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




 
                         IMPLEMENTATION OF THE
                   DOMINICAN REPUBLIC-CENTRAL AMERICA
                    FREE TRADE AGREEMENT (DR-CAFTA)

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

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 21, 2005

                               __________

                           Serial No. 109-10

                               __________

         Printed for the use of the Committee on Ways and Means




                    U.S. GOVERNMENT PRINTING OFFICE
23-918                      WASHINGTON : 2005
_____________________________________________________________________________
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Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
ROB PORTMAN, Ohio                    WILLIAM J. JEFFERSON, Louisiana
PHIL ENGLISH, Pennsylvania           JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona               XAVIER BECERRA, California
JERRY WELLER, Illinois               LLOYD DOGGETT, Texas
KENNY C. HULSHOF, Missouri           EARL POMEROY, North Dakota
SCOTT MCINNIS, Colorado              STEPHANIE TUBBS JONES, Ohio
RON LEWIS, Kentucky                  MIKE THOMPSON, California
MARK FOLEY, Florida                  JOHN B. LARSON, Connecticut
KEVIN BRADY, Texas                   RAHM EMANUEL, Illinois
THOMAS M. REYNOLDS, New York
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

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


                            C O N T E N T S

                               __________
                                                                   Page

Advisory of April 1, 2005 announcing the hearing.................     2

                               WITNESSES

Office of the U.S. Trade Representative, Hon. Peter F. Allgeier, 
  Acting U.S. Trade Representative...............................    14

                                 ______

American Federation of Labor-Congress of Industrial 
  Organizations, Richard L. Trumka...............................    98
Chamber of Commerce of the United States of America, Association 
  of American Chambers of Commerce in Latin America, and Aeropost 
  International Services, James D. Fendell.......................    87
McGraw-Hill Companies, Emergency Committee for American Trade, 
  International Trade and Investment Task Force of the Business 
  Roundtable, and Business Coalition for U.S.-Central America 
  Trade, Harold McGraw, III......................................    80
Port of New Orleans, World Trade Center of New Orleans, Greater 
  New Orleans, Inc., the New Orleans Board of Trade, BargeLink, 
  LLC and MBLX, Inc., and M.G. Maher & Co., David P. Schulingkamp   106
Warner Bros., Time Warner, and Entertainment Industry Coalition 
  for Free Trade, Sheldon Presser................................    94

                                 ______

American Apparel & Footwear Association, American Textile 
  Company, Jack Ouellette........................................   155
American Farm Bureau Federation, Wooten Farming and Seed, Larry 
  Wooten.........................................................   116
American Manufacturing Trade Action Coalition, Cranston Print 
  Works, George Shuster..........................................   148
American Sugar Alliance, Jack Roney..............................   129
California Cattlemen's Association, Hafenfeld Ranch, Bruce 
  Hafenfeld......................................................   121
National Confectioners Association, Ferrara Pan Candy Co., Sal 
  Ferrara........................................................   146

                                 ______

Burton, Hon. Dan, a Representative in Congress from the State of 
  Indiana........................................................   170
DeFazio, Hon. Peter A., a Representative in Congress from the 
  State of Oregon................................................   186
Dreier, Hon. David, a Representative in Congress from the State 
  of California..................................................   172
Kaptur, Hon. Marcy, a Representative in Congress from the State 
  of Ohio........................................................   173
Lungren, Hon. Dan, a Representative in Congress from the State of 
  California.....................................................   189
Melancon, Hon. Charlie, a Representative in Congress from the 
  State of Louisiana.............................................   190
Peterson, Hon. Collin, a Representative in Congress from the 
  State of Minnesota.............................................   187

                       SUBMISSIONS FOR THE RECORD

Advanced Medical Technology Association, Meena Khandpur, 
  statement......................................................   193
American Textile Company, Duquesne, PA, Jack R. Ouellette, 
  statement......................................................   195
Berlind, Mark, Kraft Foods, Inc., Northfield, IL, statement......   234
Brenner, Joseph E., Center for Policy Analysis on Trade and 
  Health, San Francisco, CA, statement and attachments...........   206
Brown, Hon. Sherrod, a Representative in Congress from the Sate 
  of Ohio, statement.............................................   197
Business Software Alliance, Robert Holleyman, statement..........   198
Center for Latin American Studies, Berkeley, CA, Harley Shaiken, 
  statement......................................................   200
Center for Policy Analysis on Trade and Health, San Francisco, 
  CA, Joseph E. Brenner and Ellen R. Shaffer, statement and 
  attachments....................................................   206
Center of Concern, on behalf of U.S. Gender and Trade Network, 
  Kathleen McNeely, joint statement..............................   213
Coalition of Service Industries, Robert Vastine, statement.......   216
Cohen, Rachel, Doctors Without Borders/Medecins Sans Frontieres, 
  New York, NY, statement........................................   219
Denham, Lori L., Retail Industry Leaders Association, Arlington, 
  VA, statement..................................................   259
Doctors Without Borders/Medecins Sans Frontieres, New York, NY, 
  Rachel Cohen, statement........................................   219
Farabundo Marti National Liberation Party, San Salvador, El 
  Salvador, statement............................................   227
Glickman, Dan, Motion Picture Association of America, statement 
  and attachment.................................................   239
Holleyman, Robert, Business Software Alliance, statement.........   198
Interfaith Working Group on Trade and Investment, Maria Riley, 
  statement......................................................   225
International Labor Rights Fund, Trina Tocco, statement..........   231
Kelley, Reed, Western Organization of Resource Councils, Meeker, 
  CO, statement..................................................   266
Khandpur, Meena, Advanced Medical Technology Association, 
  statement......................................................   193
Kraft Foods, Inc., Northfield, IL, Mark Berlind, statement.......   234
League of United Latin American Citizens, Gabriela Diana Lemus, 
  statement......................................................   237
Lemus, Gabriela Diana, League of United Latin American Citizens, 
  statement......................................................   237
McNeely, Kathleen, Center of Concern, on behalf of U.S. Gender 
  and Trade Network, joint statement.............................   213
Motion Picture Association of America, Dan Glickman, statement 
  and attachment.................................................   239
National Center for Policy Analysis, Hon. Pete du Pont, statement   242
National Electrical Manufacturers Association, Arlington, VA, 
  Craig Updyke, statement........................................   243
Ouellette, Jack R., American Textile Company, Duquesne, PA, 
  statement......................................................   195
Oxfam America, Stephanie Weinberg, statement.....................   244
Oxley, Michael G., a Representative in Congress from the State of 
  Ohio, and Pryce, Deborah, a Representative in Congress from the 
  State of Ohio, joint statement.................................   249
du Pont, Hon. Pete, National Center for Policy Analysis, 
  statement......................................................   242
Pryce, Deborah, a Representative in Congress from the State of 
  Ohio, and Oxley, Michael G., a Representative in Congress from 
  the State of Ohio, joint statement.............................   249
Public Citizen's Global Trade Watch, Lori Wallach, statement.....   251
Retail Industry Leaders Association, Arlington, VA, Lori L. 
  Denham, statement..............................................   259
Riley, Maria, Interfaith Working Group on Trade and Investment, 
  statement......................................................   227
Shaffer, Ellen R., Center for Policy Analysis on Trade and 
  Health, San Francisco, CA, statement and attachments...........   206
Shaiken, Harley, Center for Latin American Studies, Berkeley, CA, 
  statement......................................................   200
Solis, Hon. Hilda L., a Representative in Congress from the State 
  of California, statement.......................................   261
Tocco, Trina, International Labor Rights Fund, statement.........   231
U.S. Gender and Trade Network, Kathleen McNeely, joint statement.   213
Updyke, Craig, National Electrical Manufacturers Association, 
  Arlington, VA, statement.......................................   243
Vastine, Robert, Coalition of Service Industries, statement......   216
Vogt, Jeff, Washington Office on Latin America, statement........   262
Wallach, Lori, Public Citizen's Global Trade Watch, statement....   251
Washington Office on Latin America, Jeff Vogt, statement.........   262
Weinberg, Stephanie, Oxfam America, statement....................   244
Western Organization of Resource Councils, Meeker, CO, Reed 
  Kelley, statement..............................................   266


                         IMPLEMENTATION OF THE
                   DOMINICAN REPUBLIC-CENTRAL AMERICA
                    FREE TRADE AGREEMENT (DR-CAFTA)

                              ----------                              


                        THURSDAY, APRIL 21, 2005

                     U.S. House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 10:15 a.m., in 
room 1100, Longworth House Office Building, Hon. Bill Thomas 
(Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                                                  CONTACT: 202-225-1721
FOR IMMEDIATE RELEASE
April 01, 2005
FC-6

             Thomas Announces Hearing on Implementation of

                 the Dominican Republic-Central America

                    Free Trade Agreement (DR-CAFTA)

    Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways 
and Means, today announced that the Committee will hold two trade-
related hearings in April: 1. United States-China Economic Relations 
and China's Role in the World Economy, and 2. Implementation of the 
Dominican Republic-Central America Free Trade Agreement (DR-CAFTA).
      

1. UNITED STATES-CHINA ECONOMIC RELATIONS AND CHINA'S ROLE IN THE WORLD 
                    ECONOMY

      
    The hearing on United States-China economic relations and China's 
role in the world economy will take place on Thursday, April 14, 2005, 
in the main Committee hearing room, 1100 Longworth House Office 
Building beginning at 10:00 a.m. Oral testimony at this hearing will be 
from both invited and public witnesses. Any individual or organization 
not scheduled for an oral appearance may submit a written statement for 
consideration by the Committee or for inclusion in the printed record 
of the hearing.
      

BACKGROUND ON CHINA HEARING:

      
    Since the United States and China established diplomatic relations 
in 1979, China has become an increasingly important trading partner of 
the United States and a major player in the global economy. Two-way 
trade between the two countries has increased since that time, growing 
from $4.8 billion in 1980 to $231.42 billion in 2004. In 2004, China 
was the United States' third largest trading partner, the second 
largest supplier of U.S. imports, and the fifth largest buyer of U.S. 
exports. The U.S. trade deficit with China was $162 billion in 2004. 
Ten percent of all U.S. trade is with China.
      
    Reflecting its growing role in the world economy, China became a 
member of the World Trade Organization (WTO) on December 11, 2001, 
after many years of negotiations on its accession. Since its accession 
to the WTO, China's integration into the world economy has proceeded 
rapidly. As a result, Congress, the Administration, and the U.S. 
private sector have focused on China's compliance with its WTO 
commitments, its trade balance, the relationship between China's pegged 
currency and trade with the United States, and other macroeconomic 
policies.
      
    The goal of this hearing is to discuss China's importance as an 
economic partner to the United States and the issues surrounding the 
United States-China economic relationship. In announcing the hearing, 
Chairman Thomas stated, ``China is an important player in the U.S. and 
global economies. We have been able to resolve many disputes, but we 
face more challenges to ensure that China integrates itself into the 
rules-based trading system that governs all WTO members. During this 
hearing, we will focus on China's important economic role in the world, 
its progress in meeting its trade commitments, and its macroeconomic 
policies.''

FOCUS OF THE CHINA HEARING:

      
    The hearing will focus on United States-China economic relations 
and China's role in the world economy, with a narrower focus on the 
following: (1) China's progress and U.S. response in the implementation 
of China's WTO accession commitments (including issues relating to 
China's enforcement of intellectual property rights, use of subsidies, 
and the use of non-tariff barriers such as standards andimport 
licensing that affect imports); (2) trade relations between the United 
States and China; (3) China's currency management and other 
macroeconomic issues; and (4) the relationship between trade with China 
and the U.S. economy, particularly the manufacturing sector.
      

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD AT THE

CHINA HEARING:

      
    Requests to be heard at the hearing must be made by telephone to 
Michael Morrow or Kevin Herms at (202) 225-1721 no later than the close 
of business Tuesday, April 5, 2005. The telephone request should be 
followed by a formal written request faxed to Allison Giles, Chief of 
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515, at (202) 225-
2610. The staff of the Committee will notify by telephone those 
scheduled to appear as soon as possible after the filing deadline. Any 
questions concerning a scheduled appearance should be directed to the 
Committee staff at (202) 225-1721.
      
    In view of the limited time available to hear witnesses, the 
Committee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing in lieu of a personal appearance. All persons requesting to be 
heard, whether they are scheduled for oral testimony or not, will be 
notified as soon as possible after the filing deadline.
      
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Committee are required to submit 300 copies, along with an 
IBM compatible 3.5-inch diskette in WordPerfect or MS Word format, of 
their prepared statement for review by Members prior to the hearing. 
Testimony should arrive at the full Committee office, 1102 Longworth 
House Office Building, no later than close of business on Monday, April 
11, 2005. The 300 copies can be delivered to the Committee staff in one 
of two ways: (1) Government agency employees can deliver their copies 
to 1102 Longworth House Office Building in an open and searchable box, 
but must carry with them their respective government issued 
identification to show the U.S. Capitol Police, or (2) for non-
government officials, the copies must be sent to the new Congressional 
Courier Acceptance Site at the location of 2nd and D Streets, N.E., at 
least 48 hours prior to the hearing date. Please ensure that you have 
the address of the Committee, 1102 Longworth House Office Building, on 
your package, and contact the staff of the Committee at (202) 225-1721 
of its impending arrival. Due to new House mailing procedures, please 
avoid using mail couriers such as the U.S. Postal Service, UPS, and 
FedEx. When a couriered item arrives at this facility, it will be 
opened, screened, and then delivered to the Committee office, within 
one of the following two time frames: (1) expected or confirmed 
deliveries will be delivered in approximately 2 to 3 hours, and (2) 
unexpected items, or items not approved by the Committee office, will 
be delivered the morning of the next business day. The U.S. Capitol 
Police will refuse all non-governmental courier deliveries to all House 
Office Buildings.

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE AT THE
CHINA HEARING:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``109th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing 
for which you would like to submit, and click on the link entitled, 
``Click here to provide a submission for the record.'' Once you have 
followed the online instructions, completing all informational forms 
and clicking ``submit'' on the final page, an email will be sent to the 
address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Thursday, 
April 28, 2005. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
deliveries to all House Office Buildings. Those filing written 
statements who wish to have their statements distributed to the press 
and interested public at the hearing can follow the same procedure 
listed above for those who are testifying and making an oral 
presentation. For questions, or if you encounter technical problems, 
please call (202) 225-1721.
      

2. IMPLEMENTATION OF THE DOMINICAN REPUBLIC-CENTRAL AMERICA FREE TRADE 
                    AGREEMENT

      
    The hearing on implementation of the DR-CAFTA will take place on 
Thursday, April 21, 2005, in the main Committee hearing room, 1100 
Longworth House Office Building, beginning at 10:00 a.m. Oral testimony 
at this hearing will be from both invited and public witnesses. Invited 
witnesses will include Ambassador Peter F. Allgeier, Acting United 
States Trade Representative. Any individual or organization not 
scheduled for an oral appearance may submit a written statement for 
consideration by the Committee and for inclusion in the printed record 
of the hearing.
      

BACKGROUND ON DR-CAFTA HEARING:

      
    On October 1, 2002, the President formally notified Congress that 
he would pursue a Free Trade Agreement (FTA) with Central America. 
Negotiations began in January 2003. Following nine rounds of 
negotiations, agreement was reached with El Salvador, Guatemala, 
Honduras, and Nicaragua on December 17, 2003, and with Costa Rica on 
January 25, 2004. Negotiations to include the Dominican Republic in 
CAFTA began in January 2004 and concluded on March 15, 2004. On May 28, 
2004, Ambassador Robert Zoellick and ministers of five Central American 
countries signed the CAFTA. On August 5, 2004, Ambassador Zoellick, the 
Dominican Republic's Secretary for Industry and Commerce Sonia Guzman, 
and representatives of five Central American nations signed the DR-
CAFTA.
      
    The DR-CAFTA would immediately eliminate tariffs on more than 80 
percent of U.S. exports of consumer and industrial products, phasing 
out the rest over 10 years, thereby opening DR-CAFTA's markets to U.S. 
goods, services, and farm products and leveling the playing field for 
U.S. workers and farmers. Because the Central American countries 
already enjoy duty free access to the United States for over 75 percent 
of their exports, the agreement is estimated by the International Trade 
Commission (ITC) to have minimal effect on imports to the United 
States. At the same time, U.S. agricultural exports to the Dominican 
Republic-Central American region are estimated to increase by nearly 
$900 million under the agreement. The ITC found that manufacturers 
would also benefit through increased exports, especially in sectors 
such as fabric and yarn, information technology products, agricultural 
and construction equipment, paper products, pharmaceuticals and medical 
and scientific equipment. The agreement includes a negative list for 
services with very few reservations. All agricultural and industrial 
products are covered by the agreement. The agreement also contains 
strong protections for U.S. investors.
      
    The United States and the DR-CAFTA region had two-way trade of 
$33.4 billion in 2004. The DR-CAFTA countries combined make up the 2nd-
largest U.S. market in Latin America, behind only Mexico. The United 
States exports more than $15 billion annually to the region, making it 
America's 13th-largest export market worldwide.
      
    In announcing the hearing, Chairman Thomas stated, ``I am very 
pleased not only about the potential commercial opportunities for our 
countries but also about the stability and development that the DR-
CAFTA agreement brings to the region. This agreement will cement many 
of the democratic, legal, and economic reforms that these countries 
have struggled with in recent years, and it will do so while providing 
expansive trade opportunities for U.S. goods and services immediately. 
I look forward to moving this agreement quickly.''
      

FOCUS OF THE DR-CAFTA HEARING:

      
    The hearing will examine the DR-CAFTA and the benefits that the 
agreement will bring to American businesses, farmers, workers, 
consumers, and the U.S. economy.
      

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD AT THE
DR-CAFTA HEARING:

      
    Requests to be heard at the hearing must be made by telephone to 
Michael Morrow or Kevin Herms at (202) 225-1721 no later than the close 
of business Tuesday, April 12, 2005. The telephone request should be 
followed by a formal written request faxed to Allison Giles, Chief of 
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515, at (202) 225-
2610. The staff of the Committee will notify by telephone those 
scheduled to appear as soon as possible after the filing deadline. Any 
questions concerning a scheduled appearance should be directed to the 
Committee staff at (202) 225-1721.
      
    In view of the limited time available to hear witnesses, the 
Committee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing in lieu of a personal appearance. All persons requesting to be 
heard, whether they are scheduled for oral testimony or not, will be 
notified as soon as possible after the filing deadline.
      
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Committee are required to submit 300 copies, along with an 
IBM compatible 3.5-inch diskette in WordPerfect or MS Word format, of 
their prepared statement for review by Members prior to the hearing. 
Testimony should arrive at the full Committee office, 1102 Longworth 
House Office Building, no later than close of business on Monday, April 
18, 2005. The 300 copies can be delivered to the Committee staff in one 
of two ways: (1) Government agency employees can deliver their copies 
to 1102 Longworth House Office Building in an open and searchable box, 
but must carry with them their respective government issued 
identification to show the U.S. Capitol Police, or (2) for non-
government officials, the copies must be sent to the new Congressional 
Courier Acceptance Site at the location of 2nd and D Streets, N.E., at 
least 48 hours prior to the hearing date. Please ensure that you have 
the address of the Committee, 1102 Longworth House Office Building, on 
your package, and contact the staff of the Committee at (202) 225-1721 
of its impending arrival. Due to new House mailing procedures, please 
avoid using mail couriers such as the U.S. Postal Service, UPS, and 
FedEx. When a couriered item arrives at this facility, it will be 
opened, screened, and then delivered to the Committee office, within 
one of the following two time frames: (1) expected or confirmed 
deliveries will be delivered in approximately 2 to 3 hours, and (2) 
unexpected items, or items not approved by the Committee office, will 
be delivered the morning of the next business day. The U.S. Capitol 
Police will refuse all non-governmental courier deliveries to all House 
Office Buildings.
      

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE AT THE
DR-CAFTA HEARING:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``109th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing 
for which you would like to submit, and click on the link entitled, 
``Click here to provide a submission for the record.'' Once you have 
followed the online instructions, completing all informational forms 
and clicking ``submit'' on the final page, an email will be sent to the 
address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Thursday, 
April 28, 2005. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
deliveries to all House Office Buildings. Those filing written 
statements who wish to have their statements distributed to the press 
and interested public at the hearing can follow the same procedure 
listed above for those who are testifying and making an oral 
presentation. For questions, or if you encounter technical problems, 
please call (202) 225-1721.
      

FORMATTING REQUIREMENTS FOR BOTH HEARINGS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman THOMAS. The Chair wishes to announce that the 
Committee witness structure has been available for some time, 
and it has been brought to the Chair's attention that there are 
some Members who, notwithstanding prior notification, wish to 
testify, and the Chair believes that Members should be 
accommodated. However, the Chair believes that since there was 
no indication that Members wished to testify, the Chair wishes 
to provide a reasonable period of notification to all Members 
that there will be a Member panel following the already-
structured panels coming before the Committee, and that the 
Chair, along with the Ranking Member and other interested 
Members, will extend the hearing for any Member who wishes to 
testify following the currently structured panels. That is, 
anyone who is pro and anyone who is con, who is a Member, the 
Chair believes has a right to be heard. We have a structured 
arrangement and the Chair believes we should go forward with 
the structured arrangement; and then, with ample notice as to 
when the structured panels appear to be concluding, we will 
notify and carry on with a Members' panel. The Chair recognizes 
the gentleman from New York.
    Mr. RANGEL. I want to thank the Chairman for accommodating 
the wishes of Members of both parties that have not been able 
to get involved in this bill because it is on a fast track. I 
wish that we had advanced notice that Members wanted to 
testify. I don't know whether our staffs invited them to 
testify. I do thank the Chair of this Committee for extending 
the courtesy to Members of Congress to be able to be heard on 
such vital legislation. Thank you.
    Chairman THOMAS. I thank the gentleman. The Chair believes 
that ``obligation'' is a better word than ``courtesy.'' We want 
to accommodate all Members. With that, the Chair would like to 
begin the opening statement and the hearing.
    Mr. LEWIS OF GEORGIA. Mr. Chairman, is it ordinary and 
customary as a rule to recognize Members first, to give them 
the priorities?
    Chairman THOMAS. Ordinarily, when there is a structured 
panel arrangement, the Members are placed first. The reason the 
Chair has decided to do it at the end of the panels is that 
since no Member officially structurally notified us, the Chair 
wants to make sure that knowing there is a Members' panel, any 
Member who wishes to testify may do so. That extraordinary 
structure, I believe, better accommodates all Members, and that 
is why the Ranking Member and the Chair decided to follow that 
procedure.
    Mr. LEWIS OF GEORGIA. Thank you.
    Chairman THOMAS. I thank the gentleman. Seeing no further 
Member inquiries, that will be the way the Committee proceeds. 
I would like to say to all of you, good morning. Today's 
hearing will examine the proposed Free Trade Agreement (FTA) 
with those countries of Central America and the Dominican 
Republic. This would immediately liberalize two-way trade. We 
currently have a one-way trade arrangement. This will 
liberalize two-way trade. The Chair wishes to thank and 
acknowledge the countries of Costa Rica, El Salvador, 
Guatemala, Honduras and Nicaragua, along with the Dominican 
Republic, because there was a precondition that they agree as a 
region before the United States would negotiate with them. I do 
believe that the Ambassadors from those countries are here, in 
addition to the Minister and Ambassador from Oman who are 
currently negotiating a free trade area. We thank you for the 
final work product and we look forward to dealing with, in a 
positive way, the country of Oman.
    I think it is important to know that in May of 2000, 309 
House Members voted to give these same countries we have been 
mentioning unilateral preferential treatment by lowering 
tariffs on the products they export into the United States 
without any required reciprocal treatment. Pretty obviously, 
this amounts to a one-way trade deal benefiting those countries 
and not the United States. The Dominican Republic-Central 
American Free Trade Agreement (DR-CAFTA) would turn the 
relationship, as I said, into a positive two-way street. 
Specifically, the DR-CAFTA would eliminate tariffs on more than 
80 percent of U.S. exports, with most remaining tariffs phased 
out over 10 years. What this means is that we would then open 
up markets to U.S. goods and services, so that it would be a 
level playingfield for the U.S. and Central American workers 
and farmers. The DR-CAFTA countries, combined, make up the 
second-largest U.S. market in Latin America. Enhanced trade 
with these nations, as we will hear in testimony from most of 
the witnesses--and we will examine in detail their arguments--
will create new jobs for Americans and new partnerships in the 
region. The agreement covers all agricultural and industrial 
sectors and contains strong protections for U.S. investors.
    In addition to the commercial opportunities, DR-CAFTA will 
help cement many of the recent democratic legal and economic 
reforms in these countries. The Chair is often amazed at the 
short memories of many people, and I do believe some testimony 
will point out that just a few short years ago, the U.S. 
interest in the region stemmed more in the concern of 
humanitarian, national security and other arguments, rather 
than the very positive question we have before us today. It is 
a little bewildering to the Chair to have previous FTAs 
supported by a number of people who are now opposing this one, 
because the concerns over labor protections really would apply, 
in the Chair's opinion, a double standard. In fact, the labor 
provisions in this agreement are stronger than in prior 
agreements, such as the Morocco (P.L. 108-302), the Chile (P.L. 
108-77), and the Singapore (P.L. 108-78) agreements. The 
arguments of an absolutist nature in terms of the unfairness of 
this agreement are belied by the examination of agreements just 
in the last few years, let alone those of several years ago. 
This is one of the strongest FTAs to come before Congress, and 
I assume that we are going to move fairly quickly to agreement. 
There has been a major buildup, and the Chair hopes for a 
positive, informative, and enlightening discussion before the 
Committee today. The Chair will recognize the gentleman from 
New York, Mr. Rangel, after which the Chair will recognize the 
Subcommittee on Trade Chairman, Mr. Shaw, and the Ranking 
Member, the gentleman from Maryland, Mr. Cardin. Mr. Rangel?
    [The opening statement of Chairman Thomas follows:]
    Opening Statement of The Honorable Bill Thomas, Chairman, and a 

        Representative in Congress from the State of California

    Good morning. During today's hearing, we will examine the proposed 
Free Trade Agreement with those countries of Central America and the 
Dominican Republic. This would immediately liberalize two-way trade. We 
currently have a one-way trade arrangement; this will liberalize two-
way trade. The Chair wishes to thank and acknowledge the countries of 
Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, along with the 
Dominican Republic, because there was precondition that they agree as a 
region before the U.S. would negotiate with them.
    It is important to note that in May of 2000, 309 House Members 
voted to give these same countries we've been mentioning unilateral 
preferential treatment by lowering tariffs on the products they export 
into the United States, without any required reciprocal treatment. 
Pretty obviously, this amounts to a one-way trade deal benefiting those 
countries and not the United States. The DR-CAFTA agreement would turn 
the relationship into a positive two-way street. Specifically, the DR-
CAFTA would eliminate tariffs on more than 80 percent of U.S. exports, 
with most remaining tariffs phased out over 10 years. What this means 
is, that we would then open markets to U.S. goods and services so that 
it would be a level playing field for U.S. and Central American workers 
and farmers.
    The DR-CAFTA countries combined make up the 2nd-largest U.S. market 
in Latin America. Enhanced trade with these nations--as we'll hear in 
testimony from most of the witness and we will examine in detail their 
arguments--will create new jobs for Americans and new partnerships in 
the region. The agreement covers all agricultural and industrial 
sectors and contains strong protections for U.S. investors. In addition 
to the commercial opportunities, DR-CAFTA will help cement many of the 
recent democratic, legal and economic reforms in these countries.
    The Chair is often amazed at the short memories of many people. I 
believe some testimony will point out that just a few short years ago, 
the U.S. interest in the region stemmed more from concerns of 
humanitarian, national security and other arguments, rather than the 
very positive question we have before us today.
    It's a little bewildering to the Chair to have previous Free Trade 
Agreements supported by a number of people who are now opposing this 
one because the concerns over labor protections really would apply, in 
the Chair's opinion, a ``double standard.'' In fact, the labor 
provisions in this agreement are stronger than in prior agreements, 
such as Morocco, Chile and Singapore. The arguments of an absolutist 
nature, in terms of the unfairness of this agreement, are belied by the 
examination of agreements just in the last few years, let alone those 
of several years ago.
    This is one of the strongest Free Trade Agreements to come before 
Congress, and I assume that we're going to move fairly quickly to 
agreement. There has been a major build-up and the Chair hopes for a 
positive, informative and enlightening discussion before the Committee 
today.

                                 

    Mr. RANGEL. Thank you, Mr. Chairman. This has to be one of 
the most awkward presentations that I have made in the 35 years 
that I have been in the Congress, because the Chair talks about 
the arguments that have been made, and I have polled the 
Democrats on this Committee and those that were at the caucus 
this morning had indicated, like me, no Republican has made any 
arguments for or against DR-CAFTA. I have spoken with more 
foreigners and business people about this most important piece 
of legislation, because I think it is not just important for 
the countries that are involved, but I think it is important 
for the United States of America. I really think if we are 
looking for liberty and freedom, that we have to do it through 
trade and not at the end of a rifle.
    If we are looking for people that are going to reject 
dictatorships, we have to make certain that they are able to 
work and eat and have decent wages. All of these things are 
very, very important to me, and that is why I feel so good that 
I was a part of the building of the Caribbean Basin agreement, 
one of the original authors of the African FTA (P.L. 106-200), 
and it just seems to me that this is the time we should have 
been working with our friends in the Dominican Republic and in 
Central America. The embarrassment and awkwardness is that on 
international affairs, I really had hoped and thought that we 
would not be acting like Democrats and Republicans, but we 
would be Americans. How awkward it is for me to share with 
people of foreign governments the fact that we are not only not 
working together, we don't even argue together, we don't 
discuss anything together, and it is embarrassing to me as an 
American and as a Member of this Congress. For me to say, with 
all of my years of seniority and as long as I have been on this 
Committee and my involvement with trade issues, that not one 
Republican on this Committee has discussed this, including the 
Chair and the Chair's staff I might add, is an embarrassing 
thing for me as a Member of Congress.
    I might say to the U.S. Trade Representative (USTR), and I 
do hope that the new Member, the new Trade Representative that 
was a Member of this Committee, I have every reason to believe 
there will be a change of attitude, but I cannot think of 
anything that your office has done, Mr. Allgeier, to present to 
our foreign friends the fact that we were looking for a 
bipartisan agreement; that we cannot take the attitude that if 
you pick up one or two Democrats, that that is bipartisan. It 
would seem to me that the USTR represents all of the United 
States, and we feel very strongly that in the House of 
Representatives, that is a part of our responsibility. So, Mr. 
Chairman, I find it awkward to have to say this, but knowing 
that it cannot be contradicted, we don't have to argue this 
point publicly, since no one took advantage of the opportunity 
to discuss or argue it privately. Thank you.
    Chairman THOMAS. The gentleman from Florida, the chairman 
of the Subcommittee on Trade, Mr. Shaw.
    Mr. SHAW. Mr. Chairman, the trade agreement before us, DR-
CAFTA, provides the United States access to one of the world's 
fastest growing markets. We will hear today from both sides of 
this particular agreement, but I firmly believe that DR-CAFTA 
provides equality in our bilateral trade with our Latin 
American partners. Some people might not understand that we 
don't have the luxury of merely maintaining the status quo if 
we don't pass DR-CAFTA. If we fail to act now, American 
companies and American workers will be worse off than they are 
today. The reason is because DR-CAFTA's main industry is 
textile and apparel production. Without DR-CAFTA, the apparel 
manufacturing industry in the Latin American region will not 
buy U.S. inputs like cotton, yarn, fabric, buttons and zippers.
    We have heard also from people from our last hearing that 
we had on China, manufacturers of zippers and other by-products 
that go into apparel were very much in favor of this agreement. 
We certainly know that the Chinese won't buy those inputs. The 
National Association of Manufacturers estimates that we sell 
some $4 billion worth of U.S.-made inputs into the region and 
that we that will be jeopardized if we don't pass DR-CAFTA. 
However, if we do pass the agreement, then those U.S. input 
industries have a free market in which to sell. At the same 
time, we expect to generate an additional $1 billion in 
increased exports if we pass DR-CAFTA. So, we don't have a 
choice to merely sit back and not take action on this 
agreement. If we do, the world will leave us behind. I might 
say too that if we do, we will be turning our backs on some 
young democracies who are struggling in order to align 
themselves with the free market system and democracy in our own 
hemisphere.
    Nor is the limited access for sugar given to DR-CAFTA a 
reason to oppose this agreement. I say this as a Member of the 
Florida congressional delegation, one of the country's largest 
producers of sugar. The increase in quota will account for just 
1.1 percent of U.S. sugar consumption. The agreement also 
includes a compensation mechanism allowing the U.S. Government 
to pay to prevent these sugar imports. Mr. Chairman, finally, 
DR-CAFTA is a tremendous opportunity for my State of Florida. 
In 2004, Florida exports to the region totaled $3.2 billion, 
making the DR-CAFTA region Florida's largest export market.
    Mr. Chairman, just briefly in response to Mr. Rangel's 
comments, I would not only welcome but would enjoy the 
opportunity to talk to Mr. Rangel about any type of agreements 
that come under the jurisdiction of my Subcommittee, and I have 
spoken, although very briefly, with the Democrat Ranking Member 
with regard to DR-CAFTA, and I believe, too, that communication 
is a two-way street. Anyone on the minority side that wants to 
talk to someone on the majority side about these agreements not 
only should be listened to, but they also have an obligation to 
come forward and ask for such a meeting or agreement, whether 
it be public or private. So, Charlie Rangel, my friend, I will 
gladly discuss anything with you, at any time, and any place. 
Thank you.
    Mr. RANGEL. I thank you for that.
    Chairman THOMAS. The gentleman from Maryland.
    Mr. CARDIN. Thank you, Mr. Chairman. Ambassador Allgeier, 
it is a pleasure to have you before our hearing. Mr. Chairman, 
I thank you for holding this hearing. As the Ambassador knows, 
I have concern about the overall direction of the U.S. trade 
policy. Every week we seem to get another fact that shows that 
we are moving in the wrong direction on international trade. 
Last year's trade imbalance was $617 billion, a record amount. 
We have a record imbalance with China at $162 billion. We are 
now negative on advanced technology products, and we have been 
since 2002. The United States is on its way to becoming a net 
importer of services by the year 2010. According to the U.S. 
Department of Agriculture (USDA), the U.S. trade surplus for 
farm products will disappear in 2005, for the first time in 
over 50 years.
    Mr. Chairman, this direction is just not sustainable. Our 
highest priority should be to enforce our trade rights and 
expand our opportunities under the World Trade Organization 
(WTO). Yet this Administration appears to be timid in enforcing 
our trade rights and is well behind the schedule set out for 
the Doha Development Round. I must say that I was mystified by 
the statement of the Speaker that he would bring up a China 
trade bill in order to pass DR-CAFTA. I don't understand why we 
should hold these issues hostage to one another, why we just 
don't consider them on their own merits, and why our Republican 
friends are finally talking about serious trade policy problems 
with China just because they don't have the votes on DR-CAFTA.
    Turning to DR-CAFTA for one moment, I believe we should 
have an FTA with Central America. I think it is in the 
interests of the United States and in the interests of our 
Central American friends. The problem is we should have the 
right agreement. Unfortunately, I think this is a missed 
opportunity. The process that was used, as pointed out by Mr. 
Rangel, was not one that had the consultation required by all 
the Members of Congress, but particularly those on both sides 
of the aisle, that support expanding trade opportunities for 
American producers, farmers, and manufacturers. This agreement 
was completed without the benefit of provisions that would 
ensure that these countries observe the most basic standards of 
fairness and decency to working people.
    As to labor standards, I don't understand why we move 
backward from the current U.S. law. Under the enhanced 
Caribbean Basin Initiative (CBI) program in effect for the last 
5 years, the CBI countries are required to obtain the five 
basic standards of decency to working people. Under the basic 
CBI program for 15 years before that, nine countries were 
required to make progress toward those standards. In other 
words, we already have requirements from the Central American 
countries to make progress toward moving toward the 
internationally recognized labor standards and a mechanism to 
help them in that regard. The DR-CAFTA agreement would repeal 
that. It would only require the countries to enforce their 
current laws, and then the enforcement mechanism is not very 
strong, providing for monetary penalties primarily paid to the 
countries themselves rather than having enforcement, so the 
countries are able to stand up to the strong special interest 
forces in their own country that prevent the movement toward 
basic labor rights. So, I see this agreement as a real missed 
opportunity, a missed opportunity to build the kind of 
bipartisan support that the Australian (P.L. 108-286) and Chile 
and Singapore and Morocco agreements enjoyed, a missed 
opportunity to raise the bar in a reasonable way on issues 
important to U.S. workers, manufacturers, and farmers, a missed 
opportunity to continue to rebuild bipartisanship on U.S. trade 
policy.
    Mr. Chairman, I hold out one hope, and that is implementing 
legislation has yet to be submitted to Congress, so therefore 
the clock has not started to run. I offer hope that we will be 
able to work and build the bipartisan support for expanding 
international trade which has been the hallmark of this 
Congress. I look forward to working with my Republican friends 
and working with my friends on both sides of the aisle that are 
interested in expanding trade opportunities to figure out a way 
that we can have a DR-CAFTA agreement that represents the best 
traditions of this country, that will be in the interests of 
the United States and the Central American countries and the 
Dominican Republic, and one that can enjoy broad bipartisan 
support. I thank you.
    Chairman THOMAS. I thank the gentleman. One of the 
responsibilities of the Chairman of this Committee is to make 
sure that the record created by the Committee is as accurate as 
we can make it. There have been statements made which leave the 
impression that there have been no opportunities to have input 
into a product, as the gentleman from Maryland correctly 
stated, that is not yet before us, and the Chair wants to make 
sure that the record is clear. On October 1, 2002, under Trade 
Promotion Authority (TPA) (P.L. 107-210), which creates the 
greatest oversight role for Congress in the history of trade, 
there was formal notification by the President of the intent to 
negotiate this agreement. On January 7, 2003, there was the 
first organizational meeting, which would have been an 
opportunity to discuss any issue on the subject of trade.
    I might indicate that the membership of the Congressional 
Oversight Group (COG) consists, as its core, the two key 
Committees: the Senate Committee on Finance and the House 
Committee on Ways and Means. The Chairman and the Ranking 
Member, indeed three Republicans and two Democrats from this 
Committee, are permanent, full Members of the COG.
    On April 11 we met, dealing with Chile, Singapore, and a 
general update, which would have been an opportunity to have 
input on this proposal. On July 24, 2003, the House COG sub-
group and full Senate COG Committee discussed Bahrain and 
adding the Dominican Republic to the CAFTA (the Central 
American Free Trade Agreement). On November 6, 2003, the COG 
sub-group--and Members of the Committee on Ways and Means are 
Members of the core COG, so that any meeting of the COG 
consists of the Committee on Ways and Means, the Chairman, the 
Ranking Member, three Republicans and two Democrats. The 
November 6, 2003 discussion covered not only the Andean Nation 
question, but also a Miami ministerial meeting of the Free 
Trade Area of the Americas (FTAA) and a discussion of other 
trade agreements in the region. On May 6, 2004, there was a 
meeting of the sub-group, once again the core group--meaning 
the Members of this Committee--with USTR on three trade 
arrangements which had been concluded but not yet signed: 
Australia, Morocco and the Central American countries, plus the 
Dominican Republic. On September 8, 2004, there was another 
meeting of the sub-group of the House and the Senate COG with 
the Trade Representative, Mr. Zoellick. On February 2, 2005, 
there was an organizational meeting for this Congress with a 
general overview of trade subjects.
    For the gentleman from New York to say that he has had no 
opportunity for input into this agreement is to indicate and 
enforce the statement the Chair made at the beginning. This 
appears to be an attempt to have politics triumph over policy, 
but when absolutely false statements are made about the 
inability to have any opportunity for input, the Chair feels it 
is absolutely essential that the record be accurate. That 
record consists of meeting after meeting after meeting, from 
the initial notification on October 1, 2002, until the hearing 
that we are holding today. If anyone chose not to participate 
or not to engage, that is their choice. It wasn't by exclusion, 
it was by choice. The Chair now recognizes the Honorable Peter 
Allgeier.
    Mr. RANGEL. I really don't think so, and if we were in the 
House I would take down your words for attributing a false 
statement to me as a Member of this Committee.
    Chairman THOMAS. The gentleman from New York is recognized.
    Mr. RANGEL. Well, thank you so much. There is no indication 
in any record that the objections we have--we Democrats, and I 
as the Ranking Member, believe that this is a good agreement, 
and if we had been consulted and the issues that we had 
problems with were worked out, we would probably have almost 
unanimously voted for this. The fact that I am a Member of the 
House and have an opportunity to see you or have an opportunity 
to contact the USTR, has nothing to do as to the issue of 
having the International Labor Organization (ILO) standards 
included in these agreements. You know that is true and I know 
that is true. Bringing up dates saying we were alive and well 
in the Congress doesn't mean that I had an opportunity or any 
Member of this Committee has had an opportunity to try to work 
out the agreements, so, when it is presented to us we could 
support it. So, I would say that you have distorted the truth 
yourself, and we want to have a debate on this which I don't 
think we should have, it just shows the foreigners and 
Americans how far we are apart in trying to become a bipartisan 
unit. I don't think you add at all toward a climate of being 
bipartisan; your words and your tone dictate that.
    Chairman THOMAS. The Chair will recognize the first panel, 
but will conclude this discussion with the fact that the dates 
are history. This is a hearing on a proposal not yet before the 
Committee. The Committee plans to have a hearing in which the 
Administration, under TPA, will come before this Congress, and 
this Committee will have ample opportunity to examine the 
specifics negotiated by the Administration and have their input 
on desired changes. That is the structure that was created 
under TPA.
    So, for prospective purposes, the record needs to show the 
gentleman from New York and any other Member of this Committee 
will have a total, absolute opportunity to convey, based upon 
the presentation of the Administration's specific language, 
their agreement or disagreement with the language, offer 
amendments in a so-called informal markup in front of this 
Committee, and the Committee will work its will on the specific 
language presented by the Administration. Between now and the 
time of that markup, I invite any Member of the Committee to 
continue to discuss with the Trade Representative what the 
language will look like that will come before this Committee, 
for the Committee to work its will over that language, which 
the Administration will then present formally at a future date. 
The entire discussion the Chair just conducted is based upon 
prospective opportunities for Members to engage in this 
process. The Chair looks forward to Members engaging in the 
process in the near future. So, the next time we meet to 
comment on this work product, no one can create the appearance 
or the illusion that not only have they not had an opportunity 
to participate, but they will have a full opportunity to 
present amendments to the agreement, offer them for a vote, and 
the Committee will then work its will. The Chair wishes to 
recognize the Honorable Peter Allgeier, who is, we hope, 
temporarily continuing to be the acting USTR. I know the 
gentleman from Maryland is now leaving to go over to the Senate 
to observe and hopefully participate in the hearing in the 
Senate under the Senate's constitutional powers to assist the 
creation of the leadership in the process.
    Chairman THOMAS. So, Mr. Allgeier, your written testimony 
will be made a part of the record. You can address this 
Committee in any way you see fit.

