Government to
pursue a more rapid rate of economic growth and job creation
than otherwise would have been the case.
Also, given the worldwide trend toward the liberalization
of trade, the U.S. cannot afford to sit on the sidelines as
other nations forge preferential trading arrangements. On our
continent, both Mexico and Canada have completed free trade
pacts with Chile. This makes it increasingly more cost
effective for GM to export vehicles and parts from Mexico or
Canada to Chile than from the United States. And now both
Mexico and Canada are exploring preferential trading
relationships with the MERCOSUR countries, just as the European
Union is negotiating session protocols with central Europe.
Although we're convinced that NAFTA promotes the best
interest of the United States and the U.S. economy, GM
recognizes that change and restructuring can cause temporary,
but significant problems and dislocation. We believe the best
approach is not to reject NAFTA, but to identify the problems
and to turn them into opportunities.
GM, along with a number of motor vehicle and parts
companies, is sponsoring an indepth analysis of NAFTA that is
being coordinated by the Center for Strategic and International
Studies. We hope this analysis will improve our understanding
about how NAFTA is impacting the auto sector and what, if any,
changes are required to increase NAFTA's benefits for the
sector.
But it's also important to recall that NAFTA is more than a
trade agreement; it has an expectation that it will improve
working between our country, Canada, and Mexico on issues such
as national security, immigration, and drugs. And analogous to
that, GM is trying to work with all three governments,
especially the Mexican Government, on a number of initiatives
that will provide broad-based benefits for the communities
where we have operations in Mexico.
For example, in 1994 GM entered into a voluntary audit
agreement with Mexico's national environmental agency to
develop an environmental audit plan to conduct baseline audits
of all our Mexican facilities and to develop and implement
corrective action plans. The standards utilized themselves are
consistent with GM's environmental principles, which are at
least as rigorous as those used in our U.S. facilities.
GM also has been experimenting with a variety of GM
employee benefit programs for our Mexican employees. For
example, under a joint program between Delphi Automotive, our
automotive component division, and the Mexican Government, GM
is helping qualified employees purchase their own homes. Over
the next 6 years, this program will help to build 7,000 homes
in six cities for GM employees.
Thus, our assessment of NAFTA is very positive. What's more
is the benefits of NAFTA can only be expected to grow in the
future. Thus, not only does General Motors continue to be a
strong proponent of NAFTA, but we also support its expansion to
other hemispheric countries, beginning with Chile. We hope that
you'll grant the President the authority to negotiate those
agreements.
Thank you, Mr. Chairman.
[The prepared statement follows:]

Statement of G. Mustafa Mohatarem, Chief Economist, General Motors
Corp., Detroit, Michigan

Thank you, Mr. Chairman and Members of the Committee. My
name is Mustafa Mohatarem. I am Chief Economist, General Motors
Corporation. I welcome the chance to be here today on behalf of
General Motors to discuss the impact of the North American Free
Trade Agreement (NAFTA) on GM, its employees and customers.
GM was an early and strong supporter of NAFTA.
NAFTA promised to deliver more rapid economic growth, improved
living standards, increased prosperity, and an increase in
higher paying jobs. It also carried with it the prospect for
enhanced cooperation and goodwill among the U.S., Mexico and
Canada. Although NAFTA will not be fully implemented for
another twelve years, it is already living up to these
promises.
The U.S. auto industry has long benefited from
free trade with Canada, but prior to NAFTA, Mexicos market was
effectively closed to exports of autos from the U.S. In 1993,
the year before NAFTAs market opening provisions went into
effect, GMs vehicle exports to Mexico from the U.S. were close
to zero. In 1996, GM exported over 32,000 units (valued at
approximately $650 million) to Mexico from the U.S.--and, we
expect that number to double this year. This increase in
exports from the U.S. augmented our product line in Mexico, and
was a major factor in GM becoming the largest seller of
vehicles in Mexico for the first time in our 70-year history in
that country.
What is truly remarkable is that this increase in
exports has occurred in the face of one of the deepest
recessions in Mexican history. We expect U.S. exports to rise
even more as Mexicos economy recovers. Indeed, Mexico is
rebounding far more quickly and strongly than anyone could have
imagined. Clearly, Mexicos decision to honor its NAFTA
commitments despite the plunge in domestic demand ultimately
served to accelerate recovery.
I wish to emphasis that, prior to NAFTA, GM, Ford
and Chrysler all had assembly operations in Mexico that served
the U.S. and Mexican markets. Although exports from these
facilities have increased since the effective date of NAFTA,
the driving force for this change was not NAFTA, but the high
demand for vehicles in a strong U.S. economy. Indeed, contrary
to fears expressed by NAFTA opponents, employment in the auto
industry has increased by 110,000 between 1993 and 1996.
This enormous increase in high productivity, high
wage jobs in the U.S. auto industry is quite significant when
one considers the competitive pressures on automakers to do
more with less. The globalization of the U.S. motor vehicle
industry has forced GM and other U.S. auto producers to
rationalize operations in order to compete with competitors
from around the world. NAFTA has been an important force in
facilitating this necessary rationalization.
For example, because of the increased ability to
import vehicles into Mexico, GM has been able to reduce the
number of models produced in Mexico to achieve better economies
of scale. At the same time, we are better able to coordinate
the production in all three NAFTA countries to achieve more
level production scheduling. This helps overall
competitiveness, which, in turn, benefits our workers and other
GM stakeholders.
Certainly, enhanced competitiveness is the best
way to assure high-wage jobs. And, one important measure of
competitiveness is whether a company exports or not. In this
context, it is important to note that on average, wages in U.S.
companies that export tend to be 10-15 percent higher than
wages in non-exporting companies. That is certainly true for
the U.S. motor vehicle industry, which in the face of growing
international competition, has been able to offer employees
higher wages. Wages in the industry increased 74% above the
average increase for the U.S. private sector.
Unfortunately, it is difficult to completely sort
out the pure effects of NAFTA from the positive effects of a
strong U.S. economy, especially because trade between the U.S.
and Mexico is such a small percentage of the U.S. economy. But,
few would argue with the proposition that open markets in the
U.S. created by NAFTA and other trade agreements have allowed
the Fed to pursue a more rapid rate of economic growth and job
creation than would otherwise been the case.
Given the worldwide trend toward the
liberalization of trade, the U.S. cannot afford to sit on the
sidelines as other nations forge preferential trading
arrangements. On our continent, both Mexico and Canada have
completed free trade pacts with Chile. This makes it
increasingly more cost-effective for GM to export vehicles and
parts from Mexico or Canada to Chile than from the U.S. And,
both Mexico and Canada are currently exploring preferential
trading relationships with the Mercosur countries, just as the
European Union is negotiating accession protocols with Central
Europe.
Although we are convinced that NAFTA promotes the
best interests of the U.S. and the U.S. economy, GM recognizes
that change and restructuring can cause temporary, but
significant problems and dislocations. We believe the best
approach is not to reject NAFTA, but to identify the problems
and to turn them into opportunities. GM, along with a number of
other motor vehicle and parts companies, is sponsoring an in-
depth analysis of NAFTA that is being coordinated by the Center
for Strategic and International Studies. We hope this analysis
will improve our understanding about how NAFTA is impacting the
auto sector and, what if any changes are required, to increase
NAFTAs benefits for the sector.
In evaluating NAFTA, we need to remember that
cooperation on trade matters makes it much easier for us to
work together with other countries on non-economic matters,
such as national security, immigration and drugs. At GM, we are
working with the Mexican government on a number of initiatives
that we hope will provide broad-based benefits for the
communities where we have operations in Mexico.
For example, in 1994, GM entered into a voluntary
audit agreement with the Mexicos national environmental agency
(then named SEDESOL, now called SEMARNAP) to develop an
environmental audit plan, to conduct baseline audits in all of
our Mexican facilities and to develop and implement corrective
action plans. The scope of the project was broad, going beyond
a traditional environmental focus to include health and safety,
facilities engineering and security issues, and industrial
hygiene. Considerable time and effort have gone into this
project. The results have been very positive. The standards
themselves are at least as rigorous as those used in our U.S.
facilities.
GM has also been experimenting with a variety of new
employee benefit programs for our Mexican employees. For
example, under a joint program between Delphi Automotive, our
automotive components division, and the Mexican government, GM
is helping qualified employees purchase their own homes. Over
the next six years, this program will help to build 7,000 homes
in six cities for GM employees.
Our assessment of NAFTA is very positive. Whats more, the
benefits of NAFTA can only be expected to grow in the future.
Thus, not only does General Motors continue to be a strong
proponent of NAFTA, but we also support its expansion to other
hemispheric countries, beginning with Chile.

Chairman Crane. Thank you all for your testimony.
Mr. Mohatarem, the UAW contends that, since NAFTA, it has
led to a massive loss of jobs. And yet the Bureau of Labor
Statistics says that, since NAFTA, employment in motor vehicles
has increased by 12.2 percent; employment in automotive parts
has increased by 16.1 percent; and total employment in the auto
industry has increased by 14.1 percent. Do you have any
understanding as to why the UAW would contradict the Bureau of
Labor Statistics on their assessment of NAFTA?
Mr. Mohatarem. Mr. Chairman, I believe the UAW will be
testifying later, and I'll let them answer. But, as I said, the
industry on net has added 110,000 jobs in the last 3 years.
Chairman Crane. Well, that's my understanding, and I'm
puzzled by those claims.
Mr. Van Putten, I want to put the same question to you that
I put to Mr. Sweeney, and that is, Why were a majority of the
dispute settlement cases taken up under the environmental side
agreement of NAFTA filed against the United States and Canada
instead of against Mexico?
Mr. Van Putten. Mr. Chairman, based on our experience with
the CEC, I would speculate that the reasons are, first of all,
there is a greater tradition in the United States and Canada of
citizen activism to protect the quality of the environment. So
there was earlier and greater perception of the opportunities,
as I related. Based on our experience and working session on
this in Arizona, we believe the Mexican citizens are waking up
to that opportunity.
Second, I believe there was perhaps a view that if the
earliest and most aggressive uses of that mechanism appeared to
target Mexico, it would make Mexico and other countries in the
future less willing to participate in those institutions; that
it was viewed as a long-term mechanism that needed to work.
Third, the United States and Canada may have deserved some
of those petitions. The CEC's recent release information on
toxic releases indicated that the Providence of Ontario was the
worst violator in terms of toxic emissions. I don't think we
ought to suppose that the petitions that were filed were not
well founded and didn't raise important and credible concerns.
Chairman Crane. Thank you very much.
Mr. English.
Mr. English. Thank you, Mr. Chairman.
Mr. Van Putten, I was taken by your testimony. I think you
touched on an issue that has concerned me very much about the
administration's NAFTA report, and that is the effectiveness of
the Commission for Environmental Cooperation, the result of the
environmental side agreement that was supposed to be a
significant part of the NAFTA, and as I understand it, was the
proximate cause of your organization actively supporting NAFTA
several years ago, before I came to Congress.
May I ask, what are the problems you see currently with the
Commission for Environmental Cooperation? Is there any way
those structural problems can be corrected?
Mr. Van Putten. Congressman English, you are correct that
the commitment to the CEC was a very important component, and
the parallel agreement was an important element of NWF's desire
to aggressively support NAFTA.
Our experience with the CEC--and in my prior role up to 1
year ago, as the director for 14 years of NWF's Great Lakes
operations, I had personal involvement with the CEC--our view
is, first of all, creating a new institution like that, there's
a learning curve, and much of what we saw we think was just
getting its priorities straight, developing a work plan,
assembling staff, and all of those things one expects to see
associated with a new institution.
Second--and we have communicated this often and
forcefully--we have been disappointed in the lack of the
administration's attention to the CEC and the lack of
consistent and high-level participation by the administration
and the United States in the CEC and helping to make it work.
We believe, based on some recent conversations, that there may
be an increase and heightened attentiveness to the CEC, and we
certainly welcome that.
Third, I believe there was some sorting out of the role of
the CEC vis-a-vis other and existing institutions, and the one
that I was most personally familiar with was the International
Joint Commission which exists to deal with Great Lakes issues
between the United States and Canada, and there was a
significant amount of sorting out how does the CEC relate to
that institution. I cannot speak from personal experience in
terms of Mexico, but I would offer those as three reasons.
Mr. English. One of the major concerns going into NAFTA,
that NAFTA had presumably hoped to provide progress toward
addressing, was the problem of waste coming out of the
maquiladora facilities along our border. At the time NAFTA
passed, the bulk of the waste being generated by those
facilities was not being tracked; we don't know where it was
going. Are you confident that there has been significant
progress by Mexico in addressing those problems, in tracking
the waste, and in investing in facilities along the border that
are improving the environment?
Mr. Van Putten. Congressman, I cannot speak limited to just
Mexico. I would point out, as we addressed in the written
testimony, that we believe the BECC, in certifying 16
infrastructure projects and NADBank in funding 4 of them, that
we have begun to use that mechanism to address some of these
infrastructure issues.
Second, the issue of tracking and sharing information is a
critical one. It is a means to empower citizens to know about
environmental conditions, and if they know about them, they can
act to solve them. And we believe that the CEC, in particular,
and the reports and the 11 investigations they've commenced so
far, has begun to serve that role of assembling and releasing
information.
Mr. English. My last question, Mr. Van Putten, is a more
general one, but is very central to me and my attitude toward
not so much NAFTA, but future trade negotiations. I realize it
has been a stated priority of many in the environmental
movement and many in the labor movement that there be some sort
of upward harmonization of laws and of enforcement of laws in a
number of different areas, so that there is a level
playingfield for American versus other foreign products in
competing in the marketplace.
We all know that environmental enforcement has substantial
costs attached to it. My concern in the context of fast track
is a broad-based fast track that would embrace environmental
and labor concerns might create an opportunity of harmonization
that would not necessarily be upward from our perspective.
Has your organization considered the potential danger of
downward harmonization through a fast track process, and do you
think that is a legitimate concern?
Mr. Van Putten. Congressman, we are concerned about that
phenomenon, and in my written testimony we identify three
instances subsequent to NAFTA where we are concerned that U.S.
laws have come under that sort of pressure.
We believe in the potential of free trade to be a very
effective tool to enhance environmental protection, but we
don't think that that can happen based only on promises that in
the sweet by-and-by we will address those concerns. We believe
they are central to trade agreements, and that specific
negotiating objectives would make that clear from the U.S.
perspective, that those issues are on the table not only in
that defensive way, but in the proactive way of using trade to
improve the quality of the environment in our trading partners'
countries.
Mr. English. Thank you. And, Mr. Chairman, thank you for
the opportunity.
Chairman Crane. Well, again, we want to express
appreciation to all of you for your testimony before the
Subcommittee today, and we look forward to maintaining ongoing
contact and communication with you. Please contact us, and vice
versa, because we rely upon the insights that you people have
in terms of the consequences of the actions that we take here.
And, once more, I thank you.
And with that, I'd like to introduce the next panel of
witnesses, and we will begin with Bob Stallman, president of
the Texas Farm Bureau; Jerry King, president of the National
Pork Producers Council; Janet Nuzum, vice president and counsel
to the International Dairy Foods Association; and Larry Martin,
president of the American Apparel Manufacturers Association.
And, again, I'd like to remind all witnesses to try and
confine their oral presentations to 5 minutes, and to reassure
you that all written testimony will be inserted into the
record.
And with that, we shall commence with Mr. Stallman.

STATEMENT OF BOB STALLMAN, PRESIDENT, TEXAS FARM BUREAU; ON
BEHALF OF AMERICAN FARM BUREAU FEDERATION

Mr. Stallman. Thank you, Mr. Chairman and Members of the
Subcommittee. I am Bob Stallman, president of the Texas Farm
Bureau, and I'm here today representing the American Farm
Bureau Federation. I want to thank you for this opportunity to
testify concerning the status of NAFTA with Canada and Mexico.
The American Farm Bureau represents 4.7 million members in
the United States and Puerto Rico. Our members produce every
type of farm commodity that is grown in America.
At the time NAFTA was implemented in 1994, Farm Bureau was
one of its strongest supporters. Even today, we continue to
believe that higher living standards around the world depend
upon mutually beneficial trade among nations. But this
transition to higher living standards has been a bit bumpy as
far as NAFTA is concerned. Our members generally agree that
free trade is the ultimate goal, but believe that fair two-way
trade without undue barriers must be the immediate goal. With
this caveat in mind, the facts and figures still lead to the
conclusion that NAFTA ultimately has been a success for all
three trading partners: The United States, Canada, and Mexico.
The Farm Bureau cosponsored the Promar International
report, ``U.S. Agricultural Export Experience With NAFTA
Partners,'' which has been submitted for the record. This
report provides an objective look at the impacts of NAFTA on
agriculture. Also included in the submitted testimony are
recent USDA figures concerning this accord. These reports
reveal that NAFTA can and should be the success that each of us
desires.
These numbers show that United States agricultural trade
with both Mexico and Canada has increased since the
implementation of NAFTA. However, the devaluation of the
Mexican peso has made United States goods more expensive in
Mexico and Mexican goods less expensive in the United States.
Thus, a significant 1994 United States agricultural trade
surplus with Mexico vanished during 1995, but has strengthened
again in 1996 and 1997 as the Mexican economy has shown renewed
signs of growth.
The NAFTA guaranteed movement of exports to Mexico during
the peso devaluation. The agreement precluded Mexico from
stopping all imports to protect its foreign currency base.
Trade continued through even the lowest peso level, and now
with a more stable peso, the United States is again running an
agricultural trade surplus with Mexico.
Now for a couple of the bumpy spots. Mexican tomatoes
entered the United States at record levels during 1996. For the
8-month period, imported Mexican tomatoes measured in dollars
were up almost to 70 percent. This situation caused severe
problems for Florida tomato farmers, but the situation was
believed to be solved through negotiations between our growers
and Mexico. However, it appears that the suspension agreement
is not being enforced and Mexican tomatoes are again disrupting
the market.
Being from Texas, we had a massive influx of cattle after
the implementation of the NAFTA after 1994, but that was based
on the devaluation of the peso and also a drought in the
cattle-producing areas. This created some consternation with
NAFTA, but it was misplaced because NAFTA had nothing to do
with this particular influx of cattle into the United States.
The United States ran a positive, but narrowing,
agricultural trade surplus with Canada until last year. For
both 1996 and 1997, we expect to run a slight agricultural
trade deficit with Canada. A portion of this deficit relates to
the fact that Canada continues to help its dairy and poultry
industries outside the terms of the agreement and places very
high tariffs on our dairy and poultry commodities, limiting our
exports to Canada. Canada also continues to supply-manage its
grain used in the Canadian Wheat Board. Canada may be living up
to the letter of the NAFTA, but not the full spirit of more
open markets. We must find a way to address these issues with
the Canadians. Still, our exports to Canada have continued to
rise under NAFTA.
Mr. Chairman, NAFTA has been good for agriculture as a
whole, although adjustments are needed for some sectors. The
Farm Bureau believes that negotiating and modifying existing
trade agreements and establishing new agreements is critical to
the competitiveness of U.S. agriculture. The ability to expand
existing markets and open new markets will dictate the future
of our industry and the well-being of the Nation.
Let's look at some of the reasons why trade and good trade
agreements are critical to agriculture. One, the well-being of
U.S. agriculture is tied to competitiveness in global markets.
U.S. agricultural exports have more than doubled from 29
billion in 1984 to 60 billion in 1996. Much of this growth has
been attributed to efforts to open markets through trade
agreements and multilateral trade negotiations.
Two, good trade agreements are critical to opening markets.
In a world where over 95 percent of the world's consumers live
outside of the United States, and where U.S. agriculture
already depends on exports for one-third of all sales, we must
have new and expanded markets.
Three, commercial competitiveness is critical to our
position of global leadership. Canada, China, Japan, and the
others are forging preferential commercial alliances with
emerging markets which put American exports at a disadvantage.
Four, exports create American jobs. Today more than 11
million American jobs are supported by exports.
And, five, with respect to agriculture specifically, the
next round of talks in the World Trade Organization is to begin
in 1999. American agriculture must be in a position to lead the
renegotiation of the Uruguay round General Agreement on Tariffs
and Trade for Agriculture. Some issues of importance in this
Round include increased market access, resolution of state
trading issues, greater transparency between trading partners,
greater adherence to sound science in resolving sanitary and
phytosanitary issues, rules of origin, export subsidies,
internal support schemes disguised as environmental payments,
and clearly defined trade in genetically modified organisms.
Negotiations to cut trade barriers in the $526 billion global
agricultural market will define the structure of American
agriculture for the next decade.
We are looking forward to the President's request for fast
track authority, and we'll take a very careful look at this
request to see that it meets the industry's needs. As you are
aware, Farm Bureau is working with the administration and
Congress to address specific issues of concern to the Farm
Bureau before committing to full support for fast track
authority. These issues include: One, language in the
legislation that would require the administration to address
the issues of tariff equalization and increasing market access
or requiring U.S. trading partners to eliminate tariff barriers
within specified timeframes; two, language in the legislation
that binds the trading partners to resolving sanitary and
phytosanitary disputes on the basis of sound science; and,
three, securing actions by the administration and Congress that
would lead to changes in international agreements and U.S. laws
and practices that would facilitate and shorten dispute
resolution procedures and processes, especially in issues
involving perishable products. This would include changes in
international agreements and U.S. law which would redefine a
crop or growing season.
Mr. Chairman, the U.S. market is already open; others are
not. It's important that we work to get those other markets
open to U.S. agricultural products.
Thank you for holding this hearing, and we look forward to
working with you and the Subcommittee to implement strong trade
agreements.
[The prepared statement follows:]

Statement of Bob Stallman, President, Texas Farm Bureau; on Behalf of
American Farm Bureau Federation

Mr. Chairman and members of the Committee, I am Bob
Stallman, president of the Texas Farm Bureau. I am here today
representing the American Farm Bureau Federation as well as the
Texas Farm Bureau. I want to thank you for this opportunity to
testify concerning the status of the North American Free Trade
Agreement (NAFTA) with Canada and Mexico. The American Farm
Bureau represents 4.7 million member families in the United
States and Puerto Rico. Our members produce every type of farm
commodity grown in America.
NAFTA, as you know, was implemented on January 1, 1994. At
that time, Farm Bureau was one of its strongest supporters.
Even today we continue to believe that higher living standards
around the world depend upon mutually beneficial trade among
nations. But, this transition to higher living standards has
been a bit bumpy as far as NAFTA is concerned. Our members
generally agree that free trade is the ultimate goal, but
believe that fair two-way trade without undue barriers must be
the goal.
With this caveat in mind, the facts and figures still lead
to the conclusion that NAFTA ultimately has been a success for
all three trading partners, the United States, Canada and
Mexico.
Farm Bureau co-sponsored the Promar International report,
``U.S. Agricultural Export Experience with NAFTA Partners,''
which has been submitted for the record. This report provides
an objective look at the impacts of NAFTA on agriculture.
Also included in this testimony are recent USDA figures
concerning this accord. These reports reveal that NAFTA can and
should be the success that each of us desires.

TABLE 1--U.S. Agricultural Trade with NAFTA Countries
[Billions of $]
------------------------------------------------------------------------
1994 1995 1996 1997
------------------------------------------------------------------------
Exports to Mexico........... 4.1 3.7 5.0 5.5
Imports from Mexico......... 2.8 3.7 3.8 3.8
Trade Balance............... 1.3 0.0 1.2 1.7
Exports to Canada........... 5.3 5.8 6.0 6.5
Imports from Canada......... 5.2 5.4 6.5 6.9
Trade Balance............... 0.1 0.4 (0.5) (0.4)
------------------------------------------------------------------------

As you can see, U.S. agricultural trade with both Mexico
and Canada has increased since the implementation of NAFTA.
However, the devaluation of the Mexican peso has made U.S.
goods more expensive in Mexico and Mexican goods less expensive
in the United States. Thus, a significant 1994 U.S. agriculture
trade surplus with Mexico vanished during 1995--but has
strengthened again in 1996 and 1997 as the Mexican economy has
shown renewed signs of growth.
The NAFTA agreement guaranteed movement of exports to
Mexico during the peso devaluation. The agreement precluded
Mexico from stopping all imports to protect its foreign
currency base. Trade continued through even the lowest peso
levels.
Now, with a more stable peso, the United States is again
running an agriculture trade surplus with Mexico. This surplus
is expected to continue during 1997. In fact, our agriculture
exports to Mexico are expected to reach a record $5.5 billion
this year.
The most recent numbers indicate that the Mexican economy
is beginning to show signs of added strength. U.S. agriculture
exports to Mexico reached $5 billion in fiscal 1996, led by
increased purchases of corn, wheat, soybeans and cotton. This
is an increase of $900 million from fiscal 1994--prior to the
devaluation. A more stable, but still cheaper, peso has helped
turn around this trade situation.
Fiscal year-to-date figures for October 1996 through May
1997 reveal this recovery and indicate that U.S. exports to
Mexico rose in excess of 35 percent since October of 1995. Bulk
commodities have led this increase in exports. The following
table compares this recovery with Mexico by commodity.

TABLE 2--U.S. Agricultural Trade with Mexico
[$ Millions]
----------------------------------------------------------------------------------------------------------------
Oct-May FY Oct-May FY % Change 2 Yr
1995 1997 Period
----------------------------------------------------------------------------------------------------------------
Exports to Mexico............................................... 2,479 3,380 36%
Coarse Grains................................................. 447 852 90%
Soybeans...................................................... 202 550 172%
Cotton........................................................ 136 172 26%
Wheat......................................................... 92 155 68%
Imports From Mexico............................................. 2,840 2,922 3%
Vegetables.................................................... 993 988 0%
Fresh Fruit................................................... 265 293 11%
Processed Fruit............................................... 199 214 8%
Cattle........................................................ 448 123 (73)%
Coffee........................................................ 60 78 30%
----------------------------------------------------------------------------------------------------------------

Mexican tomatoes entered the United States at record levels
during 1996. For the eight-month period, imported Mexican
tomatoes (measured in dollars) were up almost 70 percent. This
situation caused severe problems for Florida tomato farmers.
But, the situation was believed to be solved through
negotiations between our growers and Mexico. However, it
appears that the suspension agreement is not being enforced and
Mexican tomatoes are again disrupting the market. Currency
fluctuations directly impacted this change in product movement.
The data also indicate that cattle imports from Mexico
lessened during the recovery. A 1994 drought in northern Mexico
forced a massive liquidation of their herds with many of those
cattle moving through U.S. feedlots thus, increasing imports to
the United States. This situation turned around during the
recovery. For the eight months (October-May) this year versus
two years ago, cattle from Mexico to the United States (also in
dollars) were down over 73 percent. In this case a weather
problem led to big changes in trade, not NAFTA.
The United States ran a positive, but narrowing,
agriculture trade surplus with Canada until last year. For both
1996 and 1997, we expect to run a slight agriculture trade
deficit with Canada. A portion of this deficit relates to the
fact that Canada continues to help its dairy and poultry
industries outside the terms of the agreement and places very
high tariffs on our dairy and poultry commodities, limiting our
exports to Canada. Canada also continues to ``supply manage''
its grains using the Canadian Wheat Board. Canada may be living
up to the letter of the NAFTA agreement but not the full spirit
of more open markets. We must find a way to address these
issues with the Canadians. Still, our exports to Canada have
continued to rise under NAFTA.
According to a recent USDA report, the United States and
Canada historically ``share a common interest in agriculture
and in agricultural trade.'' To verify this fact, the U.S. and
Canada implemented the Canada Free Trade Agreement (CFTA) on
January 1, 1989, to eliminate tariff and non-tariff barriers to
trade over a 10-year period. This agreement was subsequently
incorporated into NAFTA, with the exemption of the supply
managed agricultural commodities that are causing trade
distortions in dairy, poultry and grains.
Since these accords were signed, however, bilateral trade
has steadily progressed. By 1997, U.S. agriculture exports to
Canada have risen to an estimated $6.5 billion, an increase of
more than $2.5 billion from pre-CFTA days. Fruits and
vegetables led the way, accounting for more than 35 percent of
U.S. agriculture exports to Canada. In addition, the United
States remains Canada's largest export market. During 1995,
about half of Canada's agriculture exports were to the United
States.
This year, U.S. exports to Canada and Canadian imports to
the United States are both above $6 billion. However, trade
problems still exist between our two countries in the area of
wheat, barley, beef, poultry, dairy and potatoes. A NAFTA
dispute panel ruled last year in favor of Canada in the dairy
and poultry dispute. Thus, the United States still has some
concerns about Canada's high border tariffs and the future
monitoring and enforcing of our signed agreements.
Mr. Chairman, NAFTA has been good for agriculture as a
whole although adjustments are needed for some sectors. Farm
Bureau believes that negotiating and modifying existing trade
agreements and establishing new agreements is critical to the
competitiveness of U.S. agriculture.
The ability to expand existing markets and open new markets
will dictate the future of our industry and the well-being of
the nation. Let us look at some reasons why trade and good
trade agreements are critical to agriculture.
The well-being of US agriculture is tied to competitiveness
in global markets. U.S. agricultural exports have more than
doubled from $29 billion in 1984 to $60 billion in 1996. Much
of this growth has been attributed to efforts to open markets
through trade agreements and multilateral trade negotiations,
increasing per capita income in the rest of the world,
production shortfalls in key regions, a weaker U.S. dollar and
greater exports of value-added products. To guarantee the
continuation of this trend, market expansion must be allowed to
continue.
Good trade agreements are critical to opening markets The
rapidly expanding global economy presents enormous
opportunities for farm families and agribusinesses. In a world
where over 95 percent of the world's consumers live outside of
the United States, and where U.S. agriculture already depends
on exports for one third of all sales, we must have new and
expanded markets.
Commercial competitiveness is critical to our position of
global leadership. Europe, Canada, China, Japan and others are
forging preferential commercial alliances with emerging
markets, which put American exports at a disadvantage. Those
trade alliances also play a vital role in defining strategic
relationships between countries and regions.
Exports create American jobs. Today, more than 11 million
American jobs are supported by exports, including one in every
five manufacturing jobs--good jobs, paying 13-16 percent more
than non-trade related jobs. Over the last four years, one
quarter of our economic growth came from trade--exports created
1.4 million new jobs. Agriculture depends on exports for one-
third of all sales. If we are to raise our standard of living,
we must continue creating jobs through exports.
Agriculture: The next round of talks in the World Trade
Organization are to begin in 1999. American agriculture must be
in position to lead the renegotiation of the Uruguay Round
General Agreement on Tariffs and Trade for agriculture. Some
issues of importance in this round include: increased market
access; resolution of state trading issues; greater
transparency between trading partners; greater adherence to
sound science in resolving sanitary and phytosanitary issues;
rules of origin; export subsidies; internal support schemes
disguised as environmental payments; clearly defined trade in
genetically modified organisms and an overall trade in products
of biotechnology based on sound science. Negotiations to cut
trade barriers in the $526 billion global agriculture market
will define the structure of American agriculture for the next
decade.
Global negotiations will address other key areas such as
intellectual property rights, customs and government
procurement rules which will not only affect agriculture, but
also the overall soundness of our economy.
Sectoral Agreements: Negotiating authority would be used to
negotiate industry sectors where the U.S. is most competitive.
Barriers must be reduced in areas like environmental
technology, biotechnology, medical equipment and computer
software, areas where America leads the world.
Regional Trade Agreements: Continuing regional initiatives
presents vast opportunities, and keeps the U.S. on a
competitive basis with our neighbors and trading partners who,
in some cases, have moved forward with agreements that would be
disadvantageous to the U.S.
Latin America and the Caribbean: This area was the fastest
growing market for U.S. exports in 1996. If trends continue,
Latin America and the Caribbean will exceed the EU as a
destination for U.S. exports by 2000 and exceed Japan and the
EU combined by 2010.
Asia: Contains the fastest growing economies in the world,
with nearly 3 billion people. Independent forecasters put 1996
GDP for the region at $2.8 trillion and expect real growth of 6
to 7 percent annually for the next 15 years.
NAFTA is just one step in opening doors for U.S. trade. The
administration tells us that with over 30 regional and bi-
lateral agreements made over the past four years, the United
States is only a signatory to one. That one is NAFTA. Other
countries are forging ahead while the administration has not
had the authority to negotiate new or renegotiate existing
trade agreements.
Other countries are breaking down barriers for their
producers. Since 1992, our competitors have negotiated 20
regional trade pacts without us. In every region of the world,
this process continues. MERCOSUR is a developing customs union
with ambitions to expand to all of South America; the EU has
begun a process to reach free trade with MERCOSUR; China's
``strategic priorities'' include Mexico, Argentina, Brazil,
Chile, and Venezuela; Japan has undertaken high-level efforts
in Asia and Latin America.
Canada has reached a trade agreement with Chile that will
provide an 11 percent tariff reduction on Canadian products.
Every time an American company competes to sell to Chile, it
will face an immediate 11 percent disadvantage vis-a-vis its
Canadian competitors. Canada also negotiated to exempt its
supply managed dairy and poultry sectors from the agreement,
allowing it to at any time in the future impose tariffs similar
to those keeping U.S. dairy and poultry products out. This sets
a very bad precedent for Canada to use during the 1999 WTO
negotiations for exempting sectors of the industry.
We are looking forward to the President's request for fast
track authority. We will take a very careful look at this
request to see that it meets the industry's needs. Farm Bureau
fully recognizes that the United States must be in a position
of leadership as trade negotiations move forward. Our
negotiators must be in a position to renegotiate and expand
some sections of NAFTA and to take the lead on bilateral and
regional agreements. As we get closer to 1999 and the
renegotiation of the agriculture agreement in the World Trade
Organization, our friendly trading partners are expecting the
U.S. to take the lead in these renegotiations.
As you are aware, Farm Bureau is working with the
administration and Congress to address specific issues of
concern to Farm Bureau before committing to full support for
fast track authority. These issues include:
(1) Language in the legislation that would require the
administration to address the issues of tariff equalization and
increasing market access by requiring U.S. trading partners to
eliminate tariff barriers within specified time frames;
(2) Language in the legislation that binds the trading
partners to resolving sanitary and phyto-sanitary disputes on
the basis of sound science; and
(3) Securing actions by the administration and Congress
that would lead to changes in international agreements and U.
S. laws and practices that would facilitate and shorten dispute
resolution procedures and processes especially in issues
involving perishable products. This would include changes in
international agreements and U.S. law which would redefine a
crop or growing season.
We believe that at least the first two issues can be
addressed in fast track legislation and that the administration
and Congress must take concrete actions to move forward on the
third.
The following statement is taken directly from the 1988
fast track legislation and should remain as part of the United
States trade negotiating objective for the future:
The overall trade negotiating objectives of the United
States are to obtain--(1) more open, equitable, and reciprocal
market access; (2) the reduction or elimination of barriers and
other trade-distorting policies and practices; and (3) a more
effective system of international trading disciplines and
procedures.
During the process of consideration of the expected request
for fast track, this language must be strengthened and expanded
to include definite goals and timetables that address
agriculture's concerns.
NAFTA and all of our trade agreements must be monitored and
enforced. The American Farm Bureau Federation has been
concerned for some time about the level of attention and
commitment by the U.S. Trade Representative's Office (USTR)
toward our issues and has called for a deputy ambassador for
agriculture. We heartily applaud Ambassador Charlene Barshefsky
for her designation of Peter Scher as ambassador for
agriculture and an agricultural team at USTR. We believe that
there should be a permanent position of deputy ambassador, not
one which is at the mercy of personnel changes or changes in
administrations. A deputy ambassador for agriculture at USTR
and continued close coordination with USDA is critical for
successful long-term agriculture trade.
International trade can create a significant market for
U.S. agricultural commodities. Agreements like NAFTA must
ensure that trade remains both free and fair for all
commodities. We need to continue to monitor and enforce these
accords to make sure the benefits promised to farmers and
ranchers are fully realized and move forward in creating new
and stronger markets for all U.S. industries.
Mr. Chairman, the U.S. market is already open. Others are
not. The United States is the most open major market in the
world. When we reach trade agreements, we give up very little,
while other countries give up far more. We must work toward
opening up our competitors' markets. We must have the strongest
trade agreements possible. Agreements that do not jeopardize
our industry for social issues but that move us forward in the
global marketplace.
Thank you for holding this hearing and we look forward to
working with you to create strong trade agreements.

Chairman Crane. Thank you, Mr. Stallman.
And before we proceed further, we have one 15-minute vote
followed by three 5-minute votes, I've just been informed. And
based upon how fast things move over there, if you folks
haven't had lunch, you might consider it, because we're going
to have to recess for a while. Please, I hope you can hang in
there until we reconvene the Subcommittee, but for right now
we'll stand in recess, subject to the call of the Chair. The
staff can keep track of how fast they're progressing over there
and give you an idea of when we will reconvene. And thank you.
[Whereupon, at 2:05 p.m., the Subcommittee recessed for
lunch, to reconvene at 3:58 p.m. the same day.]
Chairman Crane. We'll now reconvene, and our next witness
to testify is Mr. King.

STATEMENT OF JERRY KING, PRESIDENT, NATIONAL PORK PRODUCERS
COUNCIL

Mr. Jerry King. Mr. Chairman and Members of the
Subcommittee, I'm Jerry King, an Illinois-based pork producer,
owner, and general manager of a 2,500-sow operation. I've been
raising pork on my family farm since 1960, and I'm currently
serving as president of the National Pork Producers Council. I
certainly appreciate the opportunity to appear here today on
behalf of the U.S. pork producers to express our views on the
benefits of NAFTA.
The National Pork Producers Council played an integral role
in coordinating a coalition of over 2 dozen U.S. agricultural
organizations which funded a report that examines the U.S.
experience with agricultural trade under the NAFTA. The author
of the study, Martin Able of Promar International, has
submitted written testimony to the Subcommittee today with a
copy of the NAFTA report.
The study concludes that, on balance, NAFTA has been very
good for U.S. agriculture. Pork-specific findings confirm what
we have known all along: NAFTA has been great for the U.S. pork
industry. Mexico is now the pork industry's second most
important market, behind Japan, in terms of value. Even with
the devaluation of the peso, U.S. pork increased market share
in Mexico. This would not have happened without NAFTA.
United States pork now has over 95 percent of the Mexican
pork import market. Further increases in pork exports to the
Mexican market are virtually assured as tariff levels are
phased down and as the Mexican economy strengthens. We are
expecting a surge in Mexican pork consumption in the coming
years.
United States pork exports to Canada have increased in both
volume and value terms. During the 3-year period of NAFTA,
overall United States pork exports to Canada increased 44
percent by volume and 79 percent by value.
Under the United States-Canada free trade agreement, this
trend was already underway. In 1996 Canada was the third most
significant export market for the United States pork industry
in value terms.
Like many other American pork producers, my family has
benefited from NAFTA and other trade agreements through strong
and growing exports. The boost in exports over the past several
years has been fundamental to the economic health of our
business. Last year exports boosted the bottom line for all
pork producers by adding an estimated $10 per head to cash hog
prices.
My family's positive experience with international trade
agreements is shared by many others in American agriculture.
Research conducted by the Economic Research Service of USDA
indicates that for each dollar of value-added agricultural
products such as pork, $1.63 in additional U.S. economic
activity is generated. Moreover, ERS calculates that every
billion dollars in pork exports creates an additional 23,000
new jobs in the U.S. economy.
The continued growth and profitability of U.S. agriculture
is inextricably linked to continued trade liberalization
through multilateral, regional, and bilateral trade agreements.
That's why pork producers are ardent supporters of the renewal
of fast track negotiating authority. Yesterday our industry
sent 300 producers to Capitol Hill to lead the charge for fast
track.
Secretary Glickman has said either we export or we die. I
am in total agreement. In the U.S. economy at large,
agriculture was the number one positive contributor to the U.S.
trade balance in 1996. American agriculture is more than twice
as reliant on foreign trade as compared to the U.S. economy as
a whole. Simply put, if we don't get fast track renewed, U.S.
agriculture will lose billions of dollars in the short term,
and in the long run we risk losing our comparative advantage.
The next round of global agricultural trade negotiations is
scheduled to begin in 1999. If the United States is not leading
the charge in 1999, at best, nothing will happen, which means
the U.S. agriculture will lose billions of dollars of potential
sales. At worst, the EU and other countries will build momentum
for initiatives hostile to U.S. agriculture, such as weakening
the sanitary and phytosanitary agreement.
Adequate preparation for and participation in these
negotiations require the renewal of fast track authority now.
fast track authority is also needed so that the United States
can pursue trade liberalization with our Western Hemisphere
neighbors and the 18 members of the Asia-Pacific Economic
Cooperation Forum.
The U.S. pork industry is disadvantaged by the failure of
the United States to keep up with the pace of trade agreements
in the Western Hemisphere. The rapidly expanding Brazilian pork
industry, a key competitor to the United States industry, now
has preferential access into many markets, to the detriment of
United States producers. Canada, another significant
competitor, has gained preferential access in the Chile market
through a free trade agreement.
We thank you, Mr. Chairman, for this opportunity.
[The prepared statement follows:]

Statement of Jerry King, President, National Pork Producers Council

Mr. Chairman and members of the subcommittee:
I am Jerry King, a Victoria, Illinois-based pork producer-
owner and general manager of a 2,500 sow farrow-to-finish
operation. I have been raising hogs on my family farm since
1958. I am current president of the National Pork Producers
Council and I am also a member of NPPC's Board of Directors and
Federation Council. I appreciate the opportunity to appear on
behalf of U.S. pork producers to express our views on the
benefits of NAFTA.
The National Pork Producers Council is a national
association representing 44 affiliated states who annually
generate approximately $11 billion in farm gate sales.
According to a recent Iowa State study conducted by Otto and
Lawrence, the U.S. pork industry supports an estimated 600,000
domestic jobs and generates more than $64 billion annually in
total economic activity.
With 10,988,850 litters being fed out annually, 1.065
billion bushels of corn valued at $2.558 billion are consumed
by U.S. pork producers. Feed supplements and additives
represent another $2.522 billion of purchased inputs from U.S.
suppliers which help support U.S. soybean prices, the U.S.
soybean processing industry, local elevators and transportation
services based in rural areas.
Pork is the world's meat of choice. Pork represents 44
percent of daily meat protein intake in the world. Even though
there's been a huge global market for pork and pork products,
efficient U.S. producers were precluded from exporting
significant volumes of pork in the pre-Uruguay Round Agreement,
pre-NAFTA era. A combination of foreign market trade barriers
and highly subsidized competitors kept a lid on U.S. pork
exports. U.S. pork producers were ardent proponents of the
Uruguay Round Agreement and NAFTA. The industry strongly
supports further trade liberalization measures. These trade
agreements permit U.S. pork producers to exploit their
comparative advantage in international markets.
Since 1995, when the Uruguay Round Agreement went into
effect, U.S. pork exports to the world have increased by
approximately 45 percent in volume terms and 75 percent in
value terms from 1994 levels. Indeed, the U.S. pork industry
exported over one billion dollars of pork for the first time in
1996. Explosive export growth will continue in 1997 and 1998.

Study Demonstrates NAFTA is Great for Pork:

The National Pork Producers Council played an integral role
in coordinating a coalition of over two dozen U.S. agricultural
organizations which funded a report that examines the U.S.
experience with agricultural trade under the NAFTA.
The study concludes that, on balance, NAFTA has been very
good for U.S. agriculture. The study illustrates that: NAFTA
has been a net gain for U.S. agriculture; U.S. agricultural
trade with Canada and Mexico has increased; and that the U.S.
has generally had a positive trade balance with both countries.
Furthermore, the study indicates that NAFTA has been great for
U.S. pork producers.
The study, entitled ``U.S. Agricultural and Food Export
Experience with NAFTA Partners'' was compiled by Promar
International, an Alexandria, Va.-based research and consulting
firm specializing in food and agriculture. The executive vice
president of Promar international, Martin Abel, has submitted
written testimony to the subcommittee today with a copy of the
NAFTA report.
Pork specific findings confirm what we have known all
along; NAFTA has been great for the U.S. pork industry. Mexico
is now the pork industry's second most important market behind
Japan in terms of value ($92 million in 1996). U.S. pork
exports to Mexico exploded in 1994 when NAFTA went into effect.
Even with the devaluation of the peso U.S. pork increased
market share in Mexico--this wouldn't have happened without
NAFTA. U.S. pork now has over 95% of the Mexican pork import
market.
Further increases in pork exports to the Mexican market are
virtually assured as tariff levels are phased down and as the
Mexican economy strengthens. We are expecting a surge in
Mexican pork consumption in the coming years. Current pork
consumption is down from recent historic levels, but not long
ago annual per capita kilograms of pork consumed in Mexico were
about 20. That number declined to under 10 kilograms as hog
cholera problems, unfortunate policies that basically stopped
imports, and economic depression resulted in rising pork prices
at a time of declining personal incomes for much of the
population.
If the per capita annual consumption of pork in Mexico
rebounds only half-way, to 15 kilograms, this would translate
into approximately an additional 400,000 metric tons of annual
pork demand--an amount just under total U.S. pork exports in
1996.
U.S. pork exports to Canada have increased in both volume
and value terms. During the three year period of NAFTA, overall
U.S. pork exports to Canada increased 44 percent by volume and
79 percent by value. Under the U.S.-Canada FTA, this trend
already was underway. In 1996, Canada was the third most
significant export market for the U.S. pork industry in value
terms ($77 million).
Canada has served as a critically important source of live
hogs for slaughter in the U.S. as the U.S. pork industry
expands to keep pace with exploding global demand for pork. In
1996, approximately 15 percent of Canadian market hogs were
exported to the United States.
Like many other American pork producers, my family has
benefitted from NAFTA and other trade agreements through strong
and growing exports. The boost in exports over the past several
years has been fundamental to the economic health of our
business. Last year exports boosted the bottom line for all
pork producers by adding an estimated $10 per head to cash hog
prices.
My family's positive experience with international trade
agreements is shared by many others in American agriculture.
Research conducted by the Economic Research Service (ERS) of
USDA indicates that for each dollar of value-added agricultural
exports such as pork, $1.63 in additional U.S. economic
activity is generated. Moreover, ERS calculates that every
billion dollars in pork exports creates an additional 23,000
new jobs in the U.S. economy.

Renewal of Fast-track is Critical:

As previously indicated, the pork industry and U.S.
agriculture has benefitted from the NAFTA. The continued growth
and profitability of U.S. agriculture is inextricably linked to
continued trade liberalization through multilateral, regional
and bilateral trade agreements. That's why pork producers are
ardent supporters of the renewal of fast-track negotiating
authority. Yesterday, we unleashed 300 producers on Capitol
Hill to lead the charge on fast-track.
Secretary Glickman has said ``either we export or we die.''
I couldn't agree more with him. In the U.S. economy at large,
agriculture was the number one positive contributor to the U.S.
trade balance in 1996 (about a $30 billion surplus). American
agriculture is more than twice as reliant on foreign trade as
the U.S. economy as a whole, with exports currently accounting
for an estimated 30 percent of agriculture's cash receipts.
Production from up to a third of U.S. cropland is exported. We
have a mature market for pork and other agricultural products
in the United States. However, the other 96% of the world,
which lives outside our borders, is experiencing rapid economic
growth. The first thing that people do when they move up from
poverty is upgrade their diets. Simply put, if we don't get
fast-track renewed, U.S. agriculture will lose billions of
dollars in the short term and in the long run we risk losing
our comparative advantage.
The next round of global agricultural trade negotiations is
scheduled to begin in 1999. Removing tariff and non-tariff
barriers to trade--helping to open new markets and gain
increased access to existing markets--is critical for U.S. pork
producers. If the United States is not leading the charge in
1999, at best, nothing will happen which means that U.S.
agriculture will lose billions of dollars of potential sales.
At worst, the EU and other countries will build momentum for
initiatives hostile to U.S. agriculture such as weakening the
Sanitary and Phytosanitary Agreement. Adequate preparation for
and participation in these negotiations require the renewal of
fast-track authority now.
Fast-track authority is also needed so that the U.S. can
pursue trade liberalization with our western hemisphere
neighbors and the 18 member countries of the Asia Pacific
Economic Cooperation forum (APEC). The U.S. pork industry is
disadvantaged by the failure of the United States to keep up
with the pace of trade agreements in the western hemisphere.
The rapidly expanding Brazilian pork industry--a key competitor
to the U.S. industry--now has preferential access into many
markets to the detriment of U.S. producers. Canada, another
significant competitor, has gained preferential access into
Chile through a free trade agreement. With respect to the APEC
nations, these countries will experience the majority of the
world's population and income growth in the next 8 to 10 years,
passing through the middle ranges of per capita income where
the shift in dietary patterns is particularly pronounced. Yet,
it is precisely these same countries which lack surplus food
producing resources. The Food and Agricultural Policy Research
Institute (FAPRI) projects that Chinese pork consumption will
increase by over 23 percent, approximately 8 million metric
tons, in the next ten years. Pork consumption is forecast to
increase rapidly in many of the other APEC nations but, like
China, most of these countries place significant restrictions
on pork imports.

Chairman Crane. Thank you.
And our next witness, Janet Nuzum.

STATEMENT OF JANET A. NUZUM, VICE PRESIDENT AND COUNSEL,
INTERNATIONAL DAIRY FOODS ASSOCIATION

Ms. Nuzum. Mr. Chairman and Members of the Subcommittee,
thank you very much for the opportunity to appear before you
today. I am Janet Nuzum, vice president and counsel of the
International Dairy Foods Association, the trade association
representing over 650 companies involved in the processing,
manufacturing, and marketing of all types of dairy products.
IDFA views the NAFTA as providing significant benefits to
the United States dairy industry by opening up Mexico's market,
our largest foreign customer. Access to Canada's dairy market,
unfortunately, was not opened up by NAFTA. So there is still
work to be done before we achieve the goal of free trade in
North America. In order to continue working on opening foreign
markets in Canada and around the world, IDFA urges prompt
renewal of fast track negotiating authority.
My full statement goes into some detail on each of these
subjects. In the interest of time, however, I will make only a
few brief remarks.
The United States is a net exporter of dairy products to
both Mexico and Canada. Mexico is the number one foreign market
for United States dairy products, and NAFTA opens up that
market further for additional opportunities and growth in our
dairy exports.
Under NAFTA, Mexican tariffs on dairy products are being
eliminated over 10 years, and a tariff rate quota on United
States milk powders will be phased out over 15 years. Although
aggregate data on our dairy exports to Mexico show declines
since 1994, these declines were primarily a function of the
peso devaluation and unusual conditions in the United States
domestic dairy market in 1996. In the first 5 months of 1997,
dairy exports to Mexico were up substantially, 19 percent
overall and 167 percent in the second highest product category
of fluid milk and cream.
Even more important than aggregate trade levels, however,
are the shifts in composition of United States dairy exports to
Mexico, away from the historical emphasis on subsidized sales
of butter and milk powder and toward increased commercial sales
of unsubsidized value-added products such as fluid milk, ice
cream, and whey products. This shift toward higher value,
unsubsidized trade cannot be overemphasized in its
significance.
Finally, it's important to appreciate the change in
business climate in Mexico that has come about. The atmosphere
in Mexico since the signing of NAFTA has been more open and
receptive to doing business with United States companies and
United States products. Relationships are easier to develop and
problems are easier to solve. These less tangible changes have
greatly facilitated increased sales of U.S. dairy products and
stronger relationships for future growth.
Unfortunately, the same gains cannot be said with respect
to Canada. NAFTA, as well as its predecessor, the United
States-Canada FTA, have not effectively improved access to
Canada's dairy markets. Last year a NAFTA dispute settlement
panel upheld Canada's view that highly restrictive, over-quota
tariffs on dairy products were permitted by NAFTA.
Consequently, most of Canada's dairy markets are severely
restricted by over quota tariffs as high as 359 percent.
IDFA proposes, as a small step toward freer bilateral dairy
trade with Canada, the establishment of a reciprocal dairy
reexport program that would grant duty-free, quota-free access
to each other's exports of dairy-containing products
manufactured from dairy ingredients sourced in the other
country. Although this reciprocal program would not open dairy
trade between our borders as much as we would like, it would be
a step forward toward increasing trade between the United
States and Canadian dairy industries.
Finally, IDFA strongly urges Congress to enact fast track
negotiating authority in order to continue making progress in
eliminating existing trade barriers and trade-distorting
practices, as well as preventing new ones from emerging. Strong
leadership by the United States is essential, especially in the
upcoming WTO negotiations on agriculture. That leadership will
only be possible if fast track is renewed.
The future growth and prosperity of the U.S. dairy industry
depends greatly on our ability to access foreign markets,
particularly those in emerging economies with rising incomes
and growing populations. In addition to market access, we must
focus on eliminating unfair subsidies. They distort trade and
discriminate against efficient, competitive U.S. suppliers of
high-quality products such as dairy foods.
The U.S. dairy industry has the capability of being a
leading world supplier of dairy products if trade-distorting
subsidies and market barriers are eliminated. The market-
opening trade agreements like the NAFTA are an important
positive step in the right direction, but much more needs to be
done. And to do more, we need fast track negotiating authority.
Mr. Chairman, thank you for the invitation to appear today.
I would be happy to answer any questions you might have.
[The prepared statement follows:]

Statement of Janet A. Nuzum, Vice President and Counsel, International
Dairy Foods Association

Mr. Chairman, and Members of the Subcommittee, thank you
for the opportunity to appear before you today. My name is
Janet A. Nuzum, and I am appearing on behalf of the
International Dairy Foods Association (IDFA), where I have been
Vice President and Counsel since February of this year. Prior
to joining IDFA, I had the honor of serving five years as a
Commissioner on the U.S. International Trade Commission
(USITC), including two years as Vice Chairman of the
Commission. Previous to my tenure on the USITC, I was a member
of the professional staff of this Subcommittee for almost nine
years; it is a pleasure to return to this room and appear
before the Subcommittee in my new capacity in the private
sector.
The International Dairy Foods Association is the leading
U.S. trade association representing the interests of
processors, manufacturers, and marketers of dairy products,
including milk, milk-based drinks, cream, yogurt, cheese, ice
cream and other frozen desserts. As an umbrella organization,
IDFA is comprised of three constituent organizations: the Milk
Industry Foundation, National Cheese Institute, and
International Ice Cream Association. IDFA members include more
than 650 companies, with over 735 facilities in 48 states in
the United States. In addition, IDFA has 44 members in 18
foreign countries. Our member companies range from large,
multinational corporations to small family-owned businesses,
and include both proprietary firms and farmer-owned
cooperatives. IDFA members account for 85 percent of all the
dairy products consumed in the U.S. market.
I appreciate the opportunity to share with you today the
views of our associations with respect to the operation and
effects of the North American Free Trade Agreement (NAFTA) in
the dairy product sector.

Overview of international trade in the dairy foods sector

The U.S. agriculture and food industries play a very
important role in the U.S. international trade picture, last
year generating over $60 billion in exports. The U.S. dairy
industry has annual retail sales in the United States of $70
billion, however, until recently, international trade has
played a very limited role in U.S. dairy markets. This is
primarily due to the very substantial protection that has
historically characterized most dairy markets around the world,
including our own.
As a direct consequence of the GATT Uruguay Round,
disciplines on the use of export subsidies in international
trade in agriculture and improvements in market access are
opening up new opportunities for U.S. dairy exports, which
reached over $1 billion in 1995, and over $740 million in 1996.
Although U.S. domestic sales of dairy products continue to
grow, they essentially keep pace with U.S. population growth.
The real opportunities for expansion of dairy product sales lie
in export markets, especially those developing country markets
with high rates of income growth, expanding populations, and
changing dietary habits. As a technologically advanced and
efficient supplier of high-quality, safe and nutritious dairy
products, the U.S. industry has the capability of being a
leading world supplier to these foreign markets if trade-
distorting subsidies and market barriers are eliminated. The
market-opening trade agreements like the NAFTA are an important
step in this direction.

NAFTA and U.S. Dairy Exports to Mexico

Mexico has been the single largest foreign market for U.S.
dairy products since 1990, and last year accounted for over
$109 million in purchases of U.S. dairy exports. NAFTA provides
an excellent platform for further improving our trade
relationship with this important neighboring market.
Significant improvements in market access were achieved in
the NAFTA for U.S.-Mexico dairy trade. Mexican requirements for
import licensing on dairy product imports were eliminated.
Mexican tariffs on cheese--as high as 40 percent--are being
phased out over 10 years. In addition, a tariff-rate quota on
milk powder exports to Mexico applies to U.S. products, with
duty-free access for in-quota quantities, and eventual phase-
out of the tariff-rate quota in 15 years. These market access
provisions give U.S. dairy exporters a significant advantage in
the Mexican market over other world suppliers of dairy
products.
Although the trade data show that total U.S. dairy exports
to Mexico have declined each year since 1994 (from
approximately $152 million in 1994, to $124 million in 1995, to
$109 million in 1996), focusing only on the aggregate data
trends masks the true benefits which NAFTA has brought about.
The peso devaluation obviously dampened Mexican demand for U.S.
dairy products, as it did for most exports to Mexico. These
effects show up in the trade flows for 1995 and 1996. Also
dampening U.S. dairy export figures for 1996 were conditions in
the U.S. domestic market for milk that allowed milk to be sold
at higher prices here in the United States.
The export picture has recovered, however, and recent trade
data show that U.S. exports of dairy products to Mexico this
year are up substantially over levels for the comparable period
last year--a 19% increase for total dairy product exports, and
a whopping 167% increase in the category of fluid milk and
cream exports.
Even more significant than the aggregate data, however, are
the shifts in the composition of our export trade to Mexico.
Historically, butter and milk powder have accounted for the
overwhelming share of dairy exports to Mexico. These exports
are typically concessional or subsidized sales destined for use
in Mexico's government-sponsored feeding programs. More
recently, however, commercial, unsubsidized sales of dairy
products--particularly fluid milk, ice cream, and whey
products--have been increasing.
This shift away from subsidized exports of bulk commodities
towards unsubsidized commercial exports of value-added dairy
products is an extremely important development that cannot be
overemphasized in significance. Given the size of Mexico's
market, with 96 million consumers, the proximity of the market,
and the cultural preference for American-made products, the
U.S. dairy industry is in an excellent position to take
advantage of opportunities for increased commercial trade in
value-added dairy products. Dairy-based desserts, such as ice
cream, are increasing in popularity with Mexican consumers. One
current exporter of fluid milk and related dairy products
attributes as many as 150 jobs in one of its plants to be
possible just because of the additional business it now enjoys
in the Mexican market.
NAFTA has been a direct contributor to this increasing
trade in dairy products with Mexico. In addition to the tariff
preference and increased access provided for U.S. dairy
products, NAFTA has brought about a noticeable and significant
shift in the business culture in Mexico. The implementation of
NAFTA has transcended the world of customs officials and
ushered in a new era of cooperation and partnership with U.S.
business interests at all levels of the private sector and
Mexican government. Relationships are easier to develop, and
problems are easier to resolve than ever before. Being
successful in the marketplace still takes work and commitment,
but the mere existence of NAFTA seems to be making it a little
easier for American business interests to succeed in Mexico.

