[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



        DOMINICAN REPUBLIC-CENTRAL AMERICA FREE TRADE AGREEMENT

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                COMMERCE, TRADE, AND CONSUMER PROTECTION

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 28, 2005

                               __________

                           Serial No. 109-18

                               __________

      Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
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                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

RALPH M. HALL, Texas                 JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida             Ranking Member
  Vice Chairman                      HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky               SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia             BART GORDON, Tennessee
BARBARA CUBIN, Wyoming               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING,       ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman           GENE GREEN, Texas
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania        JIM DAVIS, Florida
MARY BONO, California                JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon                  HILDA L. SOLIS, California
LEE TERRY, Nebraska                  CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey            JAY INSLEE, Washington
MIKE ROGERS, Michigan                TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho          MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee

                      Bud Albright, Staff Director

        David Cavicke, Deputy Staff Director and General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

        Subcommittee on Commerce, Trade, and Consumer Protection

                    CLIFF STEARNS, Florida, Chairman

FRED UPTON, Michigan                 JAN SCHAKOWSKY, Illinois
NATHAN DEAL, Georgia                   Ranking Member
BARBARA CUBIN, Wyoming               MIKE ROSS, Arkansas
GEORGE RADANOVICH, California        EDWARD J. MARKEY, Massachusetts
CHARLES F. BASS, New Hampshire       EDOLPHUS TOWNS, New York
JOSEPH R. PITTS, Pennsylvania        SHERROD BROWN, Ohio
MARY BONO, California                BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  GENE GREEN, Texas
MIKE FERGUSON, New Jersey            TED STRICKLAND, Ohio
MIKE ROGERS, Michigan                DIANA DeGETTE, Colorado
C.L. ``BUTCH'' OTTER, Idaho          JIM DAVIS, Florida
SUE MYRICK, North Carolina           CHARLES A. GONZALEZ, Texas
TIM MURPHY, Pennsylvania             TAMMY BALDWIN, Wisconsin
MARSHA BLACKBURN, Tennessee          JOHN D. DINGELL, Michigan,
JOE BARTON, Texas,                     (Ex Officio)
  (Ex Officio)

                                  (ii)




                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Cohen, Calman J., President, Emergency Committee for American 
      Trade......................................................    58
    Kearns, Kevin L., President, U.S. Business and Industry 
      Council....................................................    47
    Lee, Thea M., Chief International Economist, AFL-CIO.........    51
    Murphy, John, Vice President, Western Hemisphere Affairs, 
      Executive Director, American Chambers of Commerce of Latin 
      America, United States Chamber of Commerce.................    99
    Roberts, Russell, Professor of Economics, J. Fish and Lillian 
      F. Smith Distinguished Scholar at the Mercatus Center, 
      Department of Economics....................................    95
    Roney, Jack, Director of Economics and Policy Analysis, 
      American Sugar Alliance....................................    89
    Vargo, Frank, Vice President, International Economic Affairs, 
      National Association of Manufacturers......................    67
    Vargo, Regina K., Assistant U.S. Trade Representative for the 
      Americas, Office of the U.S. Trade Representative..........    18
    Waskow, David F., Director of the International Program 
      Friends of the Earth.......................................   105
Additional material submitted for the record:
    Retail Industry Leaders Association, prepared statement of...   123
    Public Citizen, prepared statement of........................   125

                                 (iii)

  

 
        DOMINICAN REPUBLIC-CENTRAL AMERICA FREE TRADE AGREEMENT

                              ----------                              


                        THURSDAY, APRIL 28, 2005

              House of Representatives,    
              Committee on Energy and Commerce,    
                       Subcommittee on Commerce, Trade,    
                                   and Consumer Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 11:05 a.m., in 
room 2123, Rayburn House Office Building, Hon. Cliff Stearns 
(chairman) presiding.
    Members present: Representatives Stearns, Bass, Pitts, 
Bono, Rogers, Otter, Myrick, Murphy, Blackburn, Barton (ex 
officio), Schakowsky, Markey, Brown, Green, Strickland, 
Gonzalez, Baldwin, and Dingell (ex officio).
    Also present: Representative Solis.
    Staff present: David Cavicke, chief counsel; Chris Leahy, 
policy coordinator; Will Carty, professional staff; Larry Neal, 
deputy staff director; Billy Harvard, clerk; Jon Tripp, deputy 
communications director; Jonathan Cordone, minority counsel; 
Turney Hall, staff assistant; and David Vogel, staff assistant.
    Mr. Stearns. Good morning, everybody. The subcommittee will 
come to order. This is the subcommittee on the Dominican 
Republic-Central America Free Trade Agreement, or known as DR-
CAFTA. My colleagues, on a basic level, trade--particularly 
trade between nations--it rests on an age-old theory of 
comparative advantage. The laws of economic efficiency tell us 
that we only should produce goods at which we are most 
efficient and trade for all the others. This helps explain why 
we can see efficiency gains and improved standards of living 
when economically disparate countries trade with each other.
    In these cases, prices reflect the most efficient means of 
production, which, in theory, leads to a better standard of 
living by effectively making all goods concerned less 
expensive. This basic principle has been the bedrock of free 
trade theory for over 200 years.
    I must say at the outset that I am not here to challenge 
Mr. Ricardo on his elegant principle, but I do think the 
economic, social, and geopolitical complexity surrounding the 
Dominican Republic-Central America Free Trade Agreement would 
leave him a bit overwhelmed if he was trying to negotiate the 
agreement today.
    These complexities and profound effects make it extremely 
important that we, as Members of Congress, understand why the 
DR-CAFTA agreement efficiency and its net gains for our 
economies in terms of import and export growth also could 
produce for some United States job losses and less competitive 
U.S. products and shifts in regional U.S. economies that create 
winners and losers. Accordingly, the witnesses here before us 
today represent a broad section of many of the constituencies 
that will feel both positive and perhaps negative economic 
effects of the DR-CAFTA, many of which constitute significant 
parts, of course, of many of our home Congressional districts.
    The signatories of this agreement include the United 
States, the Dominican Republic, Costa Rica, El Salvador, 
Guatemala, Honduras, and Nicaragua. The agreement was signed in 
2004. The agreement would create the second largest U.S. export 
market in Latin America behind Mexico.
    In 2004 U.S. trade with the DR-CAFTA region represented 
about 1.5 percent of total U.S. foreign commerce, which 
amounted to about $33 billion in trade flows, including about 
$16 billion in U.S. exports to the region. The U.S. is by far 
the largest trading partner to the DR-CAFTA countries. Most of 
the import and export trade within the region covered by the 
agreement is related to the merchandise, raw material, and 
agricultural sectors.
    Since the early 1980's, the U.S. has provided the region 
one-way, duty-free trade preferences for the region under the 
Caribbean Basin Initiative. In contrast to the CBI, the DR-
CAFTA is a reciprocal trade agreement that is designed to make 
over 80 percent of U.S. consumer and industrial exports and 
over 50 percent of U.S. farm exports to Central America duty-
free immediately.
    Likewise, DR-CAFTA countries would enjoy duty-free status 
on all our non-textile and non-agricultural products 
immediately. In addition, the agreement includes a number of 
unique provisions relating to expanded protection of 
intellectual property right, new trade rules for e-commerce, 
liberalization in the telecom sector, and improved labor 
standards in the region. All of these are very good. The 
committee has done a great deal of work in many of these areas, 
and we look forward to hearing more about the DR-CAFTA elements 
today.
    But even with all these beneficial provisions and market 
opening and commitments, this agreement still stirs up a lot of 
strong opinion. I believe part of the reason is that all trade 
agreements represent a compromise that, in theory, is crafted 
to provide net gain to all parties. It seems obvious that 
parties enter into trade agreements to gain, not to lose. Even 
so, I believe the trade can cut both ways, regardless of 
economic theory. There are different regional effects, social 
impacts. As I mentioned earlier, different winners and losers 
regardless of the politics. I have seen them and my 
constituents have felt them. NAFTA, in my home district in 
Florida, is probably a lot different than the one--the effects 
in other parts of the country. It sits in the middle of a 
different regional economy.
    What this committee and this Congress needs to ensure is 
that those net gains from these agreements don't outweigh the 
inevitable cause for some of our people back home, our farmers, 
our ranchers, and local manufacturers. We must do all we can to 
make sure that all of these Ricardian economic principles, 
efficiency translate into economic progress for all, not 
stagnation or loss for some.
    I would also like to emphasize I support the goals of 
forging political and social reform in the region through 
increased trade and economic progress. This is very important. 
It is an extremely important undertaking in a world that 
continues to challenge the ideals of democracy and economic 
freedom. And I do believe the DR-CAFTA can be a very, very 
important instrument to help achieve these ends in this 
hemisphere. And this is important for all of our colleagues to 
remember. The important objectives, however, must not obscure 
the importance of providing those most affected by a shifting 
economic landscape, the opportunity for them to be successful 
too.
    But let me be clear; stability in the region is an 
important strategic issue for us. I believe the United States 
should be the leader in this region, and there are enormous 
global, political issues here which affect economic stability 
and trade in these countries, and frankly, ours too. Positive 
effects and results will help reinvigorate multilateral WTO 
negotiations.
    And I believe this is important. We just need to look at 
the history, post-war Europe and the positive impact trade has 
had for millions of Americans and the Europeans alike to 
understand the power of free trade and trading partnerships. 
But we must do it right, and we must remember that true, long-
term success in trade liberalization will depend on our ability 
to sustain mutual long-term economic benefits for all Americans 
under agreements like the DR-CAFTA.
    And finally, I would like to thank sincerely the Assistant 
U.S. Trade Representative Vargo and our other distinguished 
witnesses from industry, agriculture, labor, academia, and 
other interests for joining us here today in this open, frank 
discussion and providing their views on this extremely 
important agreement for our country. So we look forward to 
their testimony and thank them for coming. And at that, I 
welcome the opening statement from the ranking member, Ms. 
Schakowsky.
    [The prepared statement of Hon. Clifford Stearns follows:]

Prepared Statement of Hon. Clifford Stearns, Chairman, Subcommittee on 
                Commerce, Trade, and Consumer Protection

    Good Morning. On a basic level, trade, particularly trade between 
nations, rests on the age-old theory of comparative advantage. The laws 
of economic efficiency tell us that we only should produce goods at 
which we are most efficient, and trade for the others. This helps 
explain why we can see efficiency gains and improved standards of 
living when economically disparate countries trade with each other. In 
these cases, prices reflect the most efficient means of production, 
which, in theory, leads to a better standard of living by effectively 
making all goods concerned less expensive. This basic principle has 
been the bedrock of free trade theory for over two hundred years. I 
must say at the outset that I am not here to challenge Mr. Ricardo on 
his elegant principle but I do think the economic, social, and 
geopolitical complexities surrounding the Dominican Republic-Central 
America Free Trade Agreement or DR-CAFTA would leave even him a bit 
overwhelmed. These complexities and profound effects make it extremely 
important that we understand why the DR-CAFTA agreement's 
efficiencies--its net gains for our economies in terms of import and 
export growth--also could produce for some U.S. job losses, less 
competitive U.S. products, and shifts in regional U.S. economies that 
create winners and losers. Accordingly, the witnesses before us today 
represent a broad cross-section of many of the constituencies that will 
feel both positive and negative economic effects of the DR-CAFTA--many 
of which constitute significant parts of our home districts.
    The signatories of Dominican Republic-Central America Free Trade 
Agreement include the United States, Dominican Republic, Costa Rica, El 
Salvador, Guatemala, Honduras and Nicaragua. The agreement was signed 
in 2004. The DR-CAFTA agreement would create the second largest U.S. 
export market in Latin America, behind Mexico. In 2004, U.S. trade with 
the DR-CAFTA region represented about 1.5% of total U.S. foreign 
commerce, which amounted to about $33 billion in trade flows, including 
almost $16 billion in U.S. exports to the region. The U.S. is by far 
the largest trading partner to the DR-CAFTA countries. Most of the 
import and export trade within the region covered by the agreement is 
related to the merchandise, raw material, and agricultural sectors. 
Since the early 1980s, the U.S. has provided the region one-way duty 
free trade preferences for the region under the Caribbean Basin 
Initiative (CBI). In contrast to CBI, DR-CAFTA is a reciprocal trade 
agreement that is designed to make over 80% of U.S. consumer and 
industrial exports and over 50% of U.S. farm exports to Central America 
duty free immediately. Likewise, DR-CAFTA countries would enjoy duty 
free status on all non-textile and non-agricultural goods immediately. 
In addition, the agreement includes a number of unique provisions 
relating to expanded protection of intellectual property, new trade 
rules for e-commerce, liberalization in the telecom sector, and 
improved labor standards in the region. The Committee has done a great 
deal of work in many of these areas, and we look forward to hearing 
more about these DR-CAFTA elements today.
    But even with all of these beneficial provisions and market-opening 
commitments, DR-CAFTA still stirs up strong opinions. I believe part of 
the reason is that all trade agreements represent a compromise that, in 
theory, is crafted to provide net gains to all parties. It seems 
obvious that parties enter into trade agreements to gain, not to lose. 
Even so, I believe trade can cut both ways, regardless of economic 
theory. There are different regional effects, social impacts, and as I 
mentioned earlier, different winners and losers, regardless of 
politics. I have seen them, and my constituents have felt them. The 
NAFTA that my home district in Florida knows is probably a lot 
different than one in another part of the country, sitting in the 
middle of a different regional economy. What this Committee and the 
Congress need to ensure is that those net gains from these agreements 
don't outweigh the inevitable costs for some of our people back home--
our farmers, ranchers, and local manufacturers. We must do all we can 
to make sure all those Ricardian economic efficiencies translate into 
economic progress for all, not stagnation and loss for some.
    I also would like to emphasize that I support the goals of forging 
political and social reform in the region through increased trade and 
economic progress. This, I agree, is an extremely important undertaking 
in a world that continues to challenge the ideals of democracy and 
economic freedom. And I do believe DR-CAFTA can be a very important 
instrument to help achieve those ends in this hemisphere. The important 
objectives, however, must not obscure the importance of providing those 
most affected by a shifting economic landscape the opportunity to be 
successful too. But let me be clear, stability in the region is an 
important strategic issue. I believe the United States should be the 
leader in this region and there are global political issues here which 
offer economic stability in trade. Positive efforts and results will 
help reinvigorate multilateral WTO the Doha Round negotiations. I 
believe that is important. We just need to look at the history postwar 
Europe and the positive impact trade had for millions of American and 
Europeans alike to understand the power of free markets and trading 
partnerships. But we must do it right. And we must remember that true 
long-term success in trade liberalization will depend on our ability to 
sustain mutual long-term economic benefits for all Americans under 
agreements like DR-CAFTA.
    Finally, I would like to thank Assistant U.S. Trade Representative 
Vargo and our other distinguished witnesses from industry, agriculture, 
labor, academia, and other interests for joining us today and providing 
their views on this extremely important agreement for our great county. 
We look forward to your testimony. Thank you.

    Ms. Schakowsky. Thank you, Mr. Chairman. I am pleased that 
the subcommittee is taking the time to review the proposed 
Dominican Republic-Central America Free Trade Agreement, DR-
CAFTA.
    I want to welcome and thank all of our witnesses and all of 
the members that have come. And I am particularly glad to see 
that--I know that our ranking member of the full committee will 
be here, and I want to acknowledge also the work of Mr. Brown. 
While he is the ranking Democrat on the House subcommittee, he 
is one of our best trade experts. In fact, he wrote the book, 
or at least a book, on trade called ``Myths of Free Trade.''
    For many common-sense reasons, there is wide and growing 
bipartisan opposition to this bill here in Congress. It 
endangers workers and jobs in the United States and abroad. It 
endangers our economy and it endangers our environment. 
Opposition to Congressional implementation of this flawed 
agreement also runs deep outside of the Congress, throughout 
this country and other signatory nations. The public, as well 
as leaders from among organized labor, environmentalists, 
economists, and business owners, and the clergy, all strongly 
oppose the measure.
    I am opposed to DR-CAFTA. It does not include the necessary 
labor and human rights protections or environmental standards 
that I believe should be at the center of our trade policies. 
Instead, implementation of DR-CAFTA would result in the loss of 
even more U.S. jobs, U.S. support for substandard working 
conditions in other countries, and the degradation of our 
precious environment.
    I strongly support increased global trade for the United 
States. However, when negotiated, I believe free trade 
agreements should place human rights and labor rights and the 
environment on equal par with the rights of capital. DR-CAFTA 
fails to do so. Implementation of DR-CAFTA would further the 
failed experiment that was NAFTA.
    As a result of NAFTA, my home State of Illinois has 
suffered the loss of over 100,000 jobs. And the Nation has lost 
almost a million jobs due to the displacement of production 
that supported them prior to the implementation of NAFTA.
    Free trade agreements like NAFTA and PNTR for China 
perpetuate the race to the bottom in the global economy. They 
lower working and living standards for workers in other 
countries, and they kill jobs in the United States. And DR-
CAFTA will be no different.
    The only way to prevent the race to the bottom is to try 
and raise standards in other countries so the lure of near 
slave labor does not exist and does not harm our workforce.
    NAFTA, PNTR, and CAFTA all failed to meet this standard. 
This is one of the great challenges of the 21st century. If we 
fail to meet it in the right way, it will continue to have dire 
effects on our workforce and our economy.
    Instead of pursuing policies that undermine the rights and 
security of U.S. workers and workers in other countries, the 
United States should lead the world by example through a trade 
policy that improved the lives of individuals and not just add 
to the profits of major corporations. Our policies should 
benefit workers here in this country, create and sustain jobs, 
and help our small and medium-sized and family owned businesses 
grow. DR-CAFTA will not accomplish these goals.
    The labor provisions of CAFTA are intentionally 
unenforceable. Violations of core labor standards cannot be 
taken to dispute resolution. The commitment to enforce domestic 
labor laws is subject to remedies weaker than those available 
for commercial disputes. This violates the negotiating 
objective of fast-track that equivalent remedies should exist 
for all parts of an agreement.
    Further, the ``enforce your own laws'' standard allows 
countries the opportunity to rewrite and weaken their labor 
laws to attract investment.
    I dispute the attempts by free trade proponents to reduce 
the debate to a choice between free trade and no trade, this 
agreement or no agreement. We can do better. We can achieve our 
economic objectives and moral responsibilities through 
responsible trade. And we can and should go back to the drawing 
board and fix CAFTA if we want to do it right and if we want to 
give it even a chance to pass.
    If the vote were today, it is clear that DR-CAFTA would 
fail to win a majority of votes in the House because it fails 
our economy, our workforce, our environment, and our moral 
standard on so many levels. Thank you, Mr. Chairman.
    Mr. Stearns. I thank my colleague. We have a vote, and we 
are going to temporarily recess the subcommittee. And I will be 
right back. I urge my members to come back. We hope to have 
everybody back after the vote. So it is temporarily recessed.
    [Brief recess.]
    Mr. Stearns. The subcommittee will reconvene. We will 
continue with our opening statements, and we will go to--if Mr. 
Murphy is ready.
    Mr. Murphy of Pennsylvania. Mr. Chairman, my only statement 
is I am here interested to learn about this. I have not yet 
staked out a position on this issue, and so I am most 
interested in hearing the testimony today and look forward to 
that. Thank you, sir.
    Mr. Stearns. I thank my colleague. Ms. Baldwin.
    Ms. Baldwin. Thank you, Mr. Chairman. The terms on which we 
conduct international trade are vital to answering some of the 
most fundamental questions about what our Nation and our world 
would be like in the decades to come, and in fact into the next 
century.
    How do we enhance and expand international trade while 
protecting our environment? How do we promote sustainable 
economic development? How do we prevent a spiraling decline in 
wages and worker safety protections? How do we ensure fair 
prices for our family farmers so that they can continue to 
survive and prosper? These are difficult questions that must be 
addressed. Unfortunately, our trade agreement track record has 
failed to adequately address these critical issues.
    The Dominican Republic-Central America Free Trade Agreement 
presented an opportunity to take a fresh approach to create 
free and fair trade. It was a chance to negotiate a new type of 
trade agreement that addressed the issues of wages and worker 
safety, of raising environmental and health standards, and of 
advancing the rule of law and human rights.
    International trade could and should be an issue which 
brings people together around the world. Trade can deter war 
and enhance peace. I believe the only way to build an effective 
global trading system is to construct it through a democratic 
process. Not only must the people be engaged in its 
development, but the results must address their very real 
concerns.
    We will never be able to sustain a trade system that 
results in a race to the bottom, the bottom in wages, the 
bottom in air and water standards, the bottom in worker safety, 
or the bottom in human rights. DR-CAFTA is a bad deal for the 
people of the United States, the people of the Dominican 
Republic, and the people of Central America. And this committee 
and this Congress should reject it. I yield back.
    Mr. Stearns. The full committee chairman, the distinguished 
member from Texas, is recognized.
    Chairman Barton. I was willing to suspend for Mr. Pitts if 
he was ready to go. Thank you, Mr. Chairman, for holding the 
hearing today. Our committee has jurisdiction over many aspects 
of international trade, and I am glad that we are having a full 
discussion of the issues involved with this particular trade 
agreement.
    I am glad that the USTR is here today. It is important for 
the administration to come before the committee and make its 
case to the members on the merits of these trade agreements. I 
look forward to what they have to say about DR-CAFTA.
    Under this agreement 80 percent of U.S. consumer and 
industrial export and over 50 percent of U.S. farm exports to 
Central America would become duty-free immediately. This means 
more markets for American goods. According to a study by the 
United States International Trade Commission, American 
consumers would benefit to the tune of $166 million a year. 
U.S. exports to DR-CAFTA countries are estimated to increase by 
15 percent, while imports are estimated to increase by 12 
percent. The American Farm Bureau Federation estimates the 
agreement would expand farm exports by as much as $1.5 billion 
a year. If we are committed to making rural America not just a 
good place to live, but a good place to make a living, it is 
hard to imagine another government policy that will do the job 
as well as DR-CAFTA.
    Moreover, markets never available to American 
telecommunication companies--an industry in which we are 
extremely competitive, and which is under this committee's 
jurisdiction--would be opened, most notably in Costa Rica where 
the industry is run by government-owned monopoly.
    Some will argue that these increases in trade aren't worth 
it, the stress of commercial competition that comes with them. 
It is true that when competition asserts itself, not everyone 
prospers, but the net future benefits to American consumers, 
American farmers, and American industry are large, important, 
and plain to see for anyone who is truly looking in an 
objective fashion.
    Significant advances in e-commerce, better protection of 
intellectual property, progressive environmental protections 
make DR-CAFTA an important step forward in trade negotiations.
    More than just the economic advantages, passing this 
agreement does more than a thousand speeches to tell the 
developing world about the benefits of democracy and the rule 
of law. It will reinforce the political reforms in Central 
America that have helped in fighting terrorism, organized 
crime, and drug trafficking.
    I want to thank our witnesses for their attendance and 
input today. I am glad that we have this opportunity to learn 
more about DR-CAFTA, but go ahead and count me as a supporter. 
With that, Mr. Chairman, I yield back.
    [The prepared statement of Hon. Joe Barton follows:]

 Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy 
                              and Commerce

    Thank you, Mr. Chairman, for holding this hearing today. Our 
Committee has jurisdiction over many aspects of international trade, 
and I am glad that we are having a full discussion of the issues 
involved with this trade agreement.
    I am particularly glad that USTR is here today. It is important for 
the Administration to come before the Committee and make its case to 
the Members on the merits of these trade agreements. I look forward to 
what they have to say about DR-CAFTA.
    Under this agreement, over 80% of U.S. consumer and industrial 
exports and over 50% of U.S. farm exports to Central America would 
become duty-free immediately. This means more markets for American 
goods. In fact, according to a study by the United States International 
Trade Commission, American consumers would benefit to the tune of $166 
million a year. U.S. exports to the DR-CAFTA countries are estimated to 
increase by 15%, while imports are estimated to increase by 12%. 
Furthermore, the American Farm Bureau Federation estimates the 
agreement could expand U.S. farm exports by as much as $1.5 billion a 
year. If we are committed to making rural America not just a good place 
to live, but a good place to make a living, it's hard to imagine 
another government policy that will do the job like DR-CAFTA.
    Moreover, markets never available to American telecommunications 
companies--an industry in which we are extremely competitive--will be 
opened, most notably in Costa Rica where this industry is run by a 
government-owned monopoly.
    Some will argue that these increases in trade aren't worth either 
our time, or the stress of commercial competition that come with them. 
It is true that when competition asserts itself, not everyone will 
prosper, but the net future benefits to American consumers, American 
farmers, and American industry are large, important, and plain to see 
for everyone who looks.
    Also, significant advances in e-commerce, better protection of 
intellectual property, and progressive environmental protections make 
DR-CAFTA an important step forward in trade negotiations.
    More than just the economic advantages, passing this agreement will 
do more than a thousand speeches to tell the developing world about the 
benefits of democracy and the rule of law. And it will reinforce the 
political reforms in the Central American world that have helped in 
fighting terrorism, organized crime, and drug trafficking.
    I thank all our witnesses for their attendance and input today, and 
I am glad we have this opportunity to learn more about DR-CAFTA, but go 
ahead and count me in as a supporter.
    Thank you and I yield back.

    Mr. Stearns. Thank you, Mr. Chairman. And the ranking 
member, Mr. Dingell, is recognized. Ranking member of the full 
committee.
    Mr. Dingell. Mr. Chairman, thank you for your courtesy and 
thank you for holding this hearing. It is a matter of great 
concern to many of our constituents, and it is a matter of 
importance to American industry and American labor.
    I am pleased that you were able to obtain at the eleventh 
hour the cooperation of the United States Trade 
Representative's Office. And they have sent a witness to join 
us. For many years I have found them to be quite helpful to 
this committee when we were evaluating matters of trade. It is 
nice to see them back. And I look forward to many more 
appearances in the future. I am troubled by the difficulty in 
procuring their cooperation, but I am sure they will understand 
they have a responsibility to respond to the concerns of the 
chairman and the members of this committee.
    I begin by pointing out that CAFTA is a bad agreement. It 
is bad for workers. It is bad for the environment. It is bad 
for farmers. We need not guess how this agreement will harm our 
constituents, for this agreement is merely the son of NAFTA. If 
you were pleased with how NAFTA has affected your workers and 
your farmers, then you should support this agreement with 
enthusiasm. If you believe that labor standards and 
environmental quality have significantly and dramatically 
improved in Mexico, as we were told they would, then you 
should, by all means, support this agreement.
    Evaluate carefully the claims that will be made today about 
CAFTA. For example, we are going to hear today that CAFTA will 
open important markets for U.S. goods. Sound familiar?
    As we learned from NAFTA, if labor standards are not 
improved as a part of these agreements, few workers in these 
markets will be able to afford our goods. The end result is we 
will not be helping the workers in the area. We will not be 
helping our own workers. We will not be opening markets. And we 
will be conferring no economic advantage in the United States 
or, indeed, upon the workers in the countries this agreement 
affects.
    We make cars and trucks in my home State of Michigan. 
American auto manufacturers are currently putting over $1,400 
in healthcare cost into each and every American-made car. The 
average Nicaraguan worker earns only about $2,300 a year. That 
is for an entire year's work. While the rising healthcare 
burden on American manufacturing is an important issue for 
another day, it illustrates the absurdity of the claims made. 
How many cars can we reasonable expect to sell in new markets 
under these conditions? I suspect very few.
    I urge my colleagues to examine this agreement with great 
care, and to do so closely, as I intend to do. As you peel back 
the layers of this onion, I am confident that any careful and 
scrupulous viewer will be struck by an overwhelming sense of 
deja vu and a strong feeling of frustration at promises that 
have not been kept in the past and clearly that cannot and will 
not be kept in the future.
    I have rarely seen a more appropriate occasion for the old 
adage, if you fool me once, shame on you. If you fool me twice, 
shame on me. I urge my colleagues not to be fooled by the son 
of NAFTA.
    Mr. Chairman, I thank you for this hearing. I yield back 
the balance of my time.
    Mr. Stearns. Gentleman yields back the balance of his time. 
The gentlelady from Tennessee is recognized.
    Ms. Blackburn. Thank you, Mr. Chairman. I will waive and 
save my time for questions.
    Mr. Stearns. All right. Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. I thank you very much 
for your leadership, Chairman Stearns and Ranking Member 
Schakowsky, for your leadership. And a special thanks to Brett 
Gibson for his terrific work on this too.
    Today, April 28, is the 11-month anniversary of the signing 
of the Central America Free Trade Agreement. Every trade 
agreement that President Bush has signed was voted in by 
Congress within 60 days. Within 60 days. It has been 330 days 
since CAFTA was signed by the President. May 28, the date by 
which Leader Delay and Chairman Thomas will be voted on will 
mark the 1-year anniversary of when the President signed the 
Central America Free Trade Agreement.
    Because CAFTA is so unpopular and because trade policy in 
this country is so wrong-headed, that is why it clearly hasn't 
come up for a vote. Democrats support free trade. We support a 
trade agreement with CAFTA nations, but we don't support the 
misguided agreement that USTR has negotiated. We need to 
remember that CAFTA is non-amendable, no side agreements, no 
side deals. If it is not in the core text of the agreement, it 
simply doesn't mean anything. As Mr. Dingell said, we have been 
down that road before.
    One of the arguments that we hear a lot is that CAFTA 
nations are large markets for U.S. goods. If we pass this 
agreement, the same promises that Mr. Stearns and I have been 
hearing on NAFTA and PNTR, if we pass this agreement, it will 
be more exports for America, more jobs for America, growth and 
manufacturing for America. And they tell us especially that 
these CAFTA nations are large markets. But just do the math. 
The combined purchasing power of the Central American nations 
in CAFTA is the same of that--combined as the purchasing power 
of Columbus, Ohio or Memphis, Tennessee, Orlando, Florida or 
Pittsburgh, Pennsylvania.
    CAFTA nations simply are not robust export markets for us. 
The average salary of a Nicaraguan worker is $2,300 a year, 
$191 a month. Nicaraguan workers can't afford to buy the cars 
we make in Ohio; they can't afford the cuts of U.S. prime beef 
at $13 a pound; they can't afford textiles and apparel from 
Georgia and North and South Carolina; they can't afford to buy 
software made in Seattle. I ask CAFTA supporters what American-
made product can Central American workers purchase who are 
earning less than $200 a month. CAFTA supporters simply don't 
answer those questions.
    If corporations were serious about creating robust export 
markets for American goods, they would be working to ensure the 
Central American Free Trade Agreement's nation's labor 
standards increased. Perhaps we should call this the Central 
America Free Labor Agreement rather than the Central America 
Free Trade Agreement because only when Central American workers 
will earn enough to buy U.S. goods will trade be successful.
    The Central America Free Trade Agreement expands the failed 
trade policies of its dysfunctional cousin, the North American 
Free Trade Agreement.
    When I ran for Congress in 1992, the United States had a 
$38 billion trade deficit. Last year, a dozen years later, we 
had a $620 billion trade deficit, $38 billion to $620 billion 
in a dozen years. The more you look at the face of this Central 
America Free Trade Agreement, the better you see who will 
benefit and who will pay the price. When the world's poorest 
workers can buy American products rather than just make them, 
then we will know that our trade policies are finally 
succeeding. Unfortunately, the CAFTA before us will not succeed 
in doing that. Thank you, Mr. Chairman.
    Mr. Stearns. Thank you, gentlemen. Mr. Pitts, just to 
confirm, did you waive? Okay. Mr. Rogers?
    Mr. Rogers. Thank you, Mr. Chairman. I do believe that I 
will waive, but I do want to congratulate you on reasserting 
this committee's jurisdiction on trade. I think that is 
incredibly important.
    Mr. Stearns. Thank you. Mr. Green, the gentleman from 
Texas.
    Mr. Green. Thank you, Mr. Chairman. And like my Michigan 
colleague, I want to thank you for making sure our committee 
continues our jurisdiction over trade. I want to thank you and 
also our ranking member for holding this hearing on CAFTA.
    I am pleased to see that the committee exerted our trade 
jurisdiction, giving committee members an opportunity to 
express our views on this particular trade agreement.
    As a business major at the University of Houston and being 
in business for 23 years, I am no stranger to the theory of 
competitive advantage and the promises it held for countries 
around the world. But I know all too well that theory and 
promises are very different. What may sound good in the 
business college classroom doesn't work out in the real world.
    The unfortunate reality is that the bulk of our free trade 
agreements have led to the erosion of our once-great 
manufacturing sector and the middle-class jobs it created. And 
I am proud to represent the third most blue collar district in 
our country. My constituents are the type of hard-working 
people all across this country who lost their jobs as a result 
of free trade agreements we have entered in the last 10 or 15 
years. In fact, NAFTA alone led to a 50,000 net jobs loss in my 
State of Texas. Now, Texas benefited economically, but not the 
folks that I represent.
    And don't get me wrong, I don't have a blanket opposition 
to free trade agreements, per se. Last year I voted for the 
U.S.-Australia Free Trade Agreement because Australia and the 
U.S. have comparable standards of living. And the agreement put 
the two nations on a level playing field. That agreement 
facilitated not only free trade between the two countries, but 
fair trade as well.
    While my primary concern is with protecting the American 
worker, I am highly suspicious of this agreement's ability to 
better the lives of workers in the CAFTA countries. It is no 
secret that this agreement was modeled after NAFTA, which I 
voted against. One would think our country would learn from the 
many failures of NAFTA instead of applying the near identical 
trade provisions in Central America and the Dominican Republic.
    It is easy to form a picture of what life for the Central 
American workers would be like under CAFTA. All we have to do 
is look at how the typical Mexican worker has fared under 
NAFTA. Unfortunately, the answer is not too well. In February I 
was in the central part of Mexico and discussed the problems 
that they have had with the loss of their job base, first with 
NAFTA with the agriculture sector, but now after permanent 
trade relations with China, so many of those jobs that moved to 
Mexico are now moving to China. True, the wealth in Mexico 
increased, but it is not distributed evenly.
    Since NAFTA, an additional 19 million Mexicans are 
impoverished, and President Vicente Fox has stated that 54 
million Mexicans can't meet their basic needs. With 10 percent 
of the Mexican population controlling half of the nation's 
wealth, it is easy to see that the average Mexican worker has 
not been a beneficiary of NAFTA. And I see that in our own 
country. We have seen, since 1993 when NAFTA was passed, the 
huge disparity between the CEO pay and the people that I 
represent.
    Like NAFTA, CAFTA also disregards the interest of the 
American worker. CAFTA puts our country at a competitive 
disadvantage because Central American countries and the 
Dominican Republic have much lower standards of living than the 
United States. The blue collar workers in my district receive a 
living wage and make a thriving middle class in Houston. They 
cannot compete against the same worker in Nicaragua whose wages 
hover around $200 a month for the average worker. CAFTA would 
not better the lives of American workers. Instead, it would 
just open the door for American multinational corporations to 
shift operations overseas for cheap labor.
    Make no mistake; this is not in the interest of the 
American worker. It is high time our county, both Democrat and 
Republican, stop giving away the farm on free trade agreements. 
Our country's livelihood is manufacturing, and the middle class 
is at stake. Mr. Chairman, I yield back what time I have left.
    Mr. Stearns. Thank the gentleman. The gentlelady from 
California, Ms. Bono.
    Ms. Bono. Thank you, Mr. Chairman. I have been a long-time 
supporter of free and open trade. However, this time, I do 
harbor some reservations about supporting CAFTA. First, I am 
concerned about its impact on U.S. agriculture. Specifically, I 
am worried about how it would affect American-grown fresh 
fruits and vegetables, which are the mainstay of the 
agricultural industry in California's 45th Congressional 
District.
    According to the USDA's Economic Research Service, between 
the years 2000 to 2004, the countries included in the Central 
America Free Trade Agreement imported nearly $1 billion of 
fresh fruits each year. The U.S. exported an average of 
$295,000 of fresh fruits during the same period. In the 
vegetable industry the percentages are very similar. From 2000 
to 2004 the U.S. imported an average of $96.5 million worth of 
fresh and frozen vegetables from Central America while 
exporting a mere $79,000 worth of vegetables to that part of 
the world.
    While I do not believe we should put up trade barriers, I 
do think we should ensure a level playing field. One important 
step toward this goal is adopting mandatory country of origin 
labeling without delay.
    But without question, my biggest reservation about 
supporting CAFTA has to do with intellectual property rights. 
While countries in this trade agreement are not necessarily the 
world's leaders in violating international IP agreements, it is 
difficult for me to imagine how we could convince these nations 
to be law-abiding when we do not do nearly enough to ensure the 
compliance of other trading partners like China.
    I realize many sectors of the agricultural, entertainment, 
and technology industries are supportive of CAFTA, free trade, 
if it is fair, is valuable to our economy. But I believe we 
need to get our own house in order prior to opening our doors 
to more trading partners. If we keep looking the other way and 
delay getting tough on IP violations, we will be weakened by 
our own doing.
    Mr. Chairman, I will keep an open mind when it comes to 
weighing the pros and the cons of this trade agreement, and I 
look forward to hearing from these witnesses today. Thank you, 
and I yield back.
    Mr. Stearns. Thank you. Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman. I am going 
to try to be brief. Then I am going to be asking for permission 
to do something, which I am not sure that I am allowed. But 
with the chair's permission, I should be able to do it if I 
don't take up all of my time I--quickly, this is the greatest 
fear. You have heard everyone speak at this point. You can 
pretty well figure out if they are for or against this. I am 
one of those whose mind has not been made up, and I sincerely 
mean that. And I am waiting for persuasive arguments from both 
sides.
    This is what I fear and I would caution against. In the 
January 25 issue of ``Congress Daily,'' this was the report: 
``The Bush Administration and K-Street backers of the U.S.-
Central America Free Trade Agreement will argue that the pact 
reinforces political stability in the region and try to cast 
opponents of the agreement as anti-Hispanic.'' Sources familiar 
with the pro-CAFTA coalition strategy said, ``What message 
would it send to say we are not going to trade with poor 
Latinos,'' said a U.S. tradeofficial who has been in contact 
with the pro-CAFTA business lobby on strategy for lobbying 
Congress on the agreement.
    I can tell you this right now. You will lose many 
individuals out there if you don't argue this thing on the 
merits. We are open-minded and will be objective, but the 
proponents and opponents must be objective in their own 
analysis and give us the best arguments as to why we should be 
for or against this particular agreement.
    At this time, Mr. Chairman, I would like to yield the 
balance of my time to Ms. Solis if that is proper and 
acceptable.
    Mr. Stearns. Sure. That is fine. Go ahead.
    Ms. Solis. Thank you, Mr. Chairman, and thank you, 
Congressman Gonzalez. I simply want to ask for unanimous 
consent to provide my statement for the record. But I do want 
to underscore that I am apposed to the DR-CAFTA agreement.
    I am one of the few if--I think only Central American 
Members of Congress by birth on my mother's side. I have been 
to Nicaragua and I have been to Mexico, and I have seen what 
has happened with NAFTA and also the results as of 2 years ago 
in Nicaragua. And I see that there are many American 
corporations there and know that there are many people that are 
being oppressed, many young women who are being told that they 
can come in and get jobs there and are asked to work 12 and 15 
hours, are not allowed to organize, and are not given proper 
healthcare and environmental protections.
    I saw it for myself, and I have to tell you that I am happy 
that we are having this hearing and would hope that we have 
more discussion and debate on this. But I do want to register 
my opposition and provide my statement for the record. Thank 
you, Mr. Chairman.
    [The prepared statement of Hon. Hilda Solis follows:]

Prepared Statement of Hon. Hilda L. Solis, a Representative in Congress 
                      from the State of California

    Mr. Chairman, I am strongly opposed to the Dominican Republic-
Central American Free Trade Agreement (DR-CAFTA).
    DR-CAFTA is largely based on the North American Free Trade 
Agreement (NAFTA). By signing DR-CAFTA, the Bush Administration has 
ignored the mistakes of NAFTA. Ten years ago, NAFTA proponents promised 
increased wages and economic development in the United States, Mexico, 
and Canada and decreased migration. The agreement has failed on all 
accounts.
    DR-CAFTA may create jobs for women, but the working conditions are 
unimaginable to the American public. The bulk of these jobs are in the 
maquiladoras. I have visited Mexico and seen firsthand the devastating 
consequences of NAFTA. In the maquiladora zone in Ciudad Juarez and 
other border cities, wages are low, union organizing is suppressed, and 
industrial pollution jeopardizes the health of workers and residents. 
Women that work in the maquiladoras have reported forced pregnancy 
testing, sexual harassment, and physical abuse. DR-CAFTA does not 
require compliance with international labor rights and does not protect 
women from discrimination.
    Inadequate free trade agreements, such as NAFTA, not only hurt 
women workers abroad, but also hurt American workers. Over 750,000 jobs 
in the United States have been lost because of NAFTA. DR-CAFTA will 
mean more job loss and wage decline for American workers.
    U.S. Latino workers have been disproportionately hurt by NAFTA 
because they tend to be concentrated in industries such as textiles and 
other manufacturing sectors. While Latinos represent 12.6 percent of 
the total U.S. workforce, they account for 26 percent of textile and 
apparel industry workers. In California, Latinos make up an estimated 
80 percent of the California garment industry.
    Americans believe that we should NOT pursue future free trade 
agreements similar to NAFTA. 51 percent of American voters oppose NAFTA 
and claim it has hurt workers, wages and has cost us jobs. The League 
of United Latin American Citizens, LULAC, the oldest and largest Latino 
civil rights organization in the U.S., publicly opposes DR-CAFTA. LULAC 
believes that DR-CAFTA ``falls short of being acceptable'' and fear 
that CAFTA will unleash enormous loses for all workers, in the U.S. and 
Central America.
    As the only Member of Congress of Central American descent, I 
understand the importance of supporting efforts to promote sustainable 
development and preservation of the agricultural sector in that region. 
However, U.S. policy towards Latin America should go beyond free trade 
policies that do little to raise wages and working conditions for the 
poor.
    Those who oppose DR-CAFTA do so because of the irreparable harm it 
will have to the economy and workers of Central America and the United 
States. We can not allow the failures of NAFTA be reproduced through 
DR-CAFTA.

    Mr. Stearns. By unanimous consent, so ordered. Mr. Otter.
    Mr. Otter. Thank you, Mr. Chairman. And thank you for your 
leadership in calling this I think very, very important 
hearing.
    Long before I was a Member of Congress I was a businessman, 
and I traveled to more than 80 foreign countries selling French 
fries from Idaho all over the world. I know the importance of 
free trade agreements, and I also understand the frustrations 
of trade barriers. However, I have seen the harmful impacts of 
some trade agreements, especially when they are not properly 
enforced, such as the lack of enforcement regarding our present 
North American Free Trade Agreement, otherwise known as NAFTA. 
And other agreements that have led to tensions between the 
United States and Canadian beef, potato, and softwood lumber 
industries, as well as the Mexican bean and sugar beet 
industries.
    I am particularly concerned that the Dominican Republic-
Central America Free Trade Agreement, as currently drafted, 
will significantly harm Idaho's agricultural industry and have 
a severe impact on our economy. Sugar is the third largest crop 
in Idaho, sugar beets. There more than 950 farming families 
that grow sugar beets in Idaho and thousands of workers 
employed by the three sugar processing facilities that we have 
in the State. If DR-CAFTA passes, they are all in serious 
jeopardy. Nay, nay say many. I say look across my border. I can 
throw a rock to Nyssa, Oregon, which recently shut down its 
plant.
    Earlier this year a sugar factory closed down in Nyssa, 
Oregon. It shut down because America's market already is 
oversupplied by foreign sugar that existing trade agreements 
require the United States to accept from 41 countries. That 
town was devastated. Additional sugar from Central American 
countries will further depress the market and hurt Idaho.
    When people say we are just talking about sugar, they are 
not recognizing the realities of farming where I come from. You 
can only grow sugar beets 1 year out of three in Idaho. And 
putting one commodity out of business, such as sugar, will only 
cause overproduction in the other commodities like potatoes and 
wheat.
    Many commodity groups tell me that I should support this 
agreement because it is good for agriculture. However, I cannot 
support a proposal that it may provide a benefit for some, 
while almost certain devastation to others.
    The sugar industry is still trying to work out problems 
created by the loopholes that we now see with NAFTA. And it 
took us years to close up some of those holes. The sugar 
provisions of DR-CAFTA send a dangerous precedent to our 
foreign negotiation free trade agreements of the Americas.
    Behind the CAFTA countries, 21 other sugar-exporting 
countries are lined up for their gift from the United States. 
Combined with these 21 countries, over 25 million tons of 
sugar, nearly triple the U.S. consumption, are present.
    The precedent that DR-CAFTA concession would set would make 
it impossible for the U.S. sugar industry to survive--future 
agreements. While I believe we should develop free trade 
policies--it makes the field more level for U.S. farmers and 
manufacturers--I will not support this or any other new trade 
agreement that is harmful to my State. Thank you, Mr. Chairman.
    Mr. Stearns. Thank you, gentleman. The gentleman from Ohio, 
Mr. Strickland.
    Mr. Strickland. Thank you, Mr. Chairman. I would like to 
thank our witnesses for being here today to give us an 
opportunity to flesh out the truth behind the proposed 
agreement.
    DR-CAFTA is based on the same misguided notions that NAFTA 
was in 1994. NAFTA has failed. It has failed to fulfill the 
promises made to the American people. And so I ask, why in the 
hell would we proceed to follow a failed model? In the 11 years 
since NAFTA was implemented, our trade deficit with Mexico and 
Canada has grown by over 1200 percent according to the ``Wall 
Street Journal.'' As many as one million good-paying jobs have 
been displaced here at home. In my State of Ohio alone some 
46,000 jobs have been lost as a result of NAFTA.
    We should have learned out lesson of free trade agreements 
negotiated under the Clinton and the Bush Administrations. At a 
time when our total trade deficit stands at a whopping 6 
percent of GDP, we cannot afford to continue to allow 
unfettered advantage to our competitors.
    The truth is that the Central American countries can 
produce goods cheaper than we can; thus, NAFTA and CAFTA simply 
allow companies to export jobs to cheaper labor and sidestep 
labor laws and environmental standards. It is an unbalanced 
equation that fails to benefit workers on either side.
    The question that needs to be asked is what can we gain 
from CAFTA? The $3 billion in additional exports the supporters 
project would be a mere .25 percent of our total exports of 
goods. The combined economies of all CAFTA partners are less 
than the economy of Cleveland, Ohio. There is simply nothing 
for us to gain, much to lose.
    I visited Mexico during the last year. I talked to a worker 
who works 9\1/2\ hours a day, 5 days a week. Her total take-
home pay is $38. American workers deserve more. We owe it to 
them to secure their livelihoods, to protect their jobs, and 
not jeopardize both to corporate special interests.
    Eleven years ago, this country made a critical misstep by 
enacting NAFTA. It is imperative that we stand firm against 
CAFTA and prevent making the same mistake twice. I believe the 
President should withdraw this agreement from consideration and 
do what he was elected to do: set about rebuilding the American 
economy. I yield back my time.
    Mr. Stearns. Thank you, gentleman. I think our opening 
statements are done.
    [Additional statements submitted for the record follow:]

Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming

    Thank you, Mr. Chairman, for holding this timely hearing.
    I would also like to thank the distinguished witness panels who 
have joined us. They represent a diverse group of interests, all of 
which would be impacted by the Dominican Republic-Central American Free 
Trade Agreement (DR-CAFTA). I anticipate an open debate to help Members 
as well as the public take an honest look at this proposed trade 
agreement.
    I have always supported fair trade, but as it is written, the DR-
CAFTA will not garner my support. The State of Wyoming, which I 
represent, yields numerous superior exportable products which stand to 
benefit from the increased visibility and expanded market access 
provided by most Free Trade Agreements (FTA's). However, DR-CAFTA 
stands to negatively impact two crucial sectors of Wyoming's 
agriculture community, and for this reason, I cannot support this trade 
agreement.
    Despite what you might hear from detractors, sugar is currently the 
sole commodity that operates at no cost to U.S. taxpayers. Previously 
enacted trade agreements already require the U.S. to import 1.26 
million tons of sugar annually. This forces American sugar growers to 
store about 600,000 tons of sugar annually, at their own expense, due 
to the fact their production is limited to a specificied market share. 
Approving DR-CAFTA will more than double signatory nations' duty-free 
access to the U.S. market, further jeopardizing the already strained 
economic health of America's sugar farmers. Since 1996, 30% of all U.S. 
sugar beet and cane mills have been forced out of business, including 
one in my own state, and it just has to stop.
    The DR-CAFTA is not advantageous to America's cattle producers, 
either. Proponents have touted the reduced tariffs on high-priced cuts 
of beef exported to Central America while ignoring the fact almost half 
the citizens of this region live in poverty--by their standards. In 
return, it would provide signatory nations with immediate duty-free 
access to the U.S. market, despite the fact that none of these nations 
is declared free of BSE, or ``mad cow disease.'' Without the full 
implementation of mandatory Country of Origin Labeling, American 
families have no way to choose domestic beef products. Simply put, DR-
CAFTA undermines the stability of American cattle producers and the 
safety of consumers.
    The goal of a free trade agreement is to promote the free exchange 
of goods and services, and DR-CAFTA does not do so in a reciprocal 
manner. This agreement will offer artificial competitive advantages to 
foreign food producers and take away from the families in states like 
Wyoming, who rely on agriculture for their stability and livelihood. 
America can do better for it's producers, and it's time for Congress to 
send this agreement back to the table.
    Again, I thank the Chairman, and I yield back the balance of my 
time.
                                 ______
                                 
Prepared Statement of Hon. Lee Terry, a Representative in Congress from 
                         the State of Nebraska

    Mr. Chairman, I want to thank you for holding this important 
hearing on the Dominican Republic-Central America-U.S. Free Trade 
Agreement (DR-CAFTA).
    I am a strong supporter of free trade and the Administration's 
efforts to remove trade barriers across the globe. As an agriculture-
based state, Nebraska and all of its citizens depend on opening new 
markets and finding new customers around the globe. Exports help 
support more than 47,000 Nebraska jobs--both on and off the farm in 
food processing, storage, and transportation. In 2003, Nebraska's farm 
cash receipts were $10.6 billion, and agricultural exports were 
estimated at $3 billion, putting its reliance on agricultural exports 
at 29 percent.
    Like many others, I am concerned about America's shrinking trade 
surplus in the agricultural sector. I support the DR-CAFTA efforts 
because, overall, U.S. agricultural producers and food processors stand 
to gain a great deal from the increased exports created by the 
agreement.
    If DR-CAFTA is rejected, American farm exports will continue to 
face steep tariffs on their exports. The average agricultural tariff 
applied to U.S. exports to these countries exceeds 11 percent, and is 
much higher for key Nebraska products such as beef (tariffs ranging 
from 15-30 percent), pork (15-47 percent), and corn (as high as 45 
percent). By contrast, over 99 percent of Central American and 
Dominican agricultural products already enter the U.S. market duty 
free. The U.S. currently has a negative agricultural trade balance with 
the six DR-CAFTA nations for this very reason.
    The DR-CAFTA would open a new market of 44 million costumers to 
U.S. goods, including Nebraska products. More than 80 percent of U.S. 
exports will gain immediately duty-free access to the DR-CAFTA 
countries, with remaining tariffs phased-out over 10 years.
    The American Farm Bureau estimates that DR-CAFTA could expand U.S. 
farm exports by $1.5 billion a year. This explains why more than 50 
agricultural industry and farm groups support passage of the DR-CAFTA. 
Nebraska's manufacturers would also benefit, especially in sectors like 
information technology products, construction and agricultural 
equipment, pharmaceuticals, and other specialty equipment.
    Central America and the Dominican Republic comprise the second-
largest U.S. export market in Latin America. With passage of the DR-
CAFTA, the United States will increase its global competitiveness--
critical at a time that the U.S. is facing a new competitive challenge 
from Asian imports.
    I am also encouraged to learn that a recent study by the 
International Labor Organization (ILO) demonstrated that labor laws on 
the book in DR-CAFTA countries are generally in line with ILO core 
labor standards. Moreover, this agreement contains ground-breaking 
environmental provisions, including a first-ever citizen participation 
process designed to correct trade-related environmental problems. Ten 
environmental non-governmental organizations from the region have 
endorsed the trade agreement.
    While trade is not the panacea for every economic woe, I believe 
that free trade, combined the strong American work ethic, has provided 
the citizens of the United States the highest standard of living in the 
world. I believe the DR-CAFTA will help us continue our high standard 
of living, and boost America's--and Nebraska's--competitiveness in the 
global economy.
    Thank you, Mr. Chairman. And I look forward to hearing from today's 
witnesses.
                                 ______
                                 
 Prepared Statement of Hon. Mike Rogers, a Representative in Congress 
                       from the State of Michigan

    Mr. Chairman, thank you for calling today's hearing on the Central 
American Free Trade Agreement. It is incredibly important for this 
committee to exercise its trade jurisdiction.
    Mr. Chairman free and fair trade helps American workers by opening 
foreign markets and helps American consumers by lowering prices. 
However, for trade to work, it must actually be free and fair trade. 
America has the strongest and most diverse workforce in the world, and 
we should continue to knock down trade barriers to American products 
overseas.
    The CAFTA does knock down trade barriers. As Ms. Vargo notes in her 
submitted testimony, nearly 80 percent of imports from CAFTA nations 
already enter the United States duty free. However, American made goods 
and services do not receive equitable treatment from CAFTA nations. If 
we are to continue to manufacture in America, we must stop allowing 
foreign governments to tax American made products out of the 
marketplace.
    Even while we work to open new markets for American made goods, we 
must continue to address the actions of some of our so-called trading 
``partners.'' For years, American manufacturers have been able to stay 
ahead of foreign competition largely because of their commitment to 
quality and innovation. However, that commitment serves them little 
benefit when their own government is unable to protect American 
innovations. Press reports of rampant foreign manufacturing piracy on 
everything from brake pads to DVDs has made it clear that many of 
America's trading partners are not yet committed to enforcing the 
intellectual property laws they agree to when signing trade agreements 
with the Unites States or as a condition of joining the World Trade 
Organization.
    Mr. Chairman, the threat of intellectual property theft and 
outright piracy is a growing problem. For that reason, the House of 
Representatives has in past appropriations bills sought to increase 
funding help our trade enforcement officers enforce trade agreements 
and international copyright law. I believe that our government is 
sincere in its desire to carry this important fight forward. However, I 
am concerned with how effectively we as a government and as a nation 
have actually waged this battle. I hope that during their testimony and 
in replying to the questions posed to them today's witnesses can share 
with this committee the status of the United States trade enforcement 
record, and how we can reasonably expect to enforce the gains 
negotiated in the CAFTA.