STATEMENT OF THE HONORABLE PETER F. ALLGEIER, ACTING U.S. TRADE 
                         REPRESENTATIVE

    Ambassador ALLGEIER. Thank you, Mr. Chairman. I would like 
to thank you and Congressman Rangel and all the Members of this 
Committee for the opportunity today to present to you the FTA 
between the United States and the CAFTA countries and the 
Dominican Republic. We greatly appreciate the guidance that the 
Committee has provided throughout this negotiating process, and 
in particular we appreciate the leadership of you, Mr. 
Chairman, and Congressman Rangel. The DR-CAFTA marks the 
successful culmination of a decades-long American policy, 
pursued by both Republican and Democrat Administrations, of 
promoting economic reform and democracy in Central America. 
This DR-CAFTA that we are presenting today, offers us the best 
interest to strengthen the economic ties that we already have 
with these countries but also, most importantly, to reinforce 
their progress toward economic, political and social reform.
    The DR-CAFTA is not an act of unilateral altruism by the 
United States. We have much to gain by this agreement. 
Collectively, as you pointed out, Mr. Chairman, Central America 
and the Dominican Republic make up the second largest U.S. 
export market in Latin America. It is larger than our exports 
to Brazil, but, interestingly, on a global scale, the exports 
that we have to these countries exceeds the total exports that 
we have to Russia, India, and Indonesia combined. The American 
Farm Bureau Federation (AFBF) has estimated that U.S. farm 
exports under DR-CAFTA would increase by $1.5 billion a year. 
That is an effective doubling of the agricultural exports that 
we have at present, $1.8 billion. The interesting thing is that 
the agricultural exports, our agricultural exports, would grow 
at an 8 to 1 ratio compared to our agricultural imports from 
these countries. The U.S. Chamber of Commerce also has done an 
analysis of the DR-CAFTA and it estimates for all goods, our 
exports to that region would increase by $3 billion a year.
    We currently face an unlevel playingfield. We do have free 
trade with Central America and the Dominican Republic in one 
direction. Nearly 80 percent of the imports into the United 
States from these countries enter the United States duty free. 
About 40 percent of our exports to those countries enter those 
countries duty free. In agriculture, it is even more dramatic. 
Approximately 99 percent of the agricultural products that we 
import from these countries enter our markets duty free. Now, 
more than half of current U.S. farm exports to Central America 
will become duty free on the first day of this agreement. That 
includes products such as high-quality cuts of beef, cotton, 
wheat, key fruits and vegetables, soybeans, and processed food 
products. There will be additional market opening for pork, dry 
beans, vegetable oil, poultry, rice, corn, and dairy products. 
That is the reason that every major agricultural organization, 
with one exception--that is more than 60 organizations--have 
already indicated their strong support for the DR-CAFTA. In 
services we also will be getting important new opportunities in 
this region covering the whole spectrum of services: 
telecommunications, banking, insurance, audio-visual services, 
transportation, engineering, express delivery, computer and 
related services, and on and on. This also is a trade agreement 
for the digital age. It provides strong protection for our 
intellectual property in the copyright areas of software, 
music, text and videos, but also in patents, trademarks, and 
trade secrets. The agreement provides strong anti-corruption 
procedures and provisions in government contracting, government 
procurement, and in other areas of trade with these countries.
    I would like to focus on three particular subjects: 
textiles, labor and the environment. Textiles and apparel is an 
important component of our trade with this region. It is our 
second-largest market for U.S. fabric and yarns. The DR-CAFTA 
represents a critical element in our domestic industries' 
ability to compete with Asia. Without the tariff preferences 
and rules of origin of DR-CAFTA, apparel companies may well 
lose production to China, where they will be much more likely 
to use inputs from outside the United States. Just to put an 
order of magnitude on that, when we purchase apparel from 
China, on average 0.1 percent of that apparel, the value of 
that apparel, involves inputs from the United States. When we 
import, on the other hand, apparel from Central America, the 
Dominican Republic, 71 percent of the content of that is from 
the United States. The DR-CAFTA is essential for us to keep our 
customers for U.S. yarn and fabric and to maintain U.S. jobs in 
this sector.
    With respect to labor, obviously there is considerable 
interest in this Committee with regard to worker rights and 
labor standards in Central America. We share that goal of 
seeing the continuation of real, meaningful improvements in 
worker rights in the region. In DR-CAFTA, within the agreement 
itself, we focus our attention and our efforts on the chief 
problem, which is the need to improve enforcement of domestic 
labor laws in these countries. The Central American countries, 
and later the Dominican Republic, requested a study by the ILO 
of the labor situation in their countries. The ILO study 
demonstrated that the labor laws on the books in Central 
America and the Dominican Republic are in line with the ILO 
core labor standards. However, let us be clear: The enforcement 
of labor laws in the region needs more attention and resources. 
The Central Americans and the Dominicans themselves acknowledge 
this. They, with the assistance of the Inter-American 
Development Bank, produced this white paper on the labor 
situation in their countries. It is a very candid, thorough, 
analysis of the labor situation in these countries. What it 
points out is that the most important issue to be addressed is 
the one of enforcement.
    Within the DR-CAFTA we have a three-pronged strategy for 
dealing with this issue. First, the agreement requires that 
countries not fail to effectively enforce their labor laws. As 
the New York Times said in an editorial on November 24 of last 
year, ``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.'' Let me add, the use of those fines is subject to the 
agreement of the United States. The second part of our strategy 
is that the countries have already taken numerous concrete 
steps to improve labor law enforcement, even during the 
negotiations increasing labor inspectors, appointing special 
labor prosecutors, and making a number of other changes in 
their practices. Finally, we see the need to provide assistance 
to these countries to build the capacity to enforce their laws 
more effectively and to strengthen their enforcement 
infrastructure and institutions. The Department of Labor has 
committed $7.7 million to a multiyear effort. The Congress has 
appropriated $20 million for us to support capacity building in 
these countries in labor and the environment. The United States 
Agency for International Development (USAID) has obligated $2 
million to launch a project on continuous improvement in the 
Central American workplace. There are other programs conducted 
by other agencies of the U.S. government and by the ILO.
    Quickly on the environment, environment also breaks new 
ground. We have included several innovations in this agreement. 
Working with Senator Baucus, for example, we have developed a 
new public submissions mechanism that will allow the interested 
public in these countries, including Non-Governmental 
Organizations (NGO), to put forward, to challenge, a party's 
failure to enforce their environmental laws. This innovation 
has been recognized by environmentalists in Central America. 
Ten Central American environmental NGOs sent a letter to former 
Trade Representative Zoellick indicating their strong support 
for this agreement and particularly this public submission 
process that I mentioned. As with labor, there is a strong 
component of capacity building and also a strong component of 
cooperation in the form of an environmental cooperation 
agreement.
    Mr. Chairman, the last 20 years has been a very difficult 
road to democracy for these countries, but today we have 
neighbors in Central America and the Dominican Republic who 
want to trade goods, not guns, across their border; who want to 
replace chaos with commerce. They want to use the DR-CAFTA as 
an important tool of reform; to help deepen and strengthen 
their democracies. Working closely with the Congress, we have 
negotiated a landmark FTA. We believe that the DR-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 that the Congress will agree that America should not turn 
its back on these struggling democracies that want a closer 
economic relationship with us, that will benefit our citizens 
and their citizens. The DR-CAFTA makes imminent sense for 
America, for Central America, and for the Dominican Republic. 
Thank you very much, Mr. Chairman.
    [The prepared statement of Ambassador Allgeier follows:]

    Statement of The Honorable Peter F. Allgeier, Acting U.S. Trade 
        Representative, Office of the U.S. Trade Representative

INTRODUCTION
    Chairman Thomas, Congressman Rangel, 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 I have stated before in this room on several occasions, 
the Office of the U.S. Trade Representative greatly appreciates the 
hard work of this Committee, and I commend in particular Chairman 
Thomas and Congressman Rangel for their leadership on trade matters.
    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, myself, and our chief 
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 Americancountries 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 Z 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 on the Committee 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.

                                 

    Chairman THOMAS. Thank you, Mr. Ambassador. The Chair's 
time will be utilized by the gentleman from Florida, the 
chairman of the Subcommittee on Trade.
    Mr. SHAW. Thank you, Mr. Chairman. I would like to go back 
and just review the latter part of your testimony with regard 
to the environment provisions and with regard also to the labor 
provisions. As I understand your testimony, you said that these 
and the requirement for the enforcement of these provisions is 
the strongest that we have had in any other FTAs. Is that a 
correct statement?
    Ambassador ALLGEIER. That is an accurate statement.
    Mr. SHAW. So, if someone had voted for the prior 
agreements, it wouldn't make any logical sense for them to vote 
against this agreement on that basis; is that correct?
    Ambassador ALLGEIER. It would be very mystifying if that 
were to happen.
    Mr. SHAW. One other area that I want to get into with you 
is with regard to the sugar industry and the lobbying that they 
are waging against this particular bill. They have been picked 
out of this agreement, I believe, for special treatment. Is 
there any other commodity that is receiving special treatment 
under this agreement?
    Ambassador ALLGEIER. There is no commodity in this 
agreement, or, for that matter, any other FTA that we have 
negotiated that has the treatment that sugar has in this 
agreement.
    Mr. SHAW. Would you outline that briefly to us, please, 
sir?
    Ambassador ALLGEIER. Yes, I would be happy to. First of 
all, there is a very small amount of sugar that would be 
permitted to enter the United States under this agreement. It 
is less than 110,000 metric tons. Just to put that in 
perspective, that would be equivalent to 1\1/2\ teaspoons a 
week for each American. We Americans have quite a sweet tooth. 
We tend to consume between 70 and 140 teaspoons a week of 
additional sugar.
    Mr. SHAW. If this package is a teaspoon, and I can tell you 
I believe it is, it would be 1\1/2\ packets of sugar per week 
we are talking about.
    Ambassador ALLGEIER. Yes.
    Mr. SHAW. Proceed. I am sorry.
    Ambassador ALLGEIER. That is first. It is a very small 
amount. I have a chart here that shows how much additional 
sugar would be provided. I am sure you can't see it, and that 
is the point; that it is such a small amount, that you can't 
see it. I can barely see it from here. We will be happy to 
circulate that to the Membership.
    [The information was not received at the time of printing:]
    Second, as you know, we have a quota on sugar. We have not 
changed the tariff, which is over 100 percent, 1 percentage 
point. We haven't changed it at all. The tariff that exists on 
sugar coming into the United States above the quota, that is 
the second element. The third element is the country has to be 
a net exporter of sugar to the world, other than the United 
States, for it to be able to send us additional sugar to the 
United States. Then, fourth, is the special compensation that 
you were talking about, the special compensation mechanism. 
What that is, it is an entirely unilateral provision which 
allows the United States at any point, with whatever criteria 
we want, to say no, we are not going to be able to let you send 
the sugar to us this year; we will provide you with some other 
form of compensation, which is also in our sole discretion to 
determine how we would do that compensation. So, that is the 
package for sugar. As I said, it is unique in this agreement, 
and it is unique in any other agreement that I am aware of.
    Mr. SHAW. Briefly, I want to get into the question of 
Chinese investment in that part of the world. We have heard 
quite a bit about this at a previous hearing on China. The 
question is, what is their impact in that area of the world, 
into Central America? Where will, if we do not have an FTA with 
Central America, particularly with textiles, cotton, and other 
kinds of products that go into cut and sew shops, where will 
those goods come from if they don't come from the United States 
because of a lack of an FTA?
    Ambassador ALLGEIER. Well, they will have to determine 
where they obtain these inputs, but very likely, most likely, 
they will come from Asia. They certainly won't continue to come 
from the United States.
    Mr. SHAW. So, you think our textile industry will probably 
profit considerably from this agreement; is that correct?
    Ambassador ALLGEIER. Actually, we think this agreement is 
an essential part of a strategy of maintaining competitiveness, 
both for our industry, and for industries in Central America.
    Mr. SHAW. I want to congratulate you for your part in 
developing this, which is a very fair agreement; an agreement 
which will certainly strengthen our economy as well as 
strengthen the democracies and the economies in Central 
America. I yield back, Mr. Chairman.
    Ambassador ALLGEIER. Thank you.
    Chairman THOMAS. The Chair recognizes the gentleman from 
New York.
    Mr. RANGEL. Thank you. Ambassador, in today's Daily Reports 
for Executives, Thursday, April 21, 2005, there is a report of 
a meeting that took place with the House Committee on Ways and 
Means, Chairman Bill Thomas, Republican from California, and he 
made remarks at a closed-door meeting with Ambassador Zoellick, 
business leaders, majority whip Roy Blunt, Subcommittee on 
Trade Chairman, E. Clay Shaw, Kevin Brady, Republicans of 
Texas, and others. Were you at that meeting, that closed-door 
meeting?
    Ambassador ALLGEIER. No, I wasn't.
    Mr. RANGEL. Have you attended other closed-door meetings 
with the Republicans?
    Ambassador ALLGEIER. No.
    Mr. RANGEL. To the best of your knowledge, did Ambassador 
Zoellick attend meetings, closed-door meetings, with the 
Republicans?
    Ambassador ALLGEIER. I don't know Deputy Secretary 
Zoellick's schedule. I am not aware of it, whether he did or 
not.
    Mr. RANGEL. Did the number of votes that this bill would 
get or not get, was that ever discussed in your presence? It is 
quoted here the Chairman said he intended--it is predicted the 
pact would pass the vote by a one or three vote margin. Have 
voting paterns ever been discussed in front of you or with you?
    Ambassador ALLGEIER. We discuss it within USTR, but I have 
not been in a meeting with a Member of Congress.
    Mr. RANGEL. In the meetings that you have had in USTR, have 
you discussed whether they were Republican votes or Democratic 
votes?
    Ambassador ALLGEIER. Well, we are a two-party system. It is 
quite natural to talk about Republican votes and Democrat 
votes.
    Mr. RANGEL. During the course of these discussions, did 
anyone say how they might try to get Democratic votes in order 
to make it a bipartisan pact?
    Ambassador ALLGEIER. Yes, we have always talked about the 
attributes of this agreement, the positive characteristics of 
it, how it is overwhelmingly in the interests of the United 
States.
    Mr. RANGEL. I know. My question, Ambassador, was, did you 
have any plan or strategy to talk in closed-door meetings with 
Democrats in order to get those votes?
    Ambassador ALLGEIER. Yes. In fact, I have made a number of 
calls on Democrats, including Mr. Cardin, in recent weeks to 
talk about the advantages to the United States and to these 
countries of the DR-CAFTA.
    Mr. RANGEL. This goes on further to say, ``Mr. Thomas 
expressed confidence that the House could pass the pact before 
Memorial Day. `Every time we have gone forward, we have never 
failed on a trade vote,' Thomas allegedly said. He indicated 
that he expected Members to offer amendments during the markup 
of the pact, but he had a hunch that they would not pass.'' I 
assume that is the markup that he has now offered the Committee 
Democrats an opportunity to participate in, but, as relates to 
these very strong enforcement provisions in DR-CAFTA, I have 
been advised that the stronger version says that the country is 
mandated to enforce its own laws. Is that true?
    Ambassador ALLGEIER. Yes, that is an obligation within the 
DR-CAFTA agreement.
    Mr. RANGEL. To enforce its own laws.
    Ambassador ALLGEIER. Yes.
    Mr. RANGEL. Well, would it mystify you if the country did 
not have laws to enforce? What would happen then? You would 
encourage them to enact laws, wouldn't you?
    Ambassador ALLGEIER. Well, first of all, what I want to 
point out is that the ILO, which is the international 
institution responsible for labor issues, has done a very 
thorough study of the labor situation, including the laws in 
these countries.
    Mr. RANGEL. Are the ILO provisions included in the pact 
that would be presented to us?
    Ambassador ALLGEIER. What the ILO found is that----
    Mr. RANGEL. Ambassador, I am trying to make this--I am 
talking about within the pact. The ILO study is not in the 
pact. I am asking you if the nation we are talking about has no 
laws to enforce, what is so strong about the labor provisions?
    Ambassador ALLGEIER. Well, the point is that these 
countries do have laws and that the ILO, which is the best 
qualified institution for judging it, has concluded that these 
laws are in line with the core provisions of the ILO.
    Mr. RANGEL. On the ILO basic minimum labor standards 
included in the pact that will be presented to this Committee 
and the Congress? Are they included?
    Ambassador ALLGEIER. They are included in the laws of these 
countries, which the ILO has determined----
    Mr. RANGEL. Ambassador, I am asking a basic question. I 
will just try again, and your answer will be very important to 
me. That is, are the ILO provisions that you refer to, are they 
included in the pact that will be presented to the House of 
Representatives?
    Ambassador ALLGEIER. These countries with one exception, 
have ratified all of the conventions, the eight conventions for 
the basic core labor standards, and therefore, it is part of 
their law. To that degree, it is in the agreement, because all 
of those substantive provisions, are in their domestic law.
    Mr. RANGEL. That you stated.
    Chairman THOMAS. The gentleman's time has expired. The 
Chair recognizes the gentlewoman from Connecticut.
    Mrs. JOHNSON. I just want to clarify that last point. My 
understanding is that no labor agreement ever included the 
specifics. They just looked at the country's law and 
enforcement capacity. Is that correct?
    Ambassador ALLGEIER. That is correct. That is what we have 
in other agreements, and we have gone well beyond those other 
agreements in the total package that we provide here to improve 
the labor standards and the conditions of work in these 
countries.
    Mrs. JOHNSON. Particularly to improve their enforcement?
    Ambassador ALLGEIER. Absolutely. That is what the ILO found 
as the area, if we want to make a change, a real contribution 
on the ground in the lives of working people in these 
countries, that is where the ILO suggested that we put our 
effort.
    Mrs. JOHNSON. We had a bipartisan meeting a couple of weeks 
ago with the leadership of these countries. They mentioned they 
have already hired more inspectors and begun to beef up their 
own infrastructure enforcement; is that correct?
    Ambassador ALLGEIER. Yes, that is correct. All of the 
countries have taken various steps to improve the enforcement 
in their countries, even before the agreement goes into effect.
    Mrs. JOHNSON. Then in your testimony, toward the end, you 
say it contains a focused, results-oriented strategy. To my 
knowledge, we have never had a really results-oriented strategy 
in other trade agreements. I would like you to enlarge on that 
a little bit and how that results-oriented strategy is stronger 
in this agreement than in others. One passage in which you 
referred to--it is in the environmental passage, where you say, 
``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 
ability to do that has improved our own environmental law quite 
considerably, and that looks to me like one of the things you 
are referring to. Would you enlarge on that and any other 
provisions you would care to?
    Ambassador ALLGEIER. Yes, thank you very much. Let me just 
say one thing about the labor and the environmental provisions. 
One thing that we will not hear at this hearing is the 
following: No one is going to say why didn't you do in this 
agreement what the Canadians did for labor and environment in 
their agreement with country X or country Y? And you will not 
hear, well, why didn't we do in this agreement what the 
Europeans did for labor and environment in their agreement with 
country X or Y? The reason we will not hear that is because 
this agreement has the most advanced, the most results-
oriented--it is internationally supported by the ILO, the 
support we have gotten from the Inter-American Development 
Bank--provisions and treatment for labor and the environment, 
of any agreement that anybody has negotiated.
    Mrs. JOHNSON. Congratulations. That is really impressive.
    Ambassador ALLGEIER. Let me just say why, briefly.
    Mrs. JOHNSON. I want you to say why, but I want to get that 
congratulations in there, because that is such a big point. We 
have led the world and we are implementing new ways of 
enforcement that are still leading the world.
    Ambassador ALLGEIER. Thank you. Just to summarize quickly, 
the package that we have done here that is different than any 
other agreement, and that is, first of all, it starts with the 
analysis that the countries themselves have done. I think many 
of you met with their labor and trade ministers when they were 
here, and you take that and the analysis that the ILO has done 
and you are able to put together a package. We have been able 
to put together a package that will make a difference in 
peoples' lives. So, for example, in the agreement which is not 
in any of our other agreements, there are procedural guarantees 
for people in these countries as they seek to ensure that they 
have effective rights in their own country when they approach 
tribunals dealing with alleged labor infractions. There is a 
whole list within this agreement of the procedural protections 
that we would normally take for granted in the United States in 
such a circumstance. Now, this is embedded in this agreement 
for them. Those are things such as open access to these 
tribunals, certain procedural guarantees that there will not be 
excessive fees or delays in hearing the challenges, that they 
will get a response in writing and that they will have a right 
to appeal the judgment of these tribunals. That is why the New 
York Times said that this agreement goes beyond any other 
agreement that we have had in this area.
    Mrs. JOHNSON. Impressive. Thank you very much Mr. Chairman.
    Chairman THOMAS. The gentlewoman's time has expired. The 
gentleman from California, Mr. Stark, wish to inquire.
    Mr. STARK. Thank you, Mr. Chairman, yes I do. Mr. 
Ambassador, you are familiar, I am sure, with the test data 
provisions of the intellectual property section of this bill, 
and I am not sure that my colleagues are, but basically, we 
have had for many years--we have provided in trade agreements--
the ability for countries who may have an epidemic or a health 
crisis, the Acquired Immunodeficiency Syndrome (AIDS) crisis, 
for instance, in Guatemala or in African countries, a way for 
them to declare an emergency and get a license to produce a 
drug without the restrictions of American patents. In this 
agreement, I know that the Pharmaceutical Research and 
Manufacturers of America (PHARMA) has objected to that and the 
Administration generally does anything that PHARMA wants. In 
March of this year, Guatemala was forced to repeal a law to 
limit the protection of test data, and it has the highest 
incidence of Human Immunodeficiency Virus (HIV)/AIDS in Central 
America. So, if a country had a flu epidemic from some of these 
new strange flu things or something else, and they needed a 
drug, this limitation on test data would prohibit the Central 
American country or the Dominican Republic from getting low-
cost drugs to their populace in an emergency. Why do we have to 
do this? Should that not be dropped from the agreement as a 
humanitarian issue?
    Ambassador ALLGEIER. Okay. First of all, then, let's start 
with TPA.
    Mr. STARK. No, let's just answer the question.
    Ambassador ALLGEIER. That is the context in which we 
negotiate, and I just wanted to----
    Mr. STARK. I just wanted to know about why it is that you 
have to give extra patent protection, in effect, to the 
pharmaceutical industry for these Central American countries 
who are the poorest of many. I know we tried it in Australia, 
and that got knocked out. Why can we not remove this test data 
issue and allow that? What is wrong with doing that?
    Ambassador ALLGEIER. Number one, it would be in 
contradiction with the TPA guidance that we receive. Trade 
Promotion Authority struck a very wise balance between 
protecting intellectual property and allowing other----
    Mr. STARK. We do not do it in other trade agreements. Why 
in this?
    Ambassador ALLGEIER. Pardon me?
    Mr. STARK. Why in this? Under Doha, there was a declaration 
in the WTO rules that there should not be in. Why is it in this 
one?
    Ambassador ALLGEIER. Well, it is not accurate to say that 
the WTO ruled. We were a part--we were a leading part of 
negotiating that declaration in the WTO in Doha in November of 
2001. We also were a leader in putting together a subsequent 
declaration by the WTO aimed at exactly this point, which is to 
ensure that countries have the opportunity to have access to 
medicine at prices that they can afford.
    Mr. STARK. With this test data protection, they cannot. Why 
can't you take it out?
    Ambassador ALLGEIER. In our negotiations we have already 
indicated in the agreement, in a side letter, that nothing in 
this agreement, nothing in this agreement, including the data 
protection procedures, will prevent a country from meeting.
    Mr. STARK. Okay. In a side letter that has no force and 
effect at all. Why can't it be in the agreement? If you are 
telling me that it would have the force and effect of law, 
besides which TPA says nothing about test data. That is beside 
the point. Why can't it be in the agreement?
    Ambassador ALLGEIER. The agreement itself indicates the 
obligations. Sometimes it is useful to have a clarification, 
so, if there is ever a dispute in the future, you know what the 
intent of the negotiators was at the time. That is the purpose 
of side letters.
    Mr. STARK. The intent is to fulfill the--assistant trade 
rep for pharmaceuticals, the only U.S. trade rep. We do not 
have one for movies. We do not have one for the recording 
industry. We do not have one for software. We have a special 
assistant U.S. trade rep for pharmaceuticals. How do you 
suppose that got in there? From PHARMA maybe? Come on. If you 
are just dancing to the piper of the pharmaceutical industry, 
be man enough to admit it. What the heck? If you want to harm a 
lot of poor people in Central America by denying them drugs in 
an emergency, you are doing a hell of a good job and you ought 
to be proud of yourself.
    Ambassador ALLGEIER. Nothing in this agreement prevents a 
country from meeting the----
    Mr. STARK. Baloney.
    Chairman THOMAS. The gentleman's time has expired. The 
gentleman from California, Mr. Herger, wish to inquire?
    Mrs. HERGER. Thank you, Mr. Chairman. Mr. Ambassador, I 
want to thank you for being here today on this incredibly 
important issue to American trade and particularly for the area 
I represent. I represent one of the richest agricultural 
districts in the Nation, growing a major percentage of our 
Nation's almonds, dried plums, rice, walnuts, pistachios, just 
to mention a few of the specialty crops. So, when I look at a 
pending trade agreement, I pay very close attention to how the 
agreement treats American agriculture.
    The agriculture producers in the northern California 
district I represent depend on foreign markets. We cannot eat 
all the commodities that we grow. More than 60 percent of 
California's almonds are exported. About half of our dried 
plums are exported. Just under half of our rice is exported. 
When I travel around my district and meet with farmers, I 
consistently hear the refrain that trade must be a two-way 
street. I support this agreement because I believe it takes the 
current situation where our markets are open to other countries 
and yet Central American markets are basically less open to our 
commodities, and it turns the relationship into a two-way 
street. The average Central American and Dominican Republic 
tariff on agriculture ranges from 35 to 60 percent. By 
contrast, 99 percent of all U.S. imports from DR-CAFTA 
countries enter the United States duty free. This, Mr. 
Ambassador, is a one-way Street.
    This agreement is the best chance to open markets for our 
agriculture producers and make our trade relationship for the 
first time a two-way street. Take rice for example, I represent 
one of the largest rice-producing districts in the Nation. 
Today, U.S. rice exports face DR-CAFTA duties of up to 60 
percent. This agreement would bring down these duties over time 
and would allow for 400,000 metric tons of U.S. rice 
immediately. This is why the U.S. Rice Federation and U.S. Rice 
Producers Association are publicly supporting this agreement. 
The same is true for our California almonds, another large 
commodity in my district. Current duties can reach 20 percent 
in DR-CAFTA countries. Under the agreement, California almond, 
walnut, and pistachio producers benefit from immediate duty-
free access from all DR-CAFTA countries. This is why Blue 
Diamond Growers is publicly supporting this agreement. I could 
go on and on how this agreement is a win-win for U.S. 
agriculture. So my message is this: We should not allow the 
very tiny minority of U.S. agriculture that believes it will be 
negatively impacted to derail this agreement that is so 
crucially important to so many. Ambassador, I would appreciate 
any thoughts you might have on this point.
    Ambassador ALLGEIER. Thank you very much, Congressman. I 
think the point that you were making about the great disparity 
in the tariff treatment between our agricultural products going 
into Central America and their products here is really the 
central point of the agricultural side of this. You referred to 
rice, and you said that tariffs are as high as 60 percent for 
American rice going into this market. Well, that is the applied 
rates. Under the WTO, some of these countries would have the 
right to raise their rice tariffs to 90 percent. If you look at 
other products--and of course, we allow their rice to come in 
zero duty. If you look at other products, it is a very similar 
sort of thing. In soybeans and soy products, they have WTO 
rights that would allow to them charge up to 90 percent on our 
soybeans and soy products. We allow their products in at zero. 
If you look at vegetables, it is as high as 60 percent. We 
allow theirs in for zero. I could go on, as I am sure you 
could, and that is the reason that 60 agricultural 
organizations in the United States strongly support this 
agreement.
    Mrs. HERGER. Ambassador, again, I thank you. Mr. Chairman, 
this agreement, again, should be bipartisan. We should have 
basically 100 percent support on this. This is a win-win for 
almost everyone in our Nation, and we should not allow a small 
group, a small minority to somehow be successful in throwing a 
monkey wrench into an agreement that is so crucially important 
to our economy and our Nation and so many of our citizens. 
Thank you.
    Chairman THOMAS. The gentleman's time has expired. The 
gentleman from Michigan, Mr. Levin, wish to inquire.
    Mr. LEVIN. Welcome, Mr. Allgeier. First, I want to put the 
issues here in perspective quickly. It is not whether there 
should be expanded trade. We here on this Committee on our side 
have a pretty clear record in most cases, if not all. The issue 
is not whether there should be a DR-CAFTA. The question is, is 
this one shaped appropriately? The issue is not protectionism 
versus free trade. Indeed, the basic argument here is among 
those who have very, very actively supported expanded trade. 
The basic issue is whether DR-CAFTA is negotiated. It is shaped 
so that the benefits will be widely shared or whether the 
notion is that that sharing, that spreading of the benefits 
will happen kind of automatically. That is especially critical 
as to Central America because in most countries the absence of 
a strong vibrant middle class and a major narrow distribution 
of income. In this agreement, there is a double standard. Only 
when it comes to labor and the environment is the standard, 
enforce your own laws. I do not think you can point to any 
other area whether it is intellectual property, whether it is 
investment, whatever it is, whether it is subsidies, whether it 
is tariff rates. We do not just say, enforce your own laws. So, 
there is a double standard here. You mention Morocco, Chile. 
There is agreement that their laws embodied the basic ILO 
standards. I will not argue with you now about Jordan, but you 
mischaracterize it. On November 6 of 2003, we wrote you a 
letter saying that you, USTR were mischaracterizing the ILO 
report. That was November 6 of 2003. We never got an answer 
from you. We spelled out how in 20 of the 24 cases, as I 
remember it, the ILO report indicated major flaws. You never 
answered it. We wrote you again on October 4 of this year. 
Yesterday, last night, we get a letter from you. So, you have 
not responded to how you mischaracterize the ILO report. Look, 
the core labor standards issue involves this basic issue of how 
benefits will be spread and whether they will be or we should 
not worry about that. Are you aware of the 2000--I think it was 
2001 authorization to the Department of Labor for a study of 
internationally recognized worker rights? Are you aware of 
that?
    Ambassador ALLGEIER. I believe that you are talking about a 
study that was commissioned to the--let me get the name of this 
organization.
    Mr. LEVIN. You are right. Do not take up my time. That is 
the study.
    Chairman THOMAS. The Chair will protect the gentleman's 
time. The organization that the Ambassador was looking to cite 
is what? The study was commissioned by which organization?
    Ambassador ALLGEIER. By the Department of Labor, the one 
that Congressman Levin is talking about I believe.
    Mr. LEVIN. The International Labor Rights Fund (ILRF), is 
that correct? We wrote a letter on May 26, 2004 asking to 
receive copies of those reports under the Freedom of 
Information Act (FOIA) (5 U.S.C. 552). It is May 26 of 2004. We 
wrote saying--several weeks ago, I wrote to--this is to the 
secretary, requesting the documents described below, and we 
have been in touch with you. We never heard back. Then, on 
August 3, we wrote the letter, I guess we then heard at some 
point a denial, and then you said--she said that the reports 
are not final and are being reviewed. We then, on October 27, 
filed an appeal of that decision. When the secretary was here 
some weeks ago, we asked her about a response to that appeal. 
She said she would give us that response soon. We have never 
heard, and I just--you know of this report, right?
    Ambassador ALLGEIER. I have been made aware of it. I have 
not seen it, but I am aware of it.
    Mr. LEVIN. Have you asked for a copy of this?
    Ambassador ALLGEIER. Yes, but I just got back from Geneva 
last night.
    Mr. LEVIN. How old is the report?
    Ambassador ALLGEIER. I do not know.
    Mr. LEVIN. It is a year and a half, 2 years old. I just 
want you to know, and you can transmit this to the secretary, 
that I am going to file a privileged resolution demanding that 
those reports on labor standards in Central American countries 
be made available to this Congress. I would appreciate your 
conveying that, and I would hope that there would be a 
response, an appropriate response to our FOIA request. Will you 
convey that to her?
    Ambassador ALLGEIER. I will be happy to convey it.
    Mr. LEVIN. Will you read the reports?
    Ambassador ALLGEIER. Yes, I will.
    Chairman THOMAS. The gentleman's time has expired.
    Ambassador ALLGEIER. Mr. Chairman, may I just make one 
point?
    Chairman THOMAS. One brief point.
    Ambassador ALLGEIER. Okay. The letter that was written by 
you and two other Members to Ambassador Zoellick in November of 
2003 was answered in November of 2003. If you do not have a 
copy, I will be happy to provide it. The copy of the letter 
that I sent last night was held because I was in Geneva, and I 
wanted to be sure to review it before sending it to you.
    Chairman THOMAS. The Chair recognizes the gentleman from 
Louisiana, Mr. McCrery.
    Mr. MCCRERY. Thank you, Mr. Chairman. Mr. Allgeier, you 
commented earlier that we will not hear at this hearing, ``why 
don't you do what Canada did,'' or ``why don't you do what some 
European country did in their bilateral trade agreement?`` 
Expound on that a little bit. Why won't we hear that? Not 
because ours is the best, the furthest that anybody has ever 
gone, but don't those countries insist as a condition of 
entering into the trade agreement that the other country change 
their domestic laws or anything like that?
    Ambassador ALLGEIER. No, sir. They do not insist.
    Mr. MCCRERY. They do not?
    Ambassador ALLGEIER. No.
    Mr. MCCRERY. Why not?
    Ambassador ALLGEIER. Well, you would have to ask them. They 
are the ones who are stating the objectives for their 
negotiations.
    Mr. MCCRERY. Well, doesn't it strike you as being--the 
reason is apparent. If nobody does that, if no major industrial 
nations entering into trade agreements as a part of their trade 
agreement insist that the trading partner change their domestic 
laws, then what is the obvious reason for that if nobody does 
it?
    Ambassador ALLGEIER. Well, the obvious reason--there may be 
several reasons for it. That is because people do not think 
that that is really where the focus needs to be. The focus 
needs to be on making improvements in people's lives, and 
frankly, whether one is incorporating certain particular 
wording in an agreement or not may not be as important as what 
sort of changes people are making through cooperation and 
through other mechanisms that are incorporated in the trade 
agreement
    Chairman THOMAS. Will the gentleman yield briefly?
    Mr. MCCRERY. Sure.
    Chairman THOMAS. Might it not be another reason that, if 
you really wanted to enter into a trade agreement, a bilateral 
agreement or a regional agreement, your chances of concluding 
it with particular countries diminishes significantly if you 
require as part of the agreement that they change their 
domestic law in any number of areas to suit you, so that, in 
fact, they have to allow you to dictate the way in which their 
country operates? What would be the chances of concluding 
successful agreements with those preconditions?
    Ambassador ALLGEIER. Well, that is, of course, part of the 
negotiating process, and it is--countries do not want to make 
those sorts of changes that are being suggested.
    Mr. MCCRERY. Isn't that a fact?
    Chairman THOMAS. Thank the gentleman for yielding.
    Mr. MCCRERY. I thank the Chairman for citing the obvious. 
Countries----
    Chairman THOMAS. The Chair always tries to please.
    Ambassador ALLGEIER. We would not be willing to make those 
sorts of changes in our laws.
    Mr. MCCRERY. Exactly. Countries would resist any dictate, 
mandate as a condition of entering into a trade agreement, 
particularly if they are the ones dropping their trade 
barriers. They would certainly resist, if not down right walk 
out of the room if you said, ``well, we are not going to enter 
into this trade agreement unless you change your laws to suit 
us.'' Isn't that a fact?
    Ambassador ALLGEIER. Yes, and their reciprocal agreements--
we would have to make changes in our laws.
    Mr. MCCRERY. That is why there is no country that does that 
because the object of trade agreements is trade. So, I hope 
that we can all get together and congratulate you and the 
USTR's office for, in fact, going further than anybody has ever 
gone in getting these countries to accept responsibilities 
outside of the trade arena as you have done. Now, just--I would 
like for you to expound a little bit on Central America and 
China. Is China presently trying to make inroads into Central 
America in terms of their markets?
    Ambassador ALLGEIER. Certainly China is active in that 
area. They certainly look to make inroads into that market.
    Mr. MCCRERY. Will this agreement help us to compete with 
China in those markets?
    Ambassador ALLGEIER. Absolutely, because what it does is it 
gives us a permanent duty-free preference into those markets; 
whereas China will have to pay the normal Most Favored Nation 
tariff into those markets.
    Mr. MCCRERY. So, if people are concerned about our 
competitive position with China, this is a step in the 
direction of making us, maybe giving us an edge in that 
competition, at least in this particular region of the world.
    Ambassador ALLGEIER. Absolutely. It is much more than 
tariffs. All the other rules that are in this agreement are 
rules that American producers and exporters are familiar with. 
So, knowing what the rules are, being able to abide by rules, 
whether they are product standards or regulatory rules on 
telecommunications, gives our people an advantage. They are 
already used to these rules in other FTAs we have with 
Singapore, with Morocco and so forth. This is particularly 
important for small businesses who cannot, do not, have the 
resources to learn a whole new set of rules with every market 
that they try to penetrate.
    Mr. MCCRERY. Thank you, Mr. Allgeier. Thank you, Mr. 
Chairman
    Chairman THOMAS. Thank the gentleman. The gentleman from 
Maryland, the Ranking Member on the Subcommittee on Trade, wish 
to inquire?
    Mr. CARDIN. I do, Mr. Chairman. Thank you very much. Mr. 
Ambassador. Both of us favor expanding trade opportunity, but I 
think we have a fundamental difference here as to how we should 
do that. This agreement will require the Central American 
countries to change many of their laws despite Mr. McCrery's 
comments about interfering with domestic law. The issue I want 
to really harp on or center on is a letter that you wrote back 
to Mr. Levin yesterday talking about the CBI rights that we 
currently have with the Central American countries where they 
have acknowledged their obligations to move toward 
international labor standards, and we have the ability to 
impose trade sanctions if they are not making progress. You 
state that DR-CAFTA is likely to be more effective than blunt 
instruments of withdrawing preference program benefits. That 
line, and I think about that for a moment, and I think about 
how we act and how other countries act. I do not know why we 
are the only country in the world that does not think we should 
play tough when it comes to enforcing trade laws.
    I give you many examples. This Congress changed our Tax 
Code, not because we thought it was the right thing to do. We 
did it because trade sanctions were imposed against us by the 
WTO. Now you are saying that we should not use trade sanctions 
to enforce rights that are important for American interests? 
How can you claim that it will be more effective to use the 
mechanisms of DR-CAFTA rather than having in your quill, having 
the ability to use effective mechanisms to get the attention of 
other countries? It is politically difficult for us to change 
our Tax Code. I disagree with the international community on 
that. We do it because of trade sanctions. It is going to be 
very difficult for the Central American countries to continue 
to make workers' progress. The commercial interests down there, 
the societal interests, work against workers, and we have got 
to be tough. So, I just do not understand why we want to be so 
timid, why you do not want to have more opportunities to make 
sure that these countries do the right thing with workers' 
rights. Can you explain that to me?
    Ambassador ALLGEIER. Yes. First of all, we are focused on 
making progress in these countries rather than making a point. 
We want to change the circumstances of workers in these 
countries to their benefit.
    Mr. CARDIN. Did we make progress under CBI?
    Ambassador ALLGEIER. Not as much progress as we would like.
    Mr. CARDIN. Did you impose sanctions against them?
    Ambassador ALLGEIER. I do not believe that there were 
sanctions that were imposed.
    Mr. CARDIN. Why didn't you? If you did not make the 
progress that you thought we were going to make, why didn't you 
use the rights that you had under the agreement?
    Ambassador ALLGEIER. Well, we used the agreement to extract 
some improvement in the situation there across the range of 
criteria of the CBI. One of the things is to see whether--you 
will not want to hurt U.S. interests. One of the problems with 
sanctions, it sounds like it is a very easy thing to do, but 
typically----
    Mr. CARDIN. Did Europe hurt European interests when they 
went to the WTO to have sanctions imposed against the United 
States for our tax structure?
    Ambassador ALLGEIER. Yes.
    Mr. CARDIN. They did not win on their FSC (Foreign Sales 
Corporation) changes. Won't that help European countries?
    Ambassador ALLGEIER. I do not know how much it will help 
European interests, but I can say that there were a number of 
European economic interests that did not appreciate the fact 
that the Commission imposed those sanctions on us.
    Mr. CARDIN. I did not hear from them, did not get a single 
letter.
    Ambassador ALLGEIER. Well, they would have sent it to the 
European Commission because that was the one who was making the 
decision about whether to impose the sanctions. With respect to 
labor in Central America, the question there is, what is going 
to be most effective in changing the situation? And we think 
that working with the ILO, working with the Inter-American 
Development Bank, working with countries--they want to have 
their workers have a better situation. They are not----
    Mr. CARDIN. We could have helped them if you would have had 
stronger ability in this agreement to make sure that they carry 
out what they want to do because of the political opposition 
within their own countries. They told us that. Yet, we did not 
negotiate to get the strength to be able to bring about those 
changes in a more constructive way in Central America.
    Ambassador ALLGEIER. I think the question is not what our 
objective is. We both share the objective of wanting to improve 
the labor standards and the labor rights of people in Central 
America and the Dominican Republic. We, obviously, have a 
difference on what would be the most effective way to do it. 
All I can say is that our judgment at this point is, 
particularly with the support of these other institutions, such 
as the ILO and the Inter-American Development Bank, that this 
is the best way to get the results that we both look for.
    Mr. CARDIN. Thank you, Mr. Chairman.
    Chairman THOMAS. I thank the gentleman. The gentleman's 
inquiry reminded the Chair that the gentleman has just returned 
from the Senate. The Committee would be willing, I hope, by 
unanimous consent, to allow the gentleman from Maryland one 
minute to give us his impression of how the Senate hearing on 
our colleague, Mr. Portman, is going.
    Mr. CARDIN. Thank you, Mr. Chairman. If the Senate hearing 
is any indication of how Rob Portman is proceeding, he should 
be confirmed by the end of the day. I know it will not be quite 
that easy, but it was strong support on both sides of the aisle 
for our colleague, and we all wish him well. My purpose for 
being there is to show that we are anxious get his confirmation 
process completed and get him confirmed by the U.S. Senate, and 
I think that is going to happen sooner rather than later.
    Chairman THOMAS. Thank the gentleman. The Chair's head 
swims that the Senate would actually accomplish anything in one 
day. The Chairman recognizes the gentleman from Michigan.
    Mr. CAMP. Thank you, Mr. Chairman. Mr. Ambassador, I 
obviously support the concept of duty-free access of American 
products to new markets and those trade opportunities that flow 
from that, and I have been a strong supporter of trade. Despite 
our trade agreements and promises of new markets, my concern is 
growing that these trade agreements are not adequately 
enforced. Years of non-tariff barriers for agricultural 
products in Mexico--some commodities I have worked on directly 
cannot get access to Asian markets for our auto parts and 
automobiles, cannot get China to stop dumping to counterfeit or 
to make the necessary currency changes. I know this agreement 
is heralded because of its import restrictions on certain 
commodities, particularly sugar. How can we be assured that 
these agreements will be enforced and that the import 
restrictions will actually be put into place?
    Ambassador ALLGEIER. We take very, very seriously the 
responsibility to enforce our trade agreements, whether they 
are in the WTO or bilateral agreements. That is why we have 
such strong provisions for dispute settlement in all of our 
agreements. Thanks to the Congress, a few years ago we got 
additional resources at USTR to focus specifically on 
enforcement. I can assure you that we are very vigilant. Now, 
in the case of Central America, some people have criticized us 
for actions that we have taken with respect to some of the 
members of this agreement who were changing their laws in 
contradiction to what they had signed in this agreement. That 
was simply an example of us being vigilant and conscientious in 
making sure that, if we make an agreement with someone, both 
they and we need to abide by it. I can assure you that that 
will remain our approach to the DR-CAFTA.
    Mr. CAMP. You contend often that this just adds a spoonful 
of sugar to the U.S. market, which ignores the fact that not 
everyone grows sugar, and the government's own ITC 
(International Trade Commission) report says that job losses in 
the sugar sector under DR-CAFTA will be 38 percent higher than 
the next highest sector. In Michigan, for example, that is $450 
million in economic impact to the State and 2000 jobs that 
potentially could be lost. My concern is, why is there not a 
more worldwide approach to this issue, given the economic 
impact that this agreement potentially has on particular 
sectors? In the same sense, the growth in those areas is so 
modest, because the economies are so small that we are getting 
access to, that this agreement really becomes a symbol for some 
of the flaws in our trade policies in terms of not enforcing, 
and then having really disparate impacts on particular sectors.
    Ambassador ALLGEIER. Well, just speaking about the 
agricultural sector, this agreement certainly levels the 
playing field for our agricultural exporters, and that is why 
so many of them, 60 of them, have indicated support for this 
agreement, including, of course, the American Soybean 
Association, the National Grain and Feed Association, the 
Oilseed Processors, all of whom I think are important for 
Michigan. Therefore, we see this agreement as actually setting 
a pattern of leveling the playingfield for our people and 
getting them the access that you and I both want them to have.
    Mr. CAMP. All right. Thank you, Mr. Chairman.
    Chairman THOMAS. Thank the gentleman. The gentleman from 
Washington, Mr. McDermott, wish to inquire?
    Mr. MCDERMOTT. Yes. Thank you, Mr. Chairman. Mr. Allgeier, 
the symmetry between the American textile industry and the 
Central American garment industry is very important--you would 
agree to that, I believe--especially if we want to continue to 
increase economic opportunities in Central America and retain 
textile jobs here. That is part of your goal.
    Ambassador ALLGEIER. Absolutely.
    Mr. MCDERMOTT. Well, the first slide that I have put up on 
the screen shows that the U.S. market is the number one 
destination of Central American products.
    [The information was not received at the time of printing.]
    They are very tightly tied to us at this point in time. The 
second slide clearly shows that more than half of Central 
American exports are apparel. That is what they are exporting 
to us. I suspect if we went around this room, everyone in this 
room is wearing a garment at some level made in Central 
America. The third slide shows that the importance of American 
products to Central America, we are the biggest source of 
imports for them by sending in our yarn and our fabric. 
Correct? Now, the fourth slide shows how important those 
American yarns and fabric and apparel are to Central America. 
This really, in my view, is a key point, because these Central 
American garments that we made, we wear, are largely made with 
American yarn and fabrics. That is by design. That is what CBI 
was designed to do. Isn't that correct?
    Ambassador ALLGEIER. Yes.
    Mr. MCDERMOTT. So, as I understand it, the apparel rules 
are generally the same that are found in other FTAs, many of 
which we have passed on a bipartisan basis. Is that true?
    Ambassador ALLGEIER. Yes. They are, generally speaking, the 
same, although we have some stronger enforcement elements in 
this agreement.
    Mr. MCDERMOTT. Okay. So, in what you trade technocrats call 
the yarn-forward rule, meaning that, in order for Central 
American apparel to qualify for the benefits under DR-CAFTA, 
that apparel must be made of yarn and fabric produced in the 
United States or Central America; is that correct?
    Ambassador ALLGEIER. That is correct.
    Mr. MCDERMOTT. I want to understand, and if I understand it 
correctly, that is the system we put in place, and it is 
actually working.
    Ambassador ALLGEIER. Yes.
    Mr. MCDERMOTT. To some benefit for Central America at the 
moment----
    Ambassador ALLGEIER. For both of us----
    Mr. MCDERMOTT. For our consumers?
    Ambassador ALLGEIER. Correct.
    Mr. MCDERMOTT. Now, this is my question. Would you assert 
that the yarn-forward rule enables American yarns and fabrics 
to continue to have a stable export market so DR-CAFTA could 
potentially be a win-win for Central America and the U.S?
    Ambassador ALLGEIER. That is the intention, and we have 
worked very hard with our industry and their industry to ensure 
that that remains the case.
    Mr. MCDERMOTT. Well, I would like to take you back in 
history a little bit to NAFTA (the North American Free Trade 
Agreement). NAFTA uses this same yarn-forward rule on Mexican 
apparel products. If you look at--in 2000, several years after 
NAFTA was in force, the American--the Mexican apparel industry 
had taken off, but we passed normal trade relations with China. 
One of the problems with looking at all these agreements is 
that we do one thing, and then we do another thing. You have 
got to see how they relate to one another. It is pretty 
interesting to see how China's share of the imports increased 
since we have had normal trading relations. That is a pretty 
steep climb. China's share has tripled in the last few years in 
United States, but as you can see, the apparel rules and the 
so-called FTAs are grossly onerous and inadequate.
    Show the next slide. That is what happened to Mexico. They 
have had NAFTA through this same period when we had the 
increase in Chinese imports. NAFTA has been going down in 
Mexico. So, they have witnessed a dramatic and precipitous 
decline in their market share, despite our protections. The 
fact of the matter really is that the yarn-forward rule is 
nothing but an old world approach to protectionism, and it is 
time--it has got to go. That red line is pretty stunning. China 
has emerged since January 1. I bet that is even steeper if we 
had the numbers in the apparel industry, and they are the 
world's largest cotton producer, so, why do they need the 
United States? They have low labor costs and that is the whole 
reason why they are very competitive. I would think that the 
tariff preference that we provide for our free trade partners 
would give them an advantage over China. We have tried to do 
that in the African Growth Opportunity Act and others. We have 
tried, but it is pretty clear that these rules are really not 
working very well. I think that we need to really sit down and 
talk about what is going to happen when we finally give up our 
subsidies on cotton so that our cotton rises in cost, which we 
demand that Central America use. Their prices are going to be 
out of sight. It will be all coming from China when this 
occurs, in my view. I do not see how this works in the long 
run.
    Chairman THOMAS. Will the gentleman allow an inquiry by the 
Chair on his chart?
    Mr. MCDERMOTT. Sure. Yes.
    Chairman THOMAS. I believe the chart is accurate.
    Mr. MCDERMOTT. I think so. It came from us.
    Chairman THOMAS. The gentleman also indicated that we had 
created preferential arrangements with the Caribbean Nation 
countries. Does the gentleman have any data on the regional 
direction rather than just Mexican? The Chair believes that 
some of the activities that had been in Mexico have been 
shifted to the CBI countries by virtue of the preferential 
treatment that the CBI countries get vis-a-vis Mexico. So, a 
country's specific line may show a downturn, but the general 
region, since Mexico is not a member, the CBI may in fact be an 
upturn. Does the gentleman have any information on that?
    Mr. MCDERMOTT. I am sorry. I did not put the slide in. My 
remembrance is that, in fact, the CBI line is also drifting 
down with this increase in the China line.
    Chairman THOMAS. That is the kind of information on the 
regional basis we need to look at, and the Chair would like to 
look at that.
    Mr. MCDERMOTT. I would welcome another hearing in which we 
could talk about this
    Chairman THOMAS. The Chair thanks the gentleman. The 
gentleman from Minnesota wish to inquire?
    Mr. RAMSTAD. Thank you, Mr. Chairman. Mr. Ambassador, given 
the nature of our economy, which is becoming more and more 
knowledge-based literally every day, and given the nature of my 
district, which puts a high priority on intellectual property 
rights (IPR), I am concerned about protection of intellectual 
property rights overseas. We all know that intellectual 
property theft is rampant worldwide, and every item that is 
reproduced comes right out of the pocket of the American owner. 
It hurts the economy and certainly costs us jobs. My question 
is, how does this agreement strengthen intellectual property 
rights so that American companies and workers receive just 
compensation for their work?
    Ambassador ALLGEIER. As you know, Congressman, the 
international rules, the multilateral rules on protecting 
intellectual property are in the WTO, the so-called Trade 
Related Intellectual Property Rights (TRIPS) agreement. That 
agreement, at this point, is basically 10-years old. We all 
know the changes in technology that have occurred during that 
period. So, it is very important for our--precisely the reason 
that you were describing, the degree to which we depend upon 
the knowledge-based industries, that in our trade agreements we 
keep the level of protection at the same pace as all the 
technology changes.
    That is the advantage of these FTAs and particularly the 
DR-CAFTA; if you look in the DR-CAFTA agreement, you have, as I 
said, state-of-the-art intellectual property protection that 
goes beyond what is in the TRIPS agreement. So, as a result, a 
number of these countries will join new copyright protection 
agreements that have been developed since the Uruguay round, 
and they will be making other changes in order to protect our 
intellectual property.
    Mr. RAMSTAD. So, it is your position that if no 
intellectual property protections were in this agreement, that 
intellectual property theft would be even more rampant?
    Ambassador ALLGEIER. Oh, absolutely, especially in the 
copyright area.
    Mr. RAMSTAD. Which is very important, not only to Minnesota 
but to our entire Nation. I appreciate your important work on 
this agreement. Thank you for testifying. Certainly, we need 
this trade liberalization, because it means jobs. It means 
economic growth in all sectors, not just knowledge-based. So, I 
appreciate your good work on this important agreement and would 
yield back.
    Ambassador ALLGEIER. Thank you very much.
    Chairman THOMAS. I thank the gentleman. The gentleman from 
Pennsylvania wish to inquire?
    Mr. ENGLISH. Thank you; I do indeed. Ambassador Allgeier, I 
am very grateful for the opportunity to pose to you some 
specifics. First of all, I read in your testimony that you have 
created a mechanism for promoting environmental standards 
through DR-CAFTA that would, among other things, allow the NGOs 
an opportunity to challenge a party's failure to enforce its 
environmental laws and to obtain an independent review of their 
submissions. You also indicate that the agreement provides for 
independent monitoring of environmental benchmarks by outside 
organizations. Let me ask you to briefly describe exactly how 
this process would work, and how would this process ultimately 
have more teeth in it than, say, the environmental side 
agreement that was created for NAFTA?
    Ambassador ALLGEIER. First of all, the provisions on 
environment in the DR-CAFTA are exactly that; they are in the 
DR-CAFTA text itself. It is not a side agreement. The second 
point I would make, going to the point that you made, 
Congressman, about the submission process, I think that we all 
know that the best assurance that any obligation is going to be 
carried out, whether it is in domestic law or international, is 
to have light on the agreement. So, the submission process is 
an important way of providing light on what is happening in 
these countries, whether it is on the labor side or the 
environmental side, so that groups that have a great interest, 
for example, in improving the level of environmental 
protection, ensuring that environmental laws are carried out, 
they can, on their own, submit a submission through a 
secretariat, an independent secretariat that has been set up, 
called the Organization for Central American Economic 
Integration (SIECA), who will then evaluate whether the 
challenge to the country's practice has some merit. Then they 
can determine whether to do a factual record, again, by an 
independent body, and then refer it to the parties of the 
agreement.
    Mr. ENGLISH. If there is ultimately a finding that a 
country is not meeting appropriate benchmarks or is even, on a 
wholesale basis, violating environmental standards, what will 
be the consequences under this trade agreement?
    Ambassador ALLGEIER. If a country were to be violating the 
agreement with respect to environment--it was not, let's say it 
was not enforcing its own law--then any other party--let's say 
the United States--could seek to consult with that other party. 
If the other party is not willing to make the changes to come 
into compliance with its obligations, then the United States 
could take them to dispute settlement, and there would be a 
panel that would determine whether that country was abiding by 
its obligations. If the panel were to determine that the 
country is not abiding by its obligations, then it would 
indicate, where it is falling short. It would then be up to the 
country, under the agreement, to make changes to come into 
compliance. If the country, at that point, refused to come into 
compliance, then a fine could be imposed upon that country and 
the proceeds from that fine, which is recurring--it is year 
after year after year until they fix the problem--there would 
be a joint determination. The United States would have to agree 
how those proceeds would be used to fix the problem. So, let's 
say that they were not enforcing their environmental law with 
respect to clean water; they would have to be using those 
resources to improve that situation.
    Mr. ENGLISH. Thank you. My other question, Ambassador 
Allgeier, I frequently look to the record of countries that we 
are negotiating FTAs with in terms of their willingness to 
cooperate with us on policy. Several of the countries we have 
recently negotiated FTAs with have very much cooperated with 
the United States in a number of international forums, 
including the WTO. I was at Cancun, and I saw how the G21 
organization went in very much at cross purposes with us and 
ultimately, I think, led to the failure of the Cancun 
opportunity. I have also noticed that we have--and I credit the 
Administration for this--aggressively argued that the WTO 
should not re-open the anti-dumping laws. Yet, I notice that at 
least a couple of the countries in DR-CAFTA participated in the 
G21, and one of them, Costa Rica, is currently involved in the 
so-called Friends of Anti-Dumping group that is trying to use 
the WTO to dismantle our trade laws. Do you feel that this is a 
significant problem, and have the countries responded to us on 
these points?
    Ambassador ALLGEIER. First of all, as you know----
    Chairman THOMAS. The Chair would request a very brief 
response but a more extensive response would be in writing to 
the gentleman from Pennsylvania and to the Committee because 
the Committee is interested in the thrust of the gentleman's 
question.
    Ambassador ALLGEIER. I would be happy to provide a more 
expansive response. Let me just say that, in the DR-CAFTA 
itself, there is no change in U.S. law regarding anti-dumping 
that is required. I will note that Costa Rica and El Salvador 
left the G20 and have withdrawn from that. So, we are working 
with all of them in the WTO, but I think that our positions 
with respect to our trade remedy law is quite clear.
    [The information follows:]
    The written response from Ambassador Allgeier follows:

    We enjoy a close and cooperative relationship with our FTA partners 
as we work in the WTO, and one of our common objectives is to complete 
the DDA negotiations successfully. There are many informal groups of 
representatives that meet together to focus on issues of concern in the 
negotiations, and while we don't necessarily agree with all their 
positions, discussions are useful in developing a fuller appreciation 
for the issues. In the case of the Group of Negotiations on Rules, 
membership in the so-called ``Friends of Antidumping'' informal group 
has varied from time to time depending on the issues in question. The 
15 members of the Friends are: Brazil, Chile, Colombia, Costa Rica, 
Hong Kong, Israel, Japan, Korea, Mexico, Norway, Singapore, 
Switzerland, Taiwan, Thailand and Turkey. None of the U.S. bilateral 
free trade agreements include commitments on anti-dumping and 
countervailing duties. We have had limited discussion of these issues 
to the WTO.
                                 ______
                                 
    Chairman THOMAS. Thank the gentleman. The Chair will 
indicate to Members and others that, following the inquiry of 
the gentleman from Georgia, the Chair will recess. There are 
three 15-minute votes on the floor. Parliamentary procedure 
does not allow us to stack at 5-minute intervals. I would ask 
the Ambassador if he would be willing to wait until we 
reconvene because, clearly, there are additional Members who 
wish to inquire. The Chair recognizes the gentleman--and the 
Chair will reconvene 5 minutes after the conclusion of the last 
vote in this sequence. The Chair recognizes the gentleman from 
Georgia.
    Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Chairman. 
Mr. Ambassador, thank you for being here. I will be very brief 
because of this vote. Mr. Ambassador, what I want to say from 
the outset is, we live in a different world. We live in a 
different time; this is the 21st century. So, I want to ask you 
a question or two about workers' rights under this agreement. 
Is there anything in this agreement to prevent workers from 
being paid below a living wage?
    Ambassador ALLGEIER. Yes. All of these countries have 
various protections for workers and the conditions under which 
they work. So, those do have to be enforced under the 
agreement.
    Mr. LEWIS OF GEORGIA. Is it possible that workers in these 
countries, some workers will be paid $0.75 an hour or maybe a 
dollar a day?
    Ambassador ALLGEIER. The purpose of this agreement is to 
provide workers in these countries with more opportunities so 
that they can make more money, and I do not know the precise 
wage levels in these countries.
    Mr. LEWIS OF GEORGIA. There is not anything in the 
agreement to prevent some of these countries, some of the 
companies from paying people starvation wages?
    Ambassador ALLGEIER. No, they cannot pay starvation wages 
under this agreement.
    Mr. LEWIS OF GEORGIA. Could people be forced to work 
without breaks? Is there anything in that agreement to prevent 
people from working 7 days a week?
    Ambassador ALLGEIER. No. One thing I would like to point 
out is that these countries all have ratified the major ILO 
conventions. All but El Salvador have ratified all eight of 
them. El Salvador has ratified six of them. In the case of the 
United States, we have ratified two. Their labor laws--the 
problem is not with the labor laws. I think some of you may 
have met last week with the Archbishop of Guatemala, and I will 
not say he is certainly not a fan of DR-CAFTA but what he did 
say is they have an excellent labor law in Guatemala, but it 
needs to have better compliance.
    Mr. LEWIS OF GEORGIA. That is maybe one country.
    Ambassador ALLGEIER. No, but that is just symptomatic of 
the situation there, and that is what the ILO found, that that 
is where--if we want to make a difference in people's day-to-
day lives, which we both want to do, the way to do it is to 
focus on enforcement of the existing laws in those countries--
all of them.
    Mr. LEWIS OF GEORGIA. Mr. Ambassador, someone said many 
years ago, if we do not stand for something, we will fall for 
anything. If you have the choice to open up a new factory in 
America, in our own country, or in Central America, where labor 
is cheap and people receive very little compensation for their 
work, where will you go if you want to make a big profit? Will 
you stay in America, or will you go to Central America?
    Ambassador ALLGEIER. I think that decisions about where to 
locate production hinge on many, many factors. One part of 
the--one factor certainly is compensation for workers, but that 
also has to be related to productivity. I think if one tours 
the--or visits the factories in Central America that are run by 
American headquartered companies, one finds that those 
companies tend to be setting the highest standards for the 
treatment of their workers.
    Mr. LEWIS OF GEORGIA. Thank you, Mr. Ambassador. Thank you, 
Mr. Chairman.
    Chairman THOMAS. I thank the gentleman. Ambassador, is 
there any indication that the workers' lot would improve in 
these countries if DR-CAFTA was not agreed to?
    Ambassador ALLGEIER. No. There is no evidence that that 
would happen. I do not see how improvement would occur without 
assistance to them on the objectives that they themselves have 
set to improve their workers.
    Chairman THOMAS. As the Chair indicated, the Committee will 
stand in recess until 5 minutes after the last vote. 
Ambassador, if it is possible, the Chair would request that you 
stick around because there are a number of other Members who 
wish to inquire. The Committee stands in recess.
    [Recess 12:08 p.m.]
    Chairman THOMAS. Could we ask our guests to find seats, 
please. The Committee will reconvene. The Chair recognizes the 
gentleman from Illinois, Mr. Weller.
    Mr. WELLER. Well, thank you, Mr. Chairman; and I commend 
you for this particular hearing today as we look at the DR-
CAFTA. I want to commend Ambassador Allgeier and former Special 
Trade Representative Bob Zoellick and Regina Vargo and the 
entire team that worked to put together over the last several 
years what I believe is a good, fair and balanced agreement 
with our friends in Central America and the Dominican Republic. 
With the subject being the Dominican Republic, I also want to 
thank my colleague, Mr. Rangel of New York, who I worked with 
to encourage the Dominican Republic to be included as part of 
what was originally known as CAFTA, and is now known as DR-
CAFTA with the addition of the Dominican Republic. That was a 
bipartisan effort, and I appreciate the good relationship I 
have with my friend from New York.
    I would also note, as we look at DR-CAFTA, that it changes, 
frankly, the situation we currently have. In the year 2000, an 
overwhelming bipartisan majority of this Committee and this 
House of Representatives, 309 Members--183 Republicans, 126 
Democrats--voted to support our friends in the Dominican 
Republic and the Central American countries by expanding and 
creating the Caribbean Basin Trade Partnership Act (CBTPA). 
What was interesting about the CBTPA was that it was a 
unilateral opening of the U.S. markets, essentially creating a 
one-way opportunity for our friends without any reciprocity. I 
would note again, 309 Members, an overwhelming bipartisan 
majority, supported that legislation.
    Now before us we have legislation which I believe deserves 
an equally high level of support, bipartisan support, but it 
does something different. Previous overwhelming bipartisan 
support created a one-way street when it came to trade; DR-
CAFTA creates a two-way street on trade. Because of that, I am 
a very enthusiastic supporter of the DR-CAFTA. I believe it is 
fair; it is balanced. You can always find provisions you 
personally wish were a little better, but it is a compromise, 
and that is how treaties are, particularly when you have seven 
countries.
    When folks back home ask what does it mean to Illinois, 
what does DR-CAFTA mean to Illinois manufacturing, what does 
DR-CAFTA mean to Illinois farmers, the good news is DR-CAFTA is 
good news for Illinois farmers and good news for Illinois 
manufacturing workers. In fact, it is a win-win for both 
manufacturing and agriculture. As I mentioned, Illinois is a 
big winner because, right now, Illinois agriculture faces high 
tariffs on Illinois farm products that go into Central America 
and Dominican Republic. Under this agreement, one-half of 
tariffs on U.S. agricultural exports are eliminated 
immediately. Think about that; immediately. While Illinois is 
the second largest exporter of soybeans, which face today a 20 
percent tariff, it means a big difference, because, under this 
agreement, soybeans will immediately have duty free access. 
Think about that, a 20 percent tariff will be eliminated 
immediately for Illinois soybeans under DR-CAFTA. Illinois is 
also the second largest exporter of feed grains and will 
benefit from the immediate elimination of duty on yellow corn 
in Costa Rica and the Dominican Republic and the phaseout of 
duties in the other countries. Pork--and Illinois is a major 
livestock State--currently faces duties as high as 47 percent, 
but all duties will be eliminated and phased out over 15 years. 
I would note from a livestock perspective that our friends in 
the Dominican Republic and the Central American countries are 
working to recognize U.S. meat inspection and certification 
systems to facilitate the ease of U.S. exports. That is why 50 
Illinois farm organizations stand in strong support of DR-
CAFTA.
    Now, the district I represent and the State I represent is 
a major manufacturing State, heavily dependent on exports, 
heavily dependent on manufacturing, and by DR-CAFTA opening up 
a two-way street on trade, this agreement immediately 
eliminates tariffs on 80 percent of U.S. exports, 80 percent of 
Illinois exports. It eliminates all tariffs within 10 years, 
including the up to 15 percent tariffs on Illinois' exports on 
chemicals, electrical equipment, machinery, processed food and 
transportation equipment. That is good news for the small 
manufacturers that I represent in Illinois, both the little 
guys as well as the big guys, Caterpillar being my biggest 
employer. Eight thousand Caterpillar workers reside in my 
congressional district, and Caterpillar is one example of an 
Illinois company that will benefit significantly, meaning there 
will be more opportunities for Illinois workers to make the 
yellow trucks, the yellow bulldozers, the yellow construction 
equipment. With this agreement, the tariff on U.S.-produced 
off-highway trucks, for example, made by Caterpillar, which 
currently is 5 percent in Guatemala, 8 percent in the Dominican 
Republic, 14 percent in Costa Rica, they will be immediately--
on the first day of implementation, those tariffs on 
manufactured goods will be eliminated; and that is good news 
for the thousands of manufacturing workers in Illinois and in 
the district that I represent. The bottom line is, DR-CAFTA is 
a win-win for Illinois workers, Illinois farmers, Illinois 
manufacturers; and I stand in strong support.
    Ambassador Allgeier, can you, as we talk about the 
differences between the current status quo of a one-way street 
on trade, where we have essentially given full access to the 
U.S. marketplace for our friends from Central America and the 
Dominican Republic, but at the same time our products to go 
into their markets currently face duties and tariffs and 
barriers, what will this mean from the perspective of Illinois 
manufacturers, or just say U.S. manufacturers and U.S. farmers, 
having that two-way street now with the elimination of the 
barriers as a result of DR-CAFTA? What impact do you see as a 
result, particularly on exports of agricultural and 
manufacturing?
    Chairman THOMAS. I will tell the ambassador that that is a 
question the entire Committee is interested in, and if you 
could submit that response in writing, we would appreciate it.
    [The information follows:]
    The written response of Ambassador Allgeier follows:

    CAFTA-DR offers significant benefits for American workers, 
businesses, farmers, and ranchers. First, it's a growing market for our 
exports--Central America and the Dominican Republic rank as the second-
largest U.S. export market in Latin America, behind only Mexico. This 
agreement offers opportunities for many sectors of the U.S. economy, 
including textiles, manufacturing, services, and agriculture. CAFTA 
will support U.S. textile jobs and help our industry compete against 
China and other Asian countries by encouraging the use of U.S. yarn and 
fabric in the region's large apparel-making industry, which is why the 
National Council of Textile Organizations (NCTO) supports this 
agreement. The National Association of Manufactures projects that as a 
direct result of CAFTA-DR, U.S. manufacturers stand to gain $1 billion 
of additional goods exports, with approximately 12,000 related job 
opportunities for American workers. Moreover, CAFTA-DR could help to 
preserve up to four times that amount of existing U.S. exports in 
textiles. Factoring in manufacturing, agriculture and services trade, 
the Chamber of Commerce estimates a gain of $3 billion in U.S. exports.
    U.S. farmers will also benefit significantly--CAFTA will open the 
Central American and Dominican Republic markets to U.S. wheat, rice, 
soybeans, beef, pork, poultry, dairy, and many other products. The 
American Farm Bureau estimates this agreement could mean $1.5 billion 
to the U.S. in additional farm exports.
    You asked about the benefits of two-way versus one-way trade. 
Today, Central America and the Dominican Republic already export 80 
percent of their goods duty-free to the U.S. market through preference 
programs and most favored nation rates. But many U.S. goods and 
agricultural products face high tariffs on exports to the region. CAFTA 
will remove those tariffs and open up the Central American and 
Dominican Republic markets to U.S. products to the benefit of American 
workers and farmers. Over 80 percent of tariffs on consumer and 
industrial goods will be eliminated immediately, with the remaining 
tariffs phased out over 10 years.
    The U.S. ITC reported in its economy wide effects study of a CAFTA-
DR that U.S. exports to the CAFTA-DR countries would increase annually 
by $2.7 billion.
    Moreover, according to an independent study using the Michigan 
Model of World Production and Trade, the U.S.-- CAFTA-DR FTA will boost 
U.S. exports to the region by $8 billion and increase U.S. welfare by 
$17.3 billion (or 0.17 percent of GNP).
    It is also important to note that CAFTA will strengthen democracy 
and economic freedom in a region that has seen too little of both. 
President Bush believes we should stand with those in our neighborhood 
who stand for economic freedom.
                                 ______
                                 
    Chairman THOMAS. The gentleman's time has expired. Does the 
gentleman from Massachusetts wish to inquire?
    Mr. NEAL. I do. Thank you, Mr. Chairman. Mr. Allgeier, in 
2003, the trade deficit was $500 billion, and in 2004 it grew 
to $617 billion. I think we would all agree it has impacted, in 
some shape or form, the dollar. Do you think we have a trade 
deficit problem?
    Ambassador ALLGEIER. Congressman, we certainly have a trade 
deficit problem with certain countries where we are not getting 
the kind of access that we should. Obviously, the trade deficit 
depends upon many other factors, the principal one being 
differences in growth rates between the United States, which is 
a great consuming Nation, given our relatively high growth 
rate, and other countries, such as Japan and in Europe where 
they have not had the same growth rates.
    With respect to this particular region, as Congressman 
Weller pointed out, they are a very important customer of the 
United States, and we very much want to keep them a good 
customer of the United States, and I would say particularly 
with respect to this textile situation. They are an important 
customer right now. If we do nothing, however, they will be 
losing jobs in their own textile sector, they will be buying, 
therefore, fewer inputs from us, and both of us will be big 
losers.
    Mr. NEAL. If you argue, as you have, that access is a 
problem which has contributed to the deficit, what is the plan 
for doing something about it?
    Ambassador ALLGEIER. The plan--well, there are a number of 
aspects. Obviously, the trade aspect is only one part of it. 
Trade negotiators can't reverse the deficit. As I said, 
relative economic growth and other policies, monetary policies 
of some countries and so forth, play a role. What we can do is 
to ensure that we are getting as level a playingfield as 
possible for our producers, our farmers, our service suppliers, 
and that is what we are doing with this agreement and the other 
elements of the President's trade negotiating agenda.
    Mr. NEAL. With the help of many of us here, these 
agreements have gone forward, but, in the last few years, five 
of the six trade agreements we have put together now reflect 
significant deficits.
    Ambassador ALLGEIER. Actually, when one looks at the 
deficit situation country by country, something like 14 percent 
of the deficit, 15 percent of the deficit, is with countries 
with whom we have FTAs. The other 85 percent is with countries 
with whom we don't have FTAs.
    Mr. NEAL. Five of the last six trade agreements have 
created significant deficits. Would you agree with that?
    Ambassador ALLGEIER. No. As I said, the countries with whom 
we have FTAs are a small minority of the deficit.
    Mr. NEAL. Let me take you to the next point then, DR-CAFTA. 
Will that create a deficit, in your judgment, a trade deficit 
in your judgment, or will that contribute to the trade deficit?
    Ambassador ALLGEIER. According to the ITC study, the net 
effect worldwide of the DR-CAFTA will be to improve our trade 
balance by about three-quarters of a billion dollars.
    Mr. NEAL. I hope to have you back so we can explore that 
possibility down the road, that possibility. Let me ask you 
another question which I think is important for those of us 
from New England, and the Northeast in particular, and that is 
retraining. Would you agree that retraining really, by and 
large, hasn't worked very well?
    Ambassador ALLGEIER. I think there are always improvements 
we can have to help individuals make the adjustment.
    Mr. NEAL. Let me try to reframe that question then. One of 
the reasons that we have such difficulty in America selling 
these FTAs, and there is so much resistance, is largely because 
the retraining programs really haven't worked very well. Until 
we gain some traction on retraining and what it comes to mean, 
other than lower wage, less job stability, you are going to 
have trouble forever and this Committee and the Members of 
Congress are going to have trouble for a long, long period of 
time in selling FTAs. The one thing I think we would all agree 
on here, on both sides of the aisle, retraining has not worked 
very well.
    Ambassador ALLGEIER. I don't think, however, whatever one's 
views are on retraining, that the solution is to stop opening 
markets, to refrain from opening markets overseas. If we are 
going to have to have opportunities for our workers to have 
additional job opportunities in high-tech areas, for example, 
in agriculture, we are going to have to keep opening markets. 
So, I don't think that voting against the trade agreements that 
open markets is really an effective response to any concerns 
that one has about retraining.
    Mr. NEAL. One of the more intriguing alliances in Congress 
is between people on the real left and people on the real right 
who generally oppose these trade agreements, and they come at 
that for different reasons. I think one thing they agree on is, 
when they go back home, it is the level of frustration that 
laid-off workers feel. I think we have not been significantly 
mindful of that in Congress as it relates to how we restructure 
these training programs. Thank you, Mr. Chairman.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from Missouri, Mr. Hulshof, wish to inquire?
    Mr. HULSHOF. I do, Mr. Chairman. Thank you. I appreciate 
the fact you allowed our colleague from Maryland to give us an 
update about our colleague from Ohio, Mr. Portman, who I think 
would be an exceptional Trade Representative. He has the talent 
and expertise, and I can assure you, Mr. Chairman, my wishing 
him well does nothing to do with my desire to ascend to the 
upper deck--maybe a little bit to do with it.
    Nonetheless, some of the frustration, Mr. Ambassador, that 
you are hearing, and this is frustration, for example, we had 
in our hearing on China, especially from the agriculture point 
of view. I am going to pick up a thread that my colleague from 
Illinois has raised. The Japanese are excluding our beef, the 
Chinese have created some dubious sanitary and phytosanitary 
claims, even our trading partners in the European Union, we 
have pushed, prodded, cajoled as far as accepting our 
genetically enhanced foods. I do want to commend this 
Administration and particularly Mr. Johnson, a former colleague 
of ours. Wes Watkins and I introduced the legislation that 
created the permanent Chief Agriculture Negotiator for the 
Office of the USTR within your office, and Ambassador Johnson 
is doing a great job there.
    We do have a positive trade balance globally as it reflects 
agriculture, but certainly as we now focus on the Central 
American countries, as a witness will tell us later this 
afternoon, we do, right now at least, face a $700 million trade 
deficit regarding agriculture in this part of the world. To 
echo what my friend Mr. Weller said, he mentioned soybeans and 
pork. Right now, American beef, our exports have a tariff as 
high as 30 percent. One in five rows of corn in Missouri are 
exported, and right now corn exporters face duties up to 35 
percent. If you happen to be a dairy State, sometimes exports 
are as high as 60 percent. So, I see that this is a good, 
continuing step forward at least to create that positive trade 
balance for our farmers and ranchers here in America.
    That was my comment. Let me shift though to a question and 
be sensitive to my time and allow you to answer the question. 
There have been some questions about the labor standards. So, 
let me ask you a very basic question I think I understand the 
answer to, but I will give you a chance to reiterate. Back in 
May of 2000, we had a vote in the House. There were 309 House 
Members, a very bipartisan vote--I think 126 Democrats joined 
183 Republicans--and we supported some of the Central American 
countries, including the Dominican Republic, regarding the 
CBTPA. We increased the CBI preference in that particular area. 
Now, the question is maybe a little simplistic; were the labor 
protections in that initiative, are they more stringent or less 
stringent than what is being proposed in this agreement?
    Ambassador ALLGEIER. The labor protections in this 
agreement are much more robust, because it is a package of 
cooperation and support for these countries. It starts with the 
ILO standards, which is what the CBI referred to. Then, rather 
than just kind of putting it on paper and then walking away, we 
have been working with these countries in order to help them 
meet the very specific needs that they have, that, first of 
all, the ILO identified, and then the countries themselves in 
this country identified. They didn't just identify them, they 
went on to say these are the steps we need to take to improve 
our situation. There will be a donors conference on May 9 that 
the Inter-American Development Bank is organizing to respond to 
the needs that have been identified in this document. I met the 
other day with the Director General of the ILO to talk about 
the ongoing monitoring role that they will have. So, none of 
that is in the CBI.
    Mr. HULSHOF. Let me ask you this final follow-up question, 
because, again, a later witness will tell us in his testimony, 
at least his written testimony, that not one country included 
in the DR-CAFTA comes close to meeting a minimum threshold of 
respect for the ILO's core labor standards. Since you won't 
have a chance to respond after that witness testifies, what 
response would you make to that claim or allegation?
    Ambassador ALLGEIER. I would respond that the ILO is in the 
best position to judge compliance with its standards, and it 
has said in the report that it did, a very comprehensive 
report, that these countries' laws are compatible, comply by 
and large with the ILO convention standards. Now, they didn't 
do a review of the United States because we have not ratified 
as many of the ILO conventions as these countries have.
    Mr. HULSHOF. Thank you, Mr. Chairman.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from Kentucky, Mr. Lewis, wish to inquire?
    Mr. LEWIS OF KENTUCKY. Thank you, Mr. Chairman. Mr. 
Ambassador, I would like to address some of the questions that 
Mr. Neal asked a little while ago. NAFTA, since it was signed 
in 1993, how much have our exports increased to that region?
    Ambassador ALLGEIER. Well, when you say NAFTA, you want the 
exports to Canada and Mexico? They have more than doubled in 
that period, and perhaps even more significant, is that our 
production at home, manufacturing production, has increased by 
one-third during the period of that agreement.
    Mr. LEWIS OF KENTUCKY. What is the deficit, trade deficit, 
with Canada and Mexico right now?
    Ambassador ALLGEIER. I would have to look up the exact 
number.
    Mr. LEWIS OF KENTUCKY. What I am getting at is that, if we 
didn't have this trade agreement with the increase in exports, 
what would our deficits be?
    Ambassador ALLGEIER. Obviously they would be much, much 
larger. As I said earlier, if you look at all of the FTAs that 
we have, they account for something like 15 percent of our 
overall world deficit. That includes, obviously, the NAFTA. So, 
85 percent is with countries with whom we don't have 
agreements.
    Mr. LEWIS OF KENTUCKY. The reality is that trade is going 
to go on. It is a matter of whether we are going to get the 
best deals we can possibly get in our trade agreements and be 
able to increase our exports. I know in Kentucky alone our 
exports increased to Canada and Mexico by 267 percent since 
NAFTA, and that has created a lot of good, good jobs. So, I 
think it is a pretty bogus argument to argue that we are worse 
off by these trade agreements.
    Ambassador ALLGEIER. It is hard to imagine how this could 
make things worse, when we are at the disadvantage that has 
been documented here already in terms of the relative tariff 
levels.
    Mr. LEWIS OF KENTUCKY. Exactly. I would just like to 
address the issue of retraining. I have talked about this 
community several times in this Committee, but I have a perfect 
example in my district, Campbellsville, Kentucky, where they 
lost a Fruit of the Loom company a few years ago, 2,500 jobs. 
That was quite a significant negative impact on the community, 
but through retraining, through their local university, they 
were able to bounce back within a three or 4 year period with 
13 new companies and expanded companies, several in-source 
companies from other countries. The employment now is greater 
than what it was before the Fruit of the Loom company closed. 
So, retraining does work. It takes a lot of effort on the part 
of the community to get involved and have the leadership to do 
what Campbellsville did. If a community the size of 
Campbellsville can do what they have done, then I don't think 
there should be a problem for any community.
    Ambassador ALLGEIER. We have to keep opening markets in 
order to make the opportunities for those employees.
    Mr. LEWIS OF KENTUCKY. Absolutely. Just one more question. 
I know Kentucky is a large exporter of fabric and yarn, at the 
tune of about $110 million in 2004, I think. The DR-CAFTA 
agreement, what kind of impact is that going to have on 
Kentucky? I am sure it is going to make it a lot better, but 
how much better, do you think?
    Ambassador ALLGEIER. If I could just focus on the textile 
part of that for a minute, people should not be under the 
impression that if we do nothing we will still have all of 
those jobs in the textile and apparel area, because there is no 
such thing as the status quo in this world with the quotas of, 
and the competition from, China. So, it is a question of 
whether we prepare ourselves and make ourselves more 
competitive, to compete in that environment, or whether we 
stand by and watch jobs go across the Pacific to Asia. The 
National Association of Manufacturers has documented this quite 
clearly in the study they have done.
    Mr. LEWIS OF KENTUCKY. Thank you. Just let me say, the jobs 
in Campbellsville are better paying, higher tech. Like I say, 
they certainly would have liked to have kept Fruit of the Loom, 
but they have been able to rebound very, very well.
    Ambassador ALLGEIER. We are pleased to hear that.
    Chairman THOMAS. Does the gentleman from Louisiana, Mr. 
Jefferson, wish to inquire?
    Mr. JEFFERSON. Thank you, Mr. Chairman. I would like to 
begin by saying that I wish I could offer a defense for the 
Chairman or for USTR with respect to what Mr. Rangel said today 
about the lack of inclusion in decisionmaking by the Committee, 
the lack of consultation by USTR with respect to the entire 
Committee, with respect to both sides of the Committee, 
Republicans and Democrats. There is a lot of room for 
improvement there. Many of us struggled with the TPA to get it 
passed, and then we find ourselves frustrated by the fact there 
are closed meetings, and that is unfortunate. So, I hope going 
forward, as we try to implement these provisions, we will find 
a way, you will find a way and our Chairman will, to include 
all of our Members in those discussions.
    Having said that, I support this agreement for a lot of 
reasons. I am from New Orleans. We have been working for the 
last 4 years with DR-CAFTA ministers and the rest trying to get 
some points of agreement. We have had DR-CAFTA institutes 
created down there by universities. We have done a great deal 
with our port, but I have been as concerned as anyone about how 
it affects environmental and labor issues. From our research, 
what it looks like to me, and I want to see if you can confirm 
this, that unlike the United States, which is a common law 
system, the six DR-CAFTA countries are a civil law system, and 
when they adopt international conventions, as with the ILO 
standards, they become a part of their domestic law. Is that 
true or not? Is that what your reading shows?
    Ambassador ALLGEIER. Yes, Congressman, that is accurate. 
When they ratify these agreements, at the moment that it is 
ratified it then becomes essentially incorporated in their law. 
It is domestic law.
    Mr. JEFFERSON. If that is true, then when you require them 
to enforce their domestic laws, you require them to enforce all 
of the conventions that they have adopted as a part of the 
domestic law, is that not true?
    Ambassador ALLGEIER. That is right, and that is why it is 
so useful to have within the agreement itself these procedural 
requirements, if someone in one of these countries challenges 
how they have been treated with respect to labor protections.
    Mr. JEFFERSON. Now, many of these countries--in fact, all 
of them; I just looked at it--in their constitution also adopt 
the ILO core standards in each of the constitutions of these 
countries. Each of the countries, except for the Dominican 
Republic, has adopted all eight of the conventions, and the 
Dominican Republic has adopted all except one. Isn't that 
correct?
    Ambassador ALLGEIER. I think El Salvador has ratified six 
of the eight. The others have done the eight, if I am not 
mistaken.
    Mr. JEFFERSON. That is close.
    Ambassador ALLGEIER. The point about the constitution is 
absolutely right. These rights, by and large, are embedded in 
their constitutions.
    Mr. JEFFERSON. Now, there are ways to improve this 
agreement and to make it work. I don't know about making it 
work better, but make it work. I am concerned about the labor 
and trade capacity, the commitment there, and whether or not we 
will put money behind our efforts to help the countries fund 
their white paper suggestions. I am concerned about whether we 
might have a look-see in some biannual way with a report to the 
Congress about what happened with respect to the labor and 
environmental issues, something that might be an action-forcing 
event from our end of it. In the African bill, we required a 
meeting of ministers with the President about various issues. I 
would like to see one where DR-CAFTA labor ministers meet to 
discuss their efforts to afford workers workers' rights on an 
annual basis here in the country as we do under the African 
bill. Would any of these things sound objectionable to you? Are 
these things we can work on as we work to implement the 
legislation?
    Ambassador ALLGEIER. Actually, I think those ideas are 
completely compatible with the approach that we are taking and, 
frankly, with the approach that these other countries are 
taking. We are all in agreement that there should be 
benchmarks, there should be periodic review, and we would be 
happy to work with you and other Members of Congress to 
establish that kind of a system between us and the Congress.
    Mr. JEFFERSON. There are probably a few other ideas out 
there about the subsistence farmers projects and that sort of 
thing to make sure that the smallest agricultural units down 
there are able to participate in this agreement and the small 
industries are able to participate in the agreement. Would that 
also be the kind of thing that you would see us working on as 
we move toward implementation?
    Ambassador ALLGEIER. We would be happy to. We are very 
proud of this agreement, and we think that as we go through 
time, it will be evident how good it is. So, having scrutiny 
and monitoring is actually a positive for us.
    Mr. JEFFERSON. Do we have your commitment--I know you won't 
be the man who decides all this in a few minutes, maybe by the 
end of the day, according to some reports, but do you support 
the notion that, as we move forward with implementation, that 
you will work hard or suggest that your agency work hard to 
make sure that Democrats and Republicans are brought to the 
table to work on implementing legislation?
    Ambassador ALLGEIER. Yes, we certainly will work that way, 
and I appreciate the time you have taken for me to visit with 
you and other members of USTR to visit with you. We will work 
with you on that very hard.
    Mr. JEFFERSON. Thank you very much.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from Arizona wish to inquire?
    Mr. HAYWORTH. Mr. Chairman, I do, and I thank you very much 
for the time. Sir, thank you very much for both your 
stewardship on this interim basis in the USTR's office and your 
generous time today before our Committee to talk about this 
proposed FTA. It is interesting, we talk about the inter-
related nature of decisions we make here in the Congress of the 
United States, and certainly there are classic pocketbook 
issues at stake, Mr. Chairman and my colleagues.
    One item as familiar as the kitchen table is this rather 
hefty family sized bottle of ketchup. Interestingly enough, 
this particular brand in some quarters is a bone of contention 
in terms of branding in the recent election campaign, but I 
bring this up not on a political sense but really on a 
pocketbook issue. What is transpiring in terms of access for 
this product and others like it, as familiar on our kitchen 
tables, in our pantries and grocery stores, right now, before 
this FTA comes into being, with the circumstances that we 
confront for this American product in the countries to be 
affected in this proposed DR-CAFTA, right now, ketchup faces a 
15 to 20 percent duty in this region. It is a sensitive product 
which will be subject to a 10 to 15 percent phaseout of the 
duty. Now, understand these duties really are nothing more than 
penalty fees or, in essence, taxes, I guess you would call it, 
that restrict, literally, the consumption of American products 
and have an impact on our economy. I think it is something that 
we have to remind ourselves, especially given the tenor and 
tone of some of the discussion, though I welcome greatly the 
substantive question from my good friend from Louisiana who 
preceded me. Could you amplify, not only for food brands but 
for other products, and pardon the pun, from soup to nuts, 
including ketchup, what it means to have a repeal or a decrease 
in these duties in terms of American jobs and opportunity and 
market share for American products in the area affected?
    Ambassador ALLGEIER. Yes. Well, that certainly is the point 
of the agreement, is to level those differences. You can go 
through the whole range of products. We have talked a lot today 
about agricultural products but also on industrial products, 
but we haven't talked very much about the other areas of 
commerce, about services and the openings that will be created 
for our services industries. After all, two-thirds of our 
economy is services, and we are the most competitive in the 
world in financial services, audio-visual services, 
telecommunication services, express delivery. All of these are 
areas that will be opened up through this agreement. So, all of 
these things should be looked at together. We have rightfully 
concentrated on the tariffs, but I don't want to have people 
miss the other opportunities. government procurement, for 
example, which has not been opened previously, will now be 
opened on a non-discriminatory basis for our suppliers. These 
create opportunities especially for smaller and medium-sized 
businesses, which are also extremely important to our economic 
health.
    Mr. HAYWORTH. Let me move from the kitchen table. I 
mentioned earlier the geopolitical impact of what goes on in 
terms of trade, and it is no secret, indeed it is part of the 
public record, that I had serious concerns about our trade 
agreement with the People's Republic of China. Indeed, as we 
look at this new century, and having returned recently from a 
trip to China and given the challenges we confront there, it is 
worth noting that there is a significant presence of the 
People's Republic of China in Central America in the area to be 
affected. Now, I know that, certainly, this has impact on 
economics. To the extent you have seen evidence of Chinese 
entry into these markets and the presence of the Communist 
Chinese in this hemisphere, opening up trade opportunities 
would seem to serve us well as a counterbalance geopolitically 
to the rising influence of the Communist Chinese in this 
hemisphere.
    Ambassador ALLGEIER. This agreement is a commercial 
agreement, but it is much, much more, in terms of, as I said 
earlier, supporting reform in these countries, but in terms of 
cementing our overall relations with these countries. This is 
something they badly want--the relationship with the United 
States. If we were to walk away from them by not passing this 
agreement, when would they ever trust us again? We have worked 
with them very, very hard to get to this agreement, and what 
would happen--I am actually in some ways less concerned about 
the Chinese influence than the influence of people like 
President Chavez of Venezuela. He would turn to them and he 
would say, I told you so. You trusted the Americans. Bad 
choice. That is, I think, a greater risk, a consequence of 
rejecting this agreement, than the Chinese activities in that 
area.
    Mr. HAYWORTH. Thank you.
    Chairman THOMAS. The gentleman's time has expired. Does the 
gentleman from Florida, Mr. Foley, wish to inquire?
    Mr. FOLEY. I thank you very much, Mr. Chairman. Earlier 
today we heard from you, among others, that we are only talking 
about a teaspoonful of sugar, and I know that was illustrative 
of the imports that may be allowed under this bill. It may be a 
teaspoon and a half for every American. I represent the region 
that grows it, so I didn't have a prop to bring in, because it 
would have been too big. It does have an impact on jobs in my 
district, it has an impact on businesses in my district, and so 
I don't want my concerns to be trivialized by anyone. By 
anyone. Members have a right to assert the importance of trade 
for their district. I keep my rights to protect the workers in 
my State.
    The reason I ask that question is it seems specific to 
this, and we are trying to be cooperative. I am having 
discussions with our grower groups, because I think there are 
some compelling reasons to support DR-CAFTA, but if I am pushed 
in a corner, I will have no alternative. I have had 
conversations with the White House, and I will continue to have 
them with my colleagues, but I would like the respect of the 
USTR office in understanding, while it is important for the 
global look, Members do have political and individual concerns 
that at the end of the day they have to balance. So, I just ask 
for respect at least on that point of order. The question is, 
what is the opposition to elevating sugar, considering it is 
grown worldwide? We excluded it from Australia. I believe every 
FTA ever completed excludes import access mandates on sugar. We 
excluded it from the Canadian portion of NAFTA. The only one 
that was included was Mexico. I think South Africa, Japan, 
Mercosur all excluded the import access mandate. Obviously, 
this is reflective of the fact that so many countries grow it, 
and because of the imbalance of debate, they found ways to 
exclude it. Is there opposition to elevating all of the 
discussions relative to sugar to the WTO?
    Ambassador ALLGEIER. Certainly not. Our view is that, in 
agriculture and in specific products such as sugar, the United 
States should not be out there unilaterally changing our 
programs if other countries are permitted to either subsidize 
their sugar or maintain other barriers to their markets in 
sugar. I do want to say, Congressman, that we are very 
respectful of the need to deal sensitively, very sensitively, 
with sugar, and we have tried very hard to do that in this 
agreement, in no sense trivializing it. When I say it is a 
teaspoon and a half, I understand, though, it is a very 
sensitive product, and that is exactly why we worked so hard to 
get the provisions in this agreement that we did. We will be 
happy to work with you on the global scale as to what should be 
the appropriate negotiating posture that we take in the WTO.
    Mr. FOLEY. I urge my grower groups again to cooperate and 
participate and not throw around rhetoric. Let's have a 
reasonable discussion. Both sides may have had some foul here, 
so I am trying to bring balance to the debate.
    Ambassador ALLGEIER. We appreciate that.
    Mr. FOLEY. Let's start with professional attitudes. I think 
one of the things you have also heard from Members is concern 
about enforcement of existing treaties. I have heard a lot 
about China. Virtually everywhere we go we have some question. 
On Brazil, for instance, and intellectual property rights--a 
recent attempt, possibly by Brazil, to take an AIDS drug that 
is patent-protected, eliminate that patent, and just claim it 
is their own. So, we are all concerned about, as we negotiate 
trade agreements, will there be substantial ways to insist on 
compliance without some Nation just saying, oh, we are not so 
interested in intellectual property; we are just going to work 
on this other thing. Can you assure us as we continue on some 
of those agreements that there will be a look back to see where 
we failed and will we modify, or, at least intensify our 
efforts to have negotiations that are protected on both sides?
    Ambassador ALLGEIER. Yes. We certainly take very, very 
seriously our responsibility to enforce the agreements that we 
negotiate, and that is one of the reasons that we take such 
care during the negotiation to be absolutely as clear as we 
possibly can as to what was the intent of any given provision, 
so that if there are disputes in the future, people know what 
the intent of the negotiators was. Beyond that, we are probably 
the most active, certainly one of the most active litigators in 
the WTO's dispute settlement. Similarly, in any of our 
bilateral agreements, if we see a country that is slipping away 
from compliance, we waste no time in seeking a correction of 
that.
    Mr. FOLEY. Could you just share, and for the future, my 
time is up, could you share our victories in those tribunals? I 
would love to see a compilation of the victories so I can keep 
score.
    Ambassador ALLGEIER. I would be glad to.
    [The information follows:]