NAFTA and U.S. Dairy Exports to Canada

Unfortunately, the same cannot be said with respect to
dairy trade with Canada. Neither the NAFTA nor its predecessor,
the U.S.-Canada Free Trade Agreement (CFTA), effectively
improved conditions for U.S.-Canada dairy trade. Canada
continues to restrict dairy imports by tariff-rate quotas at
very low in-quota levels with exorbitant over-quota tariff
rates, reaching as high as 359%. Although both the United
States and Canada agreed to eliminate tariffs on dairy products
by January 1998, Canada took the view after the conclusion of
the GATT Uruguay Round that this CFTA/NAFTA commitment did not
apply to the tariffication of import quotas on supply-managed
products such as dairy.
Last year, to the immense disappointment of the U.S. dairy
industry, a NAFTA panel upheld Canada's arguments, and
sustained the application of over-quota tariffs to dairy
product trade between the United States and Canada.
Consequently, the only preference afforded to U.S. dairy trade
entering Canada under the NAFTA is a small margin of tariff
preference for in-quota quantities. Canada's dairy product
markets remain highly insulated from foreign competition,
including U.S. competition.
This does not mean that dairy trade with Canada is
nonexistent. Canada is our third largest export market for U.S.
dairy products, accounting for over $97 million in purchases of
U.S. dairy products last year. Overall dairy exports to Canada
have been moderately expanding, although most of the trade, and
the trade growth, has been in dairy product categories outside
of the import restrictions related to the dairy supply
management regime. The largest category of dairy product we
export to Canada, for example, is whey, which last year
represented 25 percent of our dairy exports to Canada.
Increases in U.S. whey exports are partly due to the fact that
whey protein concentrate is not subject to a tariff-rate quota
in Canada. Additional U.S. exports of fluid milk, on the other
hand, are being blocked by Canada's refusal to allow in
commercial imports of fluid milk under a tariff-rate quota.
Opening up the tariff-rate quota would allow additional trade
in a volume equivalent to the production of a good-sized fluid
milk plant. These examples further attest to the opportunities
for trade growth when markets are not encumbered by restrictive
trade barriers.
As a small step towards freer trade in dairy products
between the United States and Canada, IDFA proposes bilateral
negotiation of a dairy re-export program, that would authorize
duty-free (and tariff-rate quota-free) trade to the other
country for dairy-containing products that are processed or
manufactured from dairy ingredients sourced in the other
country. For example, if a U.S. ice cream manufacturer used
Canadian-origin cream in the manufacture of its ice cream, it
could export ice cream to Canada containing an equivalent
amount of milkfat and nonfat solids, free of any Canadian duty
and outside of any tariff-rate quota restriction. The same
rules would apply to Canadian dairy-containing products
manufactured from U.S.-origin dairy ingredients. Although it is
a far cry from a truly open, regional market in dairy products,
such a bilateral arrangement would make some progress in
establishing a preferential relationship in the U.S.-Canadian
dairy sectors, and facilitating rather than hindering cross-
border dairy trade.

The Need For Continued Trade Liberalization: The Case for ``Fast
track'' Negotiating Authority

Although the ``free trade agreement'' with Canada does not
offer free trade in dairy products, the NAFTA provisions
opening dairy trade with Mexico provide significant market
access benefits to the U.S. dairy industry. Earlier this year,
IDFA joined with over two dozen agricultural and food
organizations in cosponsoring a study conducted by PROMAR
International on ``The U.S. Agricultural Export Experience with
NAFTA Partners.'' This study has been separately submitted by
PROMAR for the record of today's hearing, and confirms that, on
balance, U.S. agriculture and food industries have benefited
significantly from NAFTA.
IDFA believes that the U.S. dairy industry has much more to
gain from additional trade liberalization in markets around the
world. In order to continue making progress in eliminating
existing trade barriers and trade-distorting practices, and
preventing new ones from emerging, IDFA strongly urges the
Congress to enact ``fast track'' negotiating authority.
Renewal of fast track is critical for the United States to
play a leadership role--which it must--in the upcoming WTO
negotiations on agriculture scheduled to begin at the end of
1999. The European Union has already captured substantial
shares of world dairy trade as a result of aggressive use of
export subsidies and protectionist policies (for example, the
EU holds 57% of world cheese trade). We cannot afford to let
the EU take the lead on setting the agenda for the next round
of international rules on agricultural trade.
IDFA recently wrote to Ambassador Barshefsky, along with
several other dairy organizations, and identified key
negotiating objectives of importance to the U.S. dairy industry
for the upcoming WTO negotiations (a copy of our letter is
attached). Unless U.S. trade negotiators are armed with fast
track negotiating authority, however, the United States will
not have the opportunity to set, let alone achieve, that
agenda. The only way we can assure improved market access for
U.S. dairy and other agricultural products is to be a dominant
force at the negotiating table. That requires fast track
negotiating authority.
Finally, IDFA adheres to the widely-held view that trade
agreements are only effective if they are vigorously
implemented and enforced. Although the WTO Agreement on
Agriculture includes only modest reductions to export subsidies
and improvements in market access, the disciplines and
commitments must be enforced. Last week, IDFA jointly filed a
section 301 petition, along with the National Milk Producers
Federation and the U.S. Dairy Export Council, challenging two
practices in Canadian dairy policy as inconsistent with their
WTO commitments. Specifically, a new special milk class pricing
and pooling mechanism, which implements two-tiered pricing in
milk, provides unlimited export subsidies in circumvention of
the WTO disciplines and scheduled reductions on export
subsidies. In addition, Canada has failed to open a tariff-rate
quota on fluid milk, refusing to allow commercial imports of
fluid milk in the quantities agreed to in its WTO schedules.
The petition filed by IDFA asks the U.S. Trade Representative
to challenge these two WTO-inconsistent practices by Canada
through dispute settlement procedures for a clear ruling that
mandates Canadian compliance with the existing WTO rules. We
look forward to helping USTR win this important challenge.

Conclusion

In conclusion, the dairy industry has much at stake in the
operation of the international trading system. U.S. dairy
policy is now on a track of market orientation, which
facilitates our international competitiveness and transitions
our industry to be a more active player in global markets. This
emphasis on market-oriented dairy policies at home must be
sustained, as well as supplemented by a push for free trade
policies in the international arena. Future growth for the
dairy industry will depend in large part on our access to
foreign markets for dairy products and the elimination of
unfair subsidies that discriminate against efficient,
competitive U.S. suppliers of high-quality products. NAFTA was
an important step in the right direction, although much more
remains to be done in improving trade with our neighbor to the
north. Expansion of NAFTA, or negotiation of new bilateral or
regional arrangements, must include--not exclude--market-
opening commitments in the dairy sector. The United States must
also take the lead in shaping the upcoming multilateral round
of agricultural trade negotiations in the WTO. In order to
continue making progress in opening markets for U.S. dairy
products, we urge the Congress to enact fast track negotiating
authority this fall.
Thank you for the opportunity to share our views with you.

Chairman Crane. Thank you, Janet.
And Mr. Martin.

STATEMENT OF LARRY MARTIN, PRESIDENT, AMERICAN APPAREL
MANUFACTURERS ASSOCIATION

Mr. Martin. Thank you, Mr. Chairman. I'm Larry Martin,
president of AAMA, the American Apparel Manufacturers
Association, the central trade association for apparel
manufacturers in the United States. Our members are responsible
for nearly 80 percent of the $50 billion in clothing sold at
wholesale each year. Our members are predominantly domestic
manufacturers, but also manufacture in Mexico, Central America,
the Caribbean, and other places.
When we testified before this Subcommittee during its
consideration of NAFTA 4 years ago, we thought that NAFTA would
make our industry more competitive in the world; that it would
shift apparel sourcing from the Far East to the Western
Hemisphere, where there would be involvement by United States
companies. We thought that it would strengthen our members by
providing them with the opportunity for coproduction in Mexico,
lowering their overall costs, and enabling them to compete in a
global environment. We are pleased to report that NAFTA, in
conjunction with Central America and the Caribbean, is
accomplishing those aims.
Let me pause to emphasize that we are not in business to
move jobs offshore. Over the years, AAMA has taken strenuous
efforts to control the growth of imports. We have supported
legislation to impose global quotas. We have participated in
antidumping cases. We have argued loud and long for the
improvements in the import control program.
However, we have come to realize that we must compete with
low-age imports. In order to participate in that competition,
many of our manufacturers have moved some production to Mexico
and the Caribbean. As I said, this gives them lower average
costs and makes them more competitive, allowing them, in fact,
to maintain large volumes of employment in the United States
and to continue to use U.S. fabric and other apparel
components.
The fact of the matter is that it is no longer economically
feasible to make some kinds of garments in the United States.
Our average wage level of about $8 an hour, plus benefits,
makes it very difficult to compete with countries where wages
are measured in cents, not dollars. This price competition,
while difficult for manufacturers, has been very beneficial for
American consumers. In 1980 apparel prices averaged 13 percent
higher than the Consumer Price Index. Last year apparel prices
in this country were 19 percent below the Consumer Price Index.
Clearly, there are apparel bargains out there for the American
consumer.
We would like to point out that there is another factor
contributing to the trend toward offshore production. Two years
ago, we surveyed our members on a variety of subjects,
including whether they were able to hire all the workers they
needed to keep their domestic plants operating fully. The
answer 2 years ago--and I'm sure it's more emphatic now--was
that nearly one-half of our members were unable to attract
adequate labor supplies.
Regarding NAFTA, for the most part, our beliefs have become
fact. Mexican production has grown dramatically. Mexico and the
Caribbean Basin have taken import growth away from the Far
East. Total imports have grown at a slower rate than before
NAFTA. While we have continued to lose apparel jobs in the
United States, domestic production has remained relatively
stable.
Apparel imports from Mexico, most of them produced by
American companies, have grown from $1.4 billion in 1993, the
year before NAFTA, to $3.6 billion last year. Mexico has grown
from 4 percent of our import share to nearly 10 percent in that
period of time.
Central America and the Caribbean, without the benefits of
NAFTA, have continued to grow, but at a much slower pace. These
countries sent us 4 billion dollars' worth of clothing in 1993
and 6 billion dollars' worth last year. Their share of the
import market has grown from 14 to 16.5 percent.
What effect has this had on the Far East? It has caused a
significant decline in imports here. The rest of the world,
other than Mexico and the Caribbean Basin, had 82 percent of
our imports in 1993, but by last year their share had declined
to less than 74 percent.
All this has occurred during a time when total import
growth has slowed. In the 3 years since NAFTA went into effect,
the average growth rate of total apparel imports has been 7
percent a year. In the 3 years prior to NAFTA, import growth
averaged nearly 12 percent a year. For the purposes of
perspective, I'd like to point out that if Mexico were a
company, its exports of clothing to the United States would
rank it fourth among American apparel manufacturers. There are
three domestic companies that are larger than all of the
production in Mexico that comes to the United States.
Domestic apparel production was worth $50.2 billion in
1993; last year it was worth $49.8 billion, a decline of only
seven-tenths of 1 percent. All these numbers tell us that, for
the U.S. apparel industry, NAFTA has worked well. We believe,
though, that it is past time to move onto the next step. Even
before the NAFTA negotiations were completed, AAMA endorsed the
concept of extending NAFTA-type treatment to apparel from
Central America and the Caribbean. This is important to us for
two reasons. First, it will expand our ability to compete in
the world. Second, U.S. manufacturers who have been encouraged
by our government to open operations in Central America and the
Caribbean have been put at a disadvantage by NAFTA. While they
enjoy the lower duties provided by the 807 and 807(a) programs,
they do not have the duty-free access Mexico has under NAFTA.
Long range, we support full integration of Central America
and the Caribbean into NAFTA--with all the obligations a free
trade agreement involves. Most of the countries in the region
have said they are prepared to accept those obligations.
However, it is clear to us that such an undertaking would be
years in the making. In the meantime, our industry would be
denied an opportunity to make it more competitive in the world,
and the countries of the region would continue to be denied
equal status with Mexico.
We believe that a CBI parity program of relatively limited
duration would provide those needed benefits to us and the
region, and also serve as an incentive toward a full free trade
relationship. CBI parity always has had strong support in
Congress, and the administration is solidly behind it.
Just 2 months ago, the House of Representatives included
the provision in the budget reconciliation bill, and we are
deeply grateful to the leadership of this Subcommittee,
particularly you, Mr. Crane, and of the House leadership for
shepherding the measure through the legislative process.
Unfortunately, it was dropped from the budget bill in
conference for reasons having nothing to do with parity. We see
only one opportunity this year for CBI parity to succeed, and
that is as part of the fast track legislation which this
Subcommittee will be considering later this fall. We urge you
to include parity in that measure and bring to a close 4 years
of effort during which parity has had broad support, but always
has fallen just short of final enactment.
In summary, AAMA and its members believe that NAFTA has
served our industry well. We believe the time is overdue to
take the next step and extend its apparel provisions to Central
America and the Caribbean.
Thank you, Mr. Chairman. I'd be happy to answer any
questions you may have.
[The prepared statement follows:]

Statement of Larry Martin, President, American Apparel Manufacturers
Association

Thank you, Mr. Chairman. I am Larry Martin, President of
the American Apparel Manufacturers Association (AAMA). AAMA is
the central trade association for apparel manufacturers in the
United States. Our members are responsible for nearly 80
percent of the $50 billion in clothing sold at wholesale each
year. They make every kind of garment and are located in nearly
every state. Our industry employs 815,000 workers.
While most of the large apparel manufacturers in the United
States are our members, many of our members are relatively
small companies. Two-thirds have sales under $20 million a
year.
Our members are predominantly domestic manufacturers, but
most also manufacture in Mexico, Central America or the
Caribbean, import from other sources, or do both.
When we testified before this Committee during its
consideration of NAFTA four years ago, we said that the
negotiation had met our aims and that we supported the
agreement. We wanted a rule of origin that would preserve NAFTA
for the apparel industries of the three countries, we wanted
sufficient flexibility to allow our members to manufacture in
Mexico. And we wanted tough enforcement provisions. All those
were included in the agreement.
We thought then that NAFTA would make our industry more
competitive in the world. That it would shift apparel sourcing
from the Far East to the Western Hemisphere where there would
be involvement by U.S. countries. We thought that it would
strengthen our members by providing them the opportunity for
co-production in Mexico, lowering their overall costs and
enabling them to compete in a global environment.
Over recent years, production by American companies has
created thousands of jobs in Mexico and the Caribbean. But it
has not been a one-way street. We estimate that 15 new apparel
jobs are created in the United States by every 100 jobs created
south of the border. This is in addition to the thousands of
U.S. jobs it maintains in the textile, transportation and other
industries.
Let me emphasize that if this production had gone to the
Far East, there would have been no apparel jobs created or
maintained in the U.S. Moreover, if those garments had been
made in the Far East, they would have used Asian fabric, not
American, and the same applies to other clothing components.
We are pleased to report that NAFTA, in conjunction with
Central America and the Caribbean, is accomplishing those aims.
Let me pause to emphasize that we are not in business to
move jobs off-shore. Over the years, AAMA has taken strenuous
efforts to control the growth of imports. We have supported
legislation to impose global quotas. We have participated in
anti-dumping cases. We have argued loud and long for
improvements to the import control program.
However, we have come to realize that we must compete with
low-wage imports. In order to participate in that competition,
many of our manufacturers have moved some production to Mexico
and the Caribbean. This gives them lower average costs and
makes them more competitive, allowing them to maintain large
volumes of employment in the United States.
The fact of the matter is that it is no longer economically
feasible to make some kinds of garments in the United States.
Our average wage level of about $8 an hour plus benefits makes
it very difficult to compete with countries where wages are
measured in cents, not dollars.
This price competition, while difficult for manufacturers,
has been very beneficial for American consumers. In 1980,
apparel prices averaged 13 percent higher than the consumer
price index. Last year, apparel prices in this country were 19
percent below the consumer price index. Clearly, there are
apparel bargains out there for the American consumer.
We would like to point out that there is another factor
contributing to the trend toward off-shore production. Two
years ago, we surveyed our members on a variety of subjects,
including whether they were able to hire all the workers they
needed to keep their domestic plants operating fully. The
answer was that nearly half of our members are unable to
attract an adequate labor supply.
Regarding NAFTA, for the most part our beliefs have become
fact. Mexican production has grown dramatically. Mexico and the
Caribbean Basin have taken import growth away from the Far
East. Total imports have grown at a slower rate than before
NAFTA. While we have continued to lose apparel jobs in the
United States, domestic production has remained relatively
stable.
Apparel imports from Mexico--most of them produced by
American companies--have grown from $1.4 billion in 1993, the
year before NAFTA went into effect, to $3.6 billion last year.
Mexico has grown from four percent of our import share to
nearly 10 percent in that period of time.
Central America and the Caribbean, without the benefits of
NAFTA, have continued to grow, but at a much slower pace. Those
countries sent us $4 billion worth of clothing in 1993 and $6
billion last year. Their share of the import market has grown
from 14 percent to 16.5 percent.
What effect has this had on the Far East? It has caused a
significant decline in import share. The rest of the world
other than Mexico and the Caribbean Basin had 82 percent of the
import market in 1993, but by last year had declined to less
than 74 percent.
All this has occurred during a time when total import
growth has slowed. In the three years since NAFTA went into
effect, the average growth rate for total apparel imports has
been seven percent a year. In the three years prior to NAFTA,
import growth averaged nearly 12 percent a year. In fact, in
the 17 years between 1980 and 1996, import growth averaged 12.3
percent a year. Mexico, aided by NAFTA and the peso
devaluation, has grown rapidly. Apparel imports have continued
to grow. But, clearly, NAFTA has not caused the wild import
expansion some predicted.
Domestic apparel production was worth $50.2 billion in
1993. Last year, it was worth $49.8, a decline of seven-tenths
of one percent. Even so, last year was nearly 14 percent higher
than it was in 1991.
All these numbers tell us that, for the U.S. apparel
industry. NAFTA has worked well.
We believe that it is past time to move on to the next
step. Even before the NAFTA negotiations were completed, AAMA
endorsed the concept of extending NAFTA-type treatment to
apparel from Central America and the Caribbean.
This is important to us for two reasons: First, it will
expand our ability to compete in the world. Second, U.S.
manufacturers who have been encouraged by our government to
open operations in Central America and the Caribbean have been
put at a disadvantage by NAFTA. While they enjoy the lower
duties provided by the 807 and 807A programs, they do not have
the duty-free access Mexico has under NAFTA.
With two notable exceptions, apparel production in the CBI
region has stagnated since the inception of NAFTA. Since 1993,
apparel imports from the region have grown from $3.9 billion to
$6 billion. However, $1.2 billion of that $2.1 billion in
growth has come from two countries, Honduras and El Salvador.
Growth among the other 22 countries in the region has been
essentially flat. The reasons for the growth in Honduras and El
Salvador are two-fold: They were late starters in the apparel
industry, and our members went there in anticipation of CBI
parity.
Long-range, we support full integration of Central America
and the Caribbean into NAFTA, with all the obligations a free
trade agreement involves. Most of the countries in the region
have said they are prepared to accept those obligations.
However, it is clear that such an undertaking would be years in
the making. In the meantime, our industry would be denied an
opportunity to make it more competitive in the world and the
countries of the region would continue to be denied equal
status with Mexico.
We believe that a CBI parity program of relatively limited
duration would provide those needed benefits to us and the
region and also serve as an incentive toward a full free-trade
relationship.
CBI parity always has had strong support in Congress and
the Administration is solidly behind it. Just two months ago,
the House of Representatives included the provision in the
budget reconciliation bill. We are deeply grateful to the
leadership of this Committee--Mr. Crane, Mr. Matsui, Mr. Archer
and Mr. Rangel--and of the House leadership, for shepherding
the measure through the legislative process.
Unfortunately, it was dropped from the budget bill in
conference for reasons having nothing to do with parity.
We see only one opportunity this year for CBI parity to
succeed. That is as part of the fast track legislation which
this Committee will be considering later this fall. We urge you
to include parity in that measure and bring to a close four
years of effort, during which parity has had broad support, but
always has fallen just short of final enactment.
In summary, AAMA and its members believe that NAFTA has
served our industry well. We believe the time is overdue to
take the next step and extend its apparel provisions to Central
America and the Caribbean.
Thank you, Mr. Chairman. I would be happy to answer any
questions you may have.

Chairman Crane. Thank you, Mr. Martin.
First, Janet, I want to ask a question of you. I have been
told the seats up here are more comfortable than those you're
in. [Laughter.]
Ms. Nuzum. I think they're a little bit warmer up there,
too. I discovered that in the back of the room, there's more
air conditioning draft. Nevertheless, I'm glad to have the
opportunity to sit on this side and be with you again.
Chairman Crane. Well, we always appreciate having you with
us, and we miss you.
Let me ask you a quick question, and that has to do with
the 301 that you filed vis-a-vis Canada's violations of what we
assume are the guidelines. Have there been any kinds of
problems like that with Mexico?
Ms. Nuzum. No, the Mexican dairy industry does not have the
same kind of protection and supply management regime that
Canada affords its dairy industry. That supply management
regime is really the crux of the problem, from which arises a
multitude, frankly, of issues and barriers with respect to the
Canadian dairy market.
The 301 that we just filed last Friday with the U.S. Trade
Representative's office alleges two particular violations of
the World Trade Organization's Agreement on Agriculture.
Specifically, the first has to do with a new export subsidy
scheme that the Canadian Government is affording its dairy
industry. It is a two-tiered pricing scheme that works through
a new pooling mechanism. The Canadian Government is claiming
that this new scheme is not subject to any of the disciplines
and reduction commitments that we agreed to in the Uruguay
round with respect to export subsidies. We are alleging that
it's nothing more than a circumvention of those reduction
commitments, and, therefore, we are asking for a WTO dispute
settlement panel to rule in our favor with respect to that.
Chairman Crane. If you'll yield for 1 second, Janet, did
they just do this or has this been in place for some time?
Ms. Nuzum. The Canadian dairy scheme, the new version of
the particular subsidy program, came into effect right after
the Uruguay round new rules came into effect. The authority
went into place on August 1, 1995, and they have been phasing
in this program since then.
Chairman Crane. I see.
Mr. Stallman, you say in your testimony that when the
United States reaches trade agreements, we give up very little
while other countries give up far more. Was this the case with
NAFTA, too?
Mr. Stallman. Well, it was with respect to the agricultural
segments of each of the countries. Our tariffs in general were
lower than--and import restrictions--were generally lower than
the other countries. And so they are coming down from a higher
level than what we are when we negotiate these trade treaties.
Chairman Crane. So NAFTA is consistent with our
agricultural exports to other countries where we have advanced
free trade?
Mr. Stallman. Yes.
Chairman Crane. Very good.
Mr. Martin, looking at the United States trade overall, and
at your industry in particular, has there been a shift in the
source of U.S. imports away from Asian suppliers in favor of
Mexico and Canada, and how does this shift in favor of NAFTA
suppliers affect the United States economy?
Mr. Martin. There's been a very significant shift, and it's
occurred in the period since NAFTA went into effect. Basically,
Asia's share of our import market has declined from nearly 85
percent to less than 74 percent, which is a large volume, and
that volume has shifted to Mexico, the Caribbean, and Central
America. It's been very----
Chairman Crane. If you'll yield just 1 second----
Mr. Martin. Yes.
Chairman Crane. With respect to the Caribbean and Central
America, I had heard that they were injured, absent CBI parity,
and that--in fact, I think the President of Guatemala told me
20,000 Guatemalans had packed up their sewing machines and
walked across the border already. Are they getting profoundly
hurt, absent parity?
Mr. Martin. It's our belief that they are. The CBI region
in total is still experiencing some growth in exports of
apparel to the United States. However, that is all centered in
two countries: Honduras and El Salvador. And the reason that
growth is persisting in those two countries is twofold. First,
they were latecomers to the apparel industry. They started from
a smaller base. And, second, American companies went down there
to invest, in anticipation of CBI parity. The rest of those
countries are stagnant as far as their apparel manufacturing.
Chairman Crane. I understand Fruit of the Loom went down to
Honduras.
Mr. Martin. It's my understanding they----
Chairman Crane. They have a facility down there.
Mr. Martin [continuing]. It's my understanding they do have
a facility there.
Chairman Crane. All right. Well, I thank you all for your
testimony, and your printed statements will be made a part of
the record.
Oh, wait. Excuse me. I'm sorry. I'm sorry. She's back. Let
me yield to Karen Thurman.
Ms. Thurman. I know, Mr. Chairman, I apologize for not
being here for all of this, but I do appreciate again you
letting me have this opportunity.
Mr. Stallman, let me ask you a couple of questions since
you're, I guess, representing the American Farm Bureau, and I
noticed in your testimony that you specifically talked about
the Florida tomato farmers and then the fact that they had
reached some deal on the import issue, but then you also go on
to say that it's not being enforced.
What would you give as a suggestion for some of the things
that we might be looking at for enforcement of this? If this is
a major part of what people relied on during negotiations, what
would be some things you would believe that we should be doing
to make sure these are enforced?
Mr. Stallman. Well, there might have to be some changes in
the way we identify marketing periods and the difference in
time----
Ms. Thurman. The seasonal?
Mr. Stallman. Yes, the seasonal issue. We might have to
redefine some of those. We need quick response times when these
issues arise. It doesn't take long for a perishable vegetable
crop to lose its market, if you're shooting for a certain
market, those types of things in general.
Ms. Thurman. There is a piece of legislation that has been
introduced to, in fact, look at the seasonal issue. Would your
organization be in support of that?
Mr. Stallman. I had no knowledge of that. We have our trade
policy expert with us from AFD, if she would like to respond to
that question.
Ms. Thurman. OK, I'd really like to hear that at some point
from somebody because I think it is a major issue.
Mr. Stallman. We can get you the information.
[The information was subsequently received:]

American Farm Bureau Federation
600 Maryland Avenue SW., Suite 600
Washington, DC 20024
May 6, 1998

Honorable
United States Senate
Washington, DC 20510

Dear Senator

The American Farm Bureau urges you to pass legislation that will
clarify the definition of a ``domestic industry'' which considers
seasonality of perishable commodities. Legislation, S. 1463, to
accomplish this was introduced by Senator Bob Graham in December and
identical language, H.R. 2795, was introduced in the House. The
American Farm Bureau Federation supports these bills.
The legislation will clarify the definition of ``domestic
industry'' and ``like or directly competitive articles'' for the
purposes of safeguard petitions under Section 202 of the Trade Act of
1974. The provision would, in the case of perishable agricultural
products, make seasonality of production one of the factors the
International Trade Commission (ITC) considers in defining those terms.
Section 202-204 of the Trade Act of 1974 authorizes the President
to help domestic industries adjust to import competition pending review
by the ITC. Section 202 does not allow the ITC to define ``domestic
industries'' as producers during a particular growing season. Under
current law, the ITC cannot consider seasonality in trade-sanction
cases.
The Senate passed the legislation by unanimous consent on January
26, 1996, and sent the bill to the House. Last month the House
Parliamentarian determined that the legislation ``affected revenue''
under Article 1, Section 7 of the Constitution. In January, the
Congressional Budget Office determined that the legislation was revenue
neutral, but this was not determinative.
Opponents fear that other nations will retaliate. We must not be
afraid to enact legislation that more clearly defines our industry and
does not trigger ANY action or tariff changes. Farm Bureau believes
this legislation to be within the United States' obligations under the
North American Fair Trade Agreement as well as the Uruguay Round of the
General Agreement on Tariffs and Trade. Our trading partners in the
European Union are allowed to adjust reference prices, there by
increasing tariffs, on fruits and vegetables when their crop is being
sold. Switzerland can place a $5.00 tariff on California asparagus
during the very short Swiss growing season. The Uruguay Round did not
eliminate these practices.
U.S. agricultural producers deserve the opportunity for review by
the ITC to determine if serious injury has resulted from import
competition.
Farm Bureau urges you to pass S.1463/H.R.2795 to allow the ITC to
consider perishable domestic agricultural industries on a seasonal
basis.

Sincerely,
Dean R. Kleckner
President

DRK:bs/

Ms. Thurman. And I really just kind of want to make a
statement because I think that sometimes, and due to the
effectiveness that I think the tomato industry in Florida has
actually raised the issue--let me just give you some numbers,
though, that are pretty remarkable from Florida's perspective,
not just on tomatoes, but what we've seen happen from 1992-93,
before NAFTA, to 1995-96; the market share during the
competitive winter growing season for tomatoes went from 56 to
35; for cucumbers, it was from 37 down to 20.9; eggplant went
from 47 to 25; beans, 72 to 59 and 78 to 64.
So while we sometimes look at just tomatoes, because that
has been the issue that has been raised, quite frankly, I think
the reason that some of the time the people have not come in
these other commodities to remedies is because they haven't
been working, which really, I think, puts our whole
agricultural industry in jeopardy at some point. And I'm really
curious--I think, again, to go back to your trade people, is to
come back with some recommendations to us that we might be
looking at to make sure that these agreements are enforceable.
Mr. Stallman. Yes, we would concur with that. We would like
to see enforceability. Once we negotiate an agreement,
particularly the border of Texas has had the same problems with
some of the vegetables and citrus products down there, and we
would certainly hope the next trade agreement or modifications
to the existing one that we do addresses those issues.
Ms. Thurman. Would any of you like to comment on this? If
this is happening--maybe you haven't run into it yet within
your own industries, but certainly at the time that it could
happen--are there things that you see out there that
potentially in the remedy process need to be strengthened?
Mr. Martin. I have no comment on that, Congresswoman.
Mr. Jerry King. I have no comment relative to that as it
applies to our industry.
Ms. Thurman. So, if it's working well now, don't disrupt
it, but I think we're all in this together. This is your food
supply as well. It may not be the product that you're up here
to look at, but it certainly is your food supply.
OK, thank you.
Chairman Crane. Well, again, I want to express appreciation
to all of you for testifying today. We're sorry for the
interruption. And let me reassure you that your printed
statements will be made a part of the permanent record.
Thank you.
And with that, we have in our next panel JayEtta Hecker,
Associate Director of International Relations and Trade Issues
for the National Security and International Affairs Division
for GAO; Sidney Weintraub, William E. Simon Chair in Political
Economy at the Center for Strategic and International Studies;
and Jack Sweeny, policy analyst for international trade and
Latin American issues at the Heritage Foundation.
And if you folks will take your seats, I look forward to
hearing your comments on the past 3 years under NAFTA, and what
you think about the future of a free trade area in the
Americas, hemispheric free trade.
And before we get started--and I would like to have you
proceed in the order that I called you to testify--I want to
compliment you, JayEtta, for the North American Free Trade
Agreement Impacts and Implementation that you've provided to
the Subcommittee. It's very valuable and we appreciate it.

STATEMENT OF JAYETTA Z. HECKER, ASSOCIATE DIRECTOR, NATIONAL
SECURITY AND INTERNATIONAL AFFAIRS DIVISION, INTERNATIONAL
RELATIONS AND TRADE ISSUES, U.S. GENERAL ACCOUNTING OFFICE

Ms. Hecker. Thank you, Mr. Chairman. If you'd like me to
begin, as you saw by our statement, there are the three areas
that you asked us to cover that we're reporting on here today
based on new work. One is the economic impacts of NAFTA. Two is
the dispute settlement mechanism, the avoidance of disputes as
well as the actual form of the dispute system, and then,
finally, the two supplemental agreements.
Before I begin, because the body of our work is really
reported in this testimony and it won't otherwise be printed,
I'd like to acknowledge the substantial effort of our GAO
evaluators who worked pretty tirelessly to put this together:
Anthony Moran and our team in Los Angeles, as well as Dr.
Friberg and other economists and staff from our Washington and
Los Angeles offices. And I really credit them with the details
that we were able to cover these issues for you in the short
time.
On the economic impact, I'm going to try to speed through
that pretty quickly because you've heard a lot. What we did was
really review almost all the economic studies that have been
done of NAFTA's impact, and we found really a substantial
amount of consensus that results of NAFTA in its limited time
period are all pretty much consistent with expectations of a
positive, but modest improvement for the United States. That's
in GDP, employment, differential effects on different sectors.
In addition, as was also brought up today, there were
important geopolitical objectives that the United States had of
locking in Mexico's significant reforms that actually preceded
the NAFTA, and also promoting economic growth, the kind of
trade diversion that you've really heard about today, of having
trade that is otherwise going to other countries go to Mexico.
There have also been indications that there has been that kind
of lock-in of those reforms and some important movements in
supporting a sustained, open economy in Mexico.
The main observation that I'll net out from our review of
those studies is on the issue of the methodology for jobs
estimates, and I think that's an important thing because there
are so many people focusing on it. I think one of the important
things that you heard today is that NAFTA, not even any larger
trade policy in general can really substantially alter overall
U.S. employment levels. So a lot of the focus on looking on
big, aggregate numbers, or that the numbers are too small or
that the numbers are marginal, really sidesteps the reality
that U.S. overall economic employment conditions are determined
by macropolicies and demographic conditions. So that's kind of
one thing about this focus on job numbers. We shouldn't be
looking to trade agreements or judging trade agreements by the
jobs created. That's a diversion of what really is an expected
outcome.
The second is, even though I make that point, people are
concerned about the numbers, even if they're not the major
impact. And, unfortunately, we want to report to you that we
have problems with everybody's numbers. Most, unfortunately,
either estimate only the gains or only the losses, and you're
really not getting many good estimates of the actual employment
effects of NAFTA. So we caution you, and our statement goes
into detail about the calculations or the methodologies, and
they're really not very reliable. So a lot of focus shouldn't
be on those particular numbers.
And an example is the Transitional Adjustment Assistance
Program. There's a lot of focus on that. Somehow people think
that's going to tell you how many people lost jobs from NAFTA,
and it doesn't. It's simply the nature of the program, what it
does, what a certification is, the requirements to be certified
are not NAFTA-related, and those numbers are not a good proxy
for the job impact of NAFTA.
Now the two unique elements of the statement that I'll draw
your attention to are comments on the dispute settlement
system, which is a very, very important part of the agreement.
We heard from many that it's helping resolve many issues before
they become formal cases, and it's kept the formal cases to 36
in the first 3\1/2\ years. And a number of people observed to
us, for $1 billion of trade a day, 36 formal dispute cases is
remarkably low.
On the supplemental agreements, there's been a lot of talk
about that, and of course we know the trade and environment
issue is a major debate right now about where that fits in the
agreement, and that the NAFTA was really quite unique in having
these agreements. What our statement does for you today is
provide what the agreements really covered, a lot of focus on
cooperative elements, and we summarize what kind of cooperative
efforts have moved forward; much less emphasis on enforcement.
They were not designed--the language of them are not primarily
enforcement tools. It's not a punitive system. It's largely set
up to use public peer pressure, have broader exposure of those
issues, and while people may want more, you can't judge whether
these agreements have been a success judging them by something
they didn't set out to do.
So that concludes my summary, and I hope the statement will
be useful in the future.
Thank you, Mr. Chairman.
[The prepared statement follows:]

Statement of JayEtta Z. Hecker, Associate Director, National Security
and International Affairs Division, International Relations and Trade
Issues, U.S. General Accounting Office

Mr. Chairman and Members of the Subcommittee:
We are pleased to be here today to testify on the impact and
implementation of the North American Free Trade Agreement, or NAFTA. My
testimony today will focus on (1) our review of three major studies of
NAFTA's economic impacts and a brief overview of NAFTA's adjustment
programs, (2) the implementation of NAFTA's mechanisms to both avoid
and resolve disputes among the parties, and (3) the implementation of
NAFTA's supplemental agreements on environmental and labor cooperation.
My testimony is based on our past work on NAFTA issues \1\ and work
we recently conducted at your request. In addition to assessing a wide
range of studies on the economic effects of NAFTA, we interviewed
pertinent trade ministry officials in the United States, Canada, and
Mexico, as well as the heads of the NAFTA Secretariat and the National
Administrative Offices in each country. We obtained the views of
representatives from business, labor, and environment interests in the
three countries.
---------------------------------------------------------------------------
\1\ See North American Free Trade Agreement: Assessment of Major
Issues (GAO/GGD-93-137, Sept. 9, 1993). Also, see attached list of
other related GAO products.
---------------------------------------------------------------------------

Background

NAFTA, which went into effect on January 1, 1994, was
intended to facilitate trade and investment throughout North
America. It incorporates features such as the elimination of
tariff and nontariff barriers. NAFTA also supports the
objective of locking in Mexico's self-initiated, market-
oriented reforms. By removing barriers to the efficient
allocation of economic resources, NAFTA was projected to
generate overall, long-run economic gains for member
countries--modest for the United States and Canada, and greater
for Mexico.\2\ For the United States, this is due to the
relatively small size of Mexico's economy and because many
Mexican exports to the United States were already subject to
low or no duties. Under NAFTA, intra-industry trade and
coproduction of goods across the borders were expected to
increase, enhancing specialization and raising productivity.
Although a substantial majority of economic studies concluded
that only modest economic and employment effects were likely,
NAFTA generated a heated public debate before the agreement's
passage in Congress in 1993. NAFTA critics asserted that up to
one million U.S. jobs would be lost, while the President
projected that the agreement would generate 200,000 U.S. jobs.
---------------------------------------------------------------------------
\2\ A 1993 ITC synopsis of 12 economic studies of NAFTA found that
the likely long-term effect of NAFTA would be an increase in U.S. real
gross domestic product by between 0.02 and 0.5 percent, U.S. net
aggregate employment between 0.03 and 0.08 percent or by 35,063 to
93,502 jobs, and real average wages by 0.1 to 0.3 percent or by $0.01
to $0.03 per hour. For Mexico, ITC reported that the likely long-term
effect of NAFTA would be an increase in Mexico's real GDP by between
0.1 and 11.4 percent, net aggregate employment between 0.1 and 6.6
percent, and real average wages between 0.7 and 16.2 percent. See
Potential Impact on the U.S. Economy and Selected Industries of the
North American Free Trade Agreement, USITC Publication 2596
(Washington, D.C.: U.S. International Trade Commission, Jan. 1993).
---------------------------------------------------------------------------
NAFTA also included procedures first to avoid, and then to
resolve, disputes between parties to the agreement. Separately,
the three NAFTA countries negotiated and entered into two
supplemental agreements designed to facilitate cooperation on
environment and labor matters among the three countries.
Before I get into the specifics of these topics, I will
summarize our main points.

Summary

Assessment of NAFTA's effects is a complex undertaking. It
is difficult to evaluate the impacts of NAFTA since the
agreement's provisions are generally being phased in over a 10-
15 year period, and it is hard to isolate the impact of the
agreement from other trends and events. While recent studies by
the International Trade Commission (ITC), the President, and
the Economic Policy Institute offer valuable insights into the
initial effects of NAFTA, in reviewing the studies we
encountered methodological issues that need to be kept in
perspective. Based on our review of these studies and other
work, we have the following summary observations on NAFTA's
impacts and implementation to date:
While NAFTA is not yet fully implemented, U.S.
trade with NAFTA members has accelerated. Estimates of changes
in total trade among the member countries due to NAFTA are
generally consistent with pre-NAFTA expectations. The current
estimates of its impact on gross domestic product range from no
discernable effect to modest gains for the United States, also
consistent with pre-NAFTA long-run projections described by
ITC.
At the sectoral level, there are diverse impacts
from NAFTA. Within sectors, these may include increases or
decreases in trade flows, hourly earnings, and employment.
Economic efficiency may improve from this reallocation of
resources, but it creates costs for certain sectors of the
economy and labor force, including job dislocation.
Estimates of the agreement's impact on aggregate
employment are widely divergent, ranging from gains of 160,000
jobs to losses of 420,000 jobs. We believe neither of these are
reliable estimates of actual labor effects due to
methodological limitations. In general, NAFTA, or broader trade
policies, cannot be expected to substantially alter overall
U.S. employment levels, which are determined largely by
demographic conditions and macroeconomic factors such as
monetary policy.
While there is wide conceptual agreement on the
contribution of trade liberalization to improvement in the
standard of living through increased productivity and lower
prices, estimating the extent to which NAFTA specifically
furthers these goals presents a major empirical challenge that
may never be overcome. For example, there are no estimates of
NAFTA's direct impact on productivity. However, growth in
shared production activity and two-way trade suggests that
increases in sector specialization, a mechanism through which
productivity may be improved, have occurred.
One of NAFTA's objectives was to lock in Mexico's market
reforms and provide long-term economic growth in Mexico, with
benefits to the United States through a more stable border.
Mexico's response to its financial crisis of 1994-95 and the
recent agreement to accelerate tariff reductions suggest that
Mexico has been committed to meeting its NAFTA obligations. The
effectiveness of NAFTA in locking in Mexico's long-term
commitment to market reforms and promoting Mexican economic
growth, however, is not yet clear.
While data on the use of the NAFTA Transitional Adjustment
Assistance program (NAFTA-TAA) provides sectoral and geographic
information on potential job dislocations, NAFTA-TAA
certifications should not be used as a proxy for the number of
jobs lost. This is because certifications are likely to either
underrepresent or overrepresent the actual number of jobs
affected. For example, under NAFTA-TAA, potential job losses
are not required to be linked directly to NAFTA, thus
overstating the total. In addition, not all potentially
affected sectors are covered by the program, thus understating
the total.
NAFTA's system for avoiding and settling disputes among the
member countries is a critical element of the agreement. The
agreement includes mechanisms such as the establishment of
committees and working groups and an early consultation process
to help the parties avoid disputes. According to government and
private sector officials, these mechanisms have helped the
governments resolve important trade issues and have kept the
number of formal dispute settlement cases relatively low. Under
NAFTA's formal dispute settlement mechanisms, as of July 1997
there have been 32 requests for binational panel reviews of
countries' alleged unfair trade practices, 2 requests for panel
reviews of NAFTA's application, and 2 complaints regarding
investment.
U.S., Mexican, and Canadian government officials with whom
we met were generally supportive of NAFTA's dispute settlement
process over the past 3 years, noting especially the
professionalism and lack of national bias of the panelists
reviewing the cases. According to these officials, changes to
NAFTA members' trade laws agreed to under NAFTA, in particular
in Mexico and Canada, have also helped improve the transparency
(openness) of their antidumping and countervailing duty
administrative processes, thus reducing the potential for
arbitrariness in their application. Despite their generally
positive views of NAFTA's dispute settlement process, officials
and legal commentators in the three countries have expressed
some concerns about delays in NAFTA's panel selection process
and in the speed and cost involved in pursuing a dispute.
Further, some U.S. organizations have challenged the
constitutionality of the provision allowing for binational
panel review of countries' unfair trade determinations.
It is too early to determine what definitive effect the
supplemental agreements will have on the North American
environment and labor. However, the two commissions created to
implement the agreements have been acknowledged by some
government and private sector officials for several positive
achievements to date. Government officials in each of the three
NAFTA countries we spoke with generally believe the respective
agreements have positively affected their country's
understanding of and cooperation on labor and environmental
issues. In addition, the commissions' efforts to encourage the
enforcement of domestic environmental and labor laws through
the processes allowing for submissions by interested parties
have been recognized. These processes are being tested with the
filing, to date, of 11 public submissions on the environment
and 8 on labor alleging lack of countries' effective
enforcement of their environment and labor laws.
U.S., Canadian, and Mexican government officials and
experts have also expressed some concerns about the agreements'
implementation. For example, some government and private sector
officials have cited the need for greater transparency in the
Commission For Environmental Cooperation's procedures. In
addition, a number of observers noted the significant
difference in the levels of support for the two commissions.
While the environment commission is funded at $9 million
annually, the Commission for Labor Cooperation's annual budget
is $1.8 million, which reportedly has contributed to problems
at the labor commission in hiring and retaining staff.

Reviews of NAFTA's Impacts

The impact of NAFTA on the U.S. economy cannot be directly
ascertained since changes in trade and investment also reflect
other influencing factors. The results of economic analyses of
NAFTA's impact on U.S. GDP are consistent with the pre-NAFTA
long-run projections described by the ITC. In contrast,
estimates of the agreement's impact on aggregate employment are
widely divergent. Differences in the studies' assumptions and
methodologies account for this divergence.
Since NAFTA's first round of tariff reductions went into
effect in 1994,\3\ total U.S. merchandise trade (exports plus
imports) with Canada and Mexico has increased from an annual
average of $269 billion (1991-93) to an annual average of $384
billion (1994-96). (See apps I-III) A significant factor
influencing trade was the severe 1994-95 Mexican financial
crisis.\4\ This growth in total trade has been accompanied by
an increase in the U.S. merchandise trade deficit with its
NAFTA partners, from $8.6 billion to $34.0 billion, as import
growth outpaced export growth. U.S. investment in Mexico has
grown since NAFTA's implementation. From 1994 to 1996, the
United States had an annual average of $3.1 billion in foreign
direct investment to Mexico, compared to $2.0 billion from 1991
to 1993.
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\3\ At the meeting of the NAFTA Commission in March 1997, the NAFTA
trade ministers announced the successful conclusion of a set of
accelerated tariff reductions. Also, based on private sector interest,
they agreed to initiate negotiations on additional reductions to be
concluded by year's end.
\4\ In December 1994, nearly a year after the implementation of
NAFTA, Mexico was forced to devalue its currency leading to a serious
economic crisis characterized by high unemployment declining income and
consumption, and a sharp reduction of Mexico's imports, including those
from the United States. In Mexico's Financial Crisis: Origins,
Awareness, Assistance, and Initial Efforts to Recover (GAO/GGD-96-56,
Feb. 23, 1996), we examined the causes of this crisis and concluded
that it originated in the growing inconsistency between monetary,
fiscal and exchange rate policies pursued by Mexican authorities in
1994.
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Recent Studies of NAFTA's Economic Impact

Mr. Chairman, let me now summarize the findings from three
major reports on NAFTA's impact: (1) the in-depth June 1997 ITC
study of NAFTA; \5\ (2) the President's July 1997 report on the
operations and effect of NAFTA; \6\ and (3) a June 1997 study
by some of the major critics of NAFTA.\7\
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\5\ The Impact of the North American Free Trade Agreement on the
U.S. Economy and Industries: A Three-Year Review, USITC Publication
3045 (Washington, D.C.: U.S. International Trade Commission, June
1997).
\6\ Study on the Operation and Effects of the North American Free
Trade Agreement, U.S. President's report to the Congress of the United
States (Washington, D.C.: The White House, July 1997).
\7\ The Failed Experiment--NAFTA at Three Years (Washington, D.C.:
Economic Policy Institute, Institute for Policy Studies, International
Labor Rights Fund, Public Citizen's Global Trade Watch, Sierra Club,
and U.S. Business and Industrial Council Educational Foundation, June
26, 1997).

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The ITC 3-Year Assessment

The June 1997 ITC assessment of NAFTA impacts represents
the most comprehensive research effort we identified to date.
Using an econometric approach, ITC sought to separate other
trade-influencing factors, particularly Mexico's financial
crisis, from NAFTA's impact on the U.S. economy as a whole, and
on nearly 200 industrial sectors of the U.S. economy. In
addition, the ITC assessment included a qualitative review of
68 aggregated sectors.
Based on all of its analysis, ITC concluded that NAFTA had
a modest positive effect on the U.S. economy during its first 3
years of operation. ITC was unable to quantify a discernible
effect on U.S. GDP, aggregate investment, or aggregate
employment that can be attributed to NAFTA during its first 3
years. ITC concluded that NAFTA has significantly affected the
aggregate levels of U.S. trade with Mexico, but not with
Canada.
In its sectoral analyses, ITC found changes in trade,
employment, and earnings that were due to NAFTA in a limited
number of sectors. Among the nearly 200 sectors whose trade ITC
modeled, U.S. exports to Mexico increased significantly in 13
sectors due to NAFTA, while no sector showed decreased exports
to Mexico due to NAFTA. U.S. imports from Mexico increased
significantly in 16 sectors after the effects of other
influencing factors were taken into account, while U.S. imports
from Mexico decreased significantly in 7 sectors due to NAFTA.
In an econometric analysis of 120 industrial sectors, ITC found
that 29 industries had changes in hourly earnings and
employment levels. Among these 29 sectors, hours worked most
often increased due to NAFTA, while hourly earnings were more
often found to decrease. In their qualitative sectoral
analysis, ITC industry experts found that employment declined
due to NAFTA in 2 out of 68 sectors: the apparel and women's
non-athletic footwear sectors. While some effort was made to
address productivity impacts, ITC was unable to evaluate the
direct impact of NAFTA on labor productivity in the various
sectors due to data constraints. However, the indirect evidence
examined by ITC suggested a positive impact on U.S.
productivity in certain industries.

The President's Report

The President's report on NAFTA presents the findings of
recent studies that estimate the agreement's impact. These
include a commissioned DRI analysis and research published by
the Federal Reserve Bank of Dallas.\8\ Both studies isolate the
effect of the Mexican financial crisis from NAFTA's effect on
bilateral U.S.-Mexico trade flows.\9\ In contrast to the ITC
effort that modeled the employment impact of NAFTA, the
President's report uses a simple job-multiplier analysis that
assumes about 13,000 jobs are supported for every $1 billion in
increased exports.
---------------------------------------------------------------------------
\8\ The commissioned DRI analysis drew on a previous report--The
Impact of NAFTA on Mexican Trade: An Empirical Study (Lexington, MA:
DRI/McGraw-Hill, Apr. 1997). David M. Gould, ``Distinguishing NAFTA
from the Peso Crisis,'' Southwest Economy, Federal Reserve Bank of
Dallas (Sept./Oct. 1996).
\9\ Neither study makes an assessment of the extent to which
changes in U.S.-Mexico bilateral trade reflect trade diversion away
from other trading partners.
---------------------------------------------------------------------------
The Federal Reserve study modeled the impact of NAFTA on
U.S. bilateral trade with Mexico. They found that NAFTA has on
average boosted export growth by about 7 percentage points each
year since implementation, for a cumulative expansion of
exports of about $5 billion through 1995. U.S. import growth
from Mexico on average has been about 2 percentage points
greater each year, for a cumulative impact of about $1.8
billion in additional imports.\10\ The DRI assessment found
larger trade effects than the Federal Reserve study. The DRI
study used a model of the Mexican economy to evaluate NAFTA's
impact on bilateral trade with the United States, but excluded
the petroleum sector. It found that in 1996, NAFTA increased
U.S. exports to Mexico by $12 billion and imports from Mexico
by $5 billion. The estimated trade impacts were then applied to
a DRI macroeconomic model of the U.S. economy to simulate their
impact on U.S. GDP and investment. According to the President's
report, DRI estimates that NAFTA contributed $13 billion to
U.S. real income and $5 billion to business investment in 1996,
controlling for the impact of Mexico's financial crisis.\11\
---------------------------------------------------------------------------
\10\ The Federal Reserve study reports that its estimates of the
effects of NAFTA on exports and imports are not statistically
significant.
\11\ The DRI data that is reported in the President's report differ
from the data DRI submitted to the President's Council of Economic
Advisers on July 1, 1997. That submission shows that NAFTA contributed
$21.2 billion to U.S. real income and $4.2 billion to nonresidential
fixed investment in 1996.
---------------------------------------------------------------------------
The President's report uses the export estimates from the
two studies to compute NAFTA's impact on job creation. The
President's report estimates that NAFTA export expansion
supported between 90,000 and 160,000 jobs in 1996.\12\ The
President's report did not compute any employment impact from
increased imports from Mexico.
---------------------------------------------------------------------------
\12\ The lower estimate uses an extrapolation of the Federal
Reserve assessment that U.S. exports expanded by about $5 billion
through 1995, while the higher estimate reflects DRI's assessment that
NAFTA expanded U.S. exports by $12 billion.

---------------------------------------------------------------------------
Consolidated NAFTA Critique

The Economic Policy Institute (EPI) prepared an assessment
of NAFTA that also used a job-multiplier analysis. This
assessment was included in the consolidated critique of NAFTA.
However, the EPI analysis differed from the President's report
in several notable respects. First, EPI did not separate the
impact of Mexico's financial crisis from NAFTA's effects on
trade flows.\13\ Secondly, to compute job losses from NAFTA,
EPI applied the export job-multiplier to the increase in
imports rather than just to exports as done in the President's
report. Also, EPI included changes in U.S.-Canadian bilateral
trade in its assessment of NAFTA.
---------------------------------------------------------------------------
\13\ EPI reports that the overvalued peso was related to NAFTA as
it artificially reduced the price of Mexican imports from the United
States, and helped win U.S. passage of NAFTA in 1993. The United States
had a trade surplus with Mexico from 1991 to 1993, giving credence to
that idea. DRI argues that the process leading to the start of NAFTA
complicated stabilization policy in Mexico, and was in that sense a
contributing factor to the financial crisis. The Impact of NAFTA on the
North American Economy (Lexington, MA: DRI/McGraw-Hill, Jan. 1997).
---------------------------------------------------------------------------
The critique concluded that the increased U.S. trade
deficit with Mexico and Canada on balance has cost the United
States 420,208 jobs since 1993. It states that the move to a
$16.2 billion U.S. bilateral trade deficit with Mexico in 1996
from a bilateral surplus of $1.7 billion in 1993 cost the
United States 250,710 of these jobs.\14\ The critique also
notes that the real wages of U.S. blue-collar workers has
declined for almost 2 decades and suggests that imports from
low-wage countries such as Mexico are an especially important
cause of increasing wage inequality.
---------------------------------------------------------------------------
\14\ EPI estimates that from 1993 to 1996 the increased trade
deficit with Canada on balance cost the United States 169,498 jobs.
---------------------------------------------------------------------------

NAFTA Adjustment Programs

The benefits of trade agreements are widely dispersed, and
the costs or dislocation effects are more concentrated. In
recognition of the anticipated dislocation of some workers, the
NAFTA Implementation Act established the NAFTA Transitional
Adjustment Assistance (NAFTA-TAA) program in 1994. The program
was designed to assist workers in companies affected by U.S.
imports from Mexico or Canada or by shifts in U.S. production
to either of those countries. The program is authorized to
continue until September 30, 1998.\15\ NAFTA-TAA benefits
include basic readjustment services; employment services;
training, job search allowances; relocation allowances; and,
the feature that most distinguishes the program from basic
unemployment insurance, income support for up to 52 weeks after
exhaustion of unemployment insurance when enrolled in training.
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\15\ The United States has two other major programs to aid
adjustment of workers who have lost their jobs: the Trade Adjustment
Assistance and the Economic Dislocation and Worker Adjustment
Assistance programs. GAO reviews of these programs as well as the
NAFTA-TAA found confusion about eligibility, inadequate tailoring of
services, and delays in delivery. GAO has recommended that the programs
be improved and consolidated. See Multiple Employment Training
Programs: Major Overhaul Is Needed to Create a More Efficient,
Customer-Driven System (GAO/T-HEHS-95-70, Feb. 6, 1995); and Dislocated
Workers: An Early Look at the NAFTA Transitional Adjustment Assistance
Program (GAO/HEHS-95-31, Nov. 18, 1994).
---------------------------------------------------------------------------
As of Sept. 4, 1997, NAFTA-TAA certifications (verification
of potential job losses since NAFTA's implementation) have been
issued for 1,206 worker groups in firms located in 48
states.\16\ Department of Labor statistics indicate that 2,884
workers have been certified as eligible for NAFTA-TAA benefits
due to (1) increased imports from Canada or Mexico or (2) a
shift in U.S. production to Canada or Mexico. Of these
certifications, 623 were based on a shift of production to
Canada or Mexico, 380 were based on increased customer imports,
167 were based on increased company imports, and 36 were based
on high and rising aggregate imports from Canada or Mexico. As
shown in table 1, the top five sectors in terms of worker group
certifications and the number of workers covered were apparel,
electrical and electronic equipment, lumber and wood products,
fabricated metal products, and industrial/commercial machinery,
and computer equipment. The top 10 states with NAFTA-TAA
workers covered by certifications were Texas (12,797),
Pennsylvania (12,788), North Carolina (12,001), New York
(11,924), California (7,773), Georgia (6,556), Indiana (6,077),
Tennessee (5,786), Arkansas (5,397), and New Jersey (4,788).
---------------------------------------------------------------------------
\16\ NAFTA-TAA petitions, which can be filed by a group of three or
more workers, are first reviewed by the Governor of the state where the
worker's company is located. The U.S. Department of Labor makes the
final determination whether to approve or deny these petitions, and
issues certifications for approved petitions.

Table 1--Number of NAFTA-TAA Certifications by Sector, January 1, 1994-
September 4, 1997
------------------------------------------------------------------------
No. of worker
Sector group No. of workers
certifications covered
------------------------------------------------------------------------
Apparel................................. 433 42,140
Electrical and electronic equipment 246 29,730
(except computing equipment)...........
Lumber and wood products (except 158 8,280
furniture).............................
Fabricated metal products............... 103 12,750
Industrial/commercial machinery, and 103 11,005
computer equipment.....................
Other sectors........................... 164 38,979
Total................................. 1,207 142,884
------------------------------------------------------------------------
Source: Department of Labor.

Because of the intense interest in NAFTA's impact on U.S.
labor and the difficulty in calculating such impact, analysts
have used NAFTA-TAA data as a proxy for job dislocations
attributable to NAFTA. NAFTA-TAA certifications are not an
accurate measure of jobs lost due to NAFTA, however, because
certifications are likely to either underrepresent or
overrepresent the actual number of jobs affected. On the one
hand, NAFTA-TAA certifications are not required to be caused
by, or linked to, NAFTA--they can be due to general trade
effects between the United States and Canada or Mexico. In
addition, NAFTA certifications represent potential job losses,
not the actual number of jobs lost. These factors could
potentially lead to the NAFTA-TAA figures being overstated. On
the other hand, not all categories of workers potentially
affected are covered by the program (for example, some services
workers). Additionally, some researchers have questioned
whether employees of small, nonunionized firms are fully aware
of program benefits and are thus not being served by the
program. Further, workers may opt to apply for other programs,
particularly given the strict training requirement for NAFTA-
TAA. These factors could potentially lead to
understatement.\17\ While NAFTA-TAA is fully operational,
little evaluation has been done of how effectively the program
serves to provide retraining and adjustment assistance to
affected workers.
---------------------------------------------------------------------------
\17\ GAO is currently reviewing the scope and coverage of the
NAFTA-TAA program.
---------------------------------------------------------------------------
The NAFTA implementing legislation established an
additional program to deal with job dislocation effects from
NAFTA: the U.S. Community Adjustment and Investment Program
under the North American Development Bank. The program was
designed to provide loans and loan guarantees (up to $22.5
million, according to authorizing legislation) to businesses
seeking to locate or expand existing operations in communities
with job losses caused by NAFTA. It was to be implemented by a
program office in Los Angeles, two advisory committees, and an
ombudsman appointed by the President. However, during the first
3\1/2\ years of NAFTA, no loans were approved under the
program. The Treasury Department issued its first designation
of qualifying communities on August 1, 1997. That announcement
declared 35 communities in 19 states eligible for business
loans and loan guarantees.