    Mr. Stearns. We welcome the assistant U.S. trade 
representative for the Americas to the table. It is Ms. Regina 
K. Vargo, Office of U.S. Trade Representative, for your opening 
statement. And I would--just to clarify to all the members, we 
are here to learn and to look at this agreement objectively and 
see the pros and cons. And so obviously this morning you are 
the lead person. And so we welcome you and we welcome your 
opening statement.

       STATEMENT OF REGINA K. VARGO, ASSISTANT U.S. TRADE 
   REPRESENTATIVE FOR THE AMERICAS, OFFICE OF THE U.S. TRADE 
                         REPRESENTATIVE

    Ms. Regina Vargo. Okay, thank you very much, Chairman 
Stearns, Congresswoman Schakowsky, and members of the 
committee. I am pleased to have the opportunity to testify 
before you today on the free trade agreement with Central 
America and the Dominican Republic, or the CAFTA.
    As the chief negotiator of this agreement, I would like to 
personally thank the subcommittee for focusing on the CAFTA 
today as we begin the critical legislative process toward 
implementation of this agreement. I hope I can answer any 
questions that you may have regarding the many benefits that 
CAFTA will bring to U.S. exporters, workers, farmers, ranchers, 
and consumers.
    CAFTA marks the successful culmination of a decades-long 
American policy of promoting economic reform and democracy in 
Central America. CAFTA offers us the best opportunity to 
strengthen the economic ties we already have with these nations 
and to reinforce their progress toward economic, political, and 
social reform.
    At the same time, we have much to gain from this agreement. 
Collectively, Central America and the Dominican Republic make 
up the second largest U.S. export market in Latin America with 
more than $15.7 billion in U.S. exports in 2004. These 
countries form a larger export market than Brazil and a larger 
export market than Russia, India, and Indonesia combined.
    The American Farm Bureau Federation estimates that CAFTA 
could expand U.S. farm exports by $1.5 billion a year, which 
would represent nearly a doubling of our current agricultural 
exports to the region. Manufacturers would also benefit, 
especially in sectors such as information technology products, 
agricultural and construction equipment, paper products, 
pharmaceuticals, and medical and scientific equipment. The U.S. 
Chamber of Commerce estimates that U.S. sales to the region 
would expand by more than $3 billion in the first year of the 
CAFTA.
    However, we currently face an unlevel playing field. The 
fact is, we already have free trade with Central America and 
the Dominican Republic, but it is one-way free trade. Nearly 80 
percent of industrial imports from Central America and the 
Dominican Republic already enter the United States duty-free. 
In agriculture we estimate that 99 percent of Central America's 
and the Dominican Republic's farm exports to the United States 
are duty-free.
    CAFTA will level the playing field for American workers and 
farmers. It will further open regional markets to our products 
and services, which currently face high-average tariffs and 
non-tariff barriers.
    More than 80 percent of U.S. exports of consumer and 
industrial goods will become duty-free immediately under this 
agreement. And more than half of current U.S. farm exports to 
Central America will become duty-free immediately, including 
high-quality cuts of beef, cotton, wheat, soybeans, key fruits 
and vegetables, and processed food products, among others.
    U.S. farm products that will benefit from improved market 
access include pork, dry beans, vegetable oil, poultry, rice, 
corn, and dairy products. Every major U.S. farm commodity group 
but one--nearly 60 agricultural organizations--have stated 
their strong support for CAFTA.
    In services, the Dominican Republic and the Central 
American countries will accord substantial market access across 
their entire services regime offering new access in 
telecommunications, express delivery, computer and related 
services, tourism, energy, transport, construction and 
engineering, financial services, insurance, audiovisual and 
entertainment, professional, environmental, and other sectors.
    This is also a trade agreement for the digital age, 
providing state-of-the-art protections and nondiscriminatory 
treatment for digital products such as U.S. software, music, 
text, and videos. Protections for U.S. patents, trademarks, and 
trade secrets are strengthened. And this agreement provides 
strong anti-corruption measures in government contracting and 
other measures affecting international trade and investment.
    Textiles and apparel is an important component of our trade 
with the region, which is our second largest market for U.S. 
fabric and yarn. CAFTA represents a critical element in our 
domestic industry's ability to compete with Asia. Without the 
tariff preferences and rules of origins of CAFTA, apparel 
companies may well move production to China, where they will be 
more likely to buy exports from Asian suppliers, rather than 
from producers here in the United States. A tee-shirt that is 
made in Honduras is likely to contain well over 50 percent U.S. 
content, while a tee-shirt made in China is likely to contain 
very little or no U.S. content. To keep our customers for U.S. 
yarn and fabric and U.S. jobs in that sector, we need to pass 
CAFTA soon.
    I know that there is a considerable interest in the 
Congress with regard to workers' rights and labor standards in 
Central America and the Dominican Republic. We share the goal 
of seeing the continuation of real, meaningful improvements in 
worker rights in the region. In CAFTA, we focus on the chief 
problem in these countries, the need to improve enforcement of 
domestic labor laws.
    At the start of the negotiations, the Central American 
countries, and later the Dominican Republic, requested a study 
by the International Labor Organization of the labor situation 
in these countries. The ILO study demonstrated that the labor 
laws on the books in Central America and the Dominican Republic 
are generally in line with ILO core labor standards. But let us 
be clear. The enforcement of labor laws in the region needs 
more attention and more resources.
    The Central Americans and the Dominicans themselves 
acknowledge this in a paper that they released recently that 
was produced jointly with the Inter-American Development Bank 
and by the Central American trade ministers and labor 
ministers. It is a candid assessment of past problems, recent 
improvements, and recommendations for further actions.
    CAFTA is specifically designed to respond to the problem at 
hand by improving enforcement and expanding resources with a 
comprehensive three-part strategy. First, the agreement 
requires that countries not fail to effectively enforce their 
labor laws. As the New York Times said in an editorial last 
November, ``CAFTA actually goes further than the pact with 
Jordan, since penalty fines collected for not enforcing labor 
laws would be sent back to the offending country to fix the 
offense.'' And the use of those fines is subject to agreement 
by the United States.
    Second, the countries in the region have taken numerous 
concrete steps to improve labor law enforcement, including 
hiring more labor inspectors, appointing special labor 
prosecutors, and prosecuting perpetrators of violence against 
trade unionists. We are pleased that the labor and trade 
ministers recently announced a series of additional and 
specific recommendations to further improve labor law 
enforcement.
    Finally, we need to provide assistance to build the 
capacity of these countries to enforce their laws more 
effectively and to strengthen their enforcement institutions 
and infrastructure. The Department of Labor and USAID have some 
important ongoing initiatives, but most notably, Congress has 
recently appropriated $20 million for fiscal year 2005 for 
labor and environmental trade capacity building. The 
administration intends to work with Congress and with the CAFTA 
countries to target these funds toward the areas of greatest 
need.
    We have also broken new ground on the environmental side. 
The CAFTA environmental provisions and the associated 
Environmental Cooperation Agreement are the most forward-
leaning trade and environmental package ever. We have included 
several innovations in the environment package. First, working 
with Senator Baucus, we developed a new public submissions 
mechanism that will allow the interested public, including 
NGO's, an opportunity to challenge a party's failure to enforce 
its environmental laws and to obtain an independent review of 
their submission. CAFTA is the first trade agreement ever to 
include this kind of mechanism in its core provisions.
    Second, the parallel environmental cooperation agreement 
builds on previous capacity-building efforts in the region but 
breaks them down in several ways. For the first time ever, the 
agreement provides for the establishment of short-, mid-, and 
long-term benchmarks for measuring progress in meeting 
environmental goals and also provides for independent 
monitoring by outside organizations of success in meeting these 
benchmarks.
    Finally, we are taking steps to ensure that capacity-
building efforts are adequately funded. The administration is 
considering, as I said, how to allocate the $20 million in 
funding for this fiscal year.
    Last month 10 Central American environmental NGO's endorsed 
the CAFTA and urged its passage. These groups praised the CAFTA 
environmental package for the opportunities it provides to them 
to have a new voice in pressing for environmental progress in 
the region.
    In closing, Mr. Chairman, the last 20 years have been a 
sometimes difficult road to democracy in this region. But 
today, we have neighbors in Central America and the Dominican 
Republic who want to trade goods, not guns, across their 
borders. We want to replace chaos with commerce and to use 
CAFTA as an important tool of reform that will deepen and 
strengthen democracy.
    Working closely with the Congress, we have negotiated a 
landmark free trade agreement. We believe CAFTA meets the 
objectives that Congress set in the Trade Act. It is strongly 
in the economic and national interests of the United States. We 
hope the Congress will agree that America should not turn its 
back on struggling democracies that want a closer economic 
relationship that will benefit citizens in all our countries. 
CAFTA makes eminent sense for America and for Central America 
and the Dominican Republic. Thank you.
    [The prepared statement of Regina K. Vargo follows:]

   Prepared Statement of Regina Vargo, Assistant United States Trade 
                    Representative for the Americas

                              INTRODUCTION

    Chairman Stearns, Congresswoman Schakowsky, and Members of the 
Committee, I am pleased to have the opportunity to testify before you 
today on the free trade agreement with Central America and the 
Dominican Republic, or CAFTA. As the chief negotiator of this 
agreement, I would like to personally thank the Subcommittee for 
focusing on the CAFTA today as we begin the critical legislative 
process toward implementation of this agreement. I hope that I can 
answer any questions you may have regarding the many benefits that 
CAFTA will bring to U.S. exporters, workers, farmers, ranchers and 
consumers.
    I would like to begin today with a bit of historical context. 
Twenty years ago, Congress held several hearings on the topic of 
Central America. But the Administration witnesses were not from USTR, 
and the topics had little to do with economics. In February 1985, the 
House Foreign Affairs Committee held a hearing about developments in 
Guatemala, where an undemocratic military government ruled and civil 
war raged. The following month, the House heard testimony from Pentagon 
and State Department officials about U.S. military assistance to El 
Salvador, which was then fighting an armed Communist insurgency. In 
1985, to the extent that Congress or the American people paid attention 
to Central America, it was largely because of violence, dictatorships, 
and civil war.
    It is an extraordinary sign of the progress made in Central America 
that we meet here today--twenty years later--to discuss a free trade 
agreement--an economic partnership with these countries. Today, the 
Dominican Republic and the nations of Central America are all 
democracies. Elected leaders are embracing freedom and economic reform, 
fighting corruption, strengthening the rule of law and battling crime, 
and supporting America in the war on terrorism. And they want to help 
cement their courageous moves toward democracy and free markets by 
signing a free trade agreement with their neighbor to the North, the 
United States.
    CAFTA marks the successful culmination of a decades-long American 
policy of promoting economic reform and democracy in Central America. 
President Bush strongly believes that America should stand with those 
in our Hemisphere--and the world--who stand for economic freedom. CAFTA 
offers us the best opportunity to strengthen the economic ties we 
already have with these nations, and to reinforce their progress toward 
economic, political and social reform.
    But CAFTA is not an act of unilateral altruism on the part of the 
United States. We have much to gain from this trade agreement: access 
to a large and growing market of 45 million consumers close to our 
border, an opportunity to level the playing field for American workers 
and farmers who today must cope with one-way free trade from Central 
America and the Dominican Republic without a reciprocal chance to 
compete.
    The agreement that we are here to consider today is the result of 
over three years of hard work and close cooperation between the 
Administration and the Congress, which began when President Bush 
announced his intent to negotiate a free trade agreement with Central 
America in January 2002. Using guidance from Trade Promotion Authority, 
USTR formally consulted closely with committees of jurisdiction before 
and after every round of negotiations, shared proposed text of the 
agreement with staff and Members prior to presenting texts in the 
negotiations. Former USTR Robert Zoellick, Acting USTR Peter Allgeier, 
myself, and other negotiators consulted with the Congressional 
Oversight Group and with Members on an individual basis. We took all 
views into consideration during each step of the negotiations, and 
greatly value the input provided by the Congress for this agreement. 
Our dialog with the Congress continues today, and I welcome this 
opportunity to talk with all Members about CAFTA.
    In concluding this FTA, our objective, which we feel confident that 
we have met, was to follow the negotiating objectives laid out by 
Congress in the bipartisan Trade Act of 2002 to strike a comprehensive 
and commercially meaningful agreement that will benefit U.S. workers, 
businesses, farmers, investors and consumers. At the same time, these 
complex negotiations took careful consideration of import sensitivities 
of the United States, many of which were communicated to us by Members 
of Congress. We worked hard to take into account all concerns raised 
with us by Members of Congress, and believe that we struck careful 
balances to reflect these interests.
    So today I would like to discuss the reasons why we believe CAFTA 
is strongly in the national interest of the United States, and why we 
want to work with Congress to pass this trade agreement into law.

                      SMALL COUNTRIES, BIG MARKETS

    Central America and the Dominican Republic are very large export 
markets for the United States. Collectively, these countries make up 
the second largest U.S. export market in Latin America, with more than 
$15.7 billion in U.S. exports in 2004. For some key states, for example 
Florida and North Carolina, the region is a top-three export 
destination for Made-in-USA products. Central America and the Dominican 
Republic form a larger export market than Brazil, a larger export 
market than Australia, and a larger export market than Russia, India 
and Indonesia combined.
    While the Central America countries and the Dominican Republic are 
physically small, they are clearly large markets for U.S. products and 
services. The American Farm Bureau Federation estimates CAFTA could 
expand U.S. farm exports by $1.5 billion a year, which would represent 
nearly a doubling of our current agricultural exports to the region. 
Manufacturers would also benefit, especially in sectors such as 
information technology products, agricultural and construction 
equipment, paper products, pharmaceuticals, and medical and scientific 
equipment. The U.S. Chamber of Commerce has done a number of studies of 
the potential economic impact of CAFTA in just eight key U.S. states, 
and estimates that U.S. sales to the region would expand by more than 
$3 billion in the first year of CAFTA. From soft drinks to software, 
from pork to paper products, the region is a voracious consumer of U.S. 
products and services. In some areas, textile yarn and fabric for 
example, the region is second only to Mexico as a worldwide consumer of 
U.S. exports.
leveling the playing field: new opportunities for u.s. workers, farmers
    But while these Central American countries and the Dominican 
Republic buy many goods and services from the United States, we 
currently face an unlevel playing field. Most Americans probably do not 
realize that we already have free trade with Central America and the 
Dominican Republic, but it is one-way free trade. Under unilateral 
preference programs begun by President Reagan and expanded under 
President Clinton with broad bipartisan support, nearly 80 percent of 
imports from Central America and the Dominican Republic already enter 
the United States duty-free. In agriculture, that percentage is even 
higher: we estimate that 99% of Central America's and the Dominican 
Republic's farm exports to the United States are duty-free. For the 
countries of the region, CAFTA will lock in those benefits and expand 
on them, helping to promote U.S. investment in the region.
    But more importantly, CAFTA will level the playing field for 
American workers and farmers. It will further open regional markets to 
our products and services, which currently face very high average 
tariffs or non-tariff barriers. For example, today the average Central 
American applied tariff on motor vehicles is 11.1%, while U.S. applied 
tariffs on imports from Central America are zero. The regional tariff 
on steel averages 16.3%, but the U.S. tariff is zero. The regional 
tariff on chemicals is 12.8%, but the U.S. tariff is zero. The same 
situation exists in agriculture: Central American and Dominican tariffs 
on U.S. vegetables faced a tariff ranging from 15% to 47%; ours are 
zero. U.S. fruits and nuts faced a tariff as high as 25% while--
products in this same sector enter our market duty free. The chief 
effect of CAFTA is not to further open our market, but rather to tear 
down barriers to our products and services in Central America and the 
Dominican Republic.
    CAFTA will create new opportunities for U.S. workers and 
manufacturers. More than 80 percent of U.S. exports of consumer and 
industrial goods will become duty-free immediately, with remaining 
tariffs phased out over 10 years.
    The agreement will also expand markets for U.S. farmers and 
ranchers. More than half of current U.S. farm exports to Central 
America will become duty-free immediately, including high quality cuts 
of beef, cotton, wheat, soybeans, key fruits and vegetables, and 
processed food products among others. Tariffs on most remaining U.S. 
farm products will be phased out within 15 years. U.S. farm products 
that will benefit from improved market access include pork, dry beans, 
vegetable oil, poultry, rice, corn, and dairy products. It is 
significant that every major U.S. farm commodity group but one has 
stated its strong support for CAFTA.
    In the important area of services, the Dominican Republic and the 
Central American countries will accord substantial market access across 
their entire services regime, offering new access in sectors such as 
telecommunications, express delivery, computer and related services, 
tourism, energy, transport, construction and engineering, financial 
services, insurance, audio/visual and entertainment, professional, 
environmental, and other sectors. The Dominican Republic and the 
Central American countries made significant commitments regarding their 
``dealer protection'' regimes. These commitments will help ensure that 
U.S. firms are not locked into exclusive or uneconomical distributor 
arrangements.
    This is also a trade agreement for the digital age, providing 
state-of-the-art protections and non-discriminatory treatment for 
digital products such as U.S. software, music, text, and videos. 
Protections for U.S. patents, trademarks and trade secrets are 
strengthened, and several are Chile-plus provisions, such as strong 
patent protection by 2007 for certain modified plant varieties.
    And this agreement breaks new ground, providing strong anti-
corruption measures in government contracting and other matters 
affecting international trade or investment. U.S. firms are guaranteed 
a fair and transparent process to sell goods and services to a wide 
range of Central American and Dominican Republic government entities. 
The agreement's dispute settlement mechanisms call for open public 
hearings, public access to documents, and the opportunity for third 
parties to submit views, with limited exceptions to protect 
confidential information. Transparency in customs operations will aid 
express delivery shipments and will require more open and public 
processes for customs rulings and administration.

                                TEXTILES

    Textiles and apparel is an important component of our trade with 
the region and deserves special mention. The Administration strongly 
believes that CAFTA is not a threat to U.S. textile producers but in 
fact represents a critical element in our domestic industry's ability 
to compete with Asia.
    Today, garment factories in Central America and the Dominican 
Republic are very large consumers of U.S.-made textile fabric and yarn. 
The extensive use of U.S. inputs in the regional apparel business means 
that Central America and the Dominican Republic actually constitute the 
second-largest world export market for U.S. textile yarn and fabric, 
behind only Mexico. For states like North Carolina, exports of textile 
fabric and yarn to garment makers in the region make a small country 
like Honduras that state's number one export market in the world. CAFTA 
will help keep it that way, by delivering tariff preference benefits 
for clothing made in the region that uses U.S. yarn and fabric.
    Without CAFTA, our domestic yarn and textile industry would likely 
lose one of its biggest customers. Worldwide quotas on textiles and 
apparel expired at the end of last year, meaning that the hemispheric 
industry faces a new collective threat from Asia. Without the tariff 
preference benefits of CAFTA, apparel companies may well move 
production to China. Indeed, the uncertainty to date about CAFTA has 
already caused a number of apparel firms to shut down operations in 
Central America and move them to China; as many as 10,000 workers may 
already have already lost their jobs. In China, there are no special 
trade incentives for apparel producers to buy U.S. yarn and fabric. In 
fact, they are much more likely to buy inputs from Asian suppliers, 
rather than producers here in the United States. That's why a T-shirt 
that is Made in Honduras is likely to contain well over 50% U.S. 
content, while a T-shirt Made in China is likely to contain very little 
U.S. content at all.
    To keep our customers for U.S. yarn and fabric, we need to keep 
them close to home. And to keep them close to home, we need to pass 
CAFTA soon.

                                 LABOR

    I know that there is considerable interest in Congress with regard 
to worker rights and labor standards in Central America and the 
Dominican Republic. We share that interest, and I believe we share the 
goal of seeing the continuation of real, meaningful improvements in 
worker rights in the region. I believe we should focus our strategy, 
and our attention and efforts, on the chief problem in these countries: 
the need to improve enforcement of domestic labor laws.
    The Central American countries, and later the Dominican Republic, 
requested a study by the International Labor Organization (ILO) of the 
labor situation in their countries. The ILO study demonstrated that 
labor laws on the books in Central America and the Dominican Republic, 
are generally in line with ILO core labor standards. The 
Administration's own, more detailed analysis of the labor rights 
situation in these six countries confirms that their labor laws are 
generally ILO-consistent. Indeed, labor protections on the books in the 
region are broadly similar to labor laws in Morocco, and in some areas 
(e.g., child labor) are stronger. Congress gave broad bipartisan 
support to an FTA with Morocco in 2004.
    But let's be clear: the enforcement of labor laws in the region 
needs more attention and resources. Our analysis shows this, and the 
Central Americans and Dominicans themselves acknowledge this, as the 
White Paper recently released by regional Labor and Trade Ministers 
clearly demonstrates. CAFTA is specifically designed to respond to the 
problem at hand by improving enforcement and expanding resources with a 
comprehensive, three-part strategy:

 First, the agreement requires that countries not fail to effectively 
        enforce their labor laws. If they consistently fail to enforce 
        those laws in a manner that affects our trade, then they face 
        the prospect of monetary penalties that will be directed to 
        solve the problem, or potentially face the loss of preferential 
        trade benefits. As the New York Times said in an editorial on 
        November 24, 2004, ``Cafta actually goes further than the pact 
        with Jordan, since penalty fines collected for not enforcing 
        labor laws would be sent back to the offending country to fix 
        the offense.'' Exactly right.
 Second, it's important to note that countries in the region have 
        already taken numerous, concrete steps to improve labor law 
        enforcement, including hiring more labor inspectors, appointing 
        special labor prosecutors, prosecuting perpetrators of violence 
        against trade unionists, and cutting the backlog of cases in 
        their labor courts. There is much more to do, however. So we 
        were pleased that Labor and Trade Ministers recently announced 
        a series of additional and specific recommendations to further 
        improve labor law enforcement.
 Finally, we need to provide assistance to build the capacity of these 
        countries to enforce their laws more effectively and to 
        strengthen their enforcement institutions and infrastructure. 
        We're pleased that the Department of Labor committed $7.7 
        million to a multi-year technical assistance effort. Congress 
        has now appropriated $20 million for FY05 for ``labor 
        cooperation, capacity building on fundamental labor rights and 
        the elimination of child labor, and improvement in labor 
        administration'', as well as for important environmental 
        cooperation activities in this region. The Administration 
        intends to work with the Congress and with the CAFTA countries 
        to target these funds toward the areas of greatest need, and we 
        hope that the funds provided for FY05 are only a first step in 
        an ongoing commitment by the Congress to fund labor capacity-
        building in this region.
    Our comprehensive strategy does not attempt to minimize the 
challenges we faced: We negotiated a fully TPA-consistent labor 
chapter, we worked with the Dominican Republic and the Central American 
countries to make real worker rights progress during the negotiations, 
and there is a strategy for long-term capacity building. This concrete, 
real-world effort is directed at where the problem lies: problems with 
the enforcement of existing laws in Central America and the Dominican 
Republic. By contrast, a strategy of defeating CAFTA would preserve the 
status quo, and very likely set back progress to date. Defeating CAFTA 
will do nothing to improve working conditions for a single worker in 
Central America or the Dominican Republic, and in fact will have the 
opposite effect, as tens of thousands of Central Americans and 
Dominicans stand to lose their jobs to China if the United States turns 
its back on CAFTA. We believe that one of the best ways to improve 
working conditions in Central America and the Dominican Republic is to 
have strong economic growth, combined with a comprehensive and targeted 
strategy to build the capacity of these countries to enforce their 
labor laws.

                              ENVIRONMENT

    We have also broken new ground on the environment side. I believe 
that the CAFTA environmental provisions, and the associated 
Environmental Cooperation Agreement, are the most forward-leaning trade 
and environment package ever. We have worked closely with Congress in 
developing our approach and developing many of its unique features.
    The CAFTA countries have come a long way in the last decade in 
putting in place good environmental laws as well as the beginning of a 
complete environmental legal regime, but enforcement in many cases 
remains a significant challenge. There is also the need for greater 
transparency and involvement of civil society in environmental 
decision-making. To address these concerns, in addition to continuing 
existing Administration efforts to help the CAFTA countries further 
develop their legal regimes, we have included several innovations in 
the environment package:

 First, we have developed a new public submissions mechanism that will 
        allow the interested public, including NGOs, an opportunity to 
        challenge a Party's failure to enforce its environmental laws 
        and to obtain an independent review of their submissions. CAFTA 
        is the first trade agreement ever to include this kind of 
        mechanism in its core provisions, and it will give civil 
        society in the region a new voice in working to improve 
        environmental enforcement in the region. Just a few weeks ago, 
        in a ceremony taking place at the Organization of American 
        States, we and our Central American and Dominican Republic 
        counterparts signed a landmark agreement that designates a new 
        environmental unit within SIECA--the Organization for Central 
        American Economic Integration--as the secretariat to implement 
        these provisions.
 Second, the parallel environmental cooperation agreement (also signed 
        at the OAS ceremony) builds on previous capacity-building 
        efforts in the region, but breaks new ground in several ways. 
        For the first time ever, the agreement provides for the 
        establishment of short-, medium- and long-term benchmarks for 
        measuring progress in meeting environmental goals. The 
        agreement also provides for independent monitoring by outside 
        organizations of success in meeting these benchmarks. Initial 
        priority areas for cooperation include reinforcing capacity to 
        implement and enforce environmental laws, including habitat 
        conservation, trade in endangered species and treatment of 
        hazardous wastes.
 Finally, we are taking steps to ensure that capacity building efforts 
        are adequately funded. The Administration has initiated a 
        Deputies process to oversee environmental cooperation efforts 
        linked with all the FTAs and to organize an inter-agency budget 
        process to promote coordination across interested federal 
        agencies. The Administration also is considering how to 
        allocate the $20 million in FY05 funding between labor and 
        environment activities.
    The response in the region is already gratifying. Last month ten 
Central American NGOs sent a letter to former U.S. Trade Representative 
Zoellick and the trade ministers of our Central American and Dominican 
Republic partners, expressing their support for the CAFTA and urging 
its passage. These groups praised the CAFTA environmental package and 
the opportunities it provides for them to have a new voice in pressing 
for environmental progress in the region. The governments are also 
doing their part to prepare the way for CAFTA's implementation. With 
our participation, they have held numerous public outreach sessions in 
the region, with more to follow. And just to take some of the most 
recent examples of concrete action: Nicaragua has created a new office 
on trade and environment within its environment ministry as the result 
of the CAFTA, while El Salvador has established a new advisory 
committee on trade and environment issues, with NGOs on the committee, 
very much like our own Trade and Environment Policy Advisory Committee 
(TEPAC). In fact, the Environment Chapter requires all of the CAFTA-DR 
countries to establish such advisory committees.
    Thus, we are poised to make a real difference in strengthening 
civil society and environmental protection in Central America and the 
Dominican Republic. We should not let this historic opportunity pass.

                        SUGAR: HANDLED WITH CARE

    We are aware that some members of Congress have expressed concerns 
with U.S. sectors that are sensitive to import competition, such as 
sugar. If I had to describe in a phrase how we handled those issues in 
the agreement, it would be, ``handled with care.''
    On sugar, it is important to remember that there will be no change 
in the above-quota U.S. duty on sugar. This was an important 
accomplishment that recognizes the sensitivity of this important sector 
of the U.S. farm economy. CAFTA will not have a destabilizing effect on 
the U.S. sugar program, because even with a modest increase under 
CAFTA, U.S. imports will still fall comfortably below levels set for 
sugar imports in the Farm Bill.
    In other agreements, we have also been sensitive to this issue. In 
our FTA with Australia, sugar was excluded entirely. In our agreements 
with Chile and Morocco, we have provisions that effectively will result 
in no change in the levels of sugar imports from those nations.
    For Central America and the Dominican Republic we agreed to a very 
small and very limited expansion of the quota for sugar imports from 
these countries.
    The total increased quota amount is equivalent to only about one 
day's worth of U.S. sugar production. We produce more than 7 million 
metric tons of sugar in the United States annually. The increased 
amounts under CAFTA are only a little over 100,000 metric tons. Even 
after 15 years, increased sugar imports from Central America and the 
Dominican Republic will amount to only about 1.7% of U.S. consumption.
    In addition, the Agreement includes a mechanism that allows the 
United States, at our option, to provide alternative compensation to 
CAFTA country exporters in place of imports of sugar.
    To put sugar imports under CAFTA into perspective, the increased 
imports in the first year under CAFTA amount to about a teaspoon and 
half per week per American. That compares with average consumption of 
10-20 teaspoons of added sugar per day for most Americans. The amount 
of sugar allowed into the United States under CAFTA is minuscule. 
Claims that the CAFTA will harm the U.S. sugar industry are simply 
wrong.

                A UNIQUE CHANCE TO STRENGTHEN DEMOCRACY

    Mr. Chairman, the last twenty years has been a sometimes difficult 
road to democracy in El Salvador, Guatemala, Nicaragua, and other 
countries in the region. But today we have neighbors in Central America 
and the Dominican Republic who want to trade goods, not guns, across 
their borders. They want to replace chaos with commerce, and to use 
CAFTA as an important tool of reform that will help deepen and 
strengthen democracy.
    Working closely with the Congress, we have negotiated a landmark 
free trade agreement that will open these large and growing markets to 
our goods and services. CAFTA will level the playing field, helping our 
workers and farmers sell to countries that already enjoy virtually 
unlimited access to the United States market. The agreement will help 
the U.S. textile industry unite with some of its largest world 
customers to better compete against imports from China and other Asian 
competitors. It contains a focused, results-oriented strategy that 
will--when combined with a strong Congressional commitment to capacity-
building--produce real improvements in working conditions and 
environmental protection in the region. And it handles sensitive 
commodities with great care.
    We believe CAFTA meets the objectives set by Congress in the Trade 
Act. It is strongly in the economic and national interests of the 
United States. We hope the Congress will agree that America should not 
turn its back on struggling democracies that want a closer economic 
relationship that will benefit workers in all our countries. CAFTA 
makes eminent sense for America, and for Central America and the 
Dominican Republic.
    Thank you.