           SNAPSHOT OF WTO CASES INVOLVING THE UNITED STATES


                        Updated: April 28, 2005


UNITED STATES AS COMPLAINING PARTY--of the total of 74 complaints (69) 
 and compliance proceedings (5) the United States has filed so far, 50 
 (including 1 that is partially concluded) have been concluded; 3 were 
 merged with other complaints; 5 are in the litigation stage (for one 
complaint, consultations continue on one of the products at issue); and 
  18 are either in the pre-litigation consultation stage or currently 
                         inactive, as follows:


----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
23--resolved to U.S. satisfaction        (1) Korea--shelf-life restrictions; (2) EU--grain imports; (3) Japan--
 without completing litigation:            protection of sound recordings; (4) Portugal--patent protection; (5)
                                          Pakistan--patent protection; (6) Turkey--tax on movies; (7) Hungary--
                                           agricultural subsidies; (8) Philippines--pork & poultry imports; (9)
                                       Brazil--auto regime; (10) Sweden--intellectual property protection; (11)
                                      Australia--salmon imports; (12) Greece--intellectual property protection;
                                      (13) Ireland--intellectual property protection; (14) Denmark--intellectual
                                       property protection; (15) Romania--customs valuation; (16) Philippines--
                                      auto regime; (17) Belgium--rice imports; (18) Brazil--patent law; (19) EU--
                                          corn gluten imports; (20) Mexico--hog imports; (21) Argentina--patent
                                             protection (partial); (22) China--VAT; (23) Egypt--apparel tariffs
----------------------------------------------------------------------------------------------------------------
23--U.S. won on core issue(s)             (1) Japan--liquor taxes; (2) Canada--magazine imports; (3) EU--banana
                                      imports; (4) EU--banana imports (compliance proceedings); (5) EU--hormone-
                                      treated beef imports; (6) India--patent protection; (7) Argentina--textile
                                      imports; (8) Indonesia--auto regime; (9) Korea--liquor taxes; (10) Japan--
                                            fruit imports; (11) Canada--dairy sector; (12) Canada--dairy sector
                                              (compliance proceedings); (13) Australia--leather subsidies; (14)
                                      Australia--leather subsidies (compliance proceedings); (15) India--import
                                       licensing; (16) Mexico--antidumping duties on high--fructose corn syrup;
                                        (17) Mexico--antidumping duties on high-fructose corn syrup (compliance
                                          proceedings); (18) Canada--patent law; (19) Korea--beef imports; (20)
                                      India--auto regime; (21) Japan--apples (fire blight); (22) Mexico--telecom
                                          barriers; (23) EU--geographical indication protection (two complaints
                                                                                    consolidated into one case)
----------------------------------------------------------------------------------------------------------------
4--U.S. did not prevail on core            (1) Japan--film imports; (2) EU/Ireland/UK--tariff classification of
 issue(s):                                computer equipment (three complaints consolidated into one case); (3)
                                                                  Korea--airport procurement; (4) Canada--wheat
----------------------------------------------------------------------------------------------------------------
0--in appellate stage
----------------------------------------------------------------------------------------------------------------
5--in panel stage:                     (1) EU--biotech products; (2) Mexico--AD duties on beef and rice (rice);
                                          (3) Mexico--beverage tax; (4) Japan--apples (fire blight) (compliance
                                                                                  proceedings); (5) EU--customs
----------------------------------------------------------------------------------------------------------------
4--in consultations:                          (1) Argentina--patent protection (partial); (2) Venezuela--import
                                      licensing; (3) Mexico--AD duties on beef and rice (beef); (4) EU--Aircraft
----------------------------------------------------------------------------------------------------------------
14--monitoring progress or otherwise                                   (1) Korea--import clearance; (2) Japan--Large Stores Law; (3) Belgium--
 inactive:                                  yellow pages; (4) EU--dairy subsidies; (5) Chile--liquor taxes; (6)
                                             Belgium--tax subsidies; (7) France--tax subsidies; (8) Greece--tax
                                        subsidies; (9) Ireland--tax subsidies; (10) Netherlands--tax subsidies;
                                      (11) EU/France--avionics subsidies; (12) Argentina--footwear imports; (13)
                                                           Brazil--customs valuation; (14) EU--Steel safeguards
----------------------------------------------------------------------------------------------------------------

UNITED STATES AS RESPONDING PARTY--of the total of 103 complaints (97) 
and compliance proceedings (6) filed against the United States so far, 
50 have been concluded; 22 were merged with other complaints; 12 are in 
     the litigation stage; and 19 are either in the pre-litigation 
         consultation stage or currently inactive, as follows:


----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
14--resolved without completing       (1) Autos (Japan); (2) Wool coats (India); (3) Various products (EU); (4)
 litigation:                                Tomatoes (Mexico); (5) Poultry (EU); (6) Urea (Germany); (7) Brooms
                                      (Colombia); (8) Helms-Burton Act (EU); (9) TVs (Korea); (10) Cattle, swine
                                      & grain (Canada); (11) Textiles (EU) (two complaints consolidated into one
                                              case); (12) Massachusetts government procurement (EU, Japan) (two
                                        complaints consolidated into one case); (13) Steel safeguards (Chinese-
                                                                            Taipei); (14) Orange juice (Brazil)
----------------------------------------------------------------------------------------------------------------
11--U.S. won on core issue(s):           (1) sections 301-310 of Trade Act 1974 (EU); (2) ``Shrimp/turtle'' law
                                        (India, et al.) (compliance proceedings); (3) CVD regulations (Canada);
                                       (4) AD--steel plate (India); (5) CVD--German steel (EU); (6) section 129
                                      (Canada); (7) Rules of origin--textiles and apparel products (India); (8)
                                      AD--sunset review (Japan); (9) CVD--softwood lumber (final) (Canada); (10)
                                       AD--softwood lumber (final) (Canada); (11) Gambling and betting services
                                                                                            (Antigua & Barbuda)
----------------------------------------------------------------------------------------------------------------
25--U.S. did not prevail on core         (1) Gasoline (Venezuela, Brazil) (two complaints consolidated into one
 issue(s):                            case); (2) Underwear (Costa Rica); (3) Wool shirts (India); (4) ``Shrimp/
                                      turtle'' law (India, et al.); (5) DRAMs (Korea); (6) UK leaded bars (EU);
                                      (7) Music licensing provision in U.S. copyright law (EU); (8) 1916 Revenue
                                        Act (EU, Japan; two complaints consolidated into one case); (9) Bonding
                                      requirements (EU); (10) Wheat gluten import safeguard (EU); (11) Stainless
                                                                                        steel AD (Korea); (12) Lamb meat import safeguard (Australia, New Zealand;
                                           two complaints consolidated into one case); (13) Hot-rolled steel AD
                                              (Japan); (14) Cotton yarn (Pakistan); (15) section 211 of Omnibus
                                        Appropriations Act (EU); (16) Taxes on Foreign Sales Corporations (EU);
                                        (17) Taxes on Foreign Sales Corporations (EU) (compliance proceedings);
                                                                                                          (18) Line pipe safeguard (Korea); (19) CVD--steel products (EU); (20)
                                       CDSOA (Australia, et al.; eleven complaints consolidated into one case);
                                      (21) CVD--softwood lumber (prelim) (Canada); (22) Steel safeguards (EU, et
                                        al.; eight complaints consolidated into one case); (23) Injury-softwood
                                      lumber (Canada); (24) AD--sunset review (Argentina); (25) Cotton subsidies
                                                                                                       (Brazil)
----------------------------------------------------------------------------------------------------------------
1--in appellate stage:                                                          (1) CVD--Semiconductors (Korea)
----------------------------------------------------------------------------------------------------------------
11--in panel stage:                   (1) Safeguards on steel line pipe and wire rod (EU); (2) CVD--steel plate
                                      (Mexico); (3) AD--cement (Mexico); (4) AD--OCTG (Mexico); (5) ``Zeroing''
                                       of AD margins (EU); (6) Privatization (compliance proceedings) (EU); (7)
                                            CVD--softwood lumber (final) (Canada) (compliance proceedings); (8)
                                        Injury--softwood lumber (Canada) (compliance proceedings); (9) Taxes on
                                           Foreign Sales Corporations (EU) (compliance proceedings II); (10) EU
                                                     hormones sanctions; (11) ``Zeroing'' of AD margins (Japan)
----------------------------------------------------------------------------------------------------------------
10--in consultations:                 (1) CVD--steel (Brazil); (2) AD--steel pipe (Italy); (3) AD--silicon metal
                                      (Brazil); (4) AD/CVD--sunset reviews (EU); (5) Wheat injury (Canada); (6)
                                      CVD--softwood lumber reviews (Canada); (7) Aircraft (EU); (8) AD--UK steel
                                             bar (EU);(9) AD--Shrimp (Thailand); (10) ``Zeroing'' of AD margins
                                                                                                       (Mexico)
----------------------------------------------------------------------------------------------------------------
9--monitoring progress or otherwise     (1) Salmon (Chile); (2) Peanuts (Argentina); (3) Harbor maintenance tax
 inactive:                                                                                           (EU); (4) Live cattle (Canada); (5) Sugar syrups (Canada); (6) section 337
                                        of Tariff Act 1930 (EU); (7) amendment to section 306 of Trade Act 1974
                                           (EU); (8) U.S. patent law (Brazil); (9) AD--softwood lumber (prelim)
                                                                                                       (Canada)
----------------------------------------------------------------------------------------------------------------

                                ------                                

    Chairman THOMAS. Does the gentleman from California, Mr. 
Becerra, wish to inquire?
    Mr. BECERRA. Thank you, Mr. Chairman. Mr. Allgeier, good to 
see you again. Thank you for being with us. I wish I could 
start on a happy note, and perhaps maybe I can find a way by 
saying to you congratulations on the provisions on intellectual 
property. I appreciate that you continue to fight to make sure 
the interests with regard to intellectual property are 
protected. It is an industry that we helped create, and 
certainly we should continue to reap the benefits of it. For 
far too long, we have seen too many countries continue to 
pirate our goods. So, I thank you for being very vigorous, 
going out there with guns blazing when it came to protecting 
intellectual property.
    I am disheartened that we missed an opportunity. It seems 
to me that this is an agreement that amounts to nothing more 
than bargain hunting at America's expense. It is going to lead 
to a race to the bottom. By that, I mean when Americans earn an 
average wage of about $21.50 an hour, including benefits, and 
you compare that to what China pays its average worker in 
wages, about 64 cents an hour, or if you look at Mexico, where 
one of every four workers earns the minimum wage, and that 
totals for a day's worth of work, not an hour, a day, $4 an 
hour. We know in Central America the wages are even less than 
that per day than in Mexico. What you do is set us up to engage 
in a race to the bottom, which ultimately we can't win as 
American workers and certainly as American companies, if we are 
going to be forced to have to compete at those lower and lower 
wages.
    I wanted to go to a few of the points that you have raised. 
We have had this discussion about core labor standards, and no 
one has mentioned what they are. So, really quickly, what we 
are telling the American public is we don't want to see any 
country engage in trade with us if they are engaging in slave 
labor, child labor, the worst forms of child labor, 
discrimination in the workplace, where they can discriminate 
and hire whomever they wish and fire whomever they wish and 
where they prohibit people from collectively associating or 
collectively bargaining if they choose. Those are five basic 
ILO standards. That is it. We are not talking about having a 
U.S. minimum wage. We are not talking about having working 
conditions in this country. All we are saying is those five 
basic things around the world, which most countries agree with; 
and, as you have mentioned, the Central American countries in 
most cases have adopted most of those five conventions--not 
all, but most. Now, I hear you saying that satisfies you, that 
they have adopted most of those five ILO conventions. Am I 
hearing you correctly?
    Ambassador ALLGEIER. Not entirely.
    Mr. BECERRA. So you are not satisfied. I just want to know 
if you are satisfied or not?
    Ambassador ALLGEIER. I am not satisfied that the overall 
working conditions----
    Mr. BECERRA. If you are not satisfied, why would we have 
settled for that?
    Ambassador ALLGEIER. We didn't settle for it. We put 
together a package----
    Mr. BECERRA. Wait, let's make sure. If the only thing in 
the trade agreement that says DR-CAFTA countries, enforce your 
own laws, and now you are trying to say by association the fact 
you didn't enforce your own laws and, by the way, because you 
adopted some of these ILO conventions, they now become self-
executing within your rubric of laws, that now we have adopted 
them, why should that not satisfy you?
    Ambassador ALLGEIER. There is the question of enforcing 
those standards, and that is exactly what the ILO identified as 
the area we should go to.
    Mr. BECERRA. So, let me ask you a question. When we sent 
that letter back in October or November, 2003, identifying 25 
different cases of violations by the Central American 
countries--not that we identified but that the State Department 
and the ILO itself had found--none of those has been taken care 
of, not with a change in law, to address what should have been 
taken care of if they adopted these conventions to begin with. 
What concerns me is, if you are satisfied that the Central 
American countries are moving forward with adopting these 
conventions, does that mean you are also satisfied with the way 
things are in China, Syria and Iran? Because they, too, have 
accepted more of these ILO conventions than the United States 
has.
    Ambassador ALLGEIER. No, I am certainly not claiming that a 
simple count of how many conventions one has adopted is a 
proper indicator.
    Mr. BECERRA. That is a concern that some of us have. I 
know, for example, that recently, a few months ago, there was 
an assassination of a labor leader in El Salvador who happened 
to be, by the way, an American citizen who was down in El 
Salvador. We are still trying to find out what happened to the 
gentleman, but we know it was an assassination of a labor 
leader. We also know in Guatemala not too long ago some of 
those labor reforms that I believe you have touted as being 
very successful were overturned and no longer can be 
implemented. To me, when you say that no country should change 
their laws to conform to what we would like, and that whole 
discussion that took place with, I think, Congressman McCrery, 
where you don't force any countries to change their laws and 
therefore in terms of labor we didn't do that, I urge you to 
take a look at the provisions that you helped push forward on 
intellectual property, where in section 7 of Article 15, I 
believe it is, you say each party shall provide for criminal 
procedures and penalties, so that if any of these Central 
American countries don't have criminal laws in place to 
prosecute people who violate our intellectual property rights, 
they must now under this agreement change their domestic laws.
    I think most of us are just saying, if you are willing to 
force, contrary to what you just said earlier, force a country 
in Central America to change its laws so that it adopts new 
criminal penalties and procedures, at minimum we should be 
willing to say that these Central American countries should 
conform to basic ILO standards when it comes to labor rights. 
That is where we have this big disagreement. What we see on the 
ground is different from what we see on paper, and I hope that 
we can get to the point of seeing it in practice.
    Ambassador ALLGEIER. Well, I think that is exactly the 
point, is that we want to see changes on the ground and not 
just changes on a piece of paper. That is why we are working 
with the ILO and with the Inter-American Development Bank to 
change the situation on the ground in these countries. What 
everybody who looks at this situation agrees on is that 
enforcement is the place to put the emphasis, and that is 
exactly what we are doing.
    Mr. BECERRA. Thank you, Mr. Chairman.
    Chairman THOMAS. The Chair would indicate the gentleman was 
1:30 over, and he continues to hope that Members will self-
discipline themselves, rather than making it appear as though 
the Chairman forces the Member to stop, but if it continues, 
the Chairman will force the Members to stop. This is a long 
panel. I want all the Members to be able to inquire. Those who 
continue to push the red light really are denying their 
colleagues the opportunity to speak. The Chair will allow all 
Members who wish to participate to participate, but we have two 
other panels, plus Members who failed to notify timely, but 
have indicated that they want to address the Committee on this 
subject. Does the gentleman from Texas, Mr. Brady, wish to 
inquire?
    Mr. BRADY. Yes, Mr. Chairman; and I would hope that 
Xavier's time doesn't come out of my own.
    Mr. BECERRA. I don't think you should worry, because I 
think just about everybody had a red light.
    Chairman THOMAS. The gentleman from Texas has the time.
    Mr. BRADY. I would defy anyone in this room to argue that 
Central America hasn't made remarkable progress the past 15 
years in labor rights, in environmental standards, in democracy 
and the rule of law. It has been simply remarkable. I agree 
with Mr. Becerra that adopting the conventions alone doesn't 
prove anything, but in Central America's case it proves a great 
deal. An objective assessment recently by the ILO said not only 
has Central America adopted these conventions, but these laws 
are compliant with the high standards of the ILO in each case. 
The point they made to us--and, by the way, they don't give 
that assessment to Syria or China or other countries--their 
point was, let's work on enforcement. To Central America's 
credit, their labor ministers came up here 2 weeks ago in a 
remarkable meeting where they not only laid out a plan for 
enforcement, but showed what steps they had already taken, how 
they would not only increase enforcement but would measure 
results, providing 6-month benchmarks on every one of these 
important labor provision. The DR-CAFTA is already making great 
progress, I think having great benefits in labor protection 
simply by its discussion.
    I will make this point, too. People say this is not a 
bipartisan trade agreement, but, in truth, it is. I am looking 
at a letter from a bipartisan group of former Secretaries of 
Agriculture that include Dan Glickman and Mike Espy and others 
who say the failure to approve this trade agreement will have a 
devastating effect on U.S. efforts to negotiate trade 
agreements on behalf of U.S. agriculture. I am looking at an 
open letter to Democrats from some of the key leaders, from 
Henry Cisneros, to Stuart Eizenstat, to the former chairman of 
this Committee, Sam Gibbons, Robert Strauss, the former 
Chairman of the Democratic National Committee (DNC), that talk 
about Central America's progress as a legacy of congressional 
Democrats and how important this trade agreement is to moving 
along with democracy and all the progress that members of this 
panel rightfully should be proud of having been a part of.
    The truth is, while some will say Central America is too 
small and too poor, tell that to U.S. farmers who have the 
opportunity to sell $1.5 billion of their agriculture products 
at a time when much of the world has shut them out. Tell that 
to our U.S. manufacturing workers who have an opportunity to 
sell another $1 billion of products and risk losing $4 billion 
of products a year if we don't bring this to fruition. Tell 
that to our textile workers who today we have already lost, 
because of China's just swamping of the market, five textile 
plants in America already. The Dominican Republic has lost 
19,000 jobs. You say that is not a big deal, but those were 
19,000 of our customers for U.S. products. You look at jeans 
that come from China, where there is no American content at 
all. Look at jeans that come from Honduras, where the fabric is 
American, the thread, zippers and yarn is American, this is 70 
to 80 percent American goods. We are losing those customers 
because of China.
    This gives us a chance to not only find new customers for 
American products but to better compete against China in 
textiles. Perhaps as importantly as that, it gives us a chance 
to look at the remarkable progress that Central America has 
made. I think this is not only one of the most important trade 
agreements we have ever faced but one of the most important 
foreign relations policy decisions we have ever made. Are we 
going to turn our back on Central America? Are we going to keep 
our arm extended, bringing them forward, recognizing they have 
made remarkable progress in rule of law and democracy and labor 
rights and all those values we appreciate? They painfully 
pulled themselves up the ladder of democracy. Kicking them back 
down would be a terrible mistake.
    I am still hopeful in the end we have a lot of discussions, 
and all of these are fair questions, Mr. Allgeier, I am just 
hopeful in the end perhaps as Republicans and Democrats we came 
together to help open our market to Central America. Let's come 
together to keep that open and to reopen it for American 
products and goods and services. I think this is one of those 
truly win-win trade agreements, and I would ask your comments 
on that.
    Ambassador ALLGEIER. Well, first of all, Congressman Brady, 
thank you very much for the support you have been giving us 
throughout the negotiations. Let me pick up on the first thing 
that you said, and that was referring to the remarkable 
progress that has been made in these areas of labor and the 
environment. I have been working in this region since the 
original Summit of the Americas in 1994, and the United States 
hosted the first ministerial meeting of the FTAA. Almost that 
entire meeting was spent by then Ambassador Cantor trying to 
get the word ``labor'' and the word ``environment'' in the 
communique. There, we really were talking about things on 
paper.
    To think the reason there was so much resistance in the 
hemisphere was because they were afraid this was going to 
become a new way of stifling their trade. Think about how far 
we have come to this agreement where we have the countries 
themselves advocating change in their own economies, in their 
own labor standards and environmental standards, and coming to 
us and saying will you help us. The effect of us voting 
against, the Congress voting against, the DR-CAFTA, would be to 
say, no, we heard you, but we are not going to help you.
    Chairman THOMAS. The gentleman's time has expired. Does the 
other gentleman from Texas, Mr. Doggett, wish to inquire?
    Mr. DOGGETT. Thank you, Mr. Chairman. Ambassador, does the 
text of this agreement grant standing to subsidiaries of U.S. 
corporations in DR-CAFTA countries to bring investor state 
claims here in the United States? The wording appears to be 
slightly different than NAFTA.
    Ambassador ALLGEIER. The investor state provisions are for 
our investors in these countries to bring a claim against a 
foreign country in which they are operating.
    Mr. DOGGETT. Yes, sir, I understand how they are supposed 
to work. My question is very specific. Does the text of the 
agreement permit standing for subsidiaries of U.S. corporations 
to come here to the United States and bring investor state 
claims if they have some operation here in the United States?
    Ambassador ALLGEIER. If they have an operation here in the 
United States. If it is a company that is based in one of the 
DR-CAFTA countries, and it has an investment here in the United 
States----
    Mr. DOGGETT. It could bring an investor state claim against 
something that it considered inappropriate here in the United 
States, couldn't it?
    Ambassador ALLGEIER. I believe that a company based in one 
of these countries, regardless of what the particular ownership 
of that company is, if it had an investment here. Typically 
subsidiaries of American companies in these countries are 
established to operate in these countries.
    Mr. DOGGETT. I understand what they typically do. Under 
this agreement they would have that standing.
    Ambassador ALLGEIER. They wouldn't have investment back 
here, though.
    Mr. DOGGETT. They could. There is nothing in this agreement 
to prevent it, is there? If they had an investment, they would 
have standing to challenge, for example, a government action. 
Say, if a State were to ban the use of arsenic in mining. 
Wouldn't it be up--under this agreement, if there were a claim 
by any foreign company that that interfered and took--was a 
taking of its right to do business here, wouldn't that be up to 
a DR-CAFTA arbitration panel to resolve?
    Ambassador ALLGEIER. No, because, first of all, we are 
assuming--I am assuming--that the State implements this ban on 
a non-discriminatory basis.
    Mr. DOGGETT. Yes.
    Ambassador ALLGEIER. What we have done in this agreement, 
which wasn't in previous bilateral investment treaties in the 
past, is we have, first of all, put a provision in this 
agreement which says that if a government entity like a State 
government is exercising its normal, its legitimate powers to 
protect public health and safety and the environment, that 
that, except in rare circumstances----
    Mr. DOGGETT. Yes, sir, and that is what I want to ask you 
about. I understand what the agreement says, but it would be up 
to an arbitration panel to determine what those rare 
circumstances would be, would it not?
    Ambassador ALLGEIER. Yes, but we have another provision in 
here which helps to define what an indirect expropriation would 
be; and what it is, it is the language from the Penn Central 
case in the United States, which is the guiding legal principle 
on what----
    Mr. DOGGETT. Ultimately, the interpretation of those 
principles, though, is left up to a DR-CAFTA arbitration panel, 
correct?
    Ambassador ALLGEIER. That is the way arbitration works, but 
the panel is compelled to look at the treaty to see what the 
principals are.
    Mr. DOGGETT. There is nothing to prevent someone from being 
a trade lawyer, bringing a claim to the panel 1 day and then 
being, or maybe the very same day, being on a different panel 
as an arbitrator?
    Ambassador ALLGEIER. No, that would be a conflict of 
interest.
    Mr. DOGGETT. I am not saying the same issue, on an entirely 
different issue. In other words, the people that serve on 
arbitration panels can also be attorneys bringing claims to 
other arbitration panels of which they have no direct interest.
    Ambassador ALLGEIER. Well, number one, we are part of the 
procedure for selecting panelists. We would certainly not 
select such a panelist, or, frankly, if there were such a 
panelist who later had a conflict----
    Mr. DOGGETT. We are not talking about a conflict; some may 
perceive it as a conflict. You can both practice trade law and 
bring claims to panels, and if you are not involved in a case, 
you could end up being one of the arbitrators in a different 
case involving different production and different issues, 
correct?
    Ambassador ALLGEIER. It is conceivable, but I just want to 
emphasize how closely we pay attention to conflicts of 
interest.
    Mr. DOGGETT. If, for example, a State had a requirement 
that on a large road or a water construction project that it 
was required that you pay the prevailing wage, that would be 
the type of regulation that a DR-CAFTA arbitration panel could 
consider and would be the ultimate arbiter on as to the 
validity of that regulation.
    Ambassador ALLGEIER. No. Once again, if the requirement by 
the State is that one has to pay the prevailing wage, let's say 
on a construction project, that applies and stands whether it 
is a foreign company that is doing the construction, or an 
American company.
    Mr. DOGGETT. It is one of these DR-CAFTA arbitration panels 
that will determine whether that is a proper regulation if 
challenged as a taking by a foreign company or a subsidiary of 
an American company.
    Ambassador ALLGEIER. Let me just mention two other 
protections that we have.
    Mr. DOGGETT. Let me request if you would do that in 
writing.
    [The information follows:]
    The written response of Ambassador Allgeier follows:

    Thank you for your questions regarding the CAFTA investment 
chapter. You raised as a concern whether the fact that attorneys can 
both sit on arbitration panels and serve as counsel in other matters in 
some way undermines the benefits that U.S. investors receive from the 
investor-state provisions. As a general matter, it is not uncommon for 
arbitrators to be lawyers. Indeed, parties to arbitration usually want 
lawyers to serve as arbitrators, as lawyers are likely to have the 
background necessary to resolve the parties' disputes. Prohibiting 
active lawyers from serving as arbitrators would diminish the 
attractiveness of arbitration. However, the United States is vigilant 
in its responsibility to ensure that no conflict of interest exists 
with a potential arbitrator and the matter being heard.
    Separately, it is important to recognize the value that U.S. 
investors get from the protections afforded to them by the investment 
chapter in our free trade agreements, including the CAFTA. Millions of 
Americans have invested their personal wealth in the American and 
global economy. The U.S. legal system affords them and foreigners who 
invest in the U.S. access to fair, transparent, and rules-based legal 
systems. But for many U.S. investors, the playingfield is not level. 
Foreigners get access to the U.S. legal system, but U.S. investors 
overseas are often disadvantaged. CAFTA's investment chapter levels the 
playingfield by including fair and transparent arbitration procedures 
available to U.S. investors in the event that a government expropriates 
their property, discriminates against their investment, or violates one 
of the other investment obligations. U.S. companies abroad have 
successfully used NAFTA Chapter 11 and our BITs to redress unfair and 
discriminatory action against them by foreign governments.
    Nothing in the CAFTA or any other FTA or BIT interferes with a 
state or local government's right to regulate. An investor cannot 
enjoin regulatory action through arbitration. That form of relief is 
not available under our FTAs and BITs. Even if arbitrators were to find 
that a state regulation discriminated against a foreign investor in 
some way, nothing in the CAFTA or our other agreements requires that 
the regulation be amended or repealed.
    Moreover, in drafting these provisions, we were careful to follow 
the detailed guidance on investment negotiations that Congress provided 
in the Trade Promotion Authority Act (TPA) to ensure that there be a 
fair and level playingfield for U.S. investors. The Administration has 
taken care to ensure that the substantive rights accorded to foreign 
investors are no greater than the rights accorded to our own investors. 
For example, TPA sets as a negotiating objective the establishment of 
expropriation standards consistent with U.S. legal principles and 
practices. As with our other FTAs negotiated under TPA, CAFTA fully 
satisfies this standard. Consistent with U.S. law, for example, CAFTA 
clarifies that only property rights in an investment are entitled to 
protection under the expropriation provisions of the Agreement. It also 
clarifies, consistent with U.S. law, that nondiscriminatory regulatory 
actions designed and applied to protect the public welfare generally do 
not constitute indirect expropriations. In determining whether an 
indirect expropriation has occurred, CAFTA directs panels to examine 
the factors in Penn Central, the seminal U.S. Supreme Court case on 
regulatory expropriation.
                                 ______
                                 
    Mr. DOGGETT. I think the spoonful of sugar that is 
referenced by several people in this discussion applies to the 
environment as well. You mentioned Senator Baucus. Seven of the 
eight recommendations he made were rejected in this agreement, 
and the investor state provisions still pose great concern. 
Have I additional time, Mr. Chairman?
    Chairman THOMAS. If the gentleman understands the way the 
Committee works, that red light that is out there has been on 
for 1 minute.
    Mr. DOGGETT. Then I yield back.
    Chairman THOMAS. The gentleman has no time to yield back, 
and I will continue with the other Members, that if you don't 
have the courtesy toward the other members of the panel, at 
least have the courtesy toward your colleagues. The gentleman 
from Wisconsin wish to inquire?
    Mr. RYAN. I do Mr. Chairman. Mr. Allgeier, a couple of 
questions, but first a point I want to make. I think it is 
important that as we look at trade agreements, we view them in 
their own context and on their own merits. For this agreement, 
when you can see that measured to the status quo that we find 
ourselves in today, when 80 percent of their goods coming into 
our country come in duty free, yet we don't see reciprocal 
treatment toward our goods going into their countries and we 
are equalizing that, that is a step in the right direction. 
Particularly what is interesting to me is for my own State of 
Wisconsin. Our major industry is wood products, which is 
northern Wisconsin, our forest industry. We have 0 percent 
tariff on DR-CAFTA wood products coming into America, but they 
have a 10 percent tariff on our goods going there. Motor 
vehicle parts, which is a very big industry in my district, 0 
percent tariff. Auto and auto parts coming into America, 11.1 
percent tariff of American-made auto and auto parts going into 
the DR-CAFTA countries. Corn and soybeans, grains, which is a 
big area of Wisconsin's industry, 0 percent tariff; their grain 
products coming into America, 10.6 percent tariff of our 
products going there. Dairy products: Wisconsin--put the 
California advertising aside, Wisconsin is still America's 
dairy land, and the dairy tariff against our dairy products----
    Chairman THOMAS. The gentleman's time has expired.
    [Laughter.]
    Mr. RYAN. Reclaiming my time, it is a 19.5 percent tariff 
on Wisconsin cheese going into the DR-CAFTA countries. We 
charge them 9.3 percent tariff. Meat products, 14.7 percent 
tariff of our products going into the DR-CAFTA countries, and a 
3 percent tariff we charge them. So, I am very pleased with the 
fact that this levels the playingfield for our products to be 
able to--for us to sell into their markets.
    Also of concern to constituents are the labor standards, 
and I just have a couple of quick questions. I would actually 
appreciate being copied on the letter you are going to send to 
Mr. Doggett on the project labor agreements. My understanding 
of the agreement, that this does nothing to affect in any way 
our project labor agreement and prevailing wages. If you could 
copy me on that interpretation as well, I would appreciate 
that. My question basically is this: 309 House Members voted in 
support of the CBI Unilateral Preference in 2000. Are the labor 
protections stronger in this agreement than they are in the 
status quo? If we do not pass this, how would that improve the 
labor protections in the enforcement of the labor protections 
that the DR-CAFTA countries have right now? We are kind of 
dancing around this issue. The question is, does this agreement 
help increase the enforcement of labor standards in the DR-
CAFTA countries? Is this not a step in the right direction 
compared to the status quo, not just to mention the tariff 
rates but also on labor standards?
    Ambassador ALLGEIER. I thank you. These are all very 
important issues. If I could just say one thing. The tariff 
examples that you gave and that others have been giving are the 
tariffs that we pay now going into these countries. They can 
tomorrow raise those tariffs, and in most cases very 
substantially, because their WTO rates are way up here, and we 
would have no recourse whatsoever. So, actually we are leveling 
the playingfield in even a greater way than these examples have 
given.
    With respect to the CBI versus this agreement here, this 
agreement for labor and environment is immeasurably better and 
stronger. What would happen if we don't pass it? Well, as I 
said earlier, if we don't pass it, we are not involved then in 
the cooperative efforts with these countries and providing them 
the support that they so desperately are asking so that they 
can improve the lot of their workers.
    I think one thing we should be really clear on: These 
countries are not trying to keep workers at low wages or at--
not have rights. They want to improve the welfare of their 
workers. That is why they are coming to us and the ILO and the 
Inter-American Development Bank and saying ``please help us,'' 
and ``please help us'' now translates into passing the DR-
CAFTA.
    Mr. RYAN. Well, I see my red light is about to come on and 
I want to stick with the rules of the Committee, but a lot of 
people look at these trade agreements and let the perfect be 
the enemy of the good. If this is a trade agreement that raises 
labor and environmental standards and gives us the kind of 
access that they are already--that we are already now giving to 
them--and improves our ability to create more jobs here at home 
and sell more overseas, then to me this is a good agreement. I 
thank you for your time.
    Ambassador ALLGEIER. Thank you
    Mr. SHAW. [Presiding.] Mr. Pomeroy.
    Mr. POMEROY. Thank you, Mr. Chairman. Frankly, from the 
Administration there seems to be a rather self-congratulatory 
tone, not with the witness before us, but throughout the 
presenters to the Committee on Ways and Means, which I find 
completely surprising in light of the circumstances we now find 
ourselves. We have the deepest trade deficit with the world we 
have had in the history of the country. Representing rural 
America, I am astounded that we are in a quarter-by-quarter 
foot race in terms of whether we are going to be a net importer 
of food or a net exporter. To think about the United States of 
America being a net importer of food shows what a sorry, sorry 
trend this has been.
    We have on this chart the relationship of trading with 
China. You can see more than ever, we are at a deep, deep trade 
deficit circumstance with China, and that does not capture the 
first 3 months of this year. We have read just recently, a Wall 
Street Journal article on April 1, of the tremendous textile 
surges we have seen just in the first quarter: a 1,258 percent 
increase in cotton knit shirts; a 1,521-percent increase in 
cotton pants. Last week we had a panel before us that couldn't 
say they had done anything more to respond to this than refer 
it to some Committee.
    In the face of this onslaught of imports, we have not seen 
the Administration take the action required to protect 
Americans. In many cases, terms for fair trade were put into 
the very agreements, but not enforced by the Administration 
themselves. So, small wonder we have some uncertainty as we 
approach this trade agreement. Just looking at what has 
happened with the NAFTA countries since the trade agreement was 
entered, 523 percent change to the detriment with Canada; 2,742 
percent to the detriment with Mexico. Perhaps it is all a 
matter of perspective. When you get before us and talk about 
this sugar deal, it is just a spoonful a week, that may be your 
way of looking at it; but to us, what is in the DR-CAFTA 
agreement is going to impact adversely U.S. sugar to the tune 
of $180 million. I have heard my own growers try to pencil this 
out in terms of what losing a penny on the price might be, 50 
to $80 an acre; all of this coming when we are at the deepest 
trade deficit in the history of the country. I want to ask you, 
why wasn't sugar taken off the table when this trade agreement 
was negotiated?
    Ambassador ALLGEIER. There are a number of things that you 
mention, and I do want to get back to the China point.
    Mr. POMEROY. Actually, I wanted to talk about sugar, here, 
now. China just set the stage for why we are anxious, but let's 
now talk about sugar. Why was sugar not taken off the table?
    Ambassador ALLGEIER. Sugar was handled very, very 
sensitively, more sensitively than any of the other 
agricultural products, I would say. However, once we say to a 
country we are not going to consider anything to do with a 
given product, they will come back to us and they will say, 
fine; we will not consider a particular product of yours, or a 
particular interest of yours.
    Mr. POMEROY. If I might just then pursue this. There are 21 
sugar-exporting countries lined up for future bilateral 
negotiations with the United States. Will sugar be on the table 
in those negotiations? Or can you assure us this afternoon, 
right here in this hearing, on the record, right now, that 
sugar will not be on the table in those future negotiations?
    Ambassador ALLGEIER. Well, first of all, I am not sure what 
you mean when you say there are 21 countries lined up to do 
FTAs with us. We have not agreed to do any FTAs at this point 
other than the ones that are currently under negotiations.
    Mr. POMEROY. Well, let's not quibble about the number. 
Let's just say as to future bilateral trade negotiations with 
countries that might be sugar exporters, will you commit right 
now that sugar is off the table in those cases?
    Ambassador ALLGEIER. In all of these agreements, we are 
looking at the agreement itself and we are looking to be very 
sensitive to any product that is import-sensitive in the United 
States, whether it is an agricultural product or an industrial 
product.
    Mr. POMEROY. Back where I come from, we may not be 
diplomats or trade negotiators, but that is definitely not a 
no. That is our problem with this. You put sugar on the table 
of DR-CAFTA and we lose $180 million of opportunity. That is 
why we are so terribly anxious with future trade agreements 
still pending. I yield back.
    Mr. SHAW. The time of the gentleman has expired. Mr. 
Beauprez.
    Mr. BEAUPREZ. Thank you, Mr. Chairman. Mr. Ambassador, good 
to have you in front of us today. Let me start out by 
mentioning that I too have some angst over the sugar portion of 
this trade agreement because we have got some sugar beet 
growers in my State. They are concerned, and I share their 
concern. I must tell you, on balance, and with far greater 
balance, I am very happy with the agreement you have put in 
front of us, especially given the rather monumental step 
forward we take, not only on our behalf, but on behalf of the 
people of Central America. I will talk about that in a minute.
    In Colorado, some of our exporters would include the high-
tech sector, and the high-tech sector took a pretty bad blow to 
the head and other body parts in this recent downturn that they 
just went through. We have got companies like Storage 
Technology and IBM and Ball Aerospace and Lockheed Martin and 
Northrop Grumman and Raytheon, and they are not only anxious to 
compete more favorably and more openly in this expanding 
market, but they very much appreciate the progress you have 
made in protecting intellectual property rights. So, that is 
just a thank-you.
    Colorado, after the fur traders and the silver miners came 
to Colorado, it was agriculture that built Colorado and still 
to a large degree maintains Colorado. Beef, pork, wheat, 
barley, chicken, poultry are all products that we not only 
participate in exporting now, but frankly, we want to get our 
piece of that projected $1.5 billion of additional exports that 
we think are coming from that trade agreement. In addition to 
raw agricultural products, we send a lot of processed food down 
that direction, especially dairy products and processed beef, 
poultry, and pork. Also something close to my heart, tea, 
believe it or not. Celestial Seasonings is a Colorado company 
that actually employs my son as their market manager. They do 
it both ways. They import some of their raw product, the raw 
tea from Central America, and send it back in those cute little 
packages with the nice designed boxes.
    Here is my question to you, sir. One, two questions. One, 
it seems that a premise was just put forward to us that somehow 
by not approving this trade agreement, we improve our trade 
deficit. I find that just a completely upside-down argument. It 
seems to me the way to address our trade deficit is to open 
more markets to American companies not to keep them closed. I 
would like you to opine on that one. Second--and I will just 
give you both of them right now. I have found Mr. Becerra's 
statement about the race to the bottom relative to somehow 
pulling our laborers, employees, the working-class people of 
the United States down to the bottom of the bucket, if you 
will, a rather upside-down argument as well.
    Illegal immigration is a concern in Colorado, as it is in a 
good bit of the country. I remember distinctly hearing the 
President say one time that, one element of resolving this 
problem--in addition to securing the border and dealing with 
the illegals that are here--the third element is to actually 
elevate the economic opportunity of the people that might be so 
motivated, inclined to come here legally or illegally, elevate 
their opportunities, their economic standards to the point 
where, guess what, they might like to stay home. Now, while all 
of us, I expect, would like to take multiple steps forward, not 
just one in this process of accomplishing that, this looks to 
me like with the cooperation, in fact, the invitation of the 
partners in this trade agreement, we are doing just exactly 
that, assisting these people in climbing that ladder.
    Ambassador ALLGEIER. Thank you, Congressman. I guess that 
you and I both learned mathematics in the same school, which 
says that you are likely to improve your trading relationship 
if you get rid of tariffs and you get rid of other barriers. At 
least that is the way that I learned math, and I guess that 
probably you did to. In terms of the race to the bottom, the 
National Association of Manufacturers has done a very 
interesting study on textiles. It says that without the DR-
CAFTA agreement, those countries would lose something like $10 
billion of their apparel exports to the United States to Asian 
competitors. What that means is they would have to cut their 
global imports from us because they use so many imports, and 
that would result in a 40 percent loss of those imports from 
the United States with an impact on 48,000 U.S. jobs. That is 
the kind of race to the bottom we want to avoid with the DR-
CAFTA, by passing the DR-CAFTA.
    Mr. BEAUPREZ. I thank the gentleman.
    Chairman THOMAS. The gentlewoman from Ohio, Ms. Tubbs 
Jones, wish to inquire?
    Ms. TUBBS JONES. Thank you, Mr. Chairman. Good afternoon, 
sir. How are you? You have been brave to sit through all of our 
questions. I am going to try and be quick, even though I am not 
usually very easy. I want to show you a chart. This chart 
happens to be a chart of my colleague, Marcy Kaptur, from 
Toledo. Now, you and Mr. Beauprez were talking about 
mathematics. This shows that our trade deficit has grown to 
close to $50 billion since we entered into NAFTA or NAFTA was 
signed. That is not good mathematics, is it?
    Ambassador ALLGEIER. The deficit with Mexico has increased, 
but so have our exports, very dramatically.
    Ms. TUBBS JONES. So, does that give us greater money? Does 
that decrease that $50 billion we are talking about?
    Ambassador ALLGEIER. The export growth that we have had 
with Mexico, during that same period, we have had an increase 
of 20 million U.S. jobs, not all----
    Ms. TUBBS JONES. We had an increase of how many; 20 million 
U.S. jobs?
    Ambassador ALLGEIER. In the United States during the period 
of NAFTA.
    Ms. TUBBS JONES. Can you provide that information to me, 
where they are? They couldn't be in Ohio; we have lost 200,000 
jobs since 2001. So, where are these 20 million jobs?
    Ambassador ALLGEIER. Well they are throughout the United 
States during the period, and I am not attributing them all to 
NAFTA. I am just saying that during the period of NAFTA----
    Ms. TUBBS JONES. Well, what is the net number of jobs?
    Ambassador ALLGEIER. Well, that is----
    Ms. TUBBS JONES. The loss plus the gain. What is the net?
    Ambassador ALLGEIER. Well, that is what--I believe that is 
the net; that we have got 20 million more jobs in the United 
States now than we had at the time of NAFTA.
    Ms. TUBBS JONES. Sir, show me that information. If that 
were the case, I wouldn't believe we would be having the 
unemployment rates that we have. In Ohio, 202,000 jobs lost 
since January 2001. So, somewhere else in this country you have 
got 200,000 more jobs that we don't have in Ohio as a result of 
this manufacturing change. I see your people shouting, turning 
their heads, yes. I would love to see the information if you 
could provide it to me as quickly as you could.
    Ambassador ALLGEIER. Fair enough.
    [The information follows:]

                          NAFTA and U.S. Jobs

United States
    U.S. employment rose from 112.2 million in December 1993 (the month 
before the beginning of NAFTA implementation) to 133.3 million in April 
2005. This was an increase of 21.1 million jobs, or 18.8%.
Ohio
    State of Ohio employment rose from 5.0 million in December 1993 to 
5.4 million in March of 2005. This was an increase of 433,000 jobs, or 
8.7%.
Imports from Mexico and U.S. employment
    U.S. job growth does not fluctuate based on the growth of imports 
from Mexico. Consider:

      Substantially rising imports from Mexico from 1993 to 
2000 occurred at the same time U.S. employment was growing. U.S. 
imports from Mexico grew from roughly $40 billion to $136 billion, and 
U.S. employment grew from 110.8 million to 129.0 million.
      Neither does stagnant import growth from Mexico 
correspond to periods of robust U.S. job growth. From 2000-2003, 
imports from Mexico barely move ($135 billion to $138 billion over 3 
years) while employment growth in the U.S. slows sharply (2.6 million 
jobs a year added from 1993 to 2000; but not much over 300,000 added a 
year from 2000 to 2003).
      This pattern continued in 2003-2004, when imports from 
Mexico rose from $138.1 billion to $155.8 billion and employment grew 
by a much more robust 1.5 million on a year over year basis, or by 2.2 
million from December 2003 to December 2004.