Comments on Methodology

It is very difficult to evaluate the impact of NAFTA since
the agreement's provisions are generally being phased in over a
10-15 year period, and it is hard to isolate the impact of the
agreement from contemporaneous economic trends and other unique
events. While recent studies offer valuable insights into the
initial effects of NAFTA, in reviewing the studies we
encountered methodological issues that need to be kept in
perspective.
The estimates of NAFTA's impact on GDP derived from
econometric analyses are consistent with expectations of
NAFTA's long-term impact. The ITC reports that NAFTA had no
discernable impact on GDP after three years. The President's
report finds that the short-term, transitory GDP gain from
NAFTA was $13 billion in 1996, which represents less than 0.2
percent of U.S. GDP. Both estimates can be considered
consistent with pre-NAFTA projections that the likely long-term
impact of NAFTA would be a modest, positive increase in GDP--
between 0.02 and 0.5 percent.
Several of the reports include conclusions about NAFTA's
impact on U.S. aggregate employment. However, there is
widespread consensus among many economists that aggregate
employment is primarily determined by demographic conditions
and macroeconomic factors such as monetary policy or interest
rates. These economists would argue that trade agreements, such
as NAFTA, primarily impact labor markets by shifting the
composition of employment, potentially altering wages and
income distribution, rather than affecting the overall level of
employment in the country.
The President's report as well as the EPI study rely on the
job-multiplier approach to estimate the potential job impact of
changes in the nation's trade balance. This approach is
questioned by many economists for computing the employment
impacts of trade. Furthermore, as an application of this
methodology, the President's and EPI's analyses both exaggerate
their estimates of NAFTA's job impact. For example, the
President's report did not calculate any job losses associated
with increased U.S. imports from Mexico due to NAFTA.\18\
Likewise, the job losses estimated by EPI are exaggerated,
since some of the increase in U.S. imports from Mexico
displaces imports from other nations rather than U.S.
production.
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\18\ The report argues that imports do not necessarily displace
U.S. production and that because the ``mainstream economic community
has not developed any broadly agreed upon methodology'' to estimate the
displacement effect, the export job-multiplier computation should not
be used to calculate employment level changes due to imports.
---------------------------------------------------------------------------
The impact of NAFTA on wages, low-skill workers, and income
inequality is a controversial issue related to NAFTA's impact
on the economy. ITC analyzed the impact of NAFTA on sectoral
wages but did not attempt to determine the impact on low-skill
workers or income inequality. The President's report largely
recapped the ITC analysis. While the critique associated trade
expansion with two decades of declining real wages, it did not
analyze NAFTA's specific impact.
An important methodological issue in analyzing NAFTA is how
Mexico's 1994-95 financial crisis is treated. Estimates of
NAFTA's impacts over its first 3 years differ greatly based on
how the crisis is considered in the analysis. ITC's and the
President's reports explicitly excluded its effects in their
analysis, while the EPI study did not. While separating the
crisis' impact from that of NAFTA has merit, events in Mexico
leading to the financial crisis and the response to the crisis
are intertwined with NAFTA. The financial crisis tested whether
NAFTA succeeded in locking in Mexico's market-opening reforms.
Mexican government officials noted that they met their NAFTA
obligations rather than institute immediate tariff increases on
U.S. products, as had occurred during a previous crisis in
1982. Furthermore, they undertook additional market-opening
measures such as privatizing government-owned ports and
railroads, according to Mexico's Trade and Commerce ministry.

Mechanisms for Avoiding and Settling Disputes

NAFTA contains mechanisms to help avoid trade disputes and
settle them effectively when they do arise. In an effort to
head off disputes, NAFTA established a number of committees and
working groups on key trade-related issues to provide a channel
for discussion of member countries' ongoing concerns. In
addition, NAFTA's dispute settlement process includes a
consultation mechanism that encourages members to make every
effort to resolve differences in meetings and discussions
before requesting a review. Further, the agreement's formal
dispute settlement mechanisms address member countries'
potential use of unfair trade practices, the interpretation and
application of NAFTA, and the protection of investor rights.
Finally, changes in NAFTA member countries' trade laws were
required by the agreement to increase the level of transparency
in countries' trade remedies determinations.
U.S., Mexican, and Canadian private sector and government
officials with whom we spoke were generally supportive of
NAFTA's dispute settlement process over the past 3 years. For
example, they cited increased transparency in member countries'
administration of trade remedy laws required by the agreement.
However, some U.S. and Canadian officials were concerned about
the timeliness of NAFTA's panel selection process. In addition,
Mexican officials acknowledged that Mexico's pool of potential
panelists is somewhat limited because Mexican attorneys are
still developing expertise in trade dispute matters.
Furthermore, questions have arisen regarding the
constitutionality of NAFTA's dispute settlement provisions
dealing with countries' determinations of alleged unfair trade
practices.

Dispute Avoidance

NAFTA established a number of committees and working groups
on significant trade-related issues to enable member countries
to discuss their concerns. In addition, NAFTA committees and
working groups provide forums for consultation on comprehensive
trade-related subjects, such as rules of origin, agricultural
subsidies, financial services, standards-related measures,
trade and competition, and temporary entry by business persons.
They are composed of trade and other relevant officials from
the three governments.
Canadian, Mexican, and U.S. trade officials told us that,
in general, NAFTA committees and working groups have helped all
three countries to address important trade issues. They believe
that these groups have prevented many issues from being
elevated to the trade minister level and thus have minimized
their politicization. One Canadian trade official commented
that the working groups allowed government officials to settle
their differences informally. U.S. embassy officials told us
that Mexico and the United States are participating in NAFTA
working groups to reduce delays that U.S. exporters encounter
in meeting Mexican product standards. For example, to
facilitate U.S. tire exports, Mexican officials told us they
agreed to accept test data from U.S. tire manufacturers for the
first time. A Canadian trade official cited a committee's work
on accelerating the elimination of tariffs on certain products.
Other examples of committee and working group efforts mentioned
by government officials included harmonizing labeling
requirements on apparel among NAFTA countries and resolving
disagreements on classifying goods to meet NAFTA rules of
origin.
NAFTA has also built into its dispute settlement process
opportunities for disputing parties to participate in
consultations, or face-to-face meetings, to resolve their
differences. These consultations are meant to allow parties to
air their concerns and seek mutually agreeable solutions before
pursuing more formal institutional review under NAFTA. If the
parties resolve their differences through consultations, they
do not need to go any further in NAFTA's dispute settlement
process. If differences are not resolved, the parties can
request dispute settlement panel review. For example, seven
such prepanel consultations are currently ongoing, one of which
recently ended in a mutually acceptable resolution.

Enforcement

The three major dispute settlement provisions of NAFTA are
set forth in chapter 19, chapter 20, and chapter 11. These
chapters provide mechanisms for dealing with the three primary
areas in which disputes can arise, that is, unfair trade
practices (chapter 19), the interpretation and application of
NAFTA (chapter 20), and the protection of investor rights
(chapter 11). NAFTA's chapter 20 also promotes the use of
arbitration and other forms of alternative dispute resolution
for international commercial disputes between private parties
in the free trade area, although it does not prescribe or
establish arbitration procedures.
There have been 32 chapter 19 requests for binational panel
review as of July 1997, including 14 completed cases with final
panel decisions, 9 cases still active, and 9 cases terminated
without a decision (see app. IV for more information on
completed cases.) There were no requests for Extraordinary
Challenge Committee \19\ review under NAFTA. Officials from all
three countries with whom we spoke considered the chapter 19
process to be working very well. They believed that the final
panel decisions made thus far had been balanced and fair and
completed in a timely manner.\20\ They observed that in their
view, concerns about panels voting along national lines or the
nature of the panel majority influencing its final outcome have
proved to be unfounded. In fact, of the 14 completed panel
decisions, 11 (79 percent) were unanimous. Chapter 19
binational panels took 457 days on average to complete cases
and issue a final decision. Chapter 19 establishes a 315-day
guideline to issue a final decision from the date a panel was
requested.\21\
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\19\ While a chapter 19 decision cannot be appealed in domestic
courts, involved parties may request a review by an Extraordinary
Challenge Committee composed of three judges or former judges selected
by the parties.
\20\ Our 1995 work on Chapter 19 found some participants had
concerns about the panel process, certain panel decisions and how they
were arrived at. See U.S.-Canada Free Trade Agreement, Factors
Contributing to Controversy in Appeals of Trade Remedy Cases to
Binational Panels (GAO/GGD-95-175BR, June 16, 1995).
\21\ According to the NAFTA U.S. Section Secretary, the 315-day
guideline does not include the time when the panels are temporarily
suspended. Panels can be suspended when a panelist becomes unable to
fulfill panel duties or is disqualified due, for example, to a change
in circumstances causing the appearance of conflict of interest.
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Two requests for chapter 20 panel reviews have been made
under NAFTA. In one case, a final panel decision has been
issued, and in the other case oral argument has been held. A
decision is due by the end of the year. A total of seven
prepanel consultations are ongoing, including two in which the
United States is the petitioner, and five in which the United
States is the respondent. Officials with whom we spoke believed
that the chapter 20 prepanel consultation process helped
parties avoid formal disputes by allowing them to resolve their
differences before requesting a chapter 20 panel. However,
Mexican government officials and a member of a U.S. business
association operating in Mexico expressed concern that, in
their opinion, some of the prepanel consultations under chapter
20, were taking too long. NAFTA provides for no time limits on
consultations other than those agreed to by the consulting
parties.
Two U.S. firms have filed complaints under the NAFTA
chapter 11 investor arbitration clause. In one case a panel
convened in July 1997, and in the other case, a panel is still
being formed.
Appendix IV further describes the chapters 19, 20, and 11
provisions and provides information on the dispute cases
initiated since NAFTA's implementation.

Implementation Progress

According to U.S., Mexican, and Canadian government
officials, changes in NAFTA member countries' trade laws
precipitated by the agreement have increased the level of
transparency in countries' trade remedies determinations,
particularly in Mexico. While government officials were
generally pleased with the operation of NAFTA's dispute
settlement process to date, they expressed some concerns about
the panel selection process. In addition, a constitutional
challenge to the chapter 19 process is pending in U.S. federal
court.

Changes in Signatory Trade Laws to Conform to NAFTA Requirements

All three signatories agreed to make changes in their trade
remedy laws to comply with NAFTA provisions. For example, NAFTA
obligated Mexico to make 21 procedural amendments to its laws.
They were intended to reduce the potential for arbitrary
antidumping and countervailing duty administrative
determinations by increasing the level of transparency in the
administrative process. The amendments Mexico was obligated to
make to its law included allowing interested parties to fully
participate in the administrative process, including the right
to administrative and judicial review of final determinations,
elimination of the possibility of imposing provisional duties
before the issuance of a preliminary determination, and
explicit timetables for determining the competent investigating
authority and for parties to submit evidence and comments. The
United States and Canada included changes required by NAFTA in
their implementing legislation, while Mexico amended its new
Foreign Trade Law shortly before NAFTA became effective.
In accordance with the NAFTA Implementation Act, the
President reported to Congress on December 27, 1993 that Mexico
implemented the statutory changes necessary to bring it into
compliance with its obligations under NAFTA. In addition,
Mexican officials stated that Mexico also amended its foreign
investment, telecommunications, and intellectual property laws
at that time. Mexico's first trade remedies law, including
antidumping and countervailing duty measures, was enacted in
1986 when Mexico joined the General Agreement on Tariffs and
Trade (GATT). According to Mexican officials and the U.S.
Section NAFTA Secretariat, the law, now in its fourth revision,
has dramatically increased the levels of transparency and
public participation in Mexico's trade remedies determinations.
However, these officials admitted that Mexico's system for
finding redress to unfair trade practices was still slow and
costly to petitioners.
Canadian officials told us that both U.S.-Canadian Free
Trade Agreement and NAFTA provisions on unfair trade practices
have encouraged more thorough review and documentation of
original antidumping and countervailing duty cases by Revenue
Canada, an agency that administers Canadian trade laws. Prior
to these agreements, these same officials said that Revenue
Canada's review processes of these cases had been less
documented and less subject to outside scrutiny.

Quality of the Operation of Dispute Settlement

In general, U.S., Mexican, and Canadian government
officials with whom we spoke were favorably impressed with the
operation of the NAFTA dispute settlement process over the past
3\1/2\ years. They considered the panelists reviewing the cases
brought forward to date to be of high quality, professional,
neutral, and unbiased. Panelists, we were told, went out of
their way to hear all of the arguments relevant to each case.
In addition, they were pleased that panel reviews and decisions
were conducted with little attention from the media. Officials
observed that the cases that did attract media attention tended
to be those concerning issues that had been sensitive long
before NAFTA. They further noted that the controversy over
these cases concerned the substance of the issues rather than
the dispute settlement process itself.
U.S., Canadian, and Mexican business groups we spoke with
believed that the dispute settlement framework has provided an
orderly, fair, and predictable mechanism with which to resolve
differences. One U.S. business association member explained
that such a mechanism provided certainty and reduced risk to
all participants, thereby facilitating trade among the three
countries. Another businessperson noted that the outcome of the
panel decisions was not as important as the certainty that the
dispute settlement system was unbiased and based upon the rule
of law.
Considering the increased trade among the United States,
Canada, and Mexico since NAFTA's implementation, many of the
private sector and government officials with whom we spoke
regarded the number of dispute settlement cases over the past
3\1/2\ years to be remarkably low. They attributed this to
opportunities to work out differences through the NAFTA working
groups and the consultation process built into the dispute
settlement process.

Panel Selection

Notwithstanding the support expressed by many business and
government representatives for the agreement's dispute
settlement process, some participants in the dispute settlement
process expressed concern about the timeliness of the panel
selection process.
NAFTA's chapter 19 provides that involved parties agree on
their selection of panel members within 55 days of the request
for a panel. The average delay over and above the required 55
days for panel selection under NAFTA chapter 19 had been 53
days. Participants attributed this delay to the logistics of
finding qualified potential panelists, in particular panelists
who meet the NAFTA code of conduct that requires that panelists
meet certain criteria, including lack of a conflict of
interest. One participant cautioned that such delays could
potentially cause problems since NAFTA requires the respondent
to respond to the complainant's brief within 60 days of the
request for a panel. In fact, thus far nine panels have been
temporarily suspended to deal with such situations.
In addition, a Canadian official responsible for monitoring
NAFTA issues believed that the two cases involving requests for
chapter 20 panels had been delayed due to the absence of a
chapter 20 roster. Under NAFTA, the chapter 20 panel members
are normally to be chosen from a roster agreed upon by all
three signatories. Without a roster, panelists in the two cases
had to be selected from a general population of potentially
eligible panelists. According to a U.S. Trade Representative
official, the chapter 20 roster has not yet been formed because
the parties could not agree on its composition.
Mexican officials admitted that Mexico's pool of potential
panelists was rather limited because Mexican attorneys are
still developing expertise in trade dispute matters. Moreover,
the limited number of Mexican trade attorneys increases the
potential that panelists might represent clients in the
industries subject to panel review, a situation not allowed
under NAFTA's conflict of interest provisions. Mexican
officials explained that their government is making every
effort to train more professionals in the area of trade law.
For example, the Mexican government is currently sponsoring
seminars on trade law and requiring that Mexican universities
provide classes in antidumping and countervailing duty law as
well as in NAFTA dispute settlement.

Challenge to Constitutionality of Binational Panel System

Critics have questioned whether the chapter 19 binational
panel review system, by replacing federal court review with bi-
national panel review, violates article III of the U.S.
Constitution that provides that judicial power be exercised by
U.S. federal courts. They also question whether the chapter 19
system may violate the appointments clause of article II of the
U.S. Constitution, which requires that judicial officials be
appointed by the President with the advice and consent of the
Senate, since chapter 19 panelists are not nominated by the
President and confirmed by the Senate. In January of this year,
the American Coalition for Competitive Trade \22\ filed a
lawsuit in the U.S. Court of Appeals for the District of
Columbia Circuit charging that chapter 19 violates articles II
and III of the U.S. Constitution.
---------------------------------------------------------------------------
\22\ The ACCT, a nonprofit organization incorporated under Virginia
law, is a coalition of 21 organizations and corporations organized for
the purpose of protecting the industrial and agricultural capacity, tax
base, and economic well being of the United States.
---------------------------------------------------------------------------
In view of these developments, it is possible that
questions concerning the constitutionality of the chapter 19
binational panel review system may be resolved by the federal
courts. However, if and when the courts will ultimately decide
these issues is uncertain.

Implementation of Environment and Labor Agreements

During the NAFTA negotiation process, parallel negotiations
were undertaken to address environment and labor issues. The
two resulting agreements emphasized cooperation to improve
environment and labor conditions in North America; they also
created mechanisms to address enforcement of environment and
labor laws in each of the three countries. After 3\1/2\ years
of implementation, it is too early to say what definitive
effect these side agreements will have on the environment and
labor. The commissions set up to implement the two agreements
have been acknowledged for their efforts to date to further
cooperation in their respective areas, but observers also have
concerns about various aspects of the agreements'
implementation.

Coverage and Results of the Environmental Agreement \23\

The North American Agreement on Environmental Cooperation
signed by Canada, Mexico, and the United States in September
1993, went into effect along with the North American Free Trade
Agreement on January 1, 1994. The environmental agreement aims
to protect, conserve, and improve the environment through
increased cooperation and transparency among the three
governments and greater public participation. In addition, the
agreement provides citizens and governments an opportunity to
file complaints regarding a country's failure to enforce its
environmental laws.
---------------------------------------------------------------------------
\23\ NAFTA was also accompanied by a bilateral agreement between
the United States and Mexico that established the North American
Development Bank and the Border Environment Cooperation Commission. The
primary goal of these two institutions is to provide seed money for
environmental infrastructure and community development projects along
the U.S.-Mexico border and to review proposals for such funding. A
discussion about the implementation of the North American Development
Bank and the Border Environment Cooperation Commission is beyond the
scope of this testimony. For a detailed analysis of these two
agreements, see International Environment: Environmental Infrastructure
Needs in the U.S.-Mexican Border Region Remain Unmet (GAO/RCED-96-179,
July 22, 1996).
---------------------------------------------------------------------------
The environmental agreement established the Commission for
Environmental Cooperation in Montreal to help the three
signatory countries achieve the objectives set forth in the
agreement. Its organizational structure consists of a Council,
a Secretariat, and a Joint Public Advisory Committee. Since
1995, this commission has been funded at approximately $9
million per year, with equal contributions from each member
country. In 1996, the commission created a fund for community-
based projects in Canada, Mexico, and the United States that
promotes the commission's goals and objectives. In 1997, $1.6
million of the annual budget was used for this fund.

Cooperative Efforts

Since its first full year of operation in 1995, the
environmental commission has undertaken a work program designed
to improve environmental cooperation. Work program areas and
examples of projects undertaken by the commission are outlined
in table 2.

Table 2--Commission for Environmental Cooperation's Regional Cooperation
Projects
------------------------------------------------------------------------
Work program area Examples
------------------------------------------------------------------------
Conservation.............................. Developing plans to conserve
and protect North American
birds and monarch
butterflies
Developed plans to establish
a North American
Biodiversity Information
Network
Developed plans to implement
strategies to protect
regional marine life
Protecting human health and the Coordinated the development
environment. of regional action plans
for PCBs, DDT, chlordane,
and mercury
Coordinate the completion of
transboundary environmental
impact assessment
procedures by April 1998
Environment, trade, and the economy....... Fund and facilitate the
creation of an information
clearinghouse on
environmental technology
and services
``NAFTA Effects'' projects:
--Completed NAFTA
intergovernmental
institutions study in 1997
--Refine the general
framework for assessing
NAFTA's environmental
impacts by completing a
study on the environmental
effects of the deregulation
of the energy and
agriculture sectors
(expected in 1997)
Enforcement cooperation................... Groups established under
this program have met and
exchanged information,
strategies, and expertise
on enforcement, compliance,
and legal trends
Information and public outreach........... Complete enhancements to the
commission's website that
will provide regional
information on the
environmental dimensions of
physical, socioeconomic,
and ecological variables
(expected in 1997)
------------------------------------------------------------------------

Enforcement

The environmental supplemental agreement provides two
separate mechanisms regarding a government's failure to enforce
its environmental laws: (1) articles 14 and 15 provide for
citizen submissions on enforcement matters, and (2) part V
provides for government-to-government consultation and
resolution of disputes. Environmental officials from Canada and
the United States generally believe that the citizen submission
process is working well. They believe the submissions are being
fairly reviewed by the Secretariat. In Canada, one official
commented that this process has even helped the provincial and
national environmental agencies harmonize their
responsibilities.
Citizen submission process. Under the citizen submission
process, a citizen or citizen group may submit a claim to the
environment commission's Secretariat that a party to the
agreement is failing to effectively enforce its environmental
laws. If 2 out of the 3 countries agree that the submission has
merit, the commission will prepare a factual record (that is,
an investigation of the matter) that could lead to public
pressure to improve enforcement. Unlike part V of the agreement
for resolving government-to-government environment disputes,
the citizens submissions process does not provide this
commission with the ability to impose sanctions.
Since the citizen submission process came into effect, 11
submissions have been filed.\24\ Of these 11, 3 cases were
submitted alleging that the United States had failed to enforce
its environmental laws. Of these three submissions, two were
terminated because they dealt with legislative changes or new
environmental laws rather than nonenforcement,\25\ and the
third was withdrawn. In this third instance, the submitter
alleged that the Department of Defense's expansion of Fort
Huachuca, Arizona, would drain the local water supply and
destroy the ecosystem that is dependent upon it. In its
response, the U.S. government contended it was not failing to
enforce environmental law and that the citizen submission did
not warrant an inquiry to gather factual information. In July
1997, the submitter withdrew the filing, and the process was
terminated.
---------------------------------------------------------------------------
\24\ For a listing of all submissions--the country affected, the
submitter, and the status--see appendix V.
\25\ For example, the case submitted by the Sierra Club and other
organizations in August 1995 alleging that the Fiscal Year 1995
Supplemental Appropriations, Disaster Assistance and Rescissions Act
contained a rider suspending enforcement of U.S. environmental laws for
a logging program was terminated on December 8, 1995 because the
Secretariat determined that the case was not a non-enforcement case.
The Secretariat's assessment was that these organizations submitted the
case as a means of seeking an alternate forum for disputing a U.S.
legislative decision.
---------------------------------------------------------------------------
The remaining cases were against Canada and Mexico, with
six being filed against Canada and two against Mexico. The case
that has proceeded the furthest involves a submission filed by
three Mexican nongovernmental organizations in 1996, alleging
that the Mexican government failed to effectively enforce its
environmental laws regarding the construction and operation of
a public harbor terminal in Cozumel. The Secretariat
recommended, and the Council approved, that a factual record be
prepared in this case. The Secretariat transmitted the final
factual record to the Council on July 25, 1997. The Council
may, upon a two-thirds vote, make the final record a public
document.
Government-to-government disputes. Although a process for
consulting on and resolving government-to-government disputes
regarding a ``persistent pattern of failure to effectively
enforce its environmental laws'' is called for under the
agreement, no rules of procedure for implementing this
segment--part V--of the agreement have been established to
date.\26\ Unlike the citizen submission process identified in
articles 14 and 15 of the environmental agreement, part V
allows an arbitration panel reviewing the case to impose
monetary sanctions or to withdraw NAFTA benefits if it
determines that the government against which a complaint was
filed persistently failed to enforce its environmental laws.
Without rules of procedure, no NAFTA member country can raise a
complaint under this section of the environmental agreement,
which was designed to help resolve disputes arising between
governments.
---------------------------------------------------------------------------
\26\ According to a U.S. Environmental Protection Agency official,
the NAFTA members expect to complete these rules by the end of 1997.

---------------------------------------------------------------------------
Implementation Progress and Issues

The environmental commission is credited with making some
progress in implementing the environmental agreement. However,
implementation issues involving the focus of the commission's
cooperative work programs, transparency of the enforcement
mechanisms, and the governments' commitment to the agreement
remain.
Progress on cooperation and participation. Officials we
spoke with at the U.S. and Canadian environmental agencies, as
well as at a Mexican nongovernmental organization, were
generally pleased with implementation of NAFTA's environmental
agreement. According to these officials, the agreement and its
commission provide the three countries an opportunity to
examine broader, regional environmental objectives and to
develop cooperative action plans on agreed-upon priorities.
Actions taken by the commission in implementing the
environmental agreement are listed in table 2.
Environmental officials in all three NAFTA countries also
commented on the increased level of public participation
achieved through the agreement. This is especially true in
Mexico, according to a Mexican expert we spoke with, who told
us that the agreement has given the Mexican government the
political will to strengthen its environmental laws and include
citizen input. Another Mexican environmental expert has stated
that the commission has been an important catalyst for
developing a more transparent regulatory process and ensuring a
more consistent application of environmental laws in Mexico.
Similar reactions were also expressed by some other
environmental experts reviewing implementation of the
environmental agreement. In a letter sent to the Council, an
independent panel of experts \27\ said that the environmental
agreement and the commission have done much to develop as an
important focus for environmental cooperation and dialogue in
North America.
---------------------------------------------------------------------------
\27\ The Commission for Environmental Cooperation Secretariat
convened a panel of experts in March 1997 to help it prepare for a
mandated internal evaluation. The trinational panel included a U.S.
Congressman and was chaired by the United Nations' chief advisor on
environmental issues.
---------------------------------------------------------------------------
Concerns about work programs and studies. Despite the
achievements acknowledged by government officials and experts,
some observers have raised concerns about the work undertaken
by the commission. For example, Mexican trade officials
stressed their concerns about both the process and content of
the work program. According to these officials, the commission
needs more transparent criteria for its selection and funding
of projects, and the Mexican government should have much more
input into the funding of projects earlier on in the process.
Furthermore, they believe that the commission is funding
several environmental projects that are duplicative of some
ongoing efforts to improve conditions along the U.S.-Mexico
border. The U.S. Environmental Protection Agency has raised
other concerns about the process used to determine the studies
undertaken by the commission. Specifically, an agency official
told us that the process used to determine whether or not to
prepare a study needs to be more transparent. Canadian trade
and environment officials did not express any concerns about
the commission's work programs or studies.
Concerns about the citizen submission process. Questions
regarding the consistency with which the citizen submission
process has been applied, the transparency of this process, and
the guidelines developed to implement it were raised by
officials we spoke with.
Mexican officials believe the environment
commission has been inconsistent in its handling of the cases
filed under the citizen submission process, showing more
flexibility towards some governments involved in cases than
others. Specifically, they are dissatisfied with the
application of the process in the Cozumel public harbor case
alleging Mexico's failure to effectively enforce its
environmental law.
Mexican environmental experts believe the
environment commission needs to increase the transparency of
the submission process. For example, they believe the submitter
should be allowed to review a draft of the factual record
prepared by the secretariat, as the government is allowed to
do, before it is finalized.
U.S. environmental officials are concerned that
the citizen submission guidelines currently allow the submitter
to withdraw a filing at will. Once the Secretariat receives
notification of the withdrawal, it is required to halt the
process of investigation. According to an official at the
Environmental Protection Agency, it was a mistake to include
such a provision in the guidelines because the process may be
halted at any stage regardless of the level of resources the
commission and the governments may have put into processing and
responding to the allegation. The official told us these
guidelines are currently being revised.
Concerns about an independent commission. A panel of
experts and officials at the environmental commission we spoke
with stressed the importance of improving the commission's
independence and its ability to autonomously decide to
undertake a study or a work program. Problems associated with
this issue arose during the annual program and budget review
process in which Mexican government officials withheld their
support and approval for a project to study the environmental
effects of NAFTA in certain sectors. Officials from Mexico
objected to the project because they believed the commission
had not adequately consulted them in the identification of the
sectors--energy and agriculture--to be studied. While support
for the project, referred to as the second phase of the NAFTA
Environmental Effects project, was eventually granted for the
remainder of 1997, its continuation beyond that was made
contingent upon a group of trade and environment officials from
each country recommending the terms of reference for future
work in this area.
Concerns about national commitment to the environmental
agreement. Experts, some government officials, and officials at
the commission's secretariat were concerned about what they
regard as a low level of national commitment to the
environmental agreement. A commission official we spoke with
commented that agencies responsible for implementation of the
NAFTA environmental agreement in both the United States and
Mexico have been constantly understaffed, which has had an
adverse impact on the agreement's implementation. For example,
Canadian officials told us that without an adequate level of
staff to implement the agreement in each country, marketing of
the agreement's strengths, its cooperative work efforts, and
its enforcement mechanisms suffer. Furthermore, officials we
spoke with said that it was surprising that, compared to Canada
and Mexico, the United States has consistently had the least
number of staff--one--assigned to oversee implementation.

Coverage and Results of the Labor Agreement

The North American Agreement on Labor Cooperation signed by
Canada, Mexico, and the United States in September 1993, went
into effect on January 1, 1994 along with NAFTA. The agreement
aims to improve working conditions and living standards in each
country, encourage exchange of information on and foster
transparency in the administration of labor law, and pursue
cooperative labor-related activities among the three countries.
The three governments have also committed themselves to promote
compliance with and effectively enforce (subject to domestic
law) 11 labor principles, including the freedom of association
and protection of the right to organize; the right to bargain
collectively and strike; minimum employment standards;
elimination of employment discrimination; equal pay for women
and men; and protection of migrant workers.
The labor agreement established the Commission for Labor
Cooperation in Dallas as a trinational organization responsible
for fostering cooperative labor-related activities and
performing independent evaluations. The commission was funded
in equal parts by the three countries at $1.8 million in 1996.
In addition, the labor agreement permits the parties to develop
a consultative system to address domestic labor-related issues.
This includes a dispute settlement mechanism to address lack of
enforcement by a party of certain labor law standards.

Cooperative Efforts

The commission, in order to meet its obligations to pursue
cooperative labor-related activities, has completed a number of
efforts since it went into operation in September 1995.
Examples include those listed in table 3:

Table 3--Commission for Labor Cooperation's Cooperative Efforts
------------------------------------------------------------------------
Selected areas of cooperation Recent examples
------------------------------------------------------------------------
Occupational safety and health............ North American Occupational
Safety and Health Week,
held June 1997
simultaneously in each
country
Completion of
``Petrochemical Study
Tour'' on prevention of
catastrophic explosions
(October 1996)
Human resource development................ Workshop on Continuous
Learning and Development in
the Workplace (April 1996)
Labor-management relations................ Tripartite conference on
``Industrial Relations for
the 21st Century'' (March
1996)
Productivity improvement.................. North American seminar on
incomes and productivity
Labor statistics.......................... Report profiling North
American labor markets
(June 1997)
------------------------------------------------------------------------

Enforcement

The labor agreement provides for a series of processes to
ensure the enforcement of each country's labor law, emphasizing
cooperation and consultation throughout the various steps. If a
person or group wishes to allege that one country has failed to
effectively enforce its labor laws, it may file a submission
with the National Administrative Office of another country. The
National Administrative Office receiving the submission may
then investigate the allegation, including holding public
hearings to gather information. Consultation with other
National Administrative Offices follows if the submission is
accepted. The Secretary of the National Administrative Office
receiving the submission may then recommend that ministerial
consultations take place on the subject. Depending on the
nature of the allegation, additional steps in the process could
include the formation of an evaluation committee of experts if
ministerial consultations have not resolved the issue, as well
as other cooperative and consultative steps.
If cooperative efforts to resolve problems fail, the labor
agreement provides a dispute settlement mechanism in three
instances where a submission involves an allegation of a
persistent pattern of failure to effectively enforce labor
rights: occupational safety and health, child labor, and
minimum wage technical labor standards. In such a case, an
arbitration panel may be formed to review the matter and make
recommendations for corrective action. Failure of one of the
parties to fully implement the panel's recommendations could
ultimately lead to a monetary sanction to be placed in a fund
to be used to improve or enhance labor law enforcement in the
non-conforming country.\28\ Failure to pay the monetary
sanction could result in suspension of NAFTA benefits.
---------------------------------------------------------------------------
\28\ The North American Agreement of Labor Cooperation provided for
a maximum monetary enforcement assessment of $20 million in 1994. In
subsequent years, this assessment can be no greater than 0.007 percent
of the total trade in goods between the parties during the most recent
year for which data are available.
---------------------------------------------------------------------------
Eight cases have been submitted since the establishment of
the National Administrative Offices. Seven have been submitted
to the U.S. National Administrative Office against Mexico, and
one has been submitted to Mexico's National Administrative
Office against the United States; none have involved Canada.
None of the cases submitted so far has fallen in a category of
labor principles that could ultimately qualify for dispute
settlement and sanctions.\29\ A more detailed description of
the submissions can be found in appendix VI.
---------------------------------------------------------------------------
\29\ The first seven cases all dealt with the labor principle of
freedom of association and the right to organize. Under the North
America Agreement on Labor Cooperation, cases of this sort are not
eligible for independent evaluation or arbitration. The most recent
case involves the labor principle of the elimination of employment
discrimination, which is eligible for independent evaluation, but not
arbitration.

---------------------------------------------------------------------------
Implementation Progress and Issues

The labor agreement is the first international agreement to
link labor issues to an international trade pact. Recent
efforts to link trade agreements and labor issues, building on
NAFTA, have proven to be very controversial. For example, at
the first ministerial meeting of the World Trade Organization
(WTO) at Singapore in December 1996, WTO members rejected a
U.S. proposal to create a working group to study the
relationship between trade and labor standards. Thus, while the
labor agreement is limited in its scope, according to some
critics, it remains a visible experiment in the linkage of
labor standards to international trade agreements.
Labor officials knowledgeable about the labor agreement in
each country told us that they believe that the agreement has
had a positive effect on increasing the level of understanding
about labor issues in North America--one of its major
objectives. Many of the activities associated with the
agreement have been focused on improving the level of
understanding of each country's labor system because, according
to one National Administrative Office Secretary, such
understanding has been woefully lacking in the past.
Personnel issues. Difficulty in hiring and retaining staff
has been identified as an impediment to the implementation of
the labor agreement. The National Administrative Offices in
each country went into operation in January 1994 at the same
time that NAFTA went into effect. At the first meeting of the
commission's Council in March 1994, labor ministers from each
country indicated they planned to hire an Executive Director by
June 1, 1994. However, the position was not filled until April
1995 due to difficulties in hiring a Canadian Executive
Director, according to commission officials. Because of this
delay, the commission's opening did not occur until September
1995, almost 2 years after the labor agreement went into
effect. In addition, turnover at both Mexico's National
Administrative Office and at the labor commission has disturbed
the continuity of operations, according to U.S. and Canadian
officials. Finally, disparate national treatment in the
application of personal taxes for employees at the commission
has resulted in different net salaries for each nationality,
and has negatively affected both recruiting efforts and morale,
according to commission officials.
Budgetary issues. Funding levels for the commission have
also been raised as a concern related to the effectiveness of
the commission. The NAFTA Implementation Act authorized a U.S.
contribution to the commission of $2 million for each of fiscal
years 1994 and 1995. Since the burden of funding the commission
must be borne equally by each country, this indicated a
potential annual commission funding level of $6 million.
However, the actual annual commission budget for the past
several years has been $1.8 million (U.S. contribution
totalling $600,000). A commission official explained that by
the time the commission was ready to be funded, Mexico had
entered into its financial crisis and requested a temporary
funding limit on the commission of $600,000 per country.
The funding limitations are causing concern on the part of
some observers that the commission does not have adequate
resources to meet its obligations. The Director of the Mexico
National Administrative Office told us that while the
commission has requested a budget raise from its Secretariat,
the Mexican government has decided not to authorize an increase
until it has had an opportunity to examine the commission's
annual work plan. Commission officials told us that the
Canadian government has already appropriated $1 million for its
share of the budget and is diverting 40 percent of it to
support NAFTA environment efforts to remain in compliance with
labor agreement provisions that no country contribute more than
any other to support the commission.
Thank you Mr. Chairman, this concludes our prepared
remarks. We will be happy to answer any questions you or
Members of the Subcommittee may have.

APPENDIX I--SELECTED STATISTICS ON NAFTA MEMBER COUNTRIES
----------------------------------------------------------------------------------------------------------------
United States Canada Mexico
----------------------------------------------------------------------------------------------------------------
Population (1995, in millions).................................. 263 30 92
Per capita GNP (1995, PPP dollars) ^a............................ $26,980 $21,130 $6,400
Average annual growth rate of real per capita GNP, 1985-95 1.4 0.4 0.1
(percent)......................................................
Average annual inflation rate, 1985-95 (percent)................ 3.2 2.9 36.7
Investment as a percent of GDP, 1995............................ 16 19 15
Exports to U.S. as a percent of total exports, 1995............. .............. 80 84
Total trade as a percent of GDP, 1995 ^b......................... 24 71 48
----------------------------------------------------------------------------------------------------------------
Legend:

GDP = gross domestic product
GNP = gross national product
PPP = purchasing power parity
^a Purchasing power parity is defined as the number of units of a country's currency required to buy the same
amounts of goods and services in the domestic market as US $1 would buy in the United States.
^b Total trade share in GDP equals exports and imports of goods and services as a percentage of gross domestic
product.
Source: World Bank Atlas, 1997.

APPENDIX II--MERCHANDISE TRADE RELATIONSHIP BETWEEN NAFTA MEMBERS, 1991-93 AND 1994-96
----------------------------------------------------------------------------------------------------------------
Annual average Annual average growth rate
-------------------------------- (percent)
-------------------------------
1991-93 1994-96 1991-93 1994-96
----------------------------------------------------------------------------------------------------------------
U.S. exports to:
Canada........................................ $91.8 $124.3 6.5 9.8
Mexico........................................ 38.5 51.0 13.9 12.1
Canada and Mexico............................. 130.3 175.3 8.4 10.2
World--excluding Canada and Mexico............ 314.5 397.3 4.7 10.4
U.S. imports from:
Canada........................................ $102.9 $146.7 6.7 12.1
Mexico........................................ 36.2 62.4 9.9 22.1
Canada and Mexico............................. 139.1 209.1 7.5 14.9
World--excluding Canada and Mexico............ 414.9 550.3 4.4 9.5
U.S. total trade with:
Canada........................................ $194.7 $271.0 6.6 11.0
Mexico........................................ 74.7 113.4 11.7 16.9
Canada and Mexico............................. 269.4 384.4 7.9 12.7
World--excluding Canada and Mexico............ 729.4 947.6 4.5 9.8
----------------------------------------------------------------------------------------------------------------
Source: International Monetary Fund, Direction of Trade Statistics, 1997.

[GRAPHIC] [TIFF OMITTED] T1944.004

Appendix IV

NAFTA Dispute Cases

NAFTA chapters 19, 20, and 11, respectively, deal with the
three primary areas in which disputes can arise--unfair trade
practices, the interpretation and application of NAFTA, and the
protection of investor rights. In the 3\1/2\ years since
NAFTA's implementation, dispute cases have arisen in all three
areas. A brief description of the three chapters' provisions
and information about the dispute cases initiated to date are
provided in the following paragraphs.

Chapter 19

Chapter 19 lays out the system for the review of
antidumping and countervailing duty final determinations made
by the domestic agency of the importing country in the
dispute.\3\ Chapter 19 replaces domestic judicial review of
those final administrative determinations with binational \31\
panel review. Five-member binational panels of experts chosen
from rosters developed by each of the three signatories review
the determinations and issue final decisions. Panels apply the
law of the country whose agency is under review. These panels
usually consist of lawyers, sitting or retired judges, former
government officials, noted academics, and others who
specialize in trade dispute settlement and international
affairs. Panels may either uphold a determination or remand
\32\ it to the investigating authority. The panel's decision on
the case is final and binding and cannot be appealed in the
domestic courts. In certain extraordinary circumstances, such
as the gross misconduct of a panel member, a party involved in
a chapter 19 dispute can request that a final panel decision be
reviewed by an Extraordinary Challenge Committee. Table IV.1
provides information on the chapter 19 NAFTA dispute settlement
cases for which there were final panel decisions.
---------------------------------------------------------------------------
\30\ Antidumping and countervailing duty laws in the United States
are administered jointly by the U.S. International Trade Commission and
the U.S. Department of Commerce, and in Canada and Mexico respectively
by Revenue Canada and SECOFI (Subsecretaria de Negociaciones
Comerciales Internacionales.)
Dumping is the sale of commodities in a foreign market at a price
that is lower than the price or value of comparable commodities in the
country of origin. A countervailing duty is a U.S. government fee on
goods imported into the United States in an amount equal to any subsidy
provided with respect to manufacture, production, or export of those
goods by a government of another country.
\31\ Panels are binational because they are comprised of members
from the country of the petitioning party and the responding party in
the case.
\32\ A remand is a court or panel decision returning a
determination to an agency for further action. Remands can request that
agencies explain determinations, provide more information, or make
corrections.
---------------------------------------------------------------------------

[GRAPHIC] [TIFF OMITTED] T1944.005

Appendix IV

Chapter 20

Chapter 20 establishes NAFTA's procedures for settling
disputes between the signatory governments regarding NAFTA's
interpretation and application. Chapter 20's dispute settlement
provides for (1) consultations between disputing parties to
resolve their disagreement and, if that fails, referral of the
dispute to the Free Trade Commission; (2) referral of the
dispute to a panel of independent experts; (3) dissemination of
panel findings and recommendations; (4) resolution of the
dispute through nonimplementation or removal of the
nonconforming measure; and (5) suspension of application of
benefits by the complaining party if agreement on resolution to
the dispute cannot be reached. Chapter 20 panels are chosen
from a roster of experts agreed upon by the three signatories.
Table IV.2 provides information on the chapter 20 disputes
initiated under NAFTA.

Table IV.2--NAFTA Chapter 20 Dispute Cases Through August 1997
----------------------------------------------------------------------------------------------------------------
Petitioner Respondent Subject of dispute Status
----------------------------------------------------------------------------------------------------------------
United States........................ Canada................. Tariffs applied by Final panel decision to
Canada to certain U.S.- maintain Canadian
origin agricultural tariffs, issued
goods. December 2, 1997
United States........................ Mexico................. Retaliatory action in Prepanel consultations
response to U.S. ongoing
safeguard action on
broomcorn brooms.
United States........................ Mexico................. Small parcel delivery Prepanel consultations
(UPS). ongoing
Mexico............................... United States.......... U.S. Customs Prepanel consultations
classifications of ongoing
limes imported from
Mexico.
Mexico............................... United States.......... Requests for Prepanel consultations
designation of deferred pending
Mexicali valley as discussions with USDA
disease-free area.
Canada............................... United States.......... The U.S. Sugar Prepanel consultations
Containing Products Re- ongoing
export Program.
Mexico............................... United States.......... U.S. International Chapter 20 panel
Trade Commission established on January
serious injury 14, 1997, and is in
determination on the process of
broomcorn brooms. reaching a decision
Mexico and Canada.................... United States.......... Titles III and IV of Prepanel consultations
the Helms-Burton Act. in April/May 1996
under NAFTA chapter
20. WTO (World Trade
Organization) dispute
settlement panel
established through
European Union (EU)
protest in November
1996. EU/U.S.
agreement in April
1997 to suspend WTO
panel until October
15, 1997. EU/U.S.
talks ongoing
Mexico............................... United States.......... Implementation of NAFTA Prepanel consultations
provisions on trucking. ongoing
----------------------------------------------------------------------------------------------------------------
Legend:

USDA = U.S. Department of Agriculture
Source: Office of the United States Trade Representative.

Appendix IV

Chapter 11

NAFTA is unique among trade agreements because, under
chapter 11, it contains a comprehensive regime for settling
disputes between foreign investors and host governments.
International trade agreements have generally concentrated on
removing government barriers to trade in goods and services and
not on resolving disputes between private parties or regarding
investment issues. Chapter 11 makes investor-state disputes
subject to binding arbitration for monetary compensation. If a
dispute is not resolved through consultations, the investor may
seek arbitration through a World Bank facility or through ad
hoc proceedings under United Nations arbitration rules. Table
IV.3 shows the status of the chapter 11 cases brought forward
under NAFTA.

Table IV.3--Complaints Filed under NAFTA's Chapter 11 Investor-State Arbitration Clause Through August 1997
----------------------------------------------------------------------------------------------------------------
Petitioner Respondent Subject of dispute Status
----------------------------------------------------------------------------------------------------------------
Metalclad Corporation (U.S. company). Mexican government..... Mexico's expropriation Three-member
of Metalclad's arbitration panel
hazardous waste formed and convened
landfill in the
community of
Guadalcazar, Mexico,
in the state of San
Luis Potosi.
Desechos Solidos de Naucalpan (U.S. Mexican government..... Mexico's nullification A panel is being formed
company). of an agreement to
manage solid waste in
the state of Mexico.
----------------------------------------------------------------------------------------------------------------
Source: Office of the United States Trade Representative.

[GRAPHIC] [TIFF OMITTED] T1944.006

[GRAPHIC] [TIFF OMITTED] T1944.007

[GRAPHIC] [TIFF OMITTED] T1944.008

[GRAPHIC] [TIFF OMITTED] T1944.009

Related GAO Products

Trade Liberalization: Western Hemisphere Trade Issues Confronting
the United States (GAO/NSIAD-97-119, July 21, 1997).
Commercial Trucking: Safety Concerns About Mexican Trucks Remain
Even as Inspection Activity Increases (GAO/RCED-97-68, Apr. 9, 1997).
International Environment: Environmental Infrastructure Needs in
the U.S.-Mexican Border Region Remain Unmet (GAO/RCED-96-179, July 22,
1996).
Commercial Trucking: Safety and Infrastructure Issues Under the
North American Free Trade Agreement (GAO/RCED-96-61, Feb. 29, 1996).
Mexico's Financial Crisis: Origins, Awareness, Assistance, and
Efforts to Recover (GAO/GGD-96-56, Feb. 23, 1996).
U.S.-Canada Free Trade Agreement, Factors Contributing to
Controversy in Appeals of Trade Remedy Cases to Binational Panels (GAO/
GGD-95-175BR, June 16, 1995).
Dislocated Workers: An Early Look at the NAFTA Transitional
Adjustment Assistance Program (GAO/HEHS-95-31, Nov. 18, 1994).
NAFTA: Structure and Status of Implementing Organizations (GAO/GGD-
95-10BR, Oct. 7, 1994).
Dislocated Workers: Proposed Re-employment Assistance Program (GAO/
HRD-94-61, Nov. 12, 1993).
Dislocated Workers: Trade Adjustment Assistance Program Flawed
(GAO/T-HRD-94-4, Oct. 19, 1993).
North American Free Trade Agreement: Assessment of Major Issues
(GAO/GGD-93-137, Sept. 9, 1993, 2 vols.).
U.S.-Mexico Trade: The Maquiladora Industry and U.S. Employment
(GAO/GGD-93-129, July 20, 1993).
NAFTA: Issues Related to Textile/Apparel and Auto and Auto Parts
Industries (GAO/T-GGD-93-27, May 5, 1993).
U.S. Trade Data: Limitations of U.S. Statistics on Trade with
Mexico (GAO/GGD-93-25, Apr. 28, 1993).
CFTA/NAFTA: Agricultural Safeguards (GAO/GGD-93-14R, Mar. 18,
1993).
Pesticides: U.S. and Mexican Fruit and Vegetable Pesticide Programs
Differ (GAO-T-RCED-93-9, Feb. 18, 1993).
U.S.-Canada Trade (GAO-GGD-93-10R, Dec. 12, 1992).
Dislocated Workers: Improvements Needed in Trade Adjustment
Assistance Certification Process (GAO/HRD-93-36, Oct. 19, 1992).
International Trade: Implementation of the U.S.-Canada Free Trade
Agreement (GAO/GGD-93-21, Oct. 10, 1992).
North American Free Trade Agreement: U.S.-Mexican Trade and
Investment Data (GAO/GGD-92-131, Sept. 25, 1992).
Dislocated Workers: Comparison of Assistance Programs (GAO/HRD-92-
153BR, Sept. 10, 1992).
U.S.-Mexico Trade: Assessment of Mexico's Environmental Controls
for New Companies (GAO/GGD-92-113, Aug. 3, 1992).
Pesticides: Comparison of U.S. and Mexican Pesticide Standards and
Enforcement (GAO/RCED-92-140, June 17, 1992).
Mexican Oil: Issues Affecting Potential U.S. Trade and Investment
(GAO/NSIAD-92-169, Mar. 18, 1992).

Chairman Crane. Thank you, JayEtta.
Mr. Weintraub.

STATEMENT OF SIDNEY WEINTRAUB, WILLIAM E. SIMON CHAIR IN
POLITICAL ECONOMY, CENTER FOR STRATEGIC AND INTERNATIONAL
STUDIES

Mr. Weintraub. Thank you, Mr. Chairman. I'm pleased to be
here. I'm pleased to be able to make this statement.
I am going to focus on one issue, and this has to do with
the job situation in the United States because the principal
criticism made against NAFTA has been in the area of jobs. If
you want to explore other areas, and if we have time later, I'd
be quite pleased to do so.
I will start out with the comment that really the most
salient, most important, economic fact of the current situation
in the United States is the remarkably low level of
unemployment in the country. We've had steady economic growth
now going into its seventh year, and an astounding level of job
creation, in the neighborhood of 2.5 million jobs a year, and
this is being done with very low inflation.
I don't think we've discovered the elixir of indefinite
growth without inflation. I think problems will arise, but
right now, even the most dire pessimists who follow the U.S.
economy must admit that we are more or less at full employment
in the United States.
Please consider what full employment means. It means that
the United States cannot create any significant number of new
jobs without stimulating higher inflation. It means, for the
economy as a whole, we are not losing jobs as a result of trade
because the country is creating as many jobs as there are
takers without stimulating inflation. For the country as a
whole, there cannot have been hundreds of thousands of job
losses from NAFTA; we wouldn't be at full employment if there
had been.
I want to repeat this over and over again because every
time the major critics of NAFTA point to job losses in the
overall economy, they should be challenged on the basis of
credibility, given the situation that exists in the United
States. Now, as Ms. Hecker said, NAFTA doesn't deserve the
credit for this any more than any other single factor. Our job-
creating engine has been the U.S. macroeconomy. This has been
what has been leading to job creation. Regarding NAFTA--I don't
know what the numbers are and how many jobs may have been lost
as a result of some of that trade, how many have been created.
I agree with Ms. Hecker that the methodologies for calculating
this are weak, but the figures on either job creation or job
loss from NAFTA are not terribly great compared to what the
U.S. economy accomplishes.
If the protectionists had their way, if higher barriers
were put on imports from Mexico and other countries, this would
actually compromise the ability to create all these new jobs
without inflation. A tariff or a quota is a tax on consumption,
and this would surely have an adverse effect on the price
level. If this happened, the Federal Reserve would have to take
action to deal with that kind of problem. I guess my point is
that one of the surest ways to kill the goose that lays the
golden egg of job creation is to tax the job-creating
conditions out of existence by higher import barriers.
Let me conclude with one point, that I hope I'm not being
misinterpreted. I am not saying that individuals in individual
communities have not lost jobs as a result of imports. There
are also people who have gained jobs as a result of exports.
I'm saying that the country as a whole has not lost jobs as a
result of the NAFTA, and the fact that we're at full employment
makes this clear.
I think we owe those who are hurt in the process of
increased imports, or as a result of changes that take place
within the domestic economy, some form of meaningful
assistance, but this is a different kind of job loss from what
the economy as a whole has been accomplishing.
One final point that I'd like to make: Our neighborhood is
really quite important to us, and our neighborhood is Mexico
and Canada. Our exports to Mexico and Canada combined are
larger, are greater, than our exports to all of Europe. If our
neighborhood were not prosperous, this would not take place.
Mexico a few years ago, in 1995, went through perhaps the worst
depression in its modern history. It recovered in 1 year. In
the last quarter, the GDP growth rate was 8 percent. In other
words, I think Mexico is now following a policy that can help
it and help our neighborhood as a whole, and I hope we realize
that this is in our interest, as well as Mexico's.
Thank you.
[The prepared statement follows:]

Statement of Sidney Weintraub, William E. Simon Chair in Political
Economy, Center for Strategic and International Studies

The Operation and Effects of NAFTA

I am pleased to be able to give this testimony on the
effects of NAFTA a little more than three and one-half years
into its existence because it provides an opportunity to set
the record straight on perhaps the most important issue that
concerns the U.S. public. This is the effect of NAFTA on
overall U.S. employment.
Before I get into the main and really only theme of this
statement, I wish to comment on a few important misconceptions
that have become accepted wisdom about NAFTA's effects.
1. Public opinion polls indicate that there is a pervasive
feeling among the majority of the U.S. public that there is
little benefit for the United States in cementing close trade
relations with developing countries. In point of fact, the
fastest growing U.S. markets are in developing countries. My
purpose here is not to discuss the proposed Free Trade Area of
the Americas, but the most rapid growth of U.S. exports is in
the Western Hemisphere.
2. With respect to Mexico in particular, the contention of
opponents of NAFTA is that the country is too poor and its
income too unequal for it ever to become an important market
for U.S. exports. Mexico, in fact, has this year become the
second most important market for U.S. exports after Canada.
3. We are told by opponents of free trade with developing
countries that this will result inevitably in U.S. trade
deficits with those countries because their wages are so much
lower than in the United States. Our largest bilateral trade
deficits are with Japan and Canada, each a high-wage,
industrialized country; and with China and Mexico, both much
lower-wage, underdeveloped countries. It is evident to anybody
prepared to scan the world for U.S. trade performance that
there is no clear picture of U.S. exports to and imports from
individual countries based solely on wage levels. Trade levels,
both imports and exports, depend on so many things that
singling out wages as the explanatory factor is simply wrong-
headed.
Why do these unfounded perceptions persist? There are two
solid reasons. The first is that there has been a steady, anti-
trade drumbeat by opponents of open markets. The second has
been the unwillingness of many of our political leaders, from
both parties, to speak out against protectionism. I hope this
will change, stimulated by the work of this subcommittee.
Now to my main theme.
Perhaps the most salient single economic fact of the
current situation in the United States is the remarkably low
level of unemployment. This has resulted from steady economic
growth coupled with an astounding level of job creation. This
is being accomplished with low inflation. I am not one who
believes that we have discovered the utopia of ending economic
ups and downs, or that we will grow indefinitely without
inflation. But even the most dire pessimists must admit that
the United States is now at full employment.
Please consider what full employment means. This means that
we cannot create any significant number of new jobs without
stimulating higher inflation. It means that we are not losing
jobs as a result of trade because the country is creating as
many jobs as there are takers without stimulating inflation.
This gives the lie to those who assert that NAFTA has resulted
in hundreds of thousands of job losses. NAFTA could not have
done this because the country is at full employment. I want to
repeat this simple truth over and over again so that each time
some critic of open trade talks about job losses, a direct
challenge to his or her credibility is forthcoming.
NAFTA obviously does not deserve the credit for the two and
one-million or so jobs that have been created each year since
it came into effect. This was accomplished by the job-creating
power of the prosperous U.S. economy.
I have no doubt that if the protectionists have their way,
if higher barriers are put on imports from Mexico and other
countries, this would compromise the ability to create all
these new jobs without stimulating inflation. A tariff is a tax
on consumption and this surely would have its adverse effect on
the price level. If this happened, the Federal Reserve would
have to take action to restrict growth, presumably by raising
interest rates. One of the surest ways to kill the goose that
lays the golden egg of job creation is to tax the job-creating
conditions out of existence by higher tariffs and import
barriers.
I hope that those who listen to or read this testimony
including the media do not misinterpret what I am saying. My
point is that the country as a whole cannot have lost jobs as a
result of NAFTA. The existence of full employment is conclusive
evidence of this. Individuals may have lost jobs because of a
host of causes, such as increased imports, the shift in
production from one part of the country to another or out of
the country, changes in technology that disadvantage persons
who do not have the needed skills. But many more jobs are being
created than are being lost and employment cannot increase
significantly for the nation as a whole without stimulating
inflation. I think we owe those who are hurt in this process,
those who do lose whether from imports or changes taking place
within the domestic economy, some form of meaningful
assistance. This kind of job loss that should be dealt with by
special adjustment assistance is quite different from arguing
that protectionism is the way to sustain jobs or create new
ones for the country as a whole.
My view is that NAFTA has worked remarkably well since its
inception. Mexico faced a horrible period in 1995 for reasons
unrelated to NAFTA, but its recovery has been both rapid and
robust. NAFTA made it necessary for Mexico to deal with its
problems by means other than import restrictions and this is
one reason for the rapid recovery. The ability to export to the
U.S. market when its domestic market dried up permitted the
economic turnaround to take place. Mexico last year grew by
more than 5 percent. Its gross domestic product is growing even
faster this year. So, too, are U.S. exports to Mexico growing
as a consequence of its rapid recovery.
Our neighborhood is important to us. Our northern neighbor,
Canada, is far and away the largest market for U.S. exports.
Mexico, which has long been our third largest market after
Canada and Jahigh economic growth is sucking in U.S. imports.
We export more merchandise to our two NAFTA partners than we do
to all of Europe. This situation can continue as long as our
two neighbors prosper, and NAFTA contributes to this
prosperity.

Sidney Weintraub holds the William E. Simon Chair in Political
Economy at the Center for Strategic and International Studies
in Washington, D.C.

Mr. Camp [presiding]. Thank you very much.
Mr. Sweeney.