    Mr. Stearns. I thank you. And I will start with the 
questions. I certainly want to say that I think you made an 
eloquent case. We normally allow 5 minutes for opening 
statements, and certainly we wanted to give you extra time. 
Also to commend Rob Portman, who is going to be the next trade 
representative, who we have great respect for. And out of 
respect for him and him talking to me, I sort of felt that it 
was important for you to get your whole statement on. And I 
think you did a very good job.
    When you look at what you say and you--just from the 
outside, and you say well, look, we are allowing these goods to 
come in here now duty-free, I think you said 80 percent, and so 
by golly, all we are going to do is allow now American goods to 
get in there without tariffs. Why would anybody be against it? 
It just sounds so logical. And the fact that you point out that 
you have had years. How long have you been negotiating CAFTA 
would you say? I mean, I know it is part of the CBI Agreement 
from the 1980's, but I mean, how would you----
    Ms. Regina Vargo. We spent a year, Mr. Chairman, on 
preparatory work, going over the kinds of obligations we like 
to see in agreements with the countries. We were in a year of 
active negotiation with the Central American countries, and 
then another 3 months with the Dominican Republic.
    Mr. Stearns. So you have done the best effort; you had the 
most comprehensive teams; you worked this out. You can't expect 
it to be perfect so people can hit you around the edges. But I 
think what you are going to hear, people are going to go back 
to NAFTA. So I think you are going to have to also be prepared 
this morning, this afternoon, whatever time it is, to talk 
about NAFTA. And I think the argument can be made that the 
NAFTA agreement provided more wealth to Mexico. I think no 
matter who is on either side would probably agree that that was 
true. The problem is that the wealth was not proportional to 
the middle class or perhaps to the lower-wage people. So that 
is what the people who are against this agreement will argue, 
why should we vote for this CAFTA when we have NAFTA where we 
saw yes, the wealth increased, but it did not provide the 
wealth for the people who are in the middle class or lower?
    So the argument to you is, is it true that more wealth was 
provided for Mexico because of NAFTA? I think the answer is 
yes, right?
    Ms. Regina Vargo. Yes, it is.
    Mr. Stearns. In your opinion, do you think the argument 
that the wealth went to the upper 10 percent and not to the 
rest of Mexico is a valid argument at all? Can you make that 
statement with some objectivity that the wealth that was 
created in Mexico went to the upper people and not to the 
people themselves, the substantial working labor force?
    Ms. Regina Vargo. The discussion on NAFTA sometimes gets 
complicated by----
    Mr. Stearns. Oh, I know----
    Ms. Regina Vargo. [continuing] people----
    Mr. Stearns. [continuing] and that is--I am----
    Ms. Regina Vargo. No----
    Mr. Stearns. [continuing] trying to keep it very simple.
    Ms. Regina Vargo. No, I just wanted to say by the peso 
crisis that happened----
    Mr. Stearns. Okay.
    Ms. Regina Vargo. [continuing] shortly after the----
    Mr. Stearns. Right.
    Ms. Regina Vargo. [continuing] agreement went into effect. 
But in fact when you look at the period from before NAFTA to 
the current day, poverty rates are lower now, not greatly, but 
lower now than they were then. And with respect to income 
levels, the World Bank has found that the greatest reduction in 
poverty has been at the extreme.
    Mr. Stearns. Okay, well, that is what you need to make, 
because, you know, as Members of Congress who voted for or 
against it, you say well, how did NAFTA go? And if NAFTA went 
pretty well, there is really no reason we shouldn't pass this. 
So I think on the stump you are going to have to explain that.
    There is also a feeling that disagreement has broader 
implications than just the economic. It will allow Americans to 
have duty-free commerce into Central America, but you alluded 
to the fact that this will also help to stabilize countries and 
has geopolitical considerations, not to mention the fact that 
you got these people to agree, and if Congress turns it down, 
then we have got to go back to these countries. And they say 
well, gee whiz, you had an agreement with Australia, you had 
agreement with all these other--Jordan, all these other 
countries. Why didn't you have an agreement in your own 
hemisphere? But you might talk to us a little bit about not 
just the economic and the things you talked about, more 
inspectors, enforcement institutions, but is there also 
geopolitical reasons for passing this agreement?
    Ms. Regina Vargo. Well, Mr. Chairman, there has been a 
strong geopolitical reason for our interest in this region for 
quite some time. And in fact that was the basis for which the 
Congress, in a bipartisan way, passed the Caribbean Basin 
Initiative initially, back around 1985 I believe it was, that 
provided them with one-way duty access into the United States. 
This was with the hope that additional market access could help 
generate some sustainable economic growth in the region that 
would be more beneficial to creating these--reinforcing these 
fledgling--what we wanted to be fledgling democracies, and at 
the time was actually quite a period of chaos in the region 
with their own internal civil wars, the guerillas fighting, et 
cetera.
    What we built under CBI is we have been able to reinforce 
some jobs and economic growth in the region through the opening 
we made. The Congress found it was inefficient. Two years ago 
it went to improve the terms of the CBI agreement to strengthen 
the partnership in the textile and apparel area. And I want to 
focus on that for one moment if I can, because I think that it 
shows very clearly what is at stake in this agreement with 
respect to your question, Mr. Chairman.
    On the basis of the partnership we formed, this region 
would buy our fabric and our input, and they would produce the 
garments and we would allow them duty-free into the United 
States on the basis of their U.S. content. This region has 
built a broad apparel industry. That industry now employs half 
a million people. The people employed in this industry in 
Central America are basically single head of households. 
Basically, they are unwed mothers who are supporting children. 
And a real, I think, risk in not passing the CAFTA from a 
geopolitical standpoint is we need to reinforce that 
partnership that we have had that has built this industry and 
created those jobs now that, under the WTO, the multi-fiber 
agreement is no longer in place, and only tariffs, no longer 
quotas, will affect what the access is into the U.S. market. We 
have already seen a strong push in the early months of this 
year from China and other Asian countries, in some instances 
sending us as many goods in the first couple months as they did 
in all of last year.
    If, in fact, we don't reinforce those jobs in Central 
America, this industry, these countries will a) not be in a 
position to be buying our inputs as they have been, so we will 
lose that business, but they will also--they don't have another 
means to pay for import goods into their market. They are going 
to have to cut back on what they are buying, buying from us 
generally. If they can sell us $10 billion less, they can buy 
$10 billion less. But we are going to do that in a context 
which you can see here by way of the possibility for a 
dangerous spiraling-down of economic opportunities in the 
region. And I think that when you are in a situation as we are 
in these countries where the rule of law and democracies are 
just being put in place, having the potential of throwing a 
large number of people out of work without other economic 
opportunities is definitely problematic for the United States.
    Mr. Stearns. My time is expiring. The ranking member, Ms. 
Schakowsky.
    Ms. Schakowsky. Thank you, Mr. Chairman. First, I would 
like to ask unanimous consent to put into the record two 
documents from the United States Conference of Catholic Bishops 
where they urge us to evaluate CAFTA's provisions in light of 
the moral criteria laid out in their joint statement, and two 
documents from a broad environmental coalition of a number of 
organizations. And so I would like----
    Mr. Stearns. By unanimous consent----
    Ms. Schakowsky. [continuing] this in the record.
    Mr. Stearns. [continuing] so ordered.
    Ms. Schakowsky. Thank you. Ms. Vargo, back in June of 2003 
when CAFTA negotiating processes began, the USTR admitted the 
serious problems with Central American labor laws and pledged 
to take action to address those problems before duplicating the 
labor rules of the Chile and Singapore FTA's in CAFTA. Deputy 
USTR Peter Allgeier testified before Congress that whether the 
labor provisions of the Chile and Singapore agreements would be 
sufficient for Central America, this is from him, ``depends in 
part on what changes in their laws they make during the 
negotiating process.'' He stated that ``Frankly, the different 
circumstances that exist in those countries and among those 
countries compared to, for example, Chile and Singapore'' may 
require a different approach. And he pledged that USTR would 
``need to get those labor standards and the enforcement of 
labor rights up to a certain level before we would find 
acceptable a commitment to enforce those laws.''
    Now, you know, you talked about capacity building, and 
those efforts may or may not come to fruition, and none of what 
you have talked about is actually in the agreement itself. A 
year and a half later most of the Central American countries 
really have done nothing to bring their labor laws--I am 
talking what is on the books right now--closer to international 
standards during the CAFTA negotiations. The only country that 
partially reformed its laws in response to ILO criticism is 
Nicaragua, but serious deficiencies remain in the laws even 
there.
    So nonetheless, despite what the USTR representative said, 
the CAFTA labor chapter is an exact replica of the Chile and 
Singapore model. It requires only the enforcement of domestic 
labor laws, no matter how inadequate those laws are. So this 
model was no acceptable to the USTR for Central America in 
2003. Why should Congress find it acceptable today?
    Ms. Regina Vargo. Well, thank you very much for that 
question, Congresswoman, and actually, I welcome the 
opportunity to maybe lend some insight to that remark. I think 
what Ambassador Allgeier was signaling to the Congress in his 
testimony was that we were aware of fairly widespread concerns 
with the labor situation in these countries. And in fact I 
would say that perhaps our own initial preconception was that 
there would be difficulties with their law reflecting the 
international ILO core labor standards.
    Recognizing that this was going to be a major area of 
contention, the labor ministers in the region, subsequent to 
Ambassador Allgeier's remarks, actually invited the ILO to come 
in and do a study of their labor laws. And we believe that that 
study confirmed that the laws on the books--the way they are 
captured in their constitution and the way their ratification 
of the ILO core labor conventions and some of the labor laws 
are set up--they do give effect to these international ILO core 
labor standards and do provide a meaningful basis for a 
requirement in the agreement to effectively enforce their own 
labor laws.
    Ms. Schakowsky. Even if what you said were the case, and we 
will hear some other testimony, those nations could change 
labor laws, and because they only have to enforce what their 
laws are, couldn't they weaken them at any point?
    Ms. Regina Vargo. We don't see this as having much 
likelihood. All of their direction has been in improving their 
labor laws, and over the course of the last decade, most of 
these countries--Honduras is the exception and they are doing 
it right now--have undertaken labor law reform, utilizing 
technical assistance from the ILO.
    You also have to recognize that the way labor is presented 
in their constitutions themselves present an important basis 
for how they give effect to these international core labor 
standards.
    Ms. Schakowsky. So you just think it is unlikely? My time 
has actually expired. Thank you.
    Mr. Stearns. Thank you. Thank the gentlelady. Mr. Rogers.
    Mr. Rogers. Thank you, Mr. Chairman, and thank you, Ms. 
Vargo, for attending today. It is important. I am an ardent 
free trader and am encouraged to see some of the agreements 
that you reached in CAFTA that I thought were I think a step in 
the right direction.
    I have one concern, and I think what you are saying here 
are there are those here who aren't going to be for trade no 
matter what, and there are those who support trade no matter 
what. And I think there is a kind of a coming together in the 
middle of those of us who are concerned about the fact that the 
enforcement of the USTR has, I can't say, been a failure, but 
it has been abysmal at best. And coming from a State like 
Michigan, we build cars, or we are still trying to build cars 
in Michigan. We have found that it is incredibly frustrating to 
try to work through the idea of, again, people who supported 
these trade agreements worried about the enforcement side of 
it. So help me walk through--I mean, intellectual property from 
brake pads to golf clubs to pharmaceuticals to DVDs, horrible 
problem around the world. And I think, quite frankly, you all 
have done a horrible job of stepping up to the plate. Currency 
manipulation, killing us. Horrible job stepping up to the 
plate.
    And so our argument is, hey look, I want to be a free 
trader; I want to be for trade agreements. But without an 
enforcement component in today's global competitive 
environment, we are in trouble. And you need a referee on the 
field. If it is going to be a fair game, there has got to be 
somebody there to throw the yellow flag when somebody is 
cheating. And there are nations around the world, some of which 
are engaged in these trade agreements, who are cheating.
    Even under NAFTA, if you look at the non-tariff trade 
barriers under NAFTA, horrible job removing those trade 
barriers between Mexico on agricultural products. I could give 
you a list a mile long. A horrible job. And our argument is 
look, NAFTA, I think, at the end of the day is a good thing and 
it is a powerful positive for the United States and Mexico. But 
if you don't remove those non-tariff trade barriers through 
aggressive pursuit, we are going to be in trouble.
    And we are having a hard time selling CAFTA to people 
because of that track record. And I believe that, you know, the 
best diplomat, the best program to cure poverty is really 
commerce. And so we need to promote commerce, but we can't do 
it one without the other. So I hope you can help me understand, 
how are you going to step up enforcement on CAFTA so we don't 
run into these very same problems that we are running into on 
other trade agreements?
    Ms. Regina Vargo. Thank you very much, Congressman. And I 
couldn't agree with you more about the importance of following 
up on trade agreements on the enforcement angle. I do think 
that we have been vigorous across a wide range of issues in 
pursuing enforcement initiatives. Sometimes, at an informal 
level, through consultations or a bilateral dialog, as opposed 
to WTO dispute settlement, but we have, I think, a record of 
achieving success in a number of large instances. But in 
particular I would like to point to some of what I hear of your 
concern in the intellectual property rights area, for example. 
We have a major mission right now that is going to China and 
through Asia on our ``Stop'' initiative to address 
counterfeiting and piracy. The administration recently 
indicated its increased concern with the currency situation.
    But I would like to point out, because I hear it from this 
committee, about the idea of a lack of enforcement leading to 
the trade deficit, only about 10 percent of the U.S. trade 
deficit is with countries with which we have free trade 
agreements. The bulk of our trade deficit is with countries 
that we don't--the vast bulk. So I think these trade agreements 
represent an opportunity to put the right kind of rules into 
place.
    And you, sir, mentioned intellectual property. And 
certainly, that is something in the CAFTA agreement where, 
across a whole host of issues--whether that is protections for 
digital products, as I mentioned earlier, strengthening 
trademarks, strengthening border enforcement against 
counterfeited goods, strengthening patent and copyright 
protections--we are bringing these countries into our global 
efforts to produce good IP protections such as the UPOV 
Convention on plants and animals or the Internet Copyright 
Treaties. This is a basis for bringing this region--because we 
are talking about this agreement for the moment if I can--up to 
those kind of world-class standards that we would like to see. 
And we think we are doing it in a way that couples it with some 
transitions in a few areas and some trade capacity building 
assistance.
    And frankly, I think there is a recognition on the part of 
these countries that market access alone to the U.S. market 
hasn't gotten them the growth they need. They recognize that 
they need to put in place a better commercial environment.
    Mr. Rogers. I appreciate that. What do you need from 
Congress so that you can increase your enforcement and your 
effectiveness in enforcement of these trade agreements? What 
don't you have that you need us to give you to be a success?
    Ms. Regina Vargo. Congressman, may I suggest that I get 
back to you on that with a written answer----
    Mr. Rogers. I would love it.
    Ms. Regina Vargo. [continuing] because I think your 
question isn't just relating to my region. I think that you are 
addressing a broader question for the agency as a whole.
    Mr. Rogers. True enough, but Mexico is a big problem, 
especially in the non-tariff trade side, and I would be happy 
to be supply you with all the information you need, at least 
from our angle.
    Ms. Regina Vargo. And we would be very happy to work with 
you on the specific problems that you are particularly 
looking----
    Mr. Rogers. Right.
    Ms. Regina Vargo. [continuing] at.
    Mr. Rogers. Super.
    Ms. Regina Vargo. I will point out that under NAFTA, Mexico 
did become our second largest agricultural export market.
    Mr. Rogers. Yes.
    Ms. Regina Vargo. So we are selling, but you are right, we 
have----
    Mr. Rogers. Still problems, as you know. I am----
    Ms. Regina Vargo. Problems, yes, I do.
    Mr. Rogers. [continuing] sure you are aware.
    Ms. Regina Vargo. Thank you.
    Mr. Rogers. And we just need to be fair in all of those 
arguments. Now, that being said, I think it is important that 
we are going to knock down a whole bunch of trade barriers in 
the Central American region, pretty important. Hopefully, you 
can talk to me a little bit about the tariffs on automobiles. 
Right now there is about a 10-percent tariff on U.S. 
automobiles going to the region. How will this agreement affect 
the selling of U.S. automobiles?
    Ms. Regina Vargo. Those tariffs will be down throughout the 
region within 10 years in Central America and within 5 years in 
the Dominican Republic. One of the reasons for the slightly 
longer phase-out on automobiles in the region is the role that 
they play in their overall revenue structure. But our auto 
companies were happy with that result. And obviously, that will 
give our cars a leg up in this region.
    Mr. Rogers. Sure. So there is a definitive date when those 
tariffs will be gone and we will have free and open access to 
selling cars in----
    Ms. Regina Vargo. Absolutely.
    Mr. Rogers. Incredibly important. Well, again, I look 
forward to working with you--and my time is almost up--on those 
issues. I hope you take this strong message back, that I think 
that there are many who are eager to support CAFTA but need 
some assurances on the trade enforcement, not only for this 
agreement, but previous agreements so that we can get the 
necessary folks in line to join in on what I think is going to 
be a very important and positive trade agreement, not only for 
Central America, but for the United States of America.
    Ms. Regina Vargo. Thank you very much, Congressman.
    Mr. Stearns. I thank my colleague. For unanimous consent, 
request?
    Ms. Schakowsky. Yes, thank you. I wanted to put into the 
record a letter to Trade Representative Zoellick----
    Mr. Stearns. By unanimous consent, so ordered.
    Ms. Schakowsky. Let me just say that I think response to 
what you had said about the ILO report, the letter just says 
the characterization of the ILO report is inaccurate and 
constitutes a misuse of the document. It says it better than I 
could, and I would like it in the record. Thank you.
    Mr. Stearns. Gentleman from Ohio is recognized, Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. Thank you very much, 
Ms. Vargo. I just heard you say that countries where we have 
trade agreements or most of our trade deficit is not that. I 
would like to just show a chart that--this is one country we 
have a trade agreement with called NAFTA. We had a trade 
surplus the day NAFTA was signed of a few billion dollars. We 
now have a trade deficit of almost $50 billion. So I am not 
sure where you go with that.
    A second point, when Ms. Schakowsky asserted that Central 
American nations can weaken their labor and environmental laws 
after CAFTA is implemented, your only answer to that was not to 
prohibit that because you negotiated an agreement which 
decidedly would not prohibit that, but you said that is 
unlikely because of trends in Central America. I would just 
answer that with one story. Before Guatemala and the Guatemalan 
legislature approved the Central American Free Trade Agreement, 
the U.S. trade rep went to their leaders and said unless you 
change your generic drug law--on behalf, I assume, of the U.S. 
drug industry--we are not going to include you in the Central 
American Free Trade Agreement. That was pretty well documented. 
So to say that American business won't go to any of these 
Central American countries or Dominican Republic and lobby 
their parliaments and legislatures to weaken labor laws is 
something that just stretches the imagination a bit.
    Now, my questions are a couple of places I would like to 
briefly go. First of all, speaking--if a company making jeans 
for export, a large U.S. company or whoever, fires 500 workers 
in, say, Nicaragua because they tried to organize a union, the 
only penalty under the Central American Free Trade Agreement is 
fines limited to $15 million. The goods the company sells can 
still enter the U.S. for sale duty-free. But if a street vendor 
is selling a pirated Mickey Mouse DVD, the country in which 
that occurs faces trade sanctions, the DVD is seized and 
destroyed, and under CAFTA the offender is criminally liable 
for mere possession of a pirated good. Does that mean we are 
putting more emphasis on intellectual property than we are on 
workers? Is that fair?
    Ms. Regina Vargo. Well, let me move through a number of 
issues that you raised in your----
    Mr. Brown. Quickly, because we only get 5 minutes.
    Ms. Regina Vargo. Sure. Okay.
    Mr. Brown. And I have another question.
    Ms. Regina Vargo. Well, first of all, with respect to your 
earlier comment, I would point out Mr. Rogers' comment about 
enforcing trade agreements, and that in fact the situation we 
have with the DR with respect to data protection was one where, 
having recently signed an agreement with that provision, the 
government passed a law that overturned it. So I think I would 
put that in the category of an enforcement action and would 
think in fact that the Congress would be endorsing us for 
effectively enforcing these free trade agreements.
    With respect to the situation that you described for 
workers illegally fired for forming a union, I think all of 
these countries have taken steps to make sure that they are 
applying the law in this area better than they have in the 
past. The principal problem that I----
    Mr. Brown. If I could interrupt, there is no guarantee in 
this agreement that they will, because they can weaken their 
laws after the Central American Free Trade Agreement is 
ratified. And you have not told Ms. Schakowsky or me that the 
answer is no to that so that they can--what you think they are 
doing now and you say they are doing now doesn't mean that will 
be their behavior in the future.
    Ms. Regina Vargo. The ILO core labor principles that you 
are referring to here are largely imbedded in their 
constitutions and their ratifications of those treaties. I 
think the problem that you are identifying, Mr. Brown, which is 
an important one, is the application of that law and the 
enforcement of that law. And when the ILO did its study on this 
particular issue, what it found by and large were problems of, 
for example----
    Mr. Brown. Okay, I am going to interrupt. I only have----
    Ms. Regina Vargo. Okay, you have 5 minutes----
    Mr. Brown. No, no, I know I am not going----
    Ms. Regina Vargo. Okay.
    Mr. Brown. [continuing] to get an answer to this, so I am 
going to move to something else. And I don't mean to be rude, 
but I know what filibustering is in 5 minutes, so on this magic 
word--CAFTA goes further than U.S. law in sheltering brand-name 
drug makers from market competition. One example, CAFTA 
provides for two forms of patent extension; the first one 
permits extensions on delays in the examination process; the 
second one permits extensions based on delays in the drug-
approval process. U.S. law places some limits on patent 
extensions; CAFTA simply doesn't. In the U.S. the extension 
only applies to the active ingredient of a new drug. It only 
permits the extension of the term of a single patent, not 
multiple patents. That is a bill that I worked on with Senator 
McCain a couple of years ago. Is it right that a Central 
American--to subject patients in developing countries and these 
countries in Central America to greater delays in access to 
generic drugs? Because under your negotiated CAFTA, patients in 
Central America will be subjected to--will have less access to 
generic drugs than they do in the United States because of the 
way that was negotiated. Is that fair?
    Ms. Regina Vargo. I don't think that would be fair, nor, 
Congressman, do I think that is what the CAFTA does. The 
important thing, and I will be fast here, is that the 
provisions in the agreement don't require a change in law, and 
they are consistent with U.S. law, which means the 
flexibilities that we have in U.S. law with respect to the many 
different instances you just mentioned would be available to 
the CAFTA countries as well. There is nothing in the agreement 
that prevents those countries from introducing those 
flexibilities into their own law.
    Mr. Brown. Except U.S. drug company lobbying, but that is a 
whole other story. I would like to ask you if I could, Mr. 
Chairman--I will wrap up--if I send you a series of questions 
about patent law, if you would share your answers with us in 
writing?
    Ms. Regina Vargo. I would be happy to do that. Thank you 
very much.
    Mr. Stearns. I thank the gentleman. Mr. Otter.
    Mr. Otter. Thank you, Mr. Chairman. I would like probably 
to start off from the beginning with that question. If I send 
you a series of questions relative to the implementation and 
enforcement of agreements in the Americas--and I assume that 
that means NAFTA as well as the potential CAFTA agreement--
would you submit answers to those questions?
    Ms. Regina Vargo. I certainly would. I make that offer to 
anyone on the committee who would care to do that, and I would 
be happy, Congressman, to come and talk to you about what you 
see as implementation problems as well.
    Mr. Otter. Well, thank you for that. I am going to move 
away a little bit from the specifics that some of my colleagues 
have been--although I think they are terribly important, the 
environmental agreements, the labor agreement. I am going to 
move away a little bit of those and go to more of your final 
statements relative to the geopolitical necessity and 
importance of this. Do you believe that these countries right 
now are free markets?
    Ms. Regina Vargo. These countries are trying to be free 
markets----
    Mr. Otter. No, that isn't what I asked. What I asked was do 
you believe that they are right now free markets?
    Ms. Regina Vargo. Could I ask you to define what you mean 
by that, sir?
    Mr. Otter. Well, let us say, you know, obviously with all 
the government regulation in the United States, we hardly have 
a free market either. But do you believe that the countries' 
economies in these countries, including the Dominican Republic 
where I have spent some time, are free markets relative to the 
same kind of free market that we struggle through in the United 
States?
    Ms. Regina Vargo. I believe these are market economies. I 
think they have perhaps more barriers and more regulation than 
the United States. And I think that there are many elements of 
this agreement that will improve that situation dramatically.
    Mr. Otter. Your conclusion is that with this agreement, 
suddenly they are going to get this great aspiration for rule 
of law; they are going to get this great aspiration for free 
economy and all of a sudden develop into a strong democracy. 
Wasn't that your conclusion?
    Ms. Regina Vargo. I think, sir, that what we find is that 
trade agreements are attractive to these countries because it 
helps them introduce reforms that they sometimes have trouble 
getting passed more----
    Mr. Otter. Why is that?
    Ms. Regina Vargo. Because of the market access component to 
them. And it is important for these countries to consolidate 
the access that they have here, to strengthen that textile and 
apparel partnership we have----
    Mr. Otter. So in other words----
    Ms. Regina Vargo. [continuing] that is critical.
    Mr. Otter. So in other words--I am also limited to 5 
minutes, and most of that is gone. So in other words, if we 
engage in commerce between the United States and the CAFTA 
members, that we will then impart some freedom and impart some 
free market and engage in economic building, and then, as a 
result of that, we will get this additional benefit of building 
a democracy and free people and rule of law. Is that what you 
are saying?
    Ms. Regina Vargo. No, sir, in the sense that I think you 
described those as somehow sequentially with the reward coming 
at the end of the process.
    Mr. Otter. Oh, it happens----
    Ms. Regina Vargo. This is a process of building and 
reinforcing----
    Mr. Otter. It happens during----
    Ms. Regina Vargo. [continuing] that along the way.
    Mr. Otter. It happens during? Then why don't we include 
Cuba amongst this?
    Ms. Regina Vargo. I don't think that there is the sense of 
the Congress or the administration that there is a desire to do 
a free trade agreement with Cuba. Actually----
    Mr. Otter. But now there is not a----
    Ms. Regina Vargo. --Congress asked us to do----
    Mr. Otter. [continuing] consensus in Congress for CAFTA 
either.
    Ms. Regina Vargo. The Congress actually asked us to move to 
a free trade agreement with the countries of the Caribbean 
Basin in their last renewal, the Caribbean Basin Act, to put 
that agreement, which is a one-way agreement, on a more 
reciprocal basis.
    Mr. Otter. Well, I would disagree with you because I think 
we have got a history of trading with countries. And China is 
certainly amongst those, isn't it? Aren't there other 
dictatorial countries that we trade with, and the effort there 
is to build democracy? I am not even going to ask you to 
respond to that. One of the problems that I see--tell me 
whether you agree with this or not--is that we are trying to 
build free markets, yet we are trying to do it politically 
instead of economically. And that is why the USTR, your 
mission, comes under the State Department instead of the 
Department of Commerce, is that right?
    Ms. Regina Vargo. The USTR is actually part of the 
Executive Office of the President. And I think we have a very 
strong economic mission. I think that CAFTA is an instance 
where we have an excellent dovetailing of both our economic and 
our political--our geopolitical interests. And trade can help 
us introduce more stabilization, more jobs into this region 
which desperately needs them at a time that they are struggling 
to move forward on rule of law.
    The elements in the agreement as well, the transparency 
elements, the anticorruption elements, are all there to help 
formulate how the government interacts with its private sector, 
with its business community--the sunshine elements on the 
environmental side, the fact that dispute settlement under the 
agreement calls for open hearings, amicus briefs, public 
documents. These are all elements of things that we like about 
the way we conduct our democracy and relate to our citizens 
that we incorporate in our trade agreements. I think they are 
commercial; I think they have an important social and political 
element; I think they have a geopolitical element.
    Mr. Otter. Thank you, Mr. Chairman.
    Mr. Stearns. I thank the gentleman. Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman. And first, 
I need to apologize to Ms. Vargo for not keeping an 
appointment. We were running behind. And obviously, even the 
individual that I was meeting before your meeting, and, of 
course, you couldn't wait that long, was actually a member of 
the Congress from El Salvador, and I was just dying to ask you 
all sorts of questions.
    But I want to--in the limited amount of time I have, let us 
see if you can give me some clarification. Can you explain to 
me the policy of guaranteed system of preferences?
    Ms. Regina Vargo. Yes----
    Mr. Gonzalez. When it comes to collective bargaining with 
the labor movement and so on.
    Ms. Regina Vargo. GSP, the General System of Preferences, 
is a unilateral preference program the U.S. Government has that 
covers a scope of products that is less than that which is 
covered under the CBI program, but it has a number of criteria 
in it which relate to a country's eligibility for participation 
in the program. One of those criteria relates to labor, and it 
is whether or not the country is taking steps to provide for 
internationally recognized core labor rights.
    Mr. Gonzalez. Okay. And presently, it is applicable to 
these particular countries that are the subject of the 
Dominican Republic--CAFTA.
    Ms. Regina Vargo. Right.
    Mr. Gonzalez. All right. And so obviously you know where I 
am going with this. My understanding is that all that will be 
done away with, the applicability of what we refer to as GSP. 
And I will have to read this because it is actually stated 
quite succinctly. ``GSP allows for public workers' rights 
petition based not just on the failure to enforce labor laws, 
but on the adequacy of the laws themselves under international 
standards.'' So my question is, what we presently have in CAFTA 
is a departure from those standards, and it actually weakens 
workers' rights and the rights for collective bargaining in 
those respective countries?
    Ms. Regina Vargo. I am very glad you raised this issue, Mr. 
Gonzalez, because it has been a matter of some debate as people 
have talked about this agreement. I think there is no doubt 
that the labor protections in the CAFTA agreement are more 
effective in accomplishing the objective. GSP, as I mentioned, 
leaves full discretion to the administration on whether or not 
to take any action. The criteria is whether they are taking 
steps in that direction, not whether they have achieved it. It 
is not an absolute. Are they moving toward that? And if you 
look at how GSP has been applied to this region itself--and I 
can use Guatemala as an example--we had GSP investigations and 
ongoing cases from I think 1992 to 1997, across both Republican 
and Democratic administrations, again in 2000 and 2003. 
Guatemala retains full use of its GSP rights, in part because 
actually withdrawing those benefits from a county and 
potentially throwing workers in the region out of work is a 
sledgehammer. People are reluctant to go that far. But in the 
CAFTA, the requirement will be to enforce their own labor laws, 
and we think the ILO has made it clear that those labor laws do 
promote and give effect to those international core labor 
rights.
    If in fact the failure to enforce those laws is affecting 
our trade, we can go in and we can, utilizing a dispute 
settlement process, work with the country to agree on how to 
correct the problem, or we can further implement fines to 
correct the problem. And those fines are recurring fines. It is 
an annual fine that keeps being paid until the problem is 
solved.
    If, in that process, we find that we are dealing with a 
recalcitrant government, one that is not cooperating in a good 
way with us, we have not ruled out the use of any tool to get 
them to fix the problem, including the use of trade sanctions. 
So we retain all----
    Mr. Gonzalez. Available to you in the context of this 
agreement?
    Ms. Regina Vargo. Yes, so we retain all the tools that we 
have ever had in GSP. And we have added, instead, the 
possibility here of utilizing monetary fines because largely, 
these issues, we think, are ones of resources and getting those 
resources directed to fixing the problem.
    Mr. Gonzalez. If these labor practices in these particular 
countries come up short, what you are stating now is you have 
the mechanism, the authority, and the power within the context 
of this agreement to move forward, to correct, and to address 
those shortcomings?
    Ms. Regina Vargo. Yes, sir, we do.
    Mr. Gonzalez. Thank you very much.
    Mr. Stearns. Thank you, gentleman. Mr. Murphy.
    Mr. Murphy of Pennsylvania. Thank you, Mr. Chairman. I want 
to look at a couple of things in comparison of NAFTA and CAFTA 
and use that as a basis to try to understand what is happening 
now.
    Now, in its analysis, USTR reported that agreement will 
have minimal effect on U.S. employment, but a significant 
portion of our current exports is to DR-CAFTA nations are 
components of products that are assembled by DR-CAFTA workers 
and re-imported back to the U.S. I am wondering to what extent 
do you think this agreement is going to support additional 
manufacturing work being conducted by workers in DR-CAFTA 
nations? In other words, as this goes on, are we going to be 
exporting more--the work will be done down there and perhaps be 
brought back here for final assembly?
    Ms. Regina Vargo. Let me say that that may be a trend that 
is happening in the world, but I don't know of anything in 
particular about this agreement that would necessarily promote 
that outcome. That outcome, in the way you suggested it, might 
be one one would look at when you say well, look at the new 
access you are offering back to the U.S. market. But I am very 
glad you returned to this point, Congressman, because CAFTA 
rhymes with NAFTA, and maybe that is unfortunate for the 
discussion that is going on here, but it starts from a 
fundamentally very different premise. This Congress, in a 
bipartisan way, has already given these countries virtually 
duty-free access to the U.S. market. So what is new here is our 
ability to access their market.
    Mr. Murphy of Pennsylvania. So we did not have before with 
Mexico--before NAFTA we did not have a situation where they 
were importing things to our country duty-free?
    Ms. Regina Vargo. Not in the same way that the Central 
American countries already have.
    Mr. Murphy of Pennsylvania. And I know that part of the 
discussion here is one that says that if we don't do this, 
someone else will. If we don't sell our goods to them, if they 
are not an open market, there will be other countries that will 
have that. And today we recognize it is a competitive market 
that is increasingly competitive every day.
    But that being the case I do look at things about NAFTA. 
For example, some electronic components--electronics were made 
in my district, and in Mexico there is zero duties on them. In 
the United States, when they are made here, there is like $45 
per each item on them. Now the head corporation says well, 
then, let us move that manufacturing down to Mexico and pull 
them out of the United States. So I look upon that as--even 
though NAFTA has been around quite a while now, and one would 
hope that some of the changes would have been made that allowed 
us to be competitive. And so I look upon this--and I want to 
make sure there is none of those glitches which continue to 
essentially favor the other nation over ours when it comes to 
manufacturing goods and the jobs that go with that.
    Ms. Regina Vargo. Well, let me address your first point, 
Congressman, those who say if we don't do it, others will. I 
would note right now just two products that were mentioned. 
There haven't been very many specific products mentioned here. 
French fries was mentioned by the Congressman. Well, right now 
Canada, through their free trade agreement, gets their French 
fries in duty-free to Costa Rica. The Congresswoman from 
California mentioned a concern with fruits and vegetables, and 
yet Chile, right now, gets its fruits and vegetables into this 
region duty-free. If we are looking at this imbalance of trade 
that we have with this region, the fact that--and I am using 
the fruits and vegetables example here--the fact that they 
access our market duty-free and that we pay duties going into 
that market, it is no new access to our market on fruits and 
vegetables and is an example of a corrective mechanism in this 
agreement, not one that is going to take a particular trend to 
make it worse.
    I think the same thing is true, sir, with respect to the 
manufacturing sector. First of all, a lot of what we sell into 
this region, we compete with other countries. Maybe it is not 
even things they produce. We compete with Europe, we compete 
with somebody else. They do buy our capital goods, our 
tractors, our cars, our TVs, whatever, and we would have a 
preferential access into this market under this agreement.
    There are only--on the industrial side because you are 
focused on manufacturing--there are only two products or areas 
where these countries do not have duty-free access to the U.S. 
market today. One is canned tuna and the other is some rubber 
footwear items. They have duty-free access to our market now on 
everything else, sir. Every other manufactured good enters the 
United States duty-free today.
    Mr. Murphy of Pennsylvania. And all those same goods, when 
we sell to them, it does have a duty on it?
    Ms. Regina Vargo. Yes, sir. I can't guarantee you every one 
of them does, but I would say on areas of our major export 
interest, things we tend to be very good at and look at as 
export priorities, you will see that the tariffs are 5, 10, 15 
percent.
    Mr. Murphy of Pennsylvania. Well, I would like to see some 
analysis of some of those items showing us those comparisons. I 
mean, similarly, Pennsylvania farmers and agriculture is our 
No. 1 industry in Pennsylvania. They are concerned about this 
and they recognize the difference in the marketplace. But it 
would be very helpful for us, and I hope you could submit some 
additional information to the chairman on this, to look at how 
that goes.
    But I know we are trying to predict the future here, and 
some of this is opening markets in nations that are emerging 
and developing. And if that is the case, I mean, we need to 
have some sense too what is happening both if we do this and 
what happens if we don't. And that would be, I think, valuable 
information for us to have. But part of that analysis I would 
like to have you look at what has happened with NAFTA in terms 
of what I hope were unintended consequences. But we still have 
some real unfair duties when it comes to goods being made there 
versus here. And that is having a negative impact upon 
particularly in some of the electronic industries in my 
district. And I hope that is something you can give us some 
insight on as well.
    Ms. Regina Vargo. Thank you, Congressman. And I would like 
to take the opportunity later to perhaps get an elaboration on 
that point from you because I am not aware of duties that 
Mexico has in the electronics area. So I would like to follow 
up to give you the best possible answer.
    Mr. Murphy of Pennsylvania. Thank you very much. That is 
all I have, Mr. Chairman.
    Mr. Stearns. I thank the gentleman. Mr. Strickland.
    Mr. Strickland. Thank you, Mr. Chairman. Ms. Vargo, I would 
like to focus our attention on NAFTA's Chapter 11 foreign 
investor protections because these have created considerable 
bipartisan controversy. These allow foreign corporations to sue 
governments in closed trade tribunals over public health and 
safety laws that foreign companies claim cost them lost 
profits, and they demand our tax dollars in compensation. This 
sounds like a direct assault on our U.S. sovereignty, so much 
so that there are some states--I believe Montana, Indiana, and 
Utah have passed legislation raising these concerns. According 
to the CAFTA text as I understand it, in these tribunals 
international law, not U.S. law, prevails. Is that your 
understanding?
    Ms. Regina Vargo. Thank you, Congressman, for raising this 
topic, which I think in the CAFTA agreement we have made very 
many improvements.
    Mr. Strickland. But----
    Ms. Regina Vargo. No, it is----
    Mr. Strickland. [continuing] if you could just--I am sorry 
for----
    Ms. Regina Vargo. No----
    Mr. Strickland. [continuing] interrupting----
    Ms. Regina Vargo. [continuing] we do not provide greater 
protection for foreign investors than for U.S. investors.
    Mr. Strickland. But in these tribunals does international 
law prevail, not U.S. law?
    Ms. Regina Vargo. No, sir. The guidance that they follow is 
the laws of the country that the allegation is being brought 
against. But more specifically, let me point out to you this 
issue was raised; we were asked to clarify the standard for 
expropriation, which was done. The agreement specifically says 
that in the matter of, for example, environmental regulation by 
a State----
    Mr. Strickland. Whatever----
    Ms. Regina Vargo. [continuing] that----
    Mr. Strickland. [continuing] regulation.
    Ms. Regina Vargo. Whatever kind of regulation.
    Mr. Strickland. Yes.
    Ms. Regina Vargo. That if it is supplied in a 
nondiscriminatory manner, that it is highly unlikely to 
constitute an indirect expropriation, and in defining what that 
highly unlikely circumstance might be, the guidance the court 
uses is the Supreme Court ruling in the Penn Central case, 
which is the seminal U.S. law on what constitutes an indirect 
taking. And that, sir, is a new, novel element that is in the 
CAFTA----
    Mr. Strickland. Okay.
    Ms. Regina Vargo. [continuing] specifically to address the 
problem that you raise.
    Mr. Strickland. Okay, but since NAFTA, $35 million has been 
ordered to be paid to foreign corporations by these secret 
tribunals. My understanding is--and by the way, highly unlikely 
is not a sufficient standard for me, and I doubt if it is a 
sufficient standard for my colleagues. We are talking about an 
international agreement, and I think the criteria should be 
tighter than highly unlikely.
    It is my understanding that in these international 
tribunals, they can order, you know, the U.S. tax dollars to be 
paid to a foreign corporation. Now this is a question. It is 
also my understanding that domestic companies would not have 
the right to use the CAFTA investment protection rights or the 
CAFTA tribunals. Is that right or am I mistaken?
    Ms. Regina Vargo. Our domestic companies could use these 
tribunals for investment claims that they were making against 
the other governments to the agreement, not against the U.S. 
Government.
    But, sir, may I for one moment--``highly unlikely'' I think 
was my terminology. I think the exact wording is except in 
unusual circumstances. But the point there was that the law 
that is followed is U.S. law in that case. The other 
clarification I would like to make for you is that we made a 
change from the NAFTA and the CAFTA in response, in particular, 
to the concern that you have raised. And these international 
tribunals now are open to the public. The documents become 
public documents except for business confidential, the practice 
that we have here in the United States. And we now take amicus 
briefs from third parties who feel that they have an interest 
in the case. These----
    Mr. Strickland. So are you----
    Ms. Regina Vargo. [continuing] were all criticisms leveled 
in the past that we have sought to address in this agreement.
    Mr. Strickland. So are you telling me that under CAFTA 
domestic companies would have equal access to the CAFTA 
investment protection rights and the CAFTA tribunals, that they 
would not have to use U.S. law or U.S. courts? And are you 
further telling me that we are not giving foreign corporations 
greater rights than that that would be available to United 
States corporations?
    Ms. Regina Vargo. Yes, sir. For domestic disputes with the 
U.S. Government, our companies would utilize domestic courts. 
They would utilize the system with respect to disputes they had 
with the foreign governments. And we do not provide greater 
rights to foreign companies than we do to U.S. law and made a 
number of important clarifications in this agreement to ensure 
that that was the case. That was part of our TPA instructions.
    Mr. Strickland. So just to make sure I understand, domestic 
corporations would have the very same access to these tribunals 
and to the protections that are available to the CAFTA 
countries, as would our domestic companies?
    Ms. Regina Vargo. Our companies would be able to take the 
foreign governments of Central America and the Dominican 
Republic to binding, international arbitration for investment 
disputes that they had with them. I ask you to restate your 
question, sir.
    Mr. Strickland. Yes----
    Mr. Stearns. The gentleman's time has expired, and we have 
two other panels----
    Mr. Strickland. Okay, I----
    Mr. Stearns. [continuing] and I think your questions are 
certainly good and legitimate, and it might be possible that 
you could put them in writing to her and she could reply.
    Mr. Strickland. I would be happy to do that, Mr. Chairman. 
And thank you, Ms. Vargo.
    Mr. Stearns. And I thank the gentleman. The gentlelady from 
Tennessee.
    Ms. Blackburn. Thank you, Mr. Chairman, and I thank our 
guest this morning for her time. I also want to thank the 
chairman for his comments and concerns about NAFTA and the 
implementation of such, because that is a concern.
    My district in Tennessee is one of those wonderful 
districts that has had the opportunity to increase both the 
agricultural product and the manufactured goods that they 
export. We have been very pleased to see our exports rise, our 
product for export rise about 20 percent over the past decade.
    But with that said, when we look at the agricultural 
component of CAFTA, we are concerned. Cotton is important to 
us, soybeans are important to us, vegetables, row crops, 
processed foods. All of that plays into West Tennessee and our 
economy there. So while we are pro-export and are very 
interested in CAFTA, we do have some concerns. And much of that 
does center around cotton. And I was pleased to hear your 
comments that you just made in your opening statement and in 
one of your responses about the agreement should be there to 
benefit the participating countries. And I liked hearing that 
because I agree with that statement and do hope that CAFTA will 
benefit our State. And we are interested in the yarn-forward 
rule and feel that that is going to be very important for our 
Tennessee cotton growers.
    And I would like to hear from you if you feel certain that 
this agreement is going to continue the yarn-forward rule, 
because my farmers are quite concerned about having cotton that 
is grown and produced cheaply in China and having that routed 
through Central America and then into the American market. So 
if you will please address the yarn-forward rule.
    Ms. Regina Vargo. Thank you very much for your question 
because what we are doing in the textile and apparel area is 
just so important. And the National Cotton Council supports 
this agreement. Not yet? I am going to take that back. I am 
anticipating that they will support this agreement in part 
because two products that you mentioned, ma'am, cottons and 
soybeans, have duty-free access to the region on day one. The 
same is true for many of the fruits and vegetables.
    But going to the rule of origin for a moment, it is a rule 
of origin that requires yarn-forward--that is the basis--but in 
terms of our exports, $4 billion-worth of exports that the 
United States sells to these countries today. There is a 
small--without getting technical--exception for Nicaragua, 
which I have heard some concern expressed over that this will 
become a backdoor. I would note that this is a small quantity; 
it is temporary in nature; it reflects trade that already 
doesn't meet the rule. We wanted to give Nicaragua a little bit 
of time so that those plants didn't move out of that country to 
another Central American country. That is why we made the rule 
transitional. And we have very strong trans-shipment provisions 
and custom enforcement provisions in this agreement so that we 
feel confident that this is a partnership that is going to 
work. It is going to work for our yarn and fiber and for our 
cotton producers.
    Ms. Blackburn. Okay, thank you. Let us shift a little bit 
in this conversation. I want to talk about intellectual 
property because we have the largest population of songwriters 
in the country live in my Congressional district. And we are 
tremendously concerned about intellectual property and the 
provisions that are there. And, you know, when we look at 
this--when my folks that are in Nashville and Franklin, and 
Middle, Tennessee, and some of them down in Memphis start 
looking at these trade agreements, immediately China and India 
and the production of the counterfeit DVDs and CDs comes to 
mind. And Mr. Rogers asked you earlier what you needed from us 
when you look at helping capacity bill and helping get laws on 
the books in these other countries. And I hope you will take 
that as not being an empty question or rhetoric. When you hear 
us talk about intellectual property, this is a tremendously 
important economic development issue in my State. The theft of 
intellectual property and the piracy, the modern-day pirates 
that are out there stealing this content from our producers, 
they are shameful. And I want to know what you are going to do, 
not what you need.
    But you have addressed in your opening statement--you have 
a couple of paragraphs in here addressing intellectual property 
protection. But what are you going to do? How are you working 
with these countries so that they have enforceable legislation 
on the books? That they have got laws we can negotiate to so 
that we can begin to clamp down on this piracy. That is the No. 
1 question I get from the folks in the creative industries, the 
creative class that lives in my district. Well, that is great 
if they say they are going to work on it, but what are they 
going to do? Actually give us some quantifiable goals and some 
steps and some items that you are going to have on that paper, 
and then what you are going to do to enforce those if you will 
answer that one for me, please, ma'am.
    Ms. Regina Vargo. I would be happy to do that. We need 
stories like this and it helps us make our case. And we would 
be happy to send someone to meet with you or to put some of 
this in writing as well. Let me just say that I think we have 
extremely strong protections here for the entertainment 
industry, and one of the things that we look at before we 
actually let our agreements go into effect is whether or not 
the countries have taken the steps in their own laws to put 
these protections in place. So we will be doing that. I was 
just alerted----
    Ms. Blackburn. Ma'am, if I may interrupt you.
    Ms. Regina Vargo. Yes.
    Ms. Blackburn. I see a lot of papers flying in front of 
you, and so I know that they are providing you with some 
information on that. I would ask that you do provide that to me 
in writing. This is so crucial. We talk about wanting an 
economic renaissance in this nation, but when you talk about 
the creative community that lives in my district, whether they 
are entertainers or TV producers or film producers or they are 
auto designers or they are working in the biotech industry, 
these are folks whose intellectual property is their stock in 
trade. And I want to be certain that we find ways to protect 
this. It is vital to us. I think it is vital to our nation, not 
just to the seventh district of Tennessee. So as all of this 
paper is flying in front of you, I am going to request that in 
the interest of time that you just submit that to us in writing 
so that we will have that to use with our constituents. So 
thank you for your time, and, Mr. Chairman----
    Mr. Stearns. And I thank the----
    Ms. Blackburn. [continuing] I thank you.
    Mr. Stearns. [continuing] gentlelady. The gentlelady from 
North Carolina, Ms. Myrick.
    Ms. Myrick. Thank you, Mr. Chairman. And thank you for 
being here today. I come from a district that both has enjoyed 
a lot of benefits from trade and has had a lot of problems 
because of trade. I have always been a free trader myself in 
the concept, but I represent a very heavy textile area, and for 
years we have been going through a lot of transition as you 
know. And so I know there is some good things in this 
particular agreement, particular with our yarn-forwarding 
provision, et cetera, the give-and-take back and forth. The 
tee-shirt cap is going to be removed, which is a big help also. 
And there are some other things. But I have to go back as well 
to the enforcement issues, because that is where we have the 
greatest difficulty in our area and in making people understand 
any benefit from free trade because they are enforcing prior 
agreements. And, of course, in our case China is a huge part of 
that.
    But on the trans-shipment side, I noticed you said that 
that was one thing you were going to be careful of in these 
agreements. You know, we have had a very frustrating experience 
with customs. Not the people who are actually in customs are 
running that part of the agency. They are just as frustrated as 
us. Customs was moved into homeland security. And 2 years ago 
Congress authorized $9.5 million to hire 72 new agents strictly 
for customs trans-shipments because that was the biggest 
concern that we had. They have completely ignored that, shifted 
the money to something else. We are having lots of fun getting 
answers out of them. And my point in telling you that is it is 
not under your jurisdiction as USTR, and I know that. And I 
know you work closely with Commerce on all the issues, and we 
appreciate that. The safeguards for China, et cetera, are very 
important to us.
    But we have a hard time at home explaining why something 
simple like enforcement, in this particular case, isn't being 
done. So when you are trying to sell a trade agreement in North 
Carolina and in my district, yes, in Charlotte where we are the 
second largest financial center, et cetera, wonderful; no 
problems. But then when you go to our areas where we are heavy 
manufacturing and textiles--and Mike Rogers and I are a lot 
alike in the way we think about all this. It really is a 
challenge for us. And so I would just encourage you that 
anything relative to this particular agreement that you know 
can be done that is going to give strong enforcement provisions 
would be helpful.
    You know, we are very frustrated because--and China not 
playing by the rules of WTO. I know you are working on the 
currency issue. But it isn't happening fast enough, and that 
message has to get to them to.
    So, I mean, all of this, even though they are separate 
issues, they aren't separate issues for my district. One thing 
is into the other. And any kind of help you can give relative 
to answers would be much appreciated. It is really more a 
statement than a question, Ms. Vargo.
    Ms. Regina Vargo. Well, I thank you very much, 
Congresswoman, for your interest. And you are right, obviously; 
the budget of homeland security isn't under us. But the terms 
in the agreement here will allow us to be much more effective 
monitoring in terms of being able to get--when we get those 
customs people in, take a look at that, they will be able to 
actually go in-country. We can get our jump teams much more on 
the ground and much more hands-on to make sure that we are not 
creating a leaky sieve into the United States through these 
countries. They are going to be good partners. And I take your 
other, larger enforcement question on board as well. And we 
look forward to working with you on that and any particular 
problems that you might wish to identify for North Carolina.
    Ms. Myrick. I appreciate it. Thank you.
    Mr. Stearns. Well, and we thank you. We have completed and 
we appreciate your patience here. And we think you are to be 
commended for participating. So now I think we will then move 
to panel No. 2. So, Ms. Vargo, thank you very much.
    Ms. Regina Vargo. Thank you, Mr. Chairman. If I could just 
make one comment back to Ms. Schakowsky for a moment----
    Ms. Schakowsky. Yes.
    Ms. Regina Vargo. [continuing] that we did respond to the 
letter that you have introduced into the record and we would 
like to make--I would like to make sure that you have a copy of 
that response and perhaps that would be appropriate----
    Mr. Stearns. Sure.
    Ms. Regina Vargo. [continuing] in the record as well, Mr. 
Chairman.
    Mr. Stearns. By unanimous consent, so ordered, then.
    Ms. Regina Vargo. Thank you.
    Mr. Stearns. Okay. That would be great. All right. We have 
Kevin Kearns, President of U.S. Business and Industry Council; 
and Ms. Thea M. Lee, Chief International Economist, the AFL-
CIO; Mr. Calman J. Cohen, President, Emergency Committee for 
American Trade; and Mr. Frank Vargo, Vice President, 
International Economic Affairs, National Association of 
Manufacturers. We appreciate you folks waiting through our 
first panel. And so we look forward to your opening statements. 
And I would remind each of you that it has been established 
that we give you each 5 minutes. We allow you to run over a 
little bit, but if you could hopefully keep it in that, we will 
keep the committee moving. And then we have a third panel of 
four individuals that are waiting patiently here too. So, Mr. 
Kearns, I think I will start on my left and start with you with 
your opening statement, if you would be so kind. Just turn the 
microphone on.

 STATEMENTS OF KEVIN L. KEARNS, PRESIDENT OF U.S. BUSINESS AND 
 INDUSTRY COUNCIL; THEA M. LEE, CHIEF INTERNATIONAL ECONOMIST, 
 AFL-CIO; CALMAN J. COHEN, PRESIDENT, EMERGENCY COMMITTEE FOR 
AMERICAN TRADE; AND FRANK VARGO, VICE PRESIDENT, INTERNATIONAL 
    ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF MANUFACTURERS

    Mr. Kearns. Thank you very much, Mr. Chairman. Also thank 
you to the ranking member, Ms. Schakowsky, for the opportunity 
to appear here today.
    I am Kevin Kearns, President of the U.S. Business and 
Industry Council. We are a national business advocacy 
organization, we have been around since 1933, and we take a 
national interest approach to public policy questions. We 
represent businesses generally family owned and closely held 
businesses across the economic spectrum.
    We are opposed to CAFTA. We were opposed to NAFTA. We think 
that CAFTA will actually have four or five negative results. It 
is shipment of more factories overseas, loss of U.S. jobs, 
lower wages or suppression effect on wages for remaining 
workers in the United States as they are pitted against Central 
American workers, more market access for China to the U.S. 
market through the loopholes in the various provisions of the 
agreement.
    If I could step back for 1 minute. I know we are focusing 
on CAFTA, but let us look at the larger picture. And I think 
Congressman Brown tried to get at this somewhat with his chart. 
In 1993, the last full year before NAFTA came in and then the 
Uruguay Round, WTO, PNTR for China, CBI, various bilateral 
trade agreements, the U.S. had roughly a $68-billion trade 
deficit in goods and services. Today it is--or at the end of 
last year it was $618 billion, you know, nine or ten times what 
it was after 12 years of these free-trade agreements. Our total 
exports of goods and services rose, but our total imports rose 
much faster. Exports doubled, imports tripled creating this 
massive trade deficit that we face today. U.S. service surplus 
has continued to fall, was $48.5 billion last year. And it is a 
significant decrease from where we were in 1993.
    If you look at the trade deficit with China, I don't think 
I have to call attention to that, $124 billion the previous 
year, up $262 billion last year, growing tremendously. Even 
with Europe with the decrease of the dollar versus the Euro, 
the trade deficit climbed by $8.85 billion in 2004, a 12-
percent increase. And our trade deficit with Canada increased; 
our trade deficit with Mexico increased. I think they are up--
on the members of the committee mentioned 1,200-percent growth 
in NAFTA trade deficits over these last several years.
    And the fact that we are losing ground, even with countries 
in Europe where our dollar has depreciated, theoretically, we 
should be gaining ground, but we are losing ground. And that I 
think is the strongest signal that there are all these 
structural impediments that these trade agreements have not 
gotten to.
    I would submit, members of the committee, that if this were 
a scientific experiment over the last 12 years, we would stop 
it, and we would go back and examine our premises. If it were a 
poker game, we would fold our hand and walk away from the 
table, pick up the money we had left, and figure out a 
different strategy. And if it were a clinical trial, we would 
be morally obligated to stop it before there were anymore dead 
bodies on the floor.
    We face a dollar crisis. We saw in the last few weeks 
remarks by the Japanese prime minister and South Korean 
Ministry of Finance official that sent the currency markets 
into a tizzy. If the Asian Central Banks stop buying dollars, 
the game is over. We have had Federal Reserve Chairman 
Greenspan say our trade deficit is unsustainable on numerous 
occasions. We have had former chairman Paul Volcker been 
talking about this for about 10 years. Most recently I saw him 
on Charlie Rose television program. He says, ``It can't go on 
indefinitely.'' And we seem to think that somehow we can 
continue to run these trade deficits and just muddle through.
    And CAFTA is another one of these trade deficits. The gains 
projected by CAFTA proponents are very modest, $1 billion 
perhaps in manufactured goods, $1 billion in agriculture. I 
mean, essentially, we are talking about peanuts. These are very 
poor countries. They are under IMF Wastery agreements. Their 
population majority makes under $2 a day. They are not going to 
be buying U.S. goods.
    And the claim is made that well, this is what we need to 
compete against China. We need CAFTA to compete against China.
    Ms. Vargo misspoke. She said there were half a billion 
people in the textile industry. It is half a million in Central 
America. And she mentioned the fact that they are largely 
women. Well, I am concerned about the U.S. textile and apparel 
industry where the majority of the workers are women and 
minorities. I think that is what the U.S. trade representative 
should be focusing on, American workers. I think that is their 
job.
    Do we want to support democracy in Central America? We do. 
But do ranchers and farmers and textile workers, do they have 
to give up their jobs to do that? I don't think that is a fair 
equation.
    The way to address the China problem is to address the 
China problem, not to do it through CAFTA, not to give up more 
U.S. jobs and factories to go to Central America looking for 
sort of a backdoor and have the Chinese continue to have a 40 
percent undervalued currency, 15 percent export subsidy, free 
land and free buildings, no or low-cost loans from State banks, 
you know, any number of other government forms of subsidy and 
assistance.
    So if we can't ``defeat'' or compete with China after 
NAFTA, which, of course, NAFTA was designed to do, we are 
certainly not going to do it by aligning with six dirt-poor 
nations under IMF Wastery agreements. You need a different 
strategy, Mr. Chairman. The papers and the websites of the 
proponents of CAFTA, you look at them and you can tell what the 
real game is.
    Mr. Stearns. Mr. Kearns, I am just going to have you sum 
up. We are----
    Mr. Kearns. Yes, sir----
    Mr. Stearns. [continuing] going to try to keep things 
moving.
    Mr. Kearns. Okay. The real game is to get into a whole 
series of other trade agreements, the Andean free trade to the 
Americas, the Doha Round, to jumpstart all of these through 
CAFTA. All these agreements, CAFTA is a signal. It is a green 
light. We are going to continue down this policy. We need to 
stop, we need to stop CAFTA, we need to stop digging this hole 
deeper. First rule of holes, when you are in one, stop digging. 
Figure out a new strategy and get out. That is what this 
country needs. Thank you, Mr. Chairman.
    [The prepared statement of Kevin L. Kearns follows:]

   Prepared Statement of Kevin L. Kearns, President, U.S. Business & 
                            Industry Council

    Mr. Chairman and Members of the Committee: I would first like to 
thank the Committee for allowing me the opportunity to express the many 
concerns of U.S. domestic manufacturers and other small and medium-
sized businesses regarding CAFTA.My name is Kevin L. Kearns, President 
of the United States Business and Industry Council.We are anational 
business advocacy organization, established in 1933, that takes a 
national interest approach to public policy issues.USBIC is not a trade 
association, representing a single industry. Our members come from many 
different sectors of the economy.
    We represent companies that have made an outsized contribution to 
America's national security and prosperity. We are a critical part of 
America's domestic manufacturing base. Our enterprises support the 
broad middle class, one of America's singular economic and political 
achievements. Today our companies in particular and the nation's middle 
class in general are under constant attack from predatory foreign trade 
practices.
    Our companies still make most of their products in the United 
States, ensuring that our revenues flow to American working families in 
the form of wages, to American productive facilities and R&D in the 
form of reinvestment in our businesses, and to our local, state and 
national communities in the form of the taxes needed to fund vital 
public services and our country's security.
    We are economically and socially critical to our communities. All 
of us are strong believers in free enterprise. We are job creators. We 
are productivity drivers. We are technology pioneers. But now, our very 
existence and ability to create these benefits is being threatened by 
decades of trade policies that ignore reality and in fact seem designed 
to close us down.
    Although we are promised that CAFTA will open big new foreign 
markets for U.S.-made goods, the opposite is clearly true. The results 
of the outsourcing deals that have dominated U.S. trade policy over the 
last twelve years are in: gargantuan trade deficits, shuttered 
factories, and formerly middle-class Americans sliding down the job and 
wage scales. CAFTA is simply the latest in this series of outsourcing 
deals that are gutting our domestic manufacturing base.
    The six other CAFTA signatories are manifestly too small, too poor, 
and often too indebted to become significant consumer markets for U.S. 
exports. Their only attraction is to multinational corporations, which 
see them as low-cost bases for supplying the U.S. market, and as levers 
to force companies and industries like ours to compete on price rather 
than on quality and innovation. This is a no-win proposition for 
domestic manufacturing and for the nation as a whole.
    As a result, CAFTA's passage will surely increase net U.S. imports, 
boost the already dangerously high trade deficit, further weaken the 
dollar, force the continued fire sale of American assets, and reduce 
domestic manufacturing output, employment, and technological 
innovation.
    New trade agreements could strengthen domestic manufacturing, but 
only as part of a thorough overhaul of U.S. trade policy aimed at 
promoting domestic production and living standards. Absent new 
approaches for dealing with challenges such as China's many predatory 
trade practices, the widespread foreign subsidization of manufacturing, 
and a deeply flawed set of world trade rules, CAFTA's passage will 
simply further open America's market to imports without producing 
comparable export opportunities.
    Passage of CAFTA will also stand as a major obstacle to effecting 
urgently needed alternatives to the failed free trade model that is 
destroying domestic American manufacturing and the wider economy. CAFTA 
will become a political bridge to even more destructive trade deals 
that are lined up behind it and that the multinationals and retailers 
are pushing to complete.
    Here are the chief problems with CAFTA:
    There is not a Central American Market for U.S. Exports--Simply 
put, CAFTA is an outsourcing agreement. The trade agreement involves 
the countries of Costa Rica, El Salvador, Guatemala, Honduras, 
Nicaragua and the Dominican Republic. These six small countries simply 
cannot serve as net consumers of U.S. exports, and so CAFTA will only 
lead to a worsening of the current U.S. trade deficit--as have all of 
the trade agreements of the last 12 years.
    As previously reported by USBIC, these six countries have a 
collective gross domestic product (GDP) of $85 billion. By comparison, 
New Haven, Connecticut has a GDP of $80 billion. Tampa-St. Petersburg 
has an $87 billion GDP. The pro-CAFTA lobby acknowledges that 
``millions live on less than $2 a day.''
    Moreover, Nicaragua, Honduras, Costa Rica, and the Dominican 
Republic are already under International Monetary Fund (IMF) austerity 
agreements as a result of their large foreign debt and deep poverty. 
For example, the Dominican Republic has $7.6 billion in foreign debt, 
2002 inflation topped 43 percent, and the poverty rate is 67 percent. 
As a result, CAFTA can only lock the United States into a trade 
relationship with countries that can only be net exporters to America, 
and that will increase the already dangerously large U.S. trade 
deficit.
    CAFTA is an Outsourcing Agreement--Pro-CAFTA lobbyists like to 
portray the Central American countries as a huge market for U.S. 
exports, even surpassing Brazil and Australia. Instead, CAFTA is 
largely a market for U.S. ``turnaround'' exports--products shipped 
south for assembly and then final sale in the U.S.--particularly 
textiles and semiconductors. 35 percent of the modest $15 billion in 
exports to CAFTA countries are ``turnaround exports,'' which increased 
by $1.36 billion from 1997-2004.
    ``Turnaround'' exports simply represent outsourcing that supplants 
U.S. production and employment for cheap overseas labor, and drives 
down U.S. living standards. Due to Central American turnaround trade, 
the U.S. trade deficit with the CAFTA-6 rose nearly 60 percent from 
1997-2004, and was $2.4 billion in 2004.
    CAFTA Is Poorly Negotiated and Allows Chinese Textile 
Transshipments--Already, 75 percent of Central American exports to the 
United States are duty-free, including 99.9 percent of food and 
agricultural products. As of 2001, 70 percent of U.S. industrial 
exports had zero-duty access to the Central American market. CAFTA will 
only increase that percentage to 80 percent.
    CAFTA claims to benefit U.S.-based fabric manufacturers by 
requiring the use of American-made fabrics in foreign garment 
production. This is called ``yarn forward.'' However, CAFTA includes a 
number of loopholes to undermine this. One, the Yarn Forward provisions 
of the agreement cover only the ``essential fabric'' in a garment, and 
leave out much non-visible material.Two, due to ``single 
transformation'' exceptions, components of such products as bras and 
sleepwear, for example, can be imported duty-free into the United 
States in unlimited quantities even when made entirely outside the 
CAFTA region, in China for example.
    Another problem is the ``cumulation'' provisions of CAFTA, which 
allow duty-free entry into the United States of any apparel or related 
products made entirely of fabric components from any country party to a 
free trade agreement with any CAFTA signatory. Thus, non-American 
denim, wool, cotton, and man-made fibers produced in Mexico can be sent 
to CAFTA countries for assembly into garments that can then be shipped 
duty free into the United States.This provision simply rewards textile 
firms that have already moved from the United States to Mexico under 
NAFTA.But it's also a major loophole to benefit China.
    Why is that so? Because Mexico has long been a hotspot for illegal 
textile transshipments from China. According to the Mexican Textile 
Chamber of Commerce, 58% of all clothing sold in Mexico is smuggled in 
from China. It seems that China, which is not a party to this 
negotiation and has given up nothing in return, stands to gain 
substantially from CAFTA.
    Even the totally inadequate limits on non-CAFTA materials and 
products eligible for duty-free treatment can only be maintained with 
satisfactory customs enforcement throughout the CAFTA regions and 
throughout the economies of any free trade partners. No serious 
observer of the trade scene considers U.S. Customs enforcement to be 
remotely adequate, and no significant budget resources for this mission 
are anywhere in sight. Much worse, of course, is the customs situation 
in our prospective CAFTA partners and other free trade partners like 
Mexico. And significant improvement in these countries' customs systems 
is a prospect even more remote than in the United States.
    Additionally, we also must not ignore the determination of China 
and other Asian textiles and apparel producers to maintain and increase 
market share through whatever means necessary. The Chinese government 
has put into effect a wide range of industrial subsidies aimed at 
maintaining and increasing exports--especially to its leading market, 
the United States. However, the United States has so far displayed 
absolutely no willingness to respond to the Chinese and the Asian 
subsidies.
    CAFTA Sets a Precedent to Eliminate All ``Buy American'' Provisions 
and Open US Government Procurement to Foreign Countries--Perhaps the 
most disturbing loophole in the CAFTA agreement is one that most people 
have never even heard.According to the U.S. Trade Representative's 
official summary of the agreement, chapter nine of CAFTA establishes a 
basic rule of ``national treatment'' in government procurement.This 
means that each nation must treat goods, services, and suppliers from 
the other CAFTA parties in a manner that is ``no less favorable'' than 
domestic firms when awarding government contracts.In simple terms, that 
means governments cannot treat their own citizens better than 
foreigners, or use ``buy domestic'' policies to support their own 
economies. And so, at a time when the U.S. is rapidly outsourcing both 
its service and manufacturing jobs, CAFTA will make it illegal for any 
state or federal agency to adopt a ``Buy American'' policy.
    CAFTA Will Exacerbate the Devastating Impact of NAFTA and CBI--From 
1997-2002, U.S. domestic manufacturers' share of the U.S. market fell 
from 77.4% to 72.5%, despite an 18 percent gain in productivity. During 
that same period, U.S. exports fell by $9.6 billion and the U.S. lost 
2.3 million manufacturing jobs. Moreover, CAFTA will continue momentum 
for further bad trade agreements that risk crashing the dollar and 
igniting a global financial crisis that will take years to work 
through.
    In conclusion, USBIC's members can assure you that without dramatic 
policy changes, many more domestic manufacturers will soon be forced to 
close down. That means these companies will no longer be engines of 
economic growth or pillars of community stability. Our employees will 
go from taxpayers to consumers of government revenues--in unemployment 
insurance, retraining, food stamps, Medicaid, and other forms of 
government assistance. Pressures to enlarge the welfare state, with the 
concomitant redistribution of our society's wealth, will grow 
significantly stronger
    To remain a true global economic and military superpower, and a 
prosperous, stable society, the United States urgently needs entirely 
new trade policies that support domestic manufacturing and its 
resultant stable communities. Defeating CAFTA is the place to start.

    Mr. Stearns. Thank you. Ms. Lee, welcome.
    Ms. Lee. Thank you, Mr. Chairman.
    Mr. Stearns. I think you have to turn your mike on.

                    STATEMENT OF THEA M. LEE

    Ms. Lee. Thank you very much, Mr. Chairman, Congresswoman 
Schakowsky, members of the committee. I really appreciate the 
opportunity to come today and testify on behalf of the 13 
million working men and women of the AFL-CIO on this extremely 
important issue. I think you all know how important trade 
policy is to our members, but the DR-CAFTA, the Central 
American Free Trade Agreement I think is a pivotal policy 
debate and one that is very important.
    In our view CAFTA provides precisely the wrong answers to 
the challenges faced both in Central America and the United 
States. It is a failed model that will likely exacerbate 
poverty and inequality in Central America while further eroding 
good jobs and wages at home. At the same time, its successive 
protections for multinational corporations will undermine the 
ability of elected governments to protect public health, strong 
communities, and the environment.
    American workers and unions are not opposed to trade. We 
believe that trade has the potential to lift people out of 
poverty, to increase harmonious relations between nations, but 
we also believe absolutely that the rules must adequately 
balance competing interests and protect, in particular, the 
most vulnerable members of society: workers, family farmers, 
subsistence farmers, those needing affordable, life-saving 
medications. And in our view U.S. trade policy has simply not 
found that balance. We didn't find it in NAFTA, we didn't find 
it in China's succession to the WTO, and we certainly haven't 
found it in CAFTA. And instead of protecting the most 
vulnerable and making sure that we have put, as Congresswoman 
Schakowsky said, protection of workers' rights, the 
environment, democracy at the very center of our trade 
agreements, we have put them on the last page.
    The key question facing us is not just whether CAFTA is an 
okay agreement, a good enough agreement, but whether it 
actually sets us back. And I would like to argue today that it 
is not just that CAFTA is a disappointment, but that it 
actually, in some key ways, is worse than the status quo, 
particularly with respect to workers' right.
    But I also wanted to just briefly say, in terms of U.S. 
competitiveness and good jobs, like Kevin, like many of you, 
like many of the statements that were made earlier today, we 
have heard--the labor movement, American workers, my members 
have heard over and over again that every new trade agreement 
is about opening markets and selling more stuff. Just as Ms. 
Vargo said, we are going to open up Central America's markets, 
lower their tariffs, and American products will have a better 
chance of being sold there. This is the exact same argument we 
had in NAFTA.
    And I actually wanted to correct one of the things that Ms. 
Vargo said. She said that it is an entirely different situation 
because Central America's market is already open to U.S. 
products and Mexico's wasn't. In fact before NAFTA, U.S. 
products going into Mexico faced a somewhat lower average 
tariff than U.S. products today going into Central America on 
average, just given the mix of things. And I can provide those 
precise numbers for you if you are interested.
    But with China PNTR, this is actually the most extreme 
situation where in fact China didn't change their tariffs at 
all--U.S. didn't change our tariffs at all. China lowered its 
tariffs, and yet, still our trade deficit with China doubled 
because the point is, these trade agreements are not about 
selling more products, exporting more goods from the United 
States, but are about facilitating outsourcing and off-shoring 
of U.S. jobs. And that is why they never deliver the benefits 
in terms of U.S. jobs and market access and competitiveness 
that they are claim to.
    In terms of workers' rights it is very simple. And I am 
glad Mr. Gonzalez is here because I think his question deserved 
a better answer than he got from Ms. Vargo. Under current U.S. 
trade agreements, the GSP and the CBI, the U.S. can in fact 
challenge inadequate labor laws in Central America. Under CAFTA 
we cannot. The GSP, CBI does allow the removal of trade 
benefits when countries are out of compliance. CAFTA only 
allows trade sanctions if a country fails to pay a fine to 
itself. This is a very, very different situation. I know both 
Mr. Brown and Ms. Schakowsky raised this issue. The only 
enforceable issue in CAFTA with respect to workers' rights is 
that countries enforce their own labor laws.
    Now, Ms. Vargo said that it is unlikely in her view that 
countries would weaken their labor laws. Now, when we negotiate 
trade agreements, we do not negotiate them for the most likely 
scenario, we don't negotiate them for the best-case scenario, 
we don't negotiate them assuming that our trade partners behave 
themselves in areas that are of key importance to us. We 
negotiate language that needs to be airtight. And the trade 
agreements are in place not for 5 years, not for 8 years, but 
for 50 years, 100 years, for future governments that we haven't 
seen yet. We don't know whether those governments will in fact 
weaken their laws.
    And in fact right today in Guatemala, the government is in 
fact making efforts to weaken their labor laws in ways that are 
in violation of the commitment to meet ILO standards. So this 
is not a hypothetical situation. This is a very real situation. 
We are giving permanent and deeper market access to the Central 
American countries, and we are weakening the labor rights 
conditions attached to that.
    And this is of key importance to Central American workers. 
We have worked very closely with Central American unions and 
worker activists who have told us they want the stronger worker 
rights protections that they have today under GSP. Now those 
aren't perfect. If they were perfect, then Central America 
would be a workers' paradise today. But it is one little piece 
of leverage that we have today, and as we open our market, we 
are in fact gutting the workers' rights protection. And this is 
too important an issue, both for American workers and for 
Central American workers to overlook.
    And I thank you very much for your time, and I look forward 
to your questions.
    [The prepared statement of Thea M. Lee follows:]

   Prepared Statement of Thea M. Lee, Chief International Economist, 
 American Federation of Labor and Congress of Industrial Organizations

    Mr. Chairman and members of the subcommittee, thank you for the 
opportunity to testify today on behalf of the thirteen million working 
men and women represented by the AFL-CIO. U.S. trade policy in general, 
and DR-CAFTA in particular, are of enormous interest and importance to 
our members and to America's workers.
    In our view, CAFTA provides precisely the wrong answers to the 
challenges faced in Central America and the United States. CAFTA 
represents a failed model that will likely exacerbate poverty and 
inequality in Central America, while further eroding good jobs and 
wages at home. At the same time, its excessive protections for 
multinational corporations will undermine the ability of governments to 
protect public health, strong communities, and the environment.
    Mr. Chairman, members of the subcommittee, we ask you to reject 
CAFTA and urge the administration to renegotiate this deeply flawed 
deal.
    Any vote on CAFTA must take into account the broader economic 
reality that we are facing today. Our trade deficit hit a record-
shattering $617 billion last year, we have lost close to three million 
manufacturing jobs in the last four years, and average wages have not 
kept pace with inflation this year--despite healthy productivity 
growth. Offshore outsourcing of white-collar jobs is increasingly 
impacting highly educated, highly skilled workers--leading to rising 
unemployment rates for engineers and college graduates. Together, 
record trade and budget deficits, unsustainable levels of consumer 
debt, and stagnant wages paint a picture of an economy living beyond 
its means, dangerously unstable in a volatile global environment.
    Some CAFTA proponents have argued that opening Central America's 
markets to U.S. goods will boost sales for U.S. producers, creating 
high-paying export-related jobs at home. Proponents argue that this 
will in turn help close the U.S. trade deficit and allow U.S. companies 
to compete more effectively with China and other countries.
    However, our experience under NAFTA demonstrates that the opposite 
is likely to occur. As Republican Senator Olympia Snowe said recently 
in the Senate Finance Committee hearing on CAFTA, NAFTA has cost U.S. 
workers nearly one million jobs and job opportunities (based on the 
deterioration in our trade balance with our NAFTA partners).
    NAFTA was also supposed to open markets for American goods and 
services, creating high-paying jobs at home and prosperity abroad. 
Instead, in eleven years, the U.S. trade deficit with Canada and Mexico 
ballooned to twelve times its pre-NAFTA size, reaching $111 billion in 
2004. Imports from our NAFTA partners grew more than $100 billion 
faster than our exports to them, displacing workers in industries as 
diverse as aircraft, autos, apparel, and consumer electronics. This 
occurred because U.S. companies did not take advantage of the easier 
access to the Mexican market to export finished consumer goods to 
Mexico; instead, they shifted production out of the United States to 
Mexico, exporting parts and capital goods and importing finished 
products. The net impact of these production shifts was a loss of good 
jobs in the United States.
    Those workers whose jobs were not eliminated also suffered. 
Employers used the leverage of their new mobility and rights under 
NAFTA to crush union organizing drives and win concessions at the 
bargaining table, driving down wages and working conditions for 
American workers. According to researchers at Cornell University, the 
incidence of employers' threats to close and relocate factories grew 
under NAFTA. And these intimidation tactics are very effective: workers 
are half as likely to succeed in organizing a union when their 
employers threaten to move jobs abroad.1
---------------------------------------------------------------------------
    \1\ Kate Bronfenbrenner, ``The Effects of Plant Closing or Threat 
of Plant Closing on the Right of Workers to Organize,'' Dallas, Texas: 
North American Commission for Labor Cooperation; 1997. Kate 
Bronfenbrenner, ``Uneasy Terrain: The Impact of Capital Mobility On 
Workers, Wages, and Union Organizing,'' Commissioned research paper for 
the U.S. Trade Deficit Review Commission; 2000.
---------------------------------------------------------------------------
    NAFTA simply did not deliver stronger net exports or a competitive 
advantage for U.S.-based companies and workers, and there is little 
reason to believe that CAFTA will be any different. Like NAFTA, the 
attraction of Central America for multinational corporations is not its 
consumer market, but its low-paid and very vulnerable workforce.
    The incremental market access for U.S. producers under CAFTA is 
quite small, as the consumer markets in the DR-CAFTA countries are not 
very significant. Many U.S. exports to the region are intermediate 
inputs, which are assembled in the region and then exported back to the 
United States.
    And Central American assembly production is not the answer to 
staying competitive with China. The competitive problems we face with 
China require a direct solution which addresses the Chinese 
government's currency manipulation, illegal subsidies, and egregious 
repression of workers' rights and democratic rights head on. Getting 
slightly better access to a small market will not come close to solving 
those problems.
    Some CAFTA proponents have made the desperate argument that CAFTA 
is the only way to lift Central America out of poverty. Again, we need 
only examine NAFTA's dismal track record to dispel this myth. Since 
NAFTA was implemented eleven years ago, real wages in Mexico have 
actually fallen, the number of people in poverty has grown, and the 
number of people migrating illegally to the United States to seek work 
has doubled. Trade liberalization in agriculture displaced nearly a 
million rural small farmers, swamping the fewer jobs created in the 
export processing sectors. Many in Mexico who supported NAFTA eleven 
years ago have now turned into ardent opponents.
    CAFTA is likely to have similar impacts in Central America, 
especially since CAFTA does not dramatically increase access to the 
U.S. market for the Dominican Republic and Central America. The key 
impact on the rural poor--the majority of the population in many of the 
countries--will be increased competition with much more efficient U.S. 
agribusiness.
    For industrial employment to be a reliable route out of poverty, 
workers must earn decent wages, have the right to form independent 
unions, and enjoy basic workplace protections and labor rights. Few 
workers in Central America today can exercise their internationally 
recognized rights to form unions and bargain collectively. Anti-union 
violence is common, and employers routinely fire workers attempting to 
exercise these rights, while governments fail to act. Far from 
addressing or rectifying these concerns, CAFTA actually weakens the 
labor rights conditions included in current U.S. trade programs, 
leaving Central American and Dominican workers more vulnerable than 
ever. I will address CAFTA's inadequate labor rights provisions in more 
detail later in this testimony.