    Since NAFTA was implemented, it has been true that when the U.S. 
economy is growing well, both U.S. employment and imports from Mexico 
rise rapidly; when U.S. growth is slow or even negative, both the 
growth of both imports and U.S. employment plummet.
    Sources: U.S. Department of Labor/Bureau of Labor Statistics data 
for total non-farm employment, seasonally adjusted, and U.S. Department 
of Commerce.
                                 ______
                                 
    Ms. TUBBS JONES. Like today. Let me go on. Let's talk about 
Trade Adjustment Assistance (TAA). Under this Administration, 
instead of those dollars going up for the loss of jobs, the 
dollars going toward TAA are going down. Can you explain the 
rationale of that for me?
    Ambassador ALLGEIER. Well, those--the TAA, obviously, 
depends on people who have been affected by changes in the 
trade regime of the United States. So, it depends on whether, 
in fact, the dislocation that they have been experiencing is 
attributable to----
    Ms. TUBBS JONES. Have you assessed the dislocation of jobs 
in Ohio? Does that have anything to do with it? Are you saying 
it does or does not have anything to do with trade?
    Ambassador ALLGEIER. Well, obviously, it has to do with 
trade, both the jobs that are created and the jobs that are 
lost.
    Ms. TUBBS JONES. So assume, then, that Ohio adequately 
reflects other areas across the country. How do you explain the 
lowering of the dollars allocated for TAA?
    Ambassador ALLGEIER. Well, there can be several reasons for 
that. First of all, it is dependent upon people applying for it 
and qualifying for it.
    Ms. TUBBS JONES. Okay. Understood. That is a given. What 
else?
    Ambassador ALLGEIER. Okay. I am not an expert in TAA.
    Ms. TUBBS JONES. Okay. Well then, I won't tarry with you on 
that, then. I will ask you something else. Tell me, sir, under 
the agreements that we have with China, WTO, there are several 
enforcement tools that are necessary or available to the United 
States of America to enforce the agreement that we have, 
correct?
    Ambassador ALLGEIER. Yes.
    Ms. TUBBS JONES. Under these agreements, the DR-CAFTA 
agreements, there are several enforcement tools that are 
available to the United States to enforce those agreements, are 
there not, sir?
    Ambassador ALLGEIER. Yes, there are, specific to the 
agreement.
    Ms. TUBBS JONES. Do you, as to--well, you are acting, but I 
am assuming you are going to still be around, assuming a new 
person is appointed--commit to a vigorous use of the tools we 
have to enforce these trade agreements, much more vigorous than 
what we have seen with the WTO in China?
    Ambassador ALLGEIER. We certainly are committed and will 
continue to be committed to use all of the tools available in 
whatever agreements we have, whether it is the Chinese 
accession to the WTO, the bilateral agreements that we have 
already negotiated and Congress has passed and, we hope, the 
DR-CAFTA agreement which we look forward to congressional 
passage. We will use all the tools. We will use them as 
aggressively as we can and we are constantly looking at ways to 
be more effective.
    Ms. TUBBS JONES. I would love to have in writing at another 
time--I am running out of time--the enforcement that you have 
done against China with regard to the WTO: Stephanie Tubbs 
Jones, Ohio, 11th Congressional district. Thank you Mr. 
Chairman
    Chairman THOMAS. The gentlewoman is welcome. The 
enforcement on the FTA vis-a-vis the WTO would, of course, be a 
different sheet.
    Ms. TUBBS JONES. Understood.
    Chairman THOMAS. I believe the Committee would like to have 
both. That helps us see the difference between the two.
    Ms. TUBBS JONES. I agree. Thank you, Mr. Chairman.
    [The information follows:]
    The written response of Ambassador Allegeier follows:

    China acceded to the WTO on December 11, 2001. In its accession 
agreement, China agreed to extensive, far-reaching and often complex 
commitments to change its trade regime, at all levels of government. 
China committed to implement a set of sweeping reforms that required it 
to lower trade barriers in virtually every sector of the economy, to 
provide national treatment and improved market access to goods and 
services imported from the United States and other WTO members, and to 
protect intellectual property rights. China also agreed to special 
rules regarding subsidies and the operation of state-owned enterprises, 
in light of the state's large role in China's economy. In accepting 
China as a fellow WTO member, the United States also secured a number 
of significant concessions from China that protect U.S. interests 
during China's WTO implementation stage. Implementation should be 
substantially completed--if China fully adheres to the agreed 
schedule--by December 11, 2007.
    To date, while China's efforts to fulfill its WTO commitments are 
impressive, they are far from complete. At times, China's efforts have 
been unsatisfactory, and the Administration has responded with 
appropriate steps in such cases. The first year of China's WTO 
membership (2002) saw significant progress, as China took steps to 
repeal, revise or enact more than 1,000 laws, regulations and other 
measures to bring its trading system into compliance with WTO 
standards. In 2003, however, China's WTO implementation efforts lost 
momentum, and we identified numerous specific WTO-related problems.
    In response, the Administration stepped up its efforts to engage 
China's senior leaders. In December 2003, President Bush and China's 
Premier, Wen Jiabao, committed to upgrade the level of economic 
interaction and to undertake an intensive program of bilateral dialog 
with a view to resolving problems in the U.S.-China trade relationship. 
Premier Wen also committed to facilitate the increase of U.S. exports 
to China. This new approach was exemplified by the highly constructive 
Joint Commission on Commerce and Trade (JCCT) meeting in April 2004, 
with Vice Premier Wu Yi chairing the Chinese side and Secretary of 
Commerce Evans and United States Trade Representative Zoellick chairing 
the U.S. side.
    At that meeting, which followed a series of frank exchanges 
covering a wide range of issues in late 2003 and early 2004, the two 
sides achieved the resolution of no fewer than seven potential disputes 
over China's WTO compliance. Those successes ranged across the economic 
spectrum, including the following:

      China agreed to suspend indefinitely its proposed 
implementation of a unique Chinese standard (WAPI) as a mandatory 
wireless encryption standard, which would have disadvantaged our high-
tech sector and required technology transfer to Chinese firms.
      China agreed to support technology neutrality with 
respect to 3G wireless phone standards, and telecom service providers 
will be allowed to make their own choices.
      China agreed to implement its WTO trading rights 
obligations ahead of schedule, allowing U.S. firms to ship U.S. 
products to China without using local middlemen.

    China also presented a detailed action plan to address the piracy 
and counterfeiting of American ideas and innovations, particularly 
through increased criminal penalties for violators. We have seen some, 
but insufficient, results from this plan, as IPR infringement is still 
at unacceptable levels. Following a comprehensive ``out-of-cycle''(OCR) 
review of China's intellectual property rights (IPR) protection and 
enforcement under the Special 301 provisions of the Trade Act of 1974, 
USTR concluded on April 29 that while China has recently undertaken a 
number of serious efforts at the national level to address this 
situation, such as lowering the value thresholds that trigger criminal 
investigations and prosecutions, these steps have not significantly 
reduced IPR infringements across China. Therefore, USTR elevated China 
to the Priority Watch List, and announced that we would work closely 
with industry with an eye toward utilizing all available WTO procedures 
to address our serious concerns about China's compliance with its TRIPS 
obligations. USTR will also use rely on the transparency provisions in 
the TRIPS Agreement to obtain specific information from China on the 
operation of its IPR enforcement regime. Given the deficiencies in 
China's IPR enforcement system, the OCR report sets out tangible 
results that USTR expects of China to fulfill the commitment it made to 
the United States at the April 2004 JCCT meeting to substantially 
reduce IPR infringements throughout China. USTR will pursue benchmarks 
to gauge China's results.
    In the last year, the Administration also filed, and successfully 
resolved, the first-ever dispute settlement case brought against China 
at the WTO. In that case, the Administration, with support from several 
other WTO members, challenged discriminatory value-added tax policies 
that favored Chinese-produced semiconductors over imported 
semiconductors. In July 2004, within 3 months of our initiating the 
case, China agreed to end its discriminatory policies, allowing U.S. 
manufacturers to preserve and expand their $2 billion export business 
to China.
    Despite successes in a number of areas, important problems remain 
and new ones have emerged. At present, we are pressing China in a 
number of areas, with priorities being IPR enforcement; distribution 
services, including direct selling; industrial policies that limit 
market access by non-Chinese origin goods and that often aim to extract 
technology and intellectual property from foreign rights-holder;, 
restrictions in certain services sectors; and problematic sanitary and 
phytosanitary measures.
    With respect to our trade remedy laws, the United States was the 
first WTO member to invoke the China-specific textile safeguard to 
address market disruption caused by a surge in Chinese imports and 
recently self-initiated investigations to consider limits on three 
additional product categories. The Administration has also continued to 
apply the anti-dumping laws with respect to unfairly traded imports 
from China. Indeed, since China's entry into the WTO, the Department of 
Commerce has imposed 22 antidumping orders on imports from China, 
representing one-third of total U.S. antidumping orders issued during 
that time period. In addition, the Administration has continued to 
utilize the special non-market economy methodologies in assessing 
dumping margins, as we negotiated the right to do when China joined the 
WTO.
    For further details on the Administration's efforts to enforce the 
commitments that China made in its WTO accession agreement, attached is 
the 2004 USTR Report to Congress on China's WTO Compliance (also 
available at http://www.ustr.gov/assets/Document_Library/
Reports_Publications/2004/asset_upload_file281_6986.pdf). This report 
was issued in December 2004 and presents a comprehensive analysis of 
China's WTO commitments and compliance efforts, along with the efforts 
that the Administration has made to monitor and enforce the terms of 
China's WTO accession agreement.
                                 ______
                                 
    Chairman THOMAS. Thank the gentlewoman very much. The 
gentlewoman from Pennsylvania, Ms. Hart, wish to inquire?
    Ms. HART. Yes, I do, Mr. Chairman. Thank you, Mr. Chairman. 
Thank you, Mr. Ambassador, for joining us today. I am listening 
to the arguments and I need you to kind of go through this with 
me. My colleagues on the other side of the aisle keep 
mentioning our trade deficit, and they seem to somehow believe 
that our trade deficit will decrease if we prevent the DR-CAFTA 
agreement and other agreements to proceed. I must be missing 
something here, because currently our products are more 
expensive to the consumers in the DR-CAFTA nations. After DR-
CAFTA would be accepted, our products would be less expensive 
to consumers in the DR-CAFTA nations; is that not correct?
    Ambassador ALLGEIER. That is absolutely correct, 
significantly cheaper.
    Ms. HART. From what we all know about consumer behavior, 
would it not then be true that our products are more likely to 
be purchased in the DR-CAFTA nations after DR-CAFTA is accepted 
than they are today?
    Ambassador ALLGEIER. That is what I learned in economics, 
and I have noticed it in the grocery store quite consistently.
    Ms. HART. I notice every time a sale sign goes up, crowds 
grow. It seems to me that if we look at the present situation--
which is better for them, that means their products are cheaper 
here, but not particularly better for us--we would be crazy not 
to adopt this agreement, especially if we like sales. Okay. 
Thanks for that. I just needed a little bit of logic to prevail 
here, because I haven't been hearing a whole lot today and I 
think it was important to make that point.
    My colleagues have been holding up a lot of food items, and 
I have a little bit of agriculture, but I want to touch on 
something that I think is also important. I exchanged an e-mail 
today with someone very close to me, who happens to be my 
brother, and he is in the chemical business. I was looking at 
the figures, and I understand that a significant number of our 
current exports to these countries are chemicals and industrial 
related. He is in industrial coatings manufacturing. Would it 
not then be true--and I am looking at the figures on the amount 
of duties that our companies' products currently have to 
endure, pretty high amounts, 5 percent, some even higher. Then 
wouldn't that then open up a pretty good market for a lot of 
our other manufacturers, our industrial manufacturers?
    Ambassador ALLGEIER. Absolutely. That is the point of the 
agreement.
    Ms. HART. Okay. That having been said, we have cheaper 
access to American products in these countries. We have some 
decent agreements regarding advancement in labor. Their 
employees would be treated much better. Mr. Beauprez was 
alluding to some issues I think are very important that we 
haven't looked at regarding the likelihood of more people from 
those countries attempting to get into the United States 
illegally. Obviously, if they have more strength in their 
economy, they are more likely to stay. Have we seen in prior 
trade agreements like this the economy of the country we are 
making the agreement with get stronger?
    Ambassador ALLGEIER. Absolutely. The economy--certainly the 
economy of Mexico has gotten stronger as a result of NAFTA, and 
they have made a number of other changes that have been very 
favorable to the United States.
    Ms. HART. Okay. I think we have gotten a little bit of the 
logic forward. I want to thank you for coming to see us today. 
Just one final thing, and that is on industrial goods again, 
which are very important to the communities I represent. Is it 
true that after 10 years, that all the tariffs on those goods 
would be phased out?
    Ambassador ALLGEIER. That is true, but actually, almost all 
of them, especially on the industrial side, will be done in the 
first year; the first day, actually.
    Ms. HART. So, it would be a significant improvement, then, 
in the marketability of American products to Central America 
very quickly.
    Ambassador ALLGEIER. It would be very significant. Eighty 
percent of our products will go to duty-free on the first day.
    Ms. HART. Thank you. I appreciate your answers and I 
appreciate your logic, and I yield back to the chairman.
    Chairman THOMAS. Thank the gentlewoman. Gentleman from 
California, Mr. Thompson, wish to inquire?
    Mr. THOMPSON. Yes, I do. Thank you, Mr. Chairman. Mr. 
Ambassador, thank you for being here today. I want you to know 
that I believe strongly that, however we enhance our 
opportunities and our abilities to trade with our global 
neighbors is important to all of us, on both a micro and a 
macro level. A couple of things have been mentioned today that 
concern me, both the questions and the answers. There has been 
a lot of focus on the trade deficit issue, particularly how it 
relates to agriculture. If you look back at the past year since 
NAFTA has been enacted, the trade--agricultural trade deficit 
with the NAFTA countries has just about tripled. So, if you 
consider that the NAFTA countries, there are more consumers 
there, and they have much more purchasing power than the DR-
CAFTA countries, can you explain to me how we are not going to 
have the same problems if we do DR-CAFTA that we had with NAFTA 
as it pertains to the agricultural trade deficit?
    Ambassador ALLGEIER. Well, obviously, every market is 
different and the 60 agricultural organizations that support 
the DR-CAFTA are far better----
    Mr. THOMPSON. I am not interested in who supports it. There 
are fewer people in the DR-CAFTA countries. They have less 
purchasing power than the NAFTA countries, and our agricultural 
trade deficit grew three times since NAFTA has been passed.
    Ambassador ALLGEIER. Right, but what I was going to say is 
that these agricultural organizations, who are obviously out 
there marketing their products every day, are in a much better 
position than I to judge what the prospects are in their 
markets. They all have come to the conclusion that DR-CAFTA 
improves that.
    Mr. THOMPSON. I know I have heard from one. The U.S. cattle 
folks are one of those groups, but I understand in this 
particular proposal, it only immediately opens the market for 
high-grade cuts of beef. Given the poverty situation in the DR-
CAFTA countries, there is very little likelihood that they 
would be able to purchase those expensive high-grade cuts. So, 
I am not sure if everybody is working off the same set of 
numbers.
    Ambassador ALLGEIER. Well, I think the thing here is what 
has been emphasized; that we already are open to their 
products. So, this is basically a one-way opening. That is why 
the AFBF has calculated that our exports of agricultural 
products will grow at an 8 to 1 ratio compared to the growth of 
our imports.
    Mr. THOMPSON. If you could get to me--and do some sort of 
juxtaposition between DR-CAFTA and NAFTA--because if you go 
back and look at what happened, the very real numbers of NAFTA, 
your thesis does not prove out.
    [The information follows:]
    The written response of Ambassador Allgeier follows:

    Since the implementation of NAFTA, Canada and Mexico have become 
our first and second largest markets for U.S. agricultural exports. 
U.S. agricultural exports to our NAFTA partners reached $18.2 billion 
in 2004, accounting for 30 percent of U.S. agricultural exports to the 
world. We have worked hard to actively monitor and enforce the NAFTA, 
to resolve issues where enforcement concerns have arisen, and we have a 
strong record of success in doing so with Mexico. For example, we 
negotiated compensation for Mexico's safeguard action on U.S. poultry 
leg quarters that has allowed continued export growth. Poultry exports 
hit a record in 2004 and have grown another 34 percent so far in 2005.
    The CAFTA/DR offers significant opportunities for U.S. farmers and 
ranchers, and treats import sensitive products, like white corn grown 
by subsistence farmers in most Central American countries, with care. 
Currently, over 99% of agricultural exports from CAFTA/DR enter the 
United States duty free under MFN tariffs and trade preferences. Yet 
the average allowed agricultural tariff for the CAFTA/DR countries 
under their WTO commitments are 42% in Costa Rica, 41% in El Salvador, 
49% in Guatemala, 35% in Honduras, 60% in Nicaragua, and over 40% in 
the Dominican Republic. The CAFTA/DR will level the playingfield for 
American farmers and ranchers. On day one, more than half of current 
U.S. farm exports to CAFTA/DR countries will be duty-free, including 
high quality cuts of beef, cotton, wheat, soybeans, key fruits and 
vegetables, processed food products, and wine. Tariffs on most 
remaining U.S. farm products will be phased out within 15 years. 
Benefiting from improved market access are: pork, dry beans, vegetable 
oil, poultry, rice, corn and dairy products.
    The farm community is very supportive of this agreement. The 
American Farm Bureau estimates that the CAFTA/DR could mean $1.5 
billion to U.S. farmers and ranchers, and nearly 60 agricultural trade 
associations have offered their public support of the CAFTA/DR (see 
attached).
    U.S. industry identified exports of prime beef as a priority under 
this agreement. Immediate duty free access into the region will target 
the region's active hotel industry trade. Furthermore, the U.S., 
Central American and Dominican beef industries stand to benefit from 
increased trade as our beef is of different qualities, and therefore, 
does not compete directly.
                                 ______
                                 
                                                      April 4, 2005
Dear Member of Congress:

    The undersigned groups representing the U.S. food and agricultural 
community urge your support for the Free Trade Agreement with Central 
American and the Dominican Republic (CAFTA-DR). CAFTA-DR is a home run 
for American agriculture. We are giving up very little to gain very 
much. Normally in trade agreements, each party expects the concessions 
it receives to balance the concessions it grants. Uniquely in CAFTA-DR, 
the agriculture agreement is tilted steeply in the direction of the 
United States.
    Previous trade arrangements approved by Congress gave generous 
access to the U.S. market for food and agriculture exports from these 
six nations but provided no reciprocal benefits to U.S. food and 
agriculture exports to those same six markets. Between the Generalized 
System of Preferences, which has been in place since 1976, and the 
Caribbean Basin Economic Recovery Act, or Caribbean Basin Initiative 
(CBI), which has been in place since 1983, U.S. tariffs on most of the 
food and agricultural products imported from the CAFTA-DR countries are 
already zero.
    On a trade-weighted basis, over 99 percent of the food and 
agriculture products we import from the region enter duty-free. On the 
other hand, the food and agriculture tariffs our products must overcome 
in the CAFTA-DR countries exceed 11 percent on average, but can range 
as high as 150 percent or more on sensitive products. This does not 
include the highly restrictive tariff-rate quotas many of our products 
face. The result is that we have an agriculture trade deficit with 
these six nations. In 2004, U.S. imports from these countries exceeded 
our exports to the region by over three quarters of a billion dollars.
    So, a vote for CAFTA-DR is a vote to give American farmers trade 
reciprocity. It is also a vote to keep our food and agriculture exports 
competitive with products from other countries. Our market share in the 
CAFTA-DR nations has fallen from 54 percent in 1995 to around 40 
percent because of preferential arrangements negotiated by these six 
countries with our competitors. The implementation of CAFTA-DR will 
remedy this problem.
    Congress last voted to extend the unilateral benefits under GSP and 
CBI to these countries and others as part of the Trade Act of 2002. The 
most recent stand-alone vote on a CBI conference report in 2000 
demonstrates the willingness of Congress to provide trade benefits to 
an important region of the world. In the Senate, CBI passed by a vote 
of 77-19 with 4 abstentions; in the House, it was approved by a vote of 
309-110 with 16 abstentions. The undersigned organizations, 
representing the vast majority of U.S. agriculture, are simply 
requesting that Congress provide to American farmers what it has 
already provided to farmers in the CAFTA-DR countries--improved market 
access for their exports.
            Sincerely,

Altria Group, Inc.  
American Bakers Association  
American Farm Bureau Federation  
American Feed Industry Association  
American Frozen Food Institute  
American Meat Institute  
American Potato Trade Alliance  
American Soybean Association  
Animal Health Institute  
Biotechnology Industry Organization  
Blue Diamond Growers  
Bunge North America, Inc.  
California Canning Peach Commission  
California Table Grape Commission  
Cargill, Incorporated  
Corn Refiners Association  
CropLife America  
Elanco Food Products Association  
Grocery Manufacturers of America  
International Dairy Foods Association  
Louis Dreyfus Corporation  
National Association of Wheat Growers  
National Cattlemen's Beef Association  
National Chicken Council  
National Confectioners Association  
National Corn Growers Association  
National Grain and Feed Association  
National Grain Sorghum Producers  
National Grain Trade Council  
National Grange  
National Milk Producers Federation  
National Oilseed Processors Association  
National Pork Producers Council  
National Potato Council  
National Renderers Association  
National Turkey Federation  
North American Export Grain Association  
North American Millers' Association  
Northwest Horticultural Council  
Pet Food Institute  
Sweetener Users Association  
The Distilled Spirits Council  
The Fertilizer Institute  
U.S. Dairy Export Council  
United Egg Producers  
United States Dry Bean Council  
U.S. Apple Association  
U.S. Hide, Skin, and Leather Association  
U.S. Meat Export Federation  
U.S. Wheat Associates  
USA Poultry and Egg Export Council  
USA Rice Federation  
Washington State Potato Commission  
Western Growers Association  
Wheat Export Trade Education Committee  
                                 ______
                                 
                                            National Cotton Council
                              Industry Affirms Support for DR-CAFTA
                                                       May 10, 2005
    MEMPHIS--The National Cotton Council's (NCC) board of directors 
announced May 9, following a special session, the NCC's support for the 
Dominican Republic-Central American Free Trade Agreement (DR-CAFTA).
    NCC represents the U.S. cotton industry's seven segments---
producers, ginners, cottonseed handlers, warehousers, merchants, 
cooperatives and textile manufacturers.
    The NCC board adopted a resolution that urges Congress to endorse 
the current DR-CAFTA and recognizes that the ``agreement should provide 
the United States the best opportunity for supplying apparel 
manufacturers and other end-use manufacturing industries in the western 
hemisphere'' with U.S. cotton fiber and U.S.-produced cotton textile 
products. In addition, the resolution urges the Administration to 
continue to address the trade priorities of the U.S. cotton industry, 
including taking appropriate action regarding increased competition for 
U.S.-produced textiles.
    Earlier this year, during its annual meeting, the NCC reaffirmed 
its conviction that a good CAFTA is beneficial to the U.S. cotton and 
textile industries. The NCC stated its intent to recommend passage of 
the current agreement ``--if benefits to all segments of the cotton and 
textile industries are achieved by effectively reducing the adverse 
effects of 3rd-country participation and the Administration continues 
to address other Council trade priorities.''
    ``Our board reviewed developments over the past several months and 
concluded that the conditions specified in the late January resolution 
have been satisfied,'' said NCC Chairman Woods Eastland, a marketing 
cooperative official from Greenwood, Mississippi. ``The agreement is 
essential for preserving our current trade with the DR-CAFTA countries, 
particularly in light of the elimination of all textile quotas 
effective January 1, 2005.''
    U.S. raw cotton exports to DR-CAFTA countries in 2004 totaled more 
than 200,000 bales, accounting for more than 90 percent of raw cotton 
consumption in those countries. U.S. exports of yarn and fabric totaled 
more than 2.5 million bale equivalents of cotton textile products 
accounting for more than 50 percent of total U.S. cotton textile 
exports in 2004.
    American Cotton Producer Chairman John Pucheu, a Tranquility, CA, 
cotton producer, noted that, ``It has been the longstanding view that a 
good Western Hemisphere trade agreement is vitally important to the 
U.S. cotton and textile industries. Already, some 80 percent of the 
cotton consumed by U.S. mills depends on cut-and-sew operations outside 
the U.S., primarily in Central America and Mexico, and that dependence 
will continue to grow. The DR-CAFTA agreement will certainly improve 
our competitiveness in the textile and apparel arena.''
    NCC President and CEO Mark Lange, said, ``We believe the DR-CAFTA 
agreement will be approved by Congress in the weeks ahead. We look 
forward to working with Congress, the Administration and the National 
Council of Textile Organizations toward its adoption and appropriate 
implementation and to ensure that the potential benefits to U.S. cotton 
and textiles are not subsequently diminished as other trade agreements 
are negotiated.''

                            ------

    Mr. THOMPSON. The other thing I wanted to ask you about was 
enforcement. We heard a lot about the lack of enforcement. We 
had a hearing last week about China. During that hearing I 
raised a concern, a very parochial concern that a wine company 
in Beijing is labeling their wine Napa Hongye wine, which means 
Napa Valley. If DR-CAFTA comes out and your enforcement 
practices remain the same, what is to stop the Valley de Napa 
label from cropping up in one of the DR-CAFTA countries?
    Ambassador ALLGEIER. Okay. I certainly am not familiar with 
that particular--with the Chinese example, but what I will say 
to you is that we have a very good record of enforcing our 
agreements and particularly with respect to intellectual 
property, and we certainly----
    Mr. THOMPSON. Well, I think you have a terrible record in 
enforcing your agreements when it comes to China. We were there 
just a couple of weeks ago and our Ambassador told us that he 
can't walk outside of his house without being offered a stack 
of Digital Versatile Discs (DVD) for less money than he can 
rent one for.
    Last, I would like to revisit this issue of the ILO 
standards. When you are talking about freedom of association, 
elimination of discrimination in the workplace, elimination of 
forced labor, elimination of child labor, those all seem pretty 
fair and straightforward. I guess I have a real hard time 
understanding why we just don't put them in the agreement, or 
maybe we are going to put them in the bill. I don't know how we 
can vote for this without some assurance, other than it is 
going to morph into their law if we pass it, and rest assured 
all of this will be taken care of. Just put them in the bill, 
put them in the agreement.
    Ambassador ALLGEIER. Well, if we put them in the agreement, 
we would be putting in the agreement elements that our Congress 
has not seen fit to ratify, and that seems to us to be a back-
door way of doing this and not really the way we would want to 
do it in the United States. It should be a more up front 
decision by the Congress if they want the United States to 
ratify those conventions.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Chairman THOMAS. Thank the gentleman. Prior to calling on 
the last member for this panel, I do hope that Members who are 
discussing these Central American countries have had an 
opportunity to visit them. The version I am hearing from many 
Members about their inability to buy moderate or even high-
priced cuts of beef sounds like they are countries of all 
peasants with a hoe, working on a half acre of maize. If you 
have gone there, you have a very sophisticated, cosmopolitan, 
European population in beautiful cities. There is a disparate 
distance between the low income and the high income. The 
opportunity to sell quality beef in these Central American 
countries is there. Cheaper-priced cuts will be even more 
anticipated. Given the change in the current cost versus the 
future cost, they will be happy consumers of quality beef. It 
is true, there is a difference, more significant in terms of 
the highest and the lowest, but to continue to stereotype these 
countries and their populations does no service to us or to 
them. They have the ability to buy quality cuts of beef. If any 
Member has not been down there, the Chair is anxious to assist 
any Member to go to our neighbors and take a look at some of 
the most interesting historic areas in the Americas, north or 
south, in terms of the ability to interrelate and mix with a 
significant cross-section of ethnic and racial groups. The 
Chair recognizes the gentleman, Mr. Chocola, if he wishes to 
inquire.
    Mr. CHOCOLA. I do Mr. Chairman, thank you. Mr. Ambassador, 
thank you for being here and thank you for your good work. Not 
long ago, before I was elected, I participated in this debate 
in the private sector generally by getting on an airplane and 
trying to go convince our customers to buy our products in 
places like Central America and over 100 countries. Following 
my colleague from Pennsylvania's logic, the lower we could 
offer the product's price, the more likely they were to buy. 
When we ran into tariffs we had more problems competing in a 
world economy. So, I know that there will be jobs created in 
little Milford, Indiana as a result of DR-CAFTA. I am sure that 
story can be told thousands and thousands of times.
    We have talked about tariffs, and certainly they are 
important. We haven't talked about non-tariff barriers much 
today. One of the things we ran into, I think what is called in 
the agreement as dealer protection regimes, we called it lost 
sales. Could you talk a little more about non-tariff barriers 
and how they are reduced?
    Ambassador ALLGEIER. Yes. That is a very important point. 
Someone can reduce, eliminate their tariffs, but there are lots 
of ways they can keep one out. Now, let me--I want to talk 
about the dealer protection laws that exist in many of the 
Latin American countries. Basically what it means, it has 
different forms, is if you are selling through an agent there, 
you have a distribution agreement, you get locked into these 
agreements in ways that if you are dissatisfied with a 
distributor, you can't just terminate the contract. Many of the 
companies that get into those arrangements end up being almost 
blackmailed in terms of having to pay an enormous amount to 
their inadequate distributor to get out of that arrangement.
    Another non-tariff barrier is Customs, which is a place 
where you can end up paying an enormous amount of money, one 
way or the other, either across the counter, or your goods will 
stick there in the Customs area before they get through for a 
long, long time. One of the important areas of this agreement 
is the whole area of Customs measures and these countries 
taking on obligations to value goods at their proper value, to 
move the goods through Customs very efficiently. Part of this 
is they don't have the institutions and the resources to do it; 
that is also part of the capacity building in this agreement. 
So, the whole Customs area is one that is a, potentially big 
barrier, even when one eliminates tariffs and we address that 
in this agreement along with other barriers of standards and 
other non-tariff barriers; licensing, for example.
    Mr. CHOCOLA. We have heard a lot of talk about labor and 
environmental standards and what this agreement--how it relates 
to it. Let me just ask a simple question. Are labor and 
environmental standards going to increase if we don't enact DR-
CAFTA in these countries?
    Ambassador ALLGEIER. No. They will lose one of their most 
important partners, the United States, in trying to raise the 
status and the conditions of their workers.
    Mr. CHOCOLA. Finally, back when I was in college in the 
early eighties, there were some students from El Salvador and 
Nicaragua and they told horrible stories about what was going 
on in their countries at that time. How do you think that this 
relates, our trade, strengthening our trading relationship with 
these countries, will help their, maybe fragile, but growing 
democracies?
    Ambassador ALLGEIER. It is absolutely essential, because 
there are so many elements within this trade agreement that 
involve making the kinds of reforms that are in the process of 
making in their own economies: openness, nondiscrimination, 
accountability of government, the rule of law. These trade 
agreements embed those principles into those economies, and it 
inevitably spreads to the rest of their society. This is one of 
the biggest contributions we can make.
    Mr. CHOCOLA. So, you think that by enacting this agreement 
we would not only enhance trade but we could make the world a 
safer and more stable place as well.
    Ambassador ALLGEIER. Absolutely, especially in this region.
    Mr. CHOCOLA. Thank you. Thank you, Mr. Chairman.
    Chairman THOMAS. Thank the gentleman. The Chair wishes to 
thank you, Ambassador Allgeier. We will not charge you for the 
in-service practice of negotiating with the Europeans, but 
hopefully this was some useful training for you. The Chair 
would now like the second panel to come forward. Members of the 
panel have been very patient. You also need to know that this 
is the only opportunity that Members have of asking questions 
in an open hearing format over this extremely important piece 
of legislation. As you have heard in terms of the Members' 
inquiries, putting down for the record the information that you 
have and will provide to us is extremely important. The second 
panel consists of Harold McGraw, III, Chairman, President, and 
CEO (chief executive officer) of the McGraw-Hill companies; 
James D. Fendell, Resident, Aeropost International, on behalf 
of the Association of American Chambers of Commerce in Latin 
America; Sheldon Presser who is the Senior Vice President, 
Warner Brothers Entertainment, behalf of the Entertainment 
Industry Coalition for Free Trade; Richard L. Trumka, 
Secretary-Treasurer, American Federation of Labor-Congress of 
Industrial Organizations, and David P. Schulingkamp, Vice 
President, M.G. Maher & Co., New Orleans, Louisiana. The Chair 
will start on the left. Prior to going across the panel, the 
gentleman from Louisiana wishes to be recognized.
    Mr. JEFFERSON. Thank you Mr. Chairman. I appreciate your 
leave for just a moment----
    Chairman THOMAS. This is a just-in-time hearing procedure 
here----
    Mr. JEFFERSON. To recognize my friend Dave Schulingkamp, 
who has come to testify. He has been the chairman of our Port 
Authority back in New Orleans. He is a leading businessperson 
there, and he and I have had the luxury of traveling throughout 
Latin America, South America, particularly Brazil, to work on 
projects for our port and for our city. So, I wanted to, with 
your leave, welcome him to our Committee. Thank you very much, 
Mr. Chairman.
    Chairman THOMAS. Thank the gentleman. If he is as effective 
as you are, the Port of New Orleans is in good hands. Mr. 
McGraw, you have written testimony, in fact all of the 
witnesses who have written testimony, it will be made a part of 
the record and you can address us as you see fit in the time 
you have.

                                 

STATEMENT OF HAROLD McGRAW, III, CHAIRMAN, PRESIDENT, AND CHIEF 
  EXECUTIVE OFFICER, THE McGRAW-HILL COMPANIES, NEW YORK, NY; 
CHAIRMAN, THE EMERGENCY COMMITTEE FOR AMERICAN TRADE; CHAIRMAN, 
   THE INTERNATIONAL TRADE AND INVESTMENT TASK FORCE OF THE 
 BUSINESS ROUNDTABLE; ON BEHALF OF BUSINESS COALITION FOR U.S.-
                     CENTRAL AMERICA TRADE

    Mr. MCGRAW. Thank you Mr. Chairman, Congressman Rangel, and 
Members of the Committee. Good afternoon. I am Terry McGraw, 
and I am Chairman, President, and CEO of McGraw-Hill companies. 
I am here today on behalf of the Business Roundtable, the 
Emergency Committee for American Trade and the Business 
Coalition for U.S.-Central America Trade. We strongly support 
the prompt congressional approval of DR-CAFTA, which will 
advance our economic, regional, and foreign policy interests. 
Now, given our time constraints this afternoon, let me quickly 
talk about five, just five different key benefits of DR-CAFTA.
    First, DR-CAFTA countries represent an important and 
growing market. As we have been hearing, U.S. exports to the 
six DR-CAFTA countries in 2004 equaled $15.7 billion, making 
these countries the second-largest U.S. export market in Latin 
America, after Mexico; the 12th largest U.S. export market 
worldwide, larger than Russia, India, and Indonesia combined; 
and poised for growth, given DR-CAFTA's proximity and close 
partnership with our country. With overall trade of $33.4 
billion in 2004, once implemented, DR-CAFTA will be the United 
States' second-largest FTA of overall trade flow after NAFTA.
    My second point, Mr. Chairman, is that DR-CAFTA will 
obviously level the playingfield by opening markets for U.S. 
workers and farmers. Some 75 percent of the DR-CAFTA imports 
and 99 percent of DR-CAFTA agriculture products already enter 
the United States duty-free, and this is through the preference 
programs Congress approved on a bipartisan basis. This 
agreement will lock in and expand those benefits. The DR-CAFTA 
will make trade with our neighbors a two-way street. The DR-
CAFTA will open their markets to our farm and industrial goods 
and our services, eliminating high tariffs, tariff rate quotas, 
and non-tariff barriers.
    Third, DR-CAFTA will promote strong labor and environmental 
protection. Simply put, it is economic growth that is the 
single most important driver for improved labor and 
environmental conditions. The DR-CAFTA will promote economic 
growth, increase transparency and accountability, enhance the 
investment climate, and promote stability, creating new 
opportunities for workers and increasing demand for better 
labor and environmental protection. This is particularly 
important given the textile and apparel sector, which is the 
second-largest employer overall in these six countries, 
providing some of the better-paying jobs in the region, where 
subsistence farming engages the largest segment of the working 
population. Without DR-CAFTA, these jobs will increasingly be 
lost, bringing increased poverty in a region where nearly half 
the population today lives in abject poverty.
    Beyond the economic growth opportunities, DR-CAFTA promotes 
the labor and environmental objectives Congress called for in 
the Trade Act of 2002. It incorporates binding commitments 
subject to dispute settlement, and each of the countries will 
enforce its labor and environmental laws as well as the most 
robust labor and environmental capacity-building mechanisms of 
any U.S. FTA. Though some labor laws in some DR-CAFTA countries 
could be enhanced, what they have enacted includes many strong 
protections. We should recognize that the progress that they 
have made in a very short period of time is substantive and 
that the commitments they have recently made to go even further 
are welcome.
    My fourth point, Mr. Chairman, is that DR-CAFTA will help 
promote economic growth, bolster democracy and the rule of law. 
The DR-CAFTA will play a positive role in promoting stability 
and the United States' own security in a region that we all 
know was wracked by violence and civil war only two decades 
ago. By promoting economic opportunity and growth, DR-CAFTA 
will help alleviate poverty, and promote stability in our own 
neighborhood.
    Fifth and finally, DR-CAFTA is absolutely vital, vital to 
signaling continued U.S. support for global trade negotiations. 
Congressional approval of DR-CAFTA will bolster U.S. leadership 
on trade and create new partners in the developing world. 
Approval will also promote forward momentum on trade at a 
critical time in the WTO's Doha negotiations and will help to 
create much needed momentum for the FTAA negotiations. Failing 
to approve DR-CAFTA would be a particularly destructive message 
to our regional neighbors and would send a very negative signal 
to the world that the United States is retreating from its 
historic role as a leader in promoting liberalized 
international trade and investment policies and as a leader in 
a region that is strategically important to us.
    In sum, DR-CAFTA is more than just another trade agreement. 
While it is not a panacea, it is the logical next step in 
America's historic commitment to promote economic growth, 
advance market-based reforms, promote stability, and improve 
standards of living. Approval of DR-CAFTA will also send a 
powerful message to the rest of the world that regional and 
multilateral trade agreements should be pursued and will 
promise a more open and fair system to promote commerce among 
nations. I urge the Committee to support the approval and the 
implementation of this agreement. I thank you, Mr. Chairman.
    [The prepared statement of Mr. McGraw follows:]

    Statement of Harold McGraw, III, Chairman, President, and Chief 
 Executive Officer, The McGraw-Hill Companies, New York, NY; Chairman, 
the Emergency Committee for American Trade; Chairman, the International 
 Trade and Investment Task Force of the Business Roundtable; on behalf 
          of Business Coalition for U.S.-Central America Trade

    Mr. Chairman, Congressman Rangel, Members of the Committee. Good 
morning. My name is Terry McGraw, Chairman, President and CEO of The 
McGraw-Hill Companies.
    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) not only on behalf of the McGraw-Hill 
companies, but also as Chairman of the Emergency Committee for American 
Trade (ECAT) and Chairman of the International Task Force of the 
Business Roundtable (Roundtable). I am also appearing before you today 
on behalf of the Business Coalition for U.S.-Central America Trade, for 
which ECAT serves as the secretariat and the BRT and others play a 
leading role.
    The McGraw-Hill Companies is a global content provider 
headquartered in New York. We employ 18,000 people in 280 offices in 37 
countries worldwide. You know us best through the McGraw-Hill imprint 
in education, Standard and Poor's, and Business Week.
    We are members of ECAT, the Business Roundtable and the Business 
Coalition.

      Both ECAT and the BRT are associations of chief 
executives of major American companies with global operations who 
represent all principal sectors of the U.S. economy. They are strong 
champions of strong, commercially-meaningful and comprehensive 
bilateral, regional and global agreements, such as the NAFTA, the 
Uruguay Round and the recently-approved free trade agreements--FTAs--
with Jordan, Chile, Singapore, Australia and Morocco.
      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 Roundtable is committed to advocating public 
policies that ensure vigorous economic growth, a dynamic global 
economy, and the well-trained and productive U.S. workforce essential 
for future competitiveness. Roundtable members employ more than 10 
million workers in the United States.
      The Business Coalition for U.S.-Central America Trade 
comprises over 400 companies and associations representing all major 
sectors of the economy with members in all 50 states that have come 
together to support implementation of the CAFTA. The Business Coalition 
was formed to support the negotiation of a comprehensive and high 
standard agreement. Once those negotiations were completed, the 
Business Coalition has worked to support the implementation of the 
CAFTA by the U.S. Congress.

    CAFTA represents a truly comprehensive, commercially meaningful and 
high standard agreement that has very important economic, development 
and foreign policy implications for the United States and the six 
countries involved--Costa Rica, the Dominican Republic, El Salvador, 
Guatemala, Honduras and Nicaragua. It also has important implications 
for other negotiations that are critically important, from global Doha 
Development Agenda negotiations ongoing in the World Trade Organization 
to the negotiations to establish a Free Trade Area of the Americas, 
which have nearly stalled.
    My testimony today will focus on five key issues that are critical 
to the broad-based support of the CAFTA within the U.S. business and 
agricultural community and the organizations that I represent today:

    1.  The commercial importance of the CAFTA countries to the United 
States.
    2.  How CAFTA will level the playing field for U.S. farmers, 
service providers, manufacturers and their workers by moving from a 
system of unilateral preferences to two-way free trade.
    3.  The importance of CAFTA in promoting improved working and 
environmental conditions in the region.
    4.  The importance of CAFTA for promoting economic growth and 
bolstering democracy and the rule of law in the region.
    5.  The importance of CAFTA more broadly in fostering U.S. 
objectives in global and other regional negotiations.
FIRST: The Six CAFTA Countries Represent a Very Important and Growing 
        Market for the United States.
    Despite their size and population, U.S. trade with the CAFTA 
countries is rather striking. In 2004, U.S. exports to the six CAFTA 
countries equaled $15.7 billion, making these countries:

      The second largest U.S. export market in Latin America, 
after Mexico.
      The 12th largest U.S. export market worldwide.
      A larger export market than Russia, India and Indonesia 
combined and larger even than our exports to Australia or Brazil.

    With overall trade of $33.4 billion in 2004, once implemented, 
CAFTA will be the United States' second largest FTA in terms of overall 
trade flows, after NAFTA.
    It is also a market of great potential given its proximity and 
close partnerships with the United States. U.S. goods appear throughout 
these countries, in grocery stores to shopping centers. Indeed, U.S. 
exports already represent about half of each of these countries' 
imports. As economic growth and new opportunities develop, the markets 
will attract even greater exports.
    Without even figuring in such growth, the independent U.S. 
International Trade Commission concluded that U.S. imports would 
increase by $1.9 billion worldwide as a result of the CAFTA, more than 
with any other recent FTA partner. A recent report by the National 
Association of Manufacturers, one of the Business Coalition's members, 
predicts that CAFTA will help generate $1 billion in new U.S. 
manufacturing exports. For agriculture, the American Farm Bureau 
Federation has estimated that U.S. agricultural exports to the CAFTA 
countries will increase by nearly $900 million.

SECOND: The CAFTA Will Level the Playing Field by Opening Markets for 
        U.S. Workers and Farmers.
    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. This agreement will lock in those benefits, 
making them permanent, and expand on them, particularly in the textile 
and apparel sector which I will discuss momentarily.
    But from the point of view of many U.S. businesses, the CAFTA is 
about making trade with our neighbors more of a two-way street. CAFTA 
will open their markets to our farm and industrial goods and our 
services, eliminating high tariffs, tariff rate quotas and non-tariff 
barriers. Let me quickly identify some of the key areas where CAFTA 
eliminates barriers:

      In the manufacturing sector, CAFTA will provide immediate 
and tangible benefits. Many U.S. exports to the CAFTA countries 
currently face tariffs between 10 and 15 percent and, in some cases, 
more. Upon implementation of the agreement, 80 percent of all U.S. 
goods exports to the region will become permanently duty-free. In 
particular, CAFTA will eliminate tariffs immediately on such key 
products as information technology products, agricultural and 
construction equipment, paper products, chemicals, and medical and 
scientific equipment. By year 10, the CAFTA will eliminate all tariffs 
on all U.S. manufactured goods.
         CAFTA also eliminates other major non-tariff barriers to 
consumer and industrial goods, including discriminatory standards, 
licensing and other barriers. It also includes important provisions to 
improve customs administration through more transparent, predictable 
customs operations and processes. Most notably, perhaps, is that the 
CAFTA--for the first time ever in any free trade agreement--includes 
substantial commitments to reform and to open up distribution channels 
that have been restricted for decades by onerous dealer protection 
barriers. This is particularly important for many consumer goods and 
information technology producers.
      Beyond manufactured goods, CAFTA expands market access 
throughout the services sector. Each of the six countries is committed 
to provide national treatment to U.S. services companies, unless 
specifically exempted. This ``negative list'' approach goes far beyond 
these countries' commitments under the WTO's General Agreement on Trade 
in Services (GATS). As a result, CAFTA will provide important new 
opportunities for such key U.S. services as banking and other financial 
services, insurance, telecommunications, distribution, computer, 
audiovisual and entertainment, energy, transport, construction, and 
professional services. The six countries also have agreed to 
significant commitments on regulatory transparency and principles to 
guide independent regulatory authorities. Of particular importance are 
Costa Rica's commitments to open up key portions of its currently 
closed telecommunications and insurance markets, which are important 
areas of growth for U.S. companies abroad.
      CAFTA also creates new opportunities for the U.S. 
information technology sector. In particular, it requires all parties 
to eliminate information technology tariffs by joining the WTO's 
Information Technology Agreement (Costa Rica and El Salvador are 
already members), open up key information technology services, 
including telecommunications, include strong intellectual property 
rights protections and open up distribution channels. The agreement 
also incorporates important e-commerce provisions that ensure that 
electronically delivered goods and services receive the same treatment 
as traditional, physically delivered goods and services, setting an 
important precedent for global negotiations.
      CAFTA ensures new access and transparency in growing 
government procurement markets. While none of the six CAFTA countries 
are signatories to the WTO Government Procurement Agreement, CAFTA 
commits the parties to many of the same principles. Key commitments 
that will expand access for U.S. goods and services suppliers include 
the provision of fair and transparent procurement procedures and 
national treatment and anti-corruption rules.
      Since 99 percent of CAFTA agricultural imports already 
enter the United States duty-free, this agreement is critical to 
provide reciprocity for U.S. farmers. Upon implementation, over half of 
U.S. agriculture products will enter the Central American and Dominican 
Republic countries duty-free immediately, with most remaining duties on 
U.S. products phased out over 15 years. This is important access to a 
region where the United States is the single largest source of 
agricultural imports, but faces new competition as other countries 
enter into preferential arrangements in the region. The new access will 
be particularly important for:

          Beef products with the immediate elimination of 
        tariffs on high-quality cuts and full elimination over 15 
        years;
          Pork products with an increase in duty-free quotas 
        for sizeable amounts of U.S. pork over 15 years, after which 
        all tariffs will be eliminated, as well as commitments to the 
        U.S. meat inspection system and to accept pork from any USDA-
        inspected facility.
          Dairy products with duty-free tariff rate quotas that 
        will expand from over 10,000 tons in year one and out-of-quota 
        tariffs eliminated over 20 years.
          Corn, wheat and grain products with the immediate 
        binding at zero of tariffs on wheat, barley, oats and rye, as 
        well as for corn in Costa Rica and sorghum in the Dominican 
        Republic and Guatemala. All remaining tariffs on feed grains 
        will be eliminated over 15 years (except white corn in a few 
        markets that will be gradually provided greater duty-free 
        access).
          Soybean products with the immediate binding of zero 
        tariffs on all soybeans and soybean meal, except for Costa 
        Rica, which will phase out its 5 to 6 percent soybean meal 
        tariffs over 15 years.
          Rice with an increasing duty-free quota and the 
        elimination of up-to-60 percent tariffs on out-of quota rice 
        over 18 years in El Salvador, Guatemala, Honduras, and 
        Nicaragua and 20 years in Costa Rica and the Dominican 
        Republic.
          Cotton products by immediately binding tariffs at 
        zero and by bolstering U.S.-CAFTA textile and apparel 
        partnerships that create a significant demand for cotton in the 
        region.
          Processed food products with immediate duty-free 
        treatment for key products, including breakfast cereals, soups, 
        cookies and pet food and the complete elimination of tariffs 
        over 15 years.