STATEMENT OF JOHN P. SWEENEY, POLICY ANALYST, INTERNATIONAL
TRADE AND INTER-AMERICAN ISSUES, HERITAGE FOUNDATION

Mr. Jack Sweeney. Thank you for the invitation to appear
here today. It's a pleasure to speak about NAFTA.
It's interesting that for the past 4 years there has been a
steady barrage of criticism against NAFTA. It has become the
``betten noir'' of free trade, a thing everybody focuses on
when trying to attack trade agreements and the benefits they
bring to the American economy. And, yet, the data compiled
during NAFTA's first 3 years clearly shows that the attacks
against NAFTA are based on faulty premises that the data simply
do not support.
Despite the doomsday warnings about what would happen under
NAFTA, hundreds of thousands of U.S. jobs have not been
destroyed. The U.S. manufacturing base has not been weakened,
and U.S. sovereignty has not been undermined. Instead, total
NAFTA trade has increased; U.S. exports and employment levels
have risen significantly since 1992, and the average living
standards of American workers have also improved.
Much more can be done in terms of improving NAFTA and its
commercial aspects, and in terms of building a better
relationship with Mexico, but NAFTA has been instrumental in
the strides Mexico has made in liberalizing its economy, and
it's one of the reasons, a very good reason, why Mexico is
taking more effective steps to reform its political system.
Under NAFTA, total North American trade has increased
significantly, gaining $127 billion or 43 percent during
NAFTA's first 3 years alone. If that gain had been with a
single country, it would make that country the fourth largest
trading partner of the United States.
Moreover, repeating what Sidney said previously, in 1996
United States exports to Canada and Mexico totaling $190
billion exceeded United States exports to any other area of the
world, including the entire Pacific rim and all of Europe.
Today, Mexico and Canada purchase $3 out of every $10 of
exports the United States realizes and supplies $3 out of every
$10 of the imports that the United States effects.
United States exports to both Mexico and Canada have grown
impressively since 1993. In the testimony that I submitted for
the written record, I attached some tables, state-by-state
exports, that we're using basically as worksheets at the
foundation, where we're studying the state-by-state effect of
trade. These are quoted in thousands of nominal dollars. They
haven't been adjusted for inflation, but, basically, the data
supports our contention that NAFTA has benefited the majority
of America's 50 States.
Moreover, if you look at the gain in trade from America to
Canada, and you keep in mind that the United States-Canada Free
Trade Agreement has been in effect since 1988, and, therefore,
has been in existence longer than NAFTA per se, I think the
future augers well for increased trade with the United States
and Mexico. In fact, even though 39 out of 50 States reported
increases during NAFTA's first 3 years, increases in exports to
Mexico, in 1996, 44 out of 50 States reported an increase in
exports to Mexico.
Now touching on the issue of jobs, I think NAFTA has
shattered the myth that U.S. trade deficits destroy U.S. jobs.
This is one of the enduring and most destructive myths in the
American trade debate. It simply isn't true. As my colleague
here said, employment in this country is measured by
macroeconomic results, macroeconomic issues, mostly monetary
policy, not by whether we export more or import more.
And if you look at the combined United States trade deficit
with Canada and Mexico during the first 3 years of NAFTA's
implementation, it increased from $9 billion in 1992 to nearly
$40 billion in 1996, and yet during this period the United
States economy created 12 million net new jobs, more than any
other economy in the world, more than the entire European Union
put together. Moreover, manufacturing employment grew from 16.9
million in 1992 to 18.3 million in 1993, an increase of 1.4
million net new jobs after more than 15 years of steady
decline.
The living standards of American workers have improved. One
review of pre- and post-NAFTA growth rates in U.S. standards of
living shows that the rate of increase in personal wealth has
more than tripled since NAFTA was implemented. Now is this
because of NAFTA? No, as Sidney said, I don't think we can
attribute it exclusively to a single trade agreement, but
certainly under NAFTA, under the WTO, under the trade
liberalization and export growth that we've enjoyed, we've seen
the living standards of American consumers, families and
workers, improve. We have measured this in terms of inflation
adjusted gross domestic product per capita. We've seen it
measured in disposable personal income growth and in personal
consumption expenditures. And in all three, the rate of growth
has more than tripled since 1993 compared to the previous 3-
year period.
Therefore, the data on trade, production, and employment
growth for NAFTA's first 3 years quantify objectively that
NAFTA is good for the United States. Congress should have no
doubts about the success of NAFTA. Although it is only 3 years
old, this international trade agreement is growing with amazing
speed. Even though 3 years may seem like too little time to
reach any final judgments about NAFTA, it is fairly clear that
critics of this agreement have been wrong on all counts.
Congress will be acting in the U.S. national interest, and
in the interest of the American people, when it approves a new
fast track negotiating authority, so that President Clinton can
put U.S. trade policy back on track around the world.
Thank you.
[The prepared statement and attachments follow:]

Statement of John P. Sweeney, Policy Analyst, International Trade and
Latin American Issues, Heritage Foundation

In July, the Clinton Administration provided Congress with
a report on the first three years of implementation of the
NAFTA. The Administration claimed in this report that NAFTA has
had ``a modest positive effect on U.S. net exports, income,
investment, and jobs supported by exports.'' One cannot help
but wonder if the Administration's decision to downplay the
impressive results of NAFTA's first three years is due in some
measure to the fact that the president painted himself into a
corner in 1993 by making outlandish claims about the number of
U.S. jobs that NAFTA allegedly would create almost immediately.
For over four years now, protectionists, nativists and
other critics of free trade have maintained a barrage of
attacks against NAFTA. The data compiled during NAFTA's first
three years clearly shows that the attacks against NAFTA are
based on falsehoods. Despite the doomsday warnings about what
would happen under NAFTA, hundreds of thousands of U.S. jobs
have not been destroyed, the U.S. manufacturing base has not
been weakened, and U.S. sovereignty has not been undermined.
Instead, total NAFTA trade has increased, U.S. exports and
employment levels have risen significantly, and the average
living standards of American workers have improved.
Indeed, if NAFTA were to be graded on its effects after
only three years, it would receive an ``A+'' for enhancing the
level of trade between the United States and its North American
neighbors; an ``A+'' for increasing the number of U.S. jobs
that support this increased trade; an ``A+'' for its positive
impact on manufacturing and on the personal income of American
workers; and a ``B'' both for encouraging U.S. compliance with
implementation of NAFTA's deadlines and for improving U.S.
relations with Mexico in general.
Finally, although much more can be done, NAFTA has been
instrumental in the strides Mexico has made in liberalizing its
economy, and is one reason Mexico is taking steps to reform its
political system. With this kind of report card, Congress
should have no doubts about the success that NAFTA has
achieved.
Total North American trade has increased significantly
under NAFTA, from $293 billion in 1993 to $420 billion in 1996,
a gain of $127 billion or 43 percent during NAFTA's first three
years.\1\
---------------------------------------------------------------------------
\1\ In 1996, U.S. global trade (exports plus imports) totaled
$1.765 trillion--over 23 percent of U.S. GDP, compared with 10 percent
in 1970. The Office of the U.S. Trade Representative (USTR) has
estimated that by 2010, trade will represent about 36 percent of U.S.
GDP. Since 1988, almost 70 percent of U.S. economic growth has been
derived solely from exports (roughly 25 percent since 1992). More than
11 million U.S. jobs depend on exports, 1.5 million more than in 1992;
20 percent of American jobs are supported by trade and pay between 13
percent and 16 percent more, on average, than non-export jobs.
---------------------------------------------------------------------------
If that gain had been with a single country, it would have
made that country the fourth-largest trading partner of the
United States. In 1996, U.S. exports to Canada and Mexico, at
$190 billion, exceeded U.S. exports to any other area of the
world, including the entire Pacific Rim or all of Europe.
Mexico and Canada purchased $3 of every $10 in U.S. exports and
supplied $3 of every $10 in U.S. imports in 1996. Overall,
total U.S. exports of goods and services grew from $602.5
billion in 1993--the last year before NAFTA was implemented--to
$825.9 billion in 1996, a gain of $223.4 billion.\2\
---------------------------------------------------------------------------
\2\ The U.S. Department of Commerce estimates that every $1 billion
increment in U.S. exports creates 22,800 new jobs in the United States.
This would mean that U.S. export growth from 1993 to 1996 was
responsible for creating over 5 million U.S. jobs, or 57.7 percent of
the 8.8 million net new payroll jobs created by the U.S. economy during
this three-year period.
---------------------------------------------------------------------------
U.S. exports to both Mexico and Canada have grown
impressively since 1993. Thanks to NAFTA, Mexican tariffs--
which had averaged 10 percent before the trade agreement was
implemented--now average less than 6 percent, while average
U.S. tariffs have fallen from 4 percent to about 2.5 percent.
As a result, U.S. exports to Mexico grew by 37 percent from
1993 to 1996, reaching a record $57 billion.\3\ During this
period, U.S. exports to Canada also increased by 33 percent, to
$134 billion. Total two-way trade between the United States and
Canada was $290 billion in 1996, while total two-way trade
between the United States and Mexico was nearly $130 billion.
According to the U.S. Department of Commerce, U.S. exports to
Mexico in the fourth quarter of 1996 were growing at an
annualized rate of $64 billion. Moreover, U.S. market share in
Mexico increased from 69 percent of total Mexican imports in
1993 to 76 percent in 1996.\4\ During NAFTA's first three
years, 39 of the 50 states increased their exports to Mexico;
moreover, 44 states reported a growth in exports to Mexico
during 1996 as the pace of U.S. exports to that country
accelerated.\5\
---------------------------------------------------------------------------
\3\ Exports of U.S. components to Mexico's duty-free component
assembly industry made up approximately 28 percent of total U.S.
exports to Mexico in 1996, according to a report for the USTR by the
U.S. International Trade Commission (ITC). The ITC found that the use
of U.S. components in Mexican assembly plants had grown at an average
yearly rate of 15.8 percent since NAFTA was implemented in 1994.
\4\ Testimony of Regina Vargo, Deputy Assistant Secretary for the
Western Hemisphere, U.S. Department of Commerce, before the
Subcommittee on International Economic Policy and Trade of the House
Committee on International Relations, March 5, 1997.
\5\ Data from Massachusetts Institute of Social and Economic
Research.
---------------------------------------------------------------------------
NAFTA has shattered the myth that U.S. trade deficits
destroy U.S. jobs. The combined U.S. trade deficit with Canada
and Mexico increased during the first three years of NAFTA's
implementation--from $9 billion in 1992 to $39.9 billion in
1996--because Canada and Mexico suffered economic recessions.
Since 1992, however, the U.S. economy has created 12 million
net new jobs. Moreover, manufacturing employment grew from 16.9
million jobs in 1992 to 18.3 million in 1993, an increase of
1.4 million net new jobs.\6\ The general unemployment rate
declined from 7.5 percent in 1992 to 5.3 percent in 1996, and
has continued falling to about 4.9 percent today. U.S. exports
to NAFTA countries currently support about 2.3 million U.S.
jobs.\7\
---------------------------------------------------------------------------
\6\ As of February 24, 1997, 110,408 U.S. workers had been
certified as eligible for training assistance under NAFTA's Trade
Adjustment Assistance Program, administered by the U.S. Department of
Labor. The U.S. economy, however, currently creates this many net new
jobs in about two weeks. The general U.S. unemployment rate declined
from 7.5 percent in 1992 to 5.3 percent in 1996.
\7\ Office of the USTR, ``NAFTA and Jobs,'' 1996.
---------------------------------------------------------------------------
U.S. manufacturing output has increased at a faster pace
since 1992. The largest post-NAFTA gains in U.S. exports to
Mexico have been in such high-technology manufacturing sectors
as transportation and electronic equipment, industrial
machinery, plastics and rubber, fabricated metal products, and
chemicals.\8\ NAFTA also has been a boon for major U.S.
agricultural states like Montana, Nebraska, and North Dakota,
and traditional southern textile states like North Carolina and
Alabama. NAFTA has encouraged U.S. and foreign investors with
apparel and footwear factories in Asia to relocate their
production operations to Mexico. This diversion of investment
from Asia to Mexico ``saved the heavier end of clothing
manufacture in the U.S.: the textile mills,'' as Rich Nadler, a
journalist who has covered NAFTA's progress since 1992,
recently observed.\9\
---------------------------------------------------------------------------
\8\ Since 1992, U.S. industrial production has increased 18
percent. During this four-year period, U.S. manufactured exports
increased 42 percent, high-technology exports rose 45 percent, services
exports were up 26 percent, and agricultural exports expanded 40
percent. The Western Hemisphere and the Asian Pacific Rim now account
for over 709 percent of total U.S. exports, up from 65 percent in 1992.
\9\ Rich Nadler, ``NAFTA: Jobs, Jobs, Jobs,'' K. C. Jones, Overland
Park, Kansas, April 1997.
---------------------------------------------------------------------------
The living standards of American workers have improved. One
review of pre-and post-NAFTA growth rates in U.S. standards of
living shows that the rate of increase in personal wealth has
more than tripled since NAFTA was implemented.\10\ This review
measured the improvement in three ways: (1) inflation-adjusted
gross domestic product (GDP) per capita grew by 1.79 percent
annually in 1994 and 1995, compared with only 0.23 percent from
1990 to 1993; (2) disposable personal income growth, adjusted
for inflation, averaged 1.89 percent annually in 1994 and 1995,
compared with 0.25 percent annually from 1990 to 1993; and (3)
personal consumption expenditures grew by an inflation-adjusted
1.76 percent annually during 1994 and 1995, compared with 0.56
percent a year from 1990 to 1993.
---------------------------------------------------------------------------
\10\ Ibid.
---------------------------------------------------------------------------

NAFTA: A Success by Any Objective Standard

The data on trade, production, and employment growth for
NAFTA's first three years quantify objectively that NAFTA is
good for the United States. Moreover, a recent economic
analysis published by the U.S. Federal Reserve Bank of Chicago
concludes that NAFTA will lead to output gains for all three
participant countries.\11\ These gains are roughly twice as
large as those predicted by previous forecasts of NAFTA's
potential for accelerated growth in North American trade,
output, and employment growth.
---------------------------------------------------------------------------
\11\ See Michael A. Kouparitsas, ``A dynamic macroeconomic analysis
of NAFTA,'' Economic Perspectives, Federal Reserve Bank of Chicago,
January 1997. The study concluded that, under NAFTA, Mexico's GDP is
predicted to rise 3.26 percent, U.S. GDP will rise 0.24 percent, and
Canada's GDP will increase by 0.11 percent.
---------------------------------------------------------------------------
The Federal Reserve study, based on a dynamic economic
model, also predicts that the adjustment to NAFTA should be
virtually completed by 2004 (although NAFTA will not be fully
phased in until 2009) and that NAFTA will greatly expand the
flow of all goods, both from Canada and the United States to
Mexico and from Mexico to the United States and Canada. In
general, bilateral Mexican-North American trade should increase
about 20 percent as a result of NAFTA.\12\ This projected
growth also means more U.S. jobs and a higher standard of
living for American workers.
---------------------------------------------------------------------------
\12\ Ibid.
---------------------------------------------------------------------------

Conclusion

In his State of the Union speech on February 4, 1997,
President Clinton called on Congress to approve new fast-track
negotiating authority in order to pursue new trade initiatives
in Asia and Latin America during 1997 and 1998. ``Now we must
act to expand our exports,'' the President said, ``especially
to Asia and Latin America--two of the fastest growing regions
on earth--or be left behind as these emerging economies forge
new ties with other nations.'' \13\
---------------------------------------------------------------------------
\13\ ``Clinton calls for fast-track authority in State of the Union
speech,'' Inside NAFTA, Vol. 4, No. 3 (February 6, 1997), p. 1.
---------------------------------------------------------------------------
The President is right to emphasize the importance of U.S.
trade with Latin America. The Western Hemisphere accounted for
39 percent of U.S. goods exports in 1996 and was the only
region in which the United States recorded a trade surplus in
both 1995 and 1996. As a market for U.S. goods, the Western
Hemisphere already is nearly twice as large as the European
Union and nearly 50 percent larger than Asia. Moreover, while
U.S. goods exports to the world generally increased 57 percent
from 1990 to 1996, U.S. exports to Latin America and the
Caribbean (excluding Mexico) increased by 110 percent during
the same period.\14\ If current trends continue, Latin America
alone will exceed Japan and Western Europe combined as an
export market for U.S. goods by the year 2010.
---------------------------------------------------------------------------
\14\ Office of the USTR.
---------------------------------------------------------------------------
Congress should have no doubts about the success of NAFTA.
Although only three years old, this international trade
agreement is growing with amazing speed. Even though three
years may seem like too little time to reach any final
judgments about NAFTA, it already is clear that critics of this
agreement have been wrong on all counts.\15\ Congress will be
acting in the U.S. national interest when it approves a new
fast track negotiating authority so that the Clinton
Administration can put U.S. trade policy back on track around
the world.
---------------------------------------------------------------------------
\15\ See Sydney Weintraub, ``NAFTA at Three: A Progress Report,''
Significant Issues Series, Vol. XIX, No. 1, Center for Strategic and
International Studies, Washington, D.C., 1997.

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Mr. Camp. Thank you very much for your testimony.
Mrs. Thurman.
Ms. Thurman. No questions, Mr. Chairman.
Mr. Camp. Ms. Hecker, why do you think that most of the
dispute settlement cases filed under the labor and
environmental side agreements were against United States and
Canadian practices instead of against Mexico?
Ms. Hecker. Well, I think it was a poignant answer earlier
about the United States tradition of raising disputes and using
panels for the purpose of getting review, and I think that has
been less the case in Mexico. There is growing awareness. There
are not the number of interest groups. Environmental groups
have not had the same level of public activity, but there is
definitely awareness of them and awareness of the commitments.
We met with a number of NGOs there. It's just less the
tradition, I believe.
Mr. Camp. OK, thank you.
Mr. Weintraub, has NAFTA triggered a large outflow of
United States investment to Mexico?
Mr. Weintraub. In Mexican terms, the figures are fairly
substantial. United States direct investment in Mexico--I
assume you're talking about direct investments----
Mr. Camp. Yes.
Mr. Weintraub [continuing]. Has been quite substantial. I
think this year Mexico, from the world, will receive about $11
billion worth of direct investment and about 60 percent of that
comes from the United States.
In U.S. terms, these are not very big figures. They amount
to about 1.5 percent of gross domestic investment in the United
States. But the answer to your question is, Yes, for Mexico, in
terms of the total United States economy, the figure is quite
modest.
Mr. Camp. Thank you very much. Thank you all for your
testimony. I appreciate it very much.
And now I would like to introduce the final panel,
beginning with Al Zapanta, president and chief executive
officer of the United States-Mexico Chamber of Commerce; Steve
Beckman, international economist for the UAW; Jay Mazur,
president of UNITE; Reginald Brown, director of marketing and
membership for the Florida Fruit and Vegetable Association; and
Wayne Hawkins, executive vice president of the Florida Tomato
Exchange.
Mr. Zapanta, please proceed with your testimony.

STATEMENT OF ALBERT C. ZAPANTA, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, UNITED STATES-MEXICO CHAMBER OF COMMERCE; ON BEHALF OF
BORDER TRADE ALLIANCE

Mr. Zapanta. Thank you, Mr. Chairman. Mr. Chairman,
Chairman Crane, thank you very much for the opportunity to
comment on the President's comprehensive review of NAFTA on
behalf of the United States-Mexico Chamber of Commerce and the
Border Trade Alliance.
The chamber is a private, nonprofit organization formed 25
years ago in Washington, DC, and Mexico City as the only
binational business-to-business organization in existence.
Since that time, we have worked closely with thousands of
private sector members across the United States and Mexico to
enhance the economic, political, and cultural relationship
between the two countries. During the past 3 years, we have
monitored and assisted in the implementation of the North
American Free Trade Agreement, which has been a key component
of North America's economic framework.
After more than 3 years, it is clear that NAFTA is good for
the United States and good for Mexico, and that the exaggerated
claims by both NAFTA proponents and NAFTA's opponents during
the NAFTA ratification process were off the mark. As the
President's report makes clear, the large number of job losses
or job gains has not materialized. Rather, NAFTA codified many
of the changes already underway in the region's economy.
Specifically, it locked into place much of the unilateral
economic liberalization begun by Mexico in the mideighties.
NAFTA goes well beyond tariff reduction. In goods trade, it
opened previously protected sectors in agriculture, energy,
textiles, and automotive trade. It opened up the United States-
Mexico border to trade and services with specific rules in
financial services, transportation services, and
telecommunications. It set rules on government procurement and
intellectual property rights. It set specific safeguards,
including how to deal with subsidies and unfair practices. It
set up procedures for dealing with private, commercial, and
agricultural disputes, and it set up a process for dealing with
NAFTA implementation concerns.
Therefore, much of the rhetoric about jobs, both from
proponents of NAFTA and from its opponents, was highly
exaggerated. We now have irrefutable empirical evidence that
fears of major job losses to Mexico due to NAFTA are unfounded.
U.S. employment has risen, and the level of unemployment has
decreased during the first 3 years of NAFTA. The 6.4 million
new jobs created over these 3 years led to a decrease in the
number of unemployed from 8.5 million to 7.2 million, which was
due only in the most marginal way to NAFTA. Rather, it's due to
the continued expansion of the U.S. economy. In fact, over the
3-year period, it is estimated that 31,000 new jobs were
created and 28,000 jobs were lost due to NAFTA, a net of 3,000
jobs to the positive. This needs to be put in perspective.
Over the period, millions of jobs were created and lost due
to ongoing changes in the dynamic U.S. economy. However, the
information does show that jobs created from new United States-
Mexico trade induced by NAFTA have higher wages than jobs that
have left the country. Clearly, then, those who argue that a
negative trade balance would cost jobs were wrong.
Mexico remains exceptionally important to the United
States. Mexico's population of approximately 93 million is
about one-third the size of the United States, but in May of
this year the Nation supplanted Japan as the second largest
export market for United States goods and services. The trend
continues into June and into the summer, the most recent months
for which Commerce Department figures are available. Clearly, a
growing, prosperous Mexico is in the interest of every citizen
of the United States. Not only will this lead to lower illegal
immigration and a healthier environment in Mexico, but a
vibrant Mexico will be able to deal with illegal drug
activities which are hurting both our societies.
The economic policies of the Zedillo administration in
Mexico today should lead to dynamic export-led growth in Mexico
with a stable, consumer-driven economy which will continue to
buy higher and higher quantities of sophisticated products made
in capital-intensive and high-wage U.S. industries.
Some friction is inevitable under the large, complex
agreement such as NAFTA, but both the United States and Mexico
need to act quickly to find solutions so that the confidence in
the overall agreement is maintained.
On December 18, 1995, the border between the United States
and Mexico was to have opened for international delivery by
truck into border States. In addition, on the same day the
United States was to permit Mexican owners to purchase interest
in United States trucking companies. Neither provision has been
implemented. While NAFTA gives the United States the right to
refuse Mexican trucks' entry into the border States for safety
reasons, critics of the Clinton administration say that the
provision of NAFTA was delayed for political reasons, including
objections from organized labor and the 1996 election campaign.
For whatever reason, the United States-Mexico Chamber of
Commerce believes strongly that these NAFTA provisions should
be implemented immediately. The border is ready to open.
Leading up to the December 18, 1995, date, there was much
activity to get ready along the border. There was an extensive
industry safety training program sponsored by the States and
the three NAFTA governments and the industry. Senior government
representatives from both California and Texas told the press
their States were prepared for the border opening. Since
government and private sector leaders have continued initiative
to ensure a safe border--for example, all border States have
made improvements at border crossings; Mexico joined the
Commercial Vehicle Safety Alliance, an organization of state
and provincial officials that works to ensure the compliance
and enforcement procedures, and under the Land Transport
Standards Subcommittee, established under NAFTA, the United
States, Mexico, and Canada have agreed on critical safety areas
that would be reviewed and approved before a carrier could
begin cross-border operations.
In addition, the private sector is helping lead the way
toward smoother border operations. For example, the Business
Antismuggling Coalition, known as BASC, is a voluntary program
for corporate participants to establish self-imposed standards
in the area of security, safety, and logistics that will
significantly hinder drug traffickers from using legitimate
business shipments as vehicles to smuggle illicit drugs into
the United States. This alliance of private sector firms is
supported by the U.S. Customs Service and is an initiative led
by the United States-Mexico Chamber of Commerce, along with the
Border Trade Alliance. It involves seminars to impart knowledge
of best practices and ideas on packing and shipping, which can
reduce the danger of illegal drug use on legitimate cargo.
The environment--the 2,000-mile United States-Mexican
border separates two countries with significantly different
income levels. The development of appropriate infrastructure to
deal with increased commerce, continuing the process of
reducing environmental degradation, and improving working
conditions on both sides of the border will be essential to
maintain confidence in NAFTA.
The U.S. Congress recently named the United States-Mexico
Chamber of Commerce as the recipient of a grant through the
Department of Commerce to improve the United States-Mexico
business community's access to Mexico's environmental rules--to
remove nontariff barriers present and regulatory uncertainty,
enhance business opportunities, and promote sustainable
environmental practices.
NAFTA contains a very simple clause which states that, if
agreed to by the United States, Mexico, and Canada, other
countries can accede to this agreement. In June 1995, officials
of the United States, Mexico, and Canada agreed that
negotiations should begin regarding Chile's accession to the
NAFTA. Canada and Mexico are reaching out to other countries in
the hemisphere and signing bilateral agreements. These
arrangements put United States firms at a competitive
disadvantage compared with the Canadian and Mexican
counterparts.
December 1994 saw 34 democratically elected leaders in the
hemisphere agree to forge a Free Trade Area of the Americas,
FTAA, by the year 2005. If the strong rules-based disciplines
contained in NAFTA are to become the norm in the hemisphere, it
is imperative that the President be given fast track authority
by the Congress so that Chile can be admitted and momentum of
this type of hemisphere agreement can be obtained.
In conclusion, Mr. Chairman, NAFTA has locked in
fundamental economic reforms in Mexico, and under President
Zedillo these reforms are being widened and deepened. With the
increase in commerce between the United States and Mexico,
which began in the late eighties and accelerated with NAFTA,
the lives of the citizens of the United States and the citizens
of Mexico are being improved. The few trade irritants that
exist today can and should be dealt with promptly by the United
States and Mexican Governments.
Mexico and the United States share a 2,000-mile border. The
geographic reality will not change. It is, therefore, crucial
for both countries to confront bilateral and regional economic
and political issues. NAFTA has offered a strong framework for
economic relations. As a good neighbor, it is important the
United States continue to move forward with a worthy partner as
it enters the 21st century.
Meanwhile, the chamber strongly believes that the U.S.
Government should apply the lessons learned from NAFTA to a
proposed Free Trade Area of the Americas. The chamber believes
fast track authority for the President of the United States
will allow negotiations of a fair agreement built upon the
successful NAFTA framework. In the end, such an agreement will
certainly benefit the producers and consumers in the United
States and throughout the region.
And one final note: Mr. Chairman, the United States-Mexico
Chamber of Commerce has joined with the Greater American
Business Coalition, which is made up of all the binational
chambers, to serve as a catalyst for what promises to be a
permanent contribution to economic and political relations in
the Americas.
And with your permission, I would like to enter our written
testimony into the record.
Mr. Camp. Without objection.
[The prepared statement follows:]

Statement of Albert C. Zapanta, President and Chief Executive Officer,
United States-Mexico Chamber of Commerce; on Behalf of Border Trade
Alliance

Chairman Crane, thank you very much for the opportunity to
comment on the President's comprehensive review of NAFTA on
behalf of the United States-Mexico Chamber of Commerce and the
Border Trade Alliance. The Chamber is a private, non-profit
organization formed 25 years ago in Washington, D.C. and Mexico
City as the only binational business-to-business organization.
Since that time, we have worked closely with thousands of
private-sector members across the United States and Mexico to
enhance the economic, political and cultural relationship
between the two countries. During the past three years, we have
monitored and assisted in the implementation of the North
American Free Trade Agreement, which has been a key component
of North America's economic framework. While the agreement will
only be fully implemented after 15 years, now is an appropriate
time to reflect on the successes of the trade agreement. It is
also an opportune time to address challenges--issues that need
to be resolved for NAFTA to be a complete success and a viable
model for the Western Hemisphere.

Background

After more than three years it is clear that NAFTA is good
for the United States and good for Mexico and that the
exaggerated claims both by NAFTA's proponents and NAFTA's
opponents during the NAFTA ratification process were off the
mark. As the President's report makes clear, the large number
of job losses or job gains has not materialized. Rather, NAFTA
codified many of the changes already under way in the region's
economy. Specifically, it locked into place much of the
unilateral economic liberalization begun by Mexico in the mid-
1980s.
Specifically, the Agreement dramatically reduced some
tariffs immediately while other tariffs will fall to zero over
a 5 to 15 year period. This Agreement broadened and superseded
the 1989 free trade agreement between the United States and
Canada.
But NAFTA goes well beyond tariff reduction.
In goods trade it opened previously protected
sectors in agriculture, energy, textiles, and automotive trade.
It opened up the U.S.-Mexico border to trade in
services with specific rules in financial services,
transportation services, and telecommunication services.
It set rules on government procurement and
intellectual property rights.
It set specific safeguards including how to deal
with subsidies and unfair practices; it set up procedures for
dealing with private commercial or agricultural disputes; and
it set up a process for dealing with NAFTA implementation
concerns.
Mexico is making far more significant changes to its
economy because of NAFTA than the United States. Mexican
tariffs on U.S. goods averaged 10 percent in 1993 while U.S.
tariffs on Mexican products averaged 4 percent. Mexico is
moving its rules on investment closer to those which prevailed
in the United States.
NAFTA has continued the process of opening the U.S.-Mexico
border to increased commerce. Two way trade between the United
States and Mexico has risen 60 percent from 1993, the year
before NAFTA was implemented to 1996, the third year of its
existence.
But Mexico is economically small compared with the U.S.
Mexican GDP in 1996 was about $327 billion, or 4.4 percent of
the U.S. GDP--$7,500 billion. Put another way, Mexico's economy
is about the size the state of Florida's economy.
Therefore, much of the rhetoric about jobs, both from
proponents of NAFTA and from its opponents were highly
exaggerated. We now have irrefutable empirical evidence that
fears of major U.S. job losses to Mexico due to NAFTA are
unfounded. U.S. employment has risen, and the level of
unemployment has decreased during the first three years of
NAFTA. The 6.4 million net new jobs created over this three
year period led to a decrease in the number of unemployed from
8.5 million to 7.2 million, which was due only in the most
marginal way to NAFTA. Rather it is due to the continued
expansion of the U.S. economy. In fact, over this three year
period, it is estimated that 31,000 new jobs were created and
28,000 jobs were lost due to NAFTA. This needs to be put into
perspective. Over this period millions of jobs were created and
lost due to ongoing changes in the dynamic U.S. economy.
However, the information does show that the jobs created from
new U.S.-Mexico trade induced by NAFTA have higher wages than
the jobs that have left the country.
Clearly, then, those who argued that a negative trade
balance costs jobs were wrong. And, in fact, NAFTA has had
little to do with the shifting U.S.-Mexico trade balance. The
Mexican overall trade balance went from a $18.5 billion deficit
in 1994 to a $7.1 billion surplus in 1995 after the peso
devaluation in December 1994. The impact of this change on the
U.S. exports to Mexico was significantly less than the impact
on Asian or European exports to Mexico. This was due in part to
NAFTA commitments made by Mexico and due in part to co-
production arrangements between Mexico and the United States.
This increased commerce in intermediate goods from the United
States began with the opening of the Mexican economy in the
mid-1980s and has accelerated with NAFTA. U.S. exports to
Mexico slipped only $4 billion in 1995 while Mexican exports to
the U.S. rose about $12 billion that same year. In 1996, U.S.
exports to Mexico recovered completely from the peso
devaluation, increasing to $56.79 billion, a jump of 22.6
percent from 1995. Meanwhile, NAFTA, acting as a safety net
during an export-led recovery, helped Mexico rebound from its
peso devaluation.
Mexico remains exceptionally important to the U.S. Mexico's
population of approximately 93 million is about one third the
size of the U.S., but in May of this year, the nation
supplanted Japan as the second-largest export market for U.S.
goods and services. The trend continued in June, the most
recent months for which Commerce Department figures are
available. Clearly, a growing, prosperous Mexico is in the
interest of every citizen in the U.S. Not only will this lead
to lower illegal immigration and a healthier environment in
Mexico, but a vibrant Mexico will be better able to deal with
illegal drug activities which are hurting both of our
societies.
The economic policies of the Zedillo
Administration in Mexico today should lead to dynamic export-
led growth in Mexico with a stable, consumer driven economy
which will continue to buy higher and higher quantities of
sophisticated products made in capital intensive and high wage
U.S. industries.

Maintaining Confidence in NAFTA

Some friction is inevitable under a large complex agreement
such as NAFTA, but both the United States and Mexico need to
act quickly to find solutions so that confidence in the overall
agreement is maintained.
On December 18, 1995, the border between the U.S. and
Mexico was to have opened up for international delivery by
truck into border states. In addition, on the same day, the
U.S. was to permit Mexican owners to purchase interest in U.S.
trucking companies. Neither provision has been implemented.
While NAFTA gives the U.S. the right to refuse Mexican trucks
entry into the border states for safety reasons, critics of the
Clinton administration say that this provision of NAFTA was
delayed for political reasons--including objections from
organized labor and the 1996 election campaign. For whatever
the reason, the U.S.-Mexico Chamber of Commerce believes
strongly that these NAFTA provisions should be implemented
immediately.
Why is the border opening so important? Two way trade
between the U.S. and Mexico has increased 60 percent over the
three years NAFTA has been in force. The U.S. Department of
Commerce reports that truck traffic crossing the border has
also increased 60 percent. When measured by value, trucks move
87 percent of U.S.-Mexico trade. Delay opening the border slows
cargo, increases business expenses, slows traffic--which causes
more pollution at the border--and has an overall negative
impact on the NAFTA economy.
There is another very important reason to open the border:
The U.S. is holding the NAFTA up as a model as the countries of
the Hemisphere move toward the start of the negotiations for a
Free Trade Area of the Americas (FTAA). The U.S. government
sees it in the interest of U.S. business to have a rules-based
trading system in the hemisphere. The whole concept is that
rules are to be followed. Until this blemish on NAFTA
implementation is corrected, the U.S. is in a difficult
position in arguing for other countries to follow particular
trade rules.
The failure to open up the U.S.-Mexico border under the
NAFTA timetable has become intertwined with the failure to
solve a number of other NAFTA transportation provisions as well
as a number of ``doing business'' issues in Mexico. These
include beginning a process to open up transportation companies
to investment from across the border, removing restrictions on
scheduled passenger bus service across the border, providing
national treatment in Mexico for small package delivery
operations, use of 53-foot trailers, Mexican restrictions on
truck leasing and several pending investment disputes with
Mexico.
The border is ready to open. Leading up to the December 18,
1995, date there was much activity to get ready for this border
opening. There was an extensive industry safety training
program sponsored by the states, the three NAFTA governments,
and the industry. Senior government representatives from both
California and Texas told the press their states were prepared
for the border opening. Since, government and private-sector
leaders have continued initiatives to ensure a safe border. For
example, all border states have made improvements at border
crossings; Mexico joined the Commercial Vehicle Safety Alliance
(CVSA), an organization of state and provincial officials that
works to assure that compliance and enforcement procedures; and
Under the Land Transport Standards Subcommittee (LTSS),
established under NAFTA, the U.S., Mexico and Canada have
agreed on critical safety areas that would be reviewed and
approved before a carrier could begin cross-border operations..
In addition, the private sector is helping lead the way toward
smoother border operations. For example, the Business Anti-
Smuggling Coalition (BASC) is a voluntary program for corporate
participants to establish self-imposed standards in the areas
of security, safety and logistics that will significantly
hinder drug traffickers from using legitimate business
shipments as vehicles to smuggle illicit drugs into the United
States. This alliance of private sector firms is supported by
the U.S. Customs Service and is an initiative led by the U.S.-
Mexico Chamber of Commerce with the Border Trade Alliance. It
involves seminars to impart knowledge of ``best practices'' and
ideas on packing and shipping which can reduce the danger of
illegal use of cargo.

Environment

The 2,000 mile U.S.-Mexico border separates two countries
with significantly different income levels. The development of
appropriate infrastructure to deal with increased commerce,
continuing the process of reducing environmental degradation,
and improving working conditions on both sides of the border,
will be essential to maintain confidence in NAFTA.
The United States and Mexico have made progress over the
past three years addressing three decades of deteriorating
environmental conditions along the U.S.-Mexico border. The
North American Agreement on Environmental Cooperation (NAAEC)
was approved as a side agreement to NAFTA to insure that all
parties enforce national and international environmental laws
and address environmental issues that arise as a result of
NAFTA implementation.
There has been improved environmental regulations
and positive action to jump-start two new environmental
institutions set up to address environmental infrastructure
problems on the U.S.-Mexico border. Both the Border Environment
Cooperation Commission (BECC) and the North American
Development Bank (NADBank) have developed mechanisms for
community participation, and have approved and allocated loan
funds for infrastructure projects. In addition, the Border XXI
Program, a plan by the U.S. and Mexican governments to address
border environmental issues and assure sustainability, has
received extensive citizen input and the final version of the
plan was published in October 1996.
The Commission for Environmental Cooperation (CEC)
was created to oversee the implementation of NAFTA's
environmental side agreement.
The U.S. Congress recently named the U.S.-Mexico
Chamber of Commerce as the recipient of a grant--through the
Department of Commerce--to improve the U.S.-Mexico business
community's access to Mexico's environmental rules. The goal of
the grant-funded ACCESS-MEXICO project is to remove non-tariff
barriers present in regulatory uncertainty, enhance business
opportunities and promote sustainable environmental practices.

Accession

The NAFTA contains a very simple clause which states that
if agreed to by the United States, Mexico, and Canada, other
countries can accede to this agreement. In June 1995, officials
of the United States, Mexico, and Canada agreed that
negotiations should begin regarding Chile's accession to the
NAFTA.
In the fall of 1996, when the President was unable
to obtain fast-track negotiating authority, Chile withdrew from
the negotiations and has negotiated separate bilateral
arrangements with Mexico and Canada.
Under fast tract negotiating authority, the
Congress delegates to the President the authority to negotiate
a trade agreement involving tariff reductions and agrees to
either vote for or against the agreement and not amend it. This
authority is essential--historically the Congress has been
unsuccessful in carrying out trade negotiations because of the
diverse views of its members and because countries are
unwilling to negotiate with the President an agreement which
can be changed by the U.S. Congress.
In December 1994 the 34 democratically elected
leaders in this Hemisphere agreed to forge a Free Trade Area of
the Americas (FTAA) by 2005. If the strong rules-based
disciplines contained in the NAFTA are to become the norm in
the hemisphere, it is imperative that the President be given
fast track authority by the Congress so that Chile can be
admitted and momentum for this type of Hemispheric agreement
can be obtained.
Canada and Mexico are reaching out to other countries in
the hemisphere and signing bilateral trade agreements. These
arrangements put U.S. firms at a competitive disadvantage
compared with their Canadian and Mexican counterparts.

Conclusion

NAFTA has locked in fundamental economic reforms in Mexico
and, under President Zedillo, these reforms are being widened
and deepened. With the increase in commerce between the United
States and Mexico, which began in the late 1980s and
accelerated with NAFTA, the lives of the citizens of the United
States and the citizens of Mexico are being improved. The few
trade irritants which exist today can and should be dealt with
promptly by the U.S. and Mexican governments.
Mexico and the United States share a 2,000-mile border. The
geographic reality will not change. It is, therefore, crucial
for both countries to confront bilateral and regional economic
and political issues. NAFTA has offered a strong framework for
economic relations. As a good neighbor, it is important the
United States continue to move forward with a worthy partner as
we enter the 21st century.
Meanwhile, the Chamber strongly believes the United States
government should apply the lessons learned from NAFTA to a
proposed Free Trade Area of the Americas. The Chamber believes
fast track authority for the President of the United States
will allow negotiation of a fair agreement built upon the
successful NAFTA framework. In the end, such an agreement will
certainly benefit the producers and consumers in the United
States and throughout the region. One final note, the U.S.-
Mexico Chamber of Commerce has joined the Greater American
Business Coalition to serve as a catalyst for what promises to
be a permanent contribution to economic and political relations
in the Americas.

The United States-Mexico Chamber of Commerce (USMCOC),
incorporated in 1973 in the District of Columbia as a 501
(c)(6) non-profit corporation, is a chartered binational
chamber promoting trade and investment between the two American
nations. The USMCOC represents more than 1,000 businesses and
maintains offices in Washington, D.C., Mexico City, Los
Angeles, San Diego, Dallas, New York, Denver, Chicago, Tampa,
Seattle, Detroit, Guadalajara and Monterrey.

Mr. Camp. Mr. Beckman.

STATEMENT OF STEVE BECKMAN, INTERNATIONAL ECONOMIST,
INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE AND
AGRICULTURAL IMPLEMENT WORKERS OF AMERICA (UAW)

Mr. Beckman. Thank you, Mr. Chairman. It's a pleasure to be
here today, and I appreciate the opportunity to appear before
the Subcommittee on behalf of the 1.3 million active and
retired UAW members.
We believe that NAFTA is a severely flawed model of
international economic integration. Fixing the damage it has
caused in the United States, Canada, and Mexico must be our
first trade policy objective, not extending it to additional
countries. Therefore, the UAW strongly opposes providing fast
track trade negotiating authority which would be used to expand
NAFTA to the rest of South America.
The rules incorporated into NAFTA protect the investments
and operations of multinational corporations and ignore the
interest of workers in their communities in the process of
regional economic integration. As a consequence, workers in the
United States have seen their wages and incomes stagnate, their
job security eroded, and threats of plant closings increase.
The impact of NAFTA on these aspects of workers' lives is as
important as the job losses sustained. The absence of wage
increases in the face of productivity gains, the pervasive fear
of corporate downsizing or relocation to pad the bottom line,
and the outrageous pay increases for top corporate executives
all contribute to the growing inequality in the distribution of
U.S. incomes that NAFTA has reinforced.
NAFTA's contribution to the intimidation of workers is most
apparent in what is taking place in organizing campaigns. A
Cornell University study found that more than half of the
employers threatened to close their operations in response to
union organizing drives, and that since NAFTA became effective,
three times as many of them follow through on their threats, if
the union wins the right to represent the workers.
The UAW has been confronted with employer threats to close
plants and move work to Mexico, citing NAFTA as the
justification, as part of management campaigns to prevent
workers from joining our union. At NTN Bower in Macomb,
Illinois, the company distributed a leaflet that made the
blatant threat that if the workers chose to join the UAW, their
``jobs may go South for more than the winter.'' To reinforce
this threat, the leaflet notes that, ``There are Mexicans
willing to do your job for $3 and $4 an hour. Free Trade Treaty
allows this.'' NAFTA, thus, serves to support employer
intimidation that restricts the ability of American workers to
improve their living standards and working conditions through
collective bargaining.
The North American Agreement on Labor Cooperation, the
NAALC, has been a failure in correcting the abuse of worker
rights in the NAFTA countries. Violations of the fundamental
rights of freedom of association and the right to organize and
bargain are not even subject to the labor side agreement's
dispute resolution procedures. The cases that have been filed
have not led to the illegally fired workers being rehired, and
the offending employers have suffered no sanctions. The ability
of independent unions to survive and expand in Mexico has not
been advanced by the NAALC. They remain under attack.
Thus, in these cases there are no effective remedies for
the continuation of lax enforcement and inadequate worker
protections. The teeth needed to make the NAALC an instrument
for progress in worker rights and labor standards are lacking,
leaving it an ineffective tool.
In assessing NAFTA, the impact on the auto industry must be
given considerable weight due to the major contribution of
trade in this industry to overall NAFTA trade. United States
auto trade with Mexico and Canada accounts for more than one-
fourth of the total trade. Not surprisingly, in the 3 years
after NAFTA was approved, the U.S. auto trade deficit has
increased dramatically, more than doubling from $13.1 billion
in 1993 to $26.6 billion in 1996. Using the Department of
Commerce's multiplier, lost job opportunities in the U.S. auto
industry due to this imbalance exceed 200,000.
The United States deficit in auto trade with Mexico has led
this trend. It's increased by more than 300 percent under
NAFTA, from $3.6 billion in 1993 to $14.6 billion in 1996.
United States automotive imports from Mexico more than doubled
over that period while United States exports inched up by 11
percent.
The United States auto trade deficit with Canada has
steadily worsened since NAFTA went into effect. At $11.9
billion in 1996, the U.S. deficit is up from $9.5 billion in
1993. The inequitable terms of the United States-Canada Free
Trade Agreement's auto provisions, which left United States
production at a disadvantage, were retained in NAFTA, and the
auto trade imbalance has continued to expand.
The conclusion drawn by the UAW from our analysis of NAFTA
is that it's been an utter failure in meeting the concerns of
workers in the United States, Mexico, and Canada in the process
of North American economic integration. NAFTA, therefore, must
not be used as the model for further regional integration or
the negotiation of additional international trade and
investment agreements. That's why the UAW opposes providing the
administration with fast track negotiating authority.
A much broader approach to economic and social development
is needed to address the varied impacts of North American
economic integration. fast track proposals being discussed,
instead of addressing these concerns, are more restrictive than
previous negotiating authority. Instead of insisting on the
full inclusion of additional issues as fundamental to trade and
investment agreements, they're being marginalized and
discounted.
The proposal made by Chairman Archer to specify in fast
track legislation that the negotiating objectives include labor
and environmental provisions that are directly trade-related
would represent a weakening of the already-inadequate language
of the 1988 Omnibus Trade and Competitiveness Act. Statements
by Chairman Archer indicate that this language would only cover
worker rights and standards if they impede trade in any way,
rather than provisions that seek to promote respect for
internationally recognized worker rights and standards in
international trade. It's the objective of the UAW and
organizations of workers and our allies around the world in
developed and developing countries alike to promote respect for
those rights and standards.
In conclusion, Mr. Chairman, the UAW appreciates the
opportunity to testify before the Subcommittee. In our
judgment, NAFTA has been a huge failure, especially for workers
in the automotive industry. Accordingly, we urge you to reject
the administration's request for new fast track trade
negotiating authority. It would only be used to add to the
already-intense downward pressure on American workers' incomes,
put hundreds of thousands of American jobs in jeopardy, and
extend a failed model of economic development to additional
countries in South America and elsewhere, to the detriment of
the well-being of millions of workers.
Thank you.
[The prepared statement follows:]

Statement of Steve Beckman, International Economist, International
Union, United Automobile, Aerospace and Agricultural Implement Workers
of America (UAW)

Mr. Chairman, my name is Steve Beckman. I am an
international economist for the UAW and I appear before the
Subcommittee today on behalf of the 1.3 million active and
retired UAW members.
The UAW appreciates the opportunity to share its views with
the Subcommittee on the impact of the North American Free Trade
Agreement (NAFTA). In our view, the ``Study on the Operation
and Effects of the North American Free Trade Agreement'' sent
to Congress in July by President Clinton does not accurately
describe NAFTAs impact on workers, their families and
communities. The job losses, downward pressure on workers
incomes and intimidation in union organizing campaigns
experienced by UAW members and other American workers are not
recognized in that report. We believe that NAFTA is a severely
flawed model of international economic integration; fixing the
damage it has caused in the U.S., Canada and Mexico must be our
first trade policy objective, not extending it to additional
countries. Therefore, the UAW strongly opposes providing ``fast
track'' trade negotiating authority, which would be used to
expand NAFTA to the rest of South America.
The rapid growth of U.S. trade deficits with Mexico and
Canada demonstrates the flaws in NAFTA. In the three years
NAFTA has been in effect, the U.S. merchandise trade deficit
with our NAFTA partners has sharply and steadily escalated from
$9 billion in 1993 to $13 billion in 1994, $34 billion in 1995
and $39 billion in 1996. The Economic Policy Institute has
estimated that U.S. job losses attributable to this trade
debacle total more than 400,000. U.S.-Mexico trade has
accounted for about two-thirds of the worsening trade deficit
and U.S.-Canada trade for one-third. The U.S. trade deficit
with Canada, at $23 billion in 1996, was still higher than the
$16 billion deficit with Mexico.
The defenders of NAFTA have pointed to the increase in U.S.
exports to Mexico and Canada as proof that the agreement is
working and creating jobs for American workers. The
Administration study notes that, in 1996, goods exported to
Mexico and Canada supported 2.3 million U.S. jobs. Further, it
claims that exports have contributed one-third of recent
economic growth. This one-sided examination of international
trade--the export side--has become a common practice for those
who want to ignore the record U.S. trade deficits in recent
years, including 1996, and the adverse employment effect of
those imports. For American workers, it is not possible to
simply ignore the reality that increased U.S. imports displace
them from their jobs and eliminate new job opportunities. The
staggering increase in U.S. trade deficits with Mexico and
Canada since NAFTA went into effect in 1994 is an important
measure of the negative impact of the agreement.
Much of the trade that takes place among the three NAFTA
countries is intra-company trade rather than international
shipments by competing companies. This is largely the case in
automotive trade, which accounts for about one-fourth of all
NAFTA trade. The Administration asserts that the rapid growth
of U.S. imports from Mexico doesnt displace American jobs
because most of those imports displace imports from other
regions. But the truth is that the increase in U.S. imports of
motor vehicles from Mexico includes Chevrolet Suburbans, Dodge
Ram trucks, Ford F-series trucks and other vehicles that are
made in the U.S. by U.S.-based companies. They do not displace
non-North American exports to this country. The same is true
for many other industries. This is reflected in the large
number of NAFTA-TAA certifications for production shifts to
Mexico.
Because much of the trade is carried out by such companies,
the Administrations assumption that workers in export
industries earn substantially higher wages than workers in
import-competing industries is contradicted by the experience
of workers. In the auto industry, the same companies export to
Mexico and import from Mexico; the wages of the U.S. workers
whose job opportunities are lost due to the increase in imports
from Mexico have the same wages as the U.S. workers who make
the products that are exported.
The argument that increased exports have been a major
contributor to economic growth is intentionally misleading. The
main indicator of economic growth, gross domestic product
(GDP), measures the impact of trade on growth by looking at
``net exports,'' exports minus imports. That measure has been a
steady negative factor in U.S. economic growth because of the
surge in U.S. imports. The shift in the balance of U.S. trade
with Mexico and Canada, from a U.S. deficit of $9.1 billion in
1993 to $39.0 billion in 1996, shows the depressing effect of
NAFTA trade on the U.S. economy since the agreement went into
effect.
The rules incorporated into NAFTA protect the investments
and operations of multinational corporations and ignore the
interests of workers and their communities in the process of
regional economic integration. As a consequence, workers in the
U.S. have seen their wages and incomes stagnate, their job
security eroded and threats of plant closings increase. The
impact of NAFTA on these aspects of workers lives is as
important as the job losses sustained. The absence of wage
increases in the face of productivity gains, the pervasive fear
of corporate downsizing or relocation to pad the ``bottom
line'' and the outrageous pay increases for top corporate
executives all contribute to the growing inequity in the
distribution of U.S. incomes that NAFTA has reinforced.
NAFTAs contribution to the intimidation of workers is most
apparent in what is taking place in union organizing campaigns.
A Cornell University study found that more than half of
employers threaten to close their operations in response to
union organizing drives and that, since's as many of them
follow through on their threats if the union wins the right to
represent the workers. The UAW has been confronted with
employer threats to close plants and move work to Mexico,
citing NAFTA as a justification, as part of management
campaigns to prevent workers from joining our union. At NTN
Bower in Macomb, Illinois, the company distributed a leaflet
that made the blatant threat that, if the workers chose to join
the UAW, their ``jobs may go south for more than the winter!''
To reinforce this threat, the leaflet notes that ``There are
Mexicans willing to do your job for $3 and $4 an hour. Free
Trade Treaty allows this!'' NAFTA thus serves to support
employer intimidation that restricts the ability of American
workers to improve their living standards and working
conditions through collective bargaining.
The Administration tries to turn attention away from the
adverse impact of NAFTA in its study by pointing to the strong
U.S. economic performance since 1993. The low unemployment rate
and employment growth are cited as evidence that U.S. trade
deficits, and the deficit with Mexico, could not have reduced
employment. It is necessary only to speak with the workers who
have lost their jobs to correct that assessment. The
beneficiaries of the strength in the U.S. economy and the
increased economic integration with Mexico and Canada that
NAFTA facilitates have been the wealthiest citizens of the
three countries, not working people.
To deflect blame from NAFTA, the agreements proponents have
attributed the large U.S. trade deficit with Mexico and the
related U.S. job displacement to the December 1994 peso
devaluation. The Administration study does this in citing a DRI
analysis that finds NAFTA had a positive effect on the U.S.
economy ``controlling for the peso crisis.'' The devaluation
was carried out by the same economic policy team in Mexico that
U.S. negotiators had endorsed in trumpeting NAFTAs importance.
NAFTA would keep Mexico on the right econoicies the U.S.
advocated, they told us. The Administration cited the U.S.
trade surplus with Mexico in 1992 as a preview of the results
that we could continue to expect if NAFTA kept the Mexican
government on this path of economic liberalization. It turned
out that the Mexican government was not able to sustain
continuing trade deficits with the U.S. The devaluation
reinforced the use of Mexico as an export platform for
production for the U.S. market, with the predictable result of
a soaring U.S. trade deficit--$15 billion in 1995 and $16
billion in 1996.
The Administration also claims that NAFTA limited the
devaluations damage to U.S. exports to Mexico and hastened the
Mexican economys recovery from its domestic impact. This is not
convincing. The study claims that U.S. imports from Mexico
increased because the devaluation lowered their cost in
dollars, but acknowledges no similar adverse effect on U.S.
exports to Mexico. In fact, the devaluation priced many
American-made products out of the Mexican market, overwhelming
the reduction of Mexican tariffs that NAFTA achieved. The
reason that U.S. exports to Mexico did not fall more than they
did is not attributable to NAFTA; the explanation lies in the
small share of consumer goods that the U.S. exports to Mexico.
A high proportion of U.S. exports are fabricated or assembled
in Mexico and shipped back to the U.S. for sale. The change in
the dollar-peso exchange rate affected this trade because the
dollar-denominated cost of Mexican products and labor fell
dramatically, making this export-oriented activity in Mexico
even more profitable. As a result, many exports to Mexico were
unaffected and maquiladora production increased rapidly to take
advantage of the lower costs.
The contribution of NAFTA to the economic ``recovery'' in
Mexico is equally unconvincing. The growth in Mexicos economy
has been concentrated in production for export, not in workers
incomes. Millions of Mexicans find themselves in poverty as a
result of the economic policies promoted by NAFTA, but Mexicos
exports are mushrooming. The inflation-adjusted wage of the
average Mexican worker is about 25 percent lower now than when
NAFTA went into effect, so the effective buying power and
living standards of Mexican workers have suffered greatly since
1993.
The North American Agreement on Labor Cooperation, NAALC,
has been a failure in correcting the abuse of worker rights in
the NAFTA countries. Violations of the fundamental rights of
freedom of association and the right to organize and bargain
are not even subject to the labor side-agreements dispute
resolution procedures. The cases that have been filed have not
led to illegally fired workers being rehired and the offending
employers have suffered no sanctions. The ability of
independent unions to survive and expand in Mexico has not been
advanced by the NAALC; they remain under attack. Thus, in these
cases, there are no effective remedies for the continuation of
lax enforcement and inadequate worker protections. The teeth
needed to make the NAALC an instrument for progress in worker
rights and labor standards are lacking, leaving it an
ineffective tool.
The Administration study of the NAALC is misguidedly rosy.
As the Administration states, it has created a forum for
raising objections to the treatment of workers in the NAFTA
countries. But it is a forum that does not have the power to
resolve the real-life struggles of workers who are trying to
exercise their rights. Many of the cooperative activities
described in the study were under way prior to NAFTAs
negotiation. They are informational and do not include any
concerted effort to improve standards and set tri-national
criteria for effective enforcement.
In assessing NAFTA the impact on the auto industry must be
given considerable weight due to the major contribution of
trade in this industry to overall NAFTA trade. U.S. auto trade
with Mexico and Canada accounts for more than one-fourth of
total trade. Not surprisingly, in the three years after NAFTA
was approved the U.S. auto trade deficit has increased
dramatically, more than doubling from $13.1 billion in 1993 to
$26.6 billion in 1996. Using the Department of Commerces
multiplier, lost job opportunities in the U.S. auto industry
due to this imbalance exceed 200,000. As U.S. and other
multinational auto companies continue to respond to the NAFTA
auto provisions with investments in production in Canada and
Mexico that supply the U.S. market, this deficit and the
adverse impact on American jobs will only worsen.
The U.S. deficit in auto trade with Mexico has led this
trend. It has increased by more than 300 percent under NAFTA,
from $3.6 billion in 1993 to $14.6 billion in 1996. U.S.
automotive imports from Mexico more than doubled over that
period, while U.S. exports inched up by 11 percent. Mexico has
become an increasingly important supplier of vehicles and parts
to the U.S. In 1996, U.S. imports of motor vehicles from Mexico
reached 771,000. Most of the vehicles shipped to the U.S. are,
or were, also produced in the in this country.
The U.S. auto trade deficit with Canada has steadily
worsened since NAFTA went into effect. At $11.9 billion in
1996, the U.S. deficit is up from $9.5 billion in 1993. The
inequitable terms of the U.S.-Canada Free Trade Agreements auto
provisions, which left U.S. production at a disadvantage, were
retained in NAFTA and the trade imbalance has continued to
expand.
The treatment of NAFTAs impact on auto industry trade in
the Administration study is off-base in many areas. In claiming
that NAFTA has been beneficial to production and employment in
the U.S. auto industry, the Administration makes a variety of
assertions that simply do not stand up to scrutiny. Here is
just one example:
``Increased U.S. exports of cars and light trucks to Mexico
were directly attributable to reductions in Mexican trade
balancing requirements and lower Mexican tariffs brought about
by NAFTA.'' (page 45)
Without access to specific company data, it is impossible
to verify this assertion, but the aggregate numbers provide
sufficient guidance to show that this claim is inaccurate. If
the trade balancing requirements had remained in effect, it
would take $1.75 in exports from Mexico to import each $1.00 in
value of vehicles from the U.S. From 1993 to 1996, automotive
exports from Mexico to the U.S. increased by $12 billion and
U.S. exports of vehicles to Mexico increased by $1.1 billion.
Using the Mexican trade balancing formula, the $12 billion
increase in Mexican exports should have allowed six times the
increase in vehicle exports that actually occurred. The trade
balancing limits would not have been a limiting factor in U.S.
vehicle exports to Mexico in 1996. The phenomenal growth of
U.S. imports from Mexico and the related increase in the U.S.
auto trade deficit, from $3.6 billion in 1993 to $14.6 billion
in 1996, are the critical industry developments that have taken
place under NAFTA.
The study states: ``NAFTA has enabled Ford to make its
established plants in Mexico more efficient. Ford decided to
consolidate all production of Ford Thunderbirds and Mercury
Cougars at its Lorain, Ohio assembly plant, discontinuing low
volume production of these two models at its Cuautitlan plant
in Mexico.'' (page 46) This year, Ford ended production of the
Thunderbird and Cougar, leaving a hole in the Lorain plants
production. Was Ford completely unaware of the potential for
such a result when it made this decision? Now, Ford is
producing larger volumes of F-series trucks at its Cuautitlan
plant and shipping them to the U.S., which it had not done
prior to NAFTA. Where are the American workers who benefited
from this ``increased efficiency''?
The report takes great pains to note that investments by
the Big Three auto companies in the U.S. totaled $39 billion
from 1993 to 1996 and that their investments in Mexico were
only $3 billion. Truck capacity in the U.S. grew by nearly
400,000 and in Mexico by 144,000. The Administrations study
fails to mention that, in anticipation of more fully using
their Mexican plants, the Big Three made substantial
investments in Mexico prior to NAFTA. According to the Mexican
government, these companies invested $3 billion in the six
years up to and including 1994. This was their share of a total
of more than $10 billion invested in the industry during that
period. Since additional investments were made by the Big Three
in 1995 and 1996, their total recent investments in Mexico
exceed $3 billion. Without those investments, the tremendous
increase in the U.S. auto trade deficit with Mexico would not
have been possible.
The increases in truck capacity can be viewed in a
different light. The 394,000 increase in U.S. capacity cited in
the study would add about 20 percent to U.S. production
capacity as of 1993. The additional capacity of 144,000 would
double Mexicos 1993 capacity. The new truck plants in Silao
(GM) and Saltillo (Chrysler) almost certainly added more than
the announced capacity. In the case of the U.S., some of the
new truck capacity could have come at the expense of car
production capability, adding little to potential overall U.S.
production and employment; the new capacity in Mexico is
attributable to new plants which will clearly add to total
Mexican vehicle production.
The study tries to downplay the significance of the gusher
of increased automotive imports from Mexico by noting the U.S.
content of the vehicles assembled there. In addition, the study
states that increased U.S. imports of auto parts from Mexico
were the result of increased U.S. production. We are certainly
aware that U.S.-made parts are shipped to Mexico for assembly
there and that they could contribute to increasing employment
for American auto workers. However, the vehicles and parts
imported from Mexico displace production that would otherwise
take place in this country. The imported vehicles are identical
to vehicles made in the U.S. The best measure of whether the
U.S. content in those vehicles is contributing to U.S.
employment is the trade balance--are we importing more of these
vehicles and parts than we are exporting? The answer is crystal
clear: the auto trade deficit with Mexico has increased in
every year of NAFTAs implementation and the jobs of American
workers have been sacrificed in the process.
If the increase in U.S. imports of auto parts from Mexico
was simply to keep up with the growth of U.S. production, the
value of U.S. imports would have increased by 6.8 percent from
1993 to 1996. In fact, U.S. imports increased by 57 percent,
indicating that something more substantial that volume gains
was responsible. The value of parts imports from Mexico per
vehicle assembled jumped from $680 in 1993 to $980 in 1996. Not
all imported parts are used in new vehicles, but this provides
an idea of how much parts imports from Mexico have grown.
Finally, the Administration study, in discussing the recent
Nissan and Volkswagen investments in Mexico, says that they
``were aimed at accommodating increased sales in Mexico as well
as the addition of new model production.'' (page 50). In other
words, these investments did not come at the expense of U.S.
production. In the case of Volkswagen, that is just not so. VW
closed its plant in Westmoreland, Pennsylvania in 1988, when
its ten years of state incentives expired, and moved production
of the Golf and Jetta models made there to Mexico. Investments
in Mexico were primarily to modernize and expand production of
those models, with the U.S. market as a major target.
There are many other areas of the Administration study that
deserve comment and criticism. This lengthy presentation of UAW
disagreements with the NAFTA study presented to Congress by the
Administrations is not exhaustive. There are many more issues
on which we believe the Administrations analysis is wrong or
misleading. We could provide the Subcommittee with additional
examples. The conclusion drawn by the UAW from our own analysis
is that NAFTA has been an utter failure in meeting the concerns
of workers in the process of North American economic
integration. NAFTA, therefore, must not be used as the model
for further regional integration or the negotiation of
additional international trade and investment agreements. That
is why the UAW opposes providing the Administration with ``fast
track'' negotiating authority at this time. The agenda of
negotiations that would be undertaken with that authority would
be no better than the NAFTA agenda, and the results from that
agenda are in. It is unacceptable to UAW members and it is
detrimental to the interests of American workers.
Since it is expected that new negotiating authority would
be used to expand NAFTA to include Chile and other South
American countries, the UAW is particularly concerned about the
impact this could have on automotive trade in the region. Just
as NAFTA facilitated the industry restructuring in Mexico that
has led to its use as a major export platform to the U.S., we
believe that NAFTAs extension could reinforce the restructuring
process underway in the large auto industries of Brazil and
Argentina to bring about similar results. Already, auto
producers have announced massive investments in new vehicle and
parts capacity in these two countries. Under NAFTAs terms, much
of that production could be shipped to the U.S. and displace
U.S. production and jobs. U.S.-based producers of vehicles and
parts are among the major investors in South America. They
already produce for the local market and export some products
back to this country. This was the situation in Mexico in the
years prior to NAFTA and we are concerned that an export
explosion from these countries may occur. Similar to the
process in Mexico, workers in Brazil, for instance, are already
finding that increased productivity is leading to job cutbacks
and reduced incomes for workers. They share our interest in
reversing the anti-worker impact of the restructuring process
that has accompanied NAFTA.
A much broader approach to economic and social development,
taking into consideration many of the subjects that the NAFTA
negotiators explicitly rejected, such as debt relief,
immigration, exchange rates and raising labor and environmental
standards, is needed to address the varied impacts of North
American economic integration. The ``fast track'' proposals
being discussed, instead of addressing these concerns, are more
restrictive than previous negotiating authority. Instead of
insisting on the full inclusion of these additional issues as
fundamental to trade and investment agreements, they are being
marginalized and discounted.
The proposal made by Chairman Archer to specify in ``fast
track'' legislation that the negotiating objectives include
labor and environment provisions that are ``directly trade-
related'' would represent a weakening of the already inadequate
language in the 1988 Omnibus Trade and Competitiveness Act. The
most critical and widely accepted worker rights, freedom of
association, the right to organize and bargain collectively and
minimum labor standards, would be excluded from ``fast track''
coverage by such a restrictive formulation. Statements by
Chairman Archer indicate that this language would only cover
worker rights and standards if they impede trade in any way,
rather than provisions that seek to promote respect for
internationally recognized worker rights and standards in
international trade. It is the objective of the UAW and
organizations of workers and our allies around the world, in
developed and developing countries alike, to promote respect
for those rights and standards.
The need for stronger, not weaker, language on worker
rights and trade is demonstrated by the inadequacy of the NAFTA
side agreement on labor negotiated by the Administration. This
agreement was reached under the 1988 language that did not
restrict negotiations to ``directly trade related'' provisions.
Still, as pointed out earlier, it lacks the coverage and
enforcement capabilities to effectively defend the worker
rights and standards that it claims to protect. If, as has been
reported, even this weak agreement on labor could not have been
negotiated under the ``directly trade related'' language
proposed by Chairman Archer, this is another measure of the
stifling impact on worker rights negotiations that would be
imposed by the proposed language
The mere mention of the words ``labor'' and ``environment''
in the list of negotiating objectives should not be confused
with a requirement that these issues be included in trade
agreements and subject to their dispute resolution procedures.
After all, worker rights have been included among U.S. trade
negotiating objectives since 1974 without producing any
substantive progress in the agreements reached under the ``fast
trsting labor and environment simply as negotiating objectives
is no longer acceptable to American workers. Action on these
issues is demanded.
In conclusion, Mr. Chairman, the UAW appreciates this
opportunity to testify before the Subcommittee and to present
our views on the Administrations ``Study on the Operation and
Effects of the NAFTA'' and on the important issue of ``fast
track'' negotiating authority. In our judgment, NAFTA has been
a huge failure, especially for workers in the automotive
industry. Accordingly, we urge you to reject the
Administrations request for new ``fast track'' trade
negotiating authority. It would only be used to add to the
already intense downward pressure on American workers incomes,
put hundreds of thousands of American jobs in jeopardy and
extend a failed model of economic development to additional
countries in South America and elsewhere to the detriment of
the well-being of millions of workers.