    CAFTA PROVISIONS FAVOR MULTINATIONAL CORPORATIONS OVER WORKERS, 
                 COMMUNITIES, AND NATIONAL GOVERNMENTS

    CAFTA strengthens protections for multinational corporations, 
forcing changes in intellectual property protection regimes that 
threaten public health, giving corporations new rights to sue 
governments over regulations they deem too costly or inconvenient, and 
limiting the ability of future legislators to place conditions on 
government procurement. This hurts Central America's prospects for 
future development, just as it weakens state legislators and erodes 
wages and jobs here at home.
    The lopsided tilt toward corporate interests helps to explain why 
CAFTA is so unpopular, both here in the United States and throughout 
Central America. A recent poll by Americans for Fair Trade found 
widespread opposition to CAFTA, with 74% of respondents saying they 
would oppose the pact if it caused job losses, even if it also reduced 
consumer prices. In Central America, tens of thousands of workers, 
farmers, small-business owners, and other activists have taken to the 
streets to voice their vehement opposition to the deal and to the lack 
of transparency in the negotiation process.
    The Bush administration and Central American governments have 
prioritized multinational corporate interests at the expense of 
ordinary citizens. Right now in Guatemala, the rights of people who 
need inexpensive medications are being traded away in favor of CAFTA's 
business interests. Pharmaceutical companies have already pressured 
Guatemala to stop allowing inexpensive drugs in stores. CAFTA imposes a 
five-to-ten year waiting period on generic drugs. The humanitarian 
organization, Doctors Without Borders, has said that these provisions 
in CAFTA could make newer medicines unaffordable.

          CAFTA'S WORKERS' RIGHTS PROVISIONS UNACCEPTABLY WEAK

    At the same time, despite the overwhelming evidence that Central 
America's workers are routinely abused, CAFTA spectacularly fails to 
address this problem. CAFTA's single enforceable workers' rights 
provision requires only that countries enforce their own labor laws--
laws that Human Rights Watch, the International Labor Organization and 
even our own State Department have documented as failing to meet 
international standards. And CAFTA contains no enforceable provision 
preventing countries from weakening or even eliminating their labor 
laws entirely.
    Not one country included in the CAFTA comes close to meeting a 
minimum threshold of respect for the ILO's core labor standards: 
freedom of association, the right to organize and bargain collectively, 
and freedom from child labor, forced labor, and discrimination. In 
Central America, maquiladora employers pay a workforce made up 
disproportionately of young women poverty wages to labor for long hours 
in unsafe conditions. When these workers try to organize to try to win 
a voice at work, they face intimidation, threats, dismissal, and 
blacklisting.
    Labor laws in Central America uniformly fail to protect basic 
workers' rights, and deficiencies in the laws have been repeatedly 
criticized by the International Labor Organization (ILO), the U.S. 
State Department, and independent human rights organization for many 
years.2 Despite this criticism, these flaws persist today. 
The ILO, in its 2003 and 2004 reports on Central American labor laws, 
identified no fewer than 27 key deficiencies in the laws with respect 
to freedom of association and the right to organize and bargain 
collectively. Amazingly, the U.S. Trade Representative and Central 
American countries continue to cite these reports as evidence that laws 
in the region largely meet ILO standards--a gross mischaracterization 
of the reports themselves. And even these reports, with all the 
deficiencies they identify, omit some flaws that the ILO itself had 
identified with regard to these countries in earlier observations 
because of the reports' limited scope.
---------------------------------------------------------------------------
    \2\ Such reports include: ``Fundamental Principles and Rights at 
Work: A Labour Law Study--Costa Rica, El Salvador, Guatemala, Honduras, 
Nicaragua,'' International Labor Organization, 2003; ``Fundamental 
Principles and Rights at Work: A Labour Law Study--Dominican 
Republic,'' International Labor Organization, 2004; ``2004 Country 
Reports on Human Rights Practices,'' U.S. Department of State, 2005; 
``2004 Annual Survey of Violations of Trade Union Rights,'' 
International Confederation of Free Trade Unions, 2004; and 
``Deliberate Indifference: El Salvador's Failure to Protect Workers' 
Rights,'' Human Rights Watch, 2003. A summary of these reports is 
available in ``The Real Record on Workers' Rights in Central America,'' 
AFL-CIO, April 2005.
---------------------------------------------------------------------------
    A review of the ILO reports and other ILO observations, along with 
U.S. State Department reports and independent analyses by human rights 
groups, reveals a wide array of loopholes, gaps, and deficiencies in 
labor laws in the region. On issues including penalties for anti-union 
discrimination, employer interference with workers' organizations, 
obstacles to union registration, restrictions on the right to organize 
above the enterprise level, restrictions on the rights of temporary 
employees, onerous requirements for trade union leadership, limits on 
the activities of federations and confederations, and limits on the 
right to strike, labor laws throughout the region fail to meet the 
minimum standards enumerated by ILO core conventions. The only country 
to actually reform any of its laws in these areas during the CAFTA 
negotiation process was Nicaragua; but some gaps in the law remain even 
there. In every other country major deficiencies identified by the ILO 
remain on the books today. In fact, some countries have actively 
weakened their labor laws during the CAFTA negotiations: Guatemala's 
Constitutional Court overturned key elements of major labor law 
reforms, while the Costa Rican government introduced legislation to 
weaken worker protections.
    Employers take advantage of these weaknesses in the labor law to 
harass, intimidate, and fire workers who dare to organize an 
independent union. Employers refuse to bargain with legitimate worker 
representatives, and have most strikes declared illegal. Even where 
employers are flagrantly in violation of the law, they enjoy near total 
impunity in many of these countries. The result is a climate of fear, 
insecurity, and even physical danger for workers in the region who try 
to exercise their most basic rights on the job.
    As violation after violation of workers' rights accumulate, and as 
governments refuse to improve their laws or enforce those that do 
exist, the very institutions of independent trade unions and collective 
bargaining founder. Trade union density in Central American countries 
is minimal: 7 percent in Honduras, 5 in El Salvador, 3 in Guatemala. In 
El Salvador, no independent trade unions have been registered in the 
past four years. The most recent denial came this year, when the 
Ministry of Labor found that port workers did not meet the legally 
required minimum number to form a union, as a result of the fact that 
their employer had fired most of the founding members of the union in 
direct retaliation for their organizing activities.
    There are only two collective bargaining agreements in force in 
Guatemala's maquiladoras--zero in El Salvador's. In Costa Rica from 
1999 to 2004, for every employer that negotiated a collective 
bargaining agreement with a legitimate trade union, more than fourteen 
employers negotiated direct arrangements with employer-dominated 
solidarity associations. In Guatemala, 45 incidents of threats against 
trade unionists were reported to the government in 2004--only one 
conviction was achieved.
    In the face of these inadequate labor laws, CAFTA only requires 
that countries enforce the labor laws they happen to have. Obligations 
to improve one's labor laws, to meet ILO standards, and not to derogate 
from or waive laws in the future are all completely unenforceable under 
CAFTA. Thus a country can maintain its laws far below ILO standards, 
weaken its laws even further in the future, and face no consequences 
under CAFTA. As the discussion above demonstrates, this is not just a 
theoretical possibility in Central America--it is the reality that 
workers live with every day.

       CAFTA LABOR PROVISIONS A STEP BACK FROM JORDAN FTA AND GSP

    CAFTA's failure to include an enforceable requirement that labor 
laws meet ILO standards represents a step backwards from the labor 
rights provisions of the U.S.-Jordan Free Trade Agreement. The Jordan 
agreement enjoyed broad support from labor unions in the U.S. and 
Jordan, and passed the U.S. Congress unanimously in 2001. The Jordan 
agreement allows each one of its labor rights obligations to be brought 
up under the agreement's dispute settlement and enforcement mechanism, 
including provisions committing countries to meet ILO standards. In 
contrast, CAFTA excludes the vast majority of its labor rights 
obligations from the accord's dispute settlement and enforcement 
mechanisms, and only the requirement that countries enforce their own 
labor laws is subject to dispute settlement and enforcement.
    CAFTA also backtracks from the Jordan agreement by giving labor 
rights second-class status within the agreement's dispute settlement 
and enforcement apparatus. In the Jordan FTA, the dispute settlement 
and enforcement measures that apply to the agreement's labor provisions 
are identical to those that apply to the agreement's commercial 
provisions, and can include fines or sanctions. Under CAFTA, only 
violations of the agreement's commercial provisions can lead to 
sanctions or punitive fines sufficient to compensate the harm caused by 
the violation. Violations of the agreement's labor obligation must be 
remedied through the assessment of a non-punitive fine, and that fine 
is capped at $15 million regardless of the harm caused by the 
violation.
    Perhaps most disturbing is the fact that CAFTA's rules on workers' 
rights are actually weaker than the current labor conditions that apply 
to Central American countries under our unilateral trade preference 
programs, the Generalized System of Preferences (GSP) and the Caribbean 
Basin Initiative (CBI). CAFTA's labor chapter backtracks from the labor 
standards in GSP and CBI, and the agreement eliminates enforcement 
tools currently available in the unilateral programs.

 The GSP requires countries to have taken or be ``taking steps to 
        afford internationally recognized worker rights,'' while the 
        CBI instructs the president to consider ``the extent to which 
        the country provides internationally recognized worker rights'' 
        when granting preferential market access under the program. 
        These rules enable workers to complain about the inadequacy of 
        national labor laws, not just about the government's failure to 
        enforce the law. CAFTA, on the other hand, only requires 
        countries to enforce the labor laws they happen to have, no 
        matter how weak those laws are now or become in the future.
 The GSP includes a public petition process for the removal of trade 
        benefits. The AFL-CIO and other labor rights advocates have 
        used the process, in conjunction with unions in Central 
        America, to bring public pressure on Central American 
        governments to improve labor rights. Even when the U.S. 
        government exercises its discretion to reject meritorious GSP 
        petitions, the public forum provided by the petition process 
        can help focus public attention on workers' rights abuses and 
        pressure governments to reform. CAFTA contains no direct 
        petition process for workers--enforcement can only happen 
        through government-to-government disputes.
 The GSP and CBI directly condition market access on respect for 
        international labor rights. While preferential benefits are 
        rarely withdrawn under the programs, the credible threat of 
        reduced trade benefits has successfully changed government 
        behavior. In addition, petitioners have been able to tailor 
        request for withdrawal to specific sectors and producers 
        responsible for workers' rights violations, helping to create a 
        specific incentive for employers to respect workers' rights. 
        CAFTA, on the other hand, makes it extremely difficult to 
        withdraw trade benefits for workers' right violations. Even if 
        a government has been found in violation of CAFTA's labor 
        provisions, it can continue to enjoy full market access under 
        the agreement as long as it pays a small, capped fine to 
        finance labor enforcement activities. The fine in no way 
        penalizes producers for violations of workers' rights, and 
        exerts little pressure on governments, who can reduce their 
        labor budgets by an amount equal to the fine and avoid spending 
        the fine on projects with political sensitivity such as labor 
        law reform.
    The only tool that has helped create the political will to reform 
labor laws in Central America in the past is our unilateral system of 
trade preferences. While the labor rights provisions of these programs 
are not perfect, they have led to some improvements in labor rights in 
the region. In fact, nearly every labor law reform that has taken place 
in Central America over the past fifteen years has been the direct 
result of a threat to withdraw trade benefits under our preference 
programs.
    Even the United States Trade Representative (USTR) touts the 
reforms that have been made to Central American labor laws as a result 
of GSP petitions. USTR argues that the reforms demonstrate Central 
American governments' commitment to workers' rights, and thus argue for 
approval of CAFTA. Quite to the contrary, the reforms demonstrate that 
governments in the region rarely undertake labor law improvements 
without outside pressure--pressure that will no longer be applied if 
CAFTA is ratified.

 The U.S. government accepted a GSP workers' rights petition against 
        Costa Rica for review in 1993, and Costa Rica reformed its 
        labor laws later that year.
 The Dominican Republic reformed its labor laws in 1992 in response to 
        a GSP petition on workers' rights.
 El Salvador was put on continuing GSP review for workers' rights 
        violations in 1992, and the government reformed its labor laws 
        in 1994.
 Guatemala reformed its labor laws in response to the acceptance of a 
        1992 GSP petition, and when their case was reopened for review 
        in response to a 2000 petition they again reformed their labor 
        laws in 2001.
 Nicaragua's GSP benefits were suspended in 1987 for workers' rights 
        violations, and it reformed its labor laws in 1996.
    The GSP process has also been helpful in addressing enforcement and 
rule-of-law problems in the region. Too often, these patterns of 
violation are the result not just of limited resources, but of 
insufficient political will on the part of Central American 
governments. GSP cases have helped create that political will. As the 
result of a 2004 petition on El Salvador, for example, the Salvadoran 
government finally enforced a reinstatement order for union activists 
that had been locked out for three years. All appeals to national 
mechanisms in the case had been fruitless, and the employer was in 
outright defiance of a reinstatement order from the nation's Supreme 
Court. The last independent union granted legal registration in El 
Salvador was only registered after appeals to the Salvadoran Supreme 
Court, the ILO, and a GSP petition.
    Central American countries need a trade regime that will improve 
compliance with fundamental workers' rights. As long as independent 
trade unions are thwarted, collective bargaining avoided, and the right 
to strike repressed, workers will be unable to win a voice at work and 
negotiate with their employers for decent working conditions and wages 
that reflect the true value of their production. Trade rules must 
ensure that governments protect fundamental workers' rights, and 
require that the companies who take advantage of the new rights and 
mobility that trade agreements provide be held accountable for their 
treatment of workers.
    CAFTA fails this test. Rather than tie the incentives that 
additional market access provides to required improvements in workers' 
rights, CAFTA does exactly the opposite. While granting expanded and 
permanent market access to Central American countries, CAFTA actually 
reduces the labor rights conditions those countries are required to 
fulfill under current trade programs. This failure is particularly 
egregious in the Central American context--in countries where labor 
laws fall far short of minimum international standards, where 
governments have a record of indifference towards workers' rights and 
hostility towards trade unions, and where the only tool that has proven 
successful in improving workers' rights has been the threat of the 
withdrawal of trade benefits.
    It is time for policymakers to take an honest look at our trade 
policy and the impact it has had on workers and communities at home and 
abroad, and start revising the rules that govern trade. The American 
labor movement, along with our brothers and sisters in Central America, 
has made substantive and thoughtful proposals on what changes need to 
be made to our trade policies.3 We recognize that trade has 
the potential to spur growth and create jobs--but to deliver on these 
promises, we need to get the rules right. Unfortunately, CAFTA 
negotiators ignored our proposals.
---------------------------------------------------------------------------
    \3\ See ``Labor Movement Declaration Concerning The United States-
Central America Free Trade Agreement,'' San Jose, Costa Rica, November 
18, 2002. This declaration was signed by the labor federations of the 
United States, Guatemala, Nicaragua, Costa Rica and El Salvador. It is 
reprinted in, ``The Real Record on Workers' Rights in Central 
America,'' AFL-CIO, April 2005.
---------------------------------------------------------------------------
    As a result, we are forced to oppose CAFTA. We are working together 
with unions, environmentalists, family farmers, bishops, women's groups 
and many others in the U.S. and Central America to stop CAFTA and to 
build a better way to trade. Only by rejecting CAFTA can we begin a 
real dialogue on the new kinds of trade rules we need to create good 
jobs, stimulate equitable and sustainable economic development, and 
support strong democratic institutions.
    In sum, CAFTA grants multinational companies that ship U.S. jobs 
overseas the following rewards: greater access to the U.S. market, more 
freedom to violate workers' rights with impunity, and the ability to 
challenge government regulations enacted in the public interest. 
CAFTA's rules on investment, government procurement, intellectual 
property rights, and services create new rights for multinational 
corporations, but the agreement actually weakens existing protections 
for workers' rights, leaving the interests of ordinary working men and 
women out in the cold.
    Members of the subcommittee, I will close with these thoughts. The 
U.S. economy continues to break records, but not in ways that help 
working people. The all-time high U.S. trade deficit is not an abstract 
issue; it shows up every day as working men and women see their plants 
close, are asked to train their own overseas replacements or are asked 
to swallow wage and benefit cutbacks that affect their families' lives 
in hundreds of ways. Entire communities suffer the consequences of 
failed trade agreements. We urge the Congress to reject CAFTA and begin 
work on just economic and social relationships with Central America and 
the Dominican Republic.

    Mr. Stearns. Thank you. Mr. Cohen.

                  STATEMENT OF CALMAN J. COHEN

    Mr. Cohen. Mr. Chairman, Congresswoman Schakowsky, members 
of the committee, I welcome the opportunity to appear before 
you to express the support for CAFTA as president of ECAT on 
behalf of the Business Coalition for U.S.-Central America 
trade.
    Like its predecessor FTAs, CAFTA will promote new economic 
opportunities, but it is not a panacea the many problems which 
have been addressed during the hearing this morning and this 
afternoon. It will not address every aspect of the U.S.-Central 
America-Dominican Republic relationship. However, it is a 
comprehensive, high-standard, and commercially meaningful 
agreement that is very much deserving of the support of this 
committee and the U.S. Congress for five reasons.
    First, CAFTA levels the playing field and creates new 
opportunities as you have heard already. Second, CAFTA will 
promote growth and partnership in our own neighborhood. Over 20 
years ago the Congress developed a model of economic engagement 
to promote stability and growth in the Caribbean Basin. More 
than two decades later the so-called CBI programs are no longer 
sufficient. They are too cumbersome, too inflexible, and too 
limited to withstand the pressure of the recent lifting of 
global textile and apparel quotas, and companies in the region 
have already started laying off thousands of workers. This is 
extremely important from a U.S. perspective since the Central 
American-Dominican Republic textile and apparel industry is the 
second-largest source of economic activity in the region, 
employing some half million workers in some of the best-paying 
jobs in these countries. And this industry is the largest 
export market for U.S. apparel manufacturers and yarn and the 
second largest U.S. export market for fabric. The 
competitiveness of the U.S. textile and apparel industries and 
the future of their workers depend in significant part on 
whether or not the Congress approves the FTA.
    Third, CAFTA will promote improved working conditions in 
this region. It is precisely through increased trade and 
economic growth the developing countries are better able and 
increasingly motivated to improve labor and environmental 
standards. This is particularly important in the context of 
CAFTA where nearly half of the population of the six countries 
lives in poverty. Without CAFTA working conditions will not get 
a much-needed boost. Indeed, they are likely to get much worse.
    CAFTA also includes the most robust provisions yet on labor 
capacity building, including the establishment of a council 
that oversees a capacity-building mechanism. This capacity-
building mechanism and Congressional support for capacity 
building are precisely what is needed to make a difference.
    The agreement also includes strong and enforceable labor 
provisions on labor rights that we believe are in fact stronger 
than the Jordan FTA and stronger than the existing unilateral 
trade preference programs. With few exceptions, CAFTA's labor 
provisions are essentially the same as contained in the U.S.-
Jordan FTA. The key differences between the Jordan FTA and 
CAFTA are, first, CAFTA clarifies what was implicit in the 
Jordan FTA. CAFTA includes a provision specifically stating 
that the only provision subject to dispute settlement is the 
enforce-your-own-law standard. As President Clinton said in 
submitting the Jordan FTA to the Congress, ``It is important to 
note that the FTA does not require either country to adopt any 
new laws in these areas, but rather includes commitments that 
each country enforce its own labor and environmental laws.''
    Second, the U.S.-Jordan FTA includes an underdeveloped 
dispute settlement mechanism. The CAFTA, on the other hand, 
contains a state-of-the-art, binding dispute settlement 
mechanism.
    The third deference is capacity building. The Jordan FTA 
merely makes a statement that cooperative activities enhance 
labor standards. CAFTA includes concrete provisions to promote 
labor capacity building.
    I then want to just briefly to go to a point that was 
raised by Mr. Gonzalez. In determining the eligibility for 
duty-free treatment, the trade preference programs prohibit the 
designation of a country as a beneficiary if it has not taken 
or is not taking steps to afford internationally recognized 
worker rights. These provisions require a country's adherence 
to internationally recognized worker rights as a condition of 
eligibility, rather only that a country has or is taking steps.
    In contrast, CAFTA builds upon the progress achieved by the 
unilateral preference program by requiring each of the 
countries to enforce its labor laws, subject to binding dispute 
resolution. This is actually a very robust standard when you 
consider what is already in their laws. For example, all but El 
Salvador has ratified all eight of the ILO core conventions, 
which, according to their own constitutions and laws, become 
part of their national law. All have already incorporated in 
their constitutions and/or their national law the broad ILO 
labor standards.
    Fourth, CAFTA's comprehensiveness is critical. During the 
negotiations, the CAFTA countries sought to exclude certain 
products and services completely from liberalization. In the 
end U.S. negotiators succeeded in negotiating openings to all 
of their key sectors and protecting ours.
    Sugar is the most notable because the end result is 
extremely far from what the CAFTA countries had sought. There 
is very minimal increase in the sugar quota for these six 
countries. The new access equals less than 1 percent of the 
2003/2004 U.S. sugar supply. In addition, CAFTA includes a 
compensation mechanism that would allow the restriction of 
actual imports, but require the U.S. Government to compensate 
these countries for any such restrictions.
    My final point is that CAFTA is an important test for U.S. 
leadership on trade. Concerns about laying the playing field 
for American workers and farms can nowhere be better addressed 
than in the WTO. But U.S. influence will be reduced if the 
first FTA that the United States negotiates with a group of 
developing countries is defeated over a modest increase in 
sugar imports and because the labor provisions do not solve 
every problem.
    For all of these reasons I urge your support for the CAFTA. 
Thank you.
    [The prepared statement of Calman J. Cohen follows:]

 Prepared Statement of Calman J. Cohen, President, Emergency Committee 
                           for American Trade

    Mr. Chairman, Congresswoman Schakowsky, Members of the Committee, I 
welcome the opportunity to appear before you today to express strong 
support for the U.S.-Central America-Dominican Republic Free Trade 
Agreement (CAFTA) as President of the Emergency Committee for American 
Trade (ECAT) and on behalf of the Business Coalition for U.S.-Central 
America Trade, for which ECAT serves as the secretariat.

 ECAT is an association of the chief executives of major American 
        companies with global operations who represent all principal 
        sectors of the U.S. economy. ECAT was founded more than three 
        decades ago to promote economic growth through expansionary 
        trade and investment policies. Today, the annual sales of ECAT 
        companies total $2 trillion, and the companies employ 
        approximately five and a half million people.
 The Business Coalition for U.S.-Central America Trade is a coalition 
        of over 400 companies and associations representing all major 
        sectors of the economy with members in all 50 states that work 
        together in support of the implementation of the CAFTA. The 
        Business Coalition was formed as the negotiations started and 
        is working in strong support of Congressional approval of the 
        CAFTA.
 The CAFTA is a comprehensive, commercially meaningful and high 
        standard agreement. I will focus today on why CAFTA deserves 
        your support.

                  THE HISTORY OF FREE TRADE AGREEMENTS

    Twenty years ago tomorrow, former President Reagan sent to Congress 
the first U.S. free trade agreement for Congressional approval--the 
U.S.-Israel FTA. It was approved by the House by a vote of 422-to-0 and 
by the Senate by voice vote. It was largely a political agreement that 
included significant, but by no means perfect, market opening. Indeed, 
the services aspects of the agreement were merely aspirational and the 
dispute settlement provisions extraordinarily limited.
    Since the U.S.-Israel FTA was approved in 1985, successive 
Administrations, Republican and Democratic, have successfully sought 
Congressional approval for eight additional FTAs, from our largest 
trading partner Canada in 1989, the NAFTA in 1993, the Jordan FTA in 
2001, and the Chile and Singapore FTAs in 2003 to the Australia and 
Morocco FTAs in 2004.
    Each of these FTAs, from the 19-page Jordan FTA negotiated by the 
Clinton Administration to the several hundred pages of the Morocco FTA 
negotiated by the Bush Administration, has three very important aspects 
in common:

 First, they seek to promote new opportunities for U.S. manufacturers, 
        farmers and service providers through the elimination of 
        barriers to U.S. consumer and industrial goods, farm products 
        and services.
 Second, each FTA seeks to respond to the negotiating objectives set 
        forth by Congress in the trade negotiating authority 
        legislation (Trade Promotion Authority) that governs the 
        negotiation and Congressional approval of such agreements.
 Third, each FTA sends a strong message to the rest of the trading 
        community about the United States' commitment to a rules-based 
        trading system and to more open markets with developed and 
        developing countries alike.
    In each case, with the exception of the U.S.-Israel FTA, concerns 
were raised that more should have been done to address various issues--
some within the context of the FTA, some outside. For example:

 With the U.S.-Jordan FTA, environmental groups and others complained 
        about an extremely weak dispute settlement mechanism that would 
        allow any party to block dispute settlement proceedings in 
        perpetuity.
 With NAFTA, complaints were raised about the decline in Mexican wages 
        prior to the conclusion of the FTA and how that would affect 
        American workers.
    In some cases, provisions were included as part of the implementing 
legislation to address related concerns--such as NAFTA Trade Adjustment 
Assistance program. In other areas, the FTAs were simply not able, nor 
intended, to address all facets of the relationship.
    I would also note the importance of these agreements to opening 
markets for U.S. exporters in particular. Based on 2004 data, U.S. 
exports to the six countries with which the United States had an FTA in 
2004 equaled $332.8 billion, accounting for 40 percent of total U.S. 
exports worldwide; this does not include the Australia or Morocco FTAs 
which were not in force in 2004. Let me say that again. Our FTAs with 
our six FTA partners in 2004 accounted for 40 percent of total U.S. 
exports.

   CAFTA IS A STRONG AND IMPORTANT TRADE AGREEMENT, BUT IT IS NOT A 
                                PANACEA

    This background is important to put the CAFTA into the correct 
context. Like its predecessors, it is a free trade agreement that seeks 
to promote new opportunities for U.S. manufacturers, farmers and 
service providers. It is not a panacea. It is not intended, nor did 
Congress ask, that it address every aspect of the U.S.-Central 
American-Dominican Republic relationship. While CAFTA makes important 
progress in promoting economic growth in Central America and the 
Dominican Republic, as well as U.S. exports, it cannot, for instance, 
solve by itself the problems of poverty or subsistence farming in the 
region.
    While not perfect--no agreement ever is--CAFTA is very much 
deserving of the support of this Committee and the U.S. Congress. From 
the perspective of ECAT and the broader Business Coalition, I would 
suggest that there are five key elements of the CAFTA that are most 
important for your consideration.

 FIRST: CAFTA LEVELS THE PLAYING FIELD FOR U.S. MANUFACTURERS, FARMERS 
                         AND SERVICE PROVIDERS

    Through unilateral preference programs overwhelmingly approved on a 
bipartisan basis by Congress since the 1980s, some 75 percent of CAFTA 
imports and 99 percent of CAFTA agricultural products already enter the 
United States duty-free.
    What CAFTA does for U.S. manufacturers, farmers and service 
providers, is to make trade with our neighbors a two-way street. CAFTA 
opens their markets to our goods and our services, which is 
particularly important given that the six CAFTA countries already 
represent the United States' 12th largest export market worldwide and 
our second largest market in Latin America, after Mexico. In 
particular, CAFTA eliminates tariffs, tariff rate quotas and non-tariff 
barriers in all major sectors.

 For U.S. Manufacturers, CAFTA immediately eliminates tariffs on more 
        than 80 percent of U.S. consumer and industrial goods when the 
        CAFTA enters into force, including on such key products as 
        information technology products, agricultural and construction 
        equipment, paper products, chemicals, and medical and 
        scientific equipment. CAFTA will eliminate all remaining 
        tariffs on all U.S. manufactured goods within 10 years. CAFTA 
        also eliminates other major non-tariff barriers to consumer and 
        industrial goods, including onerous dealer distribution 
        requirements that created enormous barriers for decades to the 
        ability of many U.S. companies to sell their products in these 
        countries.
 For U.S. Service Providers, all six CAFTA countries committed to open 
        up their services market on a negative list basis (listing 
        exceptions to full market opening), with particular benefits 
        for telecommunications, financial, distribution, information 
        technology, audiovisual and entertainment, energy, transport, 
        construction, express delivery, professional and other 
        services. The six countries also committed to significant 
        provisions on regulatory transparency and independent 
        regulatory authorities. Of particular importance are Costa 
        Rica's commitments to open up key portions of its currently 
        closed telecommunications and insurance markets.
 For U.S. Farmers, CAFTA eliminates tariffs on over half of U.S. 
        agriculture products immediately, with most remaining duties on 
        U.S. products phased out over 15 years. Since 99 percent of 
        their agricultural products already enter the U.S. market duty-
        free, this is particularly important to provide reciprocity. 
        The agriculture provisions create significant new opportunities 
        in particular for U.S. producers of beef, pork, dairy, corn, 
        wheat and grains, soybeans, rice, cotton and processed foods.
 For U.S. Creative and Scientific Industries, CAFTA establishes strong 
        rules for the protection of intellectual property that are 
        critical to promote innovation and new research in numerous 
        sectors, from information technology to chemical, 
        pharmaceutical and other scientific industries, and to 
        stimulate a rich and diverse marketplace for the development 
        and publishing of business information and creative works.
 For U.S. Investors, CAFTA provides strong protections derived from 
        U.S. legal principles and practice, including, non-
        discrimination, due process rights, prompt compensation for 
        expropriation, free movement of capital, no performance 
        requirements (such as local sourcing rules or export 
        requirements) and the resolution of disputes in a neutral and 
        objective forum. In accordance with Congress' directions in 
        Trade Promotion Authority, enacted as part of the Trade Act of 
        2002, the CAFTA also ensures that key protections conform to 
        U.S. legal principles and practice and that disputes are 
        handled transparently, efficiently and with public input. 
        Unlike any prior FTA, the CAFTA also provides a concrete 
        mechanism for the development of an appellate or other review 
        procedure to ensure the coherence of decisions.

    SECOND: CAFTA WILL HELP PROMOTE GROWTH AND PARTNERSHIPS IN OUR 
                              NEIGHBORHOOD

    Over 20 years ago, former President Reagan and the Congress 
developed a model of economic engagement to promote stability and 
growth in the Caribbean Basin. The so-called Caribbean Basin Initiative 
(or Caribbean Basin Economic Recovery Act--CBERA) provided duty-free 
access to many goods from the CAFTA countries and the rest of the 
Caribbean, in significant part to help stem the flow of communism by 
promoting economic growth and the reduction of poverty.
    More than two decades later, that program, which was expanded and 
improved most recently through the Caribbean Basin Trade Partnership 
Act (CBTPA), enacted as part of the Trade and Development Act of 2000, 
helped this region emerge from a period of civil war, insurgency and 
military dictatorship to democratic stability.
    While CBI and CBTPA have been important drivers for economic 
growth, they are no longer sufficient. The Central American-Dominican 
Republic textile and apparel industry that these programs helped create 
now faces extraordinary competitive pressures as a result of the 
elimination of global quotas on textiles and apparel at the beginning 
of 2005. The CBTPA program in particular is too cumbersome, too 
inflexible and too limited to withstand this additional pressure, and 
companies in the region have already started laying off thousands of 
workers.
    This is extremely important from a U.S. perspective, since the 
Central American-Dominican Republic textile and apparel industry is the 
second largest source of economic activity in the region--employing 
some 500,000 workers in some of the best-paying jobs in these 
countries. With an overall poverty rate of 47 percent and the largest 
source of economic activity being subsistence agriculture, these 
countries are facing a significant slowdown in employment and growth if 
CAFTA is not passed. That has important consequences for working men 
and woman in the six CAFTA countries, but it also has important 
consequences for working men and women here in the United States since 
these countries are the largest export market for U.S. apparel 
manufactures and yarn and the second largest export market for U.S. 
textiles. The competitiveness of the U.S. textile and apparel 
industries and the future of their workers depend in significant part 
on whether or not Congress approves the CAFTA.
    With CAFTA, and the permanence, flexibilities and reciprocity it 
creates for the U.S.-Central American-Dominican Republic textile and 
apparel industries, U.S. workers in these industries will continue to 
have markets in the six CAFTA countries. This will likely translate 
into economic growth in these countries, making them a more vibrant 
trading partner in the years ahead. Without CAFTA, these markets will 
continue the downward slide that has already begun. And since most 
Asian garments include little, if any, U.S. input, this has very 
negative implications for U.S. textile and apparel workers.

   THIRD: CAFTA BUILDS UPON THE EXISTING U.S. INTEREST IN PROMOTING 
IMPROVED WORKING CONDITIONS THROUGH ECONOMIC GROWTH, CAPACITY BUILDING 
                 AND A STRONG DISPUTE SETTLEMENT SYSTEM

    As the World Bank and others have documented, it is precisely 
through increased trade and economic growth that developing countries 
are better able and increasingly motivated by growing working and 
middle classes to improve labor and environmental standards. Since 
World War II, the liberalization of trade has helped produce a six-fold 
growth in the world economy and a tripling of per capita income and 
enabled hundreds of millions of families to escape from poverty and 
enjoy higher living standards. The World Bank has documented that 
developing countries that participate actively in trade grow faster and 
reduce poverty faster than countries that isolate themselves. In the 
1990s, per capita incomes grew 5.1 percent in developing countries with 
high trade and investment flows, while more isolated countries saw 
incomes decline by 1.1 percent. Contrary to many popular perceptions, 
NAFTA has also been found to have a positive effect on wage levels and 
the reduction of poverty in Mexico. While it is alone not enough to 
produce gains for all workers in Mexico, NAFTA has had very positive 
effects.
    The relationship between economic growth and labor rights is 
particularly important, given that nearly half of the population of the 
six CAFTA countries lives in poverty and Nicaragua is the second 
poorest country in the hemisphere, after Haiti. Without CAFTA, working 
conditions will not get a much-needed boost. In fact, they are likely 
to get much worse with the loss of some of the best-paying jobs in 
these countries in the textile and apparel sector. CAFTA, by creating 
new opportunities and making them permanent, has the ability to reverse 
the downslide and loss of thousands of jobs that we have seen in these 
countries since global textile and apparel quotas were lifted.
    CAFTA also includes the most concrete provisions yet on labor 
capacity building that will promote strong improvements in the lives of 
workers. In particular, CAFTA would establish a Labor Affairs Council 
that will oversee a Labor Cooperation and Capacity Building Mechanism 
to:

 establish capacity-building priorities, including with respect to 
        ``fundamental rights and their effective application,'' worst 
        forms of child labor, labor administration and inspection 
        systems.
 develop specific cooperative and capacity-building activities.
 exchange information on laws and practices and ways to strengthen 
        them.
 seek support from the ILO, Inter-American Development Bank, World 
        Bank and Organization of American States to advance common 
        commitments.
 seek input from worker and employer representatives and the public.
    Capacity building by the ILO and other institutions has, over the 
years, resulted in very concrete progress in working conditions in the 
region and throughout the world. In Central America, for example, ILO 
technical assistance through the IPEC (International Programme for the 
Elimination of Child Labor) has provided concrete assistance to tens of 
thousands of children involved in child labor and their parents. Much 
more remains to be done to improve working conditions, but it is most 
often the lack of resources and technical ability, not particular laws, 
that limit improvements in labor conditions. CAFTA's capacity building 
mechanism and Congressional support for capacity-building programs are 
precisely what is needed to make an important difference. In this 
regard, I would note the existing commitments by the U.S. and by the 
Central American/Dominican Republic governments to labor capacity 
building:

 The Administration began its first CAFTA-related labor project before 
        the agreement was even concluded, with a $6.75 million grant to 
        the Foundation for Peace and Democracy to help improve working 
        conditions in the region. In the FY 2005 Appropriations Act, 
        Congress allocated $20 million for labor and environment 
        capacity building for the CAFTA countries.
 On April 4, 2005, the six CAFTA countries made a strong and 
        unprecedented public commitment to continue to improve labor 
        standards and their implementation by endorsing the 
        recommendations in the very detailed report on their labor laws 
        and working conditions--The Labor Dimension in Central America 
        and the Dominican Republic--prepared by their trade and finance 
        ministries in conjunction with the Inter-American Development 
        Bank. The report identifies specific areas where the countries 
        need to improve labor standards and implementation and where 
        additional technical assistance is required.
    CAFTA is not meant to be, nor could it be, a panacea; yet it 
represents a much-needed modernization of the U.S.-Central American-
Dominican economic relationship that will promote better working 
conditions through economic opportunities and a strong capacity-
building program in the region.
    Beyond the economic opportunities and capacity building that CAFTA 
will promote, the agreement itself includes strong and enforceable 
provisions on labor rights. I know this is a much debated subject, so I 
will focus my remarks on the two often-heard critiques of CAFTA with 
which I strongly disagree--that it is weaker than the Jordan FTA and 
weaker than existing unilateral trade preference programs:

 1. CAFTA HAS VERY SIMILAR, IF NOT STRONGER, LABOR PROVISIONS THAN THE 
                            U.S.-JORDAN FTA.

    With few exceptions, CAFTA's labor provisions are essentially the 
same as contained in the U.S.-Jordan FTA. The commitments are largely 
the same, except in those cases where CAFTA strengthens them or adds 
new commitments, such as to ensure access to fair, equitable and 
transparent tribunals for labor law enforcement. The key differences 
between the U.S.-Jordan FTA and CAFTA are:
    CAFTA Clarifies What Was Implicit in the Jordan FTA. CAFTA includes 
a provision specifically stating that the only provision subject to 
dispute settlement is the ``enforce-your-own-law'' standard. This 
provision essentially clarifies the fact that the enforce-your-own-law 
standard is the only language in either the Jordan FTA or CAFTA that 
expresses an enforceable commitment as opposed to a hortatory 
objective. Indeed, the CAFTA clarifies the point former President 
Clinton made when he transmitted the U.S.-Jordan FTA to Congress on 
January 6, 2001:
          ``The FTA joins free trade and open markets with civic 
        responsibilities. In this Agreement, the United States and 
        Jordan affirm the importance of not relaxing labor or 
        environmental laws in order to increase trade. It is important 
        to note that the FTA does not require either country to adopt 
        any new laws in these areas, but rather includes committments 
        that each country enforce its own labor and environmental 
        laws.'' (emphasis added).
    This statement was obviously not made because Jordan had perfect 
labor laws. Indeed, as the 2004 State Department Report on Human Rights 
found: ``[Jordan's] [l]abor laws mandate that workers must obtain 
Government permission to strike. Unions generally did not seek approval 
for a strike, but workers used the threat of a strike as a negotiating 
tactic. Strikes are prohibited if a labor dispute is under mediation or 
arbitration.'' (emphasis added).
    CAFTA Contains a More Developed and Binding Dispute Settlement 
Mechanism. The U.S.-Jordan FTA includes an underdeveloped dispute 
settlement mechanism that lacks strict time limits for the appointment 
of panelists, meaning that complaints can be blocked in perpetuity. In 
the case of the CAFTA, the dispute settlement procedures with respect 
to labor and environmental issues are much more detailed and developed 
and result in binding panel reports, with strict time limits for the 
establishment of panels and potentially the imposition of monetary 
assessments or trade sanctions. Panels are authorized to review a 
Party's commitment to enforce its labor and environmental laws as 
sought by the Trade Promotion Authority negotiating objectives. If a 
panel finds that a Party is failing to enforce such laws and that the 
Party does not bring its actions into accordance with the FTA 
obligations, the other Party is authorized to assess a monetary penalty 
that will be used for improving labor or environmental conditions in 
the complained of Party. If that monetary penalty is not paid, the 
complaining Party ``may take other appropriate steps to collect the 
assessment or otherwise secure compliance . . . [including] suspending 
tariff benefits under the Agreement as necessary to collect the 
assessment . . .''
    CAFTA Contains a Robust Capacity-Building Mechanism. The U.S.-
Jordan FTA contains merely a statement that cooperative activities may 
enhance labor standards. CAFTA, as discussed previously, includes the 
most concrete provisions included in any FTA on labor capacity 
building--provisions that are likely to have a much more important 
effect than dispute settlement in promoting enhanced labor conditions.

  2. CAFTA REPRESENTS A STRONGER WORKER RIGHTS MODEL THAN UNILATERAL 
                          PREFERENCE PROGRAMS

    In determining eligibility for duty-free treatment, the Generalized 
System of Preferences (GSP), CBTPA and CBERA prohibit the designation 
of a country as a beneficiary if it ``has not [taken] or is not taking 
steps to afford internationally recognized worker rights' and not 
implementing its commitments to eliminate the worst forms of child 
labor. CBTPA also provides that the President should consider the 
``extent to which the country provides internationally recognized 
worker rights.''
    As language of GSP, CBTPA and CBERA makes clear: these provisions 
do not require a country's adherence to internationally recognized 
worker rights as a condition of eligibility; rather only that a country 
has or is taking ``steps.'' Indeed, in considering the CBTPA bill on 
the Senate floor, the proposal to condition CBTPA benefits on a 
country's compliance with internationally recognized worker rights (S. 
Amdt No. 2847) was rejected by more than a two-to-one margin.
    While GSP, CBTPA and CBERA have been used by successive 
Administrations to help promote improvements in the labor standards in 
the Caribbean Basin countries, both the Clinton and Bush 
Administrations have repeatedly found that all six of the CAFTA 
countries have satisfied the taking ``steps'' standard of these 
programs. Indeed, in October 2000, the Clinton Administration 
designated all 24 Caribbean Basin countries as eligible for the new 
CBTPA benefits.
    CAFTA builds upon the progress achieved by the unilateral 
preference programs by requiring each of the CAFTA countries to enforce 
its labor laws, which the unilateral preference programs helped 
improve. This obligation is subject to binding dispute settlement, 
including potential monetary assessments and trade sanctions. Given 
that each of the CAFTA countries has already adopted robust treaty and 
constitutional, as well as national law, labor protections provisions 
and CAFTA requires actual adherence to those laws, CAFTA actually 
provides a much stronger framework than the existing preference 
programs. Consider:

 All but El Salvador have ratified all eight of the ILO core 
        conventions (El Salvador has ratified six), which, according to 
        their own constitutions and laws, become part of their national 
        law.
 All but the Dominican Republic have already incorporated in their 
        constitutions all of the broad core ILO standards--the rights 
        of freedom of association and collective bargaining and 
        prohibitions against discrimination, child labor and forced 
        labor.
 All six CAFTA countries have very detailed national laws on labor 
        rights covering all four core ILO labor principles, including 
        many of the key provisions called for in the very detailed ILO 
        conventions.
 The CAFTA countries recently committed to strengthening labor 
        standards and enforcement in their countries as recommended in 
        The Labor Dimension in Central America and the Dominican 
        Republic, endorsed by the Trade and Labor Ministers of each of 
        the six CAFTA countries.
    Even more importantly, the CAFTA mechanism also includes an 
institutional framework to support labor capacity building within the 
CAFTA countries, the very activities that together with economic 
development are likely to have the greatest impact on improving working 
conditions within the region.
    Suggestions that CAFTA, unlike the unilateral preference programs, 
will allow countries simply to repeal strong labor provisions ignore 
several key facts:

 That the labor language of the unilateral preference programs in fact 
        allows countries to move backward, requiring only that a 
        country has or is taking ``steps.''
 That the labor protections in the CAFTA countries are embedded in 
        their constitutions and international treaties and, as a 
        result, would be very difficult to undo if these countries 
        wanted to.
 That CAFTA requires each country to ``strive to ensure that its laws 
        provide for labor standards consistent with the internationally 
        recognized labor rights' and to improve those standards in that 
        light.'' The six CAFTA countries also made the unprecedented 
        commitment to continue to improve labor standards and their 
        implementation by endorsing the recommendations in The Labor 
        Dimension in Central America and the Dominican Republic.
 That CAFTA provides for ongoing work through a robust capacity-
        building mechanism to help each country with regard to labor 
        issues, including fundamental rights and their effective 
        application, and the worst forms of child labor, which are 
        specifically included as subjects for labor capacity building 
        in the CAFTA labor chapter.
    We can debate at length the legal provisions in the CAFTA, compared 
to the U.S.-Jordan FTA, the trade preference programs or even NAFTA. 
Yet, I think it is critical to reemphasize that CAFTA's real power in 
improving labor conditions in the region is through economic 
opportunities and growth and a concrete capacity-building framework 
that Congress has a strong voice in promoting and sustaining. Without 
CAFTA, there are reduced economic opportunities; in fact there are 
likely to be significant job losses in the region. Without CAFTA, there 
is no framework or plan of action to improve working conditions through 
capacity building in the region. In short, we strongly believe that 
CAFTA provides a much stronger framework for promoting working 
conditions in the region.

             FOURTH: CAFTA'S COMPREHENSIVENESS IS CRITICAL

    ECAT and many in the Business Coalition have been working on this 
agreement even prior to the start of actual negotiations in January 
2003. What we sought on behalf of the U.S. manufacturers, service 
providers and farmers that make up our groups was a comprehensive 
agreement that provided new access in all areas. As the negotiations 
progressed, it was very clear that the CAFTA countries, which already 
enjoy significant duty-free access into the United States, wanted to 
exclude certain products and services completely from liberalization--
largely agricultural products and key service sectors, particularly in 
Costa Rica. At the same time, their negotiators sought substantial new 
access in areas in which they remained restricted in the United States, 
most notably textiles and apparel and sugar. In both areas, U.S. and 
the CAFTA countries' negotiators reached compromises that provided 
significant protections to U.S. interests.
    Sugar is most notable because the end result is extremely far from 
what the CAFTA countries had sought. There is a very minimal increase 
in the sugar quota for these six countries--109,000 metric tons in year 
one that will increase to 153,000 metric tons by year 15. This new 
access--which will entail no final reduction of the tariff on sugar--
equals less than one percent of the 2003/2004 U.S. sugar supply and 
less than seven percent of U.S. imports of sugar. In addition, CAFTA 
includes a compensation mechanism that would allow the restriction of 
actual increased imports, but require the U.S. government to compensate 
these countries for any such restrictions.
    Failure to include any increased sugar access in the CAFTA would 
have resulted in a negotiating dynamic that could easily have unraveled 
the very significant new access provided to all other parts of U.S. 
agriculture, U.S. manufacturing and U.S. services. Instead of the 
elimination of tariffs on all beef, pork, rice, soybean, poultry and 
other key crops, the agreement would have been a patchwork of 
exceptions.
    And that brings me to my last point.

     FIFTH: CAFTA IS AN IMPORTANT TEST FOR U.S. LEADERSHIP ON TRADE

    For many U.S. companies, the most significant trade negotiation is 
the ongoing WTO Doha Development Agenda. It has had a rocky several 
years and only last summer seemed to be moving forward in earnest as a 
result of the so-called Framework Agreement. Yet, our negotiators are 
now faced with perhaps the most difficult period as they work to 
promote commitments by other countries to significant new access for 
U.S. farm and manufactured goods and U.S. services.
    CAFTA represents an important test for the United States. It is the 
first time that the United States has negotiated an FTA with a group of 
developing countries. If opponents to CAFTA are successful and CAFTA is 
not approved, what type of message would that send to developing 
countries around the world with which the United States is trying to 
build coalitions to support new access in Europe, Japan and elsewhere? 
How does the United States explain that it is scared of six small 
countries in its own neighborhood over a modest increase in sugar 
imports and because the labor provisions do not solve every problem?
    Concerns that many on this Subcommittee have expressed about 
leveling the playing field for American workers and farmers can nowhere 
be better addressed than in the WTO, but U.S. influence in the Doha 
Development Agenda will be reduced if the CAFTA is not approved.
    With CAFTA, on the other hand, we have expanded our block of 
countries that support common goals and common principles. The WTO Doha 
Development Agenda will still be a difficult negotiation, but we will 
have allies in the developing world with which to move forward.
    CAFTA will benefit the United States and our manufacturing, 
services and agricultural producers and workers through the expansion 
of markets, renewed partnerships to advance the competitiveness of 
U.S.-Central American-Dominican industries, and the development of a 
stronger, more stable hemisphere. It will level the playing field for 
our workers by eliminating barriers in these six countries. It will 
also help improve working conditions in the region through new economic 
opportunities and a robust and focused capacity-building mechanism. On 
behalf of ECAT and the Business Coalition, I strongly urge your support 
for this agreement.

    Mr. Stearns. I thank the gentleman. Mr. Vargo.