    Beyond opening markets, CAFTA helps U.S. businesses and workers by 
improving the protections afforded by key international trade rules:
    CAFTA incorporates strong protections for U.S. investors abroad, 
committing the six countries to rules 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 requirement); 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.
    CAFTA incorporates strong rules for the protection of intellectual 
property, building upon and enhancing WTO protections in the Agreement 
on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Such 
rules are critical to promote innovation and new research in some of 
America's strongest sectors, from information technology to chemical, 
pharmaceutical and other scientific industries, and to stimulate a rich 
and diverse marketplace for America's leading entertainment and 
publishing industries.
    The McGraw-Hill Companies likely will expand our sales of print and 
on-line materials in the region, which will help us create jobs both in 
the region and in the United States.

THIRD: CAFTA Will Sustain and Expand Textile and Apparel Partnerships 
        and Competitiveness.
    The CAFTA countries are the United States' largest market for U.S. 
apparel and yarn exports, and the second largest market for U.S. fabric 
exports. CAFTA is critical to sustain and expand existing partnerships 
and to give U.S.-CAFTA goods a competitive edge, particularly with the 
elimination of global quotas and increased competition from Asia, and 
to help support approximately 500,000 jobs in Central America and the 
Dominican Republic and 700,000 workers in the U.S. cotton, yarn, 
textile, and apparel sectors. This piece of the agreement has much 
larger implications for labor and development as discussed further 
below.
    As you will hear from others who focus entirely on this sector, the 
permanence, flexibilities, and reciprocity created by the CAFTA are 
critical to the future of their and our industries. The existing 
unilateral preference program--the Caribbean Basin Trade Partnership 
Act--is simply not sufficient and sufficient to provide the U.S.-
regional textile and apparel trade partnership the competitive edge 
they need in a world without quotas.

FOURTH: CAFTA Promotes Strong Labor and Environmental Protections and 
        New Opportunities to Improve Working and Environmental 
        Conditions.
    In addressing labor and environmental issues, I think it is 
important not to lose sight of two essential facts. First, the single 
most important driver for improved labor conditions and environmental 
protection in these countries is, economic growth and development. 
CAFTA, which will help promote new and improved economic opportunities 
and partnerships, increased transparency and accountability, a better 
investment climate and stability, is the best tool we have to promote 
the economic growth that will in turn help create new opportunities for 
workers and an increasing demand for better environmental protections.
    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 a growing middle class to 
improve labor and environmental standards. Since World War II, the 
liberalization of trade has produced 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 also document 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.
    This is a particularly important point for the CAFTA countries 
given that the textile and apparel sector is the second largest 
employer overall in these six countries, providing some of the better 
paying jobs in a region where subsistence agriculture occupies the 
largest segment of the working population. Without CAFTA, these jobs 
will increasingly be lost--as is already starting to occur in several 
countries--signaling increased poverty in a region where 47 percent--
almost half--of the population lives in poverty today.
    Beyond the economic growth opportunities, the agreement itself 
promotes labor and environment standards as Congress directed in the 
Trade Act of 2002. It incorporates binding commitments, subject to 
dispute settlement, that each of the countries will enforce its labor 
and environmental laws, as the Trade Act sought, as well as the most 
robust labor and environment capacity-building mechanisms of any U.S. 
FTA. I applaud Congress' action last year to appropriate $20 million 
specifically for labor and environmental capacity-building in these 
countries.
    The International Labor Organization, in reports that these 
countries requested on their labor laws, identified 
constitutionalprotections in all six countries guaranteeing the right 
of freedom of association and prohibitions against labor 
discrimination, child labor and forced labor. The ILO report also 
identified key national law protections in each of the core areas in 
each country. It is also notable that five of the six countries have 
ratified all eight of the ILO's core conventions, which, by operation 
of their own domestic laws (unlike the United States) actually become 
part of their domestic law.
    Though the labor laws of some CAFTA countries could be enhanced, 
what they have enacted includes many strong protections--not just in 
their national law, but in their constitutions. An even greater concern 
is the capacity of these countries to implement fully their laws, as 
detailed in the recent report by the Working Group of the Vice 
Ministers Responsible for Trade and Labor in the Countries of Central 
America and the Dominican Republic--The Labor Dimension in Central 
America and the Dominican Republic: Building on Progress: Strengthening 
Compliance and Enhancing Capacity. That report, which was endorsed by 
the Trade and Labor Ministers of these countries, details how each 
government has made and continues to seek progress in improving labor 
standards and working conditions. The report also identifies specific 
areas where the countries require technical assistance to improve 
working conditions.
    Most of all, given the obvious work that went into preparing a 
document of that depth and unparalleled transparency, I believe this 
report demonstrates a new and substantial commitment at the highest 
levels of these democratically elected governments to continue to work 
to improve labor conditions in their countries.

FIFTH: CAFTA Will Help Promote Economic Growth and Bolster Democracy 
        and the Rule of Law
    CAFTA will also play a positive role in promoting stability and the 
United States' own security in a region that was racked by violence and 
civil wars only two decades ago. Indeed, many view it as the logical 
next step in the United States' relationship with these countries. 
Implementation of the CAFTA signals that the futures of the United 
States, Central America and the Dominican Republic will be linked more 
than ever. Key factors at work include:

      Economic Opportunities and Growth for the Region: Much of 
CAFTA's importance for the region is with regard to the economic growth 
opportunities it provides. Although the United States already provides 
duty-free treatment to most of the imports from the region, the 
unilateral preference programs--from the Generalized System of 
Preferences to the Caribbean Basin Trade Partnership Act--are temporary 
programs that need to be renewed periodically, creating uncertainty for 
purchasers and investors. CAFTA will change that dynamic by making 
permanent duty-free treatment for most of the CAFTA countries' exports 
to the United States.
         As I have previously discussed, CAFTA does create important 
new market-opening in the United States for perhaps the most vital 
sector of the region's economies--textiles and apparel. This access is 
critical to sustain the region's competitiveness in the post-global 
quota world and to sustain jobs for hundreds of thousands of Dominicans 
and Central Americans.
         Access to the U.S. market is not the only attraction. By 
creating a free trade area among the countries of Central America and 
the Dominican Republic, CAFTA eliminates barriers between these six 
countries, opening cross-border opportunities, while also providing 
additional incentives to investment as companies can now take advantage 
of economies of scale when investing in the region.
         Strong investment and intellectual property protections, 
improved customs administration, and fair and transparent government 
procurement rules will also promote additional investment to the region 
in a manner that further increases growth and opportunities for the 
region's own workers.
      Alternatives to Illegal Activity: By helping to alleviate 
poverty through new economic opportunities and growth, CAFTA will help 
promote stability and provide alternatives to illegal activity, such as 
narcotics trafficking and illegal immigration.
      Rule of Law: Strong commitments on transparency, 
accountability in government procurement and fair and enforceable 
investment rules, will also help foster respect for the rule of law.
      Integration: Through further integration, CAFTA will 
promote continued regional stability and cooperation.
SIXTH: Approval and Implementation of CAFTA Is Vital to Signaling 
        Continued U.S. Support for Global and Hemispheric Negotiations
    By implementing CAFTA, the United States Congress signals to our 
trading partners, and the rest of the world, that the United States 
continues to support liberalized trade and will continue to negotiate 
and implement agreements that expand trade and stimulate economic 
growth and development. In particular:

      Approval of CAFTA bolsters U.S. leadership on trade, and 
creates new partners in the developing world, to promote forward 
momentum on liberalized trade at a critical time in the WTO's Doha 
Development Agenda negotiations.
      Approval of CAFTA will send a message to our trading 
partners in Latin America that the United States is serious about trade 
liberalization in the Western Hemisphere, even as negotiations to 
create a Free Trade Area of the Americas (``FTAA'') have made little 
progress in recent years.
      CAFTA not only signals the United States' serious 
intentions with regard to Western Hemisphere trade, it will, like our 
very successful FTA with Chile, provide a concrete example in the 
hemisphere of the fruits of liberalization.

    If we turn our backs on CAFTA of all agreements--one where these 
six countries have done the lion's share of work in opening their 
economies and adopting strong protections--we not only turn our backs 
on our trading partners in Central America and the Dominican Republic, 
we reject America's traditional role as the leader in the march toward 
liberalized hemispheric and global trade. We can ill afford to abdicate 
the role of leader at this critical time.
    CAFTA will benefit the United States and our manufacturing, 
services and agricultural producers 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 
stabile hemisphere. It is also more than just another trade agreement--
it is the logical next step in America's decades-long work to promote 
stability and democracy in this region and it is a symbol of continued 
U.S. support and engagement in open international markets. I urge the 
Committee to support the approval and implementation of this agreement 
as soon as possible.
    Thank you again Mr. Chairman, Congressman Rangel, Members of the 
Committee. I appreciate this opportunity to express my views, and those 
of the Business Roundtable, ECAT and the Business Coalition for U.S.-
Central America Trade about the importance of CAFTA for the broad-based 
business community that I represent today.

                                 

    Chairman THOMAS. Thank you very much Mr. McGraw. Mr. 
Fendell.

      STATEMENT OF JAMES D. FENDELL, PRESIDENT, AEROPOST 
INTERNATIONAL SERVICES, MIAMI, FL, ON BEHALF OF THE CHAMBER OF 
COMMERCE OF THE UNITED STATES, AND THE ASSOCIATION OF AMERICAN 
             CHAMBERS OF COMMERCE IN LATIN AMERICA

    Mr. FENDELL. Chairman Thomas, please say hello to 
Congressman Rangel and the entire Committee. Thank you for your 
opportunity that you have given me to testify on DR-CAFTA. I 
appear for the U.S. Chamber of Commerce and the Association of 
American Chambers of Commerce throughout Latin America (ACLA). 
I am that organization's president and I report to you today 
that millions of U.S. businesses and their workers and 
thousands of American companies in Latin America staunchly 
support DR-CAFTA. A huge percentage of these businesses are 
small- and medium-sized companies like mine. This opportunity 
to testify is personally very meaningful.
    I was born in Ohio, raised in Latin America, educated in 
the United States, and I have worked and lived in both 
hemispheres of the Americas all of my life. I am president of 
Aeropost International Services, a small company that operates 
in Miami, the Caribbean, and Latin America. We provide a 
convenient address in Miami for the receipt and forwarding of 
mail and parcels, which enables thousands of individuals and 
companies outside the United States to buy goods and services 
as though they themselves had an office in Florida. We ship 
thousands of packages a week to our clients abroad, with a 
value of many millions of dollars a year.
    So, I really understand what our neighbors in Central 
America and the DR want to buy from the United States. Our 
customers are hungry for a staggering array of American-made 
goods from high-tech to the mundane, but they suffer pocketbook 
indigestion when they have to pay high import duties and taxes 
in their countries. They don't buy as much as they would like 
to, or as many packages as I would like to see moving through 
my system.
    We don't ship many farm products either, because of other 
barriers. The United States is unilaterally open to imports 
from DR-CAFTA countries, but their current tariffs will remain 
a significant barrier to our exports and our services until we 
approve this important agreement. This will give American 
companies, and especially small and middle sized ones which 
cannot afford to build factories abroad, market access. You 
will hear more today about how important DR-CAFTA is for 
exports of America's high value-added U.S. agricultural 
products and for our core textile industry, but let's look at 
U.S. exports and the opportunities that this will provide. In 
the first year post agreement, we conservatively expect $3.99 
billion in new U.S. sales, mostly from small- and middle-sized 
companies. This means $866 million in new earnings for U.S. 
workers and more than 26,000 new jobs in just the 12 key States 
that we profiled. These are conservative numbers, folks. United 
States exports to Chile surged by 33 percent in the first year 
of that agreement.
    Now, as one who has lived for many years in Central 
America, I am also convinced that the agreement will benefit 
the people and the workers of Central America and the Dominican 
Republic. I will be glad to answer any questions about my own 
personal labor relations experience if you so choose. Twenty 
years ago, many of our countries down there were torn by civil 
war and violence. The Central Americans and the Dominican 
Republic were handout States, receiving millions upon millions 
of dollars in U.S. aid, but very little of that trickled down 
to the working class. Contrast that with the peaceful and 
democratic elections and the other significant social and human 
advances we see today and that the DR-CAFTA agreement will 
strengthen.
    I believe that a wise bipartisan change in policy that 
emanated from this House, the people's House, from this very 
Committee, made the difference. As the Chair noted, Congress 
chose to move from aid to trade. Members from both parties, 
some of whom, like Congressman Rangel, continue to lead today, 
created and approved the CBI and built upon its ensuing success 
by enhancing it again and again. These countries today are 
where they are because of this Committee, this House, that 
unilateral legislation. We opened our borders to the Central 
Americans and to the Dominican Republic to give them time to 
strengthen their economic bases, their democratic process and 
their human rights. These countries made some tough choices, 
and their people have been rewarded by economic growth and 
strengthened institutions. Now they are ready to open their 
borders to our goods and services. This is the crowning piece 
of DR-CAFTA, of a very successful long-term policy for an 
important part of our third border neighbors.
    It is also my duty as a U.S. citizen who knows Latin 
America well to advise you that if this agreement is defeated, 
not just Central America and the Dominican Republic, but all of 
Latin America will view that defeat as a real kick in the teeth 
by the United States. Messrs. Chavez and Castro will be dancing 
with glee. The Committee on Ways and Means can lead Congress to 
secure a win-win-win for our economies, for our institutions, 
and, above all, for our democratic principles and ideals. We 
appreciate and salute your leadership and vision. On behalf of 
our company members and their millions of workers and voters, 
please move expeditiously to bring DR-CAFTA to a successful 
vote. Thank you.
    [The prepared statement of Mr. Fendell follows:]

   Statement of James D. Fendell, President, Aeropost International 
Services, Miami, FL, on behalf of the Chamber of Commerce of the United 
 States, and the Association of American Chambers of Commerce in Latin 
                                America

    On behalf of 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), I am pleased to present the House 
of Representatives Committee on Ways and Means 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 organizations I am representing today represent huge numbers of 
businesses that staunchly support this agreement. 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. I am pleased to serve as AACCLA's President.
    For personal reasons, this opportunity to testify before the House 
of Representatives is particularly meaningful for me. My father was 
from New Jersey, and my mother from Washington. They met and married in 
Latin America in the 1940s. I was born in Ohio, raised in Latin 
America, educated in the United States, and have worked and lived in 
both the United States and Latin America.
    I am President of Aeropost International Services, a company that 
operates in Miami and a number of countries in Central and South 
America and the Caribbean. Aeropost provides a convenience address for 
mail and parcels in Miami so that many thousands of individuals and 
companies outside the United States can buy goods and services as 
though they themselves had an operation in Florida.
    To give you an idea of what our neighbors want to buy from us, we 
ship thousands of packages a week to our offices and franchisees with a 
value of many millions of dollars a year. And that's without DR-CAFTA, 
an agreement that will give American companies such as mine a level 
playing field by eliminating the tariffs and other barriers that put 
U.S. goods and services at a disadvantage in the Central American and 
Dominican markets. Based on my personal experience, I can say that this 
agreement will boost U.S. exports to Central America and the Dominican 
Republic many times over.
    International trade plays a vital part in the expansion of economic 
opportunities for American companies such as mine. 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
----------------------------------------------------------------------------------------------------------------
                                                                                                       New jobs
                                                           Increased salesin    Increased earnings    createdin
                     AFTER ONE YEAR                         all industries      of employeesin all       all
                                                                                    industries        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.

----------------------------------------------------------------------------------------------------------------
                                                                                                       New jobs
                                                           Increased salesin    Increased earnings    createdin
                    AFTER NINE YEARS                        all industries      of employeesin all       all
                                                                                    industries        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 just seen 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. Because I have worked in Central America for much of 
my professional life, I can address this matter in the first person. 
Speaking as both a former member of the United Auto Workers and a 
former manager in the U.S. offices of an airline whose workers were 
members of the International Brotherhood of Teamsters, my experience is 
that the laws on the books in these countries are more protective of 
workers' rights than union contracts in the United States today. 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.
    It is entirely appropriate that the U.S. negotiating team insisted 
that DR-CAFTA must contain tough, unwavering provisions requiring that 
the countries enforce their labor laws. It is also proper that new 
resources are being provided to guarantee such enforcement, and to 
provide for stiff penalties that actually provide additional resources 
for enforcement in the event of non-compliance.
    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 and AACCLA Are 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. I have no doubt that 
this agreement will bring very real benefits to the United States, and 
especially to exporters, the textile industries, farmers and ranchers, 
and the Hispanic and Latino communities of the United States. All we 
are asking for is the chance to get in the game.
    The U.S. Chamber and AACCLA appreciate the leadership of the House 
Committee on Ways and Means in reviving the U.S. international trade 
agenda, and we ask you to move expeditiously to bring DR-CAFTA to a 
vote. Thank you.

                                 

    Chairman THOMAS. Thank you Mr. Fendell. Mr. Presser.

  STATEMENT OF SHELDON PRESSER, SENIOR VICE PRESIDENT, WARNER 
     BROS., BURBANK, CA, ON BEHALF OF TIME WARNER, AND THE 
        ENTERTAINMENT INDUSTRY COALITION FOR FREE TRADE

    Mr. PRESSER. Mr. Chairman, Congressman Rangel, Committee 
Members, on behalf of Warner Brothers, our parent company, Time 
Warner, and the broader Entertainment Industry Coalition for 
Free Trade, thank you for the great opportunity to appear 
before you today to discuss the benefits of the DR-CAFTA. Our 
company, as well as the Entertainment Industry Coalition and 
the U.S. workers we represent strongly believe that this 
agreement will create important opportunities for our 
businesses to increase exports and create jobs and additional 
revenue in the United States. As an industry that will 
substantially benefit from this agreement, we ask Congress to 
act quickly to vote in favor of it. Warner Brothers, through 
Time Warner, is a member of the Entertainment Industry 
Coalition, which represents the interests of men and women who 
produce, distribute, and exhibit many forms of creative 
expression. This includes theatrical and TV motion pictures, 
home video entertainment, recorded music and, video games. Our 
coalition members include multi-channel programmers and cinema 
owners, producers and distributors, trade associations, 
individual companies like Time Warner, and guilds and unions, 
which themselves include over 100,000 members.
    The entertainment industries are among the U.S. economy's 
greatest assets. We represent approximately 6 percent of the 
Nation's GDP (gross domestic product). We have created jobs at 
three times the rate of the U.S. economy in recent years. We 
bring in more international revenue from exports than aircraft, 
agriculture, and auto parts. Our industries export between 
$90-- $100 billion worth of goods per year. The movie industry 
alone has a surplus balance of trade with every single country 
in the world that exhibits our films. We know of no other 
American enterprise that can make that statement year after 
year. Following up on the five Congressmen and women who 
extensively discussed the trade deficit this morning, we are 
doing our part in connection with the trade balance. 
Unfortunately, America's creative industries are under attack. 
As Congress well knows, and as Congressman Ramstad mentioned 
earlier today, losses from physical and online piracy have 
reached staggering levels. Estimates are in excess of $25 
billion for 2004 alone. Without strong protections and improved 
market access, our industry's ability to continue to expand 
U.S. jobs, revenue, and exports will be jeopardized. These 
troubling trends increase the importance of international trade 
agreements including the DR-CAFTA. More specifically, the DR-
CAFTA countries have committed to reduce current tariffs that 
go as high as 20 percent, down to zero on all movies, music, 
consumer products, software books and magazines that Time 
Warner and others export into the region. We are in the same 
position as Congressman Hayworth mentioned in respect to 
catsup.
    The agreement also includes a commitment to 
nondiscriminatory treatment of digital products and zero 
tariffs on electronic transmissions. This significant cut in 
our cost will enable us to bring more products to consumers in 
the region and more revenue back home. The DR-CAFTA agreement 
provides for improved market access for many services including 
audiovisual, computer, telecommunications, advertising, and 
distribution. The agreement also includes investment 
protections that will allow for future growth in the 
development of multiplex movie theaters in the DR-CAFTA 
countries, providing an important base for expanding U.S. 
entertainment exports to the region.
    While breaking down market access barriers is critically 
important, the entertainment industry cannot survive without 
strong IPR protection and enforcement. The value of our 
products is undermined when piracy goes unchecked. Improving 
intellectual property rights protection has been an important 
part of past FTA's and the DR-CAFTA continues that success. The 
agreement includes copyright term extension, digital 
protections age IPR protections and strengthened IPR 
enforcement, which is the only way to maintain the integrity of 
an IPR system. We are already seeing benefits from the DR-CAFTA 
negotiation as illustrated by the August 5, 2004 side letter to 
the agreement, which provides a strong commitment to eliminate 
the longstanding and serious problem of broadcast piracy in the 
Dominican Republic. We thank Congressman Rangel for his help 
with this important advancement. Time Warner's top trade policy 
priorities are ensuring protection of our intellectual 
properties through strong enforcement measures and securing 
improved market access for our products and services around the 
world. The DR-CAFTA meets these deals. The agreement represents 
valuable opportunities. Thank you for your time and for the 
very positive comments made by a number of Members regarding 
intellectual property today.
    [The prepared statement of Mr. Presser follows:]

  Statement of Sheldon Presser, Senior Vice President, Warner Bros., 
 Burbank, CA, on behalf of Time Warner, and the Entertainment Industry 
                        Coalition for Free Trade

    Mr. Chairman, Congressman Rangel, and Committee Members, on behalf 
of Warner Bros., our parent company Time Warner, and the broader 
Entertainment Industry Coalition for Free Trade (EIC), thank you for 
the great honor and opportunity to appear before you today to discuss 
the benefits of the Dominican Republic-Central America Free Trade 
Agreement (DR-CAFTA).
    Our company, the Entertainment Industry Coalition, and the U.S. 
workers we represent, strongly believe that this agreement will create 
important opportunities for our businesses to increase our exports, and 
create jobs and additional revenue in the United States, all of which 
will advance the economy of the United States. We also believe that 
passage of DR-CAFTA will be good for the economies of the Dominican 
Republic and the CAFTA countries. Strengthening the economies of the 
Dominican Republic and the CAFTA countries will create wealth in those 
countries, thereby providing greater opportunities for the legitimate 
distribution of our products.  In addition, the high standard of 
commitments, particularly in the area of intellectual property and 
services, will hopefully lead to additional stronger commitments in 
other negotiations, such as the FTAA. As an industry that will 
substantially benefit from this agreement, we ask Congress to act 
quickly to vote in favor of the agreement.
    Warner Bros., through Time Warner, is a member of the Entertainment 
Industry Coalition (EIC), which represents the interests of men and 
women who produce, distribute, and exhibit many forms of creative 
expression, including theatrical motion pictures, television 
programming, home video entertainment, recorded music, and video games. 
Our members are multi-channel programmers and cinema owners, producers 
and distributors, guilds and unions, trade associations, and individual 
companies.
    Our members include BMG Music; The Directors Guild of America 
(DGA); EMI Recorded Music; the Entertainment Software Association 
(ESA); The International Alliance of Theatrical Stage Employees, Moving 
Picture Technicians, Artists and Allied Crafts of the United States, 
Its Territories and Canada (IATSE); Independent Film and Television 
Alliance (IFTA); Motion Picture Association of America (MPAA); National 
Association of Theatre Owners (NATO); New Line Cinema; the News 
Corporation Limited; Paramount Pictures; Producers Guild of America 
(PGA); Recording Industry Association of America (RIAA); Sony Music 
Entertainment Inc.; Sony Pictures Entertainment Inc.; Television 
Association of Programmers (TAP) Latin America; Time Warner; Twentieth 
Century Fox Film Corporation; Universal Music Group; Viacom; Universal 
Studios; the Walt Disney Company; Warner Bros.; Warner Music Group; and 
The Writers Guild of America, west (WGAw).
    The goal of the EIC is to work with policymakers to highlight the 
importance of free trade for the U.S. economy, the positive economic 
impact of international trade on the entertainment community, and the 
role of international trade negotiations in ensuring strong 
intellectual property protections and improved market access for our 
products and services.
    The entertainment industries are one of the U.S. economy's greatest 
assets. Based on Department of Commerce statistics, the copyright 
industries represent more than 6% of the nation's GDP. We bring in more 
international revenues from exports than aircraft, agriculture, auto 
parts.  We also are creating new jobs at three times the rate of the 
rest of the economy. The movie industry alone has a surplus balance of 
trade with every single country in the world that exhibits our films. 
No other American enterprise can make that statement.
    Unfortunately, America's creative industries are under attack. As 
the Congress knows well, piracy of copyrighted materials has had a 
devastating impact, and the impact has grown in recent years with the 
advance of digital technology. Losses from physical and online piracy 
in the industry have reached staggering levels, estimated in 2004 at 
well above $25 billion. While the digital revolution has created new 
ways for all of us to reach consumers with compelling content, and for 
consumers in turn to access it from almost anywhere, this same 
technology also has facilitated the efforts of those who steal the 
innovation and creativity of others. Without strong protections, our 
ability and the rest of the entertainment industry's ability to 
continue to expand U.S. jobs, revenue and exports will be jeopardized.
    Market access barriers also plague the entertainment industries. 
High tariffs on our products, discriminatory customs valuation 
disciplines, quotas and discriminatory restrictions on the ability to 
produce and distribute our products prevent the entertainment 
industries from competing in many markets which pirates readily 
exploit.
    These troubling trends increase the importance of international 
trade agreements. In addition to updating traditional copyright 
protections, our industry needs new agreements that otherwise keep pace 
with changes in technology. The Dominican Republic and Central America 
Free Trade Agreement is such an agreement.
    Central America and the Dominican Republic are already important 
export markets for the United States. The U.S. exports more than $15 
billion annually to the region, making it our 14th largest export 
market. It is the 2nd largest export market in Latin America for U.S. 
products, just behind Mexico. For our industry sector, it is a market 
that has tremendous growth potential, as we have seen our products sell 
well--but unfortunately mostly in the hands of pirates. Across the 
entertainment industry, we stand ready to fill the pirate void with 
legitimate product now that all of the Central American countries and 
the Dominican Republic have committed to strengthened IP protection, 
and elimination of tariffs and other market access barriers.
    More specifically, from a Time Warner perspective, the DR-CAFTA 
countries have committed to reducing tariffs that currently go as high 
as 20%, down to zero on all movies, music, consumer products, software, 
books and magazines that Time Warner exports into the region. This 
significant cut in our costs will enable us to bring more high-quality, 
lower cost products to consumers in the region.
    The agreement also contains several other important commitments 
that will reduce or ensure that the cost of exporting into these 
markets does not increase. For instance, the agreement reaffirms the 
concept that customs duties should be based on the value of the carrier 
media and not the value of the movie, music or software contained on 
the carrier media, in order to assist in efforts to create global 
consensus on this customs valuation standard. The DR-CAFTA also 
includes important commitments providing for non-discriminatory 
treatment of digital products, including DVDs and CDs, as well as an 
agreement not to impose customs duties on such products.
    While the tariff reductions included in the agreement are important 
and will benefit the companies of Time Warner and the entire 
entertainment industry, the agreement also includes important services 
commitments and intellectual property rights protections. The DR-CAFTA 
builds on the successful record of past FTAs, such as Chile, Singapore, 
Morocco and Australia, in developing a high standard for trade 
commitments in the services sector, particularly in areas where 
countries have agreed to go beyond their services commitments in the 
WTO, strengthening and modernizing IP protections, and creating modern 
trade agreements aimed at the digital economy.
    The agreement provides for improved market access for many 
services, including audiovisual, computer, telecommunications, 
advertising, and distribution services such as wholesaling and 
retailing. The agreement also demonstrates that a trade agreement can 
harmonize two important objectives--trade liberalization and the 
promotion of cultural diversity. It avoids the ``cultural exceptions'' 
approach while demonstrating that a trade agreement has sufficient 
flexibility to take into account countries' cultural promotion 
interests. The agreement also includes investment protections that will 
allow for further growth in the development of multiplex movie theaters 
in the DR-CAFTA countries, providing an important base for expanding 
U.S. entertainment exports to the region.
    While breaking down market access barriers and creating a duty-free 
system of trade between our countries will present excellent 
opportunities for increased trade, the entertainment and media 
industries cannot survive without strong protections and enforcement of 
those protections. The value of our products is undermined with every 
case of piracy that goes unchecked. We believe that this FTA sets a 
high bar for IP protections that should be a part of any future trade 
agreements that the United States negotiates.
    DR-CAFTA includes strong intellectual property rights provisions 
that will allow our industry to continue to grow and prosper, as well 
as recognizing emerging technologies and the impact that these 
technologies can have on our businesses. Improved intellectual property 
rights protection has been an important part of past FTAs and the DR-
CAFTA continues that success.
    Protecting intellectual property rights is at the heart of our 
business. In this regard, the DR-CAFTA has critically important 
provisions in it to safeguard our content from piracy. Specifically, 
DR-CAFTA includes TRIPs-plus provisions that will ensure that products 
in the digital economy receive world-class IP protection. The DR-CAFTA 
countries have agreed to implement the WIPO Internet Treaties, as well 
as to establish strong anti-circumvention provisions to prohibit 
tampering with technologies that are designed to prevent piracy and 
unauthorized distribution over the internet. In addition, the agreement 
includes provisions ensuring that copyright owners have the exclusive 
right to make their works available online and protects copyrighted 
works for extended terms, in line with current international trends.
    Importantly, the FTA also strengthens IP enforcement, which is the 
only way to maintain the integrity of an IP system. The DR-CAFTA 
countries have agreed to increase criminal and civil remedies against 
the unlawful decoding of encrypted satellite TV signals and criminalize 
end-user piracy, providing strong deterrence against piracy and 
counterfeiting. The agreement also requires the DR-CAFTA countries to 
authorize the seizure, forfeiture and destruction of pirated products 
and the equipment used to produce them, as well as providing for 
enforcement against pirates of goods-in-transit, to deter violators 
from using ports or free trade zones to traffic in pirated products. 
These strong measures will provide content providers, such as the 
companies of Time Warner, with the increased protection and enforcement 
needed to safeguard our investments and the U.S. jobs that are 
supported through the sales and distribution of our products. In fact, 
we are already seeing benefits from the DR-CAFTA negotiation as 
illustrated by the August 5, 2004 side letter to the agreement which 
provides a strong commitment to eliminate the long-standing and serious 
problem of broadcast piracy in the Dominican Republic. We thank you, 
Congressman Rangel, for your help with this important advancement.
    Time Warner's top trade policy priority is ensuring protection of 
our intellectual property through strengthened laws and strong 
enforcement measures. In addition, Time Warner believes that all 
entertainment and high-tech products should have full market access, 
zero tariffs and that all electronic transmissions should enter all 
countries duty-free. The DR-CAFTA meets these goals, which is why Time 
Warner strongly supports the passage of the agreement. We believe that 
the agreement represents valuable opportunities for our businesses and 
our employees to continue to compete and prosper in the world economy.
    Thank you.

                                 

    Chairman THOMAS. Thank you, Mr. Presser. Mr. Trumka.

 STATEMENT OF RICHARD L. TRUMKA, SECRETARY-TREASURER, AMERICAN 
    FEDERATION OF LABOR-CONGRESS OF INDUSTRIAL ORGANIZATIONS

    Mr. TRUMKA. Mr. Chairman, before I start my statement could 
I also submit for the record this report entitled, ``The Real 
Record on Workers Rights in Central America.'' It is a 
compilation of information on each one of the Central American 
countries dealing with the workers rights in those countries.
    Chairman THOMAS. Is it a work product of your organization?
    Mr. TRUMKA. It is indeed.
    Chairman THOMAS. Without objection.
    [The information is being retained in Committee files.]
    Mr. TRUMKA. Thank you very much, sir. Thank you, Mr. 
Chairman, and Members of the Committee. Thank you for holding 
this important hearing and inviting me to testify today on 
behalf of 13 million working Americans, men and women 
represented by the AFL-CIO (American Federation of Labor-
Congress of Industrial Organizations). Given the composition of 
this panel, I have a greater appreciation for Custer at Little 
Big Horn. The American labor movement recognizes the urgent 
challenges of poverty and underdevelopment in Central America 
and the Dominican Republic. Many of our members come to the 
United States from this region. Many maintain close ties with 
family and friends there, send remittances home and return 
periodically to visit the lands of their birth. We work closely 
with unions and civil society organizations throughout the 
area. So, we too feel a special obligation to help these 
countries grow and to prosper. At the same time, we are acutely 
aware of the challenges that we face in our own economy and 
labor market.
    Our trade deficit hit a record-shattering $617 billion last 
year. We have lost close to 3 million manufacturing jobs in the 
last 4 years, and average wages are barely keeping pace with 
inflation, despite healthy productivity growth. 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 economy. Unfortunately, DR-CAFTA is not the answer to 
the challenges faced in Central America or the United States. 
On the contrary, it 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 would 
undermine the ability of governments to protect public health, 
strong communities and the environment. Mr. Chairman, Members 
of the Committee, we ask you to reject DR-CAFTA and urge the 
Administration to renegotiate this deeply flawed deal.
    Some have argued that DR-CAFTA is the only way to lift 
Central America out of poverty. We need only examine NAFTA's 
dismal track record to dispel this myth. Since NAFTA was 
implemented 11 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. The DR-CAFTA is likely to have similar 
impacts on Central America. Furthermore, 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 work 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, 
DR-CAFTA actually weakens the labor rights conditions included 
in current trade programs, leaving Central American and 
Dominican workers more vulnerable than ever.
    Nor will DR-CAFTA improve U.S. competitiveness or create 
high-paying jobs at home. NAFTA was supposed to open markets 
for America's goods and services, creating high-paying jobs at 
home and prosperity abroad. Instead in 11 years the U.S. trade 
deficit with Canada and Mexico ballooned to 12 times its pre-
NAFTA size, reaching $111 billion in 2004, and imports from 
NAFTA partners grew more than $100 billion faster than our 
exports to them, displacing workers in industries as diverse as 
aircraft, auto, apparel, and consumer electronics. Like NAFTA, 
the attraction of Central America for multinational 
corporations is not its consumer market, but its low paid and 
very vulnerable work force.
    Central America needs a trade regime that will improve 
compliance with fundamental workers rights. The DR-CAFTA fails 
this test. Rather than tie additional market access to required 
improvements in workers' rights, DR-CAFTA does exactly the 
opposite. While granting expanded and permanent market access 
to Central American countries, DR-CAFTA actually weakens the 
labor rights conditions these countries are required to fulfill 
under current trade agreements. This failure is particularly 
egregious in a Central American context. In countries where 
labor laws fall far short of minimum international standards, 
where governments have a record of indifference toward workers' 
rights and hostility toward trade unions, the only tool that 
has proven successful in improving workers' rights has been the 
threat of withdrawal of trade benefits.
    Members of the Committee, 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 
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 Congress to reject DR-CAFTA and to begin 
work on just economic and social relationships with Central 
America and the Dominican Republic. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Trumka follows:]

     Statement of Richard L. Trumka, Secretary-Treasurer, American 
        Federation of Labor-Congress of Industrial Organizations

    Mr. Chairman and members of the committee, thank you for holding 
this important hearing and for inviting me to testify today on behalf 
of the thirteen million working men and women represented by the AFL-
CIO.
    The American labor movement recognizes the urgent challenges of 
poverty and underdevelopment in Central America and the Dominican 
Republic. Many of our members came to the United States from this 
region. Many maintain close contact with family and friends there, send 
remittances home, and return periodically to visit the lands of their 
birth. We work closely with unions and civil society organizations 
throughout the area. So we too, feel a special obligation to help these 
countries grow and prosper.
    At the same time, we are acutely aware of the challenges we face in 
our own economy and labor market. 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 are barely 
keeping pace with inflation--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.
    Unfortunately, CAFTA is not the answer to the challenges faced in 
Central America or the United States. On the contrary, it 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 
would undermine the ability of governments to protect public health, 
strong communities, and the environment.
    Mr. Chairman, members of the committee, we ask you to reject CAFTA 
and urge the Administration to renegotiate this deeply flawed deal.
CAFTA As Solution To Poverty?
    To sell CAFTA to a skeptical Congress, some make the desperate 
argument that CAFTA is the only way to lift Central America out of 
poverty. 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 As A Boost to U.S. Competitiveness and Jobs?
    During the debate over NAFTA, proponents argued that with the 
American market already more open to Mexican products, our workers and 
producers would come out on top if all trade barriers were eliminated. 
Today, the same argument is being used to sell CAFTA.
    However, our experience under NAFTA demonstrates that the opposite 
is likely to occur. As Republican Senator Olympia Snowe said last week 
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 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.
    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 committee, 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.

                                 

    Chairman THOMAS. I thank the gentleman. Mr. Schulingkamp.

 STATEMENT OF DAVID P. SCHULINGKAMP, PRESIDENT, BARGELINK, LLC 
AND MBLX, INC., VICE PRESIDENT, M.G. MAHER & CO., PAST CHAIRMAN 
   OF THE BOARD OF COMMISSIONERS, PORT OF NEW ORLEANS, PAST 
PRESIDENT, NEW ORLEANS BOARD OF TRADE, ON BEHALF OF THE PORT OF 
  NEW ORLEANS, WORLD TRADE CENTER OF NEW ORLEANS, GREATER NEW 
       ORLEANS, INC., AND THE NEW ORLEANS BOARD OF TRADE

    Mr. SCHULINGKAMP. Mr. Chairman, Members of the Committee, 
good afternoon. Thank you for the opportunity to speak before 
this group. I want to thank, particularly, Congressman William 
Jefferson and Congressman McCrery for their strong support, not 
only of this proposed DR-CAFTA but for FTAs in general. I am 
speaking on behalf of the Port of New Orleans, the World Trade 
Center, the New Orleans Board of Trade and Greater New Orleans, 
Inc., which is an economic engine group of our Chamber of 
Commerce. Our constituents are primarily people who are 
involved in the nuts and bolts of servicing customers who buy 
and sell products internationally. New Orleans is a gateway 
port for much of America. We are the humble servants of many of 
your constituents who manufacture American products throughout 
the Midwest and even throughout the East Coast, as far north as 
Minneapolis, Chicago, St. Louis, Pittsburgh, Kentucky, points 
in between. We are very attuned to what is going on in trade.
    One of the, perhaps unintended, but beneficial benefits of 
DR-CAFTA, is something that those of us in the transportation 
industry have noticed. This is that, actually, the United 
States has a tremendous imbalance with Central America. There 
are a lot more products being imported than exported. That 
creates higher freight rates. It may surprise you to know that 
there are freight rates existing between Central America and 
Europe and Central America and the Far East which are cheaper 
than those to the United States. That is because of this 
tremendous imbalance. The more exports that we have to Central 
America, the more equality that we are going to have. We are at 
a geographic advantage, but at an economic transportation 
disadvantage, to the European Union, for example, and even to 
some places in the Far East.
    Clearly, this bill will benefit American manufacturers. 
Unlike many other trade proposals, which have opened up the 
doors for producers in the foreign countries to sell in this 
country, this act undoubtedly creates tremendous opportunities 
for American manufacturers and producers throughout this 
country. We would urge that this Committee recommend and vote 
for approval of a DR-CAFTA.
    [The prepared statement of Mr. Schulingkamp follows:]

  Statement of David P. Schulingkamp, President of BargeLink, LLC and 
  MBLX, Inc., Vice President, M.G. Maher & Co., Past Chairman of the 
   Board of Commissioners, Port of New Orleans, Past President, New 
  Orleans Board of Trade, on behalf of the Port of New Orleans, World 
  Trade Center of New Orleans, Greater New Orleans, Inc., and the New 
                         Orleans Board of Trade

    My name is David P. Schulingkamp and I am President of BargeLink, 
LLC and MBLX, Inc., Vice President of M.G. Maher & Co., the past 
Chairman of the Board of Commissioners of the Port of New Orleans and 
past President of the New Orleans Board of Trade. On behalf of the Port 
of New Orleans, the World Trade Center of New Orleans, Greater New 
Orleans, Inc., and the New Orleans Board of Trade, I am honored to 
appear before you today to highlight the value and benefits that can 
and will be realized through the swift passage and implementation of 
the Dominican Republic-Central American Free Trade Agreement (DR-
CAFTA).
    The Port of New Orleans is a vital economic engine for Louisiana, 
and serves as a gateway for the import and export of products 
throughout the Gulf Coast region and inland waterways system. Maritime 
activity within the Port is responsible for more than 107,000 jobs, $2 
billion in earnings, and $13 billion in spending in Louisiana. In 2003 
alone, the Port handled more than $30.6 billion worth of exports to 
over 200 foreign markets. Through my involvement with the Port of New 
Orleans, the New Orleans Board of Trade, and other business and trade 
interests, I have seen first hand the significant benefits that free 
and fair trade provides for our national and regional economies.
    It is with those benefits in mind that I strongly urge this 
Committee to support the immediate implementation of DR-CAFTA. 
Louisiana and other regions of the country already depend heavily on 
trade with our Central American neighbors. As reported by the U.S. 
Department of Commerce, Louisiana's shipments to DR-CAFTA countries of 
manufactured and non-manufactured merchandise, including chemical, 
petroleum, agricultural and other products, totaled $1.2 billion in 
2004. These exports from Louisiana to the Dominican Republic, Costa 
Rica, El Salvador, Guatemala, Honduras, and Nicaragua were the 4th 
largest among the 50 states. The DR-CAFTA region is Louisiana's 2nd 
largest export market for processed foods and its 5th largest market 
for agricultural crops. With implementation of DR-CAFTA, enhanced 
trade, employment and other opportunities in those markets will provide 
increased and significant benefits to the people of Louisiana and this 
Nation. Though sugar producers within Louisiana have concerns about DR-
CAFTA, it is not my intention to debate such claims. Rather, my 
intention is to discuss the wide range of DR-CAFTA benefits that are 
attainable throughout Louisiana.
    With the approval of DR-CAFTA, more than 80 percent of U.S. exports 
of consumer and industrial products and 50 percent of agricultural 
goods to Central America and the Dominican Republic will be duty-free 
immediately, followed by the full elimination of tariffs for most 
products within a few more years. With the elimination of such duties 
on U.S. exports, the markets for information technology, construction 
machinery, farm goods, and other products will certainly be enhanced 
throughout the DR-CAFTA region. What this specifically means for 
Louisiana is that:

      Louisiana's rice producers will benefit from an 
increasing duty-free quota and the eventual elimination of up-to-60 
percent tariffs on out-of-quota rice.
      Louisiana is the 3rd largest rice-producing state in the 
U.S. Louisiana's cotton exports will be duty-free, thus helping to 
maintain a competitive textile industry in the U.S.
      Louisiana's soybean products will become duty-free except 
to Costa Rica where tariffs will be phased out over 15 years.
      Louisiana's service providers will enjoy the elimination 
of substantial trade barriers.
      Louisiana's manufacturers and producers of chemical, 
petroleum, coal, electrical equipment, paper, plastics, rubber, 
processed food, and transportation products will benefit from DR-
CAFTA's elimination of tariffs on such goods. Approximately 24 percent 
of all jobs in Louisiana depend upon petroleum product exports; 1-in-5 
jobs in Louisiana's chemical industry depend on exports.

    Furthermore, as shown by a review of the DR-CAFTA agreement by the 
U.S. Trade Representative, nearly 80 percent of imports into the United 
States from the Dominican Republic and Central American countries 
already receive duty-free treatment, even though U.S. exports are 
currently subject to heavy tariffs. It is therefore clear to us that 
the United States has significantly more to gain through the approval 
of DR-CAFTA.
    A recent study by Dr. James Richardson of Louisiana State 
University shows that--

       The estimated impact of CAFTA on the Louisiana economy varies 
from new business sales of $169.3 million to $338.6 million, household 
earnings of $38.6 million to $77.2 million . . . and . . . 1,375 to 
2,769 new jobs. CAFTA will have a positive impact on business activity, 
household earnings, and jobs in Louisiana. . . .

    Increased job opportunities--enhanced business development--
improved household earnings--better export markets for U.S. goods. This 
is what CAFTA means for the United States.
    Dr. Richardson also highlighted what could be lost without the 
approval of DR-CAFTA. U.S. exports would be placed at continuing 
disadvantage to those products manufactured or produced in countries 
that otherwise enjoy the benefits of free trade agreements with Central 
American and the Dominican Republic. We cannot afford to let slip away 
the American business and employment opportunities that will be derived 
from the implementation of DR-CAFTA.
    Through my daily involvement on a practical basis with commerce to 
and from the New Orleans region, I closely monitor Central American 
trade issues. Passage of DR-CAFTA will ensure that this trade through 
Louisiana is more than just a one-way street.
    Mr. Chairman, I strongly support your efforts to provide 
Congressional approval of the Dominican Republic-Central American Free 
Trade Agreement in order to level the playing field and enhance export 
opportunities for U.S. manufactured products. We are especially pleased 
that Congressmen Jim McCrery and William Jefferson of Louisiana, who 
have both worked closely and cooperatively with you over the years on 
free trade, fully support you in your efforts to implement DR-CAFTA.
    Thank you, Mr. Chairman, for standing up for free and open trade to 
the benefit of Louisiana and this Nation. I look forward to responding 
to any questions that you or other Committee members may have.