Mr. Camp. Thank you.
Ms. Hoffman.

STATEMENT OF JAY MAZUR, PRESIDENT, UNION OF NEEDLETRADES,
INDUSTRIAL AND TEXTILE EMPLOYEES; AS PRESENTED BY ANN HOFFMAN,
LEGISLATIVE DIRECTOR, UNION OF NEEDLETRADES, INDUSTRIAL AND
TEXTILE EMPLOYEES

Ms. Hoffman. Mr. Chairman, I regret that president Mazur's
schedule did not permit him to stay here this afternoon. My
name is Ann Hoffman. I'm legislative director of UNITE. We want
to thank you for the opportunity to testify.
UNITE, the Union of Needletrades, Industrial and Textile
Employees, represents 300,000 workers in textile, apparel, and
other related industries in two of the NAFTA countries: The
United States and Canada.
It has been over 3\1/2\ years since NAFTA went into effect.
The results are in. For workers in the United States, Mexico,
and Canada, NAFTA has been a failure. Using the Department of
Commerce multipliers, the increase in the United States trade
deficit with Mexico and Canada has cost the United States over
420,000 jobs since 1993.
What has happened to workers in general has happened even
more to workers in the apparel and textile industries.
Department of Labor figures show that the U.S. apparel industry
lost more jobs in 1996 than any other private sector industry.
Apparel employment is just about half of what it was at its
peak in 1973. In the last 2 years alone, 16 percent of garment
workers in the United States have lost their jobs.
Apparel factories in the United States are most frequently
located in innercities and rural areas. They often provide the
only jobs for miles around with decent wages and, in union
shops, health benefits, paid vacations, holidays, and pensions.
When those apparel factories close, workers cannot maintain
their living standards, if they can find new jobs at all.
As bad as NAFTA has been for jobs, it may have damaged wage
levels even more. During the debate over NAFTA, a Wall Street
Journal poll found that a majority of executives from large
companies already had plans to shift some production to Mexico,
and that a large number intended to use NAFTA as a bargaining
chip to keep down wages in the United States They have
succeeded.
NAFTA's single biggest deficit is its failure--defect; I'm
sorry--is its failure to address workers' rights, the right to
strike, the right to organize, the right to freely associate,
the right to livable wages and decent working conditions. The
failure to insist that Mexico enforce its labor laws has meant
that Mexican wages failed to rise. As long as Mexican workers
don't get a fair deal, wages in Mexico will not rise. Mexican
workers will not be able to buy the clothing that they make for
United States manufacturers, let alone the clothing that UNITE
members make in the United States and Canada.
Mexico's attraction for corporations is not the small
Mexican consumer market. Mexico's entire economy is less than 4
percent of the U.S. economy. The attraction for U.S.
corporations is the labor force of more than 30 million people
willing to work for a tiny fraction of U.S. wages.
The story of Guess, Inc., the designer jeans company, shows
what is wrong with NAFTA. Earlier this afternoon, an 11-year
employee of Jeans Plus in Los Angeles, a major contracting shop
doing work for Guess, was across the street speaking to some of
your colleagues. Enriqueta Soto held up a pair of Guess jeans
just like these with the label reading, ``Guess USA, American
tradition, assembled in Mexico.''
Ms. Soto held up a pair of jeans that could have helped her
support her family, but she lost her job when she and her
coworkers objected to working for their shop at illegally low
wages and then tried to organize a union to improve their
working conditions. Enriqueta Soto is one of the hundreds of
thousands of formerly employed American workers who were never
consulted when the President compiled his Comprehensive Review
of the North American Free Trade Agreement.
The real problem is not trade with Mexico and Canada, but
rather the specific set of rules included in NAFTA. Our current
trade agreements protect investors, multinational corporations,
patent and copyright holders, and speculators; workers are the
only interested party whose rights are not addressed by these
agreements.
Before we extend NAFTA, we need to fix it. Therefore, we
urge you not to grant fast track negotiating authority again.
Thank you very much.
[The prepared statement follows:]

Statement of Jay Mazur, President, Union of Needletrades, Industrial
and Textile Employees

UNITE, the Union of Needletrades, Industrial and Textile
Employees, represents 300,000 workers in textile, apparel and
other related industries in two of the NAFTA countries, the
United States and Canada. I appreciate the opportunity provided
by the Subcommittee to share our views on the impact of the
North American Free Trade Agreement.
It has been over three and a half years since NAFTA went
into effect. The results are in. For workers in the United
States, Mexico and Canada, NAFTA has been a failure. The U.S.
and Canada have lost hundreds of thousands of jobs because of
NAFTA. Mexico has been trapped in a severe economic crisis in
which workers bear the largest burden. The U.S.-Mexico border
was a health and environmental disaster when the NAFTA
agreement was signed in 1994. Today, the border area is even
worse, because of additional health and environmental problems
caused by NAFTA.

NAFTA's Impact on American Workers

In 1993, the year before NAFTA took effect, the U.S. had a
$1.7 billion trade surplus with Mexico. After NAFTA, however,
our trade surplus with Mexico became a $16.2 billion trade
deficit. During the same period our trade deficit with Canada
also grew. Based on standard employment multipliers, the
increase in the U.S. trade deficit with Mexico and Canada has
cost he U.S. over 420,000 jobs since 1993.
When workers lose their jobs because a plant relocates to
Mexico, they usually experience a serious decline in their
standard of living, even if they get new jobs. Workers rehired
after losing their jobs in the early 1990's suffered an annual
pay loss of over $4,400.
What has happened to workers in general has happened even
more to workers in the apparel and textile industries.
Department of Labor figures show that the U.S. apparel industry
lost more jobs in 1996 then any other private sector industry.
Apparel employment is just about half of what it was at its
peak in 1973. In the last two years alone 16 percent of apparel
workers lost their jobs.
Apparel factories are most frequently located in inner
cities and rural areas of the United States. They are often in
places where they provide the only jobs with decent wages and,
in union shops, health benefits, paid vacations and holidays
and pensions. When those apparel factories close, workers
cannot maintain their living standards, if they can find new
jobs at all.
As bad as NAFTA has been for jobs, it may have damaged wage
levels even more. During the debate over NAFTA, a Wall Street
Journal poll found that a majority of executives from large
companies already had plans to shift some production to Mexico
and that a large number intended to use NAFTA ``as a bargaining
chip to k in more than half of union organizing drives, the
threat of moving jobs to Mexico or closing plants was used to
limit organizing success.
NAFTA contributes to a corporate strategy--investment
overseas, production cutbacks at home and sharp demands for
wage and benefit concessions from workers--that has had a
devastating impact on American families. Hundreds of thousands
of people have lost their jobs, many of them permanently.
Communities have been drained of resources and income, and
years of accumulated skills have been wasted.

NAFTA's Impact on Mexican Workers

After NAFTA went into effect, Mexico fell into serious
social political and economic crisis. The Mexican peso lost 50%
of its value; the government was nearly bankrupt. An armed
uprising in the southern Mexican state of Chiapas highlighted
the country's economic, geographic and racial divisions.
Political assassinations and allegations of corruption continue
to undermine faith in the political system at the highest
levels of government.
Defenders of NAFTA claim that the economic crisis in Mexico
was not cause by NAFTA, but rather by Mexico's currency crisis.
But, to ensure NAFTA's passage, the U.S. government supported a
corrupt and financially incompetent political regime in Mexico.
The Mexican government stalled on the necessary currency
adjustments in order to attract U.S. investment and capital,
and to ensure passage of NAFTA in Congress.
The Mexican economic crisis is characterized by two broad
trends. Many Mexican manufacturers have gone bankrupt,
resulting in the loss of over one million jobs in Mexico.
Meanwhile, there has been an increase in foreign-owned
manufacturers that export, mostly to the United States.
There has been a tremendous increase in the number of
maquiladora plants--foreign-owned plants that receive special
tax breaks and export almost all of their production to the
U.S. There has also been an almost 50% increase in the
maquiladora workforce since NAFTA took effect. According to the
Mexican government, the maquiladoras employ more than 800,000
workers. Maquiladora plants are exempt from tariffs on imported
raw materials and components as long as the final product is
exported.
Mexican workers have borne the brunt of the economic crisis
in Mexico. Despite significant increases in productivity and
quality, real manufacturing wages in Mexico are 25% lower then
they were before NAFTA.

Why NAFTA Isn't Working for Workers

NAFTA's single biggest defect is its failure to address
workers' rights--the right to strike, the right to organize and
the right to freely associate. The failure to insist that
Mexico enforce its labor laws means that Mexican wages have
failed to rise.
While businesses demanded--and got--provisions in NAFTA
that require Mexico to protect the rights of investors, there
is no similar provision for protecting the rights of Mexico's
workers or, for that matter, Mexico's environment. If an
investor's rights are violated in Mexico, someone can go to
jail. If a worker's rights are violated in Mexico, all we can
do is complain--and nobody is required to listen.
There is a labor side agreement--it isn't part of the
actual trade treaty--that, in theory, addresses workers'
concerns. In practice, the labor side agreement is nearly
useless.
Five cases have been brought under the labor side agreement
for violations of Mexico's labor laws. For example, in General
Electric in Ciudad Juarez and Honeywell in Chihuahua, workers
were fired for trying to organize independent unions. Those
unions remain unrecognized. Those workers have not been
reinstated. In short, the labor side agreements have produced
no noticeable change in the way labor law operates in practice
in Mexico.
As long as Mexican workers don't get a fair deal, and we
can't help them try, wages in Mexico will not rise. Mexican
workers will not be able to buy the clothing they make for U.S.
manufacturers, let alone the clothing UNITE members make in the
U.S. and Canada.
I was in maquiladoras just south of the U.S. border in
February of this year. The plants I saw were more modern than
almost any factory I have seen in the United States. The homes
for the workers were like nothing seen in this country since
the end of the Great Depression. Tar paper shacks, partly made
from left over packing boxes used to ship in equipment and
parts. No plumbing, no electricity, no privacy.
The wages workers earn at these jobs make it almost
impossible to raise a family. Women I met talked about having
to work three hours to buy a gallon of milk for their children.
They wanted a better life.

Who Benefits from NAFTA

The NAFTA legislation is almost exclusively concerned with
protecting foreign investors in Mexico. Mexico's attraction for
corporations is not the small Mexican consumer market; Mexico's
economy is less than 4% of the U.S. economy. The attraction for
U.S. corporations is the labor force of more than 30 million
people willing to work for a tiny fraction of U.S. wages.
Corporations seeking to maximize profits will tend to locate
production where costs are lowest.
Of course, there are other factors: workers' skills and
reliabilitylity, among others. Even so, the vast differences
between wages in the U.S. and Canada and wages in Mexico and
the inconsistent enforcement of labor standards and workplace
regulations in Mexico combine to provide a powerful incentive
for multinational corporations to move production to Mexico.

The Case of Guess?, Inc. Shows What's Wrong with NAFTA

In 1992, Guess?, Inc., the designer jeans company, was one
of the largest apparel manufacturers in Southern California.
Ninety-seven percent of its production was performed by some
5,000 workers in its own factories or in 60 to 70 contracting
shops in Southern California.
For a number of years, contractors working for Guess? were
cited by the U.S. Department of Labor (DOL) for violations of
federal minimum wage and overtime laws, as well as for child
labor and industrial homework. In 1992, Guess? paid more than
half a million dollars in back wages, and entered into an
agreement with the DOL to monitor the contractors' practices in
the future, to prevent further illegal treatment of workers.
Despite the monitoring agreement, sweatshop conditions
continued in many factories doing work for Guess?. Workers
later came to UNITE, interested in improving their wages and
standards.
In the summer of 1996, the California Division of Labor
Standards Enforcement (DLSE) discovered Guess? clothing in
illegal industrial homework operations. DLSE also found
violations of minimum wage and overtime laws at three Guess?
contractors.
In August of 1996, UNITE filed charges with the National
Labor Relations Board (NLRB) for massive violations of labor
law, including threats to shut plants and move production
outside of the country and illegal discharge of twenty workers.
When the NLRB found evidence supporting the union's charges,
Guess? entered into a settlement agreement to reinstate the
twenty fired workers with $80,000 in back pay and to cease all
violations of labor law.
The day after they signed that agreement, the Wall Street
Journal reported that Guess? was in the process of moving most
of its sewing operation to Mexico and other Latin American
countries, in part because of union organizing efforts,
allegations of sweatshop working conditions, and government
investigations.
In short, faced with obeying the laws of the United States,
paying legal wages and permitting its workers to form a union,
Guess? took the NAFTA way out and moved to Mexico. In other
words, employers who stay in the U.S. and obey our laws are
penalized.

Conclusion

The real problem is not trade with Mexico and Canada, but
rather the specific set of rules included in NAFTA. Our current
trade agreements protect investors, multinational corporations,
patent and copyright holders and speculators. Workers are the
only interested party whose rights are not addressed by these
agreements.
I have been in factories in all three NAFTA countries. I
have seen the increase in violations of labor laws and labor
standards in both Canada and the U.S. I have seen sweatshops
within blocks of some of the most expensive real estate in New
York City. I can tell you from my own observations that NAFTA
has been a disaster for workers. That is not surprising. NAFTA
was not drafted with workers' interests in mind.
Before we extend NAFTA we need to fix it. Therefore we urge
you to reject the Administration's request for new ``fast
track'' trade negotiating authority.

Mr. Houghton [presiding]. Thank you very much, Ms. Hoffman.
Mr. Brown.

STATEMENT OF REGINALD L. BROWN, DIRECTOR, MARKETING AND
MEMBERSHIP, FLORIDA FRUIT & VEGETABLE ASSOCIATION, ORLANDO,
FLORIDA

Mr. Brown. Mr. Chairman, Members of the Subcommittee, my
name is Reggie Brown. I'm the director of marketing and
membership for FFVA, the Florida Fruit & Vegetable Association.
FFVA is an organization comprised of growers of vegetables,
citrus, sugarcane, tropical fruit, and other agricultural
commodities in Florida. FFVA appeared before the Subcommittee
on numerous occasions during the period leading up to
congressional consideration of NAFTA. We welcome the
opportunity to provide input on the Subcommittee's review of
the impact of the North American Free Trade Agreement on U.S.
industries.
Florida's unique geographical location in the United States
affords growers an opportunity to provide American consumers
with fruits and vegetables and seasonal crops during the months
of the year when other domestic producers cannot grow and
harvest these crops. Historically, competition for Florida's
vegetables in the U.S. marketplace has not come from within the
United States. Instead, it comes from the state of Santalua,
Mexico, and other areas that have farmlands suitable for winter
production in the Northern Hemisphere.
From the onset, Florida's agricultural industry expressed
grave concerns about the potential impact of NAFTA,
particularly in the winter vegetable industry. However, Florida
was not alone in expressing concern over the agreement prior to
its negotiation. Numerous fruit and vegetable producer
organizations throughout the Nation also believed that they
would be faced with increased competitive pressures from
Mexico.
Florida fears are based not solely on the impact of tariff
reductions in the competitive relationship between the two
growing areas. Florida's growers were deeply concerned about
the impact of increased investment in Mexico's agricultural
sector that would occur as a result of the agreement. The
overriding fear was that Mexico, with lower labor costs, less
costly and restrictive labor and environmental regulations,
would entirely overrun the United States market with winter
vegetables and other commodities, resulting in severe injury to
Florida growers. In the 3 years since NAFTA's implementation,
many of these fears have been realized.
Florida's vegetable industry has experienced a substantial
increase in competitive prices from Mexican imports since
January 1, 1994. Statistical data shows that Florida growers
have lost significant ground in the domestic marketplace. Two
major causal effects that have contributed to the downturn:
First, the implementation of NAFTA; second, the devaluation of
the Mexican peso and the severe economic downturn in that
country. Less than 1 year following the implementation of the
agreement, Mexico entered into the worst economic crisis in
decades: The peso devalued significantly against the dollar and
continued to devaluate in 1995 and 1996.
Had the industry known in advance that the Mexican currency
would be so severely devalued in the 18 months following the
implementation of the agreement, its already deep concerns over
NAFTA would have been further exacerbated. Had Congress known,
it's unlikely the agreement would have been approved.
Other factors to the agreement have also contributed to
Florida's industries' decline. Immediately prior to and since
the implementation, there has been increased capital investment
flowing into the Mexican industry from nontraditional sources.
Increased investment in the export-oriented agricultural sector
was one of Mexico's main objectives in pursuing the agreement.
The changes in Mexico's economies that have come subsequent to
the investment have dramatically increased yields, which have
increased Mexico's volume and reduced their unit costs.
Combining the cost advantage derived from the devaluation of
the peso with the gains in productivity, resulting in increased
investment, significantly enhanced Mexico's position in the
marketplace.
The results have been dramatic increases in Mexican
vegetables into the United States since 1994. The impact on
Florida's tomato industry has been dramatic. Since the 1992
season, the Florida tomato industry's shipments, crop value,
and market share have declined. In 1992 Florida enjoyed a 54-
percent market share; in the most recent full season in which
statistics are available, market share has declined to 35.1
percent. Meanwhile, Mexico's share in the United States market
has increased. It was 28 percent in 1992-93 and has increased
to 49.5 percent in 1995-96.
There are basic flaws in the North American Free Trade
Agreement that need to be addressed. There were assurances
given to this industry, such as phased reductions of tariffs of
5, 10, and 15 years; volume-based special safeguards that were
written into the agreement, and emergency provisions based upon
section 201 and 202 of the Trade Act of 1974. All of these
provisions that were written into the North American Free Trade
Agreement have been found to be unaffected by our industry and
our attempt to meet the challenges of the North American Free
Trade Agreement.
We have had very little success under the 201-202 section
of the Trade Act simply because of the seasonality of the
industry and that our industry basically represents a segment
of the industry, but the U.S. trade loan does not recognize
those segments adequately.
The Clinton administration promised the treaty would, in
fact, protect the industry. The industry's reality is the fact
that we have been seriously injured. We have found no relief in
the remedies that were promised to us under the treaty. We are
extremely concerned we are going to make our industry one that
will be nonexistent because, as it goes broke, the
infrastructure is destroyed, and Florida will no longer feed
the eastern half of the country in the winter months. We'll be
dependent upon a foreign food supply for the fresh fruits and
vegetables that Florida is so famous for producing in the
winter months.
Thank you for your time.
[The prepared statement follows:]

Statement of Reginald L. Brown, Director, Marketing and Membership,
Florida Fruit & Vegetable Association, Orlando, Florida

Mr. Chairman, members of the Committee, my name is Reggie
Brown. I am Director of Marketing and Membership for the
Florida Fruit & Vegetable Association. FFVA is an organization
comprised of growers of vegetables, citrus, sugarcane, tropical
fruit and other agricultural commodities in Florida. FFVA
appeared before the Committee on numerous occasions during the
period leading up to Congressional consideration of the NAFTA.
We welcome the opportunity to provide input into the
Committee's review of the impact of the North American Free
Trade Agreement (NAFTA) on U.S. industries.
Florida's unique geographical location in the United States
affords growers an opportunity to provide American consumers
with fruits, vegetables and seasonal crops during the months of
the year when other domestic producers cannot grow and harvest
these crops. Historically, competition for Florida's vegetable
industry in the U.S. marketplace has not come from within the
United States. Instead, it comes from the State of Sinaloa,
Mexico, and other areas that have farm land suitable for winter
production in the northern hemisphere.
From the outset, Florida's agricultural industry expressed
grave concerns about the potential impact of NAFTA,
particularly on the winter vegetable industry. However, Florida
was not alone in expressing concern about the agreement prior
to its negotiation. Numerous fruit and vegetable producer
organizations throughout the nation also believed they would be
faced with increased competitive pressure from Mexico.
Florida fears were based not solely on the impact of tariff
reductions in the competitive relationship between the two
growing areas. Growers also were deeply concerned about the
impact of increased investment in Mexico's agricultural sector
that would occur as a result of the agreement. The overriding
fear was that Mexico, with lower labor costs and less costly
and restrictive labor and environmental regulations, would
eveities, resulting in severe injury to Florida growers. In the
three years since NAFTA's implementation, many of those fears
have been realized.

Florida's Vegetable Industry in the Post-NAFTA Period

Florida's vegetable industry has experienced substantially
increased competitive pressure from Mexican imports since January 1,
1994. Statistical data show that Florida growers have lost significant
ground in the domestic marketplace. Two major causal events have
contributed to this downturn: first, the implementation of NAFTA, and
second, the devaluation of the Mexican peso and the resulting severe
economic downturn in that country.
Less than one year following the implementation of the agreement,
Mexico entered into its worst economic crisis in decades. The peso
devalued significantly against the dollar late in 1994, and continued
to devalue throughout 1995 and 1996. Had the industry known in advance
that Mexico's currency would be so severely devalued in the 12 to 18
months following implementation of the agreement, its already deep
concerns over NAFTA would have been further exacerbated. Had Congress
known, it is unlikely the agreement would have been approved.
Other factors related to the agreement have also contributed to the
Florida industry's decline. Immediately prior to, and since, the
implementation of the agreement, considerable investment capital has
flowed into the Mexican industry from non-traditional sources.
Increased investment in the export-oriented agricultural sectors was
one of Mexico's main objectives in pursuing the agreement. The changes
in Mexico's technology that have come subsequent to this investment
have dramatically increased yields, which has both increased Mexico's
volume and reduced their per unit costs.
Combining the cost advantage derived from the devaluation of the
peso with the gains in productivity resulting from increased investment
significantly enhanced Mexico's position in the marketplace. The result
has been dramatic increases of Mexican vegetables into the United
States since 1994.
The impact on the Florida tomato industry has been the most
dramatic. Since the 1992-93 season (the last complete season prior to
NAFTA's implementation), Florida's tomato acreage, shipments, crop
value, and market share all have declined. In the 1992-93 season,
Florida enjoyed a 56.4 market share. In the most recent full season for
which statistics are available, market share had declined to 35.1
percent. Meanwhile, Mexico's share of the U.S. market has increased. It
was 28 percent in the 1992-93 season, and increased to a 49.5 percent
share in 1995-96.\1\ Mexico's sales of tomatoes below fair market value
during that period had a serious impact on Florida's position in the
marketplace. The Mexican industry's predatory marketing practices
prompted the filing of an antidumping petition by the domestic tomato
industry in March, 1996. The Department of Commerce's investigation
found sales at below fair value during the period of the investigation
and established preliminary dumping margins at 17.56 percent.\2\ A
suspension agreement establishing a floor price for Mexican tomatoes
was reached between the Department of Commerce and the Mexican industry
in October, 1996, and is currently in place.
---------------------------------------------------------------------------
\1\ Competitive Growing Season Shipments, Annual Change and U.S.
Market Share, Florida Department of Agricultural and Consumer Services,
November 5, 1996.
\2\ Notice of Preliminary Determination of Sales at Less Than Fair
Value and Postponement of Final Determination: Fresh Tomatoes From
Mexico, Federal Register, Department of Commerce, November 1, 1996.
---------------------------------------------------------------------------
Other Florida commodities have been affected, as well. Mexican
shipments of bell peppers, cucumbers, squash, eggplant, beans and sweet
corn increased substantially during the period, particularly in the
1995-96 season.\3\
---------------------------------------------------------------------------
\3\ Competitive Growing Season Shipments, Annual Change and U.S.
Market Share, Florida Department of Agriculture and Consumer Services,
November 5, 1996.
---------------------------------------------------------------------------

Considerations During NAFTA's Negotiation

During the NAFTA negotiating period, Florida argued for
special consideration in the agreement due to its unique
competitive position vis-a-vis Mexico. With the precedents set
by previous trade agreements (U.S./Israel Free Trade Agreement
and U.S./Canada Free Trade Agreement), Florida requested that
its highly sensitive winter vegetable and citrus industries be
afforded maximum protection--ideally, exemption from the tariff
reductions in the NAFTA.
The industry also requested that, if tariffs were to be
reduced in the agreement, a special safeguard mechanism based
on price be included for sensitive products. The request for a
price-driven safeguard was also made by virtually every fruit
and vegetable producer organization in the country. A price-
based tariff snapback mechanism was contained in the U.S./
Canada Free Trade Agreement (CUSTA). It has been utilized
sparingly by the United States since the implementation of the
CUSTA, primarily due to logistical problems. The Canadians have
used it on numerous occasions, however. The industry
recommended that a similar, but enhanced, safeguard be
developed for the NAFTA.
FFVA and other fruit and vegetable organizations throughout
the country also requested that a strong sanitary and
phytosanitary agreement be negotiated as part of the agreement.
The industry argued that scientifically unjustified plant
quarantine barriers should not be tolerated, and that an
effective dispute settlement mechanism should be put in place
to resolve disagreements in this area.

NAFTA's Provisions and Commitments

The NAFTA was approved by Congress with the expectation
that sensitive industries like Florida's fruit and vegetable
sector would be afforded adequate safeguards. The agreement
itself contained three main mitigating measures: 1) phased
reduction of tariffs over a zero, five, 10 or 15 year period,
2) a volume-based special safeguard on a limited number of
products, and 3) emergency action provisions based on Section
201/202 of the Trade Act of 1974.
Despite their extreme sensitivity, as demonstrated by the
post-NAFTA experience, most Florida fruit and vegetable
products fell into the five or 10 year tariff phase-out
categories. Of Florida's major fruit and vegetable commodities,
only frozen concentrated orange juice received the maximum 15
year phase out of tariffs.
NAFTA's special safeguard is a volume-based tariff rate
quota mechanism that restores the original most-favored-nation
(MFN) tariff on a limited number of products if certain volume
targets are reached. The mechanism has been totally ineffective
as a safeguard, as we predicted before the agreement was
finalized. Because the safeguard mechanism is activated only
after a generous quota level is reached, MFN tariffs are
restored only after the increased volume on the market has
already depressed prices and injured domestic growers.
The agreement also contemplated that existing trade
remedies, such as Section 201/202 of the Trade Act of 1974,
would provide temporary adjustment relief to industries
seriously injured by increased imports caused by the reduction
and/or elimination of trade barriers. The NAFTA implementing
legislation reinforced this by requiring the ITC to monitor the
impact of trade in the domestic tomato and bell pepper
industries for 15 years after enactment. Conceptually, this was
supposed to expedite the filing of an import relief action
should these industries find themselves in jeopardy. In
application, however, Section 201/202 and the monitoring
provision of the implementing legislation has not provided
relief to the domestic industry. Florida's vegetable industry
has made two extremely expensive attempts at seeking relief
under these provisions to no avail. U.S. trade laws do not
account for the unique seasonal and perishable nature of fresh
fruit and vegetable production. As a result , it has been
impossible for the ITC to find serious injury to seasonal
agricultural industries.
Outside of the agreement itself and the implementing
legislation, several other commitments were made by the Clinton
Administration to the Florida agricultural industry in order to
secure support for NAFTA. The most well-known of these was a
letter sent by the President to Rep. Tom Lewis on the day
before the NAFTA vote in Congress. It read, in part: ``I
strongly believe that the volume-based snapback of the existing
agreement, coupled with the automatic price monitoring and the
expedited import relief procedure which will be the law after
NAFTA is passed will provide very effective price and volume
discipline. I want you to know that I am personally committed
to ensuring that this system is enforceable and effective. It
will work to ensure against unfair pricing by importers.'' \4\
---------------------------------------------------------------------------
\4\ Correspondence from President Bill Clinton to Representative
Tom Lewis, November 16, 1993.
---------------------------------------------------------------------------
Despite the President's belief and commitment that these
provisions would be effective, in practice they have been very
ineffective for domestic growers. The inadequacies of NAFTA's
safeguard mechanisms, combined with the serious deficiencies in
the application of U.S. trade laws, place Florida's import-
sensitive fruit and vegetable growers in serious jeopardy as
NAFTA's impact continues to unfold.
The agreement's sanitary and phytosanitary (SPS) pact was
designed to eliminate the unjustified use of plant quarantine
and other similar barriers to trade. It established a framework
of rules and disciplines to guide the development, adoption and
enforcement of these measures. Despite the industry's optimism
for these provisions, the SPS package for the most part has not
lived up to expectations. Although recent headway has been made
in this area--particularly access to Mexico for Florida
citrus--progress has been painstakingly slow since enactment.
Mexico has successfully stalled access for many U.S. fruits and
vegetables by simply refusing to adopt scientific standards or
work plans necessary for access. SPS restrictions are now the
barrier of choice by governments like Mexico that would like to
keep U.S. products out of their country.

Conclusion

With the exception of the predictions coming from the
industry itself, virtually all of the pre-NAFTA impact
predictions on Florida agriculture grossly underestimated the
damage suffered by the industry in a very short time. The U.S.
International Trade Commission, in its 1992-1993 investigation
into the potential impact of the NAFTA, reported: ``A number of
Mexican internal factors, such as inadequate transportation
infrastructure, long delays at border crossings, and a shortage
of truck capacity likely will continue to restrain Mexican
vegetable shipments to U.S. markets for the foreseeable
future.'' \5\
---------------------------------------------------------------------------
\5\ Potential Impact on the U.S. Economy and Selected Industries of
the North American Free Trade Agreement, International Trade
Commission, January, 1993.
---------------------------------------------------------------------------
Arguably, the only thing that restrained Mexican shipments
prior to the enactment of the agreement was a desire on the
industry's part not to ``upset the apple cart'' in advance of
the negotiation and Congressional consideration of the
agreement. Certainly, there has been little restraint shown
since.

Mr. Houghton. Thank you very much, Mr. Brown.
Mr. Hawkins.

STATEMENT OF WAYNE HAWKINS, EXECUTIVE VICE PRESIDENT, FLORIDA
TOMATO EXCHANGE, ORLANDO, FLORIDA

Mr. Hawkins. Thank you, Mr. Chairman. Looks like you've
finally gotten to the bottom of the barrel. [Laughter.]
My name is----
Mr. Houghton. Do you mean with me or you? [Laughter.]
Mr. Hawkins. Me. I'm used to this. I testified about NAFTA
before the ITC just recently, and I was the last witness there,
too.
My name is Wayne Hawkins. I am executive vice president of
the Florida Tomato Exchange, a nonprofit, cooperative
agricultural association whose membership produces about 90
percent of the volume of fresh tomatoes from Florida each year.
I submitted copies of my statement, as required, and
respectfully request that it be made a part of this record.
I have been involved in the so-called Florida-Mexico tomato
war for about 30 years. I have watched numerous laws passed by
the U.S. Government that regulated Florida tomatogrowers but
exempted Mexican imports. Even worse are the laws on the books
designed to regulate the product of both countries, but Mexican
imports are exempted at the whims of the bureaucrats who
totally ignore the intent of the law.
The last straw, and the one that really broke the back of
the Florida tomato industry, was the passage of NAFTA. I
testified before numerous Committees in Washington, DC, and
told them what would happen to Florida's perishable
agricultural industry if this legislation passed. I was wrong;
it's 10 times worse than I predicted, and happened much faster
than I anticipated.
The Florida tomato industry was promised by the President
of the United States that they would be protected, but,
unfortunately, the promises made were not kept, and the
industry has suffered hundreds of millions of dollars of losses
as a result. Thousands of workers have been displaced. The
farmgate value for tomatoes dropped from $643 million in 1991-
92 to $370 million in 1995-96. This is a reduction of nearly 43
percent in only 5 years. During the same period, imports of
Mexican tomatoes to the United States during Florida's season,
November through mid-June, have increased 284 percent, with
many of them sold all over the United States at prices that did
not return their own cost of production.
Prior to any negotiations on NAFTA, the U.S. International
Trade Commission found that the winter vegetable industry was
in direct competition with Mexico, and that it would be
negatively impacted should NAFTA be adopted. In response, our
trade negotiators adopted several safeguard provisions to
assist our industry. They failed miserably.
Efforts to obtain relief from unfair Mexican competition
were filed by the Florida tomato industry under sections 201
and 202 of the trade laws of 1974 and under provisions of the
antidumping laws of the United States. Evidence presented to
the ITC in the section 201 and 202 cases in 1995 and 1996
documented 24 packing houses and more than 100 tomatogrowers
that had gone out of business.
The ITC accepted these facts, but four of the five voting
Commissioners still voted that the evidence did not support the
premise that Mexican imports were a substantial cause of
injury, or threat thereof, to the domestic industries producing
tomatoes in the United States. I would like to know what the
term ``substantial cause'' and ``threat thereof'' mean. I
requested a definition from the ITC, but never received a
response.
The one Commissioner who voted in Florida's favor stated,
``In my view, by making a negative determination in these
investigations, the commission majority has set a standard for
obtaining relief under section 201 that is virtually impossible
to satisfy.''
The U.S. Commerce Department issued a preliminary finding
under the antidumping case that indicated Mexico had dumped
tomatoes into the United States at less than fair value.
Following a recommendation by the Commerce Department, the
Florida tomato industry agreed to accept the terms established
under a suspension agreement between Mexican tomatogrowers and
the Commerce Department that established a floor price on
tomatoes imported from Mexico. This appeared to be a solution
to the problem and worked quite well in the beginning. Changes
in the terms of enforcement of the suspension agreement by the
Commerce Department months after it was approved have and will
undoubtedly continue to weaken the final results. This again
points out that the safeguard provisions under NAFTA and our
other trade laws do not work for perishable agricultural
commodities.
We lost before the ITC because they refused to accept the
fact that Florida tomato production was a seasonal industry. We
tried to change the law so Florida would be recognized as a
seasonal industry. That change came to this Committee. In April
1996, I, along with many others, testified before you. To my
knowledge, you never voted on it. It died--just like many other
requests from this Committee over the past 30 years.
Do you know what's absurd? The Commerce Department right
now is trying to change the suspension agreement with Mexico to
provide the Mexicans relief because of seasonality. The law
hasn't been changed, but Commerce will prevail, I'm sure,
because Mexico is asking for relief, and not a group of United
States farmers.
In 1974 when I became manager of the Florida Tomato
Committee, there were 475 tomatogrowers on my mailing list. In
1991 there were 230, and today there are less than 75. Drops in
numbers of producers for each of the other winter vegetables
are similar. This clearly shows what NAFTA has done for Florida
agriculture. It looks like it will be the kiss of death for
Florida vegetable production.
According to Department of Commerce figures, the U.S. trade
deficit has worsened in each year of NAFTA. The trade deficit
has gone from an estimated $84.5 billion in 1992 to $166
billion in 1996. Exports to Mexico from the United States have
risen from $41 billion in 1993 to $56 billion in 1996. However,
imports from Mexico have risen from $40 billion in 1994 to $72
billion in 1996. This has created an enormous trade deficit
with Mexico which was not present prior to NAFTA.
For the 3 years before the agreement went into effect, the
United States trade balance with Mexico was a surplus of
between $1 and $5 billion. Since NAFTA has been in effect, the
balance has degraded from a surplus of $1.3 billion in 1994 to
deficits in 1995 and 1996 of $15.3 and $16.2 billion,
respectively. The United States trade deficit with Canada in
1996 was $22.8 billion.
An important lesson can be learned from studying the
results of only 3 years of NAFTA: It may work for some
industries, but overall it has been a disaster for U.S. trade.
If continued and expanded as it's presently planned, it could
be the start of hard times for many U.S. citizens. Good-paying
jobs will be replaced by minimum wage jobs, and the standard of
living in the good old U.S.A. will be lowered.
Before considering fast track approval of more NAFTA trade
agreements, let's fix the one we now have or get rid of it. Why
legislate the end of important industries like the Florida
tomato industry and displace thousands of workers? Maybe if
more legislators had to meet payrolls each week, it would place
a different perspective on this situation.
Thank you, Mr. Chairman, for allowing me to testify.
[The prepared statement follows:]

Statement of Wayne Hawkins, Executive Vice President, Florida Tomato
Exchange, Orlando, Florida

Introduction

The Florida Tomato Exchange is a non-profit cooperative,
agricultural trade association whose members ship about 90% of
the volume of fresh market tomatoes from Florida each year. In
1974, there were approximately 475 tomato growers. In 1990-91,
there were about 230; today there are fewer than 75.

Summary of Position

Since the beginning of NAFTA, less than 4 years ago, the
Florida Tomato Industry has lost in excess of $750 Million.
These losses and the loss of thousands of jobs are a direct
result of the NAFTA trade liberalization, the demonstrated
inadequacies of the specific safeguard provisions for tomatoes
in NAFTA, and the proven unfair trade practices of the Mexican
tomato producers and exporters.
The Florida tomato Industry invoked each safeguard
provision in NAFTA and its implementing legislation; none
worked.
Notwithstanding this, two Federal agencies separately found
that Florida's tomato growers and their workers suffered harm
as a result of NAFTA and the unfair trade practices of the
Mexican tomato producer/exporters. There is no credible
evidence that any other event or trend independent of NAFTA was
a factor, much less a major factor in the injury to this
Industry. While the unilateral, arbitrary peso devaluation by
the Mexican government in December 1994, less than a year into
NAFTA, exacerbated the harm to the Florida Tomato Industry, the
principal cause of the substantial injury to this Industry was
NAFTA and its ineffective safeguard provisions.

Discussion

Almost 4 years ago to the day (September 23, 1993), I
submitted a statement to this Committee predicting, if NAFTA
was approved with the safeguard provisions that it contained
for tomatoes, that ``tomato growers, their families, their
workers, their community and those whose livelihoods depend on
them will be seriously harmed.'' Most sadly, I was right. Our
industry has been greatly injured by NAFTA, and the provisions
of NAFTA ratified by this Committee have, by not working,
directly contributed to this harm. We ask that you fix these
provisions (identified and discussed below). You will not
diminish in any way your support for free trade. In doing so,
you simply will be living up to your responsibilities as
members of Congress and your implicit agreement with these
growers.
The injury to the Florida tomato industry cannot be
disputed: the farm-gate value for tomatoes from 1991-92 to
1995-96 was $643, $569, $428, $388 and $370 million. This is a
reduction of nearly 43% in only 5 years. During the same
period, imports of tomatoes from Mexico, which compete directly
with Florida's season, have increased 284% with many sales
below the cost of production and many sales without buyers at
the time of import (consignments). Since NAFTA began in January
1994, our industry has lost more than $750 million. Since NAFTA
began, this industry has filed several 201 and 202 cases under
the Trade Laws of 1974, one dumping case, met with USTR, and
ITC officials to discuss implementation of the Monitoring of
Imports and the Tariff Rate Quota (TRQ) safeguard provisions.
The Monitoring provisions have ceased to be implemented
primarily because there was no monitoring of imports taking
place. The TRQ provision (in addition to be adopted over the
industry's objections and using data we still believe to be
clearly erroneous) was also of little or no assistance since
its implementation was at least several weeks (10 business
days) after a shipment enter the United States and, therefore,
had no impact on the domestic market price.
Workers for Regency Packing Co. in Naples, Florida sought
Trade Adjustment Assistance (TAA) from the United States
Department of Labor as a result of NAFTA and increased imports
from Mexico. The Labor Department agreed with their claim under
NAFTA and certified almost 1,000 workers. Unfortunately, such
retraining was not useful and, therefore, workers who lost
their jobs after this did not seek help from the Labor
Department under its TAA program.
With regard to the 201 and 202 cases from which ``special''
provisional relief was promised, and provided specifically, to
the Florida tomato and pepper industries, as noted above, the
industry was unsuccessful in most part because the ITC did not
recognize the winter tomato industry as a separate, distinct
industry. It is a fact that Congress provided this relief to
the Florida winter tomato industry--the only industry in the
country threatened with harm from increased tomato imports from
Mexico. Because the ITC did not recognize this industry, in
April 1996 this Exchange returned to Congress and this very
Committee to rectify the mistake that was made. The Executive
Branch supported this change, the USTR General Counsel
testified before this Committee, the Senate unanimously agreed
to fix this issue. This Committee never even voted on our
requests. In my opinion, this Committee is honor-bound to
fulfill its promise to this industry by supporting the
safeguards promised and intended in NAFTA.

President's Report

The President notes in his Report on the Economic Effects
of the NAFTA (July 1997) that the impact of NAFTA has been
``positive,'' but he does not explain the huge trade deficit
since NAFTA began or its impact on trade, labor, etc. However,
the President acknowledges that NAFTA's short-run effects are
``transitory'' and it is difficult or ``challenging'' to
analyze the impact of NAFTA and there is ``only three years of
data to analyze.'' Further, the President notes that NAFTA's
most important effects are not easily quantified or observed,
and the full effects of the Agreement will take many more years
to make themselves known (p. 13). However, three and a half
years of experience under NAFTA is time enough to make some
assessments. In fact, the Administrator of the Foreign
Agricultural Service, USDA, August Schumacher, in a statement
before the House Agriculture Committee Subcommittee on General
Farm Commodities, on April 17, 1997 noted ``[i]t is time enough
to judge whether promises made [under NAFTA] are promises being
kept.'' I agree. The short, but strongly justified answer, is
that the promises made to the tomato and winter vegetable
growers by the Executive and Legislative Branches in NAFTA have
not been kept.
With regard to sector findings, the President notes that
imports from Mexico grew from $2.7 billion to $3.8 billion in
1996, a gain of 41%, and, the largest increase was in fresh and
processed tomatoes, other vegetables, and peanuts. In a
footnote (66), the President states that ``[t]omato trade was
not significantly affected by NAFTA'' and that ``[t]ariff
reductions on U.S. imports of winter tomatoes from Mexico have
been very small to date'' . . . and ``[t]he peso crisis,
technological shifts in tomato production, and unusual weather
in Florida were the major factors affecting U.S. tomato
imports.''
We respectfully disagree with the President. Thousands of
jobs lost and revenues lost in excess of $750 million is
significant, and NAFTA caused these losses.
The unsupported conclusions in the President's Report
apparently were taken from the June 1997 ITC Report (Inv. No.
332-381, Pub. No. 3045), The Import of the North American Free
Trade Agreement on the U.S. Economy and Industries: A Three
Year Review. It is important to note several things about this
Report. First, the ITC began its investigation in late April
1997, with hearings on May 15 and 16 and the final report
transmitted to the U.S. Trade Representative in June 1997 so
that it could be used in the President's Report. To
characterize this investigation as an in-depth, comprehensive
study that should be relied upon clearly ignores the
abbreviated time frame for this ``comprehensive'' study and,
more importantly, ITC itself cautions that ``[n]othing in this
report should be construed to indicate how the Commission would
find in an investigation . . . covering the same or similar
matter.''
I testified before this ITC Hearing and specifically asked
the Commissioners if the Florida Tomato Industry was the
``sacrificial lamb'' for NAFTA. I was astounded when the answer
was--``apparently yes!''
In summary, the President is saying that despite
difficulties in determining the short-term impact of NAFTA, the
impact has been positive for the U.S. and for agriculture, that
NAFTA is working, and that the substantial (and unprecedented)
increases in exports of tomatoes from Mexico to the U.S. were
not caused by NAFTA, but were due to other factors such as the
peso devaluating, bad weather in Florida, and (unexplained)
technological shifts in tomato production.
If any part of these claims was substantiated, the
President's own Department of Labor would have concluded that
the almost 1,000 workers at Regency Packing in Naples, Florida
did not lose their jobs because of NAFTA. But, the Labor
Department followed the law and found that NAFTA caused the
loss of these jobs. Words to the contrary do not change this
material fact. Of course, since then, thousands of additional
tomato workers and farmers have lost their jobs and gone out of
business. Don't take our word, check with the Commissioner of
Agriculture, State of Florida. Even the ITC in one of its
famous Section 202 decisions against Florida tomato growers
stated that evidence showed that more than 100 tomato farmers
in Florida and twenty-four packing houses had gone out of
business since NAFTA was implemented.
More importantly, the President's own Department of
Commerce last fall found that Mexican producers were dumping
tomatoes into the United States market. Dumping margins ranged
from 4.16% to 188.45%. Again, this material fact clearly
disproves the unsubstantiated claims that tomato trade was not
significantly affected by NAFTA. The ``other'' causes of
increased imports from Mexico were at best minor or secondary
factors compared to proven dumping. The other causes affecting
United States imports of tomatoes such as unusual weather are
true red herrings. For example, assuming Florida had unusual
weather which devastated the tomato crops making it a major
factor increasing imports is simply not true. First, since
NAFTA began, Florida has not experienced any unusual weather in
its tomato production. Second, Florida has many production
areas which are capable of expanding their production areas
relatively quickly, and since the beginning of NAFTA, there was
not one freeze that destroyed or substantially reduced the
tomato crop in Florida. Moreover, even with freezes, because of
the nature of the crop, growers can replant and produce a crop
in a very short time. Lastly, consumption records will show
that demand for tomatoes did not increase to warrant the
acknowledged substantial increases in imports. It is these
material facts and the findings of two Federal agencies that
must be controlling, not suggestions of ``technological shifts
in tomato production,'' whatever that means.

Test

Agriculture Secretary Glickman, obviously a strong
supporter of NAFTA, in remarks made on May 5, 1997, to an
Agriculture Working Group of the United States-Mexican
Binational Commission in Mexico City got it right when he said
our obligation is to make sure our markets are open which
requires our government to ``undertake trade policy actions to
break down the import barriers and insure a fair and level
playing field for our agricultural sectors.''
The Florida Tomato Exchange supports free trade and seeks
only fulfillment of Secretary Glickman's assurances of a fair
and level playing field for tomato growers. We ask only that
the promises made to us in 1993 by Congress and the Executive
Branch as memorialized in NAFTA, in its implementing
legislation, and in a letter from President Clinton to
Congressman Tom Lewis (described below) be honored. In this
letter dated November 16, 1993, the President said, ``I
strongly believe that the volume-based snapback of the existing
agreement, coupled with the automatic price monitoring and the
expedited import relief procedure . . . will provide very
effective price and volume discipline.'' The President
continued saying, ``I am personally committed to ensuring that
this system is enforceable and effective. It will work to
ensure against unfair pricing by importers.'' And, the
President said, ``I am committed to take the necessary steps to
ensure that the USTR and the ITC take prompt and effective
action to protect the U.S. vegetable industry against price
based surges from Mexico.'' Unfortunately, these promises and
commitments have not been kept. We do not have a fair and level
playing field for tomatoes. Instead of supporting CBI parity,
we believe this Committee should first assure parity for our
growers with the Mexican growers.