                    STATEMENT OF FRANK VARGO

    Mr. Frank Vargo. Thank you very much. I am very pleased to 
be here, Mr. Chairman and Congresswoman Schakowsky.
    The National Association of Manufacturers is extremely 
supportive of this agreement. It is a great agreement despite 
everything you have heard against it. In trying to think of 
what is really important here, though, is there anything I 
could say to the subcommittee today, I thought I would quote 
the President. It is always a useful thing to do. Something the 
President said on April 12. The President said, ``It is of 
vital importance to every nation of this hemisphere that the 
American Governments individually take, without further delay, 
such action as may be possible to abolish all unnecessary and 
artificial barriers and restrictions which now hamper the flow 
of trade between the peoples of the American Republics.''
    Now, this wasn't President Bush, although it could have 
been. He said pretty much the same thing. Because this was 
April 12, 1933 when the President was Franklin Delano 
Roosevelt, and the occasion was the introduction of the Good 
Neighbor Policy. And that is fundamentally what CAFTA is really 
most importantly about. It is about being good neighbors. It is 
about the United States working with its neighbors, and our 
neighbors can benefit us in this instance as well.
    When we look at this agreement, you know, people just keep 
acting as though we don't already have an agreement. It is a 
one-way agreement. It has been a one-way agreement. The United 
States has been very generous, and now in response for making 
this agreement permanent, these countries are saying we will 
give you the open access to our market. In the NAM's estimate, 
and it is available to you, is that we can pick up $1 billion 
of manufactured exports here because we will be more 
competitive than the European or Japanese or other competitors 
in Central America.
    More importantly, we will save--it could be up to $4 
billion of exports that would otherwise be at risk if these 
countries lose their apparel industry to China or other Asian 
producers. Why? Because they sell $10 billion of apparel to us. 
We have 40 percent of their market. If they lose $10 billion to 
us, they are not going to pick it up elsewhere. They will have 
to cut their imports $10 billion. On average, then, they will 
have to cut their imports from us $4 billion. Does anybody up 
there think that if China picks up $10 billion of textile 
exports to the U.S., they are going to spend $4 billion in the 
United States? I certain don't.
    When we look at the impact on their economy, again, if they 
were to lose their apparel industry, half a million people, you 
know, the political instability that could be generated is 
something you all ought to contemplate. But we looked at the 
figures; it is also equivalent to 7 percent of their GDP. If 
they lost 7 percent of their GDP, that is something that would 
not contribute to their stability, would not be helpful for 
migration to the United States.
    And as far as I can tell, there are really two problems 
that people are saying: sugar and the labor standard. Now, 
sugar really got a good deal. It is a sweetheart deal. The 
Secretary of Agriculture, all the analysis indicates prices 
aren't going to come down, the sugar industry is not going to 
be hurt. The sugar industry is concerned about a slippery 
slope. You can't take agreements on what other agreements might 
or might not be in the future. This is a good agreement. The 
sugar industry, frankly, should say thank you for what they 
have here and let us get on with it. Because the NAM and I 
think other agricultural sectors are not going to sit by and 
let a good agreement--and let our whole trade policy, if you 
will, be paralyzed by sugar the way Japan's trade policy has 
been paralyzed by rice all these years. It is a good agreement. 
We should move on with it.
    Now, labor rights, in essence what I am hearing is until 
these countries clean up their labor act, until they have 
perfect labor laws or very good labor laws--perhaps better than 
ours in some instances; we can't meet the ILO standards--we 
don't want them to lower their tariffs to us. And to me that 
makes no sense. We want them to lower their tariffs, we want 
this agreement, and we will work with them to improve labor 
conditions. The worse thing you can do for labor conditions 
there is put a half million people out of work.
    A lot has been said that CAFTA and NAFTA--let me make just 
a couple of points quickly, Mr. Chairman. People blame NAFTA as 
being kind of the root of all trade evil. You know, with 
manufactured goods, we have about a $500 million trade deficit. 
Now, $49 billion of that is with NAFTA, less than 10 percent. 
$25 billion is with Mexico, less than 5 percent. And 95 percent 
is outside. We have four times the deficit with the European 
Union in manufacturers than we do with Mexico. NAFTA has 
contributed about two-thirds of our entire export growth. If we 
had the other countries of the world, if our exports to them 
and imports with them had grown the same as with NAFTA, our 
global trade deficit would be about $200 billion less than it 
was. And conversely, if our exports and imports with NAFTA had 
performed as they did with the rest of the world, our deficit 
with NAFTA would have been three times as large.
    Our trade agreements aren't the problem. They are part of 
the solution. We are a very, very open market. Today, as we 
speak, 70 percent of everything we bring in to the United 
States comes in duty-free. We have a lot of barriers overseas. 
We want those barriers down. Some people suggest the way to do 
that is withdraw from the trading system; let us have global 
trade anarchy; we are a big country; we will push others 
around. Yes, we tried that in the 1930's. The only way to get 
trade barriers down in other countries is through trade 
agreements, and that is what we want. And this is a good trade 
agreement. It is an excellent trade agreement. And it is a 
trade agreement with six little struggling countries whose 
economy is the size of Sacramento, California.
    I live in the greatest country on earth. I don't want that 
country to turn to the rest of the world and say we were afraid 
to enter into an agreement with Sacramento, California because 
it was going to devastate our economy.
    Thank you, Mr. Chairman.
    [The prepared statement of Frank Vargo follows:]

Prepared Statement of Franklin J. Vargo, Vice President, International 
 Economic Affairs, National Association of Manufacturers on Behalf of 
               the National Association of Manufacturers

    Mr. Chairman and Members of the Subcommittee: I am pleased to 
testify today on behalf of the National Association of Manufacturers 
(NAM) to provide a perspective on the U.S.-Central America-Dominican 
Republic and Free Trade Agreement (CAFTA-DR). The National Association 
of Manufacturers is the nation's largest industrial trade association, 
representing small and large manufacturers in every industrial sector 
and in all 50 states. Headquartered in Washington, D.C., the NAM has 10 
additional offices across the country. All of our members are affected 
directly or indirectly by trade and have a keen interest in the factors 
affecting our trade and international economic relations.
    The U.S.-Central America-Dominican Republic Free Trade Agreement 
(CAFTA-DR) is unambiguously a winner for U.S. manufacturing. The NAM 
strongly supports this comprehensive agreement. It levels the playing 
field for U.S. producers by providing the same access to DR-CAFTA 
markets that their producers enjoy in the U.S. market.
    Under CAFTA-DR, U.S. manufactured goods exports will become duty-
free (80% as soon as the agreement goes into effect), while European 
and other competitors will continue to face CAFTA-DR's tariffs and 
other trade barriers. As a direct result, U.S. manufacturers stand to 
gain $1 billion of additional manufactured goods exports, with 
approximately 12,000 related job opportunities for American workers, 
according to an analysis by the NAM.
    More significantly, CAFTA-DR could preserve up to four times that 
amount of existing U.S. exports. Without the agreement, CAFTA-DR 
countries are at severe risk of losing their $10 billion of apparel 
exports to the United States to Asian competitors, and would have to 
cut their global imports by $10 billion--over 40% of which would be 
lost U.S. exports worth $4 billion, affecting 48,000 U.S. jobs.
    The agreement also strengthens the ability of U.S. and Central 
American producers to compete against China and other Asian 
competitors. If the CAFTA-DR countries lost their apparel industry to 
Asian producers, 550,000 people could be put out of work in the region. 
Loss of their apparel exports to the United States would cause the 
region's GDP to fall about 7 percent, putting their economies into 
serious recession and slashing U.S. exports to the region.
    Currently, 80% of U.S. imports from CAFTA-DR are duty-free--due to 
the one-way market access programs already provided to them; moreover, 
excluding textiles, 93% of U.S. manufactured goods imports from CAFTA-
DR already are duty-free.
    While the agreement has significant potential to maintain existing 
CAFTA-DR exports to the United States, it is unlikely to generate 
significant new net manufactured goods imports into the United States. 
This is because the CAFTA countries already have open access to the 
U.S. market for almost all manufactured goods. Moreover, the six CAFTA 
countries together have an economy of only $77 billion. That makes 
their combined economy about the size of Sacramento, California!

                   THE CAFTA-DR FREE TRADE AGREEMENT

    The U.S.-Central American-Dominican Republic Free Trade Agreement 
(CAFTA-DR) would increase trade among the United States and Costa Rica, 
the Dominican Republic, El Salvador, Guatemala, Honduras, and 
Nicaragua. The free trade agreement (FTA) will eliminate tariffs to 
agricultural and manufactured goods, and would improve the rules 
governing trade--such as by strengthening intellectual property 
protection, increasing safeguards against product counterfeiting and 
copyright piracy, strengthening investment rules, opening access to 
government procurement, facilitating electronic commerce, speeding 
customs processing, encouraging express delivery, and opening 
financial, telecommunications and other services markets.
    It is important to stress the comprehensive nature of the 
agreement's coverage, and also its very strong and positive 
contributions toward improving both labor and environmental conditions 
in the CAFTA-DR region.
    The CAFTA-DR countries already enjoy almost completely open access 
to the U.S. market, but maintain significant barriers to U.S. exports. 
The agreement would level the playing field for U.S. producers by 
providing the open access to the CAFTA-DR countries that they already 
have in the U.S. market because of the one-way market access programs 
provided to them by the United States in earlier years. The agreement 
would benefit the CAFTA-DR countries by making their access to the U.S. 
market permanent and by bolstering the region's ability to compete 
against Asian producers.

              U.S. MANUFACTURED GOODS TRADE WITH CAFTA-DR

    The CAFTA-DR region imported $15.7 billion of U.S. goods in 2004, 
as shown in Table 1., making it the 13th largest export market for the 
United States. In the Western Hemisphere the CAFTA-DR market is second 
only to Mexico as a market for U.S. exports. It is a larger market for 
the United States than Brazil, even though Brazil's economy is 
considerably larger than the combined economies of the CAFTA-DR 
countries.
    Manufactured goods predominate U.S. trade with the CAFTA-DR 
countries. Fully 87 percent of U.S. exports and 83 percent of U.S. 
imports are manufactured goods. Textiles and apparel are the largest 
category of goods traded, accounting for about 55 percent of U.S. 
imports and over one-fourth of U.S. exports. U.S. textile exports 
consist principally of fabric and other textiles that are inputs into 
CAFTA-DR apparel production that is exported back to the United States 
under existing preference programs. CAFTA-DR accounts for nearly 30 
percent of U.S. textile exports to the world.
    U.S. manufactured goods trade with the CAFTA-DR countries typically 
runs a small deficit overall, but a large and growing surplus in non-
textile/apparel areas, as is shown in Table 1. Last year's manufactured 
goods deficit was $1.1 billion, comprised of a $5.4 billion deficit in 
textiles and apparel trade and a $4.3 billion surplus in all other 
manufactured goods trade. Paper and paper products, chemicals, motor 
vehicles and other transportation equipment, machinery, and electrical 
equipment and appliances are significant U.S. manufactured goods 
exports to the region.

                                 Table 1
               U.S. Merchandise Trade with CAFTA-DR, 2004
                           Millions of Dollars
------------------------------------------------------------------------
                                     Exports      Imports      Balance
------------------------------------------------------------------------
Total............................      $15,731      $17,663      -$1,932
Manufactured Goods...............      $16,328      $14,719      -$1,091
  Textiles and Apparel...........       $4,244       $9,679      -$5,435
  Other Manufactured Goods.......       $9,384       $5,040       $4,344
Other Goods......................       $2,103       $2,944        -$841
------------------------------------------------------------------------
Source: U.S. Census Bureau Trade Stastics.

    The United States is region's major trading partner. Using trade 
statistics of the six countries as compiled by the International 
Monetary Fund (IMF), the U.S. share of CAFTA-DR's global imports was 41 
percent.

                                 Table 2
             CAFTA-DR Imports from the World and U.S., 2003
------------------------------------------------------------------------
                                                 2003 Total
                                    2003 Total    CAFTA-DR
                                     Imports      Imports    U.S. Import
                                   from World,   from  the      Market
                                    $ millions    U.S.,  $     Share, %
                                                  millions
------------------------------------------------------------------------
CAFTA-DR total...................       36,627       14,968          41%
Costa Rica.......................        7,663        1,775          23%
Dominican Republic...............        8,082        4,214          52%
El Salvador......................        5,763        2,881          50%
Guatemala........................        7,339        2,501          34%
Honduras.........................        5,894        3,129          53%
Nicaragua........................        1,887          469          25%
------------------------------------------------------------------------
Source: International Monetary Fund.

    The United States is also the CAFTA-DR region's largest customer. 
IMF data show that in 2003 the CAFTA-DR countries exported $24.6 
billion to the world. U.S. imports from the region that year were $16.9 
billion, nearly 70 percent of the CAFTA-DR countries' global exports. 
By far their most important export is their shipments of apparel to the 
United States, which in themselves comprise 40 percent of the region's 
total exports of all products to the world.

          HOW THE CAFTA-DR AGREEMENT WILL EFFECT U.S. EXPORTS

    The CAFTA-DR free trade agreement has the potential to have a 
significant effect on U.S. exports. There will be three types of 
effects: (1) expansion of U.S. exports stemming from the reduction and 
elimination of CAFTA-DR tariffs on U.S. production; (2) expansion of 
U.S. exports through the reduction of non-tariff barriers in the CAFTA-
DR countries and the trade facilitation measures they are committed to 
take; and (3) preservation of existing U.S. exports that would 
otherwise be lost if CAFTA-DR garment production shifted to China or 
other Asian nations.
    Together, these three effects could total to as much as $5 billion. 
The tariff effect would be roughly $1 billion. Non-tariff effects are 
important and positive, but difficult to quantify. By far the largest 
of the effects would be the preservation of existing U.S. exports that 
would be saved by reducing or preventing the loss of CAFTA-DR 
production to China and other Asian nations, a loss that would result 
in a sharp reduction in the amount of goods the CAFTA-DR region buys 
from the United States.

                             TARIFF EFFECTS

    Producers in the CAFTA-DR region already have very open access to 
the U.S. market, while U.S. producers face significant trade barriers 
in attempting to sell into their markets. Thus the agreement can be 
expected to have a stronger expansion effect on U.S. exports than on 
U.S. imports. U.S. manufactured goods exports to the CAFTA-DR region 
face tariffs that, on a weighted average by major product groups, are 
generally in the 4 to 10 percent range, as is shown in Table 3. These 
tariff averages reflect both very low tariffs but also tariffs that are 
in the range of 15-20 percent or even higher.
    In examining the likely effects of tariff elimination, the NAM 
utilized an econometric trade substitution model. This model was 
applied to all U.S. manufactured goods exports other than textiles and 
apparel. Because of the inter-relationship between CAFTA-DR garment 
production and the inter-related requirement for the use of U.S. 
fabrics and other inputs, an econometric model would not yield 
meaningful results. The NAM's estimates of manufactured goods export 
gain are thus net of the textiles and apparel sector.
    It should be noted, however, that the U.S International Trade 
Commission's (USITC) analysis indicated the agreement would boost U.S. 
textile and apparel exports by $700 million, and U.S. textile and 
apparel imports by $680 million--essentially expecting a neutral effect 
on these industries.
    The NAM analysis takes consideration of the substitutability of 
U.S. exports that might displace existing domestic production in the 
CAFTA-DR countries, and U.S. exports that would displace third-country 
exports to the region. An examination of the industrial production 
structure of CAFTA-DR manufacturing industry and the composition of 
U.S. exports showed very little overlap or substitutability. The vast 
bulk of U.S exports to the region are products that are not made in the 
CAFTA-DR region.
    There is, however, a high degree of similarity in the composition 
of U.S. exports to CAFTA-DR and other country exports to the region, 
and this is where almost all of the tariff effect will take place on 
U.S. exports. U.S. exports to the region will become duty-free, while 
exports from the European Union, Canada, Japan, and other countries 
will continue to be subject to the full duties of the CAFTA-DR 
countries. This will make U.S. products more price-competitive relative 
to third-country production and will result in a shift of CAFTA-DR 
purchases from the other suppliers to U.S. products.
    The results of the NAM tariff effects model are shown in Table 3, 
below. The elimination of tariffs on U.S. exports of manufactured goods 
(leaving aside textiles and apparel, as explained above, is estimated 
to generate over $1 billion in additional U.S. manufactured goods 
exports. Miscellaneous manufactures, electrical equipment, chemicals 
and allied products, and paper products would be the largest dollar 
gainers.

                                                     Table 3
                               U.S. Export Gains from CAFTA-DR Tariff Elimination
                                               Millions of Dollars
----------------------------------------------------------------------------------------------------------------
                                                                                         Gain from
                                                                 U.S.       Applied       tariff      Percentage
                                                             Exports,  $    CAFTA-DR   elimination,    Gain, %
                                                               Millions    tariff, %    $ millions
----------------------------------------------------------------------------------------------------------------
Paper and wood products....................................          757           10           141           19
Tires and other rubber products............................          212           10            43           20
Metals.....................................................          247            6            40           16
Chemicals, including photography supplies..................        1,431            5           159           11
Motor vehicle and parts....................................          449           11           112           25
Transportation & Equipment.................................          182            4            13            7
Non-electric machinery.....................................        1,281            4           104            8
Electric Machinery.........................................        2,597            4           176            7
Mineral Products...........................................          980            4            60            6
Manufactured articles not specified elsewhere..............        1,248            7           203           16
----------------------------------------------------------------------------------------------------------------
Total, excluding textile and apparel.......................        9,382                      1,051           11
----------------------------------------------------------------------------------------------------------------
See Methodology section for sources and other information.

    These exports would not displace local production in the CAFTA-DR 
countries, but would instead displace imports into the region from 
producers in countries that would still be subject to the full import 
duties assessed by the CAFTA-DR countries. The model's estimates are 
for export gains after all tariffs are eliminated. As not all CAFTA-DR 
tariffs on manufactured goods would be eliminated immediately, the 
above estimates are not a first-year result. Additionally, it is 
important to note that these estimates are incremental to the base of 
U.S. exports--i.e., the model is not estimating an absolute level of 
exports, but instead is estimating how much larger exports would be 
with the tariff cuts than without them. The overall level of U.S. 
exports, of course, depends on many factors, particularly the health of 
the CAFTA-DR economies.

                        BOUND VS. APPLIED RATES

    A very important aspect of the agreement has been widely overlooked 
by most observers--the fact that the official tariff bindings--so-
called ``bound tariff rates'' of the CAFTA-DR countries are much higher 
than the statutory tariff rates they actually apply. This is not 
uncommon for developing countries, many of whom have unilaterally 
reduced the tariff rates they actually charge, while keeping their 
bound rates at high levels.

                                 Table 4
                      CAFTA-DR: Bound Tariff Rates
------------------------------------------------------------------------
                                                                Bound
                                                             Tariff Rate
------------------------------------------------------------------------
Costa Rica.................................................          44%
Dominican Republic.........................................          35%
El Salvador................................................          35%
Guatemala..................................................          41%
Honduras...................................................          32%
Nicaragua..................................................          41%
------------------------------------------------------------------------
Source: World Trade Organization. Bound tariff data are unweighted
  averages.

    The significance of this is a country may legally, under WTO rules, 
charge any tariff rate it wishes, so long as it does not exceed its 
bound rate. Thus, if any of the CAFTA-DR countries wished, they could 
raise their tariffs up to the extremely high levels that are summarized 
in Table 4. As these are averages, some bound rates will be even 
higher. For example, CAFTA-DR bound tariffs can be as high 50 percent 
on transportation equipment. Without the CAFTA-DR agreement, U.S. 
exporters would have no recourse against countries' raising their 
applied tariffs. The CAFTA-DR agreement, however, would commit these 
countries to maintain zero duties on U.S. products even if they hiked 
their applied tariff rates up to their bound tariff levels.
    In such a case, other exporters to the CAFTA-DR countries would 
have to pay the higher tariffs, while U.S. exporters continued to have 
duty-free access. This guarantee is of substantial value. U.S. bound 
and applied rates are virtually identical, as is typically the case for 
industrial countries, so there is no U.S. obligation here.

                           NON-TARIFF EFFECTS

    The second effect on U.S. exports stems from liberalization of non-
tariff barriers and improvements in trade-facilitating rules and 
policies. These include express delivery, customs clearance, 
intellectual property protection gains, etc. For example, the agreement 
requires that customs processing be accelerated and imported goods be 
able to clear customs within 48 hours to the extent possible. Advance 
customs rulings, transparent publication of customs rules, and other 
trade facilitation steps will lower the cost of processing exports.
    The technical barriers to trade provisions are expected to reduce 
arbitrary rulings on standards. The agreement increases the likelihood 
that U.S. standards and conformity assessment procedures will be more 
broadly accepted, which will reduce costs in the chemicals, machinery, 
and other areas. Smaller U.S. exporters will benefit 
disproportionately. Additionally, the agreement improves the ability of 
U.S. exporters to switch distributorships, which is presently difficult 
to do in some of the countries.
    These improvements will result in expanded exports, but there is no 
economic model to estimate the amount of the gain. After consultation 
with knowledgeable NAM members, we believe these gains may be 
equivalent to a further 5 percent reduction in the total cost of 
providing exports into the CAFTA-DR markets. While the effects are 
real, and in some instances may rival the size of the tariff effects, 
there is no reliable way of quantifying the non-tariff benefits.

                          EXPORT PRESERVATION

    By far the largest effect on U.S. exports would be the preservation 
of some or all of existing U.S. exports to the CAFTA-DR countries that 
otherwise would be lost if Asian countries displaced current CAFTA-DR 
country apparel exports to the United States. This effect could be as 
large as $4 billion of U.S. exports.
    As the CAFTA-DR countries do not have large currency reserves or 
borrowing capacity, the amount they can buy from the United States and 
other countries depends on how much foreign currency they can earn.
    The region has four significant sources of foreign exchange--
exports of goods, remittances from workers who have migrated to the 
United States, tourism earnings, and investment inflows. If CAFTA-DR 
country exports of apparel to the United States were to be displaced by 
Asian-made apparel, none of the other three sources would automatically 
increase to make up for the loss of export earnings.
    Thus, for every dollar of apparel exports the CAFTA-DR countries 
lose to Asian competitors, they will have to cut their imports by a 
dollar. If they were to lose all $10 billion of apparel exports they 
currently sell to the United States, they would have to cut their 
global imports by $10 billion. Since over 40 percent of what they 
import comes from the United States, it is obvious this is a matter of 
some consequence to U.S. exports.
    Most observers believe that in the absence of the CAFTA-DR 
agreement, the region risks losing all or most of its apparel industry. 
The cause of this loss is the January 1, 2005, expiration of the global 
textile quotas that had been permitted by World Trade Organization 
(WTO) rules. Analyses by the International Monetary Fund, the World 
Bank, and others indicate China's costs are lower than all other 
producers and in the absence of quota restraint would be able to put 
most producers, including those in the CAFTA-DR region out of business. 
Even analyses performed by such anti-trade agreement organizations as 
the Global Trade Watch state that without the CAFTA-DR agreement, the 
region's apparel production cannot survive.
    The U.S. International Trade Commission's (USITC) analysis of the 
CAFTA-DR agreement indicates that implementation of the CAFTA-DR 
agreement will provide enough added advantages to enable the region's 
producers to maintain their exports to the United States and avoid the 
loss of its industry. The USITC does not foresee a significant net 
increase in imports into the United States resulting from the CAFTA-DR 
agreement, and states that any increase in the region's exports to the 
U.S. market likely would be in lieu of other imports into the United 
States. In fact, as noted earlier, the USITC analysis sees a small ($20 
million) positive net export effect in this sector.
    Thus, if without the benefit of the CAFTA-DR agreement' 
preferences, CAFTA-DR producers were unable to compete with Chinese 
producers and lost their entire U.S. market, their exports to the 
United States would fall by $10 billion. As earlier noted, the United 
States has more than a 40 percent share of their imports, so our 
exports to them would be expected to fall by about $4 billion.
    There would not be an offsetting increase in U.S. exports to China. 
This is because while the CAFTA-DR nations spend virtually everything 
they earn, China does not. Rather than utilizing its U.S. dollar 
earnings to purchase U.S. goods or services, China instead uses them to 
build up its foreign currency reserves to keep its currency undervalued 
and implement its export-led growth policy. In 2004, for example, China 
added to its currency reserves by $200 billion, even while it earned a 
$162 billion merchandise trade surplus with the United States. China 
now has currency reserves of $600 billion, 40 percent of its entire 
annual production of goods and services.
    The NAM's calculations for the relationship between exports and 
U.S. employment indicate that currently about 12,000 jobs are 
associated with every $1 billion of exports, as was noted earlier--
meaning that if there were a $4 billion drop in U.S. exports, about 
48,000 U.S. job opportunities would be eliminated. Many would probably 
be in the U.S. textile industry, since the CAFTA-DR region is one of 
the only large purchasers of U.S. textiles--which they must use to 
obtain most of their tariff preference privileges. Losses, however, 
would also occur in other sectors as well.
    It should be stressed that the NAM is not making any forecast of 
its own with respect to the degree to which the CAFTA-DR countries can 
preserve their sales to the United States under the CAFTA-DR agreement. 
For purposes of the analysis, the NAM relied on the USITC's estimates 
of the effect of the agreement on the region's garment industry. The 
NAM also accepts, at the other end, the widely-held view that without 
the agreement, their apparel industry has little, if any, hope for 
survival.
    Thus the maximum effect on preserving U.S. exports is calculated by 
the difference between the CAFTA-DR producers being able to keep their 
present $10 billion in annual apparel exports to the United States or 
entirely losing their markets to Asian--and particularly Chinese--
producers. Certainly the CAFTA-DR agreement is the best hope for the 
region's producers. If, however, the agreement were not sufficient to 
enable them to maintain their sales, then of course, the figures for 
the preservation of U.S. exports would be proportionately smaller. For 
example, if only half their sales were preserved, then the differential 
effect on U.S. exports would be half the maximum depicted in this 
paper.

    ECONOMIC EFFECTS ON CAFTA-DR COUNTRIES OF LOSING APPAREL EXPORTS

    As part of the analysis, the NAM considered some of the domestic 
economic effects in the CAFTA-DR region if they were to lose their 
apparel industry to China or other Asian nations. Even a cursory look 
shows that the effects on their economies would be severe.
    The NAM's analysis shows that there are about 550,000 people 
working in Central America's apparel industries. Were the industry to 
see its exports to the United States displaced by Asian producers, 
most--if not all--of these jobs, which are among the highest-paying in 
the region, would disappear. As shown in Table 5, the job losses would 
raise the overall official unemployment rate in the region to 17 
percent.
    The actual job losses would be higher if the apparel industry 
disappeared, for support jobs in other industries--e.g., transportation 
services--would disappear as well. Additional jobs would be lost in the 
service and other industries as the former apparel workers no longer 
had income with which to purchase goods and services. The NAM has no 
estimate for the size of this ``multiplier'' effect in the CAFTA-DR 
countries, but by way of order of magnitude, if the multiplier were the 
same as in the United States, an additional 275 thousand workers would 
become unemployed, increasing the region's unemployment by over 800,000 
and implying an unemployment rate of 18 percent.

                                                     Table 5
                        CAFTA-DR Unemployment, Assuming Loss of Textile/Apparel Industry
----------------------------------------------------------------------------------------------------------------
                                                                         Textile/
                                             Current     Unemployment    Apparel     Prospective    Prospective
                                          Unemployment,     Rate %      Employment  Unemployment,  Unemployment,
                                            thousands                   thousands     thousands       Rate, %
----------------------------------------------------------------------------------------------------------------
CAFTA-DR................................         2,063             14          549         2,612             17
Costa Rica..............................           118              7           45           163              9
Dominican Republic......................           404             17          138         541.5             22
El Salvador.............................           170              7           91           261             10
Guatemala...............................           288              8          122           410             11
Honduras................................           663             28          107           770             32
Nicaragua...............................           420             22           46           466             24
----------------------------------------------------------------------------------------------------------------
Source: Overall employment data from CIA World Factbook, for 2003. Textile/apparel employment data are latest
  available, from USITC country studies.

    Moreover, CAFTA-DR's apparel exports account for a surprisingly 
large portion of the region's entire Gross Domestic Product (GDP). 
Their net exports of apparel to the United States of about $5.5 billion 
are equivalent to 7 percent of their combined $77 billion GDP--the sum 
total value of all goods and services produced in the region.
    A 7 percent drop in GDP would put the region into a serious 
recession. Such a decline would be two and a half times as large as the 
deepest recession the United States has had in the last 50 years 
(1982's 2.6 percent drop). The political stability consequences in the 
CAFTA-DR countries of having 550 thousand or more people become 
unemployed and enduring a 7 percent decline in GDP with little prospect 
of recovery are self-evident.

                                 Table 6
                  CAFTA-DR Gross Domestic Product, 2003
                       (Billions of U.S. Dollars)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total......................................................          $77
Costa Rica.................................................          $18
Dominican Republic.........................................          $16
El Salvador................................................          $13
Guatemala..................................................          $20
Honduras...................................................           $7
Nicaragua..................................................           $4
------------------------------------------------------------------------
Source: International Monetary Fund.

    The CAFTA-DR countries are already highly dependent on remittances. 
For example, in El Salvador remittances are 15% of its GDP. An Inter-
American Dialogue report found that the CAFTA-DR countries received $9 
billion in remittances in 2003. While this counter-cyclical flow would 
surely rise in the event of massive layoffs in the CAFTA-DR region, the 
present numbers indicate that migrants are already hard-pressed and 
increases are likely to be small.

                         EFFECT ON U.S. IMPORTS

    Turning to U.S. imports, the analysis indicates the CAFTA-DR 
agreement is unlikely to generate significant new imports to the United 
States. The primary reason for this assessment is that the CAFTA-DR 
countries have been enjoying preferential access to the U.S. market 
under a variety of special programs such as the Caribbean Basin Trade 
Partnership Act (CBTPA).
    Fully 80 percent of their exports to the United States already 
enter duty-free under these programs. Moreover, outside the textiles 
and apparel industries, 95 percent of CAFTA-DR exports already enter 
the U.S. market duty-free. Thus they will obtain little new U.S. market 
access. The key benefits to the region lies in the greater ability to 
withstand Chinese and other Asian nation competition in the apparel 
area, and the fact that their access to the U.S. market will be 
permanent and not dependent upon possible changes in U.S. legislation 
or policies.

                                 Table 7
  Proportion of U.S. Imports from CAFTA-DR Currently Entering Duty-Free
                                (Percent)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
All Imports................................................           80
Manufactured Goods.........................................           77
Textiles and Apparel.......................................           68
Other manufactured goods...................................           95
------------------------------------------------------------------------
Source: United States International Trade Commission.

    Certainly the improved investment rules, better rule of law, 
greater protection of intellectual property, better-functioning 
services markets, and other structural improvements that the countries 
will make under the agreement are likely to improve their business and 
labor climate and have a positive effect on U.S. and other investment 
in Central America.
    However, fears that a flood of U.S. investment will pour into the 
CAFTA-DR region and ``outsource'' U.S. jobs are unfounded. First, it is 
important to understand that at the present time there are no 
restrictions on U.S. investment into the region. American companies 
have been free to invest.
    Second, three of the countries already have Bilateral Investment 
Treaties (BITs) with the United States that provide U.S. investors with 
substantially the same benefits as the FTA would.
    Third, it is important to understand just how small the CAFTA-DR 
economies are. Together their production of goods and services (total 
GDP) is only $77 billion. This is a tiny fraction of U.S. production. 
To be precise, their combined GDP is seven-tenths of one percent (0.7 
percent) of U.S. GDP or the size of Sacramento, California. Even 
investments significant to their economies would be small in scale to 
present trade flows.
    Finally, any increased investment in the CAFTA-DR region is most 
likely to be in product areas that would otherwise see imports into the 
United States from Chinese or Asian production--rather than displacing 
U.S. production. As noted earlier in this analysis, U.S. imports from 
the CAFTA-DR region would result in greater U.S. exports than if the 
production were in Asia.
    Thank you again Mr. Chairman and Members of the Subcommittee. I 
appreciate the opportunity to express my views, and those of the 
National Association of Manufacturers about the importance of CAFTA-DR.

    Mr. Stearns. I thank the gentleman. I will start with my 
questions first. Mr. Kearns, you have made quite a bit about 
the deficit in our trade, but isn't it also true that deficit 
relative to GDP is really what you should be talking about? 
Because if you compared deficits 20 years ago with deficits 
today, you have a much bigger GDP. So it is all relative to 
what you are doing in business. Wouldn't you admit that that is 
a factor? This is just a minor point. It is just----
    Mr. Kearns. Yes, it----
    Mr. Stearns. [continuing] because I think every Member of 
Congress struggles, what do deficits mean? Not just for the 
budget but also for trade. And, you know, so I think your 
emphasis on these deficits, as Mr. Vargo has pointed out, is 
not in the area where we are talking about, but it is European 
Union where we are probably buying all their BMWs and buying 
all their Porches and Mercedes and so forth, so, you know, it 
is just a thought.
    Mr. Kearns. Well, I think the trade deficits are--Mr. Vargo 
has said that trade agreements are the way to solve these 
problems, but the point I am making is that they are not 
working to solve those problems because the trade deficits 
would be dropping, regardless of their share of GDP. If in fact 
these trade agreements were effective in opening foreign 
markets full to U.S. products, we would exporting a lot more 
and importing a lot less----
    Mr. Stearns. Okay.
    Mr. Kearns. [continuing] and in fact trade is a--the rest 
of the world approaches trade as a zero sum game, get your 
products into the U.S. market, keep out U.S. products to the 
extent you can. So it hasn't been a win-win solution, and it is 
a symptom of a larger problem. And the trade agreements are 
clearly ineffective in getting a greater balance in trade.
    Mr. Stearns. The United States International Trade 
Commission did a study. They estimate that under CAFTA, imports 
from the area would go up about 12 percent, $2.8 billion, while 
exports would go down roughly 15 percent, $2.7 billion. Does 
your organization dispute those numbers? Because it looks like 
a wash to me.
    Mr. Kearns. Yes, essentially, it is a wash. The point is--
--
    Mr. Stearns. Do you dispute those numbers? Do you accept 
those numbers?
    Mr. Kearns. I just said it is a wash, sir.
    Mr. Stearns. Okay. Okay.
    Mr. Kearns. I agree.
    Mr. Stearns. Okay. Okay. Ms. Lee, you know, just as a 
person when looking at this, not knowing about the agreement, 
and Ms. Vargo said right now the tariffs are set up so that 
they can send everything into us with no tariffs, but we can't 
send it to them. So just you would say by golly, any kind of an 
agreement that would allow you to get into their markets with 
no tariff has got to be good just on that basis. And then, as 
Mr. Vargo said, we thrown in some labor agreements and we make 
particular set-ups for maybe the controversial items, it seems 
on the outset that this agreement would be better than no 
agreement, because right now they come in here free of charge 
and we can't get into theirs. So what is wrong with trying to 
set up some kind of agreement where we can get into theirs?
    Ms. Lee. No, I think the idea of getting extra market 
access is always appealing. The question is, first of all, as 
Mr. Vargo said, this is a very small market. And so getting 
addition, incremental, a few percentage points different in the 
tariff you pay in a very small market is not going to be 
economically all that meaningful for the United States. And if 
the conditions attached to it are inadequate and wrong, and I 
guess I would argue--I completely disagree with Mr. Vargo and 
Mr. Cohen about whether the labor rights provisions are a step 
forward. We see them, and we are the ones who live with these--
--
    Mr. Stearns. You think they are a step backward?
    Ms. Lee. We think they are a definite step backwards.
    Mr. Stearns. Separate the labor conditions----
    Ms. Lee. Yes.
    Mr. Stearns. [continuing] and I know it is going to be hard 
since you represent the AFL-CIO, but wouldn't you agree that 
this agreement would help us sell to Central America?
    Ms. Lee. Not to a large extent. I mean, I think there is 
probably some small increase in sales to Central America, but, 
and I think this is really the issue that Mr. Kearns was 
getting at also, that to the extent that American companies 
don't have an export strategy from the United States for the 
large part, that they have an outsourcing strategy, that they 
have been serving foreign markets by moving production there, 
and they are serving the U.S. market by moving production 
offshore, taking advantage of low-paid labor and workers who 
lack basic rights, who don't have the right to organize unions.
    So to the extent that these trade agreements are much more 
about facilitating the mobility of capital than they are about 
facilitating mobility of goods. It ends up in the end--even 
though--that was very true of NAFTA. The figures were that U.S. 
goods faced about a 10-percent tariff going into Mexico, and 
Mexican goods faced only a 2.5-percent tariff coming into the 
United States. So you would think that if you take those 
tariffs down to zero that U.S. producers would be the winners. 
But it is not as simple as looking at the tariffs. And that is 
the point that we are trying to make in the Central American 
context. And the investment rules, the intellectual property 
rights rules, the government procurement rules, and the 
services rules are also problematic in our view. So the set of 
rules together don't justify the small additional market 
access.
    And just one word on the ITC studies is that those studies 
were wrong in the case of NAFTA.
    Mr. Stearns. So you don't agree with Mr. Kearns?
    Ms. Lee. I don't.
    Mr. Stearns. He said it is a wash. You say that the study 
was wrong.
    Ms. Lee. I don't believe that CAFTA is going to be 
economically devastating to the United States. It is small.
    Mr. Stearns. I mean, obviously, as Mr. Cohen said or Mr. 
Vargo, this is Sacramento. So, I mean----
    Ms. Lee. It is not economically devastating, but it is also 
not going to be our savior. It is not going to create----
    Mr. Stearns. No, but it might be symbolic. It might be 
geopolitical and----
    Ms. Lee. It is----
    Mr. Stearns. [continuing] and also I understand there is a 
lot of U.S. industry unionized support for this agreement. I 
mean, you hear the folks from Michigan talking about over a 10-
year period they will be able to sell more cars at really----
    Ms. Lee. There is not a lot of U.S. unionized support for 
CAFTA. Certainly, the United Auto Workers, the steel workers, 
the machinists, the apparel workers, we have got a fair amount 
of unanimity within the U.S. labor movement opposed to CAFTA.
    Mr. Stearns. Okay, Mr. Vargo, is there anything that Ms. 
Lee said that you would like to respond to. I am trying to----
    Mr. Frank Vargo. Well----
    Mr. Stearns. [continuing] understand this in a very 
simplified way.
    Mr. Frank Vargo. Yes, that has become very popular now to 
say these are----
    Mr. Stearns. I think you have to turn your mike on I think.
    Mr. Frank Vargo. It has been very popular these days to say 
these are outsourcing agreements. They are not outsourcing 
agreements. There is nothing that has prevented any American 
company from investing in Central America. Half the countries 
already have bilateral investment treaties with us. This is 
about lowering their tariff rates. Why would the NAM care about 
lowering tariff rates if we just wanted to outsource? One quick 
point on NAFTA; we lost three million manufacturing jobs 
between 2000 and 2003. Three million. Do you know how much our 
imports from Mexico of manufactured goods rose in those 3 
years, Mr. Chairman? Zero. They fell. These are not outsourcing 
agreements. Now, sure, some plants move to Mexico. Others 
expanded and exported to Mexico.
    We want this agreement because we want those barriers down 
because we want to sell to them.
    Mr. Stearns. My time has expired. Ms. Schakowsky.
    Ms. Schakowsky. Well, Mr. Vargo, I feel that I have been 
called a bad neighbor. I feel that I have been called a 
chicken, afraid of negotiating agreements with these little 
countries. You said that the sugar industry should say a big 
thank you for what they have gotten in this and that it is good 
for us and good for them. And my real question is who is the 
``us''? You know, I have no problem with you coming here and 
arguing a case for the National Association of Manufacturers. 
But I do have to say that I take exception for your arguing on 
behalf of the workers in this country or in those countries. We 
have other people who are here to presumably argue their own 
self-interests. And I would hope that you presume that they 
understand their self-interests.
    And I would say that to Mr. Cohen too. If you want to argue 
on behalf of your members, that, it seems to me, is what this 
is for. But for you to come and tell us about why organized 
labor, why working people are wrong about what they believe to 
be their own self-interest is something else. And I would agree 
that some of your members may benefit very much. Your bottom 
line may be better and you may argue that ultimately, that is 
good for the United States of America.
    I, for one, am concerned about the workers in my district, 
and I am also concerned, having traveled to Ciudad Juarez and 
seen workers living in the packing crates of the items that 
they are manufacturing when their employer is a U.S. company 
that crossed the border. I am worried about the impact that our 
trade agreements are having. On this side of the border, the 
lost jobs, and on the other side of the border. And I, for one, 
am less concerned about the bottom line of your members. That 
is a legitimate concern. But it is not my primary concern.
    So I wanted to go back to Ms. Lee to talk a little bit 
about the situation with these labor agreements. But I also 
wanted you to defend--I think Mr. Vargo made a strong argument 
in saying this is not an outsourcing piece of legislation or 
agreement, but rather--so if you would talk about both the 
labor agreements. But also first to address it. That it is not 
outsourcing, that in fact we are talking about the interest of 
lowering the trade barriers.
    Ms. Lee. Thank you very much, Congresswoman. And in terms 
of the outsourcing agreement, I guess there are some key 
differences, key things that changed. Certainly, the investment 
protections are things that I know multinational corporations 
do look at whether--if you are reducing the riskiness of moving 
production to another country, and you are locking in the lower 
tariff barriers, that does make it more attractive to move the 
production there. You have guaranteed your access back into the 
United States market and maybe even guaranteed the lower 
tariffs on your inputs that move back and forth.
    In terms of whether these agreements are outsourcing or 
not, I think that--I will say two things in terms of NAFTA, 
first of all, that a couple of years after NAFTA there was a 
follow-up and went back to a lot of the companies that argued 
for NAFTA--Allied Signal, Procter and Gamble, Eastman Kodak--
and asked them how many jobs did you create in the United 
States through your increased exports to Mexico and Canada? And 
those companies were almost to the one unable to come up with 
very many jobs, five here, six there, small numbers. On the 
other hand, almost all of those companies had in fact moved 
production to Mexico in the years following NAFTA's 
implementation.
    The same thing was very true around the China PNTR. 
Remember, that debate also was about opening China's market, 
making sure that American producers and workers had a good 
chance to sell more stuff to China, and yet again, when a 
``Wall Street Journal'' reporter went to as many multinational 
corporations as she could around the China vote and said how 
many of you are actually planning to expand exports to China if 
PNTR goes through? She couldn't find a single one that would 
say they wanted to export more to China. And yet every single 
one again had plans to move production to China.
    So this has been our experience of the American labor 
movement that the trade agreements are sold as market opening 
agreements. And in fact what we see is that they are used both 
at the bargaining table, when workers are trying to form 
unions, when they are trying to bargain for decent wages and 
benefits and they are told we can move to another country where 
workers don't have the right to form unions, where wages are 
much lower, where we don't have to worry about pesky workplace 
health and safety regulations, the enforcement of environmental 
rules. And that is exactly what our members experience every 
single day of the week with respect to trade agreements. And 
that is why our folks are cynical and they don't believe the 
promises that have been made on behalf of the trade agreements, 
because they simply have not seen them borne out in their own 
lives, in their own workplaces, in their own communities.
    Mr. Kearns. May I make one additional point on outsourcing 
or is that out of order?
    Mr. Rogers. Please.
    Mr. Kearns. Okay. Many of our members at U.S. Business and 
Industry Council are suppliers of intermediate goods to larger 
American corporations, multinational corporations. And I can 
tell you there is extreme pressure to move to--has been extreme 
pressure over the last 12 years to move to Mexico, to follow 
the majors if you are in the auto parts business or supplying 
parts for major appliances, for instance. The GM plant in 
Shanghai, the Buick plant there, one of our members bid on a 
contract and he was told well, you won the bid, you are the low 
man, but you have to take a Chinese partner, and over 5 years 
you have to transfer all of your technology to them. Well, at 
the end of 5 years, guess who is going to be supplying that 
plant. And it is not going to be from Tennessee. It is going to 
be from some local Chinese supplier. So I would dispute Mr. 
Vargo's assertion that these are not outsourcing agreements.
    If you looked at PNTR for China, we did a survey of the 
websites, the top 50 Fortune 500, the ones that are involved in 
manufacturing, they all had plans to move factories to China, 
not to sell goods out of U.S. factories to China. And when they 
moved those factories to China, the whole supply chain in this 
country is disrupted, and the American companies supplying them 
either have to follow them or are forced to transfer technology 
to a Chinese partner, a joint venture partner, et cetera. Thank 
you.
    Mr. Cohen. Mr. Chairman, may I just make one comment?
    Mr. Rogers. Please.
    Mr. Cohen. Simply on this larger issue of companies' 
involvement overseas, we have done quite a few investigations, 
as well, of what the consequence is of investment overseas by 
U.S. companies. And there is a conclusion that has come out 
again and again, and the conclusion is that as companies invest 
more and more overseas, they have a greater level of activities 
here at home. Were they to have less activity overseas, invest 
less, they would have fewer activities here at home. And in 
that sense it is not a substitution. It is complementary. And 
when you actually look at what companies produce overseas, the 
lion's share of what is produced overseas is sold overseas.
    Similarly, if you look at where U.S. companies export their 
products and they produce them in the United States, the 
largest single purchaser of U.S. product that is produced here 
in the United States are the subsidiaries and affiliates 
overseas of U.S. companies.
    Mr. Rogers [presiding]. And not because I am sitting in the 
chair but apparently I am next on the list, a couple of quick 
things, Mr. Kearns. China is not covered in the NAFTA 
agreement, correct? I mean, the example used was Shanghai. You 
mentioned Mexico and China in the same breath. I mean, just for 
the sense of clarity, we don't have a free trade agreement with 
China.
    Mr. Kearns. No, they are part of the world----
    Mr. Rogers. I just wanted to make that very, very clear.
    Mr. Kearns. There is not a bilateral free trade agreement 
with China, correct.
    Mr. Rogers. And I have the same concerns, being from 
Michigan, about coercion of placement of supply--absolutely, 
but we need to be very clear about this, that we have no free 
trade agreement with China, which is a very common 
misconception, at least where I come from. NAFTA and China, in 
my estimation, are two very distinct sets of problems that we 
need to address just for a point of clarification.
    Mr. Vargo, you cited an interesting figure that I think is 
important. Two-thirds of all your manufacturing growth came 
from exports. Did I understand that correctly?
    Mr. Frank Vargo. I must have misspoken, Mr. Rogers. What I 
meant to say was that two-thirds of our entire growth of 
manufactured exports to the whole world since 1997 has come 
from NAFTA.
    Mr. Rogers. That is interesting.
    Mr. Frank Vargo. And----
    Mr. Rogers. You mean exported to NAFTA co-signatures, is 
that correct?
    Mr. Frank Vargo. To purchasers in NAFTA.
    Mr. Rogers. Okay.
    Mr. Frank Vargo. Two-thirds of our entire--well, one-third 
to Mexico. In fact the increase to Mexico was almost as large 
as to all of the countries with which we don't have trade 
agreements.
    Mr. Rogers. Can you put that in a--that has a huge job 
implication, does it not?
    Mr. Frank Vargo. Yes, it does.
    Mr. Rogers. I mean, one-third of all--this sounds kind of 
complicated, but what does that mean in actual jobs? Can you 
give me an understanding?
    Mr. Frank Vargo. Our exports of manufacturers to Mexico are 
currently running over $100 billion. I mean, you can figure 
12,000 jobs per billion. So there is a lot there. But can I 
make one point on Mexico----
    Mr. Rogers. Sure, please.
    Mr. Frank Vargo. [continuing] which NAFTA has been impugned 
a lot, and it was said, you know, if these things worked, our 
trade deficit would fall. You know, anyone who would like to 
check the figures can see that our manufactured goods trade 
deficit with Mexico last year in 2004 was smaller than it was 
in 2002 while it exploded with the rest of the world. Two-
thirds of our deficit is with Asia. And, Mr. Rogers, I know how 
concerned you are about the Chinese currency. That is where our 
problem is.
    Another problem I have with people going on NAFTA, NAFTA, 
is they are barking up the wrong tree and they are preventing 
us from getting to the real problem, which is, within the 
system, we have got to find a way to solve those Asian currency 
problems, or our deficit is just going to get totally out of 
hand. It is plenty big enough now. Thank you.
    Mr. Rogers. And I agree 100 percent on this currency 
manipulation. It is a huge problem that we must----
    Mr. Frank Vargo. It is.
    Mr. Rogers. [continuing] address. It is one of the areas 
that we are wholly uncompetitive on American manufacturers. It 
has nothing to do with any trade agreement other than it is bad 
economic policy.
    Mr. Frank Vargo. I don't know if you can find jurisdiction, 
this subcommittee, but I would love to have a hearing on it.
    Mr. Rogers. We are working on it. Trust me on that one. And 
now that I am sitting in the chair, can I make that pledge 
right now? Also, I think it is important to point out--and I 
don't know the exact number--I want to say two-thirds. That may 
be wrong. You can help me here. One of the things with global 
competition, American manufacturers got more innovative and 
more productive. Didn't we lose about two-thirds of those jobs 
through productivity increases and not necessarily moving 
companies offshore?
    Mr. Frank Vargo. Probably not that high, but a lot. Our 
productivity growth has been astonishing. But as far as trade 
goes, you know, we had a worsening of about $100 billion in our 
trade deficit in those 3 years. But about $80 billion of that 
worsening was because our exports fell. And our exports fell 
because the dollar was allowed to get out of line. So we take 
the export fall and you take the productivity and the decline 
of the domestic economy, you have got the vast bulk of it.
    Mr. Rogers. Talk to me about enforcement. I know that the 
National Association also has some concerns about enforcement.
    Mr. Frank Vargo. Yes, sir, we----
    Mr. Rogers. What do you think that we can do on the 
enforcement side, either in Congress or through the 
administration to make sure that these are truly fair and free 
trade agreements?
    Mr. Frank Vargo. Two things in my view--and for full 
disclosure I will say that I had 30 years at the Commerce 
Department, and part of my time there was in setting up a 
compliance center at the Commerce Department--I would like to 
say three things actually. One, I would like to see a strong 
inter-agency committee on enforcement and compliance so the 
agencies would all really get in line to work together. Second, 
I would like to see some more enforcement resources, but third, 
I would like to see investigatory resources because we have so 
many smaller companies that say I go to the government; they 
say well, prove it. Well, I can't go to China and document 
everything. There is no way I can do that. So, in essence, a 
lot of smaller companies are left outside the system. So I 
would hope that we would look at how can we increase the 
resources that go to investigation. Commerce has set up one 
unit. We haven't seen that much out of it yet. We would like to 
press for more.
    Mr. Rogers. I think those are great suggestions, and I 
think, hopefully, we can work together and find some common 
ground on that on both sides of the aisle on that particular 
issue. I see that my time is up, and I would now recognize Mr. 
Brown.
    Mr. Brown. Thank you, Mr. Chairman. Mr. Vargo talked about 
the expansion of all the exports from the United States to 
Mexico, understanding mostly though the great--overwhelming 
percent of those exports were either equipment to build 
factories in Mexico or what some have called industrial 
tourists. They are components that go to Mexico and then return 
quickly to the United States as assembled products.
    And I would just show this chart here that none of these 
countries in Central America, just like Mexico is not buying 
consumer goods. None of these countries can afford to buy a car 
from Mr. Rogers' district, can afford to buy steel from West 
Virginia, can afford to buy textiles, by and large, from North 
and South Carolina and Georgia, can afford to buy from Seattle, 
buy any kind of software. I mean, it is just pretty clear that 
these are not countries that are going to be able to consume, 
to buy American exports as Mr. Kearns was saying.
    Another point before I have a question for you, Mr. Kearns. 
You had said that--I have heard President Bush the first say 
that $1 billion in imports or exports translates into 18,000 
jobs. Your number was 12,000. Either way you were talking about 
how this means more jobs for the United States. Conversely, 
when you have a $600 billion trade deficit, if you multiply 
that times 12,000 jobs, because if you are going to multiply it 
one way, you are going to multiply it the other way--I can't 
even add that high, but 12,000----
    Mr. Kearns. It is eight million. It is----
    Mr. Brown. It is obviously an awful lot of job loss, and so 
I think you made that point pretty well. Mr. Kearns, I have a 
yes or no question for you because of the shortness of time. 
The only penalties we talked about earlier Ms. Schakowsky first 
brought up for violating CAFTA's labor and environmental 
provisions is a fine capped at $15 million. In contrast, 
violations of CAFTA's commercial provisions result in unlimited 
trade sanctions, a much more drastic and effective tool. My yes 
or no question for you is penalties for violations of the 
commercial and IP provisions of CAFTA were the same as those 
for labor and environment provisions, capped at $15 million 
fines, would NAM still support CAFTA?
    Mr. Frank Vargo. I am sorry. What was the question?
    Mr. Brown. The question was that if the penalties for 
violations of commercial and IP--if the penalties for those 
provisions were the same as those for labor and environmental 
provisions, that is, capped at $15 million rather than trade 
sanctions, would NAM still support CAFTA?
    Mr. Frank Vargo. Well, I think that the sanctions should be 
appropriate to the----
    Mr. Brown. Would you give me a yes or no on that? Is that 
possible?
    Mr. Frank Vargo. It is not possible.
    Mr. Brown. Okay. All right, then. I have a couple of 
questions for Ms. Lee. Several of CAFTA's supporters cite the 
report from the International Labor Organization on Central 
American labor laws and enforcements. When I hear some of the 
supporters of CAFTA toasting an ILO report, it piques my 
curiosity for sure. People keep saying the report says CAFTA 
countries' labor laws meet ILO standards. Would you both 
discuss that whether in fact they do. And second question, 
would you comment on Mr. Cohen's comments--and I believe Mr. 
Vargo weighed in too--on the whole issue of these labor 
provisions in CAFTA being actually stronger than labor 
provisions in the Jordan agreement? Thank you.
    Ms. Lee. Thank you very much. We read that ILO report 
pretty closely, and it is written like all ILO reports, in very 
careful language. But it found about 27 different ways in which 
Central America's labor laws do not in fact meet ILO standards. 
Now we can argue about whether those are important ways or not 
important ways, but I think it is not accurate to say Central 
America's laws meet ILO standards. They don't, and in fact 
those 27 different deficiencies in Central America's labor laws 
haven't been corrected. And there is no move to correct them. 
And if CAFTA is passed there will be no incentive to correct 
them.
    And, you know, we talk every day with Central American 
trade unionists, and they tell us the deficiencies in their 
labor laws are real.
    There are also problems with enforcement. Those are both 
issues there. But the deficiencies in the labor laws create 
loopholes where workers who try to organize unions simply can't 
register their unions, they get fired, and there are no 
penalties. There are no adequate penalties. Those are things 
that need to be fixed in Central America's labor laws. And the 
kind of vague language written into constitutions that say we 
support labor rights is almost irrelevant in that context.
    The CAFTA doesn't just clarify the Jordan standard. The 
Jordan standard has three labor provisions: to respect and 
affirm the ILO obligations under the Declaration of Fundamental 
Principles and Rights at work, to enforce your own laws, and 
not to derogate from your laws in order to increase trade. And 
CAFTA explicitly makes the first and the third of those, the 
commitment to meet ILO standards and the commitment not to 
derogate not subject to any enforcement whatsoever. That is not 
a clarification.
    Under the Jordan agreement it is possible to bring dispute 
settlement over whether a country is in fact meeting ILO 
standards, whether their laws meet ILO standards or not. It 
might be that it would be unlikely that that would happen, and 
I would argue that it is unlikely, that, you know, if a madman 
takes over the country and bans union, we would be able to 
bring a dispute settlement case saying that that country was 
not in fact striving to ensure that its laws met ILO standards. 
It was not in compliance with that.
    And in terms of the different dispute settlement 
mechanisms, I was astounded to hear Ms. Vargo say that the GSP 
provisions are a sledgehammer, and she much prefers the weak 
CAFTA labor enforcement provisions where there is essentially 
the ability to pay a fine to yourself is what the CAFTA labor 
rights enforcement provisions include. And only if you don't 
pay that fine to yourself does a trade sanction come into play.
    Now, trade sanctions, the withdrawal of trade benefits when 
a country is not in compliance with its obligations under trade 
agreements is how we enforce all of our trade laws. All of the 
things of importance to Mr. Cohen and Mr. Vargo are enforced 
through the threat of withdrawing trade benefits. And we have 
denied ourselves the use of that very important tool for labor 
right enforcement in the CAFTA, and we have completely denied 
the ability to challenge a country's labor laws, the adequacy.
    And in Central America where workers are fired almost every 
day for trying to organize unions sometimes face violence, and 
the reprisals against trade unionists are very extreme. We feel 
that the laws need to be improved, we need protections against 
weakening those laws, and we need effective enforcement of 
those laws. We have none of those under the CAFTA labor 
chapter.
    Mr. Cohen. Mr. Brown, may I just----
    Mr. Frank Vargo. May I be permitted a quick technical 
comment?
    Mr. Cohen. Just a----
    Mr. Frank Vargo. Let me do this. It is important to 
understand that while the CAFTA agreement has teeth, the Jordan 
agreement has no teeth. Because if you read the dispute 
settlement part it says this is non-binding. It doesn't mean a 
thing. And also, both parties to the dispute have to agree to 
allow a panel to be created. And if they don't, it will never 
be created because there are no time limits on it. But the 
CAFTA agreement does have the dispute settlement built right 
into it.
    Mr. Cohen. The one other point, if I may, Mr. Chairman, is 
to mention why the enforce-your-own-law standard is 
incorporated in the FTA with the countries of Central America. 
And it really goes back to the direction of you, the Congress, 
in the 2002 Trade Act. That was the direction that you gave the 
negotiators when they were going to go forth and negotiate 
trade agreements around the world. It was to be an enforce-
your-own-law standard. There had been a consideration of 
requiring each of the free trade agreements to incorporate the 
core ILO labor standards. That was looked at by the Congress; 
it was not adopted. And that is really the basic reason why 
this standard has been--Congress itself is the one that 
requested it.
    Mr. Brown. Mr. Cohen, I would add, the Congress that did in 
fact--was included in the Trade Promotion Authority Bill, but 
it also passed literally in the middle of the night with the 
role call staying open for an hour and a half by two votes, 
just for your information.
    Ms. Lee. Congress also instructed the administration to 
have equivalent dispute resolution for labor and environment 
for all the principal negotiating objectives. In our view that 
is not----
    Mr. Rogers. I am just going to cut--this is not a debate 
with the panelists, although intriguing and as interesting as 
that might be. Mr. Gonzalez.
    Mr. Gonzalez. Thank you, Mr. Chairman. My first question is 
to Mr. Kearns, and I do want to have enough time to ask Ms. Lee 
what I think is a very important question because it is the 
most troubling aspect of the treaty for me. Mr. Kearns, some 
would argue that CAFTA is a way of dealing with the China 
problem.
    Mr. Kearns. Right.
    Mr. Gonzalez. All right. What I mean by that is that we do 
something in our own hemisphere to strengthen everyone that 
obviously are our neighbors and stuff, and it is good neighbor 
policy, but it may be good economic policy and strengthen 
everyone so that we are in a more competitive mode because when 
you say fix the China problem, you know, they are our creditor. 
They are the ones that enjoy the trade deficit and such. In 
other words, they are in a superior position in many ways, and 
it is worsening. But do you see that a free trade agreement 
could be part of a policy of addressing what looms large in the 
very near future and that is China and the changing global 
circumstances?
    Mr. Kearns. Well, I think there are better ways to address 
the threat of China in terms of textiles and apparel than is 
laid out in this agreement. There are a bunch of loopholes that 
the Chinese may be able to take advantage of in yarn-forward 
and single transformation. According to the Mexican Chamber of 
Commerce, 58 percent of all the clothing sold in Mexico is 
smuggled in from China. So China has set itself up over the 
past several years to do what we see it doing since the MFA 
went out of existence at the end of last year. It is just 
surging and taking enormous amounts of market share here in the 
U.S.
    It would have been prudent, if we could turn back the 
clock, to look at the phase-out periods of the MFA to make it a 
15-year as opposed to a 10-year, et cetera. No one was looking 
when this stuff was negotiated back in the Uruguay Round with 
setting up the WTO. China wasn't on anyone's horizon, and the 
countries negotiating these things all thought well, we are 
just going to get increased share, access to the U.S. market at 
the expense of American companies. Now China is on the scene 
and it is a much different equation.
    I think that the, you know, the whole notion that somehow 
these roundtrip exports down there, about 35 percent or so of 
our exports down there, $5 out of the $15 billion roughly 
speaking, are roundtrip textile and apparel exports. I don't 
see it as a way to, you know, they may--some companies, 
American in the textile and apparel field, may do a little bit 
better for a short amount of time, but there is just colossus. 
There is this 800-pound gorilla in the room eating our lunch at 
the buffet and we are discussing the hors d'oeuvres, as it 
were. It is not a good long-term strategy. I don't think it 
is----
    Mr. Gonzalez. And I need to move on to the next question.
    Mr. Kearns. Yes, sir.
    Mr. Gonzalez. And I do appreciate your concerns and your 
insight. Bottom line is always going to be who is our 
competition, who is going to be basically our trading partners. 
And either we do something in this hemisphere, and I am not 
really sure how we would do it to better position ourselves, 
and everyone complains when we attempt to do it. It just 
depends whose ox is being gored. When labor is the greatest 
cost in all of your components in whatever you are 
manufacturing or producing, you are going to be at a 
disadvantage whether it is Latin America or China.
    And I guess I am just having a real difficult time in 
trying to reach some sort of an agreement with at least those 
individuals that have more in common with us, whether it is in 
this hemisphere and so on. Then maybe someone who is truly the 
greater competition, such as China, and that remains to be seen 
on how we get there.
    Ms. Lee, I know I have just 1 minute left, but obviously I 
think the chairman will allow you to answer this. And it goes 
back to the labor provisions of CAFTA. And what you have 
already told me is this: under what we call the GSP, there is 
greater ability for the United States one, to identify what is 
less than satisfactory labor practices, and then promote them 
because there are significant sanctions or actions that the 
United States can take.
    Under CAFTA what you do is you fine yourself, is that 
pretty much it? It is also my understanding that the trade 
representative, back in the Singapore and Chile pacts, 
identified the labor provisions as maybe in those particular 
treaties as maybe not applicable to Central America and South 
America and so on. Yet, that is what we have presently. Isn't 
that true?
    Ms. Lee. Yes, that is exactly right that early on in the 
negotiation process, USTR, Ambassador Allgeier said that the 
Central American context was different, would require stronger 
labor provisions. And then they went ahead to negotiate the 
exact same, essentially, labor provisions.
    And I think the point is that we are losing tools that we 
have in place today, that we have the GSP tools and that the 
mechanism of paying a fine that goes back to the country where 
the violation occurred I don't think would be seen as 
acceptable for commercial provisions, for IPR.
    And certainly if you take for example the case of 
Australia. We negotiated a free trade agreement with Australia. 
Australia has excellent intellectual property rights laws, and 
yet it wasn't considered that we didn't need an IPR chapter 
with respect to Australia or that we needed a provision that 
just said keep on enforcing your own IPR laws. We put in the 
same IPR protections, very strong IPR protections even in the 
Australia context because that is how we do trade agreements 
when something matters.
    And I guess what I would argue to you is the very weak and 
inadequate labor rights provisions in CAFTA show that this 
administration simply doesn't care. It is not a high priority 
to protect workers' rights, and so they put in place very weak 
provisions.
    I wanted to say one word about China, which is that I think 
this is a very important question, but it is essentially 
wishful thinking that signing CAFTA is somehow going to help us 
compete with China. We have $162 billion trade deficit with 
China. We have to address directly--we need our own government, 
we need our administration to step up to the plate and address 
the currency manipulation, the illegal subsidies, and the 
egregious repression of workers' rights and human rights in 
China, because that is one of our key trading partners.
    And having a little bit more ability to assemble clothing 
in Central America is simply not going to address that China 
problem. It is not going to help Central America. I know the 
Central Americans are very concerned about the end of textile 
and apparel quotas, and we heard a couple of people say today 
that Central Americans are going to lose half a million apparel 
jobs if CAFTA doesn't go through. There is no reason why that 
would be the case. Central America still has the CBI provisions 
and could have those indefinitely.
    Mr. Rogers. Thanks. Unfortunately----
    Ms. Lee. And if there is time----
    Mr. Rogers. [continuing] I am going to have to----
    Ms. Lee. [continuing] I have just one quick----
    Mr. Rogers. [continuing] make that the last word. I 
apologize. We have yet another panel to get through. Thank you 
very, very much for taking the time to be here. We appreciate 
your insight and concern. Thank you very, very much.
    Mr. Cohen. Thank you.
    Mr. Frank Vargo. Thank you.
    Mr. Rogers. The next panel is Jack Roney, is that correct?
    Mr. Roney. Yes.
    Mr. Rogers. John Murphy, Dr. Russell Roberts, and Mr. David 
Waskow. Thanks for that quick transition. We are going to push 
on. Thank you very much for your patience today. We look 
forward to hearing from you. And, Mr. Roney, we are going to 
start with you and ask if you would proceed.