                                 

    Chairman THOMAS. I thank the gentleman. The gentleman from 
Florida, the Subcommittee on Trade chairman wish to inquire?
    Mr. SHAW. Yes, sir, Mr. Chairman, I would. In your 
testimony you talk or you spoke that DR-CAFTA would erode labor 
standards in Central America and the Dominican Republic, and 
you also said it would affect workers rights. Would you cite me 
some specifics on that?
    Mr. TRUMKA. Absolutely. In the DR-CAFTA, Article 16, 
Section 6, specifically excludes enforceable obligations to 
recognize and protect the ILO core standards and 
internationally recognized worker rights in domestic and labor 
laws. The current system of Generalized System of Preferences 
(GSP) and CBI require that. In addition, DR-CAFTA, Article 16, 
section 6, Subsection 7 excludes the enforceable obligation not 
to waive or to derogate from labor laws in a manner that 
weakens adherence to internationally recognized labor laws that 
is currently required by GSP and CBI.
    Also, there is no--anti-discrimination laws are not 
included in the group of domestic laws that a country is 
obligated to enforce. So, commitments to the ILO core labor 
standards, including nondiscrimination, are excluded from 
dispute, settlement, and enforcement procedures. You would have 
to read the fine labor laws in Article 16.8 to conclude that.
    In addition, Mr. Chairman, there is no agreement in----
    Mr. SHAW. Mr. Chairman. Would the witness give me some 
specific examples? I don't care if you sit there and read the 
agreement to me and take up my 5 minutes.
    Mr. TRUMKA. Thank you, sir.
    Mr. SHAW. Would you be specific?
    Mr. TRUMKA. There are probably 400 or 500 examples that 
have been submitted for the record.
    Mr. SHAW. You are representing to this Committee that we 
actually, in some way, through this legislation, require an 
adherence to the labor standards of the country; that we are 
eroding the standards, that we are changing the law in those 
particular countries?
    Mr. TRUMKA. Yes, I am. This DR-CAFTA will weaken the labor 
standards conditionalities contained in CBI and GSP.
    Mr. SHAW. You are saying that by entering into this 
agreement the Central American countries are agreeing to lower 
standards and they are changing their own law as to labor 
standards that are required to be----
    Mr. TRUMKA. I am not saying they are required to lower 
them, I am saying they are not required to----
    Mr. SHAW. Let me----
    Mr. TRUMPKA: Or to keep them the same. They can reduce or 
eliminate any standard the minute after this is signed, and 
this agreement sanctions that.
    Mr. SHAW. They can do that without DR-CAFTA.
    Mr. TRUMKA. They can't do it under CBI or GSP.
    Mr. SHAW. Just like we can.
    Mr. TRUMKA. They can't do it under GSP or CBI because both 
of them require countries to adhere to ILO standards and gives 
us the right to make sure those are done.
    Mr. SHAW. Mr. Trumka, on the second page of your testimony 
you said that DR-CAFTA does not dramatically increase access to 
U.S. markets or the Dominican Republic and Central America. How 
can you say that when we are dropping the tariffs?
    Mr. TRUMKA. I am sorry?
    Mr. SHAW. How can you say that when we are dropping the 
tariffs?
    Mr. TRUMKA. Well, first of all, I think that most employers 
aren't interested in Central America's consumers. They are more 
interested in the wages, the low wages, that could be brought 
about by this. In addition to that, remember, the reduction of 
tariffs in Central America was a voluntary thing. Every 
section, every time that we have made progress in Central 
America, it was because we had the ability to threaten to take 
away that marketplace. The DR-CAFTA will make them a permanent 
fixture. We won't have that threat. They won't have labor laws 
that they can adhere to. They can reduce them at any time, and 
we will actually go backward when it comes to workers rights.
    Mr. SHAW. They can do that anyway. I just don't understand 
where you are going with your testimony. We have heard witness 
after witness testify that this is going to create jobs in 
United States. We have also heard testimony coming from the 
other side that it was going to increase imports. Now you are 
telling me that it is not going to--that it is going to affect 
labor rights and the workers, and how it is going to increase 
poverty in that part of the world. You have got to go one way 
or the other with your testimony.
    Mr. TRUMKA. Let me say this to you, sir. It will weaken 
labor rights. We were told the same exact thing when we signed 
NAFTA; that it would create jobs. In fact, it hasn't. It hasn't 
increased the standard of living for the Mexican worker. We 
have lost a lot of jobs. I have to say this to you, Mr. 
Chairman, even Woody Hayes, after seeing that running up the 
middle every time didn't work, changed his offense. What we are 
doing in trade doesn't work. We need to change. Yes, we need to 
have a trade agreement with Central America, but this is the 
wrong set of rules. It will hurt workers on both sides of the 
border.
    Mr. SHAW. What was your position on previous trade 
agreements, previous FTAs that we have entered into?
    Mr. TRUMKA. We have opposed most of them. Some had fair 
workers rights in them, and we wouldn't oppose those. We 
opposed NAFTA because it was the same----
    Mr. SHAW. You heard the Trade Representative testify before 
this Committee that these are the strongest labor requirements 
that we have had in any agreement. I think this is a good 
agreement for the United States, and it is a good agreement for 
Central America. I yield back.
    Mr. TRUMKA. I take serious issue with that because the 
Jordanian agreement is much stronger. When it comes to workers 
rights, the GSP and the CBI are both stronger than this 
agreement.
    Chairman THOMAS. The gentleman's time has expired. Does the 
gentleman from Michigan wish to inquire?
    Mr. LEVIN. We have heard today, kind of an acceptance that 
labor standards are an important part of the trade equation, 
but there has been, I think, an effort to back off. Mr. Shaw, 
you asked Mr. Trumka a very relevant question, but the truth of 
the fact is that the GSP and the CBI standard incorporates the 
five ILO core labor standards, not enforce your own law. That 
is a fact. The fact is, in terms of enforcement, under CBI and 
GSP the United States can take unilateral action if that isn't 
occurring. I favor an agreement where there is no longer 
unilateral action possible, where it becomes a part of a 
dispute settlement system, but there should be no denial that 
the standard, enforce your own laws and they can go backward, 
is a weaker standard than CBI or GSP and the enforcement 
mechanism is more restricted. That is a fact. The Jordan 
agreement--Mr. Allgeier is just wrong, in terms of the 
provisions there.
    Another argument that was used today earlier, and to you, 
Jim, and the Ambassador kind of accepted this at first, that we 
can't force other countries to change their domestic laws. That 
is--trade agreements force countries to change their laws. Mr. 
Presser, your testimony is eloquent on that. I just read from 
it again. The DR-CAFTA countries have agreed to increase 
criminal and civil remedies against the unlawful decoding of 
encrypted satellite TV signals and criminalize end user 
privacy. I support those provisions. They require the countries 
to change their laws. What is true of intellectual property 
rights is true of tariff by definition. They are changing their 
laws. The question is why a double standard when it comes to 
core labor standards and environmental standards. It is the 
only areas where enforce your laws is used as the standard.
    So, look, we talked about this, income inequality in Latin 
America is the worst in the world in terms of the continent. It 
is. Four of the 10 most difficult examples are four of the 
Central American nations. The question is, it is not labor 
standards in terms of whose four is whom. Mr. Trumka knows he 
and I haven't agreed on every trade agreement, but we have had 
a basic belief that in order for trade to help move people up 
you cannot have agreements that let countries move down. So, 
while there may have been a disagreement about Morocco or 
Singapore, there has been a basic strong feeling among all of 
us that you have to have, as trade expands, a basic standard 
relating to core labor standards and the environment. That is 
what is missing here and prevents our having the kind of 
bipartisan effort that there should be.
    I just close with this, an article in the Chicago Tribune 
of April 17th from El Salvador, ``Looking to resurrect their 
wages in this sad port town's happier days, Mr. Velazquez and 
40 other dock workers tried to set up a labor union last 
December. Within days guards began blocking them from passing 
through the port gate. Soon a list of 41 names were circulated 
among employers at the port and a legal black list.'' That is 
not conforming with international core labor standards, and 
those workers will never become part of a middle class as long 
as they are suppressed. Our workers will not compete with 
people who are suppressed, and there will be no middle class on 
a sizeable dimension in those countries to buy the goods that 
we produce. That is the larger issue here.
    Chairman THOMAS. The gentleman's time is consumed. The 
Chair understands hyperbole. In fact, if the gentleman from 
Michigan believes that the Central American countries have the 
greatest discrepancy between wealth at the top level and 
poverty at the bottom level, I invite the gentleman to visit 
the subcontinent of India which has a caste system which 
guarantees that there is separation rather than pure economic 
difference. There are a number of African nations, but I 
understand the point the gentleman is trying to make.
    Mr. LEVIN. The largest income inequality of any continent 
is in Latin America. There are 100 million----
    Chairman THOMAS. If the gentleman is describing Latin 
America as the concept of South America, Latin America is in 
North America.
    Mr. LEVIN. No, no, that is Central America and North 
America. I said Latin America.
    Chairman THOMAS. Okay.
    Mr. LEVIN. That is, all of South America and Central 
America and part of the Caribbean. The income inequalities in 
Latin America are the worst in any place. The facts show that. 
That is why this is part of the larger issue.
    Chairman THOMAS. The gentleman is on my time.
    Mr. LEVIN. Okay.
    Chairman THOMAS. For a country to agree to voluntarily 
accept changes in their law, to conclude a trade agreement with 
another country, is not the same thing as having language in 
the bill that changes their laws when they don't voluntarily 
want to have it. So, the gentleman continues to say that the 
only trade agreements that he apparently is willing to accept 
are those that force other countries to accept standards that 
they are willing to voluntarily accept.
    Mr. LEVIN. May I----
    Chairman THOMAS. No, not right now. Voluntary agreement to 
accept change and a forced structure to require change are two 
fundamentally different things.
    Mr. LEVIN. Would the gentleman yield?
    Chairman THOMAS. No. The bells have rung. The Chair has 
been patient with people a lot of other times. The Chair didn't 
take time at the beginning, but based upon what has been said 
the Chair wants to make a couple of points. Mr. Trumka, I don't 
mean to say this with any disrespect to the labor union 
movement, but would it be unfair of me to ask you to answer the 
question, do you believe that the percentage decline of the 
AFL-CIO among the American work force is based upon corrupt 
leadership in the unions?
    You don't have to answer that. There are a significant 
number of reasons why that occurs. On any point, there are 
significant number of reasons as to why a factor occurs. To 
point to a reduction, for example, in a cause or effect in a 
treaty such as NAFTA is to completely ignore reality and not 
examine the fact that, if NAFTA were not in place it wouldn't 
drop 5 percent, it would have dropped 15 or 20 percent. To 
choose a negative number as evidence that was based upon the 
circumstances that are there is about as fair as the question, 
I clearly indicated to you, I simply wanted to make a point 
with. I noticed your reaction to the question that I asked you. 
When you constantly use data and statistics to prove a point, 
when in fact it is far more sophisticated than that, it simply 
isn't very persuasive in making your points. I notice that you 
upheld the CBI as a model for what we perhaps should do in 
terms of labor, or did you support that?
    Mr. TRUMKA. We didn't hold it up as a model. I said it is 
stronger than DR-CAFTA.
    Chairman THOMAS. Okay.
    Mr. TRUMKA. The DR-CAFTA actually takes away rights that 
are granted to us and corporations and workers there.
    Chairman THOMAS. Has there been any trade agreement, any 
FTA with any country since the TPA agreement has been in place 
that the AFL-CIO has supported?
    Mr. TRUMKA. I am not certain. I think perhaps the Jordanian 
agreement.
    Chairman THOMAS. You don't know if your organization 
supported it?
    Mr. TRUMKA. No, I don't recall. I really don't. Those 
provisions in that agreement were the strongest to date when it 
comes to labor rights; far stronger than we have right now in 
DR-CAFTA.
    Chairman THOMAS. Were they in the agreement, or were they 
in a set of letters that were exchanged in association with the 
agreement?
    Mr. TRUMKA. They are in the agreement and they require a 
commitment to meet ILO standards. This agreement does not 
require that. This agreement only requires countries to enforce 
their own laws. It doesn't even require them to maintain those 
laws.
    Chairman THOMAS. I understand it. The question is, if that 
provision was in this agreement, would the AFL-CIO be 
supporting DR-CAFTA?
    Mr. TRUMKA. We would have to see the agreement.
    Chairman THOMAS. No, no. It is exactly the same as it is 
with that change that the gentleman outlined.
    Mr. TRUMKA. Well, we would have to see the agreement.
    Chairman THOMAS. All you have to do is take the agreement 
as it is and add your provision.
    Mr. TRUMKA. We would find it far more agreeable.
    Chairman THOMAS. I think the question was, would you 
support it?
    Mr. TRUMKA. I don't know, you are asking me in theory what 
I support. I don't know that. I would have to see the rest of 
the agreement.
    Chairman THOMAS. The gentleman has made my point. There is 
absolutely no agreement we can enter into unless there is an 
absolute----
    Mr. TRUMKA. That is just an incredible statement.
    Chairman THOMAS. May I please finish my position? What you 
have been asking consistently over the 27 years that I have 
been in Congress is that agreements must be in the bill which 
require other countries to accept outsiders dictating to them 
what their laws are, and how they may carry them out. If a 
country voluntarily agrees with it, I am in full support of 
that.
    Mr. TRUMKA. Mr. Chairman, may I respond?
    Chairman THOMAS. To set up a structure which absolutely 
requires them to be forced to accept standards means there will 
be no agreements with any country. I understand the gentleman's 
need, and in fact desperation, to attempt to maintain a 
position on union labor, but we are interested in all workers 
in all countries--making sure that all people are benefited.
    Mr. TRUMKA. Mr. Chairman, this specific agreement----
    Chairman THOMAS. The chairman's time has expired, and we 
are currently under a vote. There are going to be five votes. 
There is a 15-minute vote currently under way and there will be 
four 5-minute votes. The Chair, in an attempt to try to 
determine whether or not this panel should stay, is there any 
Member who is going to wish to inquire on this panel or should 
we dismiss this panel and be prepared to take up the next panel 
when the recess has ended?
    Mr. BECERRA. Mr. Chairman, I would urge you to allow the 
panel to stay or at least give Mr. Trumka the opportunity to 
respond to your comments.
    Chairman THOMAS. Does the gentleman from California wish to 
be recognized on this panel?
    Mr. BECERRA. I certainly would like to.
    Chairman THOMAS. The gentleman is recognized.
    Mr. BECERRA. First let me offer the gentleman, Mr. Trumka, 
an opportunity to respond to the chairman's comments if you 
like.
    Mr. TRUMKA. I very much would, because the chairman makes a 
point about not wanting to enforce agreements on people that 
don't agree to them voluntarily. First of all, this agreement 
does precisely that. The DR-CAFTA allows corporations to 
challenge laws that were duly passed in the United States and 
have them thrown out, or it allows corporations in the United 
States to challenge duly passed laws in any of those Central 
American countries and have them thrown out. In addition to 
that, I find the Chairman's point hard to believe. I have 
negotiated hundreds of agreements, literally hundreds. An 
agreement depends on a couple of things. One is the skill of 
the negotiator. I assume we have skilled negotiators 
negotiating for us. Two, it is the focus of the determination. 
Three, it is the leverage that one has. I refuse to believe 
that the leverage of the United States is ineffective in asking 
any Central American country to change its labor laws to meet 
ILO standards and give us enforceable law to do that.
    Mr. BECERRA. Let me ask a couple of questions of the panel, 
and I thank the chairman for extending the opportunity to ask 
the questions. First, thank you for your testimony. To Mr. 
Presser, I do agree with you that we need to have these strong 
enforcement mechanisms in place for intellectual property, 
because we have seen around the world how the rights of those 
who own those intellectual property interests have been 
violated. So, I agree with you. I hope we are able to implement 
them and we see opportunities around the world begin to 
enforce, especially those that enter into these agreements. In 
the case of the DR-CAFTA countries, let me ask this, sir, or 
any of the panel, would you be supporting DR-CAFTA if it didn't 
have those stronger protections for intellectual property? If 
we had a provision for DR-CAFTA that said, DR-CAFTA countries, 
enforce your own laws when it comes to intellectual property, 
would you be supporting the DR-CAFTA agreement?
    Mr. PRESSER. It depends on a number of things.
    Mr. BECERRA. You see, the same standard that the chairman 
used on Mr. Trumka: give me a yes or no. I told you the only 
change I would make; I changed the provisions with regard to 
intellectual property and said enforce your own domestic laws.
    Mr. PRESSER. Well, I certainly studied the provisions that 
deal with intellectual property much more substantially than I 
have studied anything else.
    Mr. BECERRA. I made it very simple, Mr. Presser. I made it 
very simple. The only disagreement would be with regard to 
intellectual property, not the provision that says you must 
have criminal penalty and criminal laws, not the provision that 
said you can have the whole spectrum of economic sanctions 
imposed on you. The only provision would be one that says count 
the countries in DR, enforce your own laws.
    Mr. PRESSER. Well, two things----
    Mr. BECERRA. Let me just ask you to do what the chairman 
asked Mr. Trumka to do. Answer just that question.
    Chairman THOMAS. If the gentleman would yield briefly, I 
never got an answer.
    Mr. BECERRA. Mr. Chairman, I am not sure if I am going to 
get one.
    Chairman THOMAS. Well, then it will be the same, won't it?
    Mr. BECERRA. Possibly. Mr. Presser, I apologize for putting 
you on the spot, but I think this points out the difficulties 
we have with the agreement.
    Mr. PRESSER. Certainly, I would like to know in more detail 
what the laws and the DR----
    Mr. BECERRA. Mr. Presser, you know I could say the same 
thing to you that the chairman jut said to Mr. Trumka. I think 
I got my answer.
    Mr. PRESSER. No, I am sorry Congressman, but I think that 
it is quite--it is a little more complicated.
    Mr. BECERRA. No, no, let us not make it complicated. Let us 
make it simple, forgive me for using what my City of Los 
Angeles thinks is so important. I am using this example of why 
many of us are dumfounded that our own government couldn't find 
a way to have anything stronger than, enforce your own laws, in 
the provisions of this agreement, when we came out, as I said 
before, guns blazing, when it came to intellectual property. 
Somehow we are able to protect an intellectual property right 
better than we can protect our men and women who work in this 
country by saying, with regard to intellectual property, 
countries--count the countries--you can't sign this agreement; 
you can't be part of this, or you can certainly play through 
sanctions if you don't have criminal laws and criminal 
procedures in place.
    Second, even if you do, we could still go after you and go 
after your bananas, your fruit, your vegetables if we find that 
you violated intellectual property rights, but when it comes to 
labor, the provisions for women, including the United States, 
all we say to the DR-CAFTA countries is, enforce your own laws. 
By the way, enforce your laws, as Mr. Trumka pointed out, could 
be that tomorrow you decide to reduce the protections in your 
labor laws. All we can do is say, hey, now enforce those laws. 
The question is quite simple. The reason you and Mr. Trumka 
wouldn't answer is because the devil is in the detail. Just as 
we would not expect any consumer to buy a home on a handshake 
with a realtor or owner of a property, we would not expect 
America to sell its assets and its interests on a handshake as 
well. I yield back.
    Chairman THOMAS. The gentleman's time has expired. The 
gentleman from Louisiana.
    Mr. MCCRERY. Thank you, Mr. Chairman. First of all, the 
World Bank did a study which confirms the chairman's assertion 
that, were it not for NAFTA the per capita GDP in Mexico, which 
is probably the best standard of measurement for living, would 
have been lower. So, I think that is more a point of whether it 
has gone up or down in a nominal sense. Second, I think I 
understand Mr. Becerra's point and Mr. Levin's point, but in my 
mind--and when I made the statement earlier that countries 
would resist the United States' insistence on changing their 
domestic laws, I added the phrase ``outside the trade arena.''
    I see intellectual property rights as directly tied to 
trade; that is, protecting the property, protecting the 
products of people who want to shift those products into that 
country and sell them that property. If they don't have any 
protection in that regard, then we are going to be reluctant to 
take advantage of the trade. So, I see that tied directly to 
trade, whereas labor laws, I don't see directly tied to trade. 
I think that is the distinction, at least that I would make, 
although I understand the points you are trying to make. With 
that, I would yield to the chairman.
    Chairman THOMAS. So that we can have a definitive 
understanding of the comparison between trade agreements, 
President Clinton, when he sent the Jordan agreement to 
Congress said ``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.'' That was the Jordanian FTA 
and DR-CAFTA incorporates President Clinton's statement. Jordan 
wasn't better than DR-CAFTA, and when you look at the binding 
dispute settlement mechanism, when you look at the monetary 
assessments in DR-CAFTA, and when you look at the robust 
capacity building mechanism in DR-CAFTA, DR-CAFTA is better 
than the Jordanian FTA, and saying it isn't doesn't change the 
circumstances. The Committee will stand in recess. The chairman 
thanks the panel. We reconvene 5 minutes after the last vote in 
this series of votes.
    Mr. TRUMKA. Is the panel held, sir?
    Chairman THOMAS. The next panel will be ready to go when we 
reconvene.
    The Committee stands in recess.
    Mr. TRUMKA. Mr. Chairman, where should I submit this 
written submission?
    Chairman THOMAS. Right there.
    Mr. TRUMKA. Thank you, sir.
    [Recess.]
    Mr. SHAW. [Presiding.] The hearing will come to order. On 
this panel we have Larry Wooten, who is from Wooten Farming and 
Seed, Currie, North Carolina, President of the North Carolina 
Farm Bureau, Raleigh, North Carolina, here on behalf of the 
AFBF; Bruce Hafenfeld, Hafenfeld Ranch, Weldon, California, 
First Vice President of the California Cattlemen's Association; 
Jack Roney, the Director of Economics and Policy Analysis of 
the American Sugar Alliance; Salvatore Ferrara, President of 
the Ferrara Pan Candy Co., Chicago, Illinois, here on behalf of 
the National Confectioners Association; George Shuster, CEO, 
Cranston Print Works, Cranston, Rhode Island, Co-Chairman of 
AMTAC (the American Manufacturing Trade Action Coalition); and 
Jack Ouellette, the President and CEO of the American Textile 
Co., Pittsburgh, Pennsylvania, and member of the Board, 
American Apparel & Footwear Association. We have all of your 
full testimony. Due to the hour, we would appreciate your 
proceeding with your testimony as quickly as possible. We thank 
you for your patience and staying all day long. With that, I 
will recognize Mr. Wooten.

  STATEMENT OF LARRY WOOTEN, WOOTEN FARMING AND SEED, CURRIE, 
NORTH CAROLINA, PRESIDENT, NORTH CAROLINA FARM BUREAU, RALEIGH, 
     NORTH CAROLINA, ON BEHALF OF THE AMERICAN FARM BUREAU 
                           FEDERATION

    Mr. WOOTEN. Thank you, Mr. Chairman. Chairman Thomas and 
distinguished Members of the Committee on Ways and Means, my 
name is Larry Wooten. I am President of the North Carolina Farm 
Bureau, and by virtue of this position I am also a member of 
the Board of Directors of the AFBF. As a general farm 
organization, the AFBF has studied the impact of the DR-CAFTA 
on all sectors of U.S. agriculture, and from our analysis, a 
copy of which accompanies my statement, we conclude that the 
agreement is a win-win opportunity for both U.S. agriculture 
and for North Carolina.
    Currently, U.S. agriculture faces a $700 million trade 
deficit with this region of the world, and this is largely the 
result of the GSP trade provisions and the CBI, which together 
allow 99 percent of Central American and Dominican Republic 
agricultural products to enter U.S. markets duty free. However, 
our exports to the region are subject to applied tariffs that 
range from 15 to 43 percent. Mr. Chairman, because of these 
tariffs U.S. agriculture has already paid for this agreement. 
The DR-CAFTA will eliminate these trade barriers and provide 
U.S. agriculture with the same duty free access that DR-CAFTA 
countries already enjoy in our markets. Many of our competitors 
in the region, like Chile, already receive preferential access 
from the DR-CAFTA countries. The AFBF analysis shows that U.S. 
agriculture would see increased exports of approximately $1.4 
billion annually once the agreement is fully implemented. By 
evaluating our Nation's major export commodities, it is obvious 
that the United States will capitalize on Central American 
growth in import of grains, oilseed products, expanding 
regional demand for livestock imports, and on gains in demand 
for cotton exports and other products.
    In North Carolina, DR-CAFTA is also a good deal for 
agriculture. In 2003, North Carolina's total farm cash receipts 
equaled $6.9 billion. Of that total, $1.3 billion, or about 19 
percent, came from agricultural exports. If DR-CAFTA is 
enacted, the AFBF estimates that North Carolina will increase 
trade to this region by nearly $70 million per year by 2024. 
North Carolina is a major producer of pork, poultry and cotton, 
as well as a significant producer of soybeans. Under DR-CAFTA, 
North Carolina could expect to increase meat exports to DR-
CAFTA nations by $24 million per year once the agreement is 
fully implemented. Poultry, our third largest agricultural 
export, will experience export increases of $42 million per 
year, exports of cotton will increase approximately $1 million 
per year, while soybeans and soybean product exports would grow 
by $770,000 per year.
    While DR-CAFTA benefits U.S. agriculture overall, the U.S. 
sugar sector may see a less than positive impact. As part of 
the agreement, the United States will allow the DR-CAFTA 
countries to export an additional 164,000 tons of sugar 
annually above their current sugar quota to the United States. 
However, according to the AFBF analysis, these additional 
imports will only impact about 1.5 percent of domestic sugar 
production. Despite these negative impacts, our trade 
negotiators were able to secure several protections for the 
industry. Many of those have been outlined in previous 
testimony here today.
    It is important to remember that trade is not just about 
selling. There must be give and there must be take. Our trade 
negotiators understand this fact and they work carefully to 
negotiate the best deal possible. If our negotiators had 
excluded sugar from this agreement, other U.S. commodities, 
including beef, rice, poultry, and pork would also have been 
excluded. Mr. Chairman and Members of the Committee, many 
farmers and agribusinesses in your congressional districts 
stand to gain from this important agreement, but congressional 
action regarding this matter will also greatly influence the 
global community. Rejecting this agreement will damage our 
credibility with the WTO and with other nations that wish to 
negotiate FTAs with us. The DR-CAFTA provides more gains for 
agriculture than it does losses. Clearly, a yes vote on DR-
CAFTA is a yes vote for agriculture. On behalf of the AFBF and 
North Carolina farm families, I urge you to support the DR-
CAFTA, and I thank you for providing me the opportunity to 
testify here today.
    [The prepared statement of Mr. Wooten follows:]

    Statement of Larry Wooten, Wooten Farming and Seed, Currie, NC, 
 President, North Carolina Farm Bureau, Raleigh, NC, on behalf of the 
                    American Farm Bureau Federation

    Good morning, I am Larry Wooten, President of North Carolina Farm 
Bureau and a diversified tobacco and grain producer in Pender County, 
North Carolina. By virtue of my position, I sit on the Board of 
Directors for the American Farm Bureau Federation.
    As a general agriculture organization, American Farm Bureau 
Federation has studied the impact of this agreement on all sectors of 
U.S. agriculture, and we strongly support Central America-Dominican 
Republic Free Trade Agreement (CAFTA-DR). We have provided as an 
attachment to this statement a copy of our full economic analysis that 
describes how this agreement will impact our livestock, crop and 
specialty crop sectors as well its effects on our sugar industry. On 
balance, we believe that CAFTA-DR will overwhelmingly be a win-win 
opportunity for U.S. agriculture.
    U.S. agriculture currently faces a $700 million trade deficit with 
this region of the world. While this market holds potential for U.S. 
agricultural exports, our products are faced with high tariffs. At the 
same time, agricultural products from the six Central American nations 
receive duty-free access to the United States. The General System of 
Preferences (GSP) trade preferences and the Caribbean Basin Initiative 
(CBI) allow 99 percent of agricultural products from the Central 
American countries and the Dominican Republic to enter the United 
States duty free. It is obvious that U.S. agriculture has already paid 
for the agreement.
     Unless this agreement is passed, U.S. agriculture will continue to 
face applied tariffs of between 15 and 43 percent. These tariffs put 
U.S. producers at a disadvantage in a competitive market. The CAFTA-DR, 
if enacted, will eliminate these barriers. This agreement provides 
balance by allowing U.S. agriculture the same duty-free access that 
CAFTA-DR nations already have to our markets. In fact, many of our 
competitors in the region, such as Chile, already receive preferential 
access because of their own trade agreements with the Central American 
countries. When enacted, this agreement would give U.S. producers 
access equal to or greater than that of our competitors. American Farm 
Bureau Federation analysis shows that U.S. agriculture would see 
increased agricultural exports in the amount of $1.5 billion by the end 
of full implementation.

                                                     Table 2
                 Impact of CAFTA-DR on Member Countries' Imports of U.S.  Agricultural  Products
                                                    In $1,000
----------------------------------------------------------------------------------------------------------------
                                                               1999-2001    2024 Imports from U.S.
----------------------------------------------------------------------------------------------------------------
                                                                Imports
                      Selected Commodity                      from United    Without    With CAFTA-    CAFTA-DR
                                                                 States      CFTA-DR         DR       Difference
----------------------------------------------------------------------------------------------------------------
        Beef                                                     10,050.4     27,258.2     74,332.7     47,074.5
----------------------------------------------------------------------------------------------------------------
        Butter                                                      709.6      1,793.7      3,091.5      1,297.8
----------------------------------------------------------------------------------------------------------------
        Cheese                                                    5,514.1      8,024.4     25,022.7     16,998.4
----------------------------------------------------------------------------------------------------------------
        Corn                                                    230,721.4    447,558.4    505,932.5     58,374.1
----------------------------------------------------------------------------------------------------------------
        Cotton                                                   50,558.4     87,729.8    115,331.9     27,602.1
----------------------------------------------------------------------------------------------------------------
        Pork                                                     11,008.1     95,438.1    203,388.9    107,950.8
----------------------------------------------------------------------------------------------------------------
        Poultry                                                  17,634.5    114,743.9    292,786.7    178,042.9
----------------------------------------------------------------------------------------------------------------
        Rice                                                     96,999.0    220,910.4    312,421.1     91,510.7
----------------------------------------------------------------------------------------------------------------
        Soybean Meal                                            140,421.3    292,351.5    348,923.6     56,572.0
----------------------------------------------------------------------------------------------------------------
        Soybean Oil                                              28,895.3     59,132.4     87,521.9     28,389.6
----------------------------------------------------------------------------------------------------------------
        Wheat                                                   121,821.0    218,977.3    281,164.2     62,186.9
----------------------------------------------------------------------------------------------------------------
  Subtotal                                                      714,333.2  1,573,918.0  2,249,917.8    675,999.8
----------------------------------------------------------------------------------------------------------------
  Other Selected Commodities
----------------------------------------------------------------------------------------------------------------
        Fruit                                                    88,768.7    196,738.8    278,281.1     81,542.3
----------------------------------------------------------------------------------------------------------------
        Sugar & Tropical Product                                111,754.7    247,682.9    350,340.0    102,657.1
----------------------------------------------------------------------------------------------------------------
        Tallow                                                   62,489.3    138,495.7    195,898.0     57,402.3
----------------------------------------------------------------------------------------------------------------
        Vegetables                                               69,560.7    154,168.0    218,065.9     63,898.0
----------------------------------------------------------------------------------------------------------------
  All Other Commodities                                         587,601.5  1,302,306.9  1,842,073.7    539,766.8
----------------------------------------------------------------------------------------------------------------
  Total                                                       1,634,508.1  3,613,310.3  5,134,576.5  1,521,266.2
----------------------------------------------------------------------------------------------------------------
Note: Assumes constant 1999-2001 prices; hence, value estimates reflect changes in quantities only.

    Looking at the major commodities of export interest to the United 
States, the agreement would put the United States in a strong position 
to capitalize on:

      Central American growth in imports of grains and oilseed 
products, which relates to both growing food demand for wheat, rice and 
vegetable oils and to growing livestock demand for feed grains and 
protein meals. With no wheat and limited rice and oilseed production 
capacity, the region's dependence on imports is likely to grow 
steadily. The free trade agreement puts the United States in a strong 
``preferred supplier'' position to maintain/expand its high market 
share for items such as rice and soybean meal and to build on its lower 
market share for items such as wheat;
      Expanding regional import demand for livestock products 
related to growth in population and per capita incomes, combined with 
limited domestic production potential. Rapid growth in tourism should 
also help to stimulate demand for meats in the hotel and restaurant 
trade, which could be significant on its own. Growth in domestic demand 
for livestock products is likely to outpace production despite 
significantly larger imports of feed grains and protein meals. The 
CAFTA-DR would allow the United States to use its cost advantages and 
its wide variety of beef, pork and poultry products to fill a growing 
share of these markets;
      Gains in cotton import demand related to both increased 
domestic demand for textiles and apparel and import demand for textiles 
from the United States. The six countries' textile and apparel exports 
to the United States are duty-free and quota-free as of the start of 
2004, so long as the products meet CAFTA-DR rules of origin. Under the 
agreement, these six countries will be required to make significant 
investment in manufacturing capacity over the first several years of 
the agreement to take full advantage of this demand, which may support 
the domestic cotton milling industry until such investments could be 
made. Should this added capacity come into being, and with domestic 
cotton production at virtually zero, all growth in the countries' 
demand for cotton would have to be met through imports. The CAFTA-DR 
would put the United States in a position to under price competitors 
and boost market share; and
      Gains in other products. The United States exports a 
diverse basket of farm products to the six Central American countries. 
The commodities noted above in the table account for approximately half 
of the United States total exports. Other commodities or commodity 
groupings of importance include fruits, vegetables, tallow, sugar, 
tropical products and other processed products. Data on production and 
trade in these products for the six countries is generally too limited 
to support detailed analysis. Assuming that the same pattern of growth 
likely for grains, fiber, oilseeds and livestock products holds for 
these other commodities, CAFTA-DR would allow the United States to 
capture a larger share of these expanding markets as well. The added 
exports in these categories resulting from the agreement would likely 
exceed another $845 million by 2024. This is a conservative estimate of 
CAFTA-DR's impact because the six Central American countries generally 
have higher, escalating tariffs on the semi-processed and processed 
products that make up much of this other products category.

    Additionally, CAFTA-DR is, on balance, a good deal for agriculture 
in my home state of North Carolina. In 2003, North Carolina's farm cash 
receipts were $6.9 billion, and agricultural exports were estimated to 
be $1.3 billion, putting its reliance on agricultural exports at 19 
percent. If CAFTA-DR is enacted, the AFBF estimates that North Carolina 
will increase trade to this region by nearly $70 million per year by 
2024.
    North Carolina is a major producer of pork, poultry and cotton as 
well a significant producer of soybeans. As the top source of farm cash 
receipts in the state, pork sales rank second nationally. Under the 
agreement, North Carolina could expect to increase meat exports to the 
CAFTA-DR countries by $24 million per year by full implementation. 
Poultry, being our third largest agricultural export, would see 
increases in exports of $42 million per year. Exports of cotton would 
see increased sales of about $1 million per year for the state, while 
soybeans and soybean product exports from North Carolina are expected 
to increase by $770,000 per year by full implementation of the 
agreement.

                  Extimated Trade Impact of CAFTA-DR on North Carolina for Selected Commodities
                                           (Values in Million Dollars)
----------------------------------------------------------------------------------------------------------------
                                                       1999-2001 NC Exports    2024 Imports from NC    CAFTA-DR
                                                     -----------------------------------------------------------
                      Commodity                                                 Without   With CAFTA-
                                                         Total     CAFTA-DR    CAFTA-DR       DR      Difference
----------------------------------------------------------------------------------------------------------------
Dairy                                                       2.85        0.06        0.09        0.26        0.17
----------------------------------------------------------------------------------------------------------------
Cotton                                                    113.13        2.26        3.85        5.00        1.15
----------------------------------------------------------------------------------------------------------------
Feed Grains                                                37.72        0.75        1.43        1.58        0.14
----------------------------------------------------------------------------------------------------------------
Fruits                                                     12.38        0.25        0.54        0.76        0.22
----------------------------------------------------------------------------------------------------------------
Meats                                                     158.93        3.18       18.44       42.40       23.97
----------------------------------------------------------------------------------------------------------------
Poultry                                                   202.73        4.05       26.36       68.52       42.17
----------------------------------------------------------------------------------------------------------------
Soybean & Products                                         91.64        1.83        3.85        4.62        0.77
----------------------------------------------------------------------------------------------------------------
Sugar                                                        N/A         N/A         N/A         N/A        0.00
----------------------------------------------------------------------------------------------------------------
Rice                                                        0.00        0.00        0.00        0.00        0.00
----------------------------------------------------------------------------------------------------------------
Vegetables                                                 17.62        0.35        0.78        1.09        0.31
----------------------------------------------------------------------------------------------------------------
Wheat                                                      85.99        1.72        3.10        4.02        0.93
----------------------------------------------------------------------------------------------------------------
  Total                                                   722.99       14.46       58.43      128.26       69.83
----------------------------------------------------------------------------------------------------------------

    While there are numerous overall benefits for U.S. agriculture in 
the agreement, the U.S. sugar sector may see a less than positive 
impact. As a part of the agreement, the United States will allow the 
CAFTA-DR countries to import an additional 164,000 short tons of sugar 
above their current sugar quota. This additional sugar will have a 
minimal impact on the industry as demonstrated in our economic 
analysis.
    We expect the U.S. sugar industry to experience about an $80.5 
million impact to an approximate $2.1 billion domestic industry. This 
additional sugar translates into about 1.5 percent of domestic sugar 
production. In light of the possible, yet minimal, negative effects on 
the sugar industry, our trade negotiators negotiated certain protects 
for the U.S. sugar industry.
    First, the tariff on U.S. sugar is never decreased or eliminated. 
Any sugar that the CAFTA-DR countries would import to the United States 
above their new sugar quotas would still be subject to a high tariff. 
This tariff would be set at an amount that would discourage these 
countries from shipping any additional sugar over their quota to the 
United States. Second, the countries involved agreed to a compensation 
provision that would allow the United States to shut off any additional 
imports of sugar from this region if those imports are significantly 
harming our U.S. sugar industry. If activated by the United States, the 
U.S. government would provide compensation for the lost sugar sales 
experienced by the CAFTA-DR countries. It is important to note that if 
sugar had been excluded from the agreement, it could have led to other 
U.S. commodities facing the same type of exclusions from the CAFTA-DR 
country negotiating side. The CAFTA-DR countries had a list of roughly 
a dozen commodities they wished to exclude from the agreement. These 
products included U.S. beef, pork, poultry and rice.
    U.S. agriculture will benefit a great deal from this agreement. 
Indeed, the gains to U.S. agriculture certainly outweigh the losses. In 
looking at the variety of U.S. commodities that would experience 
positive outcomes because of a Central America-Dominican Republic Free 
Trade Agreement, one can only conclude that a ``Yes'' vote on CAFTA-DR 
is a vote for agriculture and agricultural exports.

                                 

    Mr. SHAW. Thank you for sticking with us. Mr. Hafenfeld.

    STATEMENT OF BRUCE HAFENFELD, HAFENFELD RANCH, WELDON, 
   CALIFORNIA, FIRST VICE PRESIDENT, CALIFORNIA CATTLEMEN'S 
                          ASSOCIATION

    Mr. HAFENFELD. Chairman Thomas, Ranking Member Rangel and 
Members, thank you for the opportunity to testify regarding the 
DR-CAFTA. My name is Bruce Hafenfeld. I am a family rancher 
from Weldon, California, and I am First Vice President of the 
California Cattlemen's Association and Director of the NCBA 
(National Cattlemen's Beef Association). We represent the beef 
cattle industry, which is the largest single segment of 
American agriculture today. We strongly believe the future of 
our industry depends on our ability to compete in a global 
marketplace. However, our trade position was seriously 
compromised by the December 23, 2003 discovery of BSE (Bovine 
Spongiform Encephalopathy) in a single imported dairy cow and 
the closure of 90 percent of our export markets. These 
prohibitions on the sale of U.S. beef, coupled with rising 
levels of beef imports, transformed what was a $1.2 billion 
trade surplus in 2003 to a $2.8 billion trade deficit in beef 
and beef products in 2004.
    The U.S. cattle producers believe that the current 
situation, where unfounded trade barriers prevent us from 
competing on a level playingfield in the global marketplace, is 
absolutely unacceptable. Yet, as our industry works to 
normalize trade relations and reclaim our trade position in 
beef, we recognize that we must also continue efforts to craft 
and support new bilateral trade agreements which will 
immediately provide increased market access for U.S. beef 
cattle producers. We firmly believe DR-CAFTA will correct a 
longstanding inequity in beef trade policy between the United 
States and these six nations, offer additional export 
opportunities for U.S. beef and ultimately increase the value 
of the cattle raised on my ranch.
    Previous trade agreements approved by Congress provided 
generous access to the U.S. beef marketplace to DR-CAFTA 
nations. Presently, beef from these countries enters the U.S. 
duty free. At the same time, U.S. beef exporters face applied 
tariffs ranging from 15 to 40 percent. In fact, WTO bound 
tariffs can be applied as high as 79 percent. Due to these 
prohibitive tariffs, U.S. beef export opportunities to these 
countries are limited. This situation is fundamentally unfair 
to U.S. cattle producers. The DR-CAFTA moves us toward 
correcting this imbalance. We immediately gain duty-free, 
quota-free access for high quality U.S. beef destined for the 
tourism industry, with all remaining tariffs being eliminated 
within 15 years. NCBA's analysis of this agreement suggests 
that the United States could triple our beef exports to the 
region by 2015. This opportunity translates into a potential of 
$1.06 per head benefit to U.S. cattlemen.
    The DR-CAFTA includes minimal country-specific increased 
access for some of the DR-CAFTA countries. However, this 
increase can only be assessed if the WTO tariff-rate quota is 
filled, plus an agricultural safeguard mechanism protects the 
U.S. beef industry against excessive import surges. Because we 
do not cede to an international body the authority over human 
and herd health issues, we can support this agreement while 
maintaining our sovereignty. Any trade agreement should include 
these additional measures.
    Therefore, a vote in support of DR-CAFTA is an excellent 
opportunity for Congress to help level the uneven playingfield 
that currently exists in U.S. agriculture. It is a vote to 
provide my fellow U.S. cattle producers and I what has already 
been provided for, by Congress to agriculturists, in the DR-
CAFTA countries: the ability to market agricultural commodities 
in export markets free of prohibitive trade barriers. Passage 
of DR-CAFTA will also send a positive signal to other trading 
partners around the world that the United States is serious 
about negotiating meaningful trade agreements which grant more 
export access for U.S. agriculture commodities than we can give 
in return. Again, on behalf of the California Cattlemen's 
Association, the National Cattlemen's Beef Association and 56 
major agricultural organizations that make up the Agriculture 
Coalition for DR-CAFTA, I wish to thank you for your 
consideration of this agreement and express our appreciation 
for this Committee's commitment to open markets for U.S. beef 
cattle producers, and American agriculture. We urge swift 
passage. Thank you.
    [The prepared statement of Mr. Hafenfeld follows:]

 Statement of Bruce Hafenfeld, Hafenfeld Ranch, Weldon, CA, First Vice 
             President, California Cattleman's Association

    Chairman Thomas, Ranking Member Rangel, and members of the 
Committee, thank you for the opportunity to testify regarding the 
Central America--Dominican Republic free trade agreement, or CAFTA-DR. 
My name is Bruce Hafenfeld, and I am a rancher from Weldon, California, 
and the First Vice-President of the California Cattlemen's Association, 
a nonprofit, nonpartisan trade association representing our state's 
beef cattle producers in legislative and regulatory affairs. I also 
serve on the Board of Directors for the National Cattlemen's Beef 
Association, the trade association for U.S. beef cattle producers.
    The California Cattlemen's Association (CCA) and the National 
Cattlemen's Beef Association (NCBA) strongly believe the future of our 
industry depends on our ability to compete in the global marketplace. 
Historically, the U.S. has been the world's top provider of high-
quality, grain-fed beef, and our country tends to import lower-quality 
cuts of beef for use in the restaurant and foodservice industry 
sectors. Because of the different categories of beef which are imported 
and exported, and thanks to decades of cooperative efforts by the U.S. 
beef cattle industry and our government, the U.S. has been able to 
maintain trade surpluses in beef and beef products for many years. By 
way of example, in 2003 the U.S. imported $2.62 billion in beef and 
beef products and exported $3.86 billion in beef and beef products. 
This trade surplus position contributes in a significant way to the 
prices received by beef cattle producers for their cattle and calves. 
Our industry economists estimate that in a normal year, international 
trade adds $175 to the value of a finished steer.
    However, our trade surplus position in beef and beef products was 
seriously compromised by the December 23, 2003 identification of bovine 
spongiform encephalopathy (BSE) in a single imported dairy cow, and the 
subsequent closure of 90 percent of our export markets. These 
prohibitions on the sale of U.S. beef, coupled with rising levels of 
beef imports, transformed what was a $1.2 billion trade surplus in 2003 
to a $2.8 billion trade deficit in beef and beef products in 2004.
    U.S. cattle producers believe that the current situation, where 
unfounded trade barriers prevent us from competing on a level playing 
field in the global marketplace, is absolutely unacceptable. We are 
fully committed to removing these barriers to trade and regaining our 
position as the world's top supplier of high-quality, grain-fed beef. 
Yet as our industry works to normalize trade relations and reclaim our 
trade surplus position in beef and beef products, we recognize that we 
must also continue efforts to craft and support new bilateral trade 
agreements which will immediately provide increased market access for 
U.S. beef cattle producers.
    CAFTA-DR is one such agreement. We firmly believe CAFTA-DR will 
correct a longstanding inequity in beef trade policy between the U.S. 
and these six nations, offer additional export opportunities for U.S. 
beef and beef products, and ultimately increase the value of the cattle 
raised on my ranch. Moreover, CAFTA-DR is unique in that America's beef 
cattle producers are granting few, if any, concessions in exchange for 
these increased export opportunities. In fact, we have already been 
paying for this agreement for several years, without getting the export 
market access we need in return.
    Previous trade agreements approved by Congress provided generous 
access to the U.S. beef marketplace to CAFTA-DR nations. Between the 
Generalized System of Preferences, which has been in place since 1976, 
and the Caribbean Basin Economic Recovery Act, or Caribbean Basin 
Initiative, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, 
and the Dominican Republic all currently enjoy duty-free access to the 
U.S. marketplace. While these imports are subject to a shared tariff 
rate quota (TRQ) of 64,805 metric tons, this TRQ has never come close 
to being filled.
    At the same time, U.S. beef exporters face applied tariffs ranging 
from 15 to 40 percent when seeking to sell U.S. beef within the 
countries included in CAFTA-DR. In fact, WTO bound tariffs can be 
applied as high as 79 percent. Due to these prohibitive tariffs, U.S. 
beef export opportunities to these countries are limited, and not 
surprisingly we have a trade deficit in beef and beef products with 
these six nations. In 2003, the U.S. exported 4.71 thousand metric tons 
of beef and beef variety meat to these countries, valued at $12.36 
million, while importing 27.19 thousand metric tons, valued at $62 
million, according to USDA. It should be noted that all of the CAFTA-DR 
countries have fully reopened to U.S. beef and beef products since the 
closure of our export markets in December 2003.
    This dynamic, in which beef exporters in CAFTA-DR nations have 
virtually unlimited access to the U.S. beef marketplace, while trade 
barriers prevent the entry of U.S. beef, is fundamentally unfair to 
U.S. cattle producers. Without any subsidies, we produce the highest-
quality, safest beef in the world. Yet if we are to remain competitive 
in the increasingly global beef marketplace, we must have agricultural 
trade policies which promote U.S. cattlemen's export interests.
    CAFTA-DR remedies the current imbalance in trade policy between the 
U.S. and these six nations by immediately providing duty-free, quota-
free access for high-quality U.S. beef, with all remaining tariffs 
being eliminated over a period of fifteen years. The rapid growth of 
the tourism industry in CAFTA-DR countries will unquestionably spur 
increased demand for U.S. beef. Although the quantities traded will 
likely remain small for some period of time, and represent a fraction 
of total U.S. beef production, NCBA's analysis of this agreement 
suggests that the U.S. could triple our beef and beef product exports 
to the region by 2015, with only slight increases foreseen in beef 
imports from these six countries. This level of increased exports 
translates into a potential $1.06 per head benefit to U.S. cattlemen, 
and will immediately assist our industry in regaining our trade surplus 
position in beef and beef products. (See Appendix A for NCBA's economic 
analysis.)
    The CAFTA-DR does include minimal country specific increased access 
for some of the CAFTA-DR countries. However, this increase can only be 
accessed if the WTO tariff rate quota of 64,805 metric tons is filled. 
This TRQ has never been filled. We believe that minimal country 
specific assurances are a small price to pay to gain immediate duty-
free, quota-free access for our high-quality prime and choice cuts of 
beef.
    While market access is always front of mind in these agreements, 
sanitary and phytosanitary issues are also important to beef cattle 
producers. If we gain market access through the agreement, but are then 
blocked from shipment, the market access negotiations would be in vain. 
In this agreement, as in the Chile, Australia, and Morocco free trade 
agreements, the CAFTA-DR countries have agreed to accept U.S. 
Department of Agriculture-Food Safety and Inspection Service (USDA-
FSIS) certification as the qualification to export beef and beef 
products to the region. This is important because USDA-FSIS 
certification means certainty for exporters that federal approval of 
their plants means the ability to export. The alternative is costly and 
unpredictable re-inspection by each country. Acceptance of USDA-FSIS 
certification also means more of the cattle me and my neighbors raise 
will qualify for export. Already, parts of 90 percent of the cattle 
harvested in the U.S. are destined for export. The more cattle that 
qualify for export translates into increased profits for beef cattle 
producers in the form of higher prices received.
    CAFTA-DR also contains an agricultural safeguard mechanism 
protecting the U.S. beef industry against import surges. While it is 
unlikely that such a scenario would present itself, the U.S. does have 
the ability to utilize these safeguards in the event of excessive 
surges in imports. We believe that any free trade agreement should 
include these additional measures.
    Therefore, a vote in support of CAFTA-DR is a vote to give U.S. 
cattle producers trade reciprocity and a leveling of the playing field 
we have long desired with this region. It is a vote to provide me and 
my fellow U.S. beef cattle producers what has already been provided by 
Congress to agriculturalists in CAFTA-DR countries--the ability to 
market agricultural commodities in export markets free of prohibitive 
trade barriers. Passage of CAFTA-DR will also send a positive signal to 
other trading partners around the world that the U.S. is serious about 
negotiating meaningful trade agreements which grant more export access 
for U.S. agricultural commodities than we give in return.
    Cattlemen and cattlewomen throughout the U.S. know that this is an 
excellent agreement for the U.S. beef cattle industry, and we look 
forward to the passage of this agreement by Congress. It is time for 
Congress to level the uneven playing field that currently exists for 
U.S. agriculture. Ninety-nine percent of the agricultural products the 
CAFTA-DR countries send to the U.S. currently enter duty-free. CAFTA-DR 
balances that trade relationship. Accordingly 56 major national 
agricultural organizations also support CAFTA-DR. On April 4, 2005 they 
sent a letter to members of Congress expressing their support. (See 
Appendix B.)
    Again, on behalf of the California Cattlemen's Association and the 
National Cattlemen's Beef Association, I wish to thank you for your 
consideration of this agreement and express our appreciation for this 
committee's commitment to opening markets for U.S. beef cattle 
producers and American agriculture. We urge swift passage of this 
agreement by Congress. I would be happy to answer any questions you may 
have.