Pre-NAFTA

Prior to NAFTA, many reports acknowledged that U.S.
producers of tomatoes would ``face additional competition'' as
a result of NAFTA. (CBO study: July 1993, A Budgetary and
Economic Analysis of the North American Free Trade Agreement
(p. xvi). This same report notes that because of this increased
competition, NAFTA would include special safeguard provisions
for sensitive crops like tomatoes (Id. at 70). Other studies
noted that the government (ITC) reported that U.S. producers of
horticultural products ``are expected to experience losses in
production, particularly growers in Florida . . . who compete
directly with products during the same growing season in
Mexico.'' United States-Mexico Free Trade and Florida
Agriculture, Messina and Clouser, Editors, Staff Paper, Food
Resource and Economic Department, Institute of Food and
Agricultural Sciences, University of Florida, undated, p. 3.
The Congressional Research Service in its Report to
Congress dated September 21, 1992, noted Mexico's exports to
the United States of fruits and vegetables would expand under
NAFTA and that U.S. producers of tomatoes will face greater
competition. And, the February 1991 ITC study on the potential
impact of NAFTA noted that the lowering of barriers will likely
result in a significant increase in U.S. imports of
horticultural products including specifically winter tomatoes.
Lastly, a 1993 Loyola Law Review * article, The North American
Free Trade Agreement (NAFTA) and the Agricultural Sector, noted
at page 83 that approximately 1/2 of the winter vegetable
imports are comprised of fresh or chilled tomatoes which are
direct competitors to U.S. grown vegetables, ``particularly
those grown in Florida.'' And, this report concludes that the
U.S. grown winter vegetables will be the most affected by
NAFTA.
---------------------------------------------------------------------------
* K. Foster, D. Alexander, Loyola Law Review, Vol. 40, 1994.
---------------------------------------------------------------------------
So, prior to NAFTA, the consensus was that winter
vegetables, particularly tomatoes grown in Florida were most
likely to be affected by the increased imports resulting from
NAFTA. The industry predicted it, independent studies predicted
it, the Congressional Budget Office and the Congressional
Research Office predicted it, and the ITC agreed with this
conclusion.
As a direct result of the pre-NAFTA assessment of increased
tomato imports and harm to the winter tomato industry, NAFTA's
negotiators in the Executive Branch and in Congress
deliberately provided special safeguard provisions for winter
vegetables, including tomatoes specifically. The safeguard
provisions in NAFTA provided for: the elimination of U.S.
duties on fresh tomatoes over a 10-year transition period, and
a tariff rate quota (TRQ) with the quota amount increasing 3%
each year. Ambassador Hills noted that these special safeguard
measures for growers of tomatoes and other winter vegetables
will ``minimize adjustment pressures on growers of these
crops'' (Letter to Hon. Tom Lewis from Carl Hills, U.S. Trade
Representative, Oct. 5, 1992). Subsequently, Congress approved
the NAFTA implementation legislation containing additional
specific changes to help the winter tomato industry. Congress
made changes to Section 201 of the Trade Act of 1974 to allow a
domestic producers of tomatoes and peppers to seek
``provisional'' relief in a ``global'' 202 case so that the
domestic industry could receive prompt relief from the ITC.
Also, Congress included Section 316 (19 U.S.C. 3381) in the
NAFTA implementing legislation concerning the monitoring of
imports of tomatoes and peppers so that the ITC could collect
data sooner to respond more quickly in the new provisional
relief action described above.
None of these safeguard provisions work as intended.
Modifications to Section 201 and the new Section 316 have been
tried by the Florida tomato industry and they simply do not
work, principally because the ITC does not recognize the
existence of a winter vegetable industry. We came back to this
Committee to clarify the statutory language as intended by the
authors of the legislation and with the support of the
negotiators, but met with no success. This Committee never even
voted on our requests. Section 316 has been ineffectual since
January 1, 1994 and the ITC has abandoned it use.
The TRQ data have been collected by the Customs Service but
not in a timely fashion and not in a way that has had any
impact on lessening the impact of increased imports of
tomatoes. This safeguard may be satisfactory for less
perishable agricultural commodities; it is totally
unsatisfactory for fresh tomatoes. And, the 10-year phase-out
of the already low tariff was effectively eliminated altogether
when the Government of Mexico in December 1994 devalued the
peso by 40%.
So, the increases in imports of tomatoes were predicted in
anticipation of NAFTA, and the harm to the winter vegetable
industry, including tomatoes, was predicted in anticipation of
NAFTA, and based on those predictions, U.S. negotiators, and
later Congress negotiated, drafted, and approved safeguards to
prevent the harm that had been predicted as a result of the
later Congress negotiated, drafted, and approved safeguards to
prevent the harm that had been predicted as a result of the
implementation of NAFTA. And, the facts clearly show that the
predicted increases happened--in fact, the increases have been
much greater than anyone predicted. And, the facts show the
predicted injuries to the winter vegetable industry and to
tomato farmers in particular happened. And, now the President
reports that the predictions of increases and of harm should be
disregarded because it wasn't NAFTA that caused harm to
Florida's tomatoes growers, it was unusually bad weather in
Florida; it was technological shifts, or the peso devaluation;
and, Congress is reluctant to change the provisions in NAFTA or
in its implementing legislation even though the U.S. Trade
Representative, whose office negotiated the Agreement says
these changes should be made; and, the decisions of the U.S.
Department of Labor and the U.S. Department of Commerce
concluding increased tomato imports from Mexico under NAFTA
caused harm to the growers and workers in this industry are not
even mentioned in the President's report and clearly accorded
zero weight. This is wrong, very, very wrong.
Florida's farmers know when unusually bad weather occurs;
after all, these farmers lived through Hurricane Andrew in the
summer of 1992. These farmers can and have replanted when bad
weather destroyed their tomato crops, and they do so in a very
short time. To say that bad weather was a major factor
affecting imports is simply a lie. To say that technological
shifts in production was a major factor affecting imports is
first of all unclear and unintelligible. But, any technological
shift in the industry in the U.S. would have been known to the
industry, and there has been none since 1994. Lastly, the peso
devaluation was a factor affecting imports but it was not a
major factor. The major factor affecting imports was NAFTA and
the failure of NAFTA safeguard provisions when the industry
tried to use them.
We believe this Committee must look at all the material
facts and, where necessary, make changes needed to address the
problems identified. Specifically, this Committee must look at
the provisionses and fix those provisions that haven't worked
as promised. And, certainly this Committee needs to review how
NAFTA is working or not working as the case may be.
Based on a USDA Inspector General's report in March 1997,
it appears there are substantial and serious problems with the
implementation of NAFTA's provisions. More specifically, the
report notes that departmental oversight is now needed to
ensure completion of NAFTA's commitments and the effective use
of the NAFTA Committees on Sanitary and Phytosanitary Measures
and the Committee on Agriculture Trade. There appears to have
been little action to date to implement NAFTA. If it's not
being implemented, then it effectively is not working. If a
Dispute Resolution Committee had been in operation in 1994,
maybe it could have helped resolve the tomato problem with
Mexico.
Specific to fruits and vegetables, the Report notes
significant deficiencies with USDA's compliance with
inspections, and notes that some required inspections have not
happened, and that penalties are not being assessed when
violations occur.
Another report is relevant to this Committee's
consideration of the effects of NAFTA. Due to the substantial
increase in imports of fruits and vegetables primarily from
Mexico, the General Accounting Office has estimated that
foreign pests are entering the U.S. at a level that is costing
$41 billion annually in lost production and expenses for
prevention and control (Agricultural Inspection, Improvements
Needed to Minimize Threat of Foreign Pests and Diseases, GAO
Report, GAO/RCED-97-102, May 1997). Despite changes, inspectors
are struggling to keep pace with increased workloads. At some
ports of entry, including 6 in the south, no inspections are
conducted. Where inspections are performed, often they are done
improperly. Some ports are covered by inspectors only part of
the time the port is open, and in other ports where traffic is
the heaviest, the staff is inspecting less than 0.1% of the
traffic. This is not right; this is not a fair or level,
playing field. Today, Florida's tomato growers are caught up in
a Medfly infestation in central Florida and the identification
of a new deadly yellow leaf curl virus due to pests entering
the U.S. on imports. Are the U.S. producers the only ones
required to abide by the U.S. laws? To argue that imports are
meeting the same standards as U.S. grown produce is simply not
the case as these reports have found. Moreover, in the
President's own Report, he cites as an accomplishment that the
deadly pesticides, DDT and chlordane will be phased out in
Mexico by 2005. These pesticides have been banned in the United
States for some time.
The foregoing is proof that, because of NAFTA and its poor
implementation, imports are being treated differently (more
favorably from a competitive standpoint) than U.S. commodities.
In addition, we have proof that tomato and pepper growers in
Mexico this year are not abiding by NAFTA's rules or their own
government's laws in their production practices. One of our
members commissioned a video of farming practices in Mexico in
January and February of this year on tomato and pepper farms.
The video documents numerous violations of laws and regulations
and is proof that NAFTA's side agreements on labor and the
environment are not being enforced at all. This video was shown
to the ITC on May 16 at its hearing on NAFTA. The President's
report notes that many labor and environmental activities have
been initiated or will be taken. Proposals being made, meetings
attended, commissions being started are bureaucratic attempts
to meet governmental obligations under NAFTA. But such
initiatives are an impersonal admission that no (or very few)
concrete actions have been take to actually enforce NAFTA. The
above-mentioned video documents gross violations of NAFTA which
creates a situation, when combined with NAFTA safeguard
provisions not working, inspections not being made, and other
NAFTA provisions not being implemented, where NAFTA itself is
the problem and is causing and will cause additional harm to
U.S. farmers and others who must compete with such unfair and
apparently sanctioned illegal activities.

Conclusion

We have shown that the predictions that NAFTA would
increase imports of tomatoes to the U.S. and that the winter
vegetable industry would be seriously harmed. We have shown
that imports of tomatoes did increase substantially and that
the tomato industry in fact has been harmed. We have shown that
NAFTA's safeguard provisions and those in its implementing
legislation did not work as intended. We have established that
the cause of the harm was NAFTA and not bad weather. Most
importantly, we have not one but two government agencies to
support our conclusions.
Therefore, we think this Committee should find that the
tomato growers have been seriously injured by increased imports
from Mexico caused by NAFTA, that the NAFTA safeguard
provisions haven't worked, and that the implementation of NAFTA
and USDA inspections have been unfair to Florida tomato growers
and to other domestic industries resulting in an unleveled
playing field and that corrective action must be taken.
Quite literally, the fate of our industry is in this
Committee's and in this Congress' hands.

Mr. Houghton. Well, thank you, Mr. Hawkins. I think you do
very well at the end of the line.
I have a question or two, but I'd like to ask Ms. Thurman
if she would like to inquire.
Ms. Thurman. Mr. Chairman, I appreciate that.
Let me, first of all, thank the entire panel, but let me
also thank the two that have come here from Florida, Mr. Brown
and Mr. Hawkins, who I have had the opportunity to work with.
Mr. Hawkins, in your communities--we also look at rural
development, loss of jobs--what impact, besides your talking
about jobs--what's happened to these communities?
Mr. Hawkins. Well, the agribusiness effect in Florida is
about a 5-to-1 ratio. I told you we have lost $750 million in
the farmgate price of tomatoes alone. If you multiple that by
five, you can see quickly what it's doing to the communities.
It's also affecting all the supplier industries, and anyone
related with the agricultural deal are definitely being
affected.
Ms. Thurman. Let me ask another question. The seasonality
that I've raised a couple of times today, if that were to
become law, how do you see that helping?
Mr. Hawkins. Well, if we could have--we were placed in a
position because we were not identified as a seasonal industry;
we were placed in a position of claiming injury to the Florida
tomato industry for 12 months. Five of those months we had no
production whatsoever, and the only figures we had to work with
were our own figures. You can see the situation it put us in.
Mexico is now importing tomatoes 52 weeks out of the year to
the United States. For many years, all they imported to the
United States was in the spring season. Now its 52 weeks a
year, but it is still heaviest in the spring, and we were
trying to compare their figures with ours over just about a
6\1/2\-month period, and there's just no way you can come out
with figures that are right that way.
Ms. Thurman. Mr. Brown, since we do vegetables and have
some of the same seasonality issues, do you see that as a major
issue, an impediment into our trade issue?
Mr. Brown. It's a major issue, and if you're not able to
segment the industry, which is in fact truly seasonal because
of market windows and market opportunities and climatic
variation in the country, if you are not able to break the
industry into its actual parts in order to truly analyze the
injury that's occurring to those parts, if you lump the entire
industry into one 12-month business, many parts of the country
do not compete directly with Mexico, and in fact may not be
injured. But our particular industry in the State competes
head-on and is being very seriously injured, to the point of
hopefully not death, but it certainly is causing wreck and
destruction not only in the industry, but in the rural
communities.
I had the opportunity of serving as the county agricultural
extension director in southwest Florida in the county of
Collier for 8 years prior to coming to work for the
association. In that period of time, the community of Immokalee
was a bustling farm community. It had numerous packing houses.
We had up to 15 packing houses operate in that community,
employing thousands of people in this industry. Today there are
virtually--there's about four of those houses still operating
in that area of the State, and the economy of the community of
Immokalee is in ruin, simply because of the competitive
pressure put upon that economy by the Mexican imports.
Ms. Thurman. And then let me ask another question, because
I think this also goes to the heart of it. On top of this
direct competition with Mexico, then under what we thought
would be this open trade agreement, there is another issue that
has arisen with Mexico from a citrus industry's perspective as
far as their ability to be able to trade with Mexico with that
product. Is that----
Mr. Brown. Well, trade is supposed to be a couple of
fundamental things. It's supposed to be a two-way deal, and
it's supposed to be fundamentally fair, at least in our minds.
On the issue of Florida citrus, we have not yet been able to
enter a single piece of citrus into the State--or into the
country of Mexico because of phytosanitary restrictions that
the Mexicans keep throwing out or failing to carry through in
that process to successfully enter citrus.
Ms. Thurman. Let me ask you something very quickly, because
this morning the Trade Representative, Ambassador Lang,
mentioned there were some negotiations going on. Are you
familiar with those? Could you give me an update on that,
because I was kind of surprised to hear that?
Mr. Brown. Well, I'm not totally conversant with the
process of the negotiations, but the reality is the citrus has
not entered that process, and I guess you can keep things going
on forever, but the true proof of the pudding is the entry of
citrus into Mexico, and that has not occurred in 3 years.
Ms. Thurman. Thank you.
Mr. Houghton. Is that it, Ms. Thurman?
Ms. Thurman. Yes, thanks.
Mr. Houghton. OK. Well, we've just got a few minutes, and I
have a basic question. Whenever you deal outside the United
States, obviously, people have different labor laws and
environmental laws and attitudes, but the question is: 96
percent of the customers of the world are outside this country.
How do we get to them without hurting our own base?
Are you really saying things should be different in their
countries before we deal with them, or are you saying they
really should abide by their own laws? Maybe you'd like to
answer that question.
Mr. Beckman. Well, I'll take a stab at it. Just as a
variety of international rules of conducting trade have been
adopted over the last 50 years, in the Uruguay round a number
of new areas were covered by international trading rules. In
the areas of worker rights and the environment, these are
issues that are important to citizensaround the world. They are
critical in determining where production takes place and under
what circumstances, and who benefits from the wealth generated
by that production. These are issues that should be part of the
international trading system's rules, and there ought to be
international rules that cover these issues, just as there are
international rules that cover intellectual property rights and
other areas of business conduct.
Mr. Houghton. Can I just interrupt 1 minute? Are you asking
people in Mexico to do something more than abide by their own
rules?
Mr. Beckman. Well, under the--yes, what we're asking is
that Mexico agree to its other obligations as well, one of
which is to abide by the conventions of the International Labor
Organization and the standards that that organization sets for
the core labor standards.
Mr. Houghton. So there are two hurdles? One, their own
rules, and then that step by the International Labor
Organization?
Mr. Beckman. Well, their own rules on the face of them
comply with the ILO conventions that are included in the
generally accepted definition of core labor standards, but the
implementation of those rules is different.
Mr. Houghton. OK. Would anybody else like to comment on
that?
Mr. Hawkins. I'd like to comment. We'll compete with
anybody in the world. I think we're capable of competing with
anybody in the world if they follow the same rules we do. But
the rules are not the same. There's one set of rules for Mexico
and there's one set of rules for us, and that's what my main
argument is. We're going up a hill with both of our feet and
one arm tied behind us because of the rules that are placed on
us.
Mr. Houghton. Right, but I've been in business for many,
many years, and I understand this whole thing. The question is,
If people are not going to abide by our rules, that you would
like to see their rules come as close as possible to our rules.
But the question is, If they set out their own rules, do they
abide by those? And that's the issue, I think.
Ms. Hoffman. I would add one other. Ninety percent of the
consumers may be out of the United States, but 90 percent of
the consumer dollars in the world are not. A great many of the
consumer dollars are here. And there won't be more consumer
dollars elsewhere unless workers in other countries are earning
enough that they can become consumers. And with the current
regime, that is not the way that is.
Mr. Houghton. I understand that, and that's very helpful.
Let me ask Mr. Hawkins another question. You said that the
President sort of reneged on promises he made during the debate
on NAFTA. What--give me an example.
Mr. Hawkins. Based on a letter to the Florida delegation
that said if they would change their vote, he would see that
the perishable agricultural industry of Florida was protected.
Mr. Houghton. Protected to what extent? Were there any
specifics? Was it just a general statement?
Mr. Brown. May I quote you from that text----
Mr. Houghton. Sure, you bet. Right.
Mr. Brown [continuing]. From the letter of the President?
Quoting: ``I strongly believe that the volume-based snapback of
the existing agreement, coupled with the automatic price
monitoring and the expedited input relief procedures which will
be the law after NAFTA is passed, will provide very effective
price and volume discipline. I want you to know that I am
personally committed to ensuring that this system is
enforceable and effective. It will work to ensure against
unfair pricing by importers.''
Now that's lifted, a portion of that letter sent to
Congressman Tom Lewis from the President prior to the passage
of NAFTA.
We have had success in an antidumping case on behalf of the
tomato industry in the country, not in Florida alone, and found
that in fact there was a dumping margin found against the
Mexicans of some 17.56 percent. On a national basis, obviously,
we're not being very well protected.
Mr. Houghton. Right. Listen, I am terribly sorry; we've got
to leave, and rather than hold you up, I think we probably
ought to stop this now. But I thank you very much for your
contribution. I know I'm going to be reading over all the text
again, as I'm sure my other associates will. So thank you very
much for coming.
The session is adjourned.
[Whereupon, at 4:31 p.m., the hearing was adjourned,
subject to the call of the Chair.]
[Submissions for the record follow:]

Statement of Julio A. de Quesada, President, American Chamber of
Commerce of Mexico, Chairman of the Board and Chief Executive Officer,
Citibank Mexico, S.A.

My name is Julio A. de Quesada. As the 1997 President of
the American Chamber of Commerce of Mexico and Chairman of the
Board and CEO at Citibank Mexico, S.A., I respectfully submit
this testimony on the North American Free Trade Agreement to
the Subcommittee on Trade of the Committee on Ways and Means of
the U.S. House of Representatives.
American Chamber of Commerce of Mexico is the largest
American Chamber of Commerce outside of the United States. The
Chamber represents 2,700 companies which constitute
approximately 85% of all U.S. direct investment in Mexico. We
were actively involved, both as an institution and as
individual companies, in NAFTAs passage.
NAFTAs success, after only three years, is beyond that
which even we expected. Most importantly:
NAFTA has increased trade;
NAFTA has increased investment;
NAFTA has established mechanisms to resolve trade
disputes; and
NAFTA has helped to create a more competitive
North American product.
During April and May of 1997, we conducted a survey among
1,100 of our member companies (importers, exporters,
manufacturers, and maquiladoras). The results of this survey
highlight these NAFTA accomplishments.

NAFTA has increased trade

One of the primary goals of NAFTA was to increase trade,
thereby facilitating the flow of goods and services across all
borders. NAFTA has been an indisputable success in this area.
Trade in 1993, the year before NAFTA, totaled $82 billion
between Mexico and the United States. Since NAFTA was
implemented on January 1, 1994, trade has increased 58% to
reach $140 billion.
Why is this increased trade under NAFTA so important?
1) Canada and Mexico are now the two most important markets
for U.S. exports. In April of this year, the U.S. Department of
Commerce announced that exports to Mexico surpassed those to
Japan for the first time and are second only to those destined
for Canada.
2) Second, contrary to popular belief, U.S. industry and
U.S. workers have benefited from increased trade. Mexican
imports of U.S. products have increased 28% since NAFTA began.
($41 billion in 1993 vs. $57 billion in 1996). More U.S.
exports represent more U.S. jobs and according to public
statistics, these jobs pay more than non-export jobs.
3) Furthermore, increased trade under NAFTA has left no one
out of the game. Companies of all sizes are reaping the
benefits, on both sides of the border. In our survey, we found
that the number of small and medium sized companies involved in
import/export relationships has grown exponentially.
Following are some specific examples:
Lentes Sola, S.A. de C.V., a small U.S. company
operating in Mexico with total sales of approximately $4.5
million, distributes plastic and crystal optical lenses. With
the 15% reduction in tariffs under NAFTA, the company has seen
imports from the U.S. skyrocket 210%.
John Deere, on the other hand, is a large U.S.
owned company with sales of nearly $165 million. Between 1993
and 1996, imports from the U.S. increased more than 80%. This
growth was driven by the fact that NAFTA allowed the company to
begin production of a new product line in Mexico: industrial
machinery. Nearly all of the component parts used to produce
this machinery originate from their plants throughout the
United States.

NAFTA has increased investment

Trade is only one perspective on NAFTAs success. Mexico
attracted $31.5 billion in direct foreign investment between
1994 and 1996, second only to China in terms of emerging
markets. According to the World Bank and the Secretariat of
Commerce and Industrial Development in Mexico (SECOFI), the
United States alone invested $17.6 billion, or 55.7% of that
total. Ironically, as large as this investment may appear, it
represents but a small percent of total U.S. capital investment
in any given year.
Nonetheless, we have found that these investments in Mexico
do benefit U.S. industry and U.S. workers. Hewlett Packard is
an excellent example. Under NAFTA, the company has increased
investment in its Mexican operations. Yet, 50% of the component
parts used in the companys computers are manufactured in the
U.S. Thus, growth in the Mexican operations means growth for
the U.S. operations. In fact, Hewlett Packards intracompany
exports to Mexico are up four times since 1994.

NAFTA has developed a mechanism to resolve trade disputes

Equally important, NAFTA has played an important role in
increasing trade because it has established a framework for
managing this $140 billion trading relationship.
Many critics point to the list of pending trade disputes
and say that the dispute resolution process is still evolving.
However, this approach overlooks the fact that more trade
disputes are a natural result of increased trade. Furthermore,
the list of disputes that have actually been solved within the
NAFTA framework is impressive. Cement, corn brooms, steel and
tomatoes are issues that have been resolved with the treatys
clarification of the process for dispute resolution. Many other
trade issues remain pending; but this is a normal consequence
of any trade agreement, especially one between neighbors.
American Chamber/Mexico has over ten committees whose
monthly agendas deal with these types of issues, from package
labeli-border legal and administrative matters to environmental
standards. Dispute resolution is an on-going and concerted
effort, and the Chamber is committed as a working resource.
The fourth and most important point is that NAFTA has
helped to create a more competitive North American product
which is successfully competing in worldwide markets.

Texel, S.A. de C.V.

Texel, S.A. de C.V. provides an example of this objective.
Texel is a textiles manufacturing company with annual sales of
approximately $75 million. Its ownership is both American and
Mexican, and it is a publicly traded company.
The process by which Texel has developed a more competitive
North American product is simple. The company imports raw
materials from New York, North Carolina and Houston into Mexico
to produce yarns which are exported back to the United States.
From there, the yarns are processed into fabrics and shipped
out of American and Mexican factories as home furnishings and
automobile products to the Middle East, Australia, South
America and increasingly to more and more countries of the
world.
Under NAFTA, Texels component sales parts have grown.
Imports have leapt 67% from almost $12 million in 1992 to $20
million in 1996. This de facto means more U.S. jobs. From
Mexico, worldwide exports have increased from $10 million in
1993 to $34 million in 1996. But, most importantly, Texel
estimates that the combined North American product, with final
products bringing together the comparative advantages of U.S.
and Mexican products, has contributed over $30 million in new
U.S. exports destined for other non-NAFTA markets.

Oneida Mexicana

Oneida Mexicana, a 100% U.S.-owned company that
manufactures stainless steel flatware, plastic handle flatware
and kitchen cutlery, and distributes china, flatware and
hollowware (tea sets, ice buckets, etc.), provides another
important example.
Because of changes in tariffs under NAFTA, Oneida has
optimized production in its U.S., Canadian, and Mexican plants.
No factories have been closed in the process; rather,
production has been shifted among the three countries. U.S.
plants produce high quality products with high volumes and
Canadian plants produce high quality products with low volumes.
In Mexico, lower-priced products, such as stainless steel
flatware, are produced in high volumes.
This optimization, possible because of NAFTA, has had
tremendous benefits for the company. First of all, total trade
between the U.S. and Mexico increased 36% between 1993 and
1996. Exports from the U.S. to Mexico alone have increased by
$1 million.
NAFTA has also improved Oneidas ability to compete with
both Asian and European companies. The lower-end products
produced in Mexico better compete with Asian products because
of the 20% break on duties. U.S. products are at a significant
advantage over European products in the high-end market, also
due to the elimination of duties. Thus, Oneida, like Texel, is
creating synergies across the North American market and thereby
developing a more competitive North American product.
It is important to note that our member companies have also
made conditions better for workers and the environment along
the way. In our survey of American Chamber/Mexico members,
57.1% of the respondents have invested in new technology to
improve their environmental records. With respect to industrial
safety, 52.7% of the companies surveyed have instituted new
industrial hygiene and safety measures since 1994.

Case Studies

Before closing, I would like to mention that we have
collected a number of specific examples from small, medium and
large companies who have benefited tremendously as a result of
NAFTA. I will highlight just a few of examples of companies who
have experienced NAFTAs benefits first-hand in areas as diverse
as trade, investment, trade dispute resolution, labor,
agriculture, the environment, and intellectual property rights.

Controladora Mabe, S.A. de C.V.

Controladora Mabe is a U.S.-and Mexican-owned company which
manufactures, imports, and exports home appliances.
The company credits NAFTA with easing the process of
establishing a joint venture with General Electric. As a result
of NAFTA, the companys imports to Mexico from the U.S. have
grown 40% since 1993, from $185 million to $260 million in
1996. All raw and semi-processed materials are purchased
directly from U.S. companies.
Controladora Mabe has always been environmentally
conscious, but with NAFTA, an even greater emphasis has been
placed on this area. The purchase of new steel and aluminum
furnaces and foundries has contributed to important savings in
energy. To reduce pollution, the company has begun using solid
paint, and as of August 1997, the company will eliminate
production of refrigerators with CFCs.

Case Mexico, S.A.

Case Mexico, S.A. is a manufacturer of construction,
industrial and agricultural equipment. It was previously 70%
Mexican owned and 30% French owned, but is now 100% U.S. owned.
Since being acquired by U.S. interests five years ago, the
company has seen increased activity and success due to NAFTA.
One positive result of NAFTA has been the lowering of
tariffs from 15% to 0% on agricultural tractors exported from
the U.S. to Mexico. This lower tariff has provided Case Mexico
with a competitive advantage over its non-NAFTA competitors.
The company has also benefited from tariff reductions on
construction equipment and spare parts.
In a recent product rationalization decision, Case decided
to close a German tractor plant and move production to the U.S.
and England. Taking advantage of the NAFTA opportunity for
exports to Mexico, the company has designed a tractor which
will have a high level of U.S. content and be introduced into
the Mexican market. For shareholders, it means the additional
sales of several million dollars per year in tractors,
implements, and spare parts from the U.S.
William J. Meyers, Managing Director of the company,
stated, ``In Mexico there is a preference for U.S. goods and a
propensity to buy them. NAFTA has helped to facilitate this
desire, which is positive for U.S. industry and workers.'' He
added, ``NAFTA helped give us staying power through the crisis
because Mexican dealers realized that there would be a future
with U.S. products and a U.S. company.''

Cia Hulera Goodyear Oxo, S.A.

Cia Hulera Goodyear Oxo, a $300 million dollar company, has
54 years of experience operating in Mexico. Despite this long-
term presence, the company has seen significant positive
changes since the implementation of NAFTA.
One of the most important results of NAFTA has been the
rising confidence in the Mexican subsidiary on behalf of the
management in Akron, Ohio. NAFTA confirmed Mexicos commitment
to opening its economy to international trade and investment
and to becoming part of the global economy.
Another important result of NAFTA was the positive impact
it had on the Mexican labor union. Pre-NAFTA, productivity at
the Goodyear Mexico plant was in the lower third of all
Goodyear factories worldwide. The union relationship was
considered to be among the most challenging in the Goodyear
world. Even with GATT, the union was not convinced of the need
to become more competitive. However, with the onset of NAFTA
and the clear signs of market opening, management and union
adopted a new spirit of partnership and trust. Over the past
five years production and productivity have grown over 70%. The
plant has competitive worldwide costs and exports over 40% of
its production, while its workforce ranks among the best paid
in Mexico.

Celanese Mexicana, S.A. de C.V.

Celanese Mexicana is part of a world-wide consortium of
companies that manufacture and export chemicals, textiles and
packaging products. In addition to increased imports from the
U.S. due to lower tariffs under NAFTA, the company commends the
trade agreement for the clear rules it has established for
settling trade disputes. After having had experience with
numerous antidumping cases in the chemicals industry throughout
the world, Celanese finds the NAFTA mechanisms for solving
these problems remarkable.

American Soybean Association in Mexico

The agricultural sector has generated tremendous debate
with respect to NAFTA, however, the participants in this sector
have been some of the real winners.
First of all, NAFTA has helped to keep the system in place.
In 1982, when Mexico experienced a severe devaluation, the
U.S.-Mexico border was closed to the flow of agricultural
products. However, after the 1994 devaluation, NAFTA helped to
keep the borders open.
In the case of soybeans in particular, U.S. exports
actually increased between 1995 and 1996. In 1995 U.S. exports
of grain to Mexico totaled 6.26 million metric tons and in
1996, they jumped to 10.63 million metric tons. This equals
approximately 1 million more acres of productive land in the
U.S., a direct benefit for U.S. farmers. In the case of oil
seeds, NAFTA also helped to propel a surge in exports between
1995 and 1996. In 1995, 2.1 million metric tons were exported
to Mexico and in 1996, 2.7 million metric tons. This resulted
in close to 500,000 additional acres of productive land in the
U.S.
It is important to note that much of this growth is due to
tariff advantages for U.S. farmers under NAFTA. Soybean
producers compete with farmers throughout the world,
particularly in South America. U.S. farmers are at an advantage
because they can export to Mexico six months out of the year,
duty free; the other six months, there is a tariff of only 6%.
This affords them a significant advantage over South American
producers, who face a 10% tariff.
Kenneth Shwedel, Regional Director of the American Soybean
Association in Mexico, explains NAFTAs advantages. ``The
effects of NAFTA can be seen on both a micro and macro level.
On the micro level you can now walk into a supermarket and see
agricultural products produced in the U.S.A. Lettuce and corn
oil are two good examples. On the macro level, NAFTA generated
over $9.1 billion of agricultural trade between the U.S. and
Mexico in 1996. I did not think we would reach this level until
after the year 2000.''

Eli Lilly Mexico

Eli Lilly Mexico has had a presence in Mexico for more than
50 years. It exports to 43 countries, and sells pharmaceutical
and animal health products in Mexico. Eli Lilly has been
certified as an MRPII class A company.
Most importantly for Eli Lilly, llectual property rights,
allowing the company to invest in the launch of new products
and to become part of the global clinical trials for new
compounds. The patent protection requirements in NAFTA are
stronger than GATT and implementation is immediate. These
improvements in patent laws have resulted in greater exports of
raw active ingredients from the U.S. to Mexico for local fill-
finish (an important benefit for U.S. industry) and no copied
products (for those approved after 1991).
The reduction in duties has led to significant financial
savings on imports of raw materials and capital from the U.S.
For example, NAFTA was a key factor in 1995 when the company
opened its new oral antibiotics facility. Rather than bringing
European equipment, Lilly imported U.S. equipment. This meant
more jobs for both Americans and Mexicans. Lower tariffs have
also led to increased U.S. exports of finished products to
Mexico and facilities specialization.
Overall, NAFTA is breaking down trade barriers in
recognition of the evolving global economy. Increased trade
means the creation of jobs on both sides of the border, less
bureaucracy, and less wasted efforts.

Conclusions

There are clear and well-understood benefits from free
trade agreements such as NAFTA. For companies operating in
Mexico, U.S. and foreign alike, NAFTA has been a success.
Moreover, the evidence is clear that free trade agreements
ensure preferential treatment for those countries participating
in them. Goodyear Mexico, for example, reports that it imports
700,000 tires a year from three countries, all of which have
free trade agreements with Mexico.
Companies with a base in Mexico are already poised to move
further south throughout Latin America. Oneida Mexicana sees
the growth potential throughout Latin America as one of the
most important results of NAFTA. Because of the benefits they
have seen from NAFTA, many member companies, which are U.S.
enterprises, are looking for ways to grow via Mexicos trade
agreements with other countries.
Global interdependence is an irreversible course for
multinational businesses. The American Chamber of Commerce of
Mexico believes NAFTA can serve as a model for future free
trade agreements throughout the hemisphere. It concerns our
members that U.S. business may be left behind or shut out at a
time when the competitive advantages of U.S. products
demonstrate formidable strength, and thereby have distinct
opportunities in emerging markets.
The member companies of the American Chamber of Commerce of
Mexico have been part of the unfolding of NAFTAs success from
its beginning. Our experiences show that NAFTA works, that
NAFTA is good for U.S. business, and that the expansion of
NAFTA will be good for U.S. industry, U.S. workers and U.S.
competitiveness into the 21st century.

Statement of American Textile Manufacturers Institute

This statement is submitted by the American Textile
Manufacturers Institute (ATMI), the national association of the
textile mill products industry. Collectively, ATMI's members
make and market every kind of textile product and account for
80 percent of the textile fibers processed in the United
States.
For 40 years the U.S. textile industry's experience in the
field of international trade has been marred by an unceasing
torrent of imports, much of it unfairly and illegally traded.
To add insult to injury, many of the countries responsible for
this onslaught have kept their domestic markets sealed tight to
U.S. textile and apparel exports. However, in 1992, ATMI's
members agreed to support the North American Free Trade
Agreement (NAFTA) for several reasons.
Since its inception, NAFTA has proven a welcome contrast to
all that went before it. Both on philosophical and practical
grounds, NAFTA has been a welcome change to the U.S. textile
industry. On philosophical grounds, in ATMI's view, NAFTA
embodies and typifies what a trade agreement should be:
It is balanced, equitable and reciprocal
It has fair, transparent, enforceable and strict
rules of origin
It has a meaningful safeguard mechanism
It provides for a high degree of cooperation and
enforcement in Customs-related matters
The practical benefits of NAFTA are immediately apparent
upon review of the relevant data:

NAFTA Textile & Apparel Trade
[Million $]
----------------------------------------------------------------------------------------------------------------
Year
1993 1994 1995 1996 Ending
June 1997
----------------------------------------------------------------------------------------------------------------
Textiles:
Exports to Canada........................................ 1,611 1,798 2,035 2,230 2,424
Exports to Mexico........................................ 785 964 924 1,179 1,298
Total................................................ 2,396 2,762 2,959 3,409 3,722
Imports from Canada...................................... 566 728 881 1,047 1,127
Imports from Mexico...................................... 245 300 470 670 767
Total................................................ 811 1,028 1,351 1,717 1,894
U.S. Balance-Canada...................................... 1,045 1,070 1,154 1,183 1,297
U.S. Balance-Mexico...................................... 540 664 454 509 531
Total................................................ 1,585 1,734 1,608 1,692 1,828
Apparel:
Exports To Canada........................................ 369 430 513 533 575
Exports to Mexico........................................ 804 1,096 1,324 1,656 1,896
Total................................................ 1,173 1,526 1,837 2,189 2,471
Imports from Canada...................................... 454 589 770 948 1,073
Imports from Mexico...................................... 1,127 1,597 2,566 3,560 4,264
Total................................................ 1,581 2,186 3,336 4,508 5,337
U.S. Balance-Canada...................................... (85) (159) (257) (415) (498)
U.S. Balance-Mexico...................................... (323) (501) (1,242) (1,904) (2,368)
Total................................................ (408) (660) (1,499) (2,319) (2,866)
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce

As these data show, from 1993, the year before NAFTA went
into effect, until the present, U.S. exports of textiles to our
NAFTA partners have increased $1.3 billion or 55 percent. This
increase would have been even greater were it not for the
financial crisis which resulted in the sharp devaluation of the
Mexican peso in 1995. The ill effects of the peso devaluation
have been somewhat ameliorated by the ongoing reduction of
Mexican import tariffs on U.S. textiles, which has produced
modest increases in U.S. exports during 1996 and 1997. Since
virtually all Mexican tariffs on U.S. textiles will disappear
in 1999 and as the Mexican economy continues its sustained
recovery, further gains in U.S. textile exports should be
realized next year and beyond. Recent increases in exports of
yarns, fabrics and made-up textiles to Mexico provide a clear
indication that Mexico's recovery will benefit U.S. textiles.
At the same time, it should be noted that both Mexico and
Canada have recorded substantial increases in their textile
exports to the United States. The U.S., however, maintains a
surplus in its textile trade accounts with its NAFTA partners,
one that has grown larger since NAFTA began. In short, all the
partner countries have increased their exports of textiles to
each other. This is what NAFTA promised and this is what NAFTA
delivered to its textile industries.
With respect to trade in apparel, the dollar amounts
involved are much larger than in textiles, but require a word
of explanation: U.S. ``apparel'' exports to Mexico are not all
finished garments, but consist overwhelmingly of pieces of
fabric cut into garment components to be assembled (sewn) in
Mexico and returned to the United States; only a small portion
of the export total is finished garments. In the case of
Canada, the reverse is true.
U.S. apparel (cut pieces) exports to Mexico have increased
dramatically since NAFTA went into effect, rising over $1
billion or 136 percent in four short years. This, of course,
has helped fuel an even greater increase in Mexico's exports of
apparel to the U.S.: up $3.1 billion or 279 percent since pre-
NAFTA 1993. Mexico's apparel exports to the United States have
fared so well under NAFTA that last year it replaced China as
the leading foreign source of imported apparel:

U.S. Imports of Apparel
[Million Square Meters]
------------------------------------------------------------------------
Mexico China
------------------------------------------------------------------------
1993.................................... 321 935
1994.................................... 482 934
1995.................................... 774 862
1996.................................... 1,099 862
Year Ending June 1997................... 1,311 961
------------------------------------------------------------------------
Source: U.S. Department of Commerce

Such a large volume of apparel imports from one source, no
matter which source, would ordinarily be a source of concern,
but thanks to the rules and disciplines embodied in NAFTA, this
U.S.-Mexican trade has not damaged the U.S. textile industry.
In fact, as alluded to above, it has had the opposite effect
because the combination of (1) apparel imported from Mexico
using fabric made and cut in the United States, and (2) apparel
cut and sewn in Mexico from U.S. fabric exported to Mexico
results in over two-thirds of total apparel imports--nearly 900
million square meters worth--from Mexico being made of U.S.-
produced fabric.
In terms of textile and apparel trade, our NAFTA-forged
relationship with Mexico is truly symbiotic, truly mutually
rewarding. This cannot be said for China or the hundred-plus
other countries which ship textiles and apparel into our
market.
With respect to Canada, apparel trade has also expanded in
both directions, but in a way that was perhaps not foreseen.
U.S. exports of apparel to Canada, virtually all of which is
made with U.S.-produced fabric, grew $206 million or 56 percent
from 1993 to the present day, while Canada's exports to the
U.S. leaped $619 million or 136 percent. As a result, Canada
enjoys a rapidly growing surplus in apparel trade with the
United States, one that has now reached one-half billion
dollars annually.
One is tempted to ask how Canada, where the costs of making
apparel are significantly greater than they are in the United
States, can achieve an enormous and growing surplus in apparel
trade with the U.S. One obvious answer is that Canada is
shipping to a market that is 10 times larger than the one the
U.S. is shipping to. But this is offset by the fact that the
same holds true for textiles, yet the U.S. has a large surplus
in textile trade with Canada.
The real reason for this seeming anomaly is the only flaw,
from ATMI's perspective, in the NAFTA agreement, one that was
grandfathered from the predecessor U.S.-Canada Free Trade
Agreement and enlarged in NAFTA: the Tariff Preference Levels
(TPLs) which Canada was granted. TPLs permit the use of non-
NAFTA raw materials and components to produce goods eligible
for NAFTA (tariff and other) preferences. These egregious
violations of NAFTA rules of origin have been skillfully used
by Canadian exporters to the detriment of U.S. producers.
Under NAFTA, Canada was granted nearly 85 million square
meters worth of TPLs for cotton and man-made fiber apparel
(1997 rates) and over 5 million square meters worth for wool
apparel. Last year Canada used 40 percent of its cotton and
man-made fiber TPLs and 95 percent of its wool TPL to ship 39
million square meters worth of non-conforming apparel--28
percent of its total apparel exports--to the United States,
apparel that could have and should have been made with fabric
abundantly available in the United States, Canada or Mexico.
Nowhere is the abusive nature of Canada's TPLs more evident
(or more damaging) than in the case of men's suits. Thanks to
its wool apparel TPL, which was secured by Canadian negotiators
essentially on behalf of one company, Canada ships over $130
million worth (current annual rate) of men's wool suits to the
United States which do not conform to NAFTA's rules of origin
and should not be eligible for NAFTA preferences. This
illegitimate trade has seriously damaged U.S. producers of
men's suits and suit fabric and resulted in massive job losses.
To make matters worse, NAFTA specifically prohibits the taking
of any safeguard action with respect to these imports.
This TPL abuse aside, NAFTA has produced significant
benefits for the U.S. textile industry, as the data reported
above clearly show. NAFTA is responsible for 60 percent of the
increase in U.S. textile exports since 1993 as well as 44
percent of the nearly $3 billion increase in apparel exports
since 1993. In sum, total and apparel exports to Canada and
Mexico (including cut fabric pieces) currently provide
employment for 47,000 U.S. textile workers and thousands of
others in support and supplier industries.
Looking to the future, the U.S. textile industry has every
hope and expectation of building on the successes which NAFTA
has already produced, particularly as Mexico continues on the
road to full economic recovery. More immediately, the industry
sees a clear opportunity to replicate NAFTA's success by
extending NAFTA-type benefits to the nations of the Caribbean
Basin and Central America. ATMI earnestly hopes the Congress
shares this vision and will take the steps necessary to make it
a reality.

Statement of American Trucking Associations, Inc.

The American Trucking Associations (ATA) is the national
trade association of the U.S. trucking industry. ATA's mission
is to serve the united interests of the nine million people and
400,000-plus companies involved in trucking, and to educate
public officials at all levels of government about the
essential nature of the trucking industry. Established in 1933,
the ATA federation is composed of the ATA national
organization, 50 state trucking associations and 14 affiliated
national conferences and independent organizations. Including
state trucking associations, ATA conferences, and other
affiliates, the ATA Federation represents more than 34,000
companies.

NAFTA and Trucking

The trucking industry has long supported NAFTA. Therefore,
we firmly opposed the delay by the U.S. Government in
implementing the essential cross-border trucking provisions of
NAFTA. The delay has arbitrarily denied Canada, Mexico and the
United States the full benefits of this important trade
agreement, negatively impacting U.S. shippers and carriers
engaged in NAFTA trade. We urge the U.S. Government to
implement NAFTA's trucking provisions without further delay.
NAFTA offers the promise of even more jobs in the trucking
industry because it establishes the framework for more trade,
the vast majority of which moves by truck. When measured by
value, trucks move over 85 percent of U.S.-Mexico trade, and 67
percent of U.S.-Canada trade. Trade data compiled by the U.S.
Department of Commerce shows that our bilateral trade with
Mexico was up by more than 20 percent in 1996, compared to
1995. U.S. exports to Mexico increased by 22 percent for the
same period, while Mexican exports to the U.S. have increased
by 18 percent for the year. Statistics for the first half of
1997 show U.S.-Mexico trade up by 18.5 percent compared to the
same period last year.
To illustrate how trucking has benefitted from NAFTA's
increased trade flows, we present the following examples of
trucking companies that have benefited greatly from increased
U.S.-Mexico trade:
Celadon Group, a trucking company based in Indianapolis,
Indiana, has seen revenues from its U.S.-Mexico operation
increase from US$64 million in mid-1995, to $90 million in mid-
1996, and revenues reached $102 million by mid-1997,
representing an increase of $38 million dollars. Celadon's
U.S.-Mexico operations, in the afore-mentioned years,
represented about 65 percent of the company's total revenues.
During the same period, Celadon has increased its U.S.
truck driver work-force from 750 to 1,150. It has also added
about 100 administrative U.S jobs during that time. According
to company representatives, these jobs have been largely due to
the growth in U.S.-Mexico trade.
Contract Freighters, Inc., based in Joplin, Missouri, has
seen its U.S.-Mexico operation revenues increase from US$20
million in 1992 to US$49 million in 1996. When U.S.-Canadian
operation revenues are included, cross-border revenues jumped
from US$35 million in 1992 to US$64 million in 1996. Of CFI's
total revenues, its Mexican and Canadian operations have gone
from representing 22.04 percent in 1992 to 27.4 percent in
1996.
Schneider National, Inc., based in Green Bay, Wisconsin, is
the largest truckload motor carrier in the United States.
Schneider has been very active throughout North America, having
started operations in Canada in 1989, and is now the largest
truckload company in Canada. Schneider began U.S.-Mexico
operations in 1991. According to the carrier, NAFTA's greatest
effect on the company was the way it changed the mindset of
shippers regarding international trade, especially with Mexico.
NAFTA initiated a fundamental change in the way shippers viewed
new opportunities in the marketplace south of the border. From
1991 to 1993, Schneider established and steadily grew its U.S.-
Mexico operations. But with the NAFTA negotiations and its
eventual implementation, the 1993-1996 period saw an explosion
of growth of about 250 percent.
Roadway Express, Inc., based in Akron, Ohio, is a less-
than-truckload (consolidated shipment) carrier that has also
experienced a recent boom in its north and south bound
shipments. For the second half of 1996 and the first quarter of
1997, Roadway has seen a 25 percent rate of growth. The double-
digit growth in its North America operations has led Roadway to
purchase more equipment and add new U.S. jobs, especially at
their distribution terminals.

Cross-Border Trucking Today

Because the NAFTA trucking provisions have been delayed,
trucking companies that have invested in equipment to provide a
first rate freight service throughout North America, are left
to operate in an outmoded and inadequate freight transfer
system at the U.S.-Mexico border. A shipment traveling from the
United States to Mexico, or vice-versa, requires no less than
three drivers and three tractors to perform a single
international freight movement. Through interline partnerships,
freight is handled on the U.S. side by a U.S. carrier and on
the Mexican side by a Mexican carrier with a ``middleman'' or
drayage hauler in the middle. The drayage driver ferries loads
back and forth across the border to warehouses or freight yards
for pickup or subsequent final delivery.
Congestion is compounded because trailers come back empty
after delivering their freight across the border and because
drayage ``bobtails'' (tractors without trailers) deliver a
trailer only one-way across the border and return solo.
In addition to requiring two long-haul carriers, one on
either side of the border, and a drayage carrier to haul the
shipment across the border, the process includes freight
forwarders, customs brokers, as well as the official processing
handled by government inspectors and enforcement officials.
This process results in extra trucks on the road, congestion,
delays and ``over handling'' of shipments that invariably leads
to increased costs, and loss and damaged freight.
Furthermore, the existing border infrastructure is
seriously overburdened by the increased congestion generated by
the growth in trade flows and the present outmoded cross-border
trucking scheme. If, as anticipated, trade flows between Mexico
and the United States continue to grow, the border facilities
and personnel will only be further strained.

NAFTA Trucking Provisions

Under NAFTA, beginning on December 18, 1995, U.S. and
Mexican carriers were to have been allowed to pick up and
deliver international freight into each other's states
contiguous to the U.S.-Mexico border. By January 1, 2000,
access would expand to all states on either side of the border.
NAFTA's trucking provisions would enhance the competitiveness
of U.S. goods in the Mexican market by providing U.S. exporters
and importers an efficient cross-border trucking operation.
If implemented, NAFTA's trucking provisions would allow
U.S. carriers, by using their own drivers and trucks in Mexico,
to reduce shipping times and increase reliability of service.
Opening the border will lead to greater efficiencies, cost and
time savings, and will greatly facilitate the flow of commerce
across our borders.
In addition, the trucking provisions would have improved
our ability to invest in the Mexican market. U.S. and Canadian
investors were to be permitted to invest in up to 49 percent
ownership of Mexican trucking companies or terminals providing
exclusively international freight services. On January 1, 2001,
those investment rights are scheduled to increase to 51
percent, and, on January 1, 2004, the rights expand to 100
percent.

NAFTA Trucking Delayed

The day the border was to open, the U.S. Government
unilaterally delayed opening the border, and the U.S.
Department of Transportation refused to process applications
from Mexican trucking companies.
Announcing the postponement, then Secretary of
Transportation Federico Pen cited safety and security concerns
regarding Mexican trucks operating in the United States as the
reason for the delay. However, all four border governors, who
have primary enforcement responsibility for motor carrier
operations, have repeatedly affirmed that they are prepared to
enforce U.S. truck safety regulations.
NAFTA's trucking provisions require all foreign carriers
operating in the United States to abide by U.S. standards and
regulations. ATA fully supports rigorous enforcement of all
U.S. standards for foreign carriers operating in this country.
The current freeze, however, imposes a presumption of guilt
based upon national origin: no matter how safe the Mexican
trucking company, it cannot get permission to leave the border
zone.
Unfortunately, the freeze has perpetuated the current
inefficient and congested border crossing procl consumption,
idle salaried drivers), and greatly affects delivery schedules
for manufacturing and retail operations on both sides of the
border. As the agreement continues to increase our bilateral
trade with Mexico and Canada, the trucking industry faces
greater pressures from shippers to expand just-in-time delivery
throughout North America. By providing just-in-time delivery,
carriers can significantly reduce shippers' expenses,
eliminating expensive warehousing costs and other added
expenditures associated with maintaining inventories.
The delay has adversely impacted U.S. shippers and carriers
engaged in NAFTA trade. Equipment orders have been postponed,
contracts have been put off or cancelled, and the promise of
increased operating efficiencies has been indefinitely delayed.
Moreover, the border freeze has delayed resolutions to key U.S.
trucking concerns in Mexico regarding 53-foot trailer use,
small package carrier operations, and U.S. investments.

Support for Cross-Border Trucking

The governors of the four southern border states, and their
respective state safety enforcement officials, have repeatedly
stated that they are fully prepared to enforce safety
regulations (see Attachment I). In addition to stepped up
enforcement, the Federal Highway Administration (FHWA) and
state governments have established effective education and
media campaigns directed to carriers, drivers, and brokers,
regarding operating requirements in the United States.
In a letter to President Clinton in December 1996, on the
anniversary of the moratorium, a diverse and important group of
signatories (see Attachment II), made it clear that the border
opening delay is an issue that affects not just the trucking
industry and the border states, but all those manufacturers in
various states that depend on trucking to export their
products. The freeze on cross-border trucking affects the
overall productivity and competency of NAFTA.
The signatories, who urged an immediate end to the border
delay, included:
American Automobile Manufacturers Association
American Textile Manufacturers Institute
American Trucking Associations
Commercial Vehicle Safety Alliance
Council of the Americas
National Association of Manufacturers
National Foreign Trade Council
National Industrial Transportation League
National Private Truck Council
U.S. Chamber of Commerce
U.S. Hispanic Chamber of Commerce
U.S.-Mexico Chamber of Commerce
The Commercial Vehicle Safety Alliance (CVSA), an
organization representing motor carrier safety enforcement
officials from every state in the United States, as well as
Canadian and Mexican members, is playing an important role in
training U.S. and Mexican inspectors to inspect trucks crossing
the U.S.-Mexico border. CVSA has been instructing Mexican
inspectors to apply standards equivalent to those established
under the North American Vehicle Inspection Standard, which has
been used for some time in Canada and the United States.
According to officials from CVSA, ``the safety training of
Mexican inspectors should ensure that Mexican commercial
vehicles which cross the border meet the U.S. safety
standards.''

Conclusion

The U.S. trucking industry, shippers and the American
consumers that we serve have already seen considerable benefits
from NAFTA, i.e. job creation, opening of new markets for U.S.
goods and services, business expansion opportunities, reduction
in tariffs, and increased production efficiencies. Although
NAFTA has proven beneficial to U.S. industries and consumers,
the U.S. Government's decision to delay cross-border trucking
service has unduly penalized not only the transportation
industry, but U.S. exporters and importers alike.
Implementation of NAFTA's trucking provisions will
eliminate a cumbersome, outdated and costly system of moving
freight across the border, and replace it with an efficient,
transparent and safe cross-border trucking process.
Once the border is opened, we can begin to recognize the
full benefits of NAFTA and increased trade between the United
States and Mexico. Then, we can focus our efforts on the many
business and practical issues that will arise from the cross-
border integration process. Those can only be tackled with the
goodwill of committed trading partners.

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Statement of Border Trade Alliance, San Diego, California

The Border Trade Alliance (BTA) was founded in 1986 and
consists of individuals, entities and companies which live and
do business along with U.S. Southwest border. The BTA is a
long-standing grassroots organization dedicated to facilitating
legitimate trade and commerce along the U.S./Mexico border.
Over the past decade, our agenda has consistently focused on
trade facilitation, NAFTA, fast track, trade expansion, border
infrastructure and environmental issues, and industrial and
economic development. We have positioned ourselves as a
resource for industry and government in addressing these
issues, and want to work closely with the leadership in both
Washington, D.C. and Mexico City to improve trade and commerce
in the Americas.
As such, our members have a unique perspective about life
at the Southwest border. Because our members live and work in
the region, we have seen the best and the worst of the
relationship between the U.S. and Mexico. As such, we know the
benefits which have been derived from the North American Free
Trade Agreement (NAFTA). NAFTA has brought attention to the
U.S. border region in a way that previously was sorely lacking.
Unfortunately with that heightened attention has also come
those with parochial perspectives whose sole purpose is to
advance their political agenda, regardless of whether the
information given out is accurate.

Introduction:

As a group, we recognize the many problems which exist on
both sides of the border. But we also recognize the advantages
which are derived from the spirit of NAFTA, as well as the
agreement itself. Much of the opening of the Mexican market
derives from Mexican government officials acting in the spirit
of NAFTA, rather than its letter. The dramatic increase in U.S.
exports and the hundreds of thousands of direct trade-related
jobs are evidence of the heightened economic integration
between the U.S. and Mexico. A benefit of this integration is
the increased competitiveness the U.S. is enjoying in the
global marketplace.
Our challenge to those who contend NAFTA is a bad idea is
simple. Rather than destroying NAFTA--an agreement in its
infancy that has yet to be fully implemented--let us make it
work properly, We should look to realize its potential, not
undercut its benefits. If we need to reinvigorate adjustment
assistance for U.S. industry and business or training programs
for displaced workers, we should do so. If we need the NADBank
and the BECC to become more active, we should press for these
things to happen. If we are concerned about labor issues in
Mexico, the labor side agreement should be made to work more
effectively. If there are environmental issues of concern, they
should be brought before the existing trilateral commission. It
helps no one to tear down an agreement that has already brought
important benefits to the people and businesses of this
country.
We cannot sacrifice the economic competitiveness of the
United States and the livelihood of our citizens to conjecture
and acrimony. As a free, democratic and market-driven country,
we have the flexibility to compete internationally and to set
the pace in foreign affairs. We must not sacrifice our
country's natural role to parochial interests and speculation.
Offshore manufacturing is a reality of the global
marketplace in which we all live. American companies will
continue to uncover the most competitive advantage for their
businesses as long as the U.S. remains a free market economy.
Can the American government deny companies the opportunity to
compete internationally? Clearly, the answer is--no! Given the
ever-expanding anti-trade, anti-NAFTA rhetoric which seems to
be the theme of this Congress, how are the American people to
interpret the quickness to criticize and the apparent
unwillingness to seek real and lasting solutions? It seems the
popular political notion is to blame NAFTA for everything that
is wrong in this country, whether or not the issue really has
anything to do with NAFTA. Do members really intend to ask, in
effect, that the U.S. place restrictions on capital movement
and competition? What is the message? surely it cannot be U.S.
protectionism! Shrinking from our natural leadership role in
the world will simply defeat the ability of the U.S. to
overcome the inevitable competition that will occur from our
trading partners.
We concur that NAFTA has not been completely honed and
polished. But let us be clear. As the agreement's critics work
to cast blame on NAFTA, they are at the same time prohibiting
it from being fully realized. Our members notice this trend
particularly in such areas as binational trucking,
infrastructure, anti-dumping rulings, and the perpetuation of
non-tariff trade barriers (such as the tuna embargo and the
tomato anti-dumping suspension agreement, both of which are
highly controversial). The United States is not allowing the
NAFTA to be fully implemented. As a nation, we are criticizing
an agreement that has not even taken full shape. It cannot be
fully realized until we, as a nation, commit ourselves to the
idea of free trade and the inevitability of the global
marketplace.

Globalization of Trade

The fundamental issue driving globalization is industrial
competitiveness, i.e. the ability to place product in the
marketplace at a price equal to or better than that of a
competitor. Price is nothing more than the sum total of the
costs of production with an acceptable margin for profit. To be
globally competitive, then, a country must have a total cost of
doing business that is attractive to foreign investment. NAFTA
has contributed to such an environment in the U.S., as is
evident from the fact that since 1995, foreign investment in
the United States has increased from approximately $60 billion
to approximately $96 billion per year. With this remarkable
investment increase has come the creation of countless jobs
resulting in the lowest unemployment rate in this country
during the last 25 years.
For many of the critics of NAFTA, the real concern is plant
relocation and the resulting dislocation of U.S. jobs. The
fundamental cause of these phenomena is not NAFTA but rather
demand by American consumers. Given relatively fixed incomes,
Americans are simply not willing to compromise their standard
of living to subsidize higher-priced U.S. goods. Which American
consumer bought a Zenith television set in order to maintain
Zenith's presence as a U.S. manufacturer? What American
consumer purchases a product on the basis of its country of
origin labeling? NAFTA does not purchase products, consumers
do.

Trade Figures

In 1996, U.S. exports to Mexico reached $72.3 billion--an
amount exceeded only by exports to Canada and Japan. This
figure represents more than the total of U.S. exports to the
United Kingdom and France combined, and more than double what
the U.S. exported to Germany. In turn, Mexico imported more
goods from the United States in 1996 than did the rest of Latin
America, accounting for nine (9) percent of the total of all
U.S. exports. That is to say, 75.4 percent of all Mexican
imports came from the United States. These figures are a clear
indication of Mexico's importance to U.S. exporters. Moreover,
thanks in great part to the tariff reductions attributable to
the NAFTA agreement, in the first quarter of 1997 alone,
Mexico's imports of U.S. made capital goods (machinery and
equipment) amounted to $2.3 billion--p 35.7 percent from the
same period last year.
Many critics argue that the current U.S.-Mexico trade
deficit is the result of the NAFTA agreement. This is simply
untrue. Trade deficits between the United States and Mexico are
linked to U.S. demand and market forces, not to some
malfunction of a trade accord. For example, in the past two
years, our trade deficit with Mexico ($3.9 billion in the first
quarter of 1997) can be attributed primarily to crude oil and
finished automobile imports from Mexico. In 1996, 78.4 percent
of Mexico's crude oil exports went to the United States and, by
itself, this one commodity represented a trade surplus for
Mexico of $8.12 billion. Oil imports from Mexico have increased
sharply for three (3) primary reasons: greater U.S. demand,
greater production in Mexico, and higher export prices. Such
increases have nothing to do with NAFTA but with world prices
and global market forces.

The Maquiladora Industry

The maquiladora (maquila) program is not a NAFTA program.
It is not a U.S. manufacturing program. Rather, it is a Mexican
program and many of the advantages that maquilas enjoy will be
eliminated because of NAFTA. The program was instituted by the
Mexican government in 1965 to replace the discontinued U.S.
Bracero Program. Mexico's primary aim in developing maquilas
was to assist in industrializing the country and in developing
its infrastructure, workforce, and employment base. Clearly,
technology transfer has occurred in Mexico, as has workforce
development and the opportunity for the employment of hundreds
of thousands of Mexican citizens (not to mention Americans) in
this process. Tijuana, Baja, California, for example, boasts a
one (1%) percent unemployment rate. It is due to the
maquiladora industry's prosperity that the border region fared
better than did the rest of Mexico during the economic
recession of 1995.
We could speak volumes about how the maquiladora industry
has provided positive economic opportunities for both the
United States and Mexico. Maquilas have brought billions of
dollars in direct investment commitments to the U.S. and Mexico
from around the globe. In particular, the industry has provided
stable employment opportunities for Mexican and American
citizens.
Maquiladora plants are regularly established within the
interior of Mexico, and in fact, manufacturing has increasingly
moved from the border region to the interior. The investment
climate created by NAFTA has encouraged development and an
influx of capital to these regions, thereby relieving some of
the socioeconomic stress on the U.S./Mexico border area. In
truth, socioeconomic problems are not endemic to the border
region. In fact, conditions on the border are, on the average,
better than in the interior of Mexico, which is why the border
sees such a strong movement of people from the interior to its
region. In short, for many Mexicans, the border offers
employment and a better quality of life.

The Labor and Environment Side Agreements

The Mexican wage rate is driven by supply and demand. No
responsible party in Mexico wants to see workers receive a less
than fair wage. But the reality of the situation is that the
country must generate 1,000,000 new jobs per year to fully
employ the new entrants into its work force. What economy can
sustain that level of growth? Mexico consequently will remain a
low cost production labor force for the foreseeable future.
The controversy about labor rights still exists regarding
Mexico and merits attention. Many correctly claim that real
manufacturing wages in Mexico in dollars have declined--but not
because of NAFTA. The cause was the sharp peso devaluation.
Because of the devaluation, hourly wages between 1994 and 1995
did fall by 33 percent. Between early 1995 and 1997, however,
they increased in average dollar terms by 17.1 percent. It is,
however, a fallacy to suggest that wages were stagnating prior
to the peso crisis. In fact, during 1991-4, the manufacturing
wage on average increased 23 percent in dollar terms.
Frankly, the Mexican worker has more protection under his
home country's labor laws than does an American worker in the
United States. For example, a Mexican worker is guaranteed a
number of compulsory benefits under Mexico's labor laws,
including health care, housing, education, severance benefits,
vacation and profit sharing. Mexico has a minimum wage
requirement which dominates its domestic industries. In
contrast, the oft-reviled maquilas pay a wage benefit package
which exceeds Mexico's domestic industry by, on average, 40%.
Maquilas provide the best wage and benefit packages in the
Republic.
When discussing the environment, NAFTA's critics suggest
that things have gotten worse rather than better in the border
region. This implies that NAFTA is the cause of all border
ills. There is no evidence to support such an allegation. In
fact, since the beginning of NAFTA's implementation, as
residents of the border, we have seen improvements and growth
in the realm of environmental concerns, infrastructure, quality
of life, and in employment opportunities all along our 2,000
mile border from San Diego to Brownsville.
We should not lose sight of the fact that the NAFTA is the
very mechanism that now allows us to address these issues.
Admittedly, the difficulty with both the BECC and the NADBank
has been that they have been slow to respond to the
environmental problems plaguing the area. Because the NADBank
lacks the mechanism to provide funding at market rates of
interest (even for BECC approved projects), delay in
improvements has occurred, evidencing the single most
significant factor that complicates the integrity and
effectiveness of the NADBank. Projects that require investment
have of late, however, been clearly identified at the recent
U.S. Department of Commerce Infrastructure Summits in San
Antonio, Texas.
The BTA wants to point out, however, that if environmental
violations are being committed, we should punish the
transgressors, not NAFTA. The truth is that thanks to the
agreement, the stage has been set for a quantum leap in
investment in environmental programs, such as Tijuana's
wastewater treatment plant, and the EPA's funding to the IBWC
for work at New River, Nogales, and the Rio Grande Valley.
Despite their track records, the BECC and the NADBank have, of
late, stepped up their efforts to be more effective in the
border region, offering greater assistance in approving new
projects for environmental clean-up.