   STATEMENTS OF JACK RONEY, DIRECTOR OF ECONOMICS AND POLICY 
 ANALYSIS, AMERICAN SUGAR ALLIANCE; RUSSELL ROBERTS, PROFESSOR 
   OF ECONOMICS, J. FISH AND LILLIAN F. SMITH DISTINGUISHED 
 SCHOLAR AT THE MERCATUS CENTER, DEPARTMENT OF ECONOMICS; JOHN 
 MURPHY, VICE PRESIDENT, WESTERN HEMISPHERE AFFAIRS, EXECUTIVE 
   DIRECTOR, AMERICAN CHAMBERS OF COMMERCE OF LATIN AMERICA, 
    UNITED STATES CHAMBER OF COMMERCE; AND DAVID F. WASKOW, 
   DIRECTOR OF THE INTERNATIONAL PROGRAM FRIENDS OF THE EARTH

    Mr. Roney. Thank you, Mr. Chairman. I am Jack Roney, Staff 
Economist for the American Sugar Alliance. I have the privilege 
of speaking today on behalf of 146,000 American farmers, 
workers, and their families who grow, process, and refine sugar 
beets and sugar cane in 19 States.
    The proposed CAFTA threatens American sugar jobs in all 19 
of these States. By the government's own estimates, sugar job 
losses from the CAFTA would be far greater than any other 
sectors. The same International Trade Commission study also 
questions the overall value of the CAFTA to our economy. The 
ITC concluded that the CAFTA will increase the U.S. trade 
deficit with that region, not reduce it.
    Our sugar growers and processors are among the most 
efficient in the world. Like other American farmers, we would 
welcome the opportunity to compete globally on a level playing 
field free of government intervention. Like other American 
farmers, we can compete with foreign farmers. We cannot compete 
against foreign government subsidies.
    The world's sugar market is the world's most distorted 
commodity market. A vast global array of subsidies encourages 
overproduction and dumping. We support correcting this 
distorted dump market through genuine global sugar trade 
liberalization.
    There is a right way and a wrong way to attack sugar 
subsidies. The right way is the WTO, all countries all the 
table, all subsidies on the table. The wrong way: bilateral and 
regional FTAs where markets are wrenched open without 
addressing any foreign subsidies.
    Virtually every FTA every completed around the world 
excludes import access mandates for sugar. Only the United 
States has every guaranteed access to its sugar market in an 
FTA, in the NAFTA and the CAFTA. And these agreements are mired 
in controversy. Sugar must be reserved for the WTO where 
genuine trade liberalization can occur.
    As Congressmen from sugar-producing regions know, if the 
CAFTA passes, it will have devastating effects on sugar jobs in 
their states. Our farmers know their industry and their policy 
well. We have examined the CAFTA provisions soberly and 
carefully. We regard the CAFTA as a life or death issue. 
American sugar farmers and workers who will lose their jobs are 
insulted by CAFTA proponents that trivialize the potential harm 
from this agreement with cutesy, misleading depictions of 
additional access and teaspoons or packets per consumer per 
day, or suggesting we should thank the administration for the 
CAFTA.
    We are already one of the world's most open sugar markets. 
Past trade agreement concessions force us to import upwards of 
one and a half million tons of sugar per year from 41 countries 
duty-free. This makes us the world's fourth largest net 
importer of sugar. The CAFTA countries and the DR are already 
our biggest duty-free supplier, accounting for a fourth of all 
our imports.
    Unfortunately, our market is already oversupplied. Every 
additional ton of sugar we are forced to import from foreign 
countries is one ton less than struggling American sugar 
farmers will be able to sell in their own market. Import more 
foreign sugar, export more American jobs.
    The CAFTA poses serious short-term and long-term dangers to 
American sugar farmers and workers. In the short-term the CAFTA 
sugar market access concessions, on top of import commitments 
the U.S. has made already in the WTO and the NAFTA will prevent 
the USDA from administering a no-cost sugar policy, as Congress 
directed it to in the 2002 Farm Bill. The CAFTA will further 
oversupply the U.S. sugar market.
    The additional concessions will trigger off the marketing 
allotment program that permits USDA to restrict domestic sugar 
sales and balance the market. U.S. sugar producers are 
currently holding more than a half million tons off the market 
and storing it at their own expense. Absent marketing 
allotments, this surplus sugar would cascade onto the market 
and destroy the price.
    Contrary to the misleading claims of CAFTA proponents, 
there is no cushion, no additional share of the U.S. market 
that Congress intended to make available in FTAs. The 
difference between recent actual imports and the one-and-a-
half-million-ton marketing allotment trigger has already been 
allocated to Mexico under the NAFTA. The administration is 
ignoring the NAFTA to promote the CAFTA.
    In the long-term CAFTA is the tip of the FTA iceberg. 
Behind the CAFTA countries, 21 other sugar-exporting countries 
are lined up like planes on the tarmac waiting to do their deal 
with the U.S. No doubt they expect no less than the concessions 
already granted to the CAFTA countries. Combined, these 21 
countries export over 25 million tons of sugar per year, nearly 
triple U.S. sugar consumption. Obviously, the precedent the 
CAFTA concessions set would make it impossible for the U.S. 
sugar industry to survive future agreements.
    In conclusion, Mr. Chairman, the CAFTA will cost thousands 
of American sugar farmers and workers their jobs. The certain 
dangers of the CAFTA to the U.S. economy far outweigh the 
marginal possible benefits. We respectfully urge the Congress 
reject the CAFTA and focus U.S. trade liberalization efforts 
instead on the WTO where there is genuine potential for 
progress. Thank you.
    [The prepared statement of Jack Roney follows:]

  Prepared Statement of Jack Roney, Director of Economics and Policy 
                   Analysis, American Sugar Alliance

    The American Sugar Alliance is grateful for the opportunity to 
provide testimony for this important hearing. The ASA represents the 
146,000 American farmers, workers, and their families in 19 states, 
engaged directly and indirectly in the growing, processing and refining 
of sugarbeets and sugarcane. The U.S. sugar industry generates nearly 
$10 billion in annual economic activity.

               BACKGROUND ON U.S. AND WORLD SUGAR MARKETS

    In some states, sugar is the most important cash crop, or among the 
most important. Sugar accounts for 44% of crop receipts in Louisiana, 
37% in Wyoming, 24% in Hawaii, and 10-20% in Idaho, Minnesota, Florida, 
North Dakota, Montana, and Michigan.
    American sugar growers and processors are among the most efficient 
in the world, and, like other American farmers, we would welcome the 
opportunity to compete globally on a level playing field, free of 
government intervention (Chart 1). Like other American farmers, we can 
compete against foreign farmers, but we cannot compete against foreign 
government subsidies and predatory trading practices.
    The world sugar market is the world's most distorted commodity 
market, because of a vast, global array of subsidies. Subsidized 
growers overproduce and dump their surpluses on the world market for 
whatever price it will bring. As a result of all this dumping, the so-
called world sugar price has averaged barely half the world average 
cost of producing sugar for the past 20 years (Chart 2). The ASA 
supports correcting this distorted dump market through genuine global 
sugar trade liberalization.

              ONLY PATH TO SUGAR TRADE LIBERALIZATION: WTO

    There is a right way and a wrong way to achieve global sugar trade 
liberalization.

 The right way: The World Trade Organization (WTO)--all countries at 
        the table; all programs and all subsidies on the table. The ASA 
        has supported sugar trade liberalization in the WTO since the 
        initiation of the Uruguay Round of the GATT in 1986.
 The wrong way: Bilateral and regional free trade agreements (FTAs), 
        where markets are wrenched open without addressing any foreign 
        subsidies. The Administration has rightfully declared it will 
        not address any support programs or subsidies in FTAs. Yet it 
        has effectively negotiated away the U.S. sugar support program 
        in the CAFTA.
    Virtually every FTA ever completed around the world excludes 
import-access mandates for sugar. Sugar import mandates are excluded 
from the U.S.-Canada portion of the NAFTA; from the Mercosur agreement 
among four South American sugar producing countries, including Brazil; 
from the European Union's (EU) trade agreements with South Africa, with 
Japan, and now with Mercosur; from Mexico's FTAs with other Latin 
American countries and with Japan; from Japan's pending agreements with 
Thailand and with the Philippines. Sugar was excluded from the U.S.-
Australia FTA, which USTR touted as a ``state of the art'' agreement 
that gained the U.S. immediate duty-free access for 99% of its exports 
to Australia, and which Congress passed easily.
    The only exceptions: Sugar market-access mandates were included in 
the U.S.-Mexico portion of the NAFTA, and those provisions have been 
mired in controversy ever since, and in the CAFTA, whose fate in the 
Congress is highly uncertain.
    The ASA's recommendation to the Administration has been long-
standing and unambiguous: Reserve sugar negotiations for the WTO, where 
genuine trade liberalization can occur.

         CAFTA DANGERS TO U.S. SUGAR, U.S. ECONOMY, WTO PROCESS

    The U.S. sugar industry adamantly opposes the CAFTA and 
respectfully suggests that this Committee do the same. The potential 
benefits for the U.S. economy simply do not outweigh the definite 
risks. The possible benefits are tiny: The entire GDP of the six 
countries is about the same as New Haven, Connecticut's. At serious 
risk are American jobs in sugar and a host of other sectors.

 The government's own analysis, by the International Trade Commission 
        (ITC), predicts that at the end of the 15-year implementation 
        period, the U.S. trade deficit with the CAFTA region will have 
        increased, not fallen, to $2.4 billion. (``U.S.-Central 
        America-Dominican Republic Free Trade Agreement: Potential 
        Economywide and Selected Sectoral Effects,'' Investigation No. 
        TA-2104-13, August 2004.) Other ITC findings from the same 
        study:
 Job losses in the sugar sector will be 38 times greater than job loss 
        in the next most harmed sector, textiles. ITC also predicted 
        American job losses in electronic equipment, transport 
        equipment, oil, gas, coal and other minerals.
 The U.S. already has 100% duty-free access for wheat exports to the 
        CAFTA countries.
 The U.S. already accounts for 94% of the small CAFTA market's grain 
        imports; and 95% of soybean imports.
 The U.S. gets immediate tariff-free access only for prime and choice 
        cuts of beef. With 40% of the CAFTA population earning less 
        than $2 per day, the demand for such expensive cuts of beef 
        cannot be great.
 FTAs such as the CAFTA distract from, and harm, the progress toward 
        genuine trade liberalization in the WTO.
      For example, after the CAFTA countries have spent years 
        negotiating special access to the United States, the world's 
        biggest market, why should these countries cooperate in Geneva 
        to provide the same access to the U.S. for the rest of the 
        world?
      The FTA approach risks fragmenting the world economy into to a 
        matrix of trading blocs, each with its own tariff wall around 
        it to protect the subsidies within. Only in the WTO can we 
        address both the tariff walls and the subsidies within.
 Opposition to the CAFTA is widespread.
      The American public correctly perceives that CAFTA dangers 
        outweigh the risks. Polls indicate a majority of Americans 
        opposes the CAFTA, including pluralities of Republicans, 
        Democrats, and Hispanics.
      Opposition extends to labor, environmental, textile, human 
        rights, and faith-based organizations, both here and in the 
        CAFTA countries.
      Some national farm groups oppose CAFTA, some others are split. 
        American farmers have grown understandably skeptical that the 
        promises of trade agreements and other efforts to expand U.S. 
        exports far exceed actual performance. In 1996, the U.S. 
        achieved a record agricultural trade surplus of $27.3 billion. 
        In 2004, 11 years into the NAFTA, 10 years into the Uruguay 
        Round Agreement on Agriculture, and 9 years after the 1996 
        Freedom to Farm Bill reduced commodity prices to encourage more 
        exports, our ag trade surplus has plummeted to zero (Chart 3)--
        despite the weaker dollar that made our exports more 
        competitive. Our ag imports have skyrocketed under these 
        agreements; our exports have been essentially flat.
      The CAFTA promises more of the same, particularly in the near 
        term. U.S. import concessions are frontloaded--concentrated in 
        the early years of the agreement--and CAFTA-country import 
        concessions are backloaded, to the final stages of the 15-year 
        implementation period.
    As the Congressmen from sugar-producing states know, if the CAFTA 
passes, it will have devastating effects on the U.S. sugar industry. 
Our farmers know their industry and their policy well, and have 
examined the CAFTA provisions soberly and carefully. We regard the 
CAFTA as a fully genuine, life-or-death issue. Our farmers, whose 
livelihoods are at stake, are insulted when USTR trivializes the 
potential harm from this agreement with cutesy, misleading estimates 
such as the amount of additional access in teaspoons per consumer or 
production per day.
    We are already one the world's most open sugar markets. Past trade-
agreement concessions have made us the world's fourth largest net 
importer. We are required, under WTO concessions, to import 1.256 
million short tons of sugar per year from 41 countries, essentially 
duty free, whether we need the sugar or not. The six CAFTA countries 
are already our largest duty free supplier, accounting for 27% of our 
WTO-required imports. In addition, we are required under the NAFTA to 
import up to 276,000 short tons per year of Mexican surplus sugar 
production, again, whether we need the sugar or not.
    Unfortunately, U.S. sugar consumption has declined in recent years, 
rather than grown. As a result, every additional ton of sugar we are 
forced to import from foreign countries is one ton less that struggling 
American sugar farmers will be able to produce or sell in their own 
market.
    U.S. sugar policy is unique. It is the only U.S. commodity policy 
designed to operate at no cost to taxpayers. During this time of 
enormous federal budget pressures, American sugar farmers are proud to 
have a program with no budgetary costs (Chart 4).
    Congress in the 2002 Farm Bill provided an inventory management 
approach for sugar and a mandate for the Administration to operate the 
program at no cost by avoiding sugar loan forfeitures. The 
Administration has two tools to balance the domestic market: the WTO-
legal tariff-rate import quota and domestic marketing allotments. 
Basically, USDA forecasts U.S. sugar consumption, subtracts required 
WTO and NAFTA imports, and sets the remainder as the American sugar 
producers' share of their own market. With a large part of our market 
guaranteed to foreign suppliers, American sugar farmers--taxpayers, 
businessmen, and cooperative owners--must line up behind the foreign 
farmers for access to their own U.S. market. If we produce more sugar 
than our marketing allotment, our producers store the excess at their 
own expense, not the government's expense, until that sugar is needed.
    Congress stipulated that if imports exceed 1.532 million short 
tons--the sum of the WTO commitment of 1.256 million short tons and the 
NAFTA/Mexico commitment of up to 276,000 short tons--USDA would lose 
its authority to administer marketing allotments and sustain no-cost 
sugar-program operation. In effect, the Congress was saying: Though 
American sugar producers are among the world's most efficient, we have 
already ceded to foreign producers over 1.5 million short tons of the 
U.S. market. Let's reserve the remainder of the U.S. market for 
American farmers, rather than giving our market away, piecemeal, to 
foreign producers in FTAs (Charts 5, 6).
    American sugar producers are currently storing at their own expense 
about 600,000 tons of surplus sugar, and many are reducing acreage, 
idling or shutting down mills--many of them farmer owned--to absorb the 
oversupply. Sugar prices have been flat or depressed for some time--the 
raw cane sugar support price has been the same 18 cents per pound for 
20 years now, since 1985; prices in 2004 averaged 11% lower than in 
2003 (Charts 7, 8). Unlike other program crops, sugar farmers receive 
no income support from the government to compensate for low market 
prices. This allows scarce federal dollars to be directed toward 
assisting farmers of export crops.
    Sugar farmers, meanwhile, are making wrenching adjustments to 
survive, or just going out of business. Fully a third of all U.S. beet 
and cane mills and refineries have closed just since 1996, 30 plants in 
total (Chart 9).
    As independent beet processors and cane refiners have gone out of 
business, beet and cane farmers, desperate to retain outlets for their 
beets and raw cane sugar, have organized cooperatively to purchase 
those operations. Beet farmers now own 94% of U.S. beet processing 
capacity and cane farmers own 57% of U.S. cane refining capacity (Chart 
10).
    This vertical integration has helped to increase efficiency, but 
growers have literally mortgaged the farm to stay afloat and are deeply 
in debt. Since sugar farmers derive 100% of their return from the 
marketplace and none from government payments, they are more dependent 
on, and more vulnerable to, market forces than other farmers. Sugar 
farmers are generally unable to switch to other crops because of their 
commitment to supplying beets and cane to the processing mills they now 
own. This makes sugar farmers all the more vulnerable to the type of 
market disruption the CAFTA would be likely to cause.
    Sugar farmers based their investment decisions on the promise in 
the 2002 Farm Bill of volume and price levels that would enable them to 
remain in business and repay their loans. The CAFTA, and other FTAs, 
now threaten to break that promise.

               LOW, STEADY U.S. CONSUMER PRICES FOR SUGAR

    The low producer prices for sugar over the past several years have 
been a hardship for sugar farmers and caused considerable job loss as 
mills have closed. Unfortunately, consumers have seen no benefit from 
the low producer prices for sugar. Though wholesale sugar prices in 
2004 averaged 11% lower than the previous year and 20% less than in 
1996, consumer prices for sugar in the grocery store have risen 
modestly; and, sweetened product prices have continued a steady rise, 
at least with the overall rate of inflation (Chart 11).
    Nonetheless, American consumers are getting a great deal on the 
sugar they purchase, with low, steady prices. U.S. retail sugar prices 
are essentially unchanged since the early 1990's. And new figures from 
LMC International show that the foreign developed-country retail sugar 
price averages 30% higher than the United States'. EU average prices 
are 35% higher than the United States', and retail sugar prices in 
Australia and Canada, which claim to be exposed to world dump market 
sugar, are virtually the same as prices here (Chart 13). (``Retail and 
Wholesale Prices of Sugar around the World,'' LMC International Ltd, 
Oxford, England, April 2005.)
    Taking into account developing countries, and varying income 
levels, LMC discovered that sugar here is about the most affordable in 
the world. In terms of minutes of work to purchase one pound of sugar, 
only tiny Singapore is lower; the world average is four times higher 
than the U.S. And, our expenditure on sugar as a percent of per capita 
income is the lowest in both the developed and the developing world 
(Charts 13, 14).

      WORLD AVERAGE WHOLESALE PRICES ARE DOUBLE DUMP MARKET LEVELS

    In the same survey, LMC also examined wholesale refined prices and 
found that the global average is 22 cents per pound--double the world 
dump market average price for 2004--and about the same as the United 
States'. This reinforces the meaninglessness of the world dump price. 
Globally, the vast majority of sugar is sold in domestic markets at 
price levels that are, on average, double the world dump market price 
and similar to the United States' (Chart 15).
    It is worth noting that LMC found wholesale prices in Mexico to be 
5 cents higher than the United States' 23 cents per pound, and Canada's 
price to be just 2 cents lower. This contradicts notions that U.S. 
candy manufacturers are moving to these countries for lower sugar 
prices. Other factors are far more important in those decisions. For 
example, the same candy company that paid average wages in Chicago of 
more than $14 per hour now pays an average of 56 cents per hour in 
Juarez, Mexico (Chart 16).

        CAFTA: SHORT AND LONG-TERM DANGERS TO U.S. SUGAR MARKET

    Despite the fact that our market is already oversupplied, and 
despite the fact that the six CAFTA countries already supply more than 
a fourth of our guaranteed duty-free imports, the proposed CAFTA more 
than doubles the five Central American countries' duty-free access to 
the U.S. market, an increase of 111%. With an additional, smaller 
concession to the Dominican Republic, additional imports would total 
120,000 short tons in the first year, growing to 169,000 short tons per 
year in year 15, and an additional 2,910 short tons per year forever 
after (Chart 17).
    The CAFTA poses serious short-term and long-term dangers to the 
U.S. sugar industry.
    In the short term, the CAFTA sugar market-access concessions--on 
top of import commitments the U.S. has made already in the WTO, to 41 
countries, and in the NAFTA, to Mexico--will prevent the USDA from 
administering a no-cost U.S. sugar policy, as Congress directed it to 
in the 2002 Farm Bill, and will badly further oversupply the U.S. sugar 
market.
    The additional concessions will trigger off the marketing allotment 
program that permits USDA to restrict domestic sugar sales and balance 
the market. Absent marketing allotments, surplus U.S. sugar--the 
600,000 tons producers are currently holding off the market and storing 
it at their own expense--would cascade onto the market and destroy the 
price.

 Contrary to USTR's misleading claims, there is no ``cushion''--no 
        amount of additional import access Congress intended to make 
        available in FTAs. The difference between recent actual imports 
        and the 1.532-million-ton trigger has already been allocated to 
        Mexico under the NAFTA. Mexico has not recently had the surplus 
        sugar available to send to the U.S. But surplus Mexican sugar 
        may soon become available again, with improved crops and with 
        the successful conclusion of sweetener-trade discussions with 
        Mexico that Members of Congress from sugar and corn states 
        strongly support.
      We find it disturbing that USTR would ignore commitments made in 
        past agreements in order to promote new agreements.
    In the longer term, the CAFTA is the tip of the FTA iceberg.
          Behind the CAFTA countries, 21 other sugar-exporting 
        countries are lined up, like planes on a tarmac, waiting to do 
        their deal with the U.S. and, no doubt, expecting no less 
        access than already granted to the CAFTA countries. Combined, 
        these 21 countries export over 25 million tons of sugar per 
        year, nearly triple U.S. sugar consumption. Obviously, the 
        precedent the CAFTA concession would set will make it 
        impossible for the U.S. sugar industry to survive future 
        agreements (Charts 18, 19).
          The U.S. is pushing to complete the Panama, the Andean, and 
        the Thailand FTAs this year. The South Africa Customs Union FTA 
        and the Free Trade Area of the Americas are on hold, but still 
        very much on the Administration's FTA agenda. All these involve 
        major sugar producers and exporters.

                               CONCLUSION

    In conclusion, Mister Chairman, the certain dangers of the CAFTA to 
the U.S. economy outweigh the marginal, possible benefits. We 
respectfully urge that this Committee reject the CAFTA, and focus U.S. 
trade liberalization efforts instead on the WTO, where there is a 
genuine potential for progress.
    The CAFTA would devastate the U.S. sugar industry. We are, 
therefore, expending all possible resources and energy to urge Congress 
to defeat this ill-conceived agreement.
    Thank you.

    Mr. Rogers. Dr. Roberts.

                  STATEMENT OF RUSSELL ROBERTS

    Mr. Roberts. I want to thank the committee for the 
opportunity to appear today and discuss CAFTA. On the surface 
CAFTA would seem to be an easy agreement, as a number of people 
have mentioned, due to the opening of foreign markets--sorry--
on the surface, as a number of people mentioned today, it would 
be easy to, you would think, to support CAFTA, given the fact 
that it opens markets for our producers while leaving our 
markets that are already open relatively unchanged, yet trade 
agreements always raise legitimate concerns about job losses in 
the United States.
    And having recently traveled to Costa Rica at the 
invitation of the State Department to speak on trade issues, I 
was struck by the similarity of the concerns in Costa Rica. 
They too were worried about job loss. But in fact trade changes 
the kind of jobs we do, and in a flexible market, particularly 
one as dynamic as the United States, the number of jobs is 
determined by how many people want to work and the skills they 
have. Yes, some sectors will grow and others will get smarter. 
Pointing to NAFTA, job losses without accounting for job gains 
is the wrong way to evaluate free trade agreements. Similarly, 
trade deficits have little or no impact on the total number of 
jobs in the United States, despite concerns to the contrary.
    I spoke to a wide array of people in Costa Rica, students, 
journalists, labor representatives, and government cabinet 
ministers, and being a small country that has undergone a great 
deal of economic change in the last 25 years, they were very 
aware of the benefits of being a part of the global trading 
system. They also understood the uncertainty and 
unpredictability of the future. But most Costa Ricans I spoke 
to embraced economic change and trade as the inevitable key to 
growth for their small country and a transformation of their 
economy.
    But they would always ask the same question: if trade is 
good, why doesn't CAFTA allow Costa Rica to export sugar freely 
to the United States? If Costa Rica is willing to compete with 
U.S. engineers and other farmers, why isn't America willing to 
compete and cope with the challenge of Costa Rican sugar 
farmers? Despite the words ``free trade'' in the title of the 
agreement, CAFTA would allow only the tiniest of expansions in 
sugar imports phased in over 15 years.
    And they would ask me why do Americans fear Costa Rican 
sugar? They don't, I would explain, not most Americans anyway. 
In fact keeping out foreign sugar punishes me and every other 
consumer in the U.S. because the U.S. price is roughly double 
the rest of the world. We American consumers are punished, not 
you Costa Ricans, by the decision to keep virtually all sugar 
from Costa Rica out that would come in in a free market.
    Jobs created in the sugar industry here in the United 
States are offset by job losses in the American candy and food 
industry and elsewhere. So we negotiate a trade agreement with 
some of the poorest countries in the region, but we make sure 
that one of the things they do best, which is grow sugar, is 
essentially off the table. There is no attractive way to defend 
that policy when you are standing in the fields of a poor 
county.
    So CAFTA is not perfect. In a perfect world sugar would be 
freely traded. But CAFTA is a step in the right direction. It 
lowers trade barriers on an enormous range of products that are 
traded in the region. The best should not be the enemy, the 
good. The CAFTA will encourage the signatories to the agreement 
to do what they do best. The result will be a higher standard 
of living.
    And ironically, sugar has become the flashpoint for this 
discussion even though the sugar industry gets preferential 
treatment under CAFTA, even though they have quotas in place 
and tariffs that isolate them from world competition, even 
though the sugar industry has made sure that CAFTA leaves their 
domestic monopoly virtually intact, somehow the entire debate 
over CAFTA is about sugar jobs. That is quite an achievement 
for an industry with less than 60,000 employees.
    The job losses in sugar to CAFTA will be dwarfed by 
retirement, turnover, job loss due to technology. Should the 
threat of these job losses hold this agreement hostage and 
prevent poor nations from buying our goods? Should the threat 
of these job losses prevent the expansion of U.S. employment in 
sectors that will grow?
    Our natural concern for these workers should not confuse us 
about the cost of stopping economic change that CAFTA will 
bring. Economic change like free trade creates our standard of 
living. Without economic change, without trade, our economy 
would be stagnant.
    Now, economic change is always challenging. I was 
explaining to my children the other day, they are here; they 
are off from school, by the way. Their school is not in 
session. I am not violating any truancy laws. But I explained 
to them when American baseball players were considering letting 
in African American players, you can imagine that American 
players born here in the United States who were white would be 
afraid of that competition. And my 7-year-old, who is sitting 
right there in the brown shorts, said, but that wouldn't be 
fair. He said it wouldn't be nice to keep out African American 
players. And said besides, it would be good for the team. 
Shouldn't the players be in favor of that?
    And that got me thinking about the Dominican Republic. At 
the start of this year's baseball season, 385 players born in 
the Dominican Republic had played in the major leagues, 
including Pedro Martinez, Miguel Tejada, Vladimir Guerrero, 
Manny Ramirez. Surely the game of baseball, surely our lives, 
surely their lives are better for letting them play here. Who 
would argue we should keep them out in order to create more 
opportunity for native-born Americans in baseball? And as my 7-
year-old understands, it wouldn't be nice. It would be bad for 
baseball and its fans.
    It is good that we have let players from all over the world 
come to America to use their skills to the greatest advantage, 
and it would be good to let other things, besides baseball 
players, come to the United States from the Dominican Republic 
and our fellow nations in Central America. In return, we will 
send our products using our skills to help them. CAFTA will be 
good for the United States, good for the Dominican Republic, 
and good for Central America. It will raise the standard of 
living in each nation, but perhaps more importantly, it will 
make sure that the peoples of each nation have the greatest 
opportunity to use their skills in the most effective and 
productive ways. Thank you very much.
    [The prepared statement of Russell Roberts follows:]

 Prepared Statement of Russell Roberts, Professor of Economics, Smith 
    Distinguished Scholar, Mercatus Center, George Mason University

    Mr. Chairman. Congressman Schakowsky. Members of the committee. 
Thank you for the opportunity to appear before you and discuss CAFTA, 
the Central American Free Trade Agreement, which now includes the 
Dominican Republic as well.
    On the surface, CAFTA would seem to be an easy agreement for the 
United States to support. Many products and services already arrive 
duty-free in the United States from Central America. But under CAFTA, 
many products and services currently protected in Central America would 
now have to compete with American exports, opening markets to numerous 
American products.
    Yet CAFTA remains highly controversial with concerns that the 
agreement will cost the United States jobs trying to compete with low-
wage workers in Central America working in a less demanding regulatory 
environment.
    Having recently traveled to Costa Rica at the invitation of the 
State Department to speak on trade issues, I was struck by the 
similarity of the concerns raised in Costa Rica. Surely, little Costa 
Rica would have no chance of standing up to the United States economy. 
Jobs would be lost to the powerful American workers.
    Both arguments cannot be right. It cannot be that employment in 
both economies will shrink as the other expands. One of these worries 
is wrong. Or both are. But both cannot be right.
    Both are wrong. When NAFTA passed, we were told of the millions of 
jobs that would inevitably flow to Mexico because of Mexico's lower 
wages and less rigorous labor and environmental standards. Yet those 
fears were unrealized. They were no more plausible than the notion that 
all of America's jobs would end up in Mississippi because of 
Mississippi's low wages.
    Trade changes the kind of jobs we do, but in a flexible labor 
market, particularly one as dynamic as the United States, the number of 
jobs is determined by how many people want to work and the skills they 
have. The main effect of trade is to allow both trading parties to use 
their skills wisely and effectively.
    Costa Rica currently has a state monopoly on telecommunications. 
There are a lot of engineers employed by that state monopoly. What will 
happen to them when that monopoly is opened to competition by CAFTA? 
Some will keep their jobs working in areas like land-line phones that 
the government will probably still be able to provide competitively. 
Some will find work with American firms now free to operate profitably 
in Costa Rica. Some will lose their jobs and find work as engineers 
outside of the telecommunications industry. And some will lose their 
jobs and find work outside of engineering.
    The average Costa Rican who is not an engineer employed by the 
state-run telecom company will be better off. The average Costa Rican 
will enjoy lower prices and more choices. That will mean more resources 
left over to do new things with, new products and services to enjoy 
that were not affordable before. That in turn will mean more employment 
in Costa Rica as those products and services expand, offsetting any job 
losses in the engineering sector.
    The bottom line for Costa Rica is better phone service and internet 
access at lower prices and more opportunities created elsewhere in the 
economy. Understandably, Costa Rican engineers are nervous about the 
uncertainty and challenges of the future. But the net effect on Costa 
Rica would be positive.
    The same logic applies to the Costa Rican car industry. Wisely, 
Costa Rica doesn't have a car industry--it would be too expensive. It 
would create inefficient and unproductive jobs in the car sector 
relative to other sectors. By importing cars, Costa Rica gives up those 
jobs and creates jobs elsewhere. By importing cars, Costa Rica uses the 
skills of its people more wisely and the result is less expensive cars 
for Costa Ricans to enjoy.
    I spoke to a wide array of people in Costa Rica--students, 
journalists, labor representatives and government cabinet ministers. 
Being a small country that has undergone a great deal of economic 
change in the last 25 years, they were very aware of the benefits of 
being part of the global trading system. They also understood the 
uncertainty and unpredictability of the future. But most Costa Ricans I 
spoke to embraced that change as an inevitable part of growth and the 
transformation of their economy.
    But they would always ask the same question. If trade is good, why 
doesn't CAFTA allow Costa Rica to export sugar freely to the United 
States? Costa Rica is willing to cope with the challenge of competing 
with American telecom engineers and American telecom companies? Why 
isn't America willing to cope with the challenge of Costa Rican sugar 
farmers?
    They were referring to the fact that while American farmers and 
telecom companies and medical device companies would have relatively 
open access to sell their products in Costa Rica, sugar farmers in 
Costa Rica would have very little freedom to sell their sugar in 
America. Despite the words ``free trade'' in the title of the 
agreement, CAFTA would allow only the tiniest of expansions in sugar 
imports phased in over 15 years. CAFTA limits the expansion of sugar 
imports into the United States to less than 2% of US consumption over 
the next 15 years.
    Why do Americans fear Costa Rican sugar?
    They don't, I would explain to my hosts in Costa Rica. Not most 
Americans, anyway. In fact, keeping out foreign sugar punishes me and 
every other consumer in the United States. The US price of sugar is 
roughly double that of the rest of the world. We are punished, not you, 
I explained, by the decision to keep out virtually all sugar from Costa 
Rica that might come in under a truly open market. Jobs created in the 
sugar industry are offset by job losses in the American candy and food 
industries and elsewhere.
    So we negotiate a trade agreement with some of the poorest 
countries in the region but we make sure that one of the things that 
they do best, grow sugar, is essentially off the table. There is no 
attractive way to defend that policy when you're standing in the fields 
of a poor country.
    It makes no more sense for America to insist on always growing its 
own sugar than it does for Costa Rica to use protectionism to create a 
Costa Rican car industry. But that is what we have decided with CAFTA.
    So CAFTA is not perfect. In a perfect world, sugar would be freely 
traded along with telecom services and cars and tourism and ornamental 
plants and corn and chicken. But CAFTA is a step in the right 
direction. It lowers trade barriers on an enormous range of products 
that are traded in the region. The best should not be the enemy of the 
good. CAFTA will encourage the signatories to the agreement to do what 
they do best and the result will be a higher standard of living for all 
of the partners to the agreement.
    Ironically, despite the special treatment of the American sugar 
industry in CAFTA, the American sugar industry has become the 
flashpoint for the debate over the agreement in this country. Even 
though the sugar industry gets preferential treatment, even though the 
sugar industry has quotas and tariffs in place that isolate them from 
world competition, even though the sugar industry has made sure that 
CAFTA leaves their domestic monopoly virtually intact, somehow, the 
entire debate over CAFTA is about fear of losing jobs in the sugar 
industry.
    That's quite an achievement for an industry with less than 60,000 
employees. (The sugar industry claims there are 372,000, but that 
number is inflated by counting corn sweetener jobs and then multiplying 
the total by two and a half.) About 8 million jobs are destroyed and 
created every quarter in the US economy. When the economy is going 
well, more jobs are created than destroyed. When we are in a recession, 
more jobs are destroyed than created. But the norm is good times--a 
growing economy where there is net job growth, where more jobs are 
created than destroyed. But even in good times, millions of jobs 
disappear for thousands of reasons--companies go out of business, 
consumers decide they want fewer of one thing and more of another. 
These jobs are replaced by new jobs in new companies or companies that 
are expanding.
    Millions of jobs appearing and disappearing. That is a sign of 
great economic health, that churning of jobs in response to new 
desires, new information, new technology and new opportunity. All of 
those jobs destroyed and created in response to economic change. It is 
a strange thing to exert all this political energy to stop economic 
change in one tiny sector, the sugar industry, but because it is 
identifiable, the sugar jobs and the sugar profits get special 
treatment.
    Our natural concerns for workers in the sugar sector and other 
sectors that will be affected by CAFTA should not confuse us about the 
costs of stopping the economic changes that CAFTA will bring. Economic 
changes like free trade create our standard of living and the 
incredible opportunities that each generation has to shape the world 
according to its dreams and skills. Without economic change, without 
trade, without innovation, our economy would be stagnant. A dynamic 
economy and a growing standard of living are the greatest gifts we can 
give each generation.
    Even with such benefits, economic change is always challenging, no 
matter its source and no matter how small or how fair such change is. I 
was explaining to my children how understandable it is for people to 
fear change and competition. For example, I explained, imagine being a 
white baseball player when there was discrimination in baseball and 
African-American players were not allowed to play in the major leagues. 
You would be worried about losing your job to a better player. My 
seven-year old did not find this understandable. What about Willie 
Mays, he wondered. And he told me that the white players should have 
been in favor of letting African-Americans play because it would be 
good for the team. Besides, he said, keeping out some players because 
of the color of their skin isn't nice.
    That got me thinking about the Dominican Republic. At the start of 
this year's baseball season, 385 players born in the Dominican Republic 
had played in the major leagues including Pedro Martinez, Sammy Sosa, 
Albert Pujols, Miguel Tejada, Vladimir Guerrero and Manny Ramirez. 
Surely, the game of baseball is better for allowing them to play here. 
Surely our lives as fans have been enriched by their excellence. And 
surely their lives have been enhanced by the opportunity to play here.
    Who would argue that we should keep them out in order to create 
more opportunity in baseball for native-born Americans? As my seven 
year old understands, that would not be nice. And it would be bad for 
baseball and its fans.
    It is good that we have let players from all over the world come to 
America to use their skills to their greatest advantage. Both America 
and those players benefit. And it will be good to let other things 
besides baseball players come to the United States from the Dominican 
Republic and her fellow nations in Central America. In return, we will 
send our products using our skills to help them in return. CAFTA will 
be good for the United States, good for the Dominican Republic and good 
for Central America. It will raise the standard of living of each 
nation, but perhaps more importantly, it will make sure that the 
peoples of each nation have the greatest opportunity to use their 
skills in the most effective and productive ways.

    Mr. Stearns. Thank you. Mr. Murphy.
    Mr. Murphy. Mr. Chairman----
    Mr. Stearns. I think you need to put your mike on. Yes.

                    STATEMENT OF JOHN MURPHY

    Mr. Murphy. Mr. Chairman, Congresswoman Schakowsky, I would 
like to thank the committee for the chance to testify here 
today.
    Speaking on behalf of the U.S. Chamber of Commerce, which 
is the nation's largest business federation representing more 
than three million businesses of every size, sector, and 
region, the U.S. Chamber and its members strongly support DR-
CAFTA.
    While these six countries look small on a map and they are 
significantly poorer than the United States, they are excellent 
customers for U.S. products. In 2004 the six countries 
purchased over $15 billion in U.S. exports. That is more than 
India, Indonesia, and Russia combined. It is also more exports 
than Italy purchased from the United States; Italy, a G-7 
country that is one of the largest and most sophisticated 
economies in the world.
    A number of members of the committee and witnesses have 
already commented on how DR-CAFTA will give American companies 
a level playing field. The fundamental point is that the U.S. 
market is already open, but our trading partners, tariffs, and 
quotas continue to stand as a significant barrier to U.S. 
exports. This point is critical and has been well made.
    I would like to focus my comments on the profound value of 
the agreement as a vehicle for generating new business 
opportunities for American companies by energizing economic 
reform in Central America and the Dominican Republic, questions 
that go beyond simply cutting tariffs.
    One of the Central American trade ministers once commented 
that ``DR-CAFTA contains 15 years worth of economic reform in a 
single package,'' reforms that these countries could not have 
tackled with such ambition or speed under other circumstances. 
Consider the following: first, DR-CAFTA will guarantee 
transparency in government procurement. The agreement mandates 
competitive bidding for contracts and that extensive 
information about these opportunities be made available on the 
Internet and not just to well-connected insiders. In this 
sense, DR-CAFTA is an extremely useful weapon against 
corruption.
    Second, DR-CAFTA will ensure a level playing field for 
services, the most rapidly growing portion of U.S. companies' 
engagement in international trade, and one where the United 
States enjoys a large surplus. To give a specific example, DR-
CAFTA will open the telecommunications and insurance markets of 
Costa Rica where U.S. companies are currently shut out. Many 
other sectors, from express delivery to financial services, 
will see new and transparent rules that will allow U.S. 
companies to compete and prosper in the region, generating jobs 
and income there and back home in the United States.
    Third, DR-CAFTA will shore up legal protections for 
copyrights, patents, and trademarks so that creative artists 
who produce movies and television shows, researchers who create 
new medicines, and companies that create software will be 
protected. Counterfeiters will be put on notice that these 
countries will protect intellectual property, which is the 
future of the U.S. economy with the full force of the law. And 
new resources will be directed to enforcement.
    Members of the committee, these free trade agreements work. 
Consider the U.S.-Chile Free Trade Agreement, which DR-CAFTA 
resembles in many respects. The Department of Commerce reports 
that U.S. exports to Chile rose by an astonishing 33 percent 
last year, which was the first year of that free trade 
agreement's implementation. We have seen similar advances 
already as this Caribbean Basin Initiative and its successors 
over the past 20 years have doubled and tripled trade with 
these countries.
    How often does the Congress have a chance to secure such a 
remarkable win-win for our workers, farmers, and companies, and 
for our friends and neighbors? If U.S. companies, workers, and 
consumers are to thrive in an increasingly competitive world, 
new trade agreements such as DR-CAFTA will be critical.
    In the end, American business is quite capable of competing 
and winning against anyone in the world when markets are open 
and the playing field is level. All we are asking for is a 
chance to get in the game. I appreciate the leadership of this 
committee and the chance to testify today. Thank you.
    [The prepared statement of John Murphy follows:]

 Prepared Statement of John Murphy, Vice President, Western Hemisphere 
  Affairs, Executive Director American Chambers of Commerce in Latin 
               America, United States Chamber of Commerce

    The Chamber of Commerce of the United States of America (U.S. 
Chamber) and the Association of American Chambers of Commerce in Latin 
America (AACCLA) are pleased to present the House Committee on Energy 
and Commerce Subcommittee on Commerce, Trade, and Consumer Protection 
with this testimony regarding the U.S.-Dominican Republic-Central 
America Free Trade Agreement (DR-CAFTA). Our organizations strongly 
support Congressional approval of this landmark trade agreement, and we 
urge the House to do so as soon as possible.
    The U.S. Chamber is the world's largest business federation, 
representing more than three million businesses of every size, sector 
and region. AACCLA represents 23 American Chambers of Commerce in 21 
Latin American and Caribbean nations, and its 20,000 member companies 
manage over 80% of all U.S. investment in the region.
    International trade plays a vital part in the expansion of economic 
opportunities for our members. As such, the U.S. Chamber and AACCLA 
have helped lead the business community's effort to make the case for 
new free trade agreements. We do so because U.S. businesses have the 
expertise and resources to compete globally--if they are allowed to do 
so on equal terms with our competitors.
    From this perspective, DR-CAFTA is an outstanding trade agreement. 
It will slash trade barriers for U.S. exports, enhance protections for 
U.S. investment overseas, and strengthen the competitiveness of 
American companies--both big and small--throughout the world. We 
believe the agreement is worthy of your support.

                    OPENING TRADE, GENERATING GROWTH

    America's international trade in goods and services accounts for 
nearly a fifth of our country's GDP. As such, it is difficult to 
exaggerate the importance of the leadership demonstrated by Congress in 
renewing Presidential Trade Promotion Authority (TPA) two and a half 
years ago. As we predicted, this action by Congress has helped 
reinvigorate the international trade agenda and has given a much-needed 
shot in the arm to American businesses, workers, and consumers.
    When TPA lapsed in 1994, the United States was compelled to sit on 
the sidelines while other countries negotiated numerous preferential 
trade agreements that put American companies at a competitive 
disadvantage. As we pointed out to Congress during our aggressive 
advocacy campaign for approval of TPA, the United States was party to 
just three of the roughly 150 free trade agreements in force between 
nations at that time.
    The passage of TPA allowed the United States to complete 
negotiations for bilateral free trade agreements with Chile, Singapore, 
Australia, and Morocco, all of which won bipartisan approval in 
Congress. These agreements are already bearing fruit; for example, the 
Department of Commerce reports that U.S. exports to Chile rose by an 
astonishing 33% in 2004, the first year of implementation of the U.S.-
Chile Free Trade Agreement. Free trade agreements with roughly 20 
additional countries are now in various stages of completion.
    Why is DR-CAFTA so critical? First, the agreement is good for 
workers, consumers, and businesses in the United States. And second, 
the agreement is good for workers, consumers, and businesses in Central 
America and the Dominican Republic.

                     BIG MARKETS, BIG OPPORTUNITIES

    The commercial benefits of DR-CAFTA for the United States are 
expected to be highly significant. While these six democracies look 
small on a map, they are excellent customers for American business. 
Purchasing $15.7 billion in U.S. exports in 2004, Central America and 
the Dominican Republic buy more U.S. goods than Australia, Italy, or 
Sweden.
    These existing trade flows make DR-CAFTA the largest free trade 
agreement in more than a decade. In fact, the 45 million citizens of 
Central America and the Dominican Republic purchase more U.S. goods 
than the 1.5 billion citizens of India, Indonesia, and Russia--
combined.
    What is the United States selling to these countries? About one-
third of all U.S. exports to Central America and the Dominican Republic 
are made by the U.S. textile and apparel industries. Computers, 
electronics, and information technology products represent almost 
another third. And farm products, ranging from soup to nuts, account 
for a large share of American sales to the six countries.
    This success story began 20 years ago, when a tremendous bipartisan 
coalition created the Caribbean Basin Initiative. By a vote of 392 to 
18, the House of Representatives decided in July 1983 to do away with 
most tariffs on imports from Central America and the Caribbean in an 
effort to help the region with ``trade, not aid.'' The Senate followed 
suit with a similarly significant favorable vote.
    The Caribbean Basin Initiative eliminated tariffs on nearly all 
imports from Central American and the Caribbean. In 2003, 77% of 
Central American and Dominican industrial products (including 99% of 
non-apparel industrial products) and 99.5% of agricultural products 
entered the United States duty-free.

