[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 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 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:

      
    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 
Text or 5.1 WordPerfect format. Witnesses are advised that the 
Committee will rely on electronic submissions for printing the official 
hearing record.
      
    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 202-226-3411 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:]
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    [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.
      

                                
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[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.
---------------------------------------------------------------------------
    * 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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ Data cover the period January 1994 through June 1997.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------

                               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.
---------------------------------------------------------------------------
    \5\ New FDI comprises new investment plus reinvested earnings of US 
companies in Mexico.
---------------------------------------------------------------------------

                               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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------

               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\
---------------------------------------------------------------------------
    \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).

---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
    \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.
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    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.

      

                                
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[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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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.

                                   - 
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