Drug Trafficking and the Trade of Illicit Narcotics

A high demand exists in the United States for illicit
drugs. This is the painful truth that must be addressed when
referring to the United States' trade in illegal drugs. We as a
nation have not successfully eliminated demand, much less made
a dent in it. Given the relationship between supply and demand,
we know that where demand exists, supply will follow.
It is a fallacy to link the demand of U.S. illicit drug
consumers and the trafficking of illicit narcotics across our
borders to NAFTA--an agreement targeted (from a U.S.
perspective) to opening the Mexican market to U.S. consumer
goods and the reduction of tariffs between Mexico, Canada, and
the United States. NAFTA and drugs have no bearing on each
other. The problem existed before NAFTA was created and would
exist today even if NAFTA did not. Until we tackle the social
and other problems underlying rampant illicit drug consumption,
drug smuggling will continue.
Finally, it should be pointed out that despite searching
vigorously through a variety of legitimate channels, we are
still unable to discover any reliable evidence which supports
the oft-quoted figure that 70% of all drugs entering the U.S.
cross the Southwest border. Our discussions with law
enforcement personnel inevitably lead to the conclusion that
drugs will be smuggled into the U.S. by whatever means is
available--including cigarette boats which pick up 10 kilo lots
off our ocean swells.

Conclusion

Finally, the BTA would like to underscore its support for
free trade and for the continued implementation of the NAFTA
agreement. As a non-profit, grassroots border advocacy
organization, we work to improve conditions for legitimate
trade and commerce in the Americas. We have recently testified
before the International Trade Commission in support of the
NAFTA and have called upon numerous members of Congress to help
inform U.S. policy-makers regarding the benefits of the accord.
We extend our expertise and knowledge of the border region and
of cross-border trade and commerce to the Sub-Committee in the
hopes that you will use our organization as a source of
information and expertise about the Southwest border region.
Towards that end, we look forward to working with members on
both sides of the aisle as the NAFTA story is told.

Statement of Anita Sheth, Director of Trade Policy, Citizens for a
Sound Economy

Good morning. My name is Anita Sheth, and I am the Director
of Trade Policy at Citizens for a Sound Economy (CSE), a
nonpartisan research and education organization dedicated to
solving public policy problems through market-based solutions.
On behalf of our 250,000 members nationwide, I thank you for
the opportunity to discuss the impact of the North American
Free Trade Agreement on the U.S. economy.

The Benefits of Free Trade

At CSE, we believe that a strong and vibrant free-market
economic system offers the best hope for creating opportunity
and improving the quality of life for every American. It is the
individual American, and his or her freedom to make choices and
efforts to pursue those choices, that drives that free-market
economic system. We believe in preserving America's right to
economic choice--economic choice that should not stop at the
border. As such, we support the right of all American citizens
to engage in voluntary trade with individuals throughout the
world. In preserving this right, we are preserving a strong and
vibrant free-market economy.
As governments begin interfering with the free market by
imposing trade barriers, they are in essence determining the
winners and losers in the global economy--at the expense of the
individual, and thus, the economy as a whole. In time, those
industries with the best lobbyists--not the best prices,
products or services--are deemed winners by the government.
Whenever protectionist policies are implemented, the losers are
the people. They are the ones who are prevented from exercising
their right to choose, and thus end up paying more for inferior
goods.
Protectionists will proclaim loudly that we can't compete
with cheap foreign labor, or inferior foreign products without
lowering our living standards. Yes, if a foreign industry can
provided a product at a lower cost than an American industry,
it directly affects that American industry. However, other
Americans benefit from the cheaper imports. In addition, the
money they save allows them to buy other products, or to
invest, creating new jobs in other industries. At the same
time, the dollars foreigners earn from their U.S. sales must
either be spent on other American goods or otherwise invested
in the U.S. economy, also creating new jobs.
The benefits from exports are most easily visible. But,
benefits of free trade are not limited to the profits from
exports--they include preserving our economic strength,
fostering economic growth, and improving our standards of
living through increased purchasing power and higher-paying
jobs. Furthermore, free trade has played a historically
significant role in bringing together the citizens of the
diverse countries and cultures of the world through peaceful
commerce.
For these reasons, CSE was proud to support the
implementation of the North American Free Trade Agreement
(Nafta) over three years ago. And today, on behalf of CSE, I
would like to testify that the impact of Nafta on our economy
since its implementation on January 1, 1994 has been positive.

NAFTA, the Trade Deficit, and the State of the Economy

The North American Free Trade Agreement (Nafta) is a
monumental document that enables Americans, Canadians, and
Mexicans the right to freely do business with each other. Nafta
is NOT the cause of cancer, earthquakes, or today's trade
deficit, for that matter--despite what you may have heard over
the past few years. Most economists seem to agree that the
major factors contributing to the most recent trade deficits
are the strong U.S. dollar, substantial U.S. economic growth,
weaker growth in the Pacific Rim, and even seasonal trends.\1\
Protectionists often point to the trade deficit when attacking
free trade agreements--blaming it for everything from ``lost
manufacturing jobs'' to ``a weak U.S. economy.'' Because the
persistent U.S. trade deficit is thought to be at the very
least augmented by the implementation of Nafta, I would like to
emphasize that despite recent high trade deficits, our economy
has done quite well since the implementation of Nafta.
---------------------------------------------------------------------------
\1\ Richard Lawrence, ``January trade gap hit record,'' The Journal
of Commerce, Mar. 21, 1997, p. A1; Helene Cooper, ``U.S. Trade Gap
Widened in January; Pushed by Growing Deficit with China,'' The Wall
Street Journal, Mar.21, 1997, p. A2; UPI Staff, ``Economist: Deficit
Grows on US Strength,'' United Press International, Mar. 20, 1997.
---------------------------------------------------------------------------
On March 3, 1996, during an appearance on CNN, Patrick
Buchanan stated: ``Our merchandise trade deficit was $175
billion (in 1995). For every $1 billion, you get 20,000 jobs.
That's 3.5 million American workers who would have had good
manufacturing jobs if we simply had a trade balance.''
There are two responses to this argument: one theoretical
and one empirical.\2\ Both show the protectionist approach to
be wrong, self-defeating, even harmful. While the theoretical
support for free trade (which was summarized earlier) often
gets drowned out by rhetorical response from those opposing
free trade, the empirical support for free trade provides ample
reason to avoid a protectionist philosophy. All it takes is a
brief look at the past two decades of economic history to see a
number of ways in which protectionist arguments fail.\3\ It
also becomes evident that while Nafta's effects are not as
significantly positive as its benefactors would like, these
effects are certainly positive--and far from the doomsday
predictions of its detractors.
---------------------------------------------------------------------------
\2\ Much of this information on the trade deficit is summarized
from a more in-depth issue analysis: Wayne Leighton, updated by Anita
Sheth, ``Playing with the Numbers: Why Protectionists Are Wrong About
Trade.'' #31, Citizens for a Sound Economy Foundation, Apr. 30, 1997.
\3\ From a centuries-long historical perspective, the evidence also
supports the theory of free trade, and points to protectionism as a
source of impoverishment. Embracing free trade has assisted some of the
fastest-growing economies in history, from England in the mid-18th
century to Hong Kong in this century. At the same time, ignoring the
dangers of protectionism has accompanied considerable economic
hardship, with the most famous example being the experience of the U.S.
and many other countries immediately preceding the Great Depression.
---------------------------------------------------------------------------
Furthermore, at least three observations become readily
apparent. For example, the number of jobs in manufacturing has
not declined--since last year or over the past 20 years--
despite what many have said here. Additionally, trade deficits
have no relationship with the level of employment in
manufacturing. Finally, years in which the U.S. has run trade
deficits have also been years of increasing--not decreasing--
income for the average American.
One of the most popular myths passed on by the
protectionists is that trade deficits reflect a loss of jobs,
especially the ``good manufacturing jobs'' often highlighted by
many that have appeared before this Commission. And while there
is an ounce of truth in this argument--some jobs in
manufacturing do in fact go to other countries--new
manufacturing positions also become available in the U.S. In
fact, ``8 million more Americans are employed today than before
NAFTA, including 181,000 added to the manufacturing ranks.''
\4\
---------------------------------------------------------------------------
\4\ Paul Blustein, ``NAFTA: Free Trade Bought and Oversold.'' The
Washington Post, Sept. 30, 1996.
---------------------------------------------------------------------------
Moreover, the number of manufacturing jobs has no apparent
relationship with the existence or relative size of a trade
deficit. As shown in Figure 1, the United States' trade deficit
as a percentage of GDP has varied significantly over the past
20 years, yet the number of jobs in manufacturing has held
fairly steady.\5\ Given this fact, Mr. Buchanan's claims about
the number of good manufacturing jobs America could have had--
and presumably lost to foreigners--is obviously false.
---------------------------------------------------------------------------
\5\ In the graph used here trade deficit data are expressed as a
percentage of GDP so as to show the relative weight such a deficit had
on the economy in a given year. Comparing manufacturing employment and
the total trade deficit also shows no relationship between these two
measures.
[GRAPHIC] [TIFF OMITTED] T1944.038

The effects of Nafta on the U.S. auto manufacturing
industry is one particular case that deserves further
examination. Opponents of Nafta say that hundreds of thousands
of auto jobs are being lost as a result of the trade gap
between the U.S. and Mexico, which ``exists because of Nafta.''
\6\ However, the U.S. Labor Department reports that
autoworkers' jobs increased from 833,000 in the year before
Nafta's adoption to 950,000 today. Considering that the growth
in worldwide demand for U.S. automotive products averaged a
lowly 1.2% between 1991 and 1996, the addition of 100,000 jobs
is remarkable.
---------------------------------------------------------------------------
\6\ John Lippert, ``Troublesome Auto Trade Gap Growing.'' The
Arizona Republic, p. E1, Apr. 1, 1997.
---------------------------------------------------------------------------
Furthermore, it must be noted that Mexico is recovering
from its biggest recession in sixty years following the Peso
crisis in December 1994. This resulted in Mexico's temporary
inability to buy U.S. goods. The last time Mexico had a
currency crisis, it took seven years to reach the recovery
point they are at today. Why? Nafta legally binds Mexico to
keep its markets open. The Mexican response following a much
milder crisis in 1981 was to raise tariffs. The U.S. automotive
industry was shut out of the Mexican market. This time around,
U.S. motor vehicle exports were still double their pre-Nafta
1993 levels. In fact, the growth of jobs in the auto sector
could be attributable to Nafta. Before 1993, Mexico was a
virtual fortress to U.S. automobiles. But American automobile
manufacturers have experienced an expanding market south of the
border at a time when all other developed markets remain
saturated. By 1996, Mexico imported an impressive 86,000
vehicles, or roughly 236 a day.\7\
---------------------------------------------------------------------------
\7\ Willard Workman, Prepared Statement before the House Committee
on International Relations, Subcommittee on International Economic
Policy and Trade Subcommittee for Hearing on Report Card on Nafta. Mar.
5, 1997.
---------------------------------------------------------------------------
Despite the fact that manufacturing jobs, even auto
manufacturing jobs, are clearly not in decline, many feel trade
deficits as caused by free trade agreements must somehow make
us worse off. If not by increasing unemployment, then in some
other way trade deficits impoverish the average American.
However, this opinion reflects nothing more than the marketing
success of those who push protectionist policies.
Employment in manufacturing has held steady for two
decades--dispelling Mr. Buchanan's claim of job losses. In
fact, overall employment has done even better, rising almost
every year during this same time period. The Department of
Commerce reports that the total number of non-farm jobs grew
over 50 percent from 1976 to today.
Of course, a 50 percent increase in jobs is less
significant if the total number of workers grew even faster. We
should, therefore, consider these changes in context. And
perhaps the best way to compare the number of working Americans
to the number of available workers is to look at the overall
rate of unemployment.
The level of unemployment in the country over the past
twenty years has varied from five percent to a little under ten
percent. While this is a fairly wide range, the variation
itself has little if anything to do with trade deficits. If
trade deficits destroy jobs, then we should see high rates of
unemployment--either immediately or within a short period of
time--whenever trade deficits become a larger part of the
overall economy. As demonstrated in Figure 2, no such
relationship exists. On the contrary, a nearly opposite
correlation seems to take place. And unemployment since the
implementation of Nafta has remained under 6.5%. Trade deficits
have often been a large part of the economy at the same time
unemployment has been falling. In short, high levels of
unemployment do occur, and they do cause economic hardship. But
they are not the result of trade deficits or trade agreements.
[GRAPHIC] [TIFF OMITTED] T1944.039

If trade measures don't hurt employment, how about other
measures of economic well-being such as income? There is a
certain anxiety today about incomes and the ability of one or
two wage-earners to support a family. Many have claimed large
trade deficits that resulted from Nafta play a role in
explaining this anxiety.
Yet, while large trade deficits may make people feel
anxious, they do not make the average family worse off. In
fact, as shown in Figure 3, years with the highest real family
incomes have often been years with relatively large trade
deficits.\8\ This does not, of course, mean that large trade
deficits are the cause of an increase in family incomes.
However, it does show that trade deficits have not decreased
family income, as protectionists claim.
---------------------------------------------------------------------------
\8\ Median family income represents that income level at which half
of all families earn less than this amount and half earn more than this
amount. By focusing on median instead of mean income, we avoid biasing
the estimate with very large earnings by the highest earners. Also, the
correlation between high median family incomes and a high nominal trade
deficit is much like that between high incomes and a large trade
deficit as a percentage of GDP. As before, we simply focus on the
relative weight of a trade deficit instead of an absolute value.
[GRAPHIC] [TIFF OMITTED] T1944.040

Trade, and NAFTA, Lead to Prosperity

Protectionist arguments fail because they focus on the
wrong things. The fact is that the size of the U.S. trade
deficit has little if anything to do with the sources of
economic prosperity. Employment, income, and other measures of
well-being are in the long run directly affected by the
decisions made by individuals and their government. For
example, high levels of saving and investment, as well as
quality education, all tend to promote economic prosperity.
Practicing protectionism so as to limit trade deficits does
not.
But does trade itself really matter very much? Do we need
it to prosper? The answer is yes. While no single source
accounts for our economic well-being, there is a definite,
positive relationship between the level of trade and the total
amount of goods and services enjoyed by--and income of--the
average American. And without a doubt, Nafta has increased the
level of trade in this country. In their report on U.S. Jobs
and Nafta, the U.S. Department of Commerce noted that ``During
Nafta's first two years, U.S. goods exports to our Nafta
partners were up by 22%, or nearly $31 billion to $173 billion.
Moreover, the growth in U.S. goods exports to our Nafta
partners accelerated in 1996 by 34%.'' Not just the trade
deficit, but the level of trade itself has. Specifically, as
trade with other countries has become a larger part of our
economy, per capita income has risen at a brisk pace. Figure 4
illustrates this relationship.
For the average American, personal income has risen
steadily over the past two decades, and trade has risen to
become an even larger part of our economy, from under 15
percent of our GDP in 1976 to over 25 percent today. Thus, as
we have purchased more from and sold more to other countries,
we have been able to enjoy more goods and services for
ourselves. At the same time, the income of the average
American--and the ability to purchase goods and services--has
also increased. Personal income has steadily risen ever since
Nafta's implementation, and at a relatively higher rate. Over
the past 20 years, per capita disposable income (adjusted for
inflation) has risen from just under $13,800 to over $18,700
per year. Frequently, the largest increases in income have
accompanied large increases in the level of foreign trade--and
these can be traced to Nafta. Again, while this does not show
trade to be the one and only factor affecting economic well-
being, it does demonstrate that trade is an important part of a
healthy and growing economy.
[GRAPHIC] [TIFF OMITTED] T1944.041

Conclusion

The fact is, that trade deficits are a grossly inaccurate
way of determining the competitive performance of a nation in
the global economy. The U.S. deficit has been rising lately in
large part because the U.S. economy has been considerably
stronger than those of its largest trading partners (two out of
the top three trading partners being Mexico and Canada). This
has caused Americans to draw in greater amounts of imports.
What should be noted is that America's high trade deficits are
not the result of an inability to export. Moreover, Nafta has
increased our ability to export. The results: the United States
has been increasing its exports at an average rate of 10% per
year for six years--considered phenomenal for as mature and
large an economy as America's.
The rhetoric of trade protectionists fails to conform to
the reality of the marketplace. Running a trade deficit does
not cost America jobs, nor does it hurt the average family. The
number of manufacturing jobs in this country has been holding
steady, the total number of jobs has been growing consistently,
and the disposable income of the average individual has
continued to rise--all during a time in which the trade deficit
has been positive, often quite large, and during which Nafta
has been in effect.
Moreover, hysteria over the nearly record-high trade
deficits in 1996 and 1997--especially the claim that millions
of ``good manufacturing jobs'' relocated abroad--is unwarranted
and unnecessary. The fact is that the number of jobs in
manufacturing has fluctuated little over the past five years--
during which we have had some of the largest trade deficits in
recent history. Total employment grew even more significantly,
and other measures of economic well-being showed promising
results as well.
Perhaps most importantly, protectionists forget that
international trade--which can create either a deficit or a
surplus--plays a critical role in our economy. This point is
too often overlooked by those who would ``protect'' our
domestic interests through trade barriers and other
restrictions. Increasing our trade through Nafta has allowed
for an increase in our own standard of living. Following a
protectionist philosophy would directly threaten this important
economic benefit. At the same time, such protectionism would do
nothing to promote the good jobs protectionists say they can
bring us. These jobs--like the quality of life of all
Americans--are not threatened by Nafta, they are improved
because of it.
The Subcommittee on Trade of the Committee on Ways and
Means has provide a valuable service by attempting to review
the effects of the North American Free Trade Agreement on the
U.S. economy and its industries. I believe, and hope my
participation substantiates, that those effects have been
positive.

Statement of Stephen P. Dees, Farmland Industries, Inc., Kansas City,
Missouri

On behalf of the farmer-owned Farmland System, I would like
to commend you, Mr. Chairman, for holding this hearing to
review the North American Free Trade Agreement (NAFTA). I am
Steve Dees, Executive Vice President, Corporate Relations,
Communications and International Services for Farmland
Industries, Inc.
Farmland Industries, Inc. is the largest farmer-owned
cooperative in North America with over 1,400 local cooperative
members, serving 500,000 farmer-rancher families in 22
Midwestern states, Mexico and Canada. Also, more than 13,000
livestock producers are direct members of Farmland, marketing
their hogs and cattle. It is this network of farmers, farmer-
cooperatives and Farmland--and the many people who work for
them--that make up the Farmland Cooperative System.
Headquartered in Kansas City, Missouri, Farmland
manufactures and distributes to its farm cooperative members
agricultural inputs, including petroleum, crop production and
feed. Domestic and international marketing opportunities are
provided for our member-owners' agricultural outputs, including
the slaughtering, processing and marketing of pork and beef,
and grain processing and marketing. The Farmland System
conducts business in all 50 states and more than 70 countries.
Farmland employs over 15,000 people in 185 locations in the
United States.
The future economic well-being of American agriculture is
closely tied to our competitiveness in an expanding global
market. The importance of trade to the future of American
agriculture has been emphasized under the 1996 Farm Bill, with
the reduction in support to producers from domestic farm
programs. US producers now depend on exports for over 25
percent of gross receipts. This is anticipated to be 35 percent
by 2003.
In response to this globalization, Farmland Industries has
developed business strategies that reflect a strong commitment
to expanding world markets. The farmers and ranchers who own
the Farmland System are very much involved in expanding
international markets. In the past six years, our international
sales have grown from less than $200 million to over $4.1
billion. We believe US policy must also be dedicated to the
expansion of global markets.
Within the Farmland System, one of the most discussed
policies of the United States is the North American Free Trade
Agreement (NAFTA). Farmland strongly supported ratification of
NAFTA by the US Congress and was a key element in organizing
support from the agricultural community for the November 1993
ratification. We recognize that the controversy surrounding
NAFTA will have a major impact on any future free trade
initiative of the US. In turn, we recognize that negotiating
and modifying existing agreements and establishing new
agreements is critical to our competitiveness.
As I see it, two important questions are being asked as
part of the debate: has NAFTA worked for the farmers, ranchers,
employees and families of the Farmland system and for American
Agriculture?; and should the Administration be granted
authority--under conditions similar to those used to negotiate
NAFTA--to begin talks regarding new or expanded trade
agreements?
Farmland's farmer ownership and our focus on international
markets give us a unique perspective on the impact of NAFTA on
American agriculture.
As we begin the fourth year of NAFTA, some important
observations can be made:
Farmland has benefited from increased access to
the Mexican market. The market opening agreements contained in
NAFTA have been especially important to sales of grain--wheat,
corn and soybeans. In 1993, our grain sales were around 300,000
metric tons. In Farmland's 1996 fiscal year, we sold 1.9
million metric tons and this year we are well on our way to
selling substantially more than 2 million metric tons
(Reference chart 1). NAFTA provided for initial elimination of
liscencing requirements phased in quota and tariff reductions.
Combined with the potential demand, these measures make Mexico
a most important market for U.S. grain producers.
[GRAPHIC] [TIFF OMITTED] T1944.030

Our value-added marketing into Mexico has shown
and continues to show great promise. Sales of products from our
subsidiary National Beef Packing Co. have nearly doubled in two
years, going from $14 million in 1994 to $28 million in 1996.
Similar results for Farmland Foods, our pork operations, have
been achieved: in 1993 Foods sales to Mexico were about
$1,700,000; in Fiscal Year 1996 Foods sold over $3,500,000 of
products in the Mexican market. Through seven months in 1997,
we have almost reached that same level ($3.0 million).
Likewise, large animal feed and pet food sales have improved
and are the focus of an aggressive plan for expansion (charts
2&3). The tariff and quota reductions incorporated in the NAFTA
are critical to our expanded marketing of pork and beef.
[GRAPHIC] [TIFF OMITTED] T1944.031

[GRAPHIC] [TIFF OMITTED] T1944.032

The Mexican market, due in large part to the
impact of NAFTA, is so important and promising that Farmland is
participating in the improvement of the infrastructure
supporting Mexico's food and agricultural sector. We have
established or are in the process of completing investments in
refrigerated distribution, meat processing, and animal feed
manufacture.
In response to the opportunities supported by
NAFTA, Farmland has extended service to new members in both
Mexico and Canada. An expanded membership base benefits all by
adding to the efficiencies of our cooperative supply and
marketing services.
In total, Farmland has enjoyed an increase in
total sales to Mexico from less than $50 million in 1992 to
nearly $450 million in 1996. As a result, Mexico has become a
key for our international marketing plans (chart 4).

[GRAPHIC] [TIFF OMITTED] T1944.033

Our success in Mexico in the last few years is not
unique. Please keep in mind the Mexican economy went through
one of the roughest periods it has ever experienced. Throughout
this time, Mexico has continued to be a good, steady customer
of American agricultural products, as evidenced by its import
of American grain and oil seeds over the last few years (chart
5). In 1996, at a time of continued recovery of the Mexican
economy, US agriculture had a positive balance of trade with
Mexico. US exports of agricultural products--at $3.5 billion--
were $1 billion more than imports from Mexico in 1996.
[GRAPHIC] [TIFF OMITTED] T1944.034

The protein consumption of the average Mexican is
far below the levels for the United States. We know from past
experience, particularly the period before the last economic
crisis, that as the economic condition of the Mexican consumer
improves, that consumer spends more money on meat, eggs, and
dairy products. As Mexico is coming out of its crisis now, we
see nothing but increasing importance of this market to our
members.
At Farmland we have also drawn some important conclusions
about new or expanded trade agreements:
International trade is becoming more and more
important to the US farmer and to the US economy. US
agriculture's export dependence is rising. Improving
productivity and slow growth in domestic demand means
agriculture's future prosperity rests with a rising export
market. US agriculture holds first place as largest contributor
to the US Merchandise Trade Balance in 1995 and in 1996. Our
agricultural exports totaled over $58 billion in 1996!
Increasing farm exports are very much a function
of increased economic well being in developing countries with
large populations. Since the economic crisis of 1995, Mexico
has used expanded trade with the US and Canada as an important
tool in an impressive recovery. The Mexican overall trade
balance went from an $18.5 billion deficit in 1994 to a $7.1
billion surplus in 1996. Because of the recovery of the Mexican
economy in 1996, when GDP grew 4.5 percent, US exports to
Mexico are 20 percent higher than before the peso crisis and 35
percent higher than before NAFTA.
Since the US ratified NAFTA, new regional and
bilateral free trade agreements have been aggressively pursued
by our neighbors and in promising agricultural markets. From
our perspective, the most important new agreements are the
Canada/Chile agreement, the South American Southern Cone
(MERCOSUR) and Association of South East Asian Nations (ASEAN).
Equal access to these important growing markets is important to
the future of US agricultural trade. We are concerned that the
US may not be adequately represented at the negotiating table
on new agreements since ``fast-track'' expired with the
approval of NAFTA.
While the first three years of NAFTA show that the
integration process between the US, Canada and Mexico will not
be a smooth, straight path, U.S. agriculture has benefited
strongly from expanded trade opportunities. While there have
been some surprises and with respect to some specific issues,
some disappointments, on balance the trade agreement has worked
well to remove barriers and increase trade. We must insist on
aggressive, but fair enforcement of the terms of the Agreement,
but we must also recognize that as trade opens up, that means
opportunities for all of the countries involved. There will be
increased trade opportunities for the Mexicans and Canadians as
well. Most importantly, let's keep the big picture in mind.
From our standpoint, looking at the larger interests of
American producers as a whole, our clear answer to the
question, ``Does NAFTA work?'' is yes, emphatically.
In summary, we are convinced that the Farmland Cooperative
System and US agriculture in general has, and will continue to
benefit from expanded opportunities that result from the
reductions in trade barriers accomplished with new trade
agreements. Those benefits include the creation of jobs and a
stronger agriculture and rural economy here in the United
States. We encourage and support further efforts by the US
government to expand and maintain our opportunity in the North
American, Hemispheric, and global marketplace. Farmland
continues it's endorsement of NAFTA and encourages the re-
establishment of ``Fast Track'' trade negotiating authority.

Statement of Jim C. Kollaer, President and Chief Executive Officer,
Greater Houston Partnership

The Effects of NAFTA on Houston: Four Years Later

My name is Jim C. Kollaer, and I am the president and CEO
of the Greater Houston Partnership, the primary advocate for
Houston's business community. The Partnership is dedicated to
building economic prosperity throughout the eight-county
region. The Partnership represents 2,400 member companies which
employ about 500,000 Houstonians, or one-third of the work
force. Partnership members range in size from small one-and
two-person firms to multi-national corporations.
The North American Free Trade Agreement, signed into law in
1993, has been a resounding success for Houston. The benefits
of freer, less expensive trade between the Houston region and
Mexico resulted in many new joint business ventures, increased
imports and exports, and many more jobs for Houstonians.
Between 1993 and 1996, air cargo to and from Mexico has
increased 19.5 percent, sea trade has soared 105 percent and
exports from Houston to Mexico have jumped 28.2 percent. Air
passengers to and from Mexico through George Bush
Intercontinental Airport/Houston increased 30.9 percent during
the same period. And, Houston companies trading with Mexico
grew from 17 percent in 1993 to 23 percent in 1996. (See
Addendum One)
Houston is historically bound to Mexico and has the
cultural, economic and infrastructural base to develop these
relations into a pre-eminent position as the U.S. gateway to
this important market. Mexico's significant role in Houston's
economy is more easily understood if it is remembered that
Mexico City is closer geographically to Houston than to
Chicago.

Increased Representation

A delegation of Houston business leaders became the first
group to officially visit Mexico following approval of NAFTA by
Congress. The delegation, organized by the Greater Houston
Partnership, traveled to Mexico on Nov. 22, 1993, to
congratulate Mexican President Salinas de Gortari and other
high-ranking government officials of Mexico on the successful
ratification of NAFTA. A delegation from Houston also was
present for the inauguration of President Ernesto Zedillo Ponce
de Leon in December 1994.
Mexico has extensive official government representation in
Houston including: Consulate General of Mexico and a special
trade section within the Consulate General,
Mexican Government Tourist Office; Banco Nacional de
Mexico; Casa Guerrero, a permanent office representing the
State of Guerrero; and Casa Oaxaca, a trade office that
promotes business ties between Houston and Oaxaca.
Business and cultural relations are also fostered through
numerous organizations in Houston including the Houston
Hispanic Chamber of Commerce and the Institute of Hispanic
Culture. The Greater Houston Convention and Visitor's Bureau
and the Texas Department of Commerce both maintain offices in
Mexico City. Houston is a partner city with Monterrey.
The University of Houston has more than 75 different
international initiatives, and Mexico accounts for roughly one-
third of the total. For example, the Ministry of Tourism and
the University's Conrad N. Hilton College of Hotel and
Restaurant Management have an agreement covering joint
research, student exchange and training programs.
In 1993, when the Houston International Festival featured
Mexico, 800 business people from both sides of the border
attended the Partnership's ``Doing Business with Mexico''
seminar. That effort was continued in 1994 when Houston hosted
the Trilateral Conference of Chambers of Commerce of North
America.
The investment Mexico and the U.S. are making in each other
continues. In October 1997, the U.S. Hispanic Chamber of
Commerce will hold its national convention in Houston with a
specific focus on trade with Mexico. Also in October, the
``Access Mexico Energy Symposium '97'' will focus on government
policies and industrial strategies within the energy sector
which approximately 500 business people from both countries are
expected to attend.
In April 1997, the first Access Mexico Trade and Investment
Conference, hosted by the Greater Houston Partnership and the
Consulate General of Mexico, attracted more than 600
participants. The two-day event attracted five Mexican state
governors and corporations interested in generating business in
some of the areas outside of Mexico City, including the states
of Nuevo Leon, Tamaulipas, San Luis Potosi, Jalisco, Veracruz
and Mexico. More than 800 one-on-one meetings were held during
Access Mexico '97 where $40 million in business deals were
negotiated.
Houston hosted the 1996 Cuatro Caminos International Trade
Show and Conference, attracting people from all over the world
to the city. In 1996, the Partnership hosted 20 business events
focusing on Mexico, including five in-bound trade missions,
three out-bound trade missions and 14 trade delegations. More
than 2,000 Houstonians and visitors participated in these
events. That's up from 1995, when the number of trade missions
had been one in-bound and five out-bound, and in 1994, when the
Partnership held 10 seminars and briefings.

More Joint Ventures

Today, more than 800 Houston-area companies conduct
business in Mexico, and many Mexican-owned firms operate in
Houston. Such firms include Pemex, AeroMexico, Banamex, Telmex,
Bufete Industrial and Cemex.
Houston, of course, also has strong cultural ties with
Mexico. More than 20 percent of Houston's population is
Mexican-American. Based on the latest estimates, the Houston
metro area has the largest Mexican-American population in
Texas, and 85 percent of Houston's international visitors are
from Mexico.
These cultural ties help create a comfortable operating
environment for cross-border business, and Houstonians travel
to Mexico on a daily basis to conduct important business
transactions. According to the City of Houston Aviation
Department, Houston offers more daily flights to and from
Mexico than any other city in the United States, except Los
Angeles.
Numerous examples of the Houston region's commitment to
strengthening its relationship with Mexico abound with large
and small companies alike. In December 1995, a group of
Monterrey businessmen opened ``Beyond the Border,'' a store
featuring Mexican artisan objects. The store, located in
Houston's museum district, provides an export market for
Mexican hand-crafted and factory made products.
Hines, a Houston company and one of the country's leading
real estate developers, recently joined two Mexican firms in
the construction of Parque Industrial Queretaro, a $50 million,
750-acre industrial park. Funding for the investment came from
U.S.-based pension funds, the first such major investment in
Mexican real estate development. Hines has had other projects
in Mexico, including Del Bosque, a large office and residential
development in Mexico City's Polanco District.
Since 1993, Fugro-McClelland Marine Geosciences of Houston
has been the primary offshore geotechnical consultant for Pemex
in the design of offshore oil and gas platform foundations.
Fugro surveys proposed platform locations, conducts core
drilling, laboratory analysis, and engineering design to
develop foundations recommendations for the platforms.
El Paso Energy of Houston, through its international
subsidiary, is a 40 percent partner in the consortium building
which is a new 700 megawatt power plant at Samalayuca. This
$650 million plant is being constructed for the Comision
Federal de Electricidad and will provide power to the State of
Chihuahua. El Paso is also constructing a 45-mile pipeline to
supply gas to the Samalayuca project, Cuidad Juarez and
Chihuahua City. The line is a joint venture with Pemex.
Houston's NorAm Energy Corp., the nation's third largest
natural gas distributor and just purchased by Houston
Industries/Houston Lighting & Power, and Mexico's Grupo Gutsa
S.A., a leading, private construction company, recently formed
a joint-venture to distribute and market natural gas in Mexico.
In August 1995, Houston-based Amoco Pipleine Co., in
partnership with Mid-America Pipeline Co. and Navajo Pipeline
Co., announced plans to form a joint-venture to build a
pipeline exporting natural gas liquids to Mexico. The 300-mile
pipeline transports natural gas liquids from The Hobbs Station
in Texas to Ciudad Jaurez, Mexico.
Shell has a three-year-old partnership between Pemex and
its Deer Park Refining Company. Shell is assured a steady
supply of crude oil, and Mexico is assured a market for that
crude, along with a supply of high-quality fuel. ``The $1
billion invested in the new coker there to help process 170,000
barrels of Mayan crude a day has been money very well spent,''
said Philip J. Carroll in an address to President Zedillo on
August 4, 1997. Shell is also considering an expansion to the
coker unit to accommodate increased need, according to Carroll.
Also, Shell Chemical Company's new $100 million Altamira
polyethylene plant is scheduled to open fall 1997. For the past
40 years, Shell has had an active presence in the lubricants
and chemical business in Mexico and operates a lubricants
blending facility in Leon. Shell participated in a public
tender offer for the financing, construction and operation of
the largest nitrogen distillation plant in the world. This
nitrogen will be used to significantly enhance oil recovery in
the Cantarell Field.

Increased Trade--By Sea, By Air

Texas was the largest state exporter to Mexico in 1996 and
Mexico is an equally important trade partner for Houston.
Mexico is Houston's largest trading partner by waterborne
cargo, and second largest by airborne cargo. Mexico accounted
for 6.14 percent of international cargo through the Port of
Houston in 1996. Total seaborne trade with Mexico totaled more
than $2 billion dollars in 1996. (See Addendum 1 & 2)
Houston's seaborne imports from Mexico in 1996 were valued
at more than $1 billion. Leading import products were mineral
fuels and oils, organic chemicals and vehicles. Seaborne
exports to Mexico in 1996 totaled more than $948 million.
Leading export products were mineral fuels and oils, organic
chemicals and cereals.
Mexico is Houston's second largest air cargo trading
partner, and is the city's leading import origin of air cargo
trade. In 1996, air cargo trade between Houston and Mexico
totaled approximately 9.3 million kilograms, up 18 percent from
1995. Imports totaled roughly 6 million kilos, accounting for
64.9 percent of total air cargo trade with Mexico. Exports
totaled 3.2 million kilos.
Houston is the second largest U.S. international gateway to
Mexico, and as of March 1997, offered more flights to Mexico
than any other U.S. city except Los Angeles. Houston offers 432
non-stop flights a week to and from 12 major Mexican
destinations. Passenger traffic between Houston and Mexico
reached 1.6 million passengers in 1996, up 18 percent from
1995. AeroMexico, Aviateca and Continental Airlines offer
scheduled passenger service to and from Mexico. Aeromexpress,
DHL and United Parcel Service provide air cargo service to
Mexico. (See Addendum 3 & 4)

More Jobs for Houstonians

According to International Houston: 1997 International
Business Directory just over 100 Houston firms have offices in
Mexico, 774 Houston firms trade with Mexico, and more than
1,100 firms trade with the countries of North America,
including Mexico. In addition, 13 Mexican companies have
offices in Houston. Current estimates are that one-third of all
jobs in Houston are related to international trade, and Mexico
is one of Houston's most significant international trade and
investment partners.
The relationship between Texas and Mexico has never been
better. Export trade from Texas to Mexico has grown from $18.8
billion in 1992 to $27.2 billion in 1996--a 43.6 percent
increase. In fact, Texas enjoys nearly a 50 percent market
share in trade with Mexico--three times as much as California,
which is in second place.
The Greater Houston Partnership has no doubts about the
success of NAFTA. Partnership members talk daily about how
easier access to trade with important partners such as Mexico
helps bring prosperity to Houston. The critics are wrong--NAFTA
works for Houston, and for the United States.

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[GRAPHIC] [TIFF OMITTED] T1944.043

Statement of Peter diCicco, President, Industrial Union Department of
the American Federation of Labor and Congress of Industrial
Organizations

I wish to thank the Chairman and members of the
Subcommittee for the chance to express the many concerns of
U.S. industrial workers about the North American Free Trade
Agreement. We believe it has been an abject failure--not just
the mild disappointment portrayed in President Clinton's recent
assessment. NAFTA is reason enough for Congress to reject the
Administration's request for fast-track negotiating authority.
Less than four years ago, I watched with dismay as members
of Congress were led to believe that NAFTA would dramatically
increase our exports to Mexico, creating new high-tech and
well-paid U.S. jobs, while also helping to redress labor and
environmental problems through side agreements.
Instead, we have seen the loss of between 420,000 and
600,000 U.S. jobs, based on estimates by the Economic Policy
Institute and Public Citizen's Global Trade Watch. We have seen
economic and political chaos in Mexico that includes a
reduction in average real wages from about $1 an hour to just
over 60 cents an hour.
NAFTA helped turn a $1.7 billion U.S. trade surplus with
Mexico in 1993 into a $16.2 billion trade deficit in 1996. Real
earnings for American workers, meanwhile, have remained
stagnant. And those side agreements have proven to be nothing
but window dressing--seldom used, impossibly complex and
bureaucratic, and without any effective enforcement mechanism.
Back in 1992, many called the opposition of industrial
workers ``alarmist'' and advised us to bid ``good riddance'' to
low-wage, low-skill jobs. But many of those half-million lost
jobs were those of workers with good skills and good pay--many
of whom now are trying to acquire new skills for jobs that pay
far less.
In industry after industry, high tech and low tech, from
the New York Harbor to the Gulf Stream waters, corporations are
abandoning our shores in droves, enticed by cheap labor and
duty-free imports back into the United States.
The evidence is in the list compiled by the U.S. Department
of Labor of jobs certifiably lost as a result of NAFTA. Many
are in high-tech manufacturing, from aerospace and auto parts
to electronics. Of the hundreds of thousands of workers who
have qualified for trade adjustment assistance under the NAFTA-
TAA program, many were employed by such companies as Hughes
Aircraft, Diesel Recon Co., General Electric, Thompson Multi
Media, Marshall Electronics, ITT Hancock Engineered, Emerson
Electric Co., Black and Decker Power Tools, Teledyne
Industries, Allied Signal Equipment, Lukens Medical Corp.,
Occidental Chemical Corp., Lockheed Martin, Bausch and Lomb,
Kenetech Windpower, Collegeville Imagineering, Marconi
Technologies, Aquatech, Fairchild Aircraft and Pacific Power
and Light.
We're losing good jobs and we're losing good pay. Because
employers can threaten workers with plant relocations in low-
wage countries like Mexico, workers have lost much of their
bargaining power. The result has been a continual downward
pressure on U.S. wages. In addition, the threat of plant
closures has had a chilling effect on workers' efforts to form
unions, according to a study by Cornell University's Kate
Bronfenbrenner, who found that 10 percent of union organizers
she interviewed in 1996 reported that the employers directly
threatened to move to Mexico if the workers voted for a union.
American industrial workers are the most productive in the
world and are not afraid of global competition. But we do not
work well with one hand tied behind our backs, as is the case
when our employers can hold offshore production over our
heads--both in reality and as a threat. We should not have to
compete on the basis of the lowest wages in the world. If that
is the comparative advantage we are trying to gain in the
marketplace, we all lose.
Guess Inc. is a case in point. When confronted by charges
that it was running sweatshop-like operations in Southern
California, and a drive among its workers to join a union,
Guess decided to shut down and move to Mexico, Peru, Chile and
Asia. NAFTA and other such fast-trade deals encourage this kind
of corporate irresponsibility, and our nation is worse for it.
Our world is worse for trade deals that protect the
interests of multinational corporations and global financiers
without consideration for environmental standards. Look at the
U.S.-Mexican border, where lax rules in Mexico have allowed
hazardous wastes to seep across the Rio Grande. Drinking water
in border communities contain high levels of arsenic
contamination, and dangerous ozone pollution in El Paso
increased from 58 percent in 1993 to 75 percent in 1995.
Among the record number of imports coming into the United
States from Mexico over the past three years are large numbers
of unsafe trucks, contaminated food and illegal drugs. NAFTA
not only is costing us our livelihoods, but it is endangering
our lives.
The problems that NAFTA has created explain why a recent
opinion poll by Peter A. Hart Research showed 69 percent of all
Americans saying the United States should restrict imports to
protect our jobs, while only 19 percent believe that free trade
agreements create jobs in the United States. A Business Week/
Harris Poll in September showed similar public skepticism over
free trade. When asked if the Administration should have fast-
track negotiating power, 54 percent of the Business Week/Harris
Poll participants said no.
If the American people are against the failed and flawed
NAFTA, why is the Administration pushing so hard for fast-track
authority to extend it? More importantly, why does it want to
close off significant public debate on trade agreements by
rushing them through with only an up-or-down vote by Congress?
In my view, the push to railroad these trade deals is
coming from multinational corporations and Wall Street
investors who are only looking at their bottom lines without
seeing the people and their communities that may be run over in
the process. The globalization of capital has created a class
of international robber barons who roam the world in search of
wealth, bound by no sense of allegiance to country or
community.
We're all for trade with other nations, and we believe we
should negotiate agreements that lower duties and tariffs to
allow the movement of goods and services. But we believe these
agreements also must address the rules under which nations
treat their workers and the environment. Unless we include in
the core of our trade agreements enforceable provisions for
worker rights and environmental protection, we are setting
ourselves up for a race to the bottom--a race that we do not
want to win.
Trade agreements offer an opportunity to raise the
standards for workers and to protect this Earth from
exploitation. And they also offer an opportunity--if they are
not being railroaded down a fast track--to raise the level of
public discussion about other important issues surrounding
trade in the global economy.
I believe we must pursue trade policy that preserves our
industrial base, instead of one that promotes the export of
American ingenuity and knowhow. By pushing U.S. industry
offshore, we are helping Mexico, Chile, China, and other
developing nations build export platforms. So what if we can
buy cheaper goods if we are, at the same time, puncturing our
middle class and exiling millions of American workers to the
underclass?
We must not worsen the problems we created with NAFTA by
quickly extending that agreement to Chile and other Latin
American countries. Congress should deny the Clinton
Administration's request for fast-track negotiating authority.

Statement of His Excellency Richard L. Bernal, Ambassador From Jamaica
to the United States

Thank you for providing me an opportunity to submit
testimony on the impact of NAFTA on the US/Caribbean trade
relationship.

I. Introduction

This year marks the 15th anniversary of the address in
which Ronald Reagan proposed the Caribbean Basin Initiative
(CBI) to strengthen the economic and security relationship
between the United States and the countries of the Caribbean
Basin. Congress responded to President Reagan's challenge by
enacting the Caribbean Basin Economic Recovery Act (PL 98-67)
during 1983. Since then, the CBI has stimulated commercial
linkages, promoted the development of a thriving private sector
in the Caribbean, and created a natural market for thousands of
US exporters. In many respects, the CBI has been an unqualified
success.
Despite these accomplishments, the CBI is now beginning to
show its age as new policies are established that eclipse the
US/Caribbean partnership or render the CBI provisions almost
meaningless. The enactment of the North American Free Trade
Agreement (NAFTA)--although an important first step in the path
toward hemispheric trade integration--is one such policy that
has inadvertently eroded Caribbean access to the United States.
To understand the full scope of the effect of NAFTA on the
Caribbean, it is important to first understand the structure of
the US/Caribbean Basin partnership.

II. The US/Caribbean Economic Partnership

Although many see the US/Caribbean relationship as
altruistic or one-sided, it is truly a mutually beneficial
relationship. Statistics on regional trade and investment flows
underscore this point.
Presently, the US/Caribbean commercial
relationship supports more than 300,000 jobs in the United
States and countless more throughout the Caribbean. During the
past decade, the US/Caribbean Basin relationship has created
more than 18,000 jobs a year in the United States.
The Caribbean Basin is in aggregate now the tenth
largest export market for the United States, surpassing
countries such as France.
The Caribbean Basin is one of the few regions in
the world where US exporters maintain trade surpluses. In 1996,
the 11th consecutive year for which the United States recorded
a trade surplus with the Caribbean Basin, that surplus
surpassed $1.4 billion.
In 1996, US exports to the region passed $ 15.9
billion, resulting in a 170 percent increase in US exports
during the past 11 years. Virtually every state in the union
has benefited from this relationship.
In 1996, US imports from the region reached $ 14.5
billion, completing an 11-year growth rate of nearly 120
percent.
It is estimated that between 60 to 70 cents of
each dollar spent in the Caribbean Basin is spent back in the
United States compared with only 10 cents of each dollar spent
in Asia.
When US trading partners are ranked by the US
share of their markets, CBI countries claim 12 of the top 20
spots. Jamaica, which in 1995 purchased 75 percent of its
imports in the United States, is ranked second and is only
surpassed by Canada.
The basis of this healthy and balanced trade relationship
is a complementarity between the CBI economies and the US
economy. While the US economy is highly industrialized, the CBI
countries tend to emphasize more agriculture, raw materials,
tourism, and, increasingly, labour-intensive manufacture. These
economic patterns are natural catalysts for the trade based-
economic growth.
For example, apparel has become Jamaica's leading
manufactured export and has grown very rapidly. It has grown
because of a complementarity involving the combination of US
capital goods and raw materials being produced with Jamaican
labour for US companies. The result is the creation of jobs in
the textile and shipping sectors both here and in Jamaica. In
addition, this integrated transnational process of production
draws upon the strength of both economies to manufacture a
final product that can be competitive in the US and global
market. This equation again adds up to jobs, especially through
the preservation of jobs and corporate entities in the Unites
States which could not survive by producing goods entirely in
the United States.

III. The NAFTA Imbalance

As a result of the NAFTA, the biggest issue facing the
Caribbean Basin is the lack of parity of US market access with
Mexico. The CBI has provided a good foundation, particularly in
the era when aid from the United States is declining. It has
been a good strategy of trade, and not aid, which has proved
more beneficial in the long run. But the CBI has several built-
in limitations.
One problem is that, while it liberalizes 90 percent of the
trade categories, the CBI does not liberalize 90 percent of the
actual trade flows, primarily because the very goods--such as
apparel and footwear--in which the CBI has a comparative
advantage are the goods that tend to be restricted by US import
laws. The paralyzing effect of these exclusions becomes more
noticeable as CBI economies begin to produce products that are
not covered by the CBI. In 1996, the annual International Trade
Commission survey on the CBI reported that average duties paid
for CBI imports rose from 1.9 percent in 1984 to 12.3 percent
in 1994. If left unchecked, the current CBI formula will have a
declining impact on Caribbean economic development.
In contrast, NAFTA eliminates the duty and quota treatment
for these same articles, either immediately or over a phase-out
period. Under NAFTA, import duties were immediately removed on
the overwhelming majority--approximately 80 percent--of Mexican
apparel exports to the United States. The remaining 20 percent
benefits from an accelerated implementation of free trade, with
annual duty cuts and quota liberalization set to be completed
by the year 2000. To be fair, NAFTA also phases out the duties
on the products for which the CBI countries already enjoy duty
free treatment.
But the result is far from even. Mexico gains parity with
the Caribbean countries for CBI-covered products, establishing
a level playing field for those items on which Mexican and
Caribbean exporters face no duty. But on the products excluded
from the CBI, such as textile and apparel products, Mexico
gains access to the US market, exceeding that granted to the
Caribbean countries. This tilts the playing field in Mexico's
favor, and gives Mexican exporters a distinct advantage over
Caribbean exporters. When combined with Mexico's access to
cheap energy, lower transport costs, greater economies of
scale, and low wage rates, this advantage becomes quite
substantial.

IV. NAFTA'S Impact on the Caribbean Basin

Broadly speaking, NAFTA's implementation--and advantages
over the CBI--poses clear risks for the US/CBI partnership. The
elimination of quotas and the phase-out of tariffs on Mexican
products removes the advantage enjoyed by CBI exports to the US
market, diverting trade flows from CBI countries to Mexico.
Since the NAFTA was implemented, there has already been a
measurable diversion of trade from the CBI to Mexico. Before
NAFTA was implemented, the growth rate of US apparel imports
from Mexico and the CBI region were on par. Three years after
the NAFTA was implemented, Mexican apparel import growth rates
have consistently outpaced Caribbean growth rates by a 3 to 1
margin. As this trend continues, Caribbean market share in the
United States will be consumed by Mexican suppliers.
Another consequence of NAFTA's implementation has been the
diversion of new investment. One of the primary indicators has
been the fact that in the last 3 years there has been a pause
in investment in the region, as investors first waited to
evaluate the NAFTA provisions and then established new
operating facilities in Mexico, instead of in the Caribbean.
This trend, which is now being fully realized, was anticipated
by the US International Trade Commission, which reported in
1992 that ``NAFTA will introduce incentives that will tend to
favor apparel investment shifts away from the CBERA countries
to Mexico.''
As existing investors begin to source their products out of
Mexico, others are rushing to transfer or close existing
productive capacity--particularly in the ``foot-loose'' apparel
industries which can easily be relocated--to take advantage of
Mexico's market access. In many Caribbean Basin countries,
NAFTA directly reverses past successes of the CBI program,
effectively turning back the clock of Caribbean development.
Employment is hit particularly hard by this trend, as
manufacturers close factories and lay off employees. According
to estimates by the Caribbean Textiles and Apparel Institute,
more than 150 apparel plants closed in the Caribbean, resulting
in the loss of 123,000 jobs during 1995 and 1996. This trend is
particularly damaging to women, who often look to the textile
and apparel sector for their livelihood.
An erosion of export access to the United States will
eventually translate directly into a contraction of economic
activity in the CBI region. Such a contraction would lower
regional incomes, and, ultimately, the demand for imports from
the United States. In such a scenario, US exports of goods and
services to the CBI would decline while regional instability--
fostered by a decrease in economic opportunities--would rise.
Judging from past patterns, the resulting unemployment in the
United States would be met with an increase in immigration from
displaced Caribbean workers and a rise in narcotics
trafficking.

V. Caribbean Parity as an Immediate Remedy

While the long term solution is to determine how to fully
integrate Caribbean countries--and the specific needs of their
smaller economies--into the NAFTA or a Free Trade Area of the
Americas (FTAA), a short term solution calls for the leveling
of the playing field between Mexico and the Caribbean
countries. In Bridgetown earlier this year, President Clinton
renewed and unequivocally reconfirmed his strong commitment to
seek enactment of a Caribbean Basin Trade Enhancement package
during 1997.
Over the past few months, and indeed, over the past five
years, Congress and the Administration have been exploring
various Caribbean parity packages to re-impose balance between
Mexican and Caribbean access to the US market. We were
disappointed that the package was not included in the budget
legislation enacted last month. There is now some hope that
parity legislation could be approved by the end of the year. As
Congress moves ahead, it should ensure that the legislation on
which they act encompasses several key principles:
First, the legislation must cover all products currently
excluded from the CBI. As the Caribbean economies liberalize,
it becomes increasingly difficult to erect artificial barriers
between product categories. Improving market access for only
certain textile and apparel products would have a limited
effect, and would retain the anomalies that encourage
unbalanced economic growth. Enacting a comprehensive bill,
however, is both economically more feasible and symbolically
more consistent with the notion of free and open trade.
Second, the legislation must serve as a gateway to the Free
Trade Area for the Americas. One of the implicit goals of
parity is to provide Caribbean Basin countries an opportunity
to complete the trade liberalization and economic reform steps
necessary for accession to the FTAA. While some countries--such
as Jamaica--are now ready to negotiate either a free trade
agreement with the United States or accession to a NAFTA,
others may need a longer period. The Caribbean trade
enhancement proposal should provide that transitional period,
without locking CBI countries into a perpetual state where
their trade posture is being slowly eroded.
Third, any Caribbean trade enhancement proposal must be of
a sufficiently long duration to provide credibility and
certainty, and to help re-establish confidence lost in past
years. It is now clear that this legislation will require
Caribbean countries to undertake certain obligations and
implement specific measures in order to access the full
benefits. Such reciprocity makes sense, but only if the
reciprocal commitments are maintained in force indefinitely.
Fourth, on a related note, the legislation must not impose
entrance requirements that are insurmountable. The 24 nations
of the Caribbean Basin represent diverse economies that are at
different stages of liberalization. Ideally, the legislation
will not establish a new set of criteria by which countries can
become eligible for the benefits, but rather link the enhanced
benefits to more rigorous application of the existing CBI
program criteria. In this way, countries can fully pursue trade
liberalization without being harmed by a break in market access
or the sudden resurgence of an unbalanced playing field.

VI. Conclusion

Countless studies have shown that strong regional economic
links are crucial, not only in creating economic opportunities
throughout the United States and the Caribbean Basin, but also
in supporting stable and mutual beneficial security
relationships. In the dozen years since it has been
implemented, the CBI has provided a key framework of economic
development for the Caribbean, and has stimulated sound US/
Caribbean commercial relations.
Three years and six months after the enactment of NAFTA, it
now becomes imperative to update the CBI framework to rebalance
Caribbean and Mexican access to the US market. Swift enactment
of Caribbean parity legislation will restore that balance while
benefiting the thousands of US and Caribbean workers who depend
on this regional trade. Moreover, as a transitional measure,
parity will help Caribbean countries prepare themselves to
undertake the full disciplines of hemispheric trade
liberalization.
Passage of Caribbean parity legislation will simultaneously
advance the causes of trade liberalization, economic growth,
and regional security. Congress should enact this proposal as
the earliest possible date.