                     MAKING TRADE A TWO-WAY STREET

    More than any previous free trade agreement, DR-CAFTA is about 
reciprocity. It will level the playing field for the thousands of U.S. 
workers and businesses that rely on exports to Central America and the 
Dominican Republic. It will provide immediate, duty-free access to the 
six-country market for more than 80% of U.S. consumer and industrial 
goods and more than half of all U.S. agricultural exports to the six 
countries, with further openings phased in.
    To gauge the commercial value of the agreement, the U.S. Chamber of 
Commerce has released a series of state-by state economic impact 
studies that found substantial economic gains for American workers and 
the economy from DR-CAFTA. We used a widely respected input-output 
economic model known as RIMS II that has been used for years by 
economists at the U.S. Department of Commerce and elsewhere, and we 
proceeded with some very conservative assumptions about the growth of 
exports. For instance, we assumed that U.S. exports to the six 
countries would grow at only half the rate of growth of exports to 
Chile in 2004, the first year of implementation of the free trade 
agreement with that country.
    The results are extremely promising. In the first year of DR-
CAFTA's implementation, the agreement would generate $3.9 billion in 
new sales across all industries and $866 million in new earnings for 
workers in the 12 states profiled. In would also create over 26,000 new 
jobs in its first year. This table summarizes our findings:

                          Summary of Findings of State-by-State Economic Impact Studies
                        The full studies are available at: www.uschamber.com/goto/drcafta
----------------------------------------------------------------------------------------------------------------
                                                                              Increased earnings     New jobs
                     AFTER ONE YEAR                         Increased sales    of employees  in     created  in
                                                           in all industries    all industries    all industries
----------------------------------------------------------------------------------------------------------------
Alabama.................................................         190,000,000          40,000,000           1,490
California..............................................         221,000,000          51,000,000           1,287
Florida.................................................         985,000,000         232,000,000           7,008
Georgia.................................................         262,000,000          52,000,000           1,516
Illinois................................................          79,000,000          24,000,000             693
Louisiana *.............................................         339,000,000          77,000,000           2,769
New Jersey..............................................          71,000,000          14,000,000             342
New York................................................         149,000,000          32,000,000             794
North Carolina..........................................         736,000,000         163,000,000           5,404
Pennsylvania............................................          94,000,000          20,000,000             608
South Carolina..........................................         167,000,000          27,000,000             912
Texas...................................................         683,000,000         134,000,000           3,326
TOTAL...................................................      $3,976,000,000        $866,000,000          26,149
----------------------------------------------------------------------------------------------------------------
* ``CAFTA: Potential for Louisiana's Prosperity,'' by Dr. James A. Richardson, Alumni Professor of Economics,
  Louisiana State University, March 2004. This study used the U.S. Department of Commerce's Bureau of Economic
  Analysis Regional Input-Output Modeling System (RIMS II) in the same fashion as the U.S. Chamber studies.
  However, the figures cited in this table are based on a projected increase in exports from Louisiana to the
  other DR-CAFTA countries of 16%. The U.S. Chamber studies use a figure of 17% for the first year. For
  comparison, U.S. exports to Chile rose by 33% in 2004, the first year of implementation of the U.S.-Chile Free
  Trade Agreement.

    Nine years after implementation, DR-CAFTA would boost sales by over 
$20 billion in the 11 states for which data are available. In the same 
period, the agreement would raise workers' earnings by $4.5 billion and 
create more than 130,000 new jobs in the 11 states.

----------------------------------------------------------------------------------------------------------------
                                                                              Increased earnings     New jobs
                    AFTER NINE YEARS                       Increased sales     of employees  in     created  in
                                                          in all industries     all industries    all industries
----------------------------------------------------------------------------------------------------------------
Alabama................................................       1,021,000,000          214,000,000           7,901
California.............................................       2,486,000,000          573,000,000          13,132
Florida................................................       5,200,000,000        1,200,000,000          36,982
Georgia................................................       1,405,000,000          283,000,000           8,691
Illinois...............................................         445,000,000           97,000,000           2,402
New Jersey.............................................         381,000,000           79,000,000           1,801
New York...............................................         802,000,000          173,000,000           4,215
North Carolina.........................................       3,900,000,000          876,000,000          28,913
Pennsylvania...........................................         504,000,000          107,000,000           3,062
South Carolina.........................................         701,000,000          144,000,000           6,273
Texas..................................................       3,600,000,000          718,000,000          17,127
TOTAL..................................................     $20,445,000,000       $4,464,000,000         130,499
----------------------------------------------------------------------------------------------------------------

    As noted above, the vast majority of Central American and Dominican 
exports already enter the U.S. marketplace duty-free, so the risk of 
job losses due to enhanced competition from imports is extremely 
limited. In sectors where imports from Central America and the 
Dominican Republic are not entering the United States duty-free, the 
U.S. average tariff is significantly lower than that faced by our 
exports to these countries. While U.S. rates average 3.6%, Guatemala's 
average applied industrial tariff is 7.1%, Honduras's is 6.7%, El 
Salvador's is 6.5%, Nicaragua's is 4.9%, Costa Rica's is 4.6% and the 
Dominican Republic's is 10.7% (2001 figures).

                    SUPPORT FROM FARMS TO FACTORIES

    The Chamber is far from alone in recognizing the potential of DR-
CAFTA; studies prepared by other organizations have also projected 
impressive gains. A study by the American Farm Bureau Federation, which 
is the nation's largest association of farmers and ranchers, projected 
that the agreement will boost U.S. agricultural exports by $1.5 
billion, which explains why over 50 leading agricultural commodity 
groups have endorsed the agreement.
    In the textile and apparel sectors, the agreement will promote even 
stronger partnerships between companies in the United States, Central 
America, and the Dominican Republic. This will enable this hemisphere 
to compete more effectively in the face of rising international 
competition in these sectors since the demise of the global system of 
quotas on textiles on January 1, 2005. Most experts predict that Asian 
textile and apparel manufacturers will be the principal beneficiaries 
of the end of quotas--at the expense of apparel producers in Central 
America and the Dominican Republic, and their textile suppliers in the 
United States.
    For years, the U.S. textile industry has benefited from an 
integrated supply chain and market with the DR-CAFTA nations, which 
constitute a key sourcing location for U.S. apparel and retail 
companies. Unlike other garment production centers, Central America and 
the Dominican Republic have emerged as the dominant consumers of U.S. 
textile products. Since the passage of the U.S.-Caribbean Basin Trade 
Partnership Act in 2000, the region has become one of the largest and 
fastest growing export markets for U.S. cotton growers, yarn spinners, 
and fabric mills.
    As a result, garments imported from Central America and the 
Dominican Republic have U.S. content exceeding 50% while garments 
imported from Asia typically have less than 1% U.S. content. Without 
DR-CAFTA, apparel operations in Central America and the Dominican 
Republic will not be able to compete with Asian manufacturers, who have 
been ramping up sales since the global quota regime on textiles ended 
in January. If apparel manufacturers in Central America and the 
Dominican Republic cannot compete with Asia, a domino effect will hit 
cotton growers, yarn spinners, and fabric mills in the United States as 
their best customers go under.
    On a more general level, the evidence is overwhelming that trade is 
a powerful tool to strengthen the U.S. economy. As former U.S. Trade 
Representative Robert Zoellick has pointed out, the combined effects of 
the North American Free Trade Agreement (NAFTA) and the Uruguay Round 
trade agreement that created the World Trade Organization (WTO) have 
increased U.S. national income by $40 billion to $60 billion a year. 
This helped lead to the creation of millions of new American jobs in 
the past 15 years. Many of these jobs were created in the export sector 
where, on average, jobs pay 13 to 18% more.
    In addition to the increased wages, the lower prices generated by 
NAFTA and the Uruguay Round on imported items mean that the average 
American family of four has gained between $1,000 to $1,300 in spending 
power--an impressive tax cut, indeed.

        BENEFITS FOR CENTRAL AMERICA AND THE DOMINICAN REPUBLIC

    The U.S. Chamber and AACCLA are speaking in favor of DR-CAFTA to 
advance the interests of U.S. businesses, workers, and consumers. 
However, it's clear that the agreement will also be beneficial for 
workers, consumers, and businesses in Central America and the Dominican 
Republic--some of our closest neighbors.
    Consider what Central America and the Dominican Republic were like 
20 years ago. Several of these countries were at war, internally, and 
with violence spilling across their borders. Contrast that with the 
peaceful and democratic elections we have seen just in the past 18 
months in El Salvador, Guatemala, and the Dominican Republic. It's 
worth recognizing that the outgoing administrations all supported DR-
CAFTA strongly--and so do the new ones. These countries made some tough 
choices, and they've been rewarded with economic growth and progress in 
the fight against poverty.
    Consider the example of El Salvador, which in the 1990s brought 
inflation under control, fought corruption, and moved toward a more 
free market economy. As a result, per capita incomes in El Salvador 
grew 10 times faster in the 1990s than in the 1980s.
    Again, if things are going so well, what do we need DR-CAFTA for? 
The agreement is strong medicine, and it represents an opportunity to 
make sure the progress of the past two decades doesn't slip away. The 
agreement will enhance democratic institutions, business transparency, 
and economic reform--all while locking in a strong partnership with the 
United States. Consider the following:

1) DR-CAFTA will guarantee transparency in government procurement, with 
        competitive bidding for contracts and extensive information 
        made available on the Internet--not just to well-connected 
        insiders;
2) DR-CAFTA will ensure a level playing field in the regulatory 
        environment for services, including telecoms, insurance, and 
        express shipments; and
3) DR-CAFTA will shore up legal protections for copyrights, patents and 
        trademarks, so that creative artists who produce movies and 
        television shows, researchers who create new medicines, and 
        companies that create software will be protected. Pirates and 
        counterfeiters will be put on notice that these countries will 
        protect intellectual property with the full force of the law.

                   FIGHTING POVERTY, HELPING WORKERS

    Finally, DR-CAFTA will help in the fight against poverty. Despite 
significant progress in the past 20 years, many Central Americans 
continue to live on just a few dollars a day. By enhancing 
opportunities for economic growth, the agreement will help provide jobs 
at all levels of the Central American and Dominican economies, while 
providing governments with additional resources for much-needed 
education, health care, and basic infrastructure projects.
    Some critics charge that the agreement doesn't do enough to protect 
workers' rights, even though it does more in this regard than any trade 
agreement in history. The agreement builds on the fact that five of 
these countries have ratified all eight of the core conventions of the 
International Labor Organization; the sixth country, El Salvador, has 
ratified six of the conventions and is already upholding the final two 
based on provisions in its own constitution.
    The Washington Post summarized the situation in an editorial: ``It 
is a bad idea to oppose trade deals on the grounds that labor 
protections are advancing, but not quite fast enough--This neglects the 
truth that the best way to boost workers' bargaining capacity is to 
boost job creation, so that labor is in strong demand. Trade deals that 
create jobs are good for workers' rights as well as workers' incomes.'' 
We agree.

                       WHAT THE CHAMBER IS DOING

    The U.S. Chamber and AACCLA are conducting an ambitious educational 
strategy to build support for Congressional approval of DR-CAFTA. In 
concert with our partners in the Business Coalition for U.S.-Central 
America Trade, the Chamber and AACCLA have organized hundreds of face-
to-face meetings with members of Congress to make the case for the 
agreement. We have also met with members of Congress in their districts 
throughout the country as part of our ongoing ``TradeRoots'' program to 
educate business people and workers about the benefits of open trade. 
We have found broad support for the agreements, both in the Congress 
and in the business community.
    As part of this ``TradeRoots'' effort, the U.S. Chamber and AACCLA 
have published a ``Faces of Trade'' book to highlight small businesses 
in the United States that are already benefiting from trade with 
Central America and the Dominican Republic--and that stand to benefit 
even more from free trade with these two markets. We invite you to 
review these success stories and see the face of American trade today 
(electronic copies of the book are available at www.traderoots.org). It 
isn't just about multinational corporations, which can usually find a 
way to access foreign markets, even where tariffs are high. DR-CAFTA 
will first assist the hundreds of thousands of small companies that are 
accessing international markets--and that are meeting their payroll, 
generating jobs, and growing the American economy.
    The U.S. Chamber and AACCLA are also making the case for the 
agreement in a nationwide tour with the Central American and Dominican 
ambassadors to meet with local business people, farmers, and 
journalists in their home towns. We've organized major events in more 
than a dozen cities with the ambassadors, and people from all walks of 
life are excited to learn about how DR-CAFTA will create new 
opportunities for business and employment.
    This is just the tip of the iceberg. We've generated a wealth of 
information about the potential benefits of these agreements and our 
efforts to make them a reality. In the interest of brevity, I would 
simply urge you to contact the Chamber if you need more information. 
Our websites are a good place to start: www.uschamber.com and 
www.aaccla.org. Another great source of information is the website of 
the Business Coalition for U.S.-Central America Trade at 
www.uscafta.org.

                               CONCLUSION

    Trade expansion is an essential ingredient in any recipe for 
economic success in the 21st century. If U.S. companies, workers, and 
consumers are to thrive amidst rising competition, new trade agreements 
such as DR-CAFTA will be critical. In the end, U.S. business is quite 
capable of competing and winning against anyone in the world when 
markets are open and the playing field is level. All we are asking for 
is the chance to get in the game.
    The U.S. Chamber and AACCLA appreciate this committee's leadership 
on these critical issues, and we ask you to move expeditiously to bring 
DR-CAFTA to a vote. Thank you.

    Mr. Stearns. Thank you. Mr. Waskow.

                  STATEMENT OF DAVID F. WASKOW

    Mr. Waskow. Good afternoon. I am David Waskow, Director of 
the International Program at Friends of the Earth. Friends of 
the Earth is a national environmental organization and a member 
of Friends of the Earth International, which is the world's 
largest environmental federation with more than one million 
members in 70 countries.
    We believe that international trade and investment can and 
should be supportive of environmental protection. However this 
agreement lacks adequate environmental provisions and also 
includes provisions that would themselves directly undermine 
hard-won environmental protections. Because of CAFTA's negative 
implications for environmental protection, a wide range of 
major U.S. environmental organizations and dozens of 
environmental groups in Central America oppose this CAFTA.
    CAFTA is an extremely important trade agreement in 
environmental terms. Central America is one of the most bio-
diverse regions on the planet with more than 8 percent of all 
living species in the world. The region has already lost more 
than 70 percent of its forest cover and urban and rural 
pollution are rampant. Unfortunately, however, essential 
environmental protections are lacking in much of the region. 
For instance, in its own environmental review of the agreement, 
USTR itself determined that Guatemala and Honduras are lacking 
basic environmental laws. And most countries in the region have 
disjointed and under-funded policies.
    CAFTA would only exacerbate the existing problems in the 
region by opening Central America to substantial changes in 
industrial and agricultural development, many of which would 
worsen the environmental situation if left unregulated.
    Unfortunately, the agreement's environmental provisions are 
inadequate to this task. First, CAFTA does not mandate any 
country to adopt or maintain a set of basic environmental laws, 
a serious omission given the weak environmental standards that 
are currently in place. Only one environmental provision, as in 
the labor chapter, that countries enforce their already-
existing laws as subject to dispute settlement, and there is a 
lack of parity between commercial and environmental provisions, 
in dispute settlement, a clear step backward from the U.S.-
Jordan agreement.
    The environmental provisions also include numerous 
loopholes, for instance, the requirement that countries enforce 
their own laws does not even apply to laws whose primary 
purpose is natural resource manage, such as forestry management 
laws.
    The agreement also includes no guarantees of a permanent, 
dedicated, and adequate source of new funding for environmental 
capacity building. And interestingly, the Bush Administration, 
in its fiscal year 2006 budget zeroed out any funding for 
capacity building for the region connected to CAFTA.
    In addition, although CAFTA includes a citizen submission 
process that you heard about from Ms. Vargo to allege 
enforcement failures, it doesn't provide for any clear outcomes 
or actions to ensure enforcement of environmental laws through 
that system.
    Moreover, this lack of outcomes from the system is in stark 
contrast to the monetary compensation that private investors 
can demand of governments under the investor rights rules in 
CAFTA.
    And let me now turn from the ways in which the 
environmental provisions are lacking to the ways in which other 
aspects of the agreement directly undercut environmental 
protection. And I will focus here on the investor suit rules 
found in chapter 10 of CAFTA. These are similar to NAFTA's 
chapter 11, rules which have allowed foreign investors to 
challenge environmental and public health standards before 
international tribunals, bypassing domestic courts, and 
providing rights that are nonexistent in the U.S. or in other 
countries.
    Under NAFTA, Mexico and Canada have already lost chapter-11 
challenges to domestic environmental protections, and the U.S. 
has spent millions of dollars defending itself against 
environmentally related claims, totaling more than $1 billion. 
With CAFTA, the threat of these challenges could chill the 
further development of much-needed environmental standards, 
especially, of course, for developing Central American 
countries and the Dominican Republic.
    During debate over the Trade Act of 2002, a mandate 
requiring that trade agreements should give investors no 
greater substantive rights than U.S. citizens have under U.S. 
law was introduced into the requirements for USTR's 
negotiations. Unfortunately, however, CAFTA would still provide 
foreign investors with rights to challenge environmental 
protections that go far beyond the rights in U.S. law.
    Contrary to what Ms. Vargo said earlier, in revising the 
investment rules, USTR cherry-picked a few legal standards from 
a single Supreme Court case, taking those standards completely 
out of context, and ignoring many key principles from U.S. 
Constitutional Law, including some key principles from that 
same Supreme Court case that she mentioned, Penn Central.
    Let me conclude by saying that DR-CAFTA will have serious 
impacts not only in Central America. It will set critical 
parameters for broader U.S. trade policy, including regional 
agreements such as the FTAA. Unfortunately, we believe that 
this agreement sets our trade policy on a wrong and 
unsustainable course for the environment.
    [The prepared statement of David F. Waskow follows:]

 Prepared Statement of David F. Waskow, Director of the International 
                     Program, Friends of the Earth

    Thank you for the opportunity to testify before the Subcommittee 
today concerning the proposed Free Trade Agreement with five Central 
American countries and the Dominican Republic (DR-CAFTA). Friends of 
the Earth is a national environmental advocacy organization and a 
member of Friends of the Earth International, the world's largest 
grassroots environmental network, with more than one million members in 
70 countries worldwide.
    We believe that international trade and investment can and should 
be supportive of environmental protection. However, this agreement's 
lack of adequate environmental provisions threatens the environment and 
public health in one of the world's most environmentally sensitive and 
biologically rich regions. Moreover, DR-CAFTA would undermine hard-won 
environmental protections by allowing foreign investors to challenge 
environmental laws and regulations in all of the countries, including 
the U.S., that are parties to the agreement. Because of DR-CAFTA's 
negative implications for environmental protection, a wide range of 
major U.S. environmental organizations, together with dozens of 
environmental groups in Central America, oppose this agreement.
    DR-CAFTA is an extremely important trade agreement in environmental 
terms. My comments will focus on Central America, one of the most 
biodiversity rich regions on the planet, with more than 8% of all 
living species in the world. Four of the five Central American 
countries included in DR-CAFTA have tropical areas identified as 
``critical regions'' that require the protection of biodiversity. Three 
out of four migratory bird routes in the Western Hemisphere pass 
through the DR-CAFTA countries, making the forests in this tiny strip 
of land an essential habitat for the survival of 225 species of birds.
    In the midst of already fragile ecological zones, Central America 
is battling with a wide range of environmental problems. Central 
America has already lost more than 70% of its forest cover, and the 
depletion of forests has led to increased soil erosion, the 
deterioration of watersheds, and decreased biodiversity. Urban 
pollution, including air pollution, low levels of sewage and solid 
waste treatment, and chemical and pesticide runoff into water supplies, 
are rampant.
    Unfortunately, essential environmental protections are lacking in 
much of the region. For instance, in its Environmental Review of the 
agreement, USTR itself determined that Guatemala and Honduras are 
lacking even the most basic environmental laws, such as protections for 
water, forests, sanitation, and biodiversity. Most countries in the 
region have disjointed and under funded policies that have led to 
severe environmental degradation.
    DR-CAFTA would only exacerbate the existing problems in the region 
by opening Central America to substantial changes in industrial and 
agricultural development, many of which would worsen the environmental 
situation if left unregulated. Unfortunately, DR-CAFTA's environmental 
provisions are inadequate, contain numerous loopholes, and would not 
improve environmental protection.
    DR-CAFTA does not mandate any country to adopt and maintain a set 
of basic environmental laws and regulations, a serious omission given 
the weak environmental standards currently existing in much of the 
region. Only one environmental provision--that countries effectively 
enforce their already existing laws--is subject to dispute settlement, 
and the agreement fails to provide parity between enforcement of 
commercial and environmental provisions, a clear step backward from the 
U.S.-Jordan Free Trade Agreement.
    The environmental provisions also contain numerous loopholes. For 
instance, countries can evade the requirement to enforce their 
environmental laws through an escape hatch that allows them to use 
enforcement resources as they see fit. None of the agreement's 
provisions apply to judicial decisions, even including repeated 
failures by a country's court system to enforce environmental laws. And 
the requirement that countries enforce their own laws does not apply to 
any laws whose ``primary purpose'' is natural resource management, such 
as a forestry management plan.
    Given the numerous environmental challenges facing Central America, 
DR-CAFTA ought to be accompanied by firm commitments to meet the 
capacity building needs of these countries, backed up by a permanent, 
dedicated and adequate source of new funding not taken from already 
existing programs. Unfortunately, the agreement includes no such 
funding. And the recently appended Environmental Cooperation Agreement 
fails to ensure anything more than the establishment of a multi-agency 
commission without even a required mandate for specific cooperative 
activities to improve environmental protection.
    In addition, although DR-CAFTA establishes a citizen submission 
process to allege enforcement failures, it does not provide for any 
clear outcomes or actions to actually ensure that citizens of the 
region can achieve enforcement of environmental laws. In a step 
backward from NAFTA, the secretariat charged with oversight of citizen 
submissions is an economic institution with no environmental expertise. 
Moreover, the citizen submission process' lack of enforcement tools 
contrasts starkly with the monetary compensation that private investors 
can demand of governments under DR-CAFTA's investor suit rules.
    The investor suit rules, found in Chapter 10 of DR-CAFTA, pose a 
substantial threat to environmental protection in all of the 
agreement's participating countries. These investor suit rules are 
similar to NAFTA's Chapter 11, which has allowed foreign investors to 
challenge environmental and public health standards before 
international tribunals, bypassing domestic courts. Using these rules, 
which provide foreign investors broad rights that do not exist under 
U.S. or other countries' laws, multinational investors have been able 
to demand compensation for the implementation of legitimate 
environmental protections.
    Under NAFTA, Mexico and Canada have lost Chapter 11 challenges to 
domestic environmental protections, and the U.S. has already spent 
millions defending itself against claims totaling more than $1 billion. 
The challenges thus far have involved a wide range of concerns, 
including hazardous waste, toxic gasoline additives, mining remediation 
measures, and food safety requirements, as well as many other public 
interest protections.
    With DR-CAFTA, the threat of these challenges could discourage the 
further development of much needed environmental standards, especially 
for developing Central American countries and the Dominican Republic. 
Attempts to improve environmental standards in Central America could be 
chilled by the impending threat of investor litigation before 
international tribunals.
    During debate over the Trade Act of 2002, many members of Congress, 
including several on the Energy and Commerce Committee, raised 
significant concerns about the provisions in NAFTA Chapter 11. The 
Trade Act of 2002 requires that trade agreements give foreign investors 
``no greater substantive rights'' than U.S. citizens have under U.S. 
law. In introducing the relevant amendment, Senator Baucus instructed 
USTR to place a ``ceiling'' on investor rights at the level of U.S. 
law.
    Unfortunately, however, DR-CAFTA would still provide foreign 
investors with rights to challenge environmental protections that go 
far beyond the rights provided under U.S. law. In its supposed fixes to 
the agreement's investment provisions, USTR cherry picked a few legal 
standards from a single Supreme Court case, taking those standards 
completely out of context and ignoring many key principles from U.S. 
Constitutional law.
    The agreement continues to allow foreign investors to assert that 
environmental laws have caused an ``indirect expropriation,'' or 
regulatory taking, of their business interests or have violated a 
``minimum standard of treatment'' in a wide range of circumstances that 
would not be compensable in U.S. courts. For instance, the agreement 
does not include the critical Supreme Court principle that a 
governmental action must permanently interfere with a property in its 
entirety in order to constitute a taking. Nor does DR-CAFTA ensure the 
Constitutional principle that the government can regulate a public 
nuisance--such as pollution released from a property--without 
compensating the property owner.
    In several critical respects, DR-CAFTA's investor suit rules also 
provide investors rights greater than those found in NAFTA. DR-CAFTA 
expands the definition of an ``investment'' to cover a wide variety of 
economic interests that go far beyond what is considered property in 
U.S. law regarding regulatory takings. The agreement also explicitly 
grants foreign investors the right to challenge any aspect of 
government decisions about natural resource agreements, such as federal 
oil, gas, and mineral leases.
    Finally, I would like to touch on two key additional concerns 
regarding the agreement: agriculture and intellectual property. One of 
DR-CAFTA's most significant impacts is likely to be the dumping of 
subsidized U.S. agricultural products on Central America, a practice 
that under NAFTA drove small-scale farmers off their land and 
impoverished many others. In Mexico, this forced many small farmers to 
clear-cut forest areas to provide increased farming opportunities or 
replacement sources of income, while industrial farms have increased 
the levels of nitrogen and other pollution. Under DR-CAFTA, impacts for 
the millions of Central American small farmers whose livelihoods depend 
on the agricultural sector are likely to be similarly harmful.
    DR-CAFTA's intellectual property rules, which go beyond World Trade 
Organization requirements, could threaten the region's biodiversity and 
put the rights of small farmers and indigenous people at risk. By 
requiring the patenting of a wide range of life forms, the agreement 
creates potential conflicts with the Convention on Biological Diversity 
and could limit the ability of small farmers to maintain traditional 
practices, such as seed saving, which help protect and sustain 
agricultural biodiversity. In addition, DR-CAFTA could impede efforts 
to ensure that the origins of traditional community knowledge utilized 
in seeds and medicinal treatments are fully acknowledged and 
appropriately compensated.
    Let me conclude by saying that DR-CAFTA will have serious impacts 
not only in Central America. It will set critical parameters for 
broader U.S. trade policy, including regional agreements such as the 
Free Trade Area of the Americas (FTAA). Unfortunately, we believe this 
agreement sets our trade policy on a wrong and unsustainable course for 
the environment.

    Mr. Stearns. I thank the gentleman. And I will start with 
my questions for the third panel. Mr. Roney, I think you heard 
Mr. Roberts. Is there anything you would like to--because he is 
saying that pretty much this agreement, the only person that is 
sort of on the outs on this agreement is the sugar industry. 
And the implication is also that under this agreement, that 
sugar would get a better deal than they are now getting. So you 
might want to reply to what he is indicating that why you 
wouldn't be better off with this agreement, and really, 
considering you are the only one, I think Mr. Roberts is saying 
you have had inordinate persuasion on this bill. Is that what 
your words were, something to that effect that there has been--
considering there is only 60,000 employees, you said, of the 
sugar industry, that the sugar industry has had a pretty much a 
vocal opposition to it. And so Mr. Roney, I would give you an 
opportunity to answer.
    Mr. Roney. Thank you very much, Mr. Chairman. I do 
appreciate that because I think the professor is very right 
about baseball but he is very wrong about sugar in quite a 
number of areas.
    In terms of our holding the agreement hostage, it is quite 
the other way around. We are being held hostage by it. It is 
wrenching open our market without adjusting any foreign 
subsidies. And in terms of the opposition to the CAFTA, it is 
extremely widespread. Polls show the majority of Americans 
oppose it. The labor and environmental movements that you have 
heard from today are opposed to it. A broad range of religious, 
human rights groups here and in the Central American countries 
are opposed to it, as is much of American agriculture, contrary 
to what we have heard earlier. There are quite a number of 
large U.S. agricultural groups who are opposed to it.
    The professor is also wrong about our competitiveness. We 
are among the most competitive producers in the world. Our beet 
sugar producers are the third most competitive out of 41 
countries, and our cane producers are 26 most competitive out 
of 64 countries, despite the fact that we are facing much, much 
higher labor and environmental standards than other countries.
    And the other most egregious area was on consumer prices 
for sugar in this country. And there is quite a bit of 
information on this in my full testimony, which I will 
recommend to Dr. Roberts because what we have shown is that the 
foreign consumer prices for sugar are 30 percent higher than 
here. And then in terms of affordability, sugar is more----
    Mr. Stearns. When you say foreign, you mean European or 
Latin American?
    Mr. Roney. The work that we have done focuses in actual 
prices in developed countries. Abroad, it is the developed 
country average----
    Mr. Stearns. Okay.
    Mr. Roney. [continuing] is 30 percent higher----
    Mr. Stearns. Okay.
    Mr. Roney. [continuing] and then globally taking various 
per capita incomes into account in terms of minutes of work 
required to buy a pound of sugar. And there are charts in here 
that demonstrate this. Our sugar is the most affordable in the 
world.
    Mr. Stearns. Mr. Waskow, you know, the argument seems 
pretty strong that this agreement is only worth about $77 
billion, or about the GDP of Sacramento, California. And 
relative in the big scheme of things, you know, we are saying 
don't support a fast-track agreement for a very small number of 
agreements. I mean, relative--and then it was also pointed out 
by Mr. Murphy when he indicated that the best is often the 
enemy of the good. I mean, couldn't this agreement--you can't 
get a perfect agreement, but certainly with such a small number 
of nations, wouldn't it just be goodwill to go ahead and try 
and move forward, realizing that the best is not the enemy of 
good and perhaps we can perfect it as we go?
    Mr. Waskow. Well, if we thought that this agreement on net 
were going to be positive for the environment and Central 
America and the United States, I would perhaps say yes----
    Mr. Stearns. But remember, you----
    Mr. Waskow. [continuing] but----
    Mr. Stearns. [continuing] cannot influence anybody if you 
don't have a dialog and you don't trade with them. And right 
now they are getting a free ticket in here but we don't get a 
free ticket into theirs. So wouldn't we be able to influence 
them a little bit if we had a trade agreement and they were 
buying more of our products and just the set up that the trade 
organization has set up here in the CAFTA agreement? Wouldn't 
that be some kind of influence to get a better environmental 
situation than we now have?
    Mr. Waskow. Well, I would just draw on the lessons that 
many of our colleagues in Central America have come to, and 
that is that this agreement is bad for environment and 
development in Central America. It will not provide benefits in 
a substantial way to the economy given as Ms. Vargo herself 
said, that market access to the U.S. economy is almost as great 
now under CBI as it would be under CAFTA. Perhaps selling 
products there would somehow benefit the environment, but in 
fact I think the likelier outcome is that selling--and this is 
a controversial question, of course--but our selling highly 
subsidized agricultural products to Central America could have 
a quite problematic effect for the environment.
    We have seen with NAFTA that the subsidized dumping of corn 
into Mexico has displaced many small farmers, and 
unfortunately, what that has led to is increased deforestation 
rates as those farmers try to supplement their incomes or to 
clear additional agricultural land when they are impoverished.
    So in fact what our colleagues have determined is that this 
will not be a beneficial agreement for their environment or 
development.
    Mr. Stearns. Dr. Roberts, you have your Ph.D. in economics 
and----
    Mr. Roberts. Yes.
    Mr. Stearns. [continuing] in the opening statement I talked 
about Ricardo and his comparative advantage----
    Mr. Roberts. Was a thrill for me----
    Mr. Stearns. Yes.
    Mr. Roberts. --Mr. Stearns----
    Mr. Stearns. Okay.
    Mr. Roberts. [continuing] I have to tell you.
    Mr. Stearns. And so I went to my staff and I said well, 
didn't Adam Smith and the ``Wealth of Nations,'' didn't he come 
up with this concept before Ricardo? And I guess he talked 
about free trade in his ``Wealth of Nations.'' Which one is it 
from an academic standpoint is considered the one, the free-
marketer in terms of comparative advantage?
    Mr. Roberts. Well, Adam Smith really was talking about what 
is usually called absolute advantage, and he was emphasizing 
the fact that even if we are all alike, there are values to 
specialization. I don't want to do everything for myself. I am 
going to rely on you and cooperate with you via trade, and if 
we have the same skills. That was Smith's deep insight as to 
how that creates wealth. Trade and exchange and relying on 
others, cooperating with others, which is what trade is all 
about, creates wealth.
    But there is another aspect to trade, which is diversity, 
which is the fact that you and I may not be the same. You may 
have certain things you are good at and certain things I am 
going to be better at than you. And what Ricardo's great 
insight was was that even if I am better at everything than you 
are--or let us reverse it--even if you are better at everything 
than I am, it still is worthwhile for you to trade with me. I 
will benefit even though you are better than I am at 
everything, because by specializing, you will be able to do--
use your resources, your time, your energy much more 
effectively. That was Ricardo's deepest insight was that when 
we are different, even if I am bad at everything, by letting 
you specialize and letting me do some things for you, you will 
be better off and I will be better off.
    So for example, even if you are the best typist in the 
world or the greatest lawn cutter in the world, you might 
outsource those jobs outside your household. You might rely on 
others to do those jobs. You might let someone cut your lawn, 
someone do your typing, someone to change the oil in your car, 
even if you were phenomenal at it, because that will free up 
your time to do something you are even better at. And that is 
really what Ricardo's insight was. It is not intuitive, and I 
would suggest that it has not quite made its way fully into the 
consciousness----
    Mr. Stearns. And I----
    Mr. Roberts. [continuing] of the American people.
    Mr. Stearns. [continuing] appreciate your definition, and I 
think going--when I asked a question to Mr. Waskow, that when 
this happens in this dialog with this other country, you 
actually influence them and they influence you. And there is a 
modicum of cross-the-board influence.
    Mr. Roberts. And you change the way that you organize your 
economic life and you change the way you organize your 
political life. And I think the political impact is extremely 
important for these countries that have struggling democracies.
    Mr. Stearns. And let me ask you one other question. My time 
has expired. I hear lots of times that the deficit, the trade 
deficit is bad.
    Mr. Roberts. Yes.
    Mr. Stearns. And I think the arguments are made before 
NAFTA we had a surplus, and after NAFTA we had huge deficits 
even though NAFTA contributes a smaller portion. And Mr. Brown 
from Ohio has a graph he shows----
    Mr. Roberts. Chromatic chart, yes.
    Mr. Stearns. [continuing] and how do deficits--trade 
deficits affect our economy and what does that mean? Should we, 
as Congressmen, be concerned that this might add to the trade 
deficit, this CAFTA agreement?
    Mr. Roberts. Well, no economist who is not under the pay of 
a special interest. That is, virtually every academic economist 
thinks that trade deficits are relatively unimportant for the 
economy and for the job picture in the United States, which is 
counterintuitive. It is not what you will hear from a lot of 
lobbyists and special interest----
    Mr. Stearns. Because people are arguing that is why the 
dollar has gone relative to the European Union. But the 
European Union has high unemployment, they have deficits 
themselves, they----
    Mr. Roberts. Well, yes----
    Mr. Stearns. [continuing] so I just----
    Mr. Roberts. [continuing] Well, to make it simple what a 
trade deficit is mirrored by is a capital surplus; that is, a 
trade deficit means we import more from our neighbors than they 
import from us. At the same time they are investing more in our 
economy than we are investing their. Why is that? Because we 
are a phenomenal place to invest and a great place to take risk 
relative to the rest of the world. As long as that is true, as 
long as the United States is a productive and stable 
environment for investment, we will run a trade deficit year 
in, year out, maybe with some countries and not with others, 
but our net trade deficit will be negative in goods. And that 
will be a sign of economic health----
    Mr. Stearns. So trade deficit----
    Mr. Roberts. [continuing] one----
    Mr. Stearns. [continuing] in your opinion is----
    Mr. Roberts. Irrelevant.
    Mr. Stearns. [continuing] is a positive sign?
    Mr. Roberts. Irrelevant or positive. One last statistic, 
since the mid-'70's we have run a trade deficit every single 
year. It adds up to trillions of dollars. These numbers we hear 
about how many jobs are lost for every $1 billion of trade 
deficit or jobs that are created for surplus, those numbers are 
meaningless; they are not true. It would require us to have 
created something like--by the way, since those mid-'70's our 
economy has created 50 million jobs in the face of those trade 
deficits. So the proponents who tell us that trade deficits 
hurt jobs, they suggested we would have created an extra 20 or 
30 million jobs. Where would they come from? Who would be drawn 
into the labor force? Children? 80-year-olds? The job market, 
the labor market, the number of jobs in the United States is 
determined by our skills and our willingness to work, not by 
our trade deficit per se. Totally irrelevant.
    Mr. Stearns. If you go back in history and you look at the 
start of this country in the 18th century and the 19th century, 
what were the trade deficits back then?
    Mr. Roberts. Well, when we were getting investment, we were 
running a trade deficit, but a more dramatic example is 
England, from 1850 to 1970, which is 120 years, which were 
glorious years of economic history for England, by the way----
    Mr. Stearns. Those were the golden years of England.
    Mr. Roberts. Mostly time of tremendous economic growth, 
tremendous job growth, they ran a trade deficit 119 of the 120 
years. So we will hear it is not sustainable. That is pretty 
sustainable. 119 out of 120 years, 1 year, I don't know what 
was wrong with that year. I suspect it was a data error entry, 
a typo on the chart, but for 119 out of 120 years when England 
was the most powerful economy in the world, they consistently 
ran a trade deficit because they were a good place to invest. 
That will be true for the United States as well.
    Mr. Stearns. And my time has expired.
    Ms. Schakowsky. England was also a colonial power that 
enslaved entire nations at the time. I just wanted to point 
that out.
    Mr. Roberts. They had some negatives. That is true.
    Ms. Schakowsky. I just thought I would----
    Mr. Roberts. Big ones.
    Ms. Schakowsky. [continuing] point that out. Yes. I wanted 
to say something to ask a question of Mr. Murphy. Your 
organization and the Chamber of Commerce have been citing a 
study that was sponsored by the Chamber that you say 
demonstrates that CAFTA would increase U.S. employment and 
increase income nationally. There are a couple things about the 
report that I wanted to ask you, which in fact is the only 
economic modeling that we have seen that tries to show that the 
U.S. would gain jobs from CAFTA.
    I want to you ask you, does it seem like a reasonable 
assumption that under CAFTA the United States would not see any 
increase in imports from Central America? Because that is one 
of the assumptions of the study.
    Mr. Murphy. The study is based on a model that has been 
around for a long time. It is called a RIMS-II study. It is 
widely use at the Department of Commerce and other places. The 
model--basically you come up with certain assumptions. For 
instance, we started by making some very conservative 
assumptions about export growth from the United States to the 
region. We took what we saw last year with the Chile agreement 
of 33 percent export growth and we cut it in half and we 
posited out what that would mean using multipliers that the 
government provides for different sectors. You know, if you 
have $1 billion of exports, what does that mean in terms of job 
creation in the computer sector in a different industrial 
sector.
    And that is the State-by-State studies that we have been 
doing, and some of the numbers are quite impressive, for 
instance, for Florida, which has very large trade with the 
region. We did not explore the import side for the reasons that 
have been discussed quite broadly here today, that the U.S. 
economy has essentially already paid the price for opening up 
our economy to imports from this region. The fact that 99 
percent of agricultural goods are already coming in duty-free, 
we don't expect to see a huge surge in agricultural goods. The 
fact that 80 percent of manufactured goods come in duty-free, 
that we don't expect to see a huge surge in that category. 
Whereas in the other direction, the tariffs are quite high.
    Ms. Schakowsky. So you don't think that figuring in 
imports--you think there will--so you are saying there will be 
no increased imports?
    Mr. Murphy. I think that as economic growth proceeds, there 
are increases in imports, but for the purposes of the study, 
projecting that out, we looked at the export side. But I 
think----
    Ms. Schakowsky. So they weren't necessarily net exports, I 
mean, in terms of impact on the economy?
    Mr. Murphy. Yes. But I think one of the important things 
you have to say about imports is that one shouldn't look at 
imports as a net negative. After all, look at the Chile 
agreement, one of the----
    Ms. Schakowsky. No, I am just saying they weren't really 
considered at all.
    Mr. Murphy. Right, precisely because we expect it to be 
quite a low number, an extremely low number given how open the 
U.S. economy already is----
    Ms. Schakowsky. Our staff----
    Mr. Murphy. [continuing] across the----
    Ms. Schakowsky. [continuing] ran some numbers on the export 
side, and what they found was that in order for CAFTA to create 
jobs in the United States, to actually make progress in job 
creation, if you look, just for example, at Honduras, you would 
have to assume export gains for U.S. companies and farmers to 
essentially have 80 percent of the Honduran economy absorbed by 
the United States exports in 10 years. I mean, just enormous 
amount of exports that it would amount in figures to 80 percent 
of the Honduran economy.
    I mean, do you think it is realistic to think that we could 
displace 80 percent of another country's economy in terms of 
money that we would gain?
    Mr. Murphy. I think that if you look at the statistics on 
what the U.S. already sells to this region, it is remarkable 
what great customers they are. I think it is about 70 percent 
of the non-oil imports that go to these countries is coming 
from the United States. And as we see these economies grow, we 
expect those numbers to continue also to grow a great deal. Now 
I can't speak very specifically to your analysis. I would be 
very happy to look at it.
    Ms. Schakowsky. Okay, that would be good. I would 
appreciate that. I wanted to ask a question briefly about the 
environment and my concern about questions of U.S. sovereignty 
and our ability to even enforce our own environmental laws. I 
wonder if you could expand a little bit on that.
    Mr. Waskow. Sure. And in fact groups ranging from the 
National League of Cities to the Conference of State Chief 
Justices have raised significant concerns about the investor 
suit rules in these agreements I think it is coming from a 
whole array, including a bipartisan array, of local and State-
elected officials around the United States.
    And, in essence, what the concern is is that these rules 
provide a tool for foreign investors to essentially challenge 
and undermine legitimate environmental--and frankly, not just 
environmental, other public interest standards as well by 
demanding compensation from the U.S. Government when the 
foreign investors claim that their business interests have been 
affected in some manner.
    And what this does is essentially place significant 
pressure on State and local governments. And we have seen just 
recently Governor Schwarzenegger veto a bill that would have 
required recycling of crumb rubber in California for road use 
because of concerns about the effect of NAFTA and whether NAFTA 
would in fact overrule the attempt to do that recycling. And so 
I think that it is quite a well-placed concern on the part of 
those State and local officials.
    Ms. Schakowsky. Thank you. And thank you for that example 
as well.
    Mr. Stearns. Mr. Otter.
    Mr. Otter. Thank you, Mr. Chairman. Mr. Roney, the 
administration has insisted that there is a cushion that 
permits them to grant the CAFTA countries additional access to 
the U.S. sugar market without interfering with the operation of 
U.S. sugar policy. And you say that there is no such cushion. 
Can you explain the difference between your position and the 
administration's position?
    Mr. Roney. Yes, I can. Thank you, Congressman. The 
administration seems to have a peculiar case of selective 
amnesia about what it has already committed to do in the NAFTA. 
But in the NAFTA the administration added to commitments that 
it had already made in previous trade--in the Uruguay Round of 
the WTO. It added a commitment to import up to a quarter 
million tons of sugar from Mexico when Mexico has that sugar to 
export, regardless of whether we need the sugar or not. That is 
on top of the one and a quarter million tons that we are 
committed to import from 41 countries on the WTO.
    Now, what has happened in the last couple years is that 
Mexico has had a couple of short sugar crops and has not had 
the sugar available to send to us. And so our actual imports 
were coming in below this one and a half million tons that the 
Congress essentially decided in the 2002 Farm Bill was an 
adequate amount of access guaranteed to foreign countries.
    And the administration looked at the sugar that was not 
being imported from Mexico and said oh, well, this gives us 
room or a cushion to grant additional access to the CAFTA 
countries, completely forgetting that Mexico could, any month 
now, resume shipping that sugar to us. And indeed this year 
Mexican sugar crop is coming back substantially, and we would 
not be surprised in the coming year if they didn't send us the 
full amount that they are allowed to.
    Mr. Otter. Which is 276,000 tons?
    Mr. Roney. Exactly, yes. And----
    Mr. Otter. You feel confident that they will then use their 
full quota to come back into the United States?
    Mr. Roney. I would expect that they would----
    Mr. Otter. Then what happens in 2008 with Mexico?
    Mr. Roney. In 2008 it gets even worse because then the 
276,000-ton limit comes off. We have free trade with Mexico. 
Mexico, beginning in 2008, if they wanted to, could send us all 
their sugar production and import off the world dump market to 
satisfy their domestic needs. That is a train wreck that is on 
the way, and we are trying to work out negotiation with Mexico 
to avoid that. The CAFTA will just make that worse.
    Mr. Otter. Are you familiar with their policy of importing 
sugar into Mexico, but not allowing any of that imported sugar 
to go into value-added products such as candy bars, cake mixes, 
and those kind of things unless it is going to be exported?
    Mr. Roney. Yes, that is through a re-export program set up 
by Mexico and by the U.S.
    Mr. Otter. And, of course, we are going to continue with 
that program?
    Mr. Roney. We would expect so, yes.
    Mr. Otter. What is the world sugar price right now?
    Mr. Roney. About 9 cents per pound.
    Mr. Otter. Now, 2 years ago I was in Cuba and visiting with 
Castro with the Cuban government, and he just indicated they 
had shut down 78 sugar plants. I said, well, that was a very 
capitalistic move. Why did you do that? He said well, because I 
can buy sugar on 3 cents and it costs me 4.5 cents to produce 
it. And I said again to him, well, that was a very capitalistic 
move. He said I can get all the sugar I want for 3 cents. So 
why would that 3-cent sugar go to anyplace else in the world 
except the United States if we opened our markets?
    Mr. Roney. Well, that is the problem, Congressman, is that 
there is a lot of this dump-market sugar floating around out 
there. No one in the world, and I think Mr. Castro was dreaming 
when he said they could produce sugar for as low as 4.5 cents 
per pound. They have an antiquated sugar industry there. With 
cost of production they are probably doubled.
    Mr. Otter. Yes, but they also have slave labor.
    Mr. Roney. They have that. They have got some low labor 
costs and antiquated equipment and probably very high----
    Mr. Otter. Actually, it is not slave labor. It is all 
government employees.
    Mr. Roney. Yes, and----
    Mr. Otter. So there is a difference. Mr. Roberts, I am 
interested in your economic--I remember when I was taking 
economics, I think it was Economics 101 back in college, and my 
college professor said one time, who was a real free market 
advocate, not unlike, say, a Friedrich Hayek or Milton 
Friedman--anyway, he said that, you know, if every government 
economist were laid end to end, it would probably be a good 
idea. I am not sure I totally agree with that, but I would say 
it is not unusual for us to constantly be bombarded with 
conflicts between government economists and free market 
economists. Tell me why that is.
    Mr. Roberts. Well, first, again, I have to say that to have 
a hearing with David Ricardo, Adam Smith, Friedrich Hayek, and 
Milton Friedman's name mentioned, is it a first or is this 
commonplace?
    Mr. Otter. I hope it is not the last.
    Mr. Roberts. Okay. It is an interesting world that we live 
in. There is a lot of disagreement in economics about lots of 
things. There are a lot of issues about how big certain effects 
are. Some effects I might think are large; someone else might 
say no, they are small. So economists disagree about a lot of 
things, but there are many things that economists actually 
agree on. One of them is about the benefits of trade for both 
parties. And the people who are against trade, who put the 
label economist on their business card, tend to be economists 
who are paid for their positions rather than people who are 
free, either because they are in the academic----
    Mr. Otter. Wait a minute. You mean they are free because 
they are government employees?
    Mr. Roberts. No, I am not talking about government 
economists.
    Mr. Otter. Oh.
    Mr. Roberts. I am talking about people you will hear 
representing various industry groups, various labor unions, 
people who are paid to take a position basically. Those are the 
people you will hear day in, day out. They will come through 
your office to tell you about how dangerous trade is and how 
bad trade deficits are.
    But the economists who are disinterested, free trade and 
otherwise, on the left and the right, Democrat and Republican, 
overwhelmingly agree that trade is good for both sides and that 
trade deficits do not cost us jobs. The people who you were 
hearing are, I would argue, not a representative sample of the 
economics profession. The other side, the so-called free 
marketers, include Democrats, Republicans, people across the 
ideological spectrum. But they are not in the employ of special 
interest.
    Mr. Otter. My time is up. And, Mr. Chairman, thank you. I 
would only--I need your answers because I have got 14,000 
lumber workers that are out of business because of Canadian 
Softwood Lumber Agreement. I really need to be able to convince 
them that they are better off----
    Mr. Roberts. Well----
    Mr. Otter. [continuing] now because of NAFTA.
    Mr. Roberts. Well, not everybody is going to be better off. 
I mean, no economist has ever said that. The question is, who 
is going to benefit at whose expense. And the sugar beet 
farmers that you are worried about, and I understand your 
worry, are taking money out of my pocket right now. And this 
agreement will keep that money flowing into their pocket. And I 
understand that they are going to tell you how bad it is for 
their livelihood that CAFTA is going to pass and increase U.S. 
imports by 2 percent over 15 years. The fact of the matter is 
that is making me pay more for my sugar, for my cereal, for my 
candy, my ketchup, et cetera.
    And I understand your self-interest. You have got to 
protect those jobs. But the overall, people who are paying for 
that are the rest of the country.
    Mr. Otter. Thank you, Mr. Chairman.
    Mr. Stearns. I thank the gentleman. The gentleman from 
Ohio.
    Mr. Brown. Thank you, Mr. Chairman. I would like to tell an 
anecdote, a story, and then a question. The anecdote, before we 
go too far about Adam Smith, you should remember that Adam 
Smith's last job before his death was a tariff collector in 
Scotland. And I also would add to Dr. Roberts that Paul 
Samuelson, who was probably not on any industry payroll, has 
written a paper that he was generally wrong on free trade all 
these years. And that to say that no reputable economist--I 
mean, there are dozens of reputable economists that don't agree 
with your position on trade. But that is neither here nor 
there.
    A couple of guys from my staff, both are sitting behind me, 
toured a big steel problem last month in Baltimore I believe. 
And they told a story that bears on what we are talking about. 
I would like to tell the story and then ask each of you just to 
respond to a question, all four of you. They were taking a bus 
ride from one plant to another, and across the aisle on the bus 
was the plant manager talking to another guy about their 
environmental protection efforts. The plant manager said--and 
this is a pretty direct quote from the two people in my staff 
that listened--he said yes, it is a big investment. We just 
spent $23 million to improve our water emissions, we spent $43 
million to improve our air emissions. And he said that is okay, 
though, because we all live here too and we want this area to 
be safe for our kids. And then he paused and he said I just 
wish that other countries had to play by the same rules, that 
is all.
    That is the point that a lot of us have made on this trade 
agreement by holding foreign countries to lower or nonexistent 
environmental standards. Trade agreements like CAFTA not only 
harm the environment, they harm our competitiveness. How do you 
compete with that?
    And my questions are for each of the four of you, starting 
with you, Mr. Roney. Is that plant manager right and should we 
insist on a level playing field for environmental protections 
as well as intellectual property and commercial protection?
    Mr. Roney. Yes, sir. We certainly should, and in farming it 
is very apparent. I had a mill manager in Hawaii who had worked 
in other mills in the developing world before he got there and 
said that he was facing rules in Hawaii that he had never faced 
in any other country in terms of cleaning the water, the muddy 
water that left the mills before it could go out into the 
ocean. He had to invent machinery that had never been made 
anywhere else in the world just to get the mud out of the water 
before it went in.
    Now, should we be put out of business by the countries that 
don't protect the water supply by the El Salvador industry? It 
employs child labor that is well-documented. Should we be put 
out of business while we are adhering to the highest labor and 
environmental standards in the world and these other countries 
continue? I am a recovering free trade economist because I have 
seen how the real world works. I see how governments play roles 
that--directly subsidizing or indirectly subsidizing by not 
putting labor and environmental standards on their workers and 
disadvantaging those countries that do care about those things.
    Mr. Brown. Dr. Roberts.
    Mr. Roberts. Yes, I am glad to add Paul Samuelson to the 
illustrious list of economist who have been mentioned today and 
would love to see--if you would please send me that paper, I 
would be anxious to see it.
    On the comment on the steel workers and the steel industry, 
we do have different standards than the rest of the world, but, 
of course, many U.S. steel producers compete very effectively 
with those standards in place. The mini-mills, for example, 
through innovation and technological creativity were able to be 
competitive with the rest of the world. Unfortunately, the 
large steel mills----
    Mr. Brown. The question is not about the steel mills; the 
question is should Central American countries have the same 
environmental standards as we do----
    Mr. Roberts. I think not. I think not because we would 
impoverish them if we did. The reason they don't have the same 
standards we do is because they are much poorer than we are and 
they can't afford the same standards that we do. To impose 
those standards on them is to keep them poor. And I think that 
is a cruel policy. And I think we can compete in the face of 
that disparate regulatory environment as the mini-mills have 
shown we can do. So I think it would be a mistake to force them 
to live by our standards.
    Mr. Brown. Mr. Murphy.
    Mr. Murphy. I think one of the interesting ways to look at 
the choice that the Congress faces is to think about the 
different outcomes if DR-CAFTA is approved or rejected. If the 
agreement is rejected, and I think this goes to the question 
here, it is American businesses and workers and farmers who 
will continue to face these high barriers to their exports 
while the Central Americans will not. It is interesting to look 
at the working conditions of the workers in Central America. 
What incentive would the governments have to improve their 
working conditions? To say nothing of the fact that increased 
competition in the global economy, especially in the apparel 
and textile industry, is only going to increase. And without 
CAFTA they will have even fewer resources and a lessened 
ability to stay competitive and hold onto the markets that they 
have. I do think that there is a clear fork in the road there.
    Mr. Brown. Mr. Waskow, if you would answer also. Thank you.
    Mr. Waskow. Sure. Well, let me begin by saying that I think 
from the perspective of our colleagues in Central America, the 
cruelty--cruelty was just referred to--the cruelty would be for 
citizens in those countries to continue to face serious water 
and air pollution, to see their forests deforested, to see 
small sustainable farmers pushed off their lands. That is the 
cruelty from the perspective of our colleagues.
    And I think one of the great ironies in this agreement is 
the fact that the investor suit rules give companies, foreign 
companies, an opportunity to essentially place a lid on the 
standards to which those countries can aspire. Because a 
country, if it senses a threat of a lawsuit from a foreign 
investor under these rules before an international tribunal, it 
is quite unlikely, when they know that millions of dollars in 
defense costs would be involved and possible compensation paid, 
even greater amounts, that country, I think, is quite unlikely 
to be ready at a moment's notice to go forward with 
environmental standards. And so what I think we see with this 
agreement in fact is an imposed cruelty because the investor 
suit standards cap what it is that Central Americans can do for 
their environment.
    Mr. Stearns. Thank you. Mr. Gonzalez.
    Mr. Gonzalez. Thank you, Mr. Chairman. And the first 
question will go to Dr. Roberts. And I think what we are always 
discussing, and I think, in essence, I agree with some of the 
theories; it is just that the practice can be brutal. The thing 
about creative destruction, it just depends if you are part of 
that that is being created or that segment that is being 
destroyed at any given point. But it doesn't mean that things 
get paralyzed either. We stay in the same place. And those are 
really hard choices. Like I said earlier, in Texas we always 
just say it depends whose ox is being gored. And that is, as we 
can see through the testimony, generally that is what is 
happening.
    I was at a meeting about a month ago at the Greater Houston 
Partnership, and Dr. Ray Perryman was there. And you are 
familiar with Dr. Perryman, I believe? You are not? Well, in 
Texas we don't do anything unless there is an economic study by 
Dr. Perryman. And so what I asked him was, in the context of 
free trade agreements, and specifically CAFTA, how much can we 
realistically accomplish in the way of human rights, workers' 
rights, and the environment? His answer was really very little. 
Very little if you don't take into consideration where they are 
in their economic development. And what he was basically 
telling me--and I don't want to put words in Dr. Perryman's 
mouth--was, you know, you guys need to get realistic about how 
much you can accomplish. Because at one time in our history we 
had child labor.
    Mr. Roberts. Sure.
    Mr. Gonzalez. And we didn't have 40-hour weeks. And we 
polluted the heck out of the air and the water. And if you want 
to impose these certain conditions on emerging, developing 
economies, you are crippling them. So you are going to have to 
be reasonable when you go out there and recognize the 
realities. Now do you agree with that kind of general 
assessment of Dr. Perryman?
    Mr. Roberts. I do. I think the first thing to say though is 
on the creative destruction point, it is easy to forget how 
dynamic our economy is. Every quarter, every 3 months, the U.S. 
economy destroys about eight million jobs for a thousand 
reasons: companies that take a wrong turn, consumers decide 
they don't want to buy something, they want low-carb instead of 
high-fat, trade issues, innovation, productivity changes. Eight 
million jobs a quarter. But we create about eight million jobs 
a quarter. When the economy is going well we create more than 
we destroy.
    So that incredible dynamism is really the source of our 
prosperity and to me gives me a great deal of optimism about 
our ability to deal with changes that we are talking about or 
many of the industries we are talking about are very, very 
small relative to the size of the whole economy.
    On the environmental issue I think you are exactly right. 
When I was in Costa Rica, an incredible awareness there that 
their future lies with their environment. It is a gorgeous 
country. They have rainforest, they have beautiful beaches. 
They want to see tourism, and do see tourism as a tremendous 
source of their prosperity. They want to protect their 
environment, but they are very poor. And I think it is very 
arrogant on our part to try to tell them the pace at which they 
will make the transformation to what we hope will be a 
healthier and richer society.
    They are a democracy. They are desperately trying to become 
a successful economy, make an incredible set of transitions 
that we have already dealt with both environmentally, both in 
the job market. You know, 25 years ago their main crops were 
coffee and bananas. And now tourism is probably their--I don't 
know if it is for sure their No. 1 export, but I know coffee 
and bananas are no longer as important as they used to be.
    So they understand the world is changing. They are 
desperately trying to make it happen, and we can't dictate to 
them what pace they follow, just like we wouldn't like anyone 
to dictate to us.
    Mr. Gonzalez. Mr. Waskow. And I----
    Mr. Waskow. Thank you for the opportunity.
    Mr. Gonzalez. Sure.
    Mr. Waskow. I think all the evidence to date is that there 
is really no fundamental conflict between environmental 
protection and development. In fact countries can benefit 
themselves--I think Costa Rica is an excellent example--by 
protecting their environment, that that provides great economic 
benefit.
    I would also add that I agree in a sense that we should not 
be dictating standards across the board. Unfortunately, I think 
that the investor suit provisions in the CAFTA agreement do 
dictate and do place a lid on the kind of environmental 
protections that countries can seek to put in place. And so I 
think that is the dictation that is going on if you look at 
CAFTA, all the chapters in CAFTA.
    Mr. Gonzalez. And I have 19 seconds. And each one of you, 
your own read, because you always hear that NAFTA was a 
profound failure. I am from Texas, and I have to tell you that 
it hasn't been in the State of Texas. And I am taking into 
consideration what has been going on in Mexico and such.
    Was NAFTA a good agreement? And I just--Mr. Roney?
    Mr. Roney. It has been bad for us, Congressman, because it 
is forcing us to take Mexican sugar and the Mexican sugar 
industry is half-owned by the government. So this isn't exactly 
free trade here. Rather than letting their mills go out of 
business, the government just expropriates them. And now they 
are trying to send--they want to be able to send us their 
surplus. And the NAFTA will allow them to. So it has been a bad 
agreement for us.
    Mr. Gonzalez. Dr. Roberts.
    Mr. Roberts. Well, your State is one of the few States 
where you can see the benefits. We all see the costs. We have 
heard from Representative Brown; we heard from others earlier 
about how their State lost a certain number of jobs to NAFTA. 
What we didn't see--they are there. We can't see the jobs that 
are created because they are not created specifically in NAFTA 
industries. But when we import stuff that is cheaper, that 
frees up resources for us to do other things. Those other 
things that expand and create more jobs, you are not going to 
be able to identify them as NAFTA jobs. Surely every State that 
complained about job losses due to NAFTA has increased 
employment since NAFTA passed. And I think much of that--some 
of that, not much--a part of that was due to NAFTA; you just 
can't identify it.
    So I think attempts to vilify NAFTA on the job issue are 
wrong. It didn't create jobs per se; it changed the kind of 
jobs we did. I think that is good for us, good for Mexico, and 
the stability of the Mexican democracy I think is the single 
most important result from that. It is not totally stable 
obviously. It is not as stable as the United States. But it is 
much more stable than it was 15 years ago. And I think that is 
extremely important for us and for them.
    Mr. Gonzalez. Mr. Murphy.
    Mr. Murphy. I think for the United States NAFTA has clearly 
been a gain. As has been pointed out, you can't see it 
everywhere because the gains are so broadly distributed. And 
yet at the same time you look at the past 10 years, we have had 
a net creation of nearly 20 million jobs in this country. 
Incomes are rising, not incredibly quickly, but they are 
rising.
    If you look at Mexico, though, it is a country very close 
to my heart. I lived there for a couple of years. I am struck 
by basic statistics like seeing the consumption of chicken has 
doubled in the past decade, the average consumption of chicken. 
The consumption of pork is up 50 percent. You are beginning to 
see people start to live better. Mexico came into NAFTA with 
tremendous rural poverty, and there is still tremendous rural 
poverty. But you are starting to see changes there, and it is 
very heartening.
    Mr. Gonzalez. Mr. Waskow.
    Mr. Waskow. I would say there are some marginal benefits, 
but in general it has been a negative. Continued problems at 
the borders I am sure you are aware, deforestation and other 
problems due to major shifts in the agricultural sector in 
Mexico, and the significant legal and regulatory issues that 
have been raised by the investor suit rules and other 
provisions in NAFTA.
    Mr. Gonzalez. Thank you very much. Thank you, Mr. Chairman.
    Mr. Stearns. Thank you. And we are getting ready to close. 
I am just going to take the liberty, Dr. Roberts, just to talk 
to you a little bit more about economics, and you know this 
better than I do. But there are cases when you--at least Adam 
Smith in ``Wealth of Nations'' as I recollect said there is a 
reason for tariffs. And as I recollect, the three he mentioned 
was obviously for national security, the second one is to 
retaliate against those suppliers that flood the market 
illegally either with the snap-back provisions, and the third 
is to allow a transition time for those workers who are being 
replaced so that they can be educated so that they are not 
thrown out of work and they just sit there with no job. So he 
mentioned those three in ``Wealth of Nations'' as I recollect. 
Do you think there is any other reasons to oppose free trade 
with tariffs other than those three?
    Mr. Roberts. Well, in those particular cases, I think he 
also mentioned--I would be happy to send you the quotes 
online--he also mentioned the danger of using those arguments 
because they would likely become abused by the political 
process as special interests invoke those arguments. I think 
most economists recognize those as potentially good arguments 
but understand that in practice they often are exploited.
    So for example, I think the steel industry for about the 
last 120 years has been saying they need just a little more 
time to adjust to foreign competition. I think it is about time 
to let them try to stand on their own feet.
    In the case of transition, I think the thing that CAFTA 
does that is generally good is it would be cruel to someone who 
has had protection to say overnight it is gone. It is important 
to phase those in slowly, those tariff reductions. I think in 
that case it makes sense.
    Those are the main arguments. On the case of national 
security I think it is the strongest case. There are very few 
products in today's world where national security is truly a 
legitimate issue----
    Mr. Stearns. Do you think----
    Mr. Roberts. [continuing] on trade protection.
    Mr. Stearns. [continuing] having this country be able to 
have its own agricultural sector is a national security and a 
reason----
    Mr. Roberts. I don't----
    Mr. Stearns. [continuing] for Americans----
    Mr. Roberts. I don't think so. I think our agricultural 
policy with respect to tariffs and quotas--with all due respect 
to the gentleman on my right--makes no sense. There are many, 
many products that we do not have tariffs and protection for. 
Because we buy them from lots of places that compete with each 
other, there is no risk that we will be exploited by an enemy. 
And somehow those products arrive at our groceries in great 
abundance even though they are not subsidized, even though they 
are not protected, even though they are not taken care of by a 
government policy. Self-interest on the part of farmers and 
consumers makes sure that those products are there in great 
abundance. So I don't see any reason of why we have to worry 
about that as a national security issue.
    Mr. Stearns. Okay. Well, I am going to close the hearing 
and thank all of you. I think the debate today has clearly 
demonstrated the complexities of trade agreements, and we have 
seen the pros and cons. And I really encourage my members of 
the subcommittee to come here objectively to try and get to the 
facts and not try to look at this relative to any political 
things. And I think all of you have helped us. I also believe 
that the United States must be a leader in economic progress, 
and to a certain extent, the United States has its obligation.
    So with that, thank you for waiting through the other two 
panels. And at this, the subcommittee is adjourned.
    [Whereupon, at 3:36 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