Statement of Robert R. Miller, President; Christopher M. Bates, Vice
President, International Operations; and Lynn E. Christensen, Assistant
Director, International Programs, Motor & Equipment Manufacturers
Association

The Motor & Equipment Manufacturers Association (MEMA) is
pleased to submit this statement on the president's study on
the operations and effects of the North American Free Trade
Agreement (NAFTA).
Motor & Equipment Manufacturers Association (MEMA), founded
in 1904, exclusively represents U.S. manufacturers of motor
vehicle parts, service tools and equipment, and automotive
chemicals throughout the United States. MEMA represents both
suppliers of original equipment for all classes of motor
vehicles, as well as replacement parts and related products to
all major service and distribution channels in our industry.
MEMA is headquartered in Research Triangle Park, North
Carolina, with supporting offices in Washington, D.C.;
Brussels, Belgium; Sao Paulo, Brazil; Yokohama, Japan; and
Mexico City, Mexico.
MEMA played a central advisory role to the U.S. Department
of Commerce and Office of the U.S. Trade Representative during
the negotiation of the North American Free Trade Agreement
(NAFTA). The Department of Transportation has established a
NAFTA Automotive Standards Council on which MEMA and one of its
product line groups have been active.
MEMA strongly supports the NAFTA and the continued
engagement of the United States in promoting trade and
investment liberalization in our hemisphere and globally. The
NAFTA Agreement has benefitted the U.S. economy and motor
vehicle products industry, contributing to net employment and
output growth. It also has helped accelerate the economic
recovery of Mexico and has sustained trade liberalization
following the December 1994 financial crisis in that country.
The Canadian and U.S. motor vehicle and parts industries
have continued to prosper under the NAFTA and Mexico's auto
sector is rebounding steadily since the December 1994 peso
devaluation. Since the NAFTA went into effect, production of
motor vehicles grew 8% in the United States and 7% in Canada.
Motor vehicle production in Mexico hit a new peak in 1996 after
decreasing in 1995. Employment in vehicle assembly and auto
parts manufacturing has shown double-digit growth in the U.S.,
is rising after falling initially in Mexico, and has not lost
ground in Canada. U.S. sales of cars and trucks rose during the
1993-1996 period, with trucks recording a 15% growth rate
during this period (Attachment 1).
MEMA's objectives in the NAFTA were to: 1) eliminate
Mexican tariffs on motor vehicles and parts over a 10-year
period; 2) phase out non-tariff barriers, such as local content
and trade balancing requirements in Mexico; 3) establish strong
NAFTA rules of origin and modify duty drawback procedures to
discourage assembly of vehicles or parts in Mexico for export
using predominantly non-North American materials; and 4)
liberalize Mexican investment restrictions affecting the
automotive sector.
We believe that each of these goals is being achieved
according to the time tables set forth in the NAFTA agreement.
Tariffs: Prior to NAFTA, Mexican tariffs on most automotive
products ranged from 10-20% ad valorem. With NAFTA in effect,
these tariffs as of January 1, 1998 will have been reduced to
between zero and 10% ad valorem, reducing the duty penalty on
U.S. exports by at least half from pre-NAFTA levels.
Non-Tariff Measures: NAFTA imposed an effective freeze in
Mexico's local content requirements and launched a process of
steady liberalization of trade balancing requirements.
Beginning in 1998, Mexico's commercial vehicle industry decree
will be terminated, removing the primary non-tariff barrier in
that segment of our industry. NAFTA also calls for faster
removal of remaining non-tariff measures over the next five
years, with the objective of totally free trade by January
2003.
Rules of Origin/Duty Drawback: NAFTA established a minimum
50% value-content rule (with higher requirements following a
brief transition period) for automotive trade to ensure that
the benefits, like the risks from increased competition, due to
trade liberalization accrue principally to North American
producers. Given Mexico's higher MFN tariffs toward non-NAFTA
partners, the United States also insisted on changes in duty
drawback regulations to reduce incentives for low value-added
assembly operations in, and exports from, Mexico using parts
and materials purchased from outside North America. The result
is that average U.S. content in products assembled in Mexican
maquiladora plants has remained high since the NAFTA was put in
place.
Investment Liberalization: Prior to NAFTA, Mexico prevented
foreign companies from taking a majority share of local auto
parts suppliers and limited the rights of maquiladora plants to
sell their products into Mexico's domestic market. NAFTA is
well on the way to removing these restrictions, allowing for
more commercially sensible integration of U.S. and Mexican
production facilities.
Collectively, the NAFTA provisions have supported U.S.
automotive suppliers' efforts to remain competitive vis-a-vis
producers outside of North America, without leading to a
massive shift in U.S. investment toward Mexico at the expense
of the U.S. manufacturing base. In fact, U.S. Big Three vehicle
assemblers invested approximately $40 billion in the United
States between 1993 and 1996, nearly 13 times their $2.9
billion investments in Mexico during this period. Statistics
are not yet available for U.S. suppliers' total investments
during this period. However, a review of industry journals
suggests that a similar North American investment pattern has
prevailed in the U.S. automotive parts industry during the
initial NAFTA implementation period.
Despite the peso devaluation since December 1994, U.S.
exports of automotive products to Mexico have increased by $850
million over pre-NAFTA levels. Total exports in the automotive
parts industry showed tremendous growth (50%) between 1991 and
1994, dipped 12% from 1994 to 1995, and recovered modestly, up
5%, between 1995 and 1996. Exports continue to flourish in
1997, showing a 13% increase between January and June, 1997,
compared with the same period in 1996.
The U.S. has not lost jobs in the auto industry. Employment
in both the motor parts industry and in the assembly of
vehicles has increased since 1993 (Attachment 2).
NAFTA's success has not meant that there have been no
complications. Implementing the NAFTA has proven to be more
difficult than predicted. Two examples which affect the
automotive industry are the trucking dispute along the U.S.-
Mexico border and Mexico's implementation of its new consumer-
product labeling regulation. The NAFTA has proved, however, to
be instrumental in helping to resolve these and other issues.
There has been much greater transparency in dispute settlement
proceedings and Mexico's government agencies have been more
accessible and responsive to U.S. companies and industry groups
in cases where bilateral issues have arisen. In several
practical ways, NAFTA has strengthened the ability of Mexican
government authorities to resist domestic protectionist
pressures during its most severe economic downturn since the
early 1980s.
MEMA believes that the principal short-term goals of the
NAFTA for our industry have been met. We expect that the more
comprehensive liberalization steps scheduled under the
Agreement for the next 5-6 years will benefit our members,
their employees, and the U.S. economy as a whole to an even
greater extent.
The U.S. automotive industry continues to attract
substantial domestic and foreign investment, based on our
country's renewed position as the most competitive and
technologically dynamic manufacturing location in the world.
Industry production and employment are higher than before NAFTA
was put in place, despite an overall recent deterioration in
the U.S. and automotive sector's trade balance with Mexico and
the world. The deterioration principally reflects stronger
economic growth in the U.S. compared to its main trading
partners, and the effects of a stronger dollar against major
world currencies. In fact, U.S. exports to Mexico in particular
have grown despite two years of depressed economic conditions
in that country, and should expand further as Mexico's domestic
market continues to recover this year and beyond.
In summary, the NAFTA has been an important positive
element in our industry's efforts to maintain international
competitiveness and secure improved long-term access to
Mexico's large domestic market for motor vehicles and related
equipment.
Thank you for your consideration of our views.
Submitted by:

Robert R. Miller, President
Christopher M. Bates, Vice President, International Operations
Lynn E. Christensen, Associate Director, International Programs
Motor & Equipment Manufacturers Association
10 Laboratory Drive
Research Triangle Park, NC 27709

Statement of Chris Koelfgen, President, National Association of
Foreign-Trade Zones

Mr. Chairman and Members of the Subcommittee:
On behalf of the National Association of Foreign-Trade
Zones, thank you for the opportunity to present this statement
to the Subcommittee concerning the operation and effects of the
North American Free Trade Agreement (NAFTA).
The NAFTZ is a non-profit trade association representing
over 600 members, including grantees, operators, users and
service providers of U.S. foreign-trade zones. Today there are
more than 200 approved zone projects located in 49 states and
Puerto Rico. The total value of merchandise received at
foreign-trade zones annually exceeds $140 billion. Over 2,800
firms utilize foreign-trade zones and employment at facilities
operating under FTZ status is over 300,000. The NAFTZ provides
education and leadership in the use of the FTZ program to
generate U.S.-based economic activity by enhancing global
competitiveness.
The National Association of Foreign-Trade Zones (NAFTZ)
supported the adoption of the North American Free Trade
Agreement (NAFTA). However, the implementation of the
agreement, as embodied in the interim regulations issued by the
U.S. Treasury Department under Implementation of Duty Deferral
Program Provisions, 61 Fed. Reg. 2908 (Jan. 30, 1996), has had
an unintended negative impact on the Foreign-Trade Zones
Program.
For all shipments of manufactured merchandise from a zone
which are destined for Canada (and Mexico beginning in 2001),
foreign-trade zone users are now required to make a U.S.
Customs entry and pay a Merchandise Processing Fee in addition
to filing the export documents which were formerly required.
The requirement for the filing of a Customs entry on exported
merchandise is the result of efforts by the U.S. Treasury
Department to develop a means to assess antidumping/
countervailing duties (AD/CVD) on a limited amount of
applicable merchandise admitted to a zone, which is
manufactured into a new product and subsequently exported to a
NAFTA country. Prior to this U.S. Treasury Department
initiative, no Customs entry in addition to the appropriate
export documentation was required nor were there Merchandise
Processing Fees assessed on export transactions.
As a result of this requirement, zone users are now
assessed a separate Merchandise Processing Fee (MPF) for each
NAFTA entry for export. This requirement alone has cost
individual FTZ users as much as $25,000 annually in Merchandise
Processing Fees, as well as additional costs for brokerage
fees, administrative costs and related expenses. Particularly
for the many small and medium-sized companies participating in
international trade and utilizing U.S. foreign-trade zones,
this cost comes at the expense of additional jobs and further
investment. For FTZ users who do not utilize weekly entry
procedures, the added costs of the NAFTA procedure could be
significantly more. When this procedure is extended to Mexico
in 2001 and potentially other countries in the future, the
impact will multiply accordingly.
We do not believe the aforementioned results were intended
by NAFTA or U.S. law. The payment of a MPF in this situation
has clearly placed U.S. producers at a competitive disadvantage
when compared with Canadian and Mexican producers. For example,
U.S. companies purchasing Canadian origin goods are not
subjected to an MPF. However, a U.S. company selling the same
article to a Canadian company (produced by a U.S. producer in a
FTZ) would be subjected to an MPF. As a result, the U.S.
produced goods are assessed an added cost thus making them less
competitive.
The National Association of Foreign-Trade Zones seeks
Congressional action to correct the Treasury Department's
misinterpretation of this provision of NAFTA and misapplication
of the law with respect to collection of a Merchandise
Processing Fee on exports from a U.S. foreign-trade zone to
other NAFTA countries.

Sincerely,
Chris Koelfgen
President

Statement on Behalf of National Housewares Manufacturers Association

I. Introduction

These comments concerning technical barriers to trade in
Mexico are submitted on behalf of the National Housewares
Manufacturers Association in response to the August 13, 1997,
advisory (TR-14) by which Congressman Philip M. Crane,
Chairman, Subcommittee on Trade of the Committee on Ways and
Means, announced the rescheduling of the hearing on the
President's comprehensive study of the operation and effects of
the North American Free trade Agreement (NAFTA).
The NHMA is a U.S. association of over 2,300 U.S.
manufacturers and exclusive distributors of houseswares
products. The NHMA membership accounts for approximately 2.3
billion dollars in sales worldwide. Members products include
kitchen electrics, personal electrics, cook and bakeware,
outdoor products, bath, laundry and closet products, tableware
and serving ware, hardware, gadgets, furniture, decorative
articles, clocks, cleaning articles, and pet supplies.
A large number of NHMA members export or seek to export
housewares products throughout North America, including Mexico.
They have confronted difficulties in that regard flowing from
Mexico's product standards and certification procedures, which
in practice represent technical barriers to trade. Those
problems are not addressed in the Study on the Operation and
Effect of the North American Free Trade Agreement (NAFTA)
presented to the Congress. Accordingly, NHMA submits these
comments to identify its concerns, of which Mexico and U.S.
authorities have been made aware.
The NHMA believes the standards-related concerns outlined
below distort trade between the U.S. and Mexico, remain very
real and go to the heart of Mexico's obligations under NAFTA to
eliminate trade barriers and discrimination against imports
from the other NAFTA parties. See, e.g., NAFTA Article 301
(each party shall accord national treatment to the goods of
another Party in accordance with GATT), standards-related
measures, each Party shall accord national treatment to goods
of another Party); 904:4 (no party may apply any standards-
related measure with the effect of creating an unnecessary
obstacle to trade between the Parties).
Although the Mexican government has been willing to receive
comments and meet on NHMA's concerns, and has begun to propose
certain, limited alternatives, there is presently no plan to
eliminate standards-related discrimination against U.S.
imports. Moreover, whereas some hope ought to lie in Mexico's
progress toward permitting U.S. laboratories to obtain
accreditation as certifying bodies in Mexico [see President's
Report at 61 (``Elimination of Non-Tariff Barriers'']: Mexico's
rules will still control any newly certified laboratories;
there are no assurances that any of the concerns discussed
below will be eliminated; and Mexico is interpreting related
obligation that are to take effect in 1998 as only requiring it
to begin talks with its NAFTA partners at that time.

II. Mexican Standards, Certification and Labeling Requirments

While the NHMA has concerns regarding various Mexican
standards and labeling requirements, the comments provided in
this submission are directed to requirements contained in
Mexican standard NOM-EM-004-1994 (``NOM-004''). NOM-004
establishes the characteristics of the official ``countersign''
(or symbol) which is required to be placed on all products sold
in Mexico to demonstrate that a particular product is in
compliance with applicable standards. Among other things, the
countersign must include a unique registration number which is
obtained by a company, domestic manufacturer, importer, or
provider of services, upon certification that the product has
complied with all applicable standards.
On its face, NOM-004 requirements appear to apply equally
to all products whether imported or domestically produced. In
practice, the application of NOM-004 results inorted products.
Generally, the difference in treatment takes the forms
described following.

A. Foreign producers and exporters may not obtain their own
certification.

Foreign producers and exporters must rely on Mexican
importers for the certification process. Each time a foreign
producer or exporters changes importers or acquires a new
importer, the certification process must be repeated. Hence, if
the producer exports directly to 100 customers in Mexico, a
certification must be obtained for each customer. It costs a
foreign producer approximately $800 dollars for each product
certification obtained by an importer.
Domestic (Mexican) producers, in contrast, are permitted to
obtain their own certifications and, therefore, may use a
single certification for multiple customers.

B. Certifications are not transferable.

An importer that has obtained a certification for a
particular product may not transfer that certification to
another importer. As a result, each importer must obtain its
own certification even though the product may have received
prior certification. In contrast, once a domestic producer
obtains a certification, it may use that single certification
for all purposes, including shipping to a new or different
customer.

C. Certifications must be renewed on an annual basis.

Each certification must be renewed annually regardless of
whether the product has undergone any changes. This renewal
requirement, although applicable to domestic and imported
products alike, multiplies annually the burden of multiple
registration described above.

D. Certification must be obtained for each single product.

The standard does not provide for single certifications for
families of products, i.e. products whose differences may be
color, or accessories, and, thus, multiplies further the
registration burden.

III. Analysis and Conclusion

The difference in treatment described above has a
distortive effect on trade between the United States and Mexico
producers and exporters that are not borne by domestic
producers. It cost a foreign producer approximately $800
dollars for each product certification obtained by an importer.
By comparison, certification costs for a domestic producer
selling the same product lines to the same number of customers
are not multiplied by the number of its customers.
Similarly, while the requirement that a certification be
obtained for each product applies to both imported and domestic
products, in practice, this requirement reduces U.S. producers
competitiveness in the Mexican market. U.S. producers are more
likely than Mexican producers to produce and market various
models of the same product. The requirement that a
certification be obtained for each model of the same product
discourages shipments of different models and thereby restricts
marketing strategies based on product diversification and
breadth of product lines.
Thus, for producers/exporters of multiple products,
certification related costs are multiplied first by the number
of products shipped to Mexico, then by the number of importers
involved. Costs rapidly mount. As a result of the
aforementioned requirements, some NHMA members have limited
exports to Mexico and others have foregone shipments to Mexico
altogether. The NOM requirements are particularly onerous for
small and medium sized businesses.
In sum, it is important that a reader of the President's
report keep in mind that the cited standard-related
requirements result in less favorable conditions of competition
for other NAFTA Parties' products, which is inconsistent with
Mexico's obligations under NAFTA, e.g., Articles 301, 309 and
904. Congressional support of Administrative efforts to remedy
this situation will be welcomed by the membership.

Statement of PPG Industries, Inc.

Introduction

These comments are submitted on behalf of PPG Industries
Inc. in response to the August 13, 1997, advisory (TR-14) by
which Congressman Philip M. Crane, Chairman, Subcommittee on
Trade of the Committee on Ways and Means, announced the
rescheduling of the hearing on the President's comprehensive
study of the operation and effects of the North American Free
trade Agreement (NAFTA).
PPG is a U.S. producer of flat glass, fiberglass, chemical,
and coating and resin products classifiable under the following
headings of the Harmonized Tariff Schedules of the United
States (HTS):
Flat Glass: HTS 7005, 7006, 7007, 7008, 7009
Fiber glass: HTS 7019
Coatings and Resins: HTS 3208, 3209, 3210, 3214,
3906, 3907, 3909
Chemicals: 2801, 2808, 2811, 2815, 2827, 2828,
2836, 2902, 2903, 2904, 2905, 2907, 2909, 2915, 2916, 2918,
2920, 2921, 3402, 3814, 3904.
Essentially, for PPG the North American Free Trade
Agreement (NAFTA) has been a major negative factor for its flat
glass business, although a very minor, positive influence for
its other three businesses.

II. Mexico: Flat Glass

The President's study of the operation and effects of the
NAFTA does not address the written exchange of letters between
the then-U.S. Trade Representative, Michael Kantor, and his
counterpart in Mexico, Jaime Serra Puche, then head of
SECOFI,\1\ that established the prospect of Mexico's
accelerating its elimination of tariffs on flat glass
categories. The nonfulfillment of that side agreement has had a
severe adverse impact upon PPG.
---------------------------------------------------------------------------
\1\ SECOFI is Mexico's ``Secretaria de Comercio y Fomento
Industrial.''
---------------------------------------------------------------------------
Prior to the NAFTA's ratification and implementation by the
Congress, PPG supported the concept of the NAFTA and lobbied
enthusiastically on the Hill for its implementation based on a
U.S.-Mexico exchange of letters on November 3, 1993. The
letters provided that, within 120 days after the effective date
of the NAFTA, the Parties would negotiate accelerated reduction
of tariffs on specific products on which Mexico retained higher
tariffs than the United States. The products identified as
specific targets for acceleration were wine, brandy, flat
glass, home appliances and bedding components. Message From the
President Transmitting North American Free Trade Agreement,
Supplemental Agreements and Additional Documents, H.R. Doc. 160
at 140-142, 103d Cong. (November 4, 1993). Highlighting the
letters' direct link to and, indeed, incorporation with the
NAFTA agreement \2\ was their inclusion in the House Report by
which the President transmitted the NAFTA package to Congress.
Id.\3\
---------------------------------------------------------------------------
\2\ Chairman Crane stated in announcing these hearings that ``[a]n
accurate assessment of the effects of the Agreement on the U.S. economy
and U.S. interests requires that, to the extent possible, the effects
of the NAFTA are distinguished from the effects of other economic
events and trends which have occurred independently of this historic
trade agreement.'' Advisory No. TR-14. Clearly, events surrounding and
following the exchange of letters are among ``the effects of the
NAFTA,'' as distinguished from ``the effects of other economic events
and trends which have occurred independently.''
\3\ The exchange of letters identified U.S. producers of wine,
brandy, flat glass, home appliances and bedding components as the ones
to which the U.S. administration was ``particularly sympathetic.'' Id.
Adding dry beans, cream cheese and potatoes to the list of products
that would be given priority in the acceleration negotiations, the
Statement of Administrative Action that accompanied NAFTA explained:
In exercising the authority provided under section 201(b) to
accelerate the staging of tariff reductions, the Administration will,
as a matter of priority, consider requests from interested private
sector groups. The administration will give special priority to
negotiating the acceleration of tariff reductions for products where
the Canadian or Mexican duty is substantially higher than the U.S.
tariff, such as dry beans, bedding components, cream cheese, flat
glass, major household appliances, potatoes and wine.
Message From the President Transmitting North American Free Trade
Agreement, Texts of Agreement, Implementing Bill, Statement of
Administrative Action and Required Supporting Statements, Supplemental
Agreements and Additional Documents, H.R. Doc. 103-159, Vol. 1 at 480,
103d Cong. (November 4, 1993) (emphasis added).
---------------------------------------------------------------------------
The prospect that Mexico's tariffs on flat glass would be
eliminated faster than the rate set out in the NAFTA schedules
has not been fulfilled. Four years later, the flat glass
industry is still waiting for promised relief from Mexican
tariff impediments, as well as non-tariff barriers, which
virtually prohibit the sale of U.S. flat glass products in that
country, while the gratuitous U.S. zero tariff rates permit
Mexican flat glass products to penetrate the U.S. market at
will.\4\ Although the USTR identified the specific products for
which accelerated tariff elimination is necessary, \5\ the
Mexican Government for years remained unwilling to participate
meaningfully in the exercise.
---------------------------------------------------------------------------
\4\ The tariff disparity in the NAFTA schedules, which the exchange
of letters and statement of administrative action envisioned
correcting, included a Mexican tariff of 20% to be phased out over ten
years for the Mexican categories representing the highest volume of
flat glass imports from the United States, and U.S. tariffs immediately
eliminated on virtually all of the flat glass volume from Mexico.
\5\ Implementation of the Accelerated Tariff Elimination Provision
of the North American Free Trade Agreement, 58 Fed. Reg. 68,186 (USTR)
(December 23, 1993). In that context, PPG, along with other U.S.
producers of flat glass products (Guardian Industries, and AFG
Industries), identified numerous subheadings of Mexican tariff headings
7003 through 7009 for which accelerated tariff elimination is
requested. Request for Comment on Articles To be Considered for
Accelerated Tariff Elimination Under the North American Free Trade
Agreement (NAFTA), 59 Fed. Reg. 26,686 (USTR) (May 23, 1994).
---------------------------------------------------------------------------
Then, when the first round of the acceleration exercise
recently yielded results, none of the petitioned flat glass
categories was among those on which Mexico agreed to accelerate
tariff removal.\6\ Quite the contrary, several of the priority
acceleration categories, including three float glass categories
under harmonized tariff heading 7005, were the very ones on
which the Government of Mexico recently increased tariffs above
current NAFTA levels in retaliation for the U.S. Government's
increase of tariffs on broom corn brooms from Mexico as part of
an escape clause action under sections 201 et seq. of the Trade
Act of 1974.\7\ Mexico has returned tariffs on the clear float
glass categories to the pre-NAFTA level of 20%, whereas the
current, 1997 rate, a reduction of two percentage points per
year since NAFTA's implementation, was to have been 12%. Thus,
not only has there been no acceleration of Mexico's removal of
tariffs on flat glass products, even the staged reductions
scheduled under the NAFTA have been nullified for these three
subheadings.
---------------------------------------------------------------------------
\6\ See Implementation of the First Round of Accelerated Tariff
Eliminations Under Provisions of the North American Free Trade
Agreement (USTR), 62 Fed. Reg. 25,989 (May 12, 1997).
\7\ Notice of the products on which Mexico was raising tariff rates
in retaliation for the U.S. broomcorn broom action appears at Mexico's
Diario Oficial, December 12, 1996, at (Primera Seccion) 15. The
categories on which tariffs were increased include Mexico tariff
subheadings 7005.29.02 (clear float glass with a thickness less than or
equal to 6mm), 7005.29.03 (clear float glass with a thickness greater
than 6mm) and 7005.29.99 (other clear float glass).
---------------------------------------------------------------------------
In practical terms, PPG has had to take a minority position
in a small Mexican automotive glass producer to meet its
commitments to local customers in Mexico, commitments which
could have been fulfilled through exports from its U.S. glass
plants had the NAFTA provided a level playing field as
advertised.
PPG will not support future trade initiatives based on
``promises,'' written or otherwise, of ``future'' or
``accelerated'' elimination of tariffs and/or non-tariff
barriers to U.S. origin products and services by countries with
competitive and protected sectoral industries. The lesson of
the NAFTA is clear: if tariff/non-tariff parity and elimination
of trade distortive measures are not achieved up front during
actual treaty negotiation, they are not likely to be
accomplished any time soon thereafter.
With regard to the notion that the NAFTA protected U.S.
industry during Mexico's recent mismanagement of its economy
and the resulting peso crisis, PPG's view is that this very
appropriate bailout by the United States nonetheless
represented twenty billion dollars worth of leverage which
Washington failed to use to spur redress of the inequities of
the NAFTA for the benefit of American industry. In this sense,
then, it was a wasted opportunity which we believe Mexico and
most other nations would not have hesitated to exploit had the
situation been reversed.

III. Mexico: Coatings/Resins, Chemicals and Fiber Glass

Because the dictates of the major global customers and
markets for ouG, we have not been, and are not likely to be in
the future, major exporters of these product lines. Hence, the
NAFTA has at best provided only modest incentive for increased
exports of PPG coatings, chemicals and fiber glass products to
Mexico. PPG has recently built new coatings and silicas plants
in Mexico, primarily to serve that market.

IV. Conclusion

The President's report on NAFTA does not mention the
failure to date of the exchange of letters on tariff
acceleration and the adverse impact upon U.S. industry. This
failure, coupled with the return of Mexico's tariffs on clear
float glass categories to pre-NAFTA levels, cause the U.S. flat
glass industry to be closed out of Mexico while Mexican
producers enjoy free access to the U.S. market.
PPG is grateful for this opportunity to express its views
on the Report and stands ready to participate in further
discussion if deemed necessary.

Statement of Martin Abel, PROMAR International, Alexandria, Virginia

Mr. Chairman and Members of the Committee, I am Martin
Abel, executive vice president of the consulting firm PROMAR
International in Alexandria, Va. Earlier this year, I was asked
to study the U.S. experience with agricultural trade with
Canada and Mexico under the North American Free Trade Agreement
(NAFTA). The work was sponsored by more than two dozen
organizations and companies representing a broad cross-section
of US agricultural interests involved in producing, and
marketing agricultural and food products.
That effort confirmed that, on balance, US agriculture has
benefited from NAFTA.
This finding should not be surprising. Whenever foreign
trade barriers for US agricultural products fall, efficient US
agricultural organizations readily exploit opportunities
generated by the consequent comparative advantage in
international markets.
US agricultural trade (exports and imports) with Mexico and
Canada has grown markedly under NAFTA, and this growth has been
associated with trade liberalizing measures. In the case of
Canada, the US-Canadian Free Trade Agreement (FTA) preceded
NAFTA and resulted in trade expansion prior to NAFTA going into
effect on January 1, 1994.
Canada and Mexico are the second and third largest
individual country markets, respectively, for US agricultural
products, after Japan. For the land-based agricultural products
covered in this report, the US exported over $6.4 billion to
Canada and $5.0 billion to Mexico in 1996.
In the case of Mexico, both US exports and imports have
increased, and growth has accelerated under NAFTA. The average
annual growth for US agricultural exports was $320 million in
the pre-NAFTA period (1990-93), but $530 million in the 1994-96
period under NAFTA Furthermore, the US has had a positive and
growing net trade balance with Mexico, except in 1995 when the
peso devaluation caused a recession in Mexico. Even then, trade
recovered markedly in 1996. The US agricultural net trade
balance was substantially higher under NAFTA ($605 million a
year) than in the pre-NAFTA period ($530 million a year).
Equally important, the US share of Mexico's total agricultural
imports has increased markedly under NAFTA, growing from 69
percent in 1993 to 78 percent in 1996.
Trade with Canada has also increased starting with the
liberalization that occurred under the FTA. For example, US
agriculture exports increased at an annual rate of $385 million
in the 1990-93 period under the FTA. Annual growth was $100
million under NAFTA. And, the US has maintained a positive
trade balance with Canada except in 1996. The positive US
agricultural trade balance averaged about $450-$500 million a
year in the 1993-95 period, that covers parts of the pre-NAFTA
and NAFTA periods, before turning negative in 1996. The US
share of total Canadian agricultural imports increased under
the FTA and has averaged 61% under NAFTA, with the share for
many US products being higher.
Overall, NAFTA has been a significant net gain for US
agriculture. US agricultural trade with Canada and Mexico has
increased, and the US has generally had a positive trade
balance with both countries. Still, there are important
agriculture trade issues between the US and its NAFTA trading
partners and these need to be addressed.
Some trade issues remain difficult. They include access to
the Canadian dairy and poultry market, grain trade between the
US and Canada, access of US feeder cattle to Canada, and
imports of winter vegetables from Mexico. However, none of
these issues was caused by NAFTA.
The benefits that US agriculture has reaped from NAFTA and
some of the outstanding trade issues demonstrate the importance
of the US moving quickly to push for further trade
liberalization on both a bilateral and a multilateral basis.
The sponsors of this report feel that further trade
liberalization will benefit US agriculture and that speedy
action along these lines will require the approval soon of fast
track negotiating authority.
With this statement, I am submitting a copy of the full
analysis and ask that it be made a part of the record.
The PROMAR study was sponsored by the Animal Crop
Protection Association, American Farm Bureau Federation,
American Meat Institute, American Soybean Association, Animal
Health Institute, Bunge Corporation, Cargill, Incorporated,
ConAgra, Inc., Continental Grain Company, Farmland Industries,
Inc., Grocery Manufacturers Association, International Dairy
Foods Association, Louis Dreyfuss, Inc., National Association
of Plant Patent Owners, National Cattlemen's Beef Association,
National Corn Growers Association, National Grain and Feed
Association, National Pork Producers Council, Philip Morris/
Kraft, Ralston Purina International, The Fertilizer Institute,
US Chamber of Commerce, US Dairy Export Council and US Wheat
Associates.

[The analysis is being retained in the Committee files.]

Statement of Public Citizen's Global Trade Watch

Questions and Answers About Fast Track Negotiating Authority

What Is Fast Track Negotiating Authority?

Fast Track is a set of rules mostly about how Congress will
consider the domestic legislation implementing trade
agreements, not about the authority to negotiate trade deals
itself. The term ``fast track'' refers to several related
congressional procedures used for certain international trade
and investment agreements.
Fast Track is one version of how negotiating authority is
delegated from the Legislative branch (which has exclusive
constitutional authority over regulation of foreign commerce)
to the Executive branch. Fast Track allows the Executive branch
to conduct trade negotiations under a guarantee that whatever
agreement is concluded, Congress will consider it with no
amendments allowed and limited debate. Instituted by President
Nixon in 1973, this extraordinary process has only been used
five times.\1\ Fast Track negotiating authority is only one
version of how Congress could delegate authority to the
Executive branch on such trade issues. Alternative processes
would maintain more leverage for Congress to shape
negotiations.
---------------------------------------------------------------------------
\1\ Fast track has only been used five times: the Tokyo Round of
GATT (1975), the U.S.-Canada Free Trade Agreement (1988), the U.S.-
Israel Free Trade Agreement (1989), the North American Free Trade
Agreement (1993) and the Uruguay Round of GATT establishing the World
Trade Organization.

---------------------------------------------------------------------------
How Does Fast Track Negotiating Authority Work?

Fast Track requires Congress to agree, before seeing any
text (or for that matter, before negotiations begin) that when
a trade pact is finished, Congress will vote on the agreement
AND all of the changes to domestic law required to conform U.S.
law to the pact under the following terms: \2\
---------------------------------------------------------------------------
\2\ Statutory references for specific fast track provisions: no
amendments to the implementing legislation or the trade agreement are
permitted under the fast-track procedures at 19 U.S.C. 2191(d). The 60
day voting requirement consists of two aspects contained at 19 U.S.C.
2191(e): The congressional committees to which the implementing bill is
referred have only 45 legislative days to review it but without any
changes, at which time it is automatically referred to the full House,
and a floor vote must then be taken within 15 legislative days. In
calculating the time periods for action in either chamber, the days on
which that House is not in session are excluded. 19 U.S.C. 2191(e)(3).
The limitation of debate to not more than 20 hours, divided equally
between those favoring and those opposing the legislation is located at
19 U.S.C. 2191(f)(2) & (g)(2).
---------------------------------------------------------------------------
A. a closed rule (absolutely no amendments);
B. maximum 20 hours of floor debate in each chamber
C. an up or down vote;
D. legislation written by the Executive branch;
E. bypass regular congressional committee procedures, such
as mark ups;
F. vote within 60 legislative days after that legislation
is submitted to the Congress.
Trade implementing legislation, which in the case of both
NAFTA and GATT numbered thousands of pages, made hundreds of
amendments to conform our existing laws with the trade texts.

What Is Congress' Role Under Fast Track Negotiating Authority?

To obtain such a pre-agreed closed rule before even
initiating a negotiation, the President must notify Congress
that he wants to negotiate a specific trade agreement with
fast-track procedures.\3\ Congress must then vote to refuse the
application of fast-track procedures to a specific agreement by
a vote of both Houses within 60 days.\4\
---------------------------------------------------------------------------
\3\ Notification is at 19 U.S.C. 2902(c)(3)(C).
\4\ Disapproval is at 19 U.S.C. 2903(c)(1)(A) & (2).
---------------------------------------------------------------------------
If Congress fails to reject the Fast Track request in 60
days, the President is then free to negotiate the Agreement
knowing Congress will be required to vote on legislation
drafted by the Executive branch under a closed rule. Under the
statute, the President must next involve Congress by notifying
Congress 90 calendar days before he intends to sign the trade
agreement. After the President enters into (i.e., signs) the
agreement following the expiration of the congressional notice
period, he may submit the signed trade agreement, implementing
legislation, and certain required supporting information to
Congress for approval.\5\ Congress must then vote yes or no
within 60 legislative days.
---------------------------------------------------------------------------
\5\ Id. 2903(1)(B). Although not required by statute, some
Administrations have invited selected Members or Committees to hold
what they call ``unmark ups'' and ``unhearings'' to discuss the
Executive Branch text before it is formally submitted. Meanwhile,
Members not chosen for this arbitrary process only obtain the
legislative language when it is presented for final consideration.

---------------------------------------------------------------------------
Fast Track and Congress: Responsibility But No Authority

Polls show that the public expects Congress to be in
control of domestic issues which are impacted by trade
agreements like food safety, truck and highway safety and
illegal drugs. Under Fast Track, Congress loses the authority
and the ability to shape these issues though they are still
ultimately held responsible for the result. Once Congress signs
off on Fast Track they lose the ability to control the outcome
of the negotiations. For instance, since 1988, putting labor
standards into trade pacts has been a U.S. negotiating
objective under Fast Track. When the Executive branch has
returned with agreements without labor standards, Congress,
limited to an up or down vote, could not put them into the
agreement.

Is Fast Track Mandatory for Negotiating a Trade Agreement?

The Executive branch has the capacity to negotiate with
foreign sovereigns right now. Thus, the notion that without
fast track, no ``major trade deals are possible'' is simply
untrue. In fact, this extraordinary delegation of authority has
only ever occurred five times, twice in the Clinton
Administration. Yet the Clinton Administration touts in
testimony and press releases more than 200 trade agreements
which were negotiated and implemented without fast track. Among
these trade agreements completed without Fast Track are
expansive and multilateral agreements like the ITA
(International Technology Agreement) and the Telecom Agreement
and bilateral and plurilateral agreements including the two
Japanese Auto Agreements. As well, currently, the Clinton
Administration is close to completion on negotiations of the
29-nation, highly complicated Multilateral Agreement on
Investment (MAI), and deep in the talks on the WTO's Financial
Services Agreement and parts of Asian Pacific Economic
Cooperation (APEC). In fact, the entire MAI negotiation has
occurred during a period where the Administration has not had
Fast Track authority.

This Unique Extreme Delegation of Authority Is No Longer
Appropriate

No limitation of congressional authority as severe as Fast
Track exists in U.S. law. For instance, while some budget votes
are granted closed rules automatically in advance, budget bills
are shaped by Congress and have undergone extensive
congressional committee process.
Given that today's ``trade'' agreements are no longer just
about tariffs and quotas, the extreme, total delegation of
congressional authority represented by Fast Track simply is no
longer appropriate. For example, the NAFTA text sets standards
for the pesticide residues on the food children will eat;
restricts how intensely border meat inspection can be conducted
without being a trade barrier; specifies the length and weight
of trucks that will travel in North America; restricts how
local tax dollars can be used, for example by forbidding
performance requirements such as mandating recycled paper
content in government procurement.

What Trade Agreements Will Be Included In This Fast Track?

The Administration has stated that this Fast Track
authority would include expansion of the North American Free
Trade Agreement (NAFTA) to Latin America and to the Caribbean
starting with Chile, and then to Asia through the Asian Pacific
Economic Cooperation (APEC); the Multilateral Agreement on
Investment (MAI) and expansion of the World Trade Organization,
which implements the General Agreement on Tariffs and Trade
(GATT).

What is the Origin of Fast Track?

Fast Track was established by President Nixon in 1973 but
has its roots even farther back. Under the 1933 Tariff Act, the
trade negotiating authority delegated from the Legislative to
the Executive branch did not cover non-tariff issues at all.
During the Kennedy Round of GATT negotiations--the Round prior
to the mid-1970s Tokyo Round--the first non-tariff issue arose
in trade negotiations: standardizing customs classifications.
President Truman was informed by Congress that he needed to
obtain specific congressional approval for the necessary
changes to U.S. statutes setting the tariff classification
system. The Executive branch did not do this and instead used
its existing proclamation authority to ``declare'' the law
changed. This did not go over well with Congress. There was a
specific congressional vote (which was not necessary) to show
support for the Kennedy Round itself--but to also announce that
the Customs Classifications could not be changed except through
congressional action.
This bit of turf war was then used by President Nixon to
propose an amendment to the existing proclamation authority to
specifically allow the President to proclaim changes to actual
laws as needed to conform them to trade negotiations. Of
course, this suggestion also did not go over well with Congress
either--to say nothing of some rather major constitutional
problems it would have posed. The ``deal'' that got cut in this
turf war is the procedure we now call ``fast track.'' However--
the entirety of the non-tariff issues which President Nixon
obtained fast track to cover was that customs classification
and a non-binding agreement on ``Technical Barriers to Trade.''

Does Fast Track Eliminate Special Interest Deals in Congress?

Fast Track functions as a type of super glue for pork
barrel deals in trade agreements. Because no amendments are
allowed, Congress is thus forced into rejecting entire trade
agreements or approving special deals and unsavory amendments
The two times fast track was used by the Clinton Administration
to negotiate a trade agreement a bounty of special interest
deals were involved.
With the GATT Uruguay vote in a lame duck session of
Congress in late 1994, one foreign auto company got a multi-
million dollar tax break in the GATT implementing legislation,
a certain cellular phone interest was given a special deal,
pension liabilities for certain companies were relieved,
controversial changes in the U.S. Savings Bond Program were
made and so on. These items had nothing to do with implementing
the text of the Uruguay Round.
Much has been written about the dozens of special interest
deals conducted by the Clinton Administration in the final days
of the NAFTA vote. Any Member who supported NAFTA also
approved, for instance, an obscure provision of NAFTA's
implementing legislation which retroactively wiped out tariffs
owed on Canadian-made Honda Civics shipped to the United States
since 1989.

For more information about Fast Track or NAFTA, please contact
Public Citizen's Global Trade Watch at (202) 546-4996.

What Do the Polls Say About NAFTA and Fast Track?

September 15, 1997

61% of Americans oppose ``having Congress grant the
President fast-track authority.'' Hart and Teeter for the Wall Street
Journal/NBC, July 26-28 19971.\1\
---------------------------------------------------------------------------
\1\ The poll asked: ``President Clinton will ask Congress to give
him ``fast track'' authority to negotiate more free trade agreements.
This would mean that once the negotiations are completed, Congress
would take an up or down vote, but not make any amendments or changes.
Do you favor or oppose this?'' Strongly Oppose Fast Track: 32%;
Somewhat Oppose Fast Track: 29%; Not Sure: 7; Strongly Favor: 9;
Somewhat Favor: 23.
---------------------------------------------------------------------------
57% of Americans oppose ``new trade pacts with Latin
American countries. Wirthlin Worldwide for Bank of Boston*: November
1996.
87% of Americans believe ``trade agreements with other
countries...should seek to protect the environment.'' Louis Harris and
Associates for Business Week, Sept. 3-7, 1997.
73% of Americans believe free trade agreements with other
countries ``should aim to lift labor standards.'' Louis Harris and
Associates for Business Week, Sept. 3-7, 1997.
56% of Americans believe ``expanded trade leads to a
decrease in the number of U.S. jobs.'' Louis Harris and Associates for
Business Week, Sept. 3-7, 1997.
26% of Americans believe the United states has benefitted
from NAFTA. Louis Harris and Associates for Business Week, Sept. 3-7,
1997.
51% percent of Americans believe ``America's integration
in global markets'' ``mainly benefits multinational corporations at the
expense of average working families.'' Penn, Schoen and Berland
Associates, for the Democratic Leadership Council* (DLC) July 1997.
64% believe trade agreements between the U.S. and other
nations cost more jobs than they create. Greenberg Research for
Campaign for America's Future, November 1996.
52% say their views toward free trade are less favorable
than a year a ago as the result of what they know about NAFTA and GATT.
Wirthlin Worldwide for Bank of Boston*: November 1996.
64% of Americans believes world trade pulls down U.S.
wages. Market Strategies for the Committee for Free Trade and Economic
Growth*, June 1996.
86% of Americans support ``fair trade''. Penn, Schoen and
Berland Associates, Inc. for the Democratic Leadership Council* (DLC)
July 1997.
32% of Americans believe NAFTA has had ``more of a
positive impact on the United States than a negative impact''. Wall
Street Journal/NBC poll July 26-28 1997.
65% of Americans believe American workers have not
``received their fair share of the financial benefits created over the
last few years by the improved national economy.'' Gallup poll August
29, 1997.
67% of Americans believe that the ``jobs now being created
in created in the United States are mainly low paying jobs.'' Hart and
Teeter for Wall Street Journal/NBC, June 19-23, 1997.
7% of Americans believe international trade agreements
have ``mostly gained jobs''. Source: Yankelovich for CNN-Time, April
1997.

* Pro-Fast Track/NAFTA Organizations

For More Information Please Contact Public Citizen's Global Trade Watch
(202)546-4996. Visit Our Website at: www.citizen.org

Statement of Hon. Jim Ramstad, a Representative in Congress from the
State of Minnesota

Mr. Chairman, thank you for calling today's hearing to
discuss the President's North American Free Trade Agreement
(NAFTA) Report.
Ensuring our nation's continued economic growth is one of
the most important jobs I have in Congress. The best way to
help our economy is to expand the amount of goods and services
we produce and consume. Since international trade
liberalization stimulates economic growth and with increased
exports and inexpensive imports, I strongly supported the
passage of NAFTA in 1993 and continue to support it today.
The U.S. has historically had the most open markets in the
world, and that is why we need to forge trade agreements with
other nations to pry open their markets for our producers and
exporters. And NAFTA has helped do just that. Between 1993 and
1996, U.S. goods exports to Canada were up by 33.6% and exports
to Mexico grew by 36.5%. In the first six months of this year
alone, Mexico and Canada accounted for almost half of the
growth in total U.S. exports.
The gradual removal of Mexican trade barriers continues to
open an already vast market for U.S. goods. Since enactment of
NAFTA, half of all U.S. exports to Mexico have become eligible
for duty-free treatment. In fact, January 1, 1997 marked the
fourth round of reciprocal tariff reductions, reducing the
average Mexican tariff on U.S. products from 10% to 2.9%,
giving U.S. firms and workers a seven percentage point margin
of preference compared to non-NAFTA competitors.
I know in the end, all the data suggests that NAFTA has had
a positive, but small, effect on US trade given the large size
of our economy. But let me tell you what this positive effect
means to me and my constituents--it means increased
productivity and incomes; it means more and better jobs.
We all know every $1 billion dollars of exports supports
20,000 American jobs and those jobs supported by exports pay an
average of 13-16% higher than non-export related jobs.
According to the President's report we are discussing today,
exports to Canada and Mexico supported an estimated 2.3 million
jobs in 1996, an increase of 311,000 jobs since 1993. This is
not ``small'' to those employees with these new, better-paying
jobs.
I am proud of the successes we have seen to date through
NAFTA. While trade disputes with our North American friends
will come and go, just as they would without NAFTA, I remain
optimistic about continued U.S. economic growth under this
land-mark trade agreement. And, as I watch many other nations
negotiate advantageous trade agreements without U.S.
involvement, I remain hopeful that we in Congress will renew
Fast-Track Authority soon to make sure the American people are
not left standing on the sidelines, missing out on additional
export market expansion opportunities.
Thank you again, Mr. Chairman, for calling this hearing. I
look forward to hearing from today's witnesses about the
President's NAFTA report.

Statement of Hon. Silvestre Reyes, a Representative in Congress from
the State of Texas

Mr. Chairman and members of the committee. Thank you for
the opportunity to testify about the effects and operation of
NAFTA. It is important that with the release of the President's
report that all of the outcomes regarding NAFTA, both positive
and negative, be brought forth. I want to express my
appreciation to the committee for holding this hearing focusing
attention on this far reaching trade agreement. With the
President's request for new Fast-Track authority for further
hemispheric trade agreements, it is paramount that our
experience under NAFTA be fully reviewed, and it is from this
proving ground of three and a half years that we should
proceed.
Specifically, I wish to relate the experience of NAFTA to
my district, the 16th District of Texas which encompasses the
city of El Paso, Texas. El Paso is the fourth largest city in
Texas, and the largest border community in Texas with over half
a million people and is situated directly along our
international border with Mexico. Furthermore, my community has
a long history of international business and labor between El
Paso and Mexico. From this standpoint, I believe I can provide
an important view regarding the operation and impact of NAFTA.
NAFTA sought to raise the level of commerce for our country
and thus the quality of life for all Americans by increased
opportunities for trade. A shift in the economic base toward
higher wage and higher skill industries was contemplated,
however, it was recognized that there would be a significant
dislocation of jobs and disproportionate stresses on certain
parts of the country. Consequently, appropriate mechanisms were
to be in place to preserve and improve the environment,
supplement our infrastructure, create economic development and
jobs, and provide appropriate safety nets for workers in the
way of financial assistance and job retraining through
transitional adjustment assistance.
The President in his report focuses on the impact on
exports and job creation, giving overall good reviews and
pointing to modestly boosted U.S. jobs and incomes. As you
know, however, other entities have produced their own reports
on the impact of NAFTA and assert that NAFTA has in fact
resulted in net job losses.
The situation in my district, regardless of these reports,
brings home a reality of serious job loss and endemic
unemployment. While the rest of the country reaps the benefits
of a booming economy, El Paso has suffered the most NAFTA-TAA
certified job losses in the country amounting to nearly 6000
dislocated workers. While the U.S. economy has seen
unemployment drop to the lowest unemployment level in twenty
three years to 4.9% in July, the unemployment rate in El Paso
has consistently remained in double digit figures, currently
standing at 11.7% representing nearly 35,000 jobless workers.
This is a reality seen not only in my community but all along
the Texas-Mexico border, with unemployment levels reaching as
high as 16%.
Thus, while the overall economy is in a period of
unprecedented growth flowing from larger hemispheric trade; the
entry point of this trade, the border, has borne a
disproportionate share of the costs. Not only has there been a
loss of wages but a ripple effect impacting the broader
community. We have not seen the anticipated economic
development needed to compensate for this disruption to the
economy. In fact, it was only this past month that NADBank
launched its Community Adjustment and Investment Program
identifying El Paso as one of thirty five NAFTA impacted
communities. This follows the loss of nearly 70 businesses in
downtown El Paso and numerous factories moving their operations
to Mexico.
More significantly, while NAFTA provides job training
assistance, these programs are not tailored to the unique
characteristics of specific labor markets and economies. In my
district for example, the vast majority of job losses involve
minority and women workers, many of them having worked twenty
and thirty years for a single employer. Despite lacking high
school educations and without knowing English, these workers
were long term taxpaying employees working productively in the
garment and other manufacturing industries. With NAFTA, many of
these jobs went to Mexico, leaving these workers in need of new
vocational skills in order to secure the higher technology jobs
emerging from NAFTA. These workers instead of receiving
training directed toward these new requirements through
comprehensive bilingual vocational training, most were placed
in remedial English courses and G.E.D. courses. Most of these
were pre-existing programs directed toward youth or citizenship
training without any vocational component whatsoever. Formal
diplomas and English was not necessarily needed, rather skills
training with bilingual working English would have rapidly and
expeditiously eased these workers back into the job force.
As you are aware, a maximum of twenty-four months for
training is provided for reintegration into the workforce under
the NAFTA-TAA program. While this may seem like a reasonable
amount of time to obtain needed job skills, this amount of time
has proved to be inadequate in many cases where these workers
lack formal educations, have minimal English skills, and must
transition into an entirely different line of work.
In addition, while twenty four months of training is
provided, this is matched with only 18 months of financial
assistance. This six month gap has further left many of my
constituents in a position of having to drop out of training
programs prior to completion because of this financial gap. If
we are attempting to provide a so called ``bridge'' for
workers, transitional adjustment assistance programs should not
create this obstacle to training fulfillment.
In conclusion, as someone representing a district that sits
right on the international border with Mexico, I understand in
very real terms the crucial role that international trade plays
in the American economy. The need to expand commerce should
result in expanded opportunities for every American, and proper
investments should be made to ensure no one is left behind.
Economic development programs must be initiated quickly and
focused towards impacted areas. Training programs must be
tailored to the diverse communities across this country and
especially for those with unique needs. Moreover, an adequate
range of time for training must be provided to allow for
different needs among our citizens, along with adequate
parallel funding to allow for transition.
Mr. Chairman, thank you for giving me the opportunity to
speak before this committee regarding this very serious issue.
I hope that my views can provide constructive information for
our overall economy as we look at expanded opportunities for
commerce, trade and labor, and that effective programs are in
place to resolve the transition that comes with increased trade
opportunities.

Statement of Brenda F. Arnett, Executive Director, Texas Department of
Economic Development

As executive director of the state's lead economic
development agency, I want to clarify the North American Free
Trade Agreement's positive effects on the Texas economy. Like
many Texans, I am a strong advocate of the agreement. NAFTA has
generated exports, new business opportunities, and jobs for
Texans. It has enhanced the performance of our state's economy.
NAFTA is good for Texas.
Foreign trade plays a vital role in the Texas economy, a
larger role, in fact, than for the nation as a whole.
While Texas accounts for about 7 percent of the U.S.
population, the state's share of national exports is closer to
12 percent. In 1996, the state's $74.02 billion in total
exports equated to 14.5 percent of the Texas gross state
product, the value of all goods and services produced in the
state, while total U.S. exports amounted to about 8.2 percent
of the gross domestic product. In 1996, Texas exported $3,870
in merchandise for every man, woman and child in the state.
That figure is 65 percent higher than the comparable U.S.
average of $2,348 in per capita exports.
Since NAFTA's inception, Texas has created more jobs than
any other state in the nation. A record-number of Texans is
employed--nearly 9.3 million in December 1996. The state's
civilian labor force continues to grow faster than the national
labor force. Since January 1, 1994, 774,000 jobs have been
created, a 10.2 percent increase over the job creation figures
of pre-NAFTA 1993.
More than 66,000 of those new jobs were added in the
state's manufacturing sector, pushing total manufacturing
employment over the million-mark by mid-1994. The average
manufacturing wage in Texas has increased 8.3 percent since
December 1993, from $11.05 per hour to $11.97 per hour in
December 1996.
Texas exports have nearly tripled since 1987, when state-
level export figures initially became available. From an
estimated $25.3 billion in 1987, the state's merchandise
exports grew to $74.02 billion in 1996.
Mexico is Texas' largest trading partner, and Canada is our
second-largest. Our exports to these markets account for
approximately half of all Texas exports. Texas exports to
Canada have soared in the past few years. Shipments to Canada
rose by 7.4 percent in 1996 following a gain of more than 25
percent in 1995. Clearly, the arrival of NAFTA has focused
attention on the potential for northbound trade from Texas.
Trade with Mexico rebounded dramatically in 1996 after
falling in the wake of the 1995 peso devaluation. Texas
shipments to Mexico rose by nearly 25 percent last year,
increasing from $21.86 billion in 1995 to $27.19 billion in
1996.
Our geographical location and easy access to Mexico
continue to make Texas a magnet for companies wishing to expand
and relocate, especially to penetrate the emerging markets of
Latin America. Yet, critics continue to point out the number of
jobs certified by the U. S. Department of Labor as lost due to
increased competition from Canadian or Mexican firms, or
production shifted to those nations. A process is in place for
reporting these job losses. An incentive exists for doing so,
i.e., federal assistance for retraining. Consequently, the
negative impacts of NAFTA are readily quantifiable. However,
this represents only one-half of the equation. There is no
federal or state form to complete or process to follow that
documents the jobs created because of increased sales to Canada
or a new joint venture opportunity in Mexico.
As of May 22, 1997, we had certified 10,703 Texas jobs as
lost due to an increased competition or production shifts under
the NAFTA/Trade Adjustment Assistance program, according to the
Texas Workforce Commission. While any job loss is significant
to the worker and the community involved, this figure needs to
be put in the broader context of the state's economic
performance since NAFTA came into effect. In the three years
since NAFTA came into effect, as pointed out earlier in this
testimony, Texas has recorded a net gain of 774,000 non-farm
jobs. The certified job losses, therefore, represent less than
1.4 percent of the state's job growth since the end of 1993.
The shift of lower-skilled jobs from the U. S. to other,
lower-wage nations is not a new phenomenon either. The location
of such operations in Mexico, rather than the Caribbean Basin
or the Pacific Rim, offers a greater potential for U. S.--and
particularly Texas--firms to act as suppliers, consultants and
service providers. NAFTA offers very tangible reasons for firms
to employ the combined human, financial and technological
resources that the three NAFTA nations offer.
Although there are no available figures on how many of the
774,000 new jobs created in Texas in the past three years can
be attributed specifically to export activity, a few points are
worth noting:
Texas' largest export industries are electronic
equipment and components and industrial machinery and
computers;
Between December 1993 and December 1996,
electronics and computers were among the state's fastest-
growing manufacturing industries. In fact, both industries grew
much faster than overall non-farm employment in Texas;
Employment in electronic equipment and components
has risen by 15.3 percent, or 15,800 jobs, in the past three
years; and
The number of jobs in industrial machinery and
computers is up by 21,400 or 18.6 percent since December 1993.
Texas is now home to more than 1,278 foreign subsidiaries,
which represent 50 countries. The latest available data show
that Texas has attracted $68.6 billion in foreign direct
investment. Those investments have brought some 320,000 jobs to
Texas.
One cannot stress the significance of NAFTA to Texas and
the U. S. enough. NAFTA has offered an assurance of greater
political stability to the global business community. This has
been particularly important in the wake of the December 1994
peso devaluation, when the value of the agreement was proven in
a most tangible way. Rather than respond to the crisis in a
protectionist fashion, as it had in the wake of the 1982 peso
devaluation, Mexico did not raise tariffs on American or
Canadian goods, which would have violated the NAFTA agreement.
In addition, had NAFTA not been in effect during the 1994
peso devaluation, Mexico's financial crisis would have been
much greater. Matters might have even reached the point as to
threaten the political stability of our southern neighbor,
something that would have had terrible consequences on trade,
the Texas economy, illegal immigration, and the security of our
borders. Instead, Mexico's economy has rebounded in a
relatively short period of time--certainly, much more quickly
than it did after the 1982 peso devaluation. The credit for
this turnaround goes to NAFTA, which bolstered Mexico's ability
to export its products and thus revive its economy.
The formal trade ties between the U.S. and Mexico have
increased Mexico's relative trade with the U.S. Mexico must
import goods to be able to export goods. Particularly in a time
of domestic austerity, analyst Jon Hockenyos of ``Texas
Perspectives'' has noted, Mexico would rather buy those imports
from the U.S. As a result, U.S. exports to Mexico declined less
than other countries' exports to Mexico in 1995. Moreover, the
rebound in shipments to Mexico in 1996 was quite dramatic.
Compared with the prior year, Texas exports to Mexico were down
by 8.3 percent in 1995, and up by 24.3 percent in 1996. For the
U.S., the comparable figures were an 8.9 percent decline in
1995, and a 22.6 percent gain in 1996.
NAFTA is as much about investment as it is about trade.
Mexico actively seeks foreign direct investment, particularly
as it continues its program of privatization. The U.S. is
considered a preferred source of that investment. Mexico needs
to continue modernizing its industries and upgrading its
infrastructure, and this offers tremendous long-term business
opportunities, particularly for Texas companies that have
nurtured ties with Mexican firms.
The investment benefits of NAFTA are hardly limited to the
Mexican side of the border. Because of the agreement's rules on
North American content, Asian and European firms have another
incentive to establish production platforms here to serve the
Canadian, U.S. and Mexican markets. Existing firms in North
America are also looking southward to Mexico and beyond. Texas'
proximity to Mexico, and Texas' location in a major trade
corridor between Mexico and Canada, make the state a leading
candidate for new investment, both foreign and domestic.
Clearly, NAFTA's most significant contribution has been to
effectively lock in the economic reforms that Mexico adopted in
the late 1980s, early 1990s, and more recently, the recent
elections of 1997. A stable and healthy Mexico is tremendously
important to the United States and to Texas. It is only in this
kind of setting that economic linkages can take root and grow.
The Texas Department of Economic Development is dedicated
to constantly improving economic prospects for Texas by
providing the opportunities necessary for businesses to
succeed. NAFTA is one of our most effective sales tools, and
most deserving of the same support and optimism from Texans
that it receives from businesses around the world.
To dismiss the positive economic effects that NAFTA and
future Latin American trade agreements will generate is
shortsighted and irresponsible. We live in a global economy
that requires cooperation, not isolation. Texas is the
epicenter of a developing and lucrative trade corridor. The
health of the Texas economy depends upon increased foreign
participation. The ability of NAFTA to create more jobs, inject
more capital, and provide greater global investment
opportunities for Texas is contingent upon our understanding
that success in the global marketplace requires taking
advantage of opportunities beyond our borders. NAFTA deserves
every Texan's support.

Statement of Antonio O. Garza, Jr., Texas Secretary of State

President Clinton's Mexico visit may be over, but the
issues raised during his visit still linger. One in
particular--the potential to expand NAFTA to Chile--deserves
special attention once again.
In July, the President is scheduled to deliver to Congress
a report on the impact NAFTA has had during its three-year life
span in what I hope will be the preparation for his seeking the
``fast track authority'' from Congress necessary to issue Chile
and others an invitation to join an expanded free trade zone.
As I've said before, the importance of fast-track
authorization and its potential to shape worldwide trade by
positioning the U.S. to take a commanding leadership role
cannot be underestimated. But the President and Congress must
come together on this issue and act soon, or else we will
completely miss the window of opportunity. It has already
narrowed.
That's why this past week I sent the Office of the U.S.
Trade Representative and the U.S. International Trade
Commission a report outlining the positive effects NAFTA has
had on the State of Texas. The report, titled ``NAFTA, Texas
Style,'' can be found on our web site at [http://www/
sos.state.tx.us/texasnafta]
The report stresses that many of the initial fears
concerning NAFTA, fears that make up the substance of the NAFTA
renegotiation bill Congress is considering, have proven to be
unfounded.
Critics predicted that NAFTA would cost the U.S. in terms
of jobs, wages and living standards. In fact, however, the U.S.
economy has been generating approximately 2.25 million jobs per
year and the U.S. unemployment rate in 1996 averaged
approximately 5.5%. Since 1994, in fact, job growth has stayed
ahead of job displacement.
Texas in particular has seen significant job growth, wage
increases, higher trade figures and lower unemployment during
the post-NAFTA implementation period. For example, there have
been significant employment increases in machinery, computers,
electronics, transportation equipment, metals, furniture and
other key industries. In NAFTA's first year 247,000 jobs were
directly related to exports to NAFTA partners, representing a
15% increase since NAFTA was enacted. Also, Texas has shown
strong growth in the manufacturing sector (Texas has led the
nation in the addition of new manufacturing jobs since 1990),
rebutting critics' claims that such jobs would inevitably move
to Mexico.
Critics also pointed to environmental concerns, claiming
that NAFTA would not do enough to address them, and then blamed
the agreement for many less-than-ideal situations that have
existed over the last three years in such areas as water
supply, air quality and solid waste along the Mexican border.
As a state that shares a 1,200 border with Mexico, Texas knows
full well the impact that NAFTA has had on these long-standing
issues (the key words here being ``long-standing,'' as these
issues were of concern long before NAFTA was enacted).
The reality is that NAFTA has provided a critically needed
framework in which to develop cooperative, long-term solutions
to these environmental concerns--a framework that was notably
absent before the NAFTA's enactment. Thanks to NAFTA, for
instance, the North American Development Bank (NADBank) and the
Border Environment Cooperation Commission (BECC) are working
together to bring funding to projects for the benefit and
protection of the border environment.
These are just a few of the many examples highlighted by
the report. NAFTA's short lifespan has already shown that its
benefits outweigh the downfalls. More importantly, it has
started a momentum that simply needs time to fully develop.
When President Clinton submits his report to Congress in
July, he'll be poised to push for what may be the last
opportunity to make good on our promise to expand NAFTA to
Chile. It is imperative that he do what is necessary to urge
Congress not to weigh NAFTA down with additional burdens that
will serve to close doors but instead keep those doors of
opportunity wide open with fast-track legislative authority.
NAFTA works, and Texas knows it more than anyone.