     Prepared Statement of the Retail Industry Leaders Association

    On behalf of the Retail Industry Leaders Association, we welcome 
the opportunity to submit written comments for the record for this 
important hearing on the United States-Dominican Republic-Central 
American Free Trade Agreement (DR-CAFTA), now coming before the 
Congress for implementation. We strongly support the DR-CAFTA agreement 
and urge swift Congressional passage of the implementing legislation.
    By way of background, the Retail Industry Leaders Association 
(RILA) represents the nation's most successful and innovative retailer 
and supplier companies--the leaders of the retail industry. As a 
sector, retail is the second largest industry in the U.S., employing 12 
percent of the nation's total workforce and conducting $3.8 trillion in 
annual sales. RILA's retail and product supplier companies operate 
100,000 stores, manufacturing facilities and distribution centers in 
every congressional district in every state, as well as 
internationally. They pay billions in federal, state and local taxes 
and collect and remit billions more in sales taxes. They are also 
leading corporate citizens with some of the nation's most far-reaching 
community outreach and corporate social responsibility initiatives.
    RILA fully believes that passage of this agreement will:

 benefit the U.S. economy--producers and consumers alike;
 strengthen freedom and security in our Hemisphere;
 improve working conditions;
 activate critically important textile-apparel-footwear provisions; 
        and
 enhance the legal framework for retail and distribution services.

  THE DR-CAFTA WILL BENEFIT THE U.S. ECONOMY--PRODUCERS AND CONSUMERS 
                                 ALIKE

    Central America and the Dominican Republic make up the second-
largest U.S. export market in Latin America, behind only Mexico. U.S. 
sales in the region exceed $15 billion annually--more than is sold to 
Russia, India and Indonesia combined--a result achieved in the absence 
of reciprocal trade liberalization. Upon full implementation of the 
agreement, U.S. goods will be able to enter the participating countries 
duty free. In fact, 80% of the commercial goods will become duty free 
once the agreement is implemented, with the rest phased out over a ten-
year period. This will help to significantly increase U.S. exports of 
farm products, manufactured goods and services to the region. According 
to a report by the International Trade Commission on the economic 
impact of the agreement, once the agreement is fully implemented, 
exports will grow by nearly $2.7 billion.
    In addition to increased benefits for U.S. exporters, U.S. 
importers and their customers will benefit from implementation of the 
DR-CAFTA as well. Most Central American products already enter the 
United States duty-free, under preference programs such as the 
Caribbean Basin Trade Partnership Act (CBTPA). Enshrining this 
treatment in an international agreement with reciprocal obligations 
will provide added commercial security as well as a firmer legal basis 
under WTO rules. This aspect of the FTA is in effect a tax cut targeted 
to those consumers who need it most.
  the dr-cafta will strengthen freedom and security in our hemisphere
    Within recent memory, conditions in Central America have featured 
civil war, chaos, dictators, and Communist insurgencies. Today, the 
region is one of fragile democracies that need U.S. support. Elected 
leaders are embracing freedom and economic reform, fighting corruption, 
and supporting U.S. anti-narcotics and anti-terrorism efforts. But this 
positive momentum cannot be taken for granted. Opponents of reform in 
the region remain strong.
    By implementing the DR-CAFTA, the United States can demonstrate its 
support for freedom, democracy, the rule of law, and economic reform in 
Central America. Doing so will bolster U.S. security in various ways. 
The new economic opportunities will reduce the pressures that help 
produce illegal narcotics activity and illegal immigration.

      THE DR-CAFTA TAKES THE RIGHT APPROACH ON WORKING CONDITIONS

    America's retailers are committed to careful supply chain 
management and high ethical standards of corporate conduct in 
international sourcing. This applies to products sourced in not just in 
Central America, but around the world. Our experience with the DR-CAFTA 
countries has shown that they share these values and high standards, 
including the field of labor rights. Their constitutions and national 
laws generally provide strong labor protections consistent with the 
International Labor Organization's four ``core principles.'' Indeed, 
labor protections in these countries are largely in line with those in 
Morocco and Jordan, whose accession to the status of ``FTA partner'' 
gained overwhelming Congressional approval in recent years.
    The DR-CAFTA will promote economic opportunities and growth that 
are likely to become powerful catalysts for improved working conditions 
in the region. Through capacity-building and dispute settlement, the 
DR-CAFTA will also address those circumstances where better enforcement 
of existing labor laws proves necessary.

    THE DR-CAFTA'S TEXTILE-APPAREL-FOOTWEAR PROVISIONS WILL BENEFIT 
           CONSUMERS AND PRODUCERS THROUGHOUT THE VALUE CHAIN

    The textile and apparel product category is a hugely important 
component of U.S.-Central American trade, and retailers are committed 
to finding the best available combination of speed-to-market, product 
price, and quality of products for their consumers. U.S. consumers will 
benefit from several innovative DR-CAFTA provisions promoted by 
retailers to add needed flexibility to the outdated ``yarn forward'' 
rule of origin. Moreover, qualifying textile and apparel products are 
to be afforded immediate U.S. duty free treatment.
    Retailers are also quite interested in the health of regional 
textile and apparel producers--our valued suppliers. The DR-CAFTA is 
strategically designed to improve their competitive situation at a time 
when, following the expiration of global textile and apparel quotas, 
they face a formidable challenge from outside the hemisphere, most 
notably China. The DR-CAFTA will provide regional garment-makers--and 
their U.S. suppliers of fabric, yarn and other components--a boost in 
competing with Asian producers and will support an estimated 400,000 
jobs in the DR-CAFTA countries and 700,000 jobs in the U.S. cotton, 
yarn, textile and apparel sectors.
    In addition to benefits for textiles and apparel, there are 
significant benefits for footwear imports in the DR-CAFTA. A solid 
consensus in all segments of footwear manufacturing and retailing 
favors immediate duty-free treatment for footwear traded among the DR-
CAFTA countries, excluding a few import-sensitive tariff lines. By 
delivering this outcome, the DR-CAFTA lays the groundwork for increased 
trade and investment in the footwear sector, supports retailer 
strategies designed to maintain geographically diverse sourcing 
options, provides substantial benefits to consumers, and poses no risk 
to U.S. footwear production.

   THE DR-CAFTA ENHANCES THE LEGAL FRAMEWORK FOR RETAIL/DISTRIBUTION 
                                SERVICES

    For the first time in a trade agreement, the DR-CAFTA addresses 
restrictions on distribution created through restrictive dealer 
protection regimes. Such regimes are prevalent in Central America today 
and have locked U.S. companies and products into inefficient, exclusive 
and effectively permanent relationships with local dealers regardless 
of performance. DR-CAFTA rules would require dealer distribution 
agreements to permit parties to terminate at the end of the contract or 
renewal period without indemnification. These rules will promote more 
efficient distribution for U.S. companies and products in the DR-CAFTA 
region.

       THE DR-CAFTA, ONCE IMPLEMENTED, CAN BE IMPROVED OVER TIME

    No FTA is perfect, and as with other FTAs, experience under the DR-
CAFTA may reveal opportunities for useful adjustments in areas like 
rules of origin, accelerated tariff phase-out, etc. Some improvements 
may require the negotiated approval of all the DR-CAFTA parties; others 
may be of the type the United States can make unilaterally. The 
implementing legislation should establish a flexible and streamlined 
framework for making such adjustments over time, using available tools 
such as proclamation authority and consultation/layover.
    RILA congratulates the Energy and Commerce Committee for turning 
its attention to this important agreement, and stands ready to assist 
as the implementation process moves forward. If you have any questions, 
please contact Lori Denham, Senior Vice President Policy and Planning, 
Paul T. Kelly, Senior Vice President, Federal and State Government 
Affairs or Jonathan Gold, Vice President Global Supply Chain Policy.
                                 ______
                                 
 Prepared Statement of Lori Wallach, Director, Public Citizen's Global 
                              Trade Watch

    On behalf of Public Citizen's 200,000 members, I thank the 
Committee for the opportunity to share my organization's views on the 
proposed Central America Free Trade Agreement (CAFTA) NAFTA expansion. 
Public Citizen is a nonprofit citizen research, lobbying and litigation 
group based in Washington, D.C. with offices Austin, TX and Oakland, 
CA. Public Citizen, founded in 1971, accepts no government nor 
corporate funds. Global Trade Watch is the division of Public Citizen 
founded in 1995 that focuses on government and corporate accountability 
in the globalization and trade arena.
    CAFTA, signed in May 2004, would expand the economic model 
established in the North American Free Trade Agreement (NAFTA) to five 
Central American countries and the Dominican Republic. If approved, 
CAFTA, like NAFTA, would require its signatory countries to conform 
their domestic policies and practices to a broad array of non-trade 
dictates, for example regarding the regulation of service sector 
companies and foreign investors' operations in other economic sectors 
operating within a signatory nation's territory. It would require 
signatories to provide certain patent medicine and seed protections 
that have been criticized by health and consumer groups worldwide as 
undermining consumers' access to these essential ``goods.'' It even 
sets constraints on how countries and other political entities may 
spend their own tax revenues. In addition, CAFTA contains the same 
model of interconnected trade rules and foreign investor protections 
that together create incentives that motivate business operations seek 
out the most profitable sites and processes for production, even if 
these are often contrary to the public interest.
    An analysis of CAFTA's provisions reveals that it replicated 
NAFTA's provisions to a high degree--often with identical language. 
Thus, there is much that we can learn from the 11-year record of NAFTA, 
which CAFTA would expand to additional nations.

1. CAFTA NAFTA Expansion is an Outsourcing Agreement: Eleven-Year 
        Record Demonstrates that the NAFTA Model Lowered Living 
        Standards on Both Sides of the Border
    Since 1994, the United States has lost nearly 1 million jobs on net 
due to NAFTA trade,1 with one in six U.S. manufacturing jobs 
being eliminated during the NAFTA decade.2 U.S. income and 
wage inequality have gone up markedly, with the ratio of both income 
and wages of the top five percent of the income and wage distribution 
growing nearly 10 percent since NAFTA alone as compared with the bottom 
20 percent.3 The U.S. real median wage has scarcely risen 
above its 1970 level, resulting in declining or stagnant standards of 
living for the nearly 70 percent of the U.S. population that does not 
have a college degree.4 During the NAFTA era, the U.S. trade 
deficit has risen to historic levels, and approaches six percent of 
national income--a figure widely agreed to be unsustainable, putting 
the U.S. economy at risk of lowered income growth.5 The U.S. 
trade balance with NAFTA countries alone went from a mild surplus with 
Mexico and mild deficit with Canada to a ballooning deficit with the 
two countries exceeding $110 billion in 2004.6
    For our neighbors in Mexico, the economic outcomes of eleven years 
of NAFTA are not brighter. Over 1.5 million Mexican campesino farmers 
lost their livelihoods to the dumping of commodities such as corn as a 
result of NAFTA's agricultural rules,7 while the Mexican 
minimum wage has lost 20 percent of its value in real terms, and the 
median industrial wage 10 percent of its value 8. The jobs 
that were temporarily created in the country's maquiladora sector in 
NAFTA's initial years, as plants relocated from the United States, are 
increasingly relocating and losing market share to lower wage countries 
such as China.9
    In both countries, the increased ability of companies to nearly 
effortlessly relocate production to lower wage countries--(as NAFTA's 
investor protections forbid the policies a country like Mexico might 
otherwise use to root foreign direct investment for development)--has 
tilted the playing field against the majority of the working population 
who are finding it ever more difficult to obtain and maintain quality 
employment. Meanwhile, studies commissioned by the U.S. government show 
that as many as 62 percent of U.S. union drives face employer threats 
to relocate, with over 10 percent of such threats specifically 
referring to a relocation to Mexico. The actual factory shut-down rate 
following successful union certifications tripled in the years after 
NAFTA relative to the years before.10

2. Contradicting Congress' Demand that Trade Pacts Give Foreign 
        Investors ``No Greater Rights'' within the U.S. than Available 
        to U.S. Citizens, CAFTA Extends NAFTA's Special Protections for 
        Foreign Investors that Expose U.S. Taxpayer Funds to Claims in 
        Closed Trade Tribunals
    The changes described above in the NAFTA country labor markets are 
supported by the granting in NAFTA and CAFTA of special rights and 
privileges to foreign investors from one signatory country operating in 
another. In NAFTA, these rights are contained in Chapter 11, which also 
provides for foreign investors' private enforcement of these new 
privileges through so-called investor-state dispute resolution, a 
controversial mechanism also included in CAFTA. The investor-state 
system allows corporations to sue governments for cash compensation 
before closed trade tribunals for claims based on signatory countries' 
policies that may or may not have a demonstrable economic impact on 
their expected future earnings. The provisions afford foreign investors 
operating in the United States greater rights than those available to 
U.S. citizens and businesses under the U.S. Constitution as interpreted 
by the U.S. Supreme Court. Thus far, 42 cases have been brought before 
the NAFTA investor-state tribunals, 11 have been finalized, and some 
$35 million in taxpayer funds have been granted to five corporations 
that have succeeded with their claims. An additional $28 billion has 
been claimed from investors in all three NAFTA nations in cases 
attacking the most basic functions of government. The U.S. government's 
legal costs for the defense of just such recent case topped $3 million, 
and seven cases against the United States are currently in active 
arbitration.
    While ostensibly, NAFTA's investor protections were designed to 
ensure compensation if property is nationalized by a NAFTA government, 
only one of the 42 known NAFTA ``Chapter 11'' cases filed to date 
involve expropriation. Instead, investors have challenged domestic 
court rulings, water rights, local and state environmental policies, 
municipal contracts, tax policy, controlled substances rules, anti-
gambling policies, emergency efforts to halt the spread of mad cow 
disease, and even provision of public postal services.
    Given that these extraordinary investor rights and their private 
enforcement had not been part of any previous U.S. trade agreement, and 
that many Members of Congress did not understand these implications at 
the time when NAFTA was enacted in 1993, the record of NAFTA's Chapter 
11 has generated enormous controversy. Thus in order to obtain a 
congressional delegation of Fast Track Trade Authority in 2002, the 
administration offered to address Congress' concerns. Fast Track thus 
specified that in future U.S. trade agreements, foreign investors 
should not have ``greater substantive rights with respect to investment 
protections than United States investors in the United States.'' 
11
    Unfortunately, the Executive Branch negotiators failed to meet 
Congress' requirements. In CAFTA's Chapter 10 foreign investor 
protections and investor-state mechanism actually amplify many of the 
problems Congress identified with NAFTA.
     CAFTA Would Allow Compensation to Foreign Investors in 
``Regulatory Takings'' and ``Minimum Standard of Treatment'' Cases not 
Permitted by U.S. Law: CAFTA includes the NAFTA language that requires 
foreign investors be compensated for ``indirect expropriation.'' This 
provision has been the basis for an array of cases that would not be 
permitted under U.S. law, including regulatory takings cases. In one 
such case, Metalclad Corporation obtained $16 million from the Mexican 
Treasury after being denied a permit to expand a toxic waste facility 
until it cleaned up existing contamination.12 Several 
additional CAFTA provisions promote regulatory takings cases not 
allowed under U.S. law. For instance, the Supreme Court has ruled that 
``mere diminution in the value of property, however serious, is 
insufficient to demonstrate a taking'' 13 and that the 
entire property must be affected permanently. In contrast, NAFTA 
Chapter 11 tribunals have found that a government action need only 
cause ``significant'' or ``substantial'' impairment of an investment's 
value to qualify as a taking.14 For instance, the Metalclad 
tribunal held that ``expropriation under NAFTA includes not only open, 
deliberate and acknowledged takings of property . . . but also covert 
or incidental interference with the use of property which has the 
effect of depriving the owners in whole or significant part, of the use 
or reasonably-to-be-expected economic benefit of property.'' 
15 USTR failed to remedy this problem in CAFTA.
    To make matters worse, CAFTA allows such claims regarding types of 
property not subject to takings action under U.S. law. U.S. law deems 
public interest policies governing personal property (property other 
than land) to be legitimate exercises of police powers and exempt from 
takings claims. In contrast, CAFTA's broad definition of what 
categories of property are subject to compensation claims includes an 
array of non-real estate property such as assumption of risk and also 
bonds, loans, stocks, and intellectual property rights.
    In response to criticism that investment rules in CAFTA allow for 
broad regulatory takings claims, the USTR will likely point to CAFTA, 
Annex 10-C, which reads: ``Except in rare circumstances, 
nondiscriminatory regulatory actions by a Party that are designed and 
applied to protect legitimate public welfare objectives, such as public 
health, safety, and the environment, do not constitute indirect 
expropriations.'' 16 Unfortunately, this language has 
precisely the opposite effect claimed. This language enshrines the 
right of foreign investors to challenge a wide array of public health 
and safety regulations not be subject to U.S. taking claims. U.S. law 
safeguards all public interest regulations governing personal property, 
yet this language reiterates that such policies are subject to CAFTA 
challenge. Moreover, the U.S. government would have no capacity to 
affect whether such cases are brought only in ``rare'' circumstances. 
Foreign investors decide whether to file these cases. (And, the U.S. 
legal defense cost for just one such case, Methenex's attack on 
California's ban on the gasoline additive MTBE, has already cost $3 
million in U.S. taxpayer funds.) Further, the ultimate decision whether 
or not to grant compensation in such challenges remains with investor-
state tribunals on a case-by-case basis. Moreover, when deciding such 
cases, tribunals will reference other specific provisions of CAFTA that 
directly conflicts with the Annex's general language. There have been 
numerous NAFTA cases involving toxic substances, including Phillip 
Morris' threat against a proposed Canadian tobacco control law, and 
Canadian cattlemen's NAFTA challenge of U.S. actions to prevent entry 
into the U.S. of mad cow disease. To avoid future such cases and to 
bring CAFTA into conformity with U.S. takings law, the scope of 
property subject to such claims in CAFTA needed to have been limited to 
real estate and the ``indirect expropriation'' language needed to have 
been eliminated, or at least defined in the context of U.S. takings 
standards that require that virtually all of a property's value must be 
taken permanently to obtain compensation.
     CAFTA Would Allow Compensation to Foreign Investors in Cases in 
which U.S. Law Only Permits Injunctive Relief: Under U.S. law, both 
foreign and domestic firms can sue under the Due Process or Equal 
Protection Clauses of the Constitution for injunctive relief, but they 
are not allowed to sue for monetary relief. Under NAFTA's investment 
rules--and under CAFTA were it to be approved--foreign investors are 
empowered to sue for monetary relief on similar grounds. CAFTA extends 
this NAFTA problem by allowing foreign investors to obtain taxpayer 
compensation not only for claims of expropriation, but also based on 
national treatment (non-discrimination) and ``fair and equitable 
treatment'' claims--which are the trade agreement equivalent to Due 
Process or Equal Protection Clauses claims in U.S. law.
     CAFTA Would Eviscerate the Long-established Principle that 
Governments Can Remedy a ``Nuisance'' without Compensating Polluters: 
The expansive definition in CAFTA of what sorts of foreign investments 
are subject to compensation covers government actions to prevent a 
public nuisance. Given the record of the related NAFTA provisions, this 
element of CAFTA is likely to generate further claims by chemical 
companies attempting to combat environmental regulation. Under NAFTA, 
foreign investors are demanding compensation for California's ban of 
the gasoline additive MTBE which has been found to be polluting scarce 
water resources in the state and for California's open pit mining 
reclamation law. Yet, under the U.S. Supreme Court holding in Lucas v. 
South Carolina Coastal Council, pollution that harms public or other 
properties is a nuisance that can be regulated by states without 
compensation.17 USTR failed to remedy this problem in CAFTA.
     CAFTA Would Empower Foreign Investors to Overcome the Long-
established Sovereign Immunity Shield to Pursue U.S. Taxpayer 
Compensation In Property Claims from which U.S. Residents and Companies 
Are Barred: NAFTA panels have explicitly refused to dismiss investor 
challenges when governments have raised sovereign immunity as a defense 
in investor-state challenges--apparently allowing firms to sue 
governments at any level regarding any issue for any amount of money. 
Indeed, in these cases, investor-state tribunals have accepted the 
argument raised by some foreign investors that Congress waived federal 
sovereign immunity when it passed NAFTA. USTR failed to remedy this 
problem in CAFTA with explicit language clarifying that sovereign 
immunity was not waived, thus providing an open door for future such 
challenges.

3. CAFTA Would Forbid Congressional, States' Anti-Offshoring Policies 
        that Require Government Contract Work be Done by U.S. Workers; 
        Forbids Environmental, Other Procurement Rules
    CAFTA's rules on government procurement apply to an array of 
federal government agencies as well as the states that are listed as 
``covered entities'' in Chapter 9, Annex 9.12 (b) (i). In September 
2003, the United States Trade Representative sent a letter to all 50 
governors, requesting that they commit their states to be bound by the 
procurement provisions in all bilateral and regional trade pacts under 
negotiation, including CAFTA. The letter touted the potential for U.S. 
suppliers to bid on foreign government contracts, but failed to mention 
the requirements the procurement chapters CAFTA and other agreements 
imposed on states. Initially, twenty eight states were listed as bound 
in the CAFTA text. However, since then, state officials have become 
much more aware of the implications that binding state procurement 
policy to CAFTA's rules would have on their ability to determine what 
procurement policies are in the best interests of the state, including 
policies that use state purchasing power to further social, 
environmental, and economic development goals.
    As a result, a majority of U.S. states (30) have rejected CAFTA's 
government procurement rules and decided it is not in their best 
interest to be bound. In 2004, seven governors (from Iowa, Kansas, 
Maine, Minnesota, Missouri, Oregon, and Pennsylvania) rescinded their 
previous commitments on behalf of their states to be bound to CAFTA's 
procurement rules. Other states (Montana, Nevada, Wisconsin, and 
Virginia) declined the USTR's request outright. Governors of states 
that remain bound by CAFTA, including Texas and Washington, have 
requested that additional reservations be taken. (Only some of those 
requests have been incorporated into the CAFTA text. Washington's 
request was rejected in an August 13, 2004 letter from Ambassador 
Zoellick to Washington Governor Gary Locke.) In early 2005, the 
National Conference of State Legislatures wrote to the USTR, requesting 
that the USTR respond to the myriad concerns of state legislators. The 
Intergovernmental Policy Advisory Committee (IGPAC) issued 
recommendations in August 2004 that state legislative leaders be carbon 
copied on all requests sent to governors, as state legislators to date 
have been cut out of the consultation process, despite the fact that in 
most states, the Legislative Branch has the authority to set state 
procurement policy. The USTR explicitly denied that request, and sent 
another letter to governors requesting that they sign on to the 
procurement provisions of free trade agreements with Panama and Andean 
countries. Most recently, in April 2005, the Maryland General Assembly 
passed legislation over Governor Ehrlich's veto which stipulated that 
it was the authority of the legislature, not the Governor, to sign on 
to the government procurement rules in trade pacts. The bill also 
declared invalid previous expressions of consent made by governors, 
including Governor Ehrlich's letter offering to bind Maryland to 
CAFTA's procurement provisions.
    State officials' concerns stem from the restrictions that CAFTA's 
rules impose on their ability to maintain existing and adopt new 
procurement policies in the public interest. CAFTA's procurement 
chapter prohibits many common purchasing policies, seriously weakening 
governments' flexibility to use procurement as policy tool to promote 
economic development, environmental sustainability, and human rights. 
These rules also apply to federal government procurement policies:
     Requirements that Government Work Be Performed in the United 
States by U.S. Workers Are Prohibited: If CAFTA were approved, federal 
and state governments would be required to treat companies located in 
the six CAFTA countries identically to U.S. domestic companies when 
governments seek to procure goods and services. This means neither 
Congress nor state governments could give preference to domestic or 
local firms or require that to obtain government contracts, firms must 
employ U.S. workers (CAFTA Article 9.2).
     Sweat-Free, Recycled Content, Renewable Source and Other Labor 
and Environmental Criteria Banned: CAFTA requires that ``a procuring 
entity shall not prepare, adopt or apply any technical specification 
describing a good or service with the purpose or the effect of creating 
unnecessary obstacles to trade'' and that technical specifications are 
limited to ``performance requirements rather than design or descriptive 
characteristics.'' These constraints mean that procurement policies 
that set criteria for how a good is made or how a service is provided 
are prohibited--putting preferences for recycled content or renewable 
energy, ``green'' building requirements, and bans on goods made with 
the worst forms of child or slave labor at risk as ``barriers to 
trade'' (CAFTA Article 9.7).
     Consideration of Bidding Firms' Labor, Tax, Environmental, Human 
Rights Records Forbidden: CAFTA limits what sorts of qualifications may 
be required of companies seeking to supply a good or service to a 
government. Conditions for participation in bidding are limited to 
``those that are essential to ensure that the supplier has the legal, 
technical and financial abilities to fulfill the requirements and 
technical specifications of the procurement.'' CAFTA's limits on the 
requirements that can be imposed on contractors prohibit conditions 
such as prevailing wage and living wage requirements, as well as 
consideration of suppliers' environmental or labor track records (CAFTA 
Article 9.8).

4. Opposition to CAFTA NAFTA Expansion Wide and Varied, Having Grown 
        Since NAFTA
    As successive administrations have failed to reverse the damage and 
demonstrated, significant problems of NAFTA's foreign investor 
protection model, opposition has grown in all quarters. The Association 
of State Supreme Court Justices, U.S. League of Cities, National 
Conference of State Legislatures, National Association of Counties, and 
National Association of Towns and Townships all have expressed concerns 
about the investment provisions of CAFTA.
    Concerns about CAFTA's foreign investor protection by these 
typically pro ``free trade'' associations of state and local officials, 
groups that are concerned about our nation's system of federalism and 
the integrity of our domestic courts, has been joined by outright 
opposition to CAFTA from other unexpected quarters, suggesting the 
degree to which this agreement signed a year ago is seen not to serve 
the U.S. national interest. The National Association of State 
Departments of Agriculture, for one, concerned about CAFTA's 
agricultural provisions called on Congress to oppose 
CAFTA.18 These and other agricultural groups are concerned 
about declining farm revenue even as volumes of food trade increased 
under NAFTA, and that the United States is about to become a net food 
importer. Furthermore, these groups take to heart the claims of pro-
CAFTA forces, who continually repeat that CAFTA is a stepping stone to 
a proposed broader Free Trade Area of the Americas (FTAA).19 
Many U.S. economic sectors views of CAFTA are tied to their analysis of 
how competition with Brazil in a NAFTA expansion from Alaska to Tierra 
del Fuego would affect their export capacity in beef, soy, citrus, 
sugar and ethanol.
    Many other groups have also expressed opposition to CAFTA NAFTA 
expansion. Human Rights Watch has produced analyses of the failure of 
Central American labor law and enforcement practices to meet the 
minimal International Labor Organization core labor 
standards,20 an analysis that has been confirmed by the U.S. 
Department of State's annual human rights reports.21
    And U.S. Latino organizations who supported NAFTA, from the 
nation's largest and oldest Hispanic civil rights organization the 
League of United Latin American Citizens to an array of immigrant 
rights groups representing Central Americans in the United States, have 
also indicated their opposition the current terms of the agreement, 
concerned that trade-related job loss disproportionately affects U.S. 
Latinos and that CAFTA's negative repercussions for Central America are 
foretold by NAFTA's negative results in Mexico.22

5. Central American Public Opposition to CAFTA NAFTA Expansion Is Based 
        on NAFTA's Record of Destroying the livelihoods of 1.5 Million 
        Mexican Small Farmers and U.S. Heavy-Handed Tactics Forcing 
        Price-Raising Medicine Policies, Essential Service 
        Privatizations
    Lawmakers concerned about the implications of the so-called ``Arab 
Street'' in the Middle East should also pay attention to the passionate 
CAFTA opposition on the ``Latin Street'' of Central America. Nearly one 
out of every 25 El Salvadorans have publicly rallied against CAFTA in 
the past several years, and polls indicate that a majority of citizens 
in Guatemala and elsewhere oppose the terms of CAFTA.23 In 
Honduras, Guatemala and Nicaragua, massive protests have also occurred 
against CAFTA, while it is unclear if Costa Rica's congress will 
approve the deal.24
    Officials from the U.S. Trade Representative's office have taken to 
threatening Costa Rica that if the democratically-elected Congress 
there determines the pact is not in their nation's interest and rejects 
it, the United States will remove that nation's existing terms of 
access to the U.S. market provided under the Caribbean Basin Initiative 
(CBI). These threats continue today despite the March 2005 letter by 
Ways and Means Committee Ranking Member Charles Rangel (D-NY) calling 
upon the administration to desist these misleading pronouncements. As 
Rep. Rangel's letter pointed out, CBI is a ``congressionally mandated 
program [whose] benefits are guaranteed on a permanent basis, unless 
the Congress amends current U.S. law.'' The representative said he 
would oppose such an amendement of U.S. law, characterizing the 
administration's remarks as ``thinly veiled blackmail.'' 25
    Regardless of the Administration's bullying and disrespectful 
treatment of some CAFTA countries, certainly Congress would be 
concerned with the underlying cause of such passionate opposition to 
CAFTA in Central America--opposition whose protests have been met with 
increasing violence by governments. This includes the murder by 
military troops in Guatemala of two Mayan protestors--an act of 
military violence by the army explicitly forbidden in the 1996 peace 
accords.26
    The causes of opposition include CAFTA's service sector rules, 
which would require these nations to privatize and deregulate numerous 
essential services such as energy and other utilities, health care and 
more, as well as foreign investor protections, which would create a new 
set of rights for foreign investors to acquire ownership over natural 
resources and land and pharmaceutical patent requirements, including 
extended data exclusion terms, which would hurt poor people's access to 
medicines and take Central American governments' abilities to respond 
to public health crises such as HIV-AIDS. Fury about these severe 
threats has been exacerbated by the administration's heavy handed 
tactics, for instance in pressuring Guatemala to rescind a law that 
would have improved access to generic, life-saving medicines or in 
threatening Costa Rica with removal of CBI benefits.27
    Now major Central American political parties, Catholic bishops, the 
Central American Council of Churches and other mainstream, important 
Central American interests have come out against CAFTA as a threat to 
the region. In addition, eighteen of the most democratic, independent 
and representative union federations throughout Central America 
representing workers in the private and public sector, including in 
export-oriented manufacturing and agriculture, have demanded stronger 
workers rights than those provided under CAFTA.28 They have 
noted that the existing CBI arrangement affords concerned citizens with 
the International Labor Organization core rights and with the greater 
ability to improve Central American labor law than the proposed CAFTA's 
roll-back CBI labor provisions.

6. Given the NAFTA Record and Growing Central American Public 
        Opposition, CAFTA Supporters Resort to Increasingly Dubious 
        Arguments'
    Given this broadscale U.S. and Central American opposition to a 
NAFTA expansion, pro-CAFTA forces have increasingly resorted to 
disconnected arguments and exaggerated and misrepresentative claims 
about the agreement. For instance, the U.S. Chamber of Commerce has 
produced a flawed study projecting U.S. economic gains from a Central 
America agreement. But to obtain that conclusion, the Chamber had to 
assume that--contrary to the history of every trade agreement the 
United States has signed--the United States would receive no new 
imports from the CAFTA countries if the pact went into 
effect.29 The study's methodology additionally implies that 
over 80 percent of the Honduran economy would have to absorbed by U.S. 
exports by 2013, a potentially socially and economically destabilizing 
outcome if true.30
    Despite this projection that Central American countries would not 
gain from a CAFTA, pro-CAFTA forces have simultaneously asserted that 
CAFTA would save the U.S. and Central American textile industries from 
the end of the global textile and apparel quota system.31 
Here too, their claims are wildly misleading, since experts from the 
U.S. International Trade Commission to the Organization for Economic 
Cooperation and Development (OECD) have demonstrated that China enjoys 
a significant technological, wage and input cost advantage over the 
Central American countries. This means that, with or without a CAFTA, 
the expiration of the Multi Fiber Arrangement quota system will result 
in Central America losing a great deal of its current production and 
employment in the textile and apparel industry.
    The notion that CAFTA would affect this situation is beyond 
bizarre. Already under CBI, CAFTA countries' textile and apparel 
exports enter the United States duty free. CAFTA provides no additional 
benefit for entry. Indeed, CAFTA loosens the CBI rules of origin, 
meaning more Chinese goods could enter through CAFTA countries if CAFTA 
were implemented than are now permitted.
    Already, apparel imports from China jumped amount in the first 
quarter, and by as much as 1,521 percent in some customs 
categories.32 While Congress may seek to address this flood 
of cheap Chinese imports, this is a separate problem than CAFTA and 
would require a separate solution. The debate around CAFTA is not a 
question of ``whether U.S. workers would rather lose their jobs to 
China or to Central America,'' as Carlos Sequeira, Nicaragua's chief 
CAFTA negotiator put it.33 Congress should instead focus on 
the flaws of CAFTA, which would loosen CBI's requirement that U.S. 
inputs be used to enjoy duty-free access to the U.S. market and 
undermine CBI's labor rights protections, while still not proffering to 
the dying Central American industry any access benefits that they do 
not already enjoy through CBI.

                               CONCLUSION

    The bottomline in Congress' consideration of CAFTA should be 
whether extending the NAFTA model will help us create a brighter future 
for our children and grandchildren. Even considering only the well-
documented NAFTA record of undermining the livelihoods of 1.5 million 
Mexican farmers, suppressing real median wages in the United States and 
Mexico, gutting the U.S. manufacturing base, coinciding with record-low 
prices paid farmers for the food they produce in all three countries 
even while consumer prices increased, and exposing some 42 domestic 
environmental, health, zoning and laws and regulations to attack in 
closed investor-state tribunals and the payment of some $35 million in 
taxpayer funds to foreign investors for the lost NAFTA-guaranteed 
profits they lost, it seems quite clear the answer is no. If one adds 
to the NAFTA evidence the problems caused by the CAFTA provisions that 
go beyond even what NAFTA requires--for instance in the foreign 
investor protections chapter or regarding drug patents--the answer 
becomes only clearer.
    As a group that works with consumer organizations around the world, 
we would urge Congress to oppose this agreement simply on the basis of 
its intellectual property rules which are certain to undermine 
affordable access to essential medicines for poor consumers in the 
Central America. Many other organizations are submitted testimony about 
these scandalous provisions of CAFTA NAFTA expansion. At issue are life 
or death matters: generic versions of the cocktail of anti-retroviral 
drugs essential to extending the lives of those infected with HIV cost 
several hundred dollars for a yearlong course while the brand name 
patented version of the same drugs cost $5,000 per year. If the CAFTA 
drug patent rules would go into effect in the Central American 
countries and the Dominican Republic, many people now able to have 
access to these life saving HIV-AIDS medicines and also drugs vital to 
fighting tuberculosis and other deseases will not have access to these 
medicines--either because they cannot afford to purchase them or 
because their government health agencies cannot afford them to provide 
to their public.
    Thus given CAFTA NAFTA expansion's potential extension of the 
failures of NAFTA to people in six additional nations and the damage to 
U.S. residents that further extension of this model would pose, we urge 
Congress to oppose NAFTA's expansion to Central America and beyond.

                                Endnotes

    1 Robert E. Scott, ``The High Price of `Free' Trade: 
NAFTA's Failure has cost the United States jobs across the nation,'' 
Economic Policy Institute Briefing Paper, Nov. 2003.
    2 This number refers to manufacturing job loss since the 
most recent manufacturing employment peak in 1998 of 17.6 million, 
relative to the 2003 number of 14.6 million. See Josh Bivens, Robert 
Scott, and Christian Weller, ``Mending manufacturing: Reversing poor 
policy decisions is the only way to end current crisis,'' Economic 
Policy Institute Briefing Paper #144, Sept. 2003.
    3 Lawrence Mishel, Jared Bernstein, and Sylvia 
Allegretto, The State of Working America 2004/05, (Washington, DC: 
Cornell University Press, 2004), at 69 and 145.
    4 Lawrence Mishel, Jared Bernstein, and Sylvia 
Allegretto, The State of Working America 2004/05, (Washington, DC: 
Cornell University Press, 2004), at 154.
    5 Nouriel Roubini and Brad Setser, ``The US as a Net 
Debtor: The Sustainability of US External Imbalances,'' New York 
University Briefing Paper, Nov. 2004.
    6 U.S. Census Numbers.
    7 John Audley, Sandra Polaski, Demetrios G. 
Papademetriou, and Scott Vaughan, ``NAFTA's Promise and Reality: 
Lessons from Mexico for the Hemisphere,'' Carnegie Endowment for 
International Peace Report, Nov. 19, 2003.
    8 Carlos Salas, ``Highlights of Current Labor Market 
Conditions in Mexico,'' Global Policy Network Country Brief, April 
2003.
    9 Sanjaya Lall, Manuel Albaladejo, Mauricio Mesquita 
Moreira, ``Latin American Industrial Competetitveness and the Challenge 
of Globalization,'' Inter-American Development Bank OCassional Paper 
SITI 05, June 2004.
    10 Kate Bronfenbrenner, ``The Effects of Plant Closing 
or Threat of Plant Closing on the Right of Workers to Organize,'' North 
American Commission for Labor Cooperation Report, 1997.
    11 19 U.S.C.  3802(3), Chapter 24, ``Bipartisan Trade 
Promotion Authority: Trade Negotiating Objectives.''
    12 Award, Before the Arbitral Tribunal constituted Under 
Chapter 11 of the North American Free Trade Agreement, Metalclad 
Corporation v. the United Mexican States, International Centre for 
Settlement of Investment Disputes (Additional Facility), Aug. 25, 2000.
    13 Concrete Pipe and Products v. Construction Laborers 
Pension Trust, 508 U.S. 602, Jun. 14, 1993, at 615.
    14 Interim Award by Arbitral Tribunal, In the Matter of 
an Arbitration Under Chapter 11 of the North American Free Trade 
Agreement between Pope & Talbot Inc. and the Government of Canada, 
United Nations Commission on International Trade Law, Jun. 26, 2000, at 
37; Award, Before the Arbitral Tribunal constituted Under Chapter 11 of 
the North American Free Trade Agreement, Metalclad Corporation v. the 
United Mexican States, International Centre for Settlement of 
Investment Disputes (Additional Facility), Aug. 25, 2000, at 28. The 
Metalclad panel stated that expropriation under NAFTA ``includes not 
only open, deliberate and acknowledged takings of property such as 
outright seizure or formal or obligatory transfer of title in favor of 
the host state, but also covert or incidental interference with the use 
of property which has the effect of depriving the owner in whole or in 
significant part of the reasonably-to-be-expected economic benefit of 
the property.''
    15 Award, Before the Arbitral Tribunal constituted Under 
Chapter 11 of the North American Free Trade Agreement, Metalclad 
Corporation v. the United Mexican States, International Centre for 
Settlement of Investment Disputes (Additional Facility), Aug. 25, 2000, 
at 33.
    16 Central America Free Trade Agreement, Final Version, 
Aug. 5, 2004, Annex 10-C, at 4(b).
    17 Lucas v. South Carolina Coastal Council, 505 U.S. 
1003, at 1015-19 (1992).
    18 Alan Guebert, ``State Ag Directors Whack CAFTA, White 
House,'' Aberdeen News, March 11, 2005.
    19 Jorge Arrizurieta, ``A needed precursor to FTAA,'' 
Florida Sun Sentinel, March 11, 2005
    20 Michael Bochenek, ``Turning A Blind Eye: Hazardous 
Child Labor in El Salvador's Sugarcane Cultivation,'' Human Rights 
Watch Report, June 2004; ``Pregnancy-Based Sex Discrimination in the 
Dominican Republic's Free Trade Zones: Implications for the U.S.-
Central America Free Trade Agreement (CAFTA),'' Human Rights Watch 
Briefing Paper, April 2004; Carol Pier, ``Deliberate Indifference: El 
Salvador's Failure to Protect Workers' Rights--implications for 
CAFTA,'' Human Rights Watch Report, Dec. 2003; Judith Sunderland, 
``From The Household To The Factory: Sex Discrimination in the 
Guatemalan Labor Force,'' Human Rights Watch Report, Jan. 2002.
    21 U.S. Department of State, ``Report on El Salvador,'' 
2001 Country Reports on Human Rights Practices.
    22 ``Another America is Possible: The Impact of NAFTA on 
the U.S. Latino Community and Lessons for Future Trade Agreements,'' 
LCLAA and Public Citizen, Aug. 2004
    23 Angus Reid Global Scan, ``Guatemalans Decry CAFTA 
Deal With U.S.,'' April 2005
    24 Karen Hansen-Kuhn, ``Central Americans Speak Out 
Against DR-CAFTA: Major Issues and Mobilizations,'' Alliance for 
Responsible Trade, Mar. 2005, at 10.
    25 Rep. Charles B. Rangel, ``Rep. Rangel Reacts to 
Reported `Threat' from Administration Official to CAFTA Countries,'' 
Press Statement, March 22, 2005.
    26 Sergio de Leon, ``Police, protestors clash ahead of 
Guatemala-U.S. free trade vote,'' Associated Press, Mar. 9, 2005.
    27 Catherine Elton, ``Activists Fear Free Trade Act Will 
Restrict Access to AIDS Drugs in Central America,'' Voice of America, 
April 2005.
    28 ``The Real Record on Workers' Rights in Central 
America,'' AFL-CIO, Apr. 2005.
    29 U.S. Chamber of Commerce, ``Chamber Hails Economic, 
Job Benefits of DR-CAFTA,'' Issue Briefing, Feb. 2005.
    30 Todd Tucker, ``Fool Me Twice? Chamber of Commerce 
Distorts NAFTA Record, Hides CAFTA Costs,'' Public Citizen, Mar. 2005.
    31 Rossella Brevetti, ``Ambassadors from Central 
America, Dominican Republic Urge Action on FTA,'' BNA No. 27, Feb. 10, 
2004. See also, Martin Vaughan, ``Pro-CAFTA Business Alliance Lobbying 
House Members,'' Congress Daily PM, Jan. 25, 2005.
    32 Kristi Ellis, ``China's First Qtr Surge,'' Women's 
Wear Daily, April 4, 2005.
    33 Paul Magnusson, ``This Trade Pact Won't Sail 
Through,'' Business Week, March 28, 2005.

                                 
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