Appendix A:

        What Is CAFTA-DR Likely to Mean for U.S. Beef Producers?

                  By Gregg Doud, NCBA Chief Economist

KEY POINTS
      Overall U.S. beef and BVM exports to CAFTA-DR nations 
could TRIPLE by 2015 to $41 million from the current $12.5 million.The 
agreement will eliminate tariffs on U.S. beef exports to these nations, 
which currently range anywhere from 15 to 40 percent, over a 15-year 
period, with immediate duty-free access for high-quality (prime and 
choice) U.S. beef.The details of this agreement basically level the 
playing field for U.S. beef producers.
      A KEY by-product of the required harmonization of 
regulations and sanitary-phytosanitary (SPS) standards between these 
countries prior to entering into these negotiations is that beef and 
cattle trade between these nations will likely increase in the coming 
years. Nicaragua, in particular, seems to be attempting to position 
itself as a dominant beef supplier to the region.
      CAFTA exports to the U.S. will be directed by U.S. demand 
for lean (non-fed) beef. Constraints will include the overall 
profitability and (lack of) growth of the beef sector in most of these 
countries. Beef from these countries coming into the U.S. marketplace 
are already subject to a quota and these countries have yet to fill 
this quota, despite current low tariffs on their beef products.
      A final aspect that is very important to note about this 
agreement is the inclusion of Foreign Direct Investment (FDI) 
provisions that will certainly help improve overall economic conditions 
in the region. In every society, increasing per capita incomes result 
in movement away from other protein sources and toward more beef 
consumption.

SUMMARY
    The Central American Free Trade Agreement (CAFTA-DR) is between the 
U.S. and Costa Rica, Guatemala, El Salvador, Honduras, Nicaragua and 
the Dominican Republic. For beef, it will eliminate tariffs on U.S. 
beef exports to these nations, which currently range anywhere from 15 
to 40 percent, over a 15-year period. Although the quantities traded 
will likely remain small for some time, this agreement levels the 
playing field for U.S. beef producers and sets a solid precedent, with 
immediate duty-free access for high-quality (prime and choice) U.S. 
beef.

BACKGROUND
    Much of what is stated below is based upon assumptions and 
projections based on various data sources that include the U.S. 
Department of Agriculture (USDA) and the United Nations' Food and 
Agriculture Organization (FAO). A solid production and trade data 
collection history on the Central American beef industry has never been 
a priority simply because of their small size. As a result, the data 
appears to conflict at times and some macroeconomic measurements are 
difficult to corroborate.
    Here is a country-by-country break down of key factors that will 
influence beef trade:

Costa Rica
    Easily the country with the most potential for increased demand for 
``high value'' U.S. beef because of its red hot tourism industry, Costa 
Rica is a very promising market for the following reasons:

      It boasts the highest per capita incomes in the region 
with a current PPP (Purchasing Power Parity) at $9100/person (Source: 
CIA World Fact Book). This figure is really only good for comparison 
purposes and it compares to a $9000/capita PPP for Mexico.
      A solid beef variety meat (BVM) demand base also appears 
to be developing with U.S. exports jumping from 170 metric tons (mt) in 
2000 to 671 mt in 2002.
      It is already the highest per capita beef consumer among 
the CAFTA countries, and it appears to be at least double any other 
country, including Nicaragua.
      It will be adding another 700,000 citizens between 2005 
and 2015 with four of Costa Rica's projected 5 million people residing 
in urban areas by 2015. (Globally, urban citizens and their generally 
higher per capita incomes tend to be bigger buyers of relatively higher 
value U.S. beef cuts.)
      The domestic cattle industry appears to be struggling 
possibly due to macroeconomic factors within the country.
      This may also be due to increased competition from its 
neighbors. Guatemala and Nicaragua are providing about half of Costa 
Rica's beef imports.
      However, the trade data suggests that the U.S. has the 
ability to compete on price.
      U.S. exports could go from the current $2.6 million to 
around $6.3 million by 2015. Additional growth in Costa Rica's tourism 
industry could certainly boost this projection considerably, not only 
through increased hotel and restaurant consumption but also because it 
would undoubtedly increase per capita incomes.
      The tariff reduction schedule is back-loaded suggesting 
we could see an additional surge in growth occur from 2015 to 2020.

Dominican Republic
    The DR has the second highest PPP in the region at $6000/person.

      Its urban population will also grow considerably--up one 
million to 8.4 million urban citizens out of an expected 10.1 million 
by 2015.
      Possibly problematic is a much lower per capita beef 
consumption figure than Costa Rica. (They have more of a Caribbean 
style diet.)
      This low consumption figure may also be due, in part, to 
the DR's 40 percent tariff on beef imports.
      The DR market also appears to be very price sensitive. 
U.S. market share has struggled significantly recently as U.S. beef 
prices have risen. This is likely due to the price of U.S. beef 
relative to other sources of animal protein (poultry).
      A goal in this market would appear to be the ability to 
retain earlier success at this recent high(er) price plateau. As such, 
tariff reduction could be of significant assistance for U.S. beef in 
this market.
      Immediate help will come from a 1,100 mt tariff rate 
quota (TRQ) that will provide duty free access for Prime and Choice 
beef and a 220 mt TRQ for duty free beef trimmings.
      The DR does not export beef; in fact, very recently the 
domestic beef industry appears to be experiencing significant hardship.
      Like Costa Rica, its potential ability to draw U.S. 
tourists is tremendous but this potential is still largely 
undiscovered. The future for high quality U.S. beef demand is exciting 
but virtually impossible to forecast.
      U.S. exports have the potential to go from $4.3 to $6.0 
million by 2015 but this figure could be significantly underestimated 
as tariff reduction in the ``out'' years (beyond 2015) enhances the 
competitive nature of U.S. beef in the Dominican Republic.

El Salvador
    Continuing down the PPP ladder in the region, El Salvador's current 
PPP is $4800/capita. However, an unusual factor to consider is that 
there is a significant Salvadorian community in the U.S. that funnels 
U.S. dollars back into El Salvador. In fact, by one account, this 
apparently could amount to as much as 40 percent of the El Salvador 
annual GDP. This unusual influence and its ability to grow may be a key 
driver for beef consumption.

      Its urban population will jump by one million from 2005 
to 2015 with 6.5 million of an estimated 7.56 million citizens 
projected to be living in El Salvador's cities by 2015.
      Per capita beef consumption is lower than Costa Rica and 
the DR and this decline would appear to be running in tandem with lower 
per capita incomes.
      The domestic beef industry appears very stagnant with 
little to no exports in recent years.
      El Salvador has not been a BVM (offal) market but tariffs 
on offal are phased out over five years. There is also a (duty-free) 
TRQ of 105 mt for ``other'' beef cuts.
      U.S. beef export potential appears fairly limited. It 
also looks like the cuts that have been exported are, relatively 
speaking, of very low value (approx. $1/lb). Currently, beef imports 
appear to be coming from neighboring CAFTA countries (Nicaragua, 
Guatemala and even a little from Honduras).
      El Salvador could well develop into a significant beef 
importer in the region but this beef is much more likely to come from 
its neighbors (mostly Nicaragua) rather than the U.S.
      This could be exacerbated if El Salvador struggles to 
improve its infrastructure (processing industries) relative to its 
neighbors. This infrastructure is believed to have the ability to be 
very competitive in the region, but extremely burdensome government 
oversight and regulation are severely restricting its ability to 
prosper at the present time.
      In terms of value, El Salvador is actually the fourth 
largest market in Central and South America for U.S. pork. This 
suggests that the U.S. could become a significant supplier of beef to 
El Salvador if U.S. pork exports to the country are used as an example.
      Furthermore, it is also important to note that the 
``dollarized'' Salvadorian economy presents U.S. suppliers with an 
advantage.
      While the U.S. exports only about $0.25 million in beef 
to El Salvador today, this could be a market worth $16.5 million for 
the U.S. by 2015. This assumes that the reduction in El Salvador's 
tariff from the current 30 percent (one of the highest in the region) 
would make U.S. beef much more price competitive.

Guatemala
      PPP $4100/person.
      Its overall and urban population expected to grow 
tremendously from 13 million people to 16 million by 2015 with 10.2 of 
those 16 million living in cities versus only 7.5 million today.
      Guatemala is attempting to increase its tourism market. 
It has initiatives in place to promote tourism that highlight its 
cultural past and ecotourism. This will further increase its demand for 
quality meat products such as U.S. beef, which makes it a growing 
opportunity for the U.S. beef industry.
      The Guatemalan economy is showing signs of life as the 
effects of NAFTA finally trickle into southern Mexico and points south.
      Its domestic beef industry appears solid and its exports 
of live cattle to Southern Mexico have been growing (despite SPS issues 
that restrict this trade).
      One-half of Guatemala's beef imports are currently coming 
from Nicaragua and 25 percent from Costa Rica with Panama and Honduras 
also selling some beef into Guatemala. Look for this to continue as 
historically, the value of U.S. cuts into Guatemala is significantly 
higher than that of other countries and the U.S. (downward) trend in 
exports reflects the price sensitivity of this market.
      On the other hand, tariff reduction by way of a (1,060 
mt) tariff rate quota (TRQ) for ``other'' beef cuts should immediately 
facilitate a better competitive U.S. position in this market.
      Guatemala is also a significant market for U.S. BVM and 
it should continue to grow unabated with the immediate duty-free access 
CAFTA-DR provides.
      Competition from other sources of animal protein would 
appear to be fierce but per capita beef consumption is low. Improving 
per capita incomes over time should expand beef demand just as has 
occurred in Mexico over the last decade.
      The increase in Guatemala's population as well as its 
proximity to Mexico should spur economic growth and catapults them from 
a $3.9 to $8.8 million market for U.S. beef and beef variety meats by 
2015.

Honduras
      In order for U.S. beef exports to have any significant 
chance of improvement in this market, the PPP for this economy must 
improve well beyond today's $2600/capita.
      Honduras will add about 1.5 million citizens between now 
and 2015 with about half of that increase headed to the city. Its 
current population is 7.3 million.
      Slightly encouraging is that per capita consumption 
appears to be similar to the Dominican Republic and higher than that of 
Guatemala and El Salvador.
      It looks like Honduras is exporting some beef to its 
neighbors but its production has apparently shrunk dramatically during 
the past 2-3 years, possibly putting the future of such exports in 
jeopardy.
      This has been a very good BVM market for the U.S. and 
this may be where a sizable chuck of the future growth occurs as all 
tariffs on offal are phased out over five years. Again, this is a 
market for relatively low value cuts from the U.S. possibly making it 
tough for the U.S. to gain a foothold versus CAFTA beef for the 
foreseeable future.
      Growth potential for U.S. beef/BVM by 2015: from $0.9 to 
$2.2 million.

Nicaragua
      On paper, the Nicaraguan beef industry has grown 35 
percent in about six years and all indications are that they will 
become the dominant beef exporter to others in the region. They've also 
nearly doubled their beef exports to the U.S. between 2001 and 2004.
      While there is some speculation that they could also 
become an exporter of live cattle, there appears to be limited evidence 
of this despite tremendous economic incentives during the past couple 
of years to do just that. It appears that Nicaragua wants to become a 
beef exporter versus a cattle exporter.
      Holding them back is clearly their economy. Their PPP of 
only $2300/person is the lowest in Central America. Raising the 
standard of living in this mainly rural based economy would certainly 
create several benefits. For example, their per capita beef consumption 
appears to be only half of Costa Rica despite every indication that 
this is likely the least cost source of animal protein in the country.
      The U.S. isn't likely to find much success exporting 
high-value beef to Nicaragua but they appear to be importing an 
increasing amount of U.S. variety meats. Tariffs on offal are phased 
out over five years.
      The Nicaraguan population will jump from 5.7 to 7.0 
million folks by 2015 with an additional 1.2 million headed for life in 
the city--for a total of 5.6 million urban dwellers by 2015.
      This is a country with tremendous potential for growth if 
it could ever get its economic house in order. The word ``potential'' 
applies mostly because its will be coming from such a long way back.
Appendix B:
                                                      April 4, 2005
Dear Representative:

    The undersigned groups representing the U.S. food and agricultural 
community urge your support for the Free Trade Agreement with Central 
American and the Dominican Republic (CAFTA-DR). CAFTA-DR is a home run 
for American agriculture. We are giving up very little to gain very 
much. Normally in trade agreements, each party expects the concessions 
it receives to balance the concessions it grants. Uniquely in CAFTA-DR, 
the agriculture agreement is tilted steeply in the direction of the 
United States.
    Previous trade arrangements approved by Congress gave generous 
access to the U.S. market for food and agriculture exports from these 
six nations but provided no reciprocal benefits to U.S. food and 
agriculture exports to those same six markets. Between the Generalized 
System of Preferences, which has been in place since 1976, and the 
Caribbean Basin Economic Recovery Act, or Caribbean Basin Initiative 
(CBI), which has been in place since 1983, U.S. tariffs on most of the 
food and agricultural products imported from the CAFTA-DR countries are 
already zero.
    On a trade-weighted basis, over 99 percent of the food and 
agriculture products we import from the region enter duty-free. On the 
other hand, the food and agriculture tariffs our products must overcome 
in the CAFTA-DR countries exceed 11 percent on average, but can range 
as high as 150 percent or more on sensitive products. This does not 
include the highly restrictive tariff-rate quotas many of our products 
face. The result is that we have an agriculture trade deficit with 
these six nations. In 2004, U.S. imports from these countries exceeded 
our exports to the region by over three quarters of a billion dollars.
    So, a vote for CAFTA-DR is a vote to give American farmers trade 
reciprocity. It is also a vote to keep our food and agriculture exports 
competitive with products from other countries. Our market share in the 
CAFTA-DR nations has fallen from 54 percent in 1995 to around 40 
percent because of preferential arrangements negotiated by these six 
countries with our competitors. The implementation of CAFTA-DR will 
remedy this problem.
    Congress last voted to extend the unilateral benefits under GSP and 
CBI to these countries and others as part of the Trade Act of 2002. The 
most recent stand-alone vote on a CBI conference report in 2000 
demonstrates the willingness of Congress to provide trade benefits to 
an important region of the world. In the Senate, CBI passed by a vote 
of 77-19 with 4 abstentions; in the House, it was approved by a vote of 
309-110 with 16 abstentions. The undersigned organizations, 
representing the vast majority of U.S. agriculture, are simply 
requesting that Congress provide to American farmers what it has 
already provided to farmers in the CAFTA-DR countries--improved market 
access for their exports.
            Sincerely,

Altria Group, Inc.  
American Bakers Association  
American Farm Bureau Federation  
American Feed Industry Association  
American Frozen Food Institute  
American Meat Institute  
American Potato Trade Alliance  
American Soybean Association  
Animal Health Institute  
Biotechnology Industry Organization  
Blue Diamond Growers  
Bunge North America, Inc.  
California Canning Peach Commission  
California Table Grape Commission  
Cargill, Incorporated  
Corn Refiners Association  
CropLife America  
Elanco  
Food Products Association  
Grocery Manufacturers of America  
International Dairy Foods Association  
Louis Dreyfus Corporation  
National Association of Wheat Growers  
National Cattlemen's Beef Association  
National Chicken Council  
National Confectioners Association  
National Corn Growers Association  
National Grain and Feed Association  
National Grain Sorghum Producers  
National Grain Trade Council  
National Grange  
National Milk Producers Federation  
National Oilseed Processors Association  
National Pork Producers Council  
National Potato Council  
National Renderers Association  
National Turkey Federation  
North American Export Grain Association  
North American Millers' Association  
Northwest Horticultural Council  
Pet Food Institute  
Sweetener Users Association  
The Distilled Spirits Council  
The Fertilizer Institute  
U.S. Dairy Export Council  
United Egg Producers  
United States Dry Bean Council  
U.S. Apple Association  
U.S. Hide, Skin and Leather Association  
U.S. Meat Export Federation  
U.S. Wheat Associates  
USA Poultry and Egg Export Council  
USA Rice Federation  
Washington State Potato Commission  
Western Growers Association  
Wheat Export Trade Education Committee  

                                 

    Mr. SHAW. Thank you. Mr. Roney.

   STATEMENT OF JACK RONEY, DIRECTOR OF ECONOMICS AND POLICY 
               ANALYSIS, AMERICAN SUGAR ALLIANCE

    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 DR-CAFTA 
threatens American sugar jobs in all 19 of these States. By the 
government's own estimates, sugar job losses from the DR-CAFTA 
would be far greater than in any other sectors. The same ITC 
study also questions the overall value of the DR-CAFTA to our 
economy. The ITC concluded that the DR-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 playingfield, free 
of government intervention. Like other American farmers, we can 
compete against foreign farmers. We cannot compete against 
foreign government subsidies.
    The world 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 
globalization. There is a right way and a wrong way to attack 
global sugar subsidies. The right way is through the WTO, with 
all countries at the table, and all subsidies on the table. The 
wrong way is with bilateral and regional FTAs, where markets 
are wrenched open without addressing any foreign subsidies. 
Virtually every FTA ever completed around the world excludes 
import access mandates for sugar. Only the United States has 
ever guaranteed access to its sugar market in an FTA, in the 
NAFTA and the DR-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 
DR-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 DR-CAFTA provisions soberly 
and carefully. We regard the DR-CAFTA as a life or death issue. 
American farmers and workers who will lose their jobs are 
insulted by DR-CAFTA proponents who trivialize the potential 
harm from this agreement with cutesy, misleading depictions of 
additional access in teaspoons or packets per consumer per day. 
We are already one of the world's most open sugar markets. Past 
trade agreement concessions force us to import upward of 1.5 
million tons of sugar per year from 41 countries duty-free. 
This makes us the world's fourth largest net importer. The DR-
CAFTA countries are already our biggest duty free supplier, 
accounting for one-fourth of 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 
that struggling American sugar farmers will be able to sell in 
their own market. Import more foreign sugar, export more 
American jobs.
    The DR-CAFTA poses serious short-term and long-term dangers 
to American sugar farmers and workers. In the short-term, the 
DR-CAFTA sugar market access concessions, on top of import 
commitments the U.S. has already made in the WTO and NAFTA, 
will prevent the USDA from administering a no-cost sugar policy 
as Congress directed it to in the 2002 farm bill. The DR-CAFTA 
will further oversupply the U.S. market. The additional 
concessions will trigger off the market allotment program that 
permits USDA to restrict domestic sugar sales and balance the 
market. U.S. sugar producers are currently holding more than 
half a million tons off the market and storing it at their own 
expense. Absent marketing allotments, this surplus sugar will 
cascade onto the market and destroy the price. Contrary to the 
misleading claims of DR-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 1.5 million ton marketing allotment trigger has 
already been allocated to Mexico under the NAFTA. The 
Administration is ignoring the NAFTA to promote the DR-CAFTA. 
In the long term, the DR-CAFTA is the tip of the FTA iceberg. 
Behind the DR-CAFTA countries, 21 other sugar exporting 
countries are lined up like planes on a tarmac waiting to do 
their deal with the United States. No doubt they expect no less 
than the concessions already granted to the DR-CAFTA countries. 
Combined, these 21 countries export over 25 million tons of 
sugar per year, nearly triple the U.S. sugar consumption. 
Obviously, the present DR-CAFTA concessions would make it 
impossible for the U.S. sugar industry to survive future 
agreements.
    In conclusion, Mr. Chairman, the DR-CAFTA will cost 
thousands of American sugar farmers and workers their jobs. The 
certain dangers of the DR-CAFTA to the U.S. economy far 
outweigh the marginal possible benefits. We respectfully urge 
that this Committee reject the DR-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 Mr. Roney follows:]

  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, WTP 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-DominicanRepublic 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. Sugr 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.

    1.  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.

    2.  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 dangers of the CAFTA to the 
U.S. economy outweigh the risks. 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.

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     Mr. SHAW. Thank you for your testimony. Mr. Ferrara.

 STATEMENT OF SALVATORE FERRARA, PRESIDENT, FERRARA PAN CANDY 
     COMPANY, CHICAGO, ILLINOIS, ON BEHALF OF THE NATIONAL 
                   CONFECTIONERS ASSOCIATION

    Mr. FERRARA. Chairman Shaw, Members, I am Salvatore 
Ferrara, II, President and CEO of Ferrara Pan Candy Co., 
headquartered in Chicago, Illinois. I am here today to ask 
Congress to approve the FTA between the Dominican Republic and 
the five Central American countries. This agreement deserves 
Congress' strongest support because it will deliver solid 
economic benefits to the United States. Almost $3 billion in 
increased export sales to the region are projected because it 
upholds the important principle that trade agreements 
negotiated by our country should be comprehensive. No product 
or sector should be excluded if we are to get the best deal for 
the American people. My grandfather came here from Italy in the 
late 1800s and started Ferrara Pan Candy Co. in Chicago in 
1908. It remains family-owned today. We manufacture 
approximately 200 popular sugar and chocolate confectionery 
products. We employ approximately 1,000 people worldwide, 500 
now in the United States, and generate employment for an 
estimated 1,500 additional people in the service and 
distribution sectors within the Chicago area. The greatest 
contemporary challenge in my industry has been the introduction 
of the U.S. Sugar Program in the eighties and the consequent 
increase in price of sugar, our principal raw material, to 
levels double and triple world prices.
    It is estimated that as many as 26,500 jobs have been 
sacrificed in the food processing sector since 1997 owing to 
the high price of sugar imposed by the program. The New York 
Times reported that confectionery employment in Chicago alone 
declined from 13,600 in 1995 to 7,000 in 2004. My company went 
from about 1,000 U.S. employees to under 500 during this same 
time period. The loss of food processing and confectionery 
manufacturing does not happen in isolation. It has significant 
adverse consequences for U.S. farmers who supply key 
ingredients to the industry such as sugar, corn, dairy, peanuts 
and almonds, and for the industrial and service sectors that 
support the industry.
    Congress and the Administration play an important role in 
keeping American business competitive. Trade agreements such as 
DR-CAFTA create millions of new customers. They remove tariffs 
and non-tariff barriers to U.S. exports, and in some cases 
create market access where none existed before. These 
agreements can also help lowerer the cost of raw materials 
available to domestic manufacturers. In this agreement, some 80 
percent of the tariffs on U.S. exports of consumer and 
industrial goods, as well as 50 percent of the tariffs on 
agricultural exports to the region, will go to zero 
immediately. When DR-CAFTA is fully implemented, U.S. processed 
food exports to the region could increase by as much as 84 
percent, with an estimated value of $662 million. Furthermore, 
according to a study just released by the National Association 
of Manufacturers, the elimination of tariffs will not only 
increase overall exports to the region, but will help U.S. 
exports remain competitive against China and other low cost 
Asian providers by eliminating tariffs on U.S. origin goods. As 
Congress is keenly aware, China is a major challenger to the 
global and regional trade areas, including the Americas. If DR-
CAFTA fails, other countries will very likely step up to the 
plate and negotiate agreements with these Central American 
countries.
    Some would have you reject this agreement because a very 
small quantity of sugar is included, equivalent to 1 percent of 
the U.S. supply. They claim plunging prices will cause 
irrevocable damage. According to the ITC, the impact on 
domestic sugar would be less than one-quarter of one cent. The 
facts are that the U.S. sugar producers will not be harmed, and 
U.S. agriculture and manufacturing will benefit substantially. 
Sacrificing the American confectionery and food manufacturing 
industry in order to exempt one commodity is not a sustainable 
strategy, and will not result in increasing manufacturing jobs 
in America.
    There are FTAs in the process of negotiation, and each one 
is an opportunity. The ongoing WTO negotiations will be our 
principal opportunity to open markets globally and address 
foreign governments' subsidy practices, which disadvantage U.S. 
farm exports. The DR-CAFTA is the first test of whether or not 
the United States is prepared to deal with everything on the 
table, and, in doing so, get the best results for the American 
economy. I urge you to not let us fail this test and to enact 
the DR-CAFTA agreement without any changes to the sugar 
provision. Thank you.
    [The prepared statement of Mr. Ferrara follows:]
    Statement of Sal Ferrara, President, Ferrara Pan Candy Company, 
    Chicago, IL, on behalf of the National Confectioners Association
    Chairman Thomas, Ranking Member Rangel, Members of the Committee.

    I am Salvatore Ferrara, President of Ferrara Pan Candy Company 
based in Chicago, Illinois. I am here to represent my own Company and 
the United States confectionery industry; and to stand with the many 
companies and associations from business and agriculture who are asking 
Congress to approve the free trade agreement with the Dominican 
Republic and the five Central American countries. This Agreement 
deserves Congress's strong support because it will deliver solid 
economic benefits to the United States--almost $3 billion in increased 
export sales to the region are projected--and because it upholds the 
important principle that trade agreements negotiated by our country 
should be comprehensive. No product or sector should be excluded if we 
are to get the best deal for America.
    My grandfather came from Italy to the United States in the late 
1800's and started the Ferrara Pan Candy Company in Chicago in 1908. It 
remains family owned today. We manufacture approximately 200 popular 
sugar and chocolate confectionery products. We employ 1,000 people 
total worldwide--500 now in the U.S.--and generate employment for an 
estimated 1,500 additional people in the services and distribution 
sectors in the Chicago area.
    Survival has not been easy. The greatest contemporary challenge has 
been the introduction of the U.S. sugar program in the 1980's and 
consequent increase in the price of sugar--our principle raw material--
to levels double and triple the world price. It is difficult to remain 
competitive either domestically or globally under this circumstance. It 
is estimated that as many as 26,500 jobs have been sacrificed in the 
food processing sector since 1997 owing to the high price of sugar 
imposed by the program. The New York Times reported that confectionery 
employment in Chicago alone declined from 13,600 in 1995 to 7,000 in 
2004. My own company went from over a thousand U.S. employees to under 
500 during that same time period. The loss of food processing and 
confectionery manufacturing does not happen in isolation. It has 
significant adverse consequences for U.S. farmers who supply key 
ingredients to the industry such as sugar, corn, dairy, peanuts, and 
almonds; and for the industrial and service sectors that support the 
industry.
    I have been involved in business all my life and fully understand 
the challenge of staying competitive. In the long term it means better 
products, better service, and keen attention to delivering value to the 
consumer. However, Congress and the Administration also play an 
important role in keeping American business competitive. Trade 
agreements such as CAFTA-DR create millions of new customers. They 
remove tariff and non-tariff barriers to U.S. exports and in some cases 
create market access where none existed before. These agreements can 
also help make lower cost raw materials available to domestic 
manufacturers, including in the food industry, and this is vitally 
important in a price competitive global environment.
    In this Agreement some 80% of the tariffs on U.S. exports of 
consumer and industrial goods, and 50% of the tariffs on agricultural 
exports to the region will go to zero immediately. The elimination of 
tariffs is important to business because high tariffs make products 
such as processed foods and confectionery unaffordable for consumers 
especially in developing countries. When the CAFTA-DR is fully 
implemented, U.S. processed food exports to the region could increase 
by as much as 84% with an estimated value of $662 million.
    Furthermore, according to a study just released by the National 
Association of Manufacturers, the elimination of tariffs will not only 
increase overall exports to the region but will help U.S. exports 
remain competitive against China and other low cost Asian producers by 
eliminating tariffs on U.S. origin goods. As Congress is keenly aware, 
China is a major challenger in the global and regional trade arenas 
including the Americas.
    The process of negotiating these agreements also provides a rare 
opportunity, and critical leverage, for eliminating non-tariff barriers 
in foreign markets. Non-tariff barriers are more subtle than tariffs 
but in some cases more damaging to U.S. exports. Trade agreements have 
shown themselves to be the most effective tools we have to dismantle 
long standing barriers.
    Some would have you reject this agreement because a very small 
quantity of sugar is included equivalent to about 1% of the U.S. 
supply. They claim plunging prices and irrevocable damage. According to 
the International Trade Commission, the impact on the domestic sugar 
price would be less than one quarter of one cent. The facts are that 
U.S. sugar producers will not be harmed and U.S. agriculture and 
manufacturing will benefit substantially.
    I respectfully encourage an offensive rather than defensive 
approach to all trade agreements. One that focuses on opening new 
markets, creating new customers, and helping make our domestic 
industries more competitive. Sacrificing the American confectionery and 
food manufacturing industry in order to exempt one commodity is not a 
sustainable strategy and will not result in increased manufacturing 
jobs in America.
    There are more free trade agreements in the process of negotiation 
and each one is an opportunity. The ongoing World Trade Organization 
negotiations will be our principal opportunity to open markets globally 
and address foreign government subsidy practices which disadvantage 
U.S. farm exports. The CAFTA-DR is the first test of whether or not the 
United States is prepared to deal with everything on the table and in 
doing so get the best results for the overall U.S. economy. I urge you 
not to let us fail this test and to enact the CAFTA-DR Agreement 
without any changes to the sugar provision.
    Thank you.

                                 

    Mr. SHAW. Thank you. Mr. Shuster.

STATEMENT OF GEORGE SHUSTER, CHIEF EXECUTIVE OFFICER, CRANSTON 
PRINT WORKS, CRANSTON, RHODE ISLAND, AND CO-CHAIRMAN, AMERICAN 
              MANUFACTURING TRADE ACTION COALITION

    Mr. SHUSTER. Thank you. I am the CEO of Cranston Print 
Works, the Nation's oldest textile company. I am also Co-Chair 
of AMTAC. The American Manufacturing Trade Action Coalition was 
founded by domestic manufacturers who are committed to 
manufacturing here in the United States. We strongly opposes 
DR-CAFTA because it replicates and even worsens the flawed 
trade policy model of NAFTA. In fact, 85 percent of the 
language of DR-CAFTA is the same as NAFTA, and the other 15 
percent is worse. This model involves the granting of free 
access to the U.S. market for producers that use low wage labor 
and poor environmental standards to undercut U.S. domestic 
manufacturers. In return, U.S. domestic manufacturers gain 
access to markets that are a fraction of the U.S. market. The 
DR-CAFTA consumers only represent 1.86 percent of the U.S. 
economy. The results of this failed model are predictable. The 
DR-CAFTA, like NAFTA, will exacerbate the huge U.S. trade 
deficit. The United States has gone from a $1.6 billion surplus 
with Mexico in 1993 to a stunning $48 billion deficit last 
year. In addition, DR-CAFTA is riddled with loopholes that 
allow duty-free treatment for assembly of component parts from 
every corner of the globe. The textile provisions in DR-CAFTA 
are even worse than the NAFTA model. These loopholes include 
Tariff Preference Levels (TPL), accumulation and even 
suspension of rule of origin requirements altogether in certain 
key categories.
    The DR-CAFTA loopholes allow countries such as China to 
ship 500 to 700 million square meters of fabric for assembly in 
Central America that then enters the United States duty free 
annually. These loopholes were included despite repeated 
requests by a united U.S. textile industry not to do so. One 
hundred and forty one Members of Congress echoed this message 
in a letter to the President dated September 17, 2003. 
Astonishingly, certain proponents of this agreement argue that 
the U.S. textile industry needs DR-CAFTA in order to compete 
with China. China possesses numerous cost advantages. The 
combination of these assets with China's rampant use of 
predatory trade practices only makes China more capable of 
exploiting the loopholes that DR-CAFTA will give it. Thus, 
China is going to be one of the largest beneficiaries of the 
agreement, while giving up nothing in return. Even if all these 
loopholes were closed, a U.S.-Central American production 
platform will not be the magic answer. Look at Mexico. When 
quotas were removed for 29 textile and apparel categories in 
2002, Chinese exports to the United States surged dramatically 
and exports from Mexico fell sharply. Despite having an FTA and 
land bridge with the United States, Mexico lost 75 percent of 
its share of the U.S. market to the Chinese in categories 
released from quota. Meanwhile, China's share of the U.S. 
market increased almost tenfold. NAFTA did nothing to stop it. 
Consequently, if the United States does not confront China's 
predatory trade practices directly, DR-CAFTA will become a moot 
issue as China overruns the U.S. market. That is bad for the 
United States and bad for Central Americans and DR-CAFTA will 
only exacerbate the problem. Do not be misled: Voting for DR-
CAFTA is a vote for China and a vote against American 
manufacturing.
    Some proposed solutions: first and most important, we must 
reverse the current trade policy, by which all the 
governmentally imposed conditions of trade are designed to 
punish U.S. exports relative to imports. The average U.S. 
tariff is 1.6 percent, hardly protectionist, but our exports 
face an average of 40 percent. This distortion is replicated in 
all the other governmentally imposed conditions of trade, 
whether non-tariff barriers, regulation, subsidies, State 
sponsorship, currency manipulation, tax policy and so on. The 
cumulative impact of these components of our trade policy is 
devastating. It all goes back to the basic Econ-101 guns and 
butter lecture. If society taxes butter at 40 percent and guns 
at 1.6, a misallocation of societal resources will result; too 
many guns, not enough butter. So, our enormous trade deficit is 
no surprise. To those who claim ``it is the inevitable result 
of globalization,'' I say, no, no, no! It is a self-inflicted 
wound. U.S. trade policy is not free trade, which is a two-way 
concept. It is, rather, import maximization, and DR-CAFTA is 
yet another way to make sure we have more imports.
    Second, the United States should focus only on trade 
agreements with countries that actually produce finished U.S. 
goods, such as Great Britain or Italy. Third, the United States 
must insist that all future trade agreements share the benefits 
only between the contracting parties and not give any more 
back-door avenues to the U.S. market through sieve-like trade 
deals. Fourth, the United States must tackle the China problem 
head on. My written testimony summarizes some of the necessary 
steps. Fifth, Congress must assert its constitutional authority 
over trade policy. Instead of embracing this responsibility, 
Congress has severely diluted it by passing laws designed to 
place trade policy in the hands of the executive branch. 
Finally, Congress should require an independent trade impact 
study prior to the consideration of all proposed trade 
legislation. Such a study should produce a trade deficit impact 
statement so that Congress would know in advance whether the 
proposed trade deal would lessen the strayed deficit or make it 
worse. Thank you.
    [The prepared statement of Mr. Shuster follows:]

 Statement of George Shuster, Chief Executive Officer, Cranston Print 
  Works, Cranston, RI, and Co-Chairman, American Manufacturing Trade 
                            Action Coalition

    Mr. Chairman and Members of the House Ways & Means committee:
    Thank you for this opportunity to testify at this important 
hearing. My name is George Shuster, and I am the Chief Executive 
Officer of Cranston Print Works, located in Cranston, Rhode Island. 
Cranston Print Works is the oldest textile company in the United 
States, originally established in 1824 as cotton printing plant founded 
by Rhode Island governor, William Sprague. Today, Cranston Print Works 
is a high quality printer of all types of fabrics with various end-
uses. We employ the most technologically advanced printing production 
techniques, which have earned Cranston Print Works the reputation of 
being one of the finest fabric printing companies in the world.
    In addition, I serve as a Co-Chairman of the American Manufacturing 
Trade Action Coalition (AMTAC). AMTAC is a trade association founded by 
domestic manufacturers who are committed to manufacturing here in the 
United States. Our objective is to seek the establishment of trade 
policy and other measures designed to stabilize the U.S. industrial 
base and thus preserve and create American manufacturing jobs. AMTAC 
represents a wide range of industrial sectors including, tool and die, 
chemical, furniture, mold makers, metal products, packaging products, 
corrugated containers, lumber and luggage producers. Additionally, a 
significant component of AMTAC's membership consists of producers from 
the yarn, fabric, dyeing and finishing, and apparel sectors.
    AMTAC strongly opposes the Central American Free Trade Agreement 
(CAFTA). Our opposition is based on the view that CAFTA replicates the 
flawed trade policy model of the NAFTA, Singapore, Chile and Morocco 
trade agreements. This model involves the granting of free access to 
the U.S. market for producers that use pennies-an-hour wages, low labor 
standards, and low environmental standards to undercut U.S. domestic 
manufacturers. In return, U.S. domestic manufacturers gain access to 
markets that are a fraction of the value of the U.S. market. CAFTA 
consumers, for example, only represent 1.86 percent of the U.S. economy 
and have virtually no ability to purchase finished goods made in 
countries that pay high wages and have strong environmental, labor, 
safety, and health standards.
    The results of this failed model are clearly predictable. CAFTA 
will exacerbate the already astronomical U.S. trade deficit. One need 
only study the impact of NAFTA, which is virtually identical to CAFTA, 
to determine the outcome.
    In the early 1990's, NAFTA was sold to the American public as a 
vehicle to substantially increase the minor U.S. trade surplus with 
Mexico which would in turn help to sustain and create millions of high-
paying manufacturing jobs in our country. Assertions like the bold 
claim made below by the Institute for International Economics in 
October 1993 were common:
    ``. . . with NAFTA, U.S. export will continue to outstrip Mexican 
exports to the United States, leading to a U.S. trade surplus with 
Mexico of about $7 billion annually by 1995 . . . rising to $9 billion 
to $2 billion between the years 200 and 2010.''
    Mr. Chairman, eleven years after adoption of NAFTA the facts 
demonstrate that nothing could be further from the truth. The U.S. has 
gone from a $1.6 billion surplus with Mexico in 1993 to a stunning $48 
billion deficit last year. From surpluses before NAFTA, we have gone to 
continuous deficits since. Over this period, hundreds of U.S. factories 
have closed and relocated south of the border in order to take 
advantage of the low production costs in Mexico, while still enjoying 
free access to the valuable U.S. market. Even more troubling, the U.S. 
department of Labor reports that 1.8 million workers have filed for 
Trade Adjustment Assistance as result of NAFTA.
    Today, proponents of CAFTA are purveying the same snake oil. The 
U.S. Chamber of Commerce claims substantial economic gains from CAFTA. 
But in the fine print of the study, the U.S. Chamber admits that it 
bases it conclusions on the assumption that exports from CAFTA 
countries will not increase to the United States! This assumption is 
preposterous, as U.S. imports have increased from all countries with 
which we have free trade agreements.
    CAFTA's main purpose is clear: make it easier for U.S. companies to 
outsource high-paying manufacturing and service sector jobs offshore by 
guaranteeing investment rights and access to the U.S. import market. In 
addition, CAFTA rule-of-origin requirements are riddled with loopholes 
that allow U.S. duty free treatment for the assembly of component parts 
from every corner of the globe. The textile provisions in CAFTA 
illustrate this point perfectly and, in fact, to that extent, are even 
worse than the NAFTA model.

CAFTA LOOPHOLES
    CAFTA destroys the existing incentives that have created the system 
where large amounts of American yarn, fabric and components are used in 
the production of apparel in CAFTA countries.
    It does this in two ways. First of all, CAFTA changes the ``rule of 
origin'' from what is currently in use under the existing preferential 
trade agreement with the region--the Caribbean Basin Trade Partnership 
Act (CBTPA). CBTPA requires (with one exception) the use of American 
yarn, fabric and components in order for apparel from CBTPA countries 
to be imported into the U.S. tax-free. This requirement is why $4.2 
billion in trade has developed between American textile firms and CAFTA 
apparel makers. It has become the key export market for U.S textile and 
apparel makers. However, CAFTA eliminates the American only requirement 
and allows for American or Central American yarn, fabric and components 
to be used in garments accorded tax-free importation into the U.S. This 
is not only a provision for legal non-U.S. inputs, but also a tempting 
invitation for illegal transshipments.
    In addition to changing the rule of origin, CAFTA also contains 
numerous loopholes that will benefit countries that were not parties to 
the negotiation and did not have to give any type of concession in 
order to gain the benefits conferred under the CAFTA. The most likely 
beneficiary of this is the Chinese textile industry.
    When the Central American Free Trade Agreement (CAFTA) was being 
negotiated, the U.S. textile and apparel industry adopted a unified 
platform urging the Administration to negotiate a CAFTA with NO 
loopholes that would allow for non-regional yarn and fabric.
    The industry sent a letter to the President on July 7, 2003 urging 
him to reject any loopholes that would permit foreign suppliers to 
benefit at the expense of domestic manufacturers. Furthermore, 141 
members of Congress echoed this message in a letter to the President 
dated September 17, 2003. However, the U.S. government agreed to a 
large number of loopholes in the yarn-forward rule of origin. These 
loopholes will benefit Mexican, Canadian and Asian (likely Chinese) 
textile businesses and their workers at the expense of workers in the 
United States.
    Consequently, CAFTA is riddled with loopholes that will kill U.S. 
jobs. The chart below outlines these loopholes and the number of U.S. 
factories that will likely close as a result.

------------------------------------------------------------------------
             Loopholes                              Amount
------------------------------------------------------------------------
1. Cumulation--Mexican and Canadian  100 million square meters-could go
 fabrics may be used for woven       up to 200 million square meters
 trousers (a Mexican & Canadian
                            TPL):--also contains a growth
 factor that is NOT dependent on
 growth of U.S. exports-also allows
 other FTA countries to latch on
------------------------------------------------------------------------
2. Non-U.S. or CAFTA yarn and        In 2004, 937 million square meters
 fabric allowed for brassieres,      of duty-free brassieres, underwear,
 woven boxers and woven nightwear    and nightwear entered the U.S.
                                                       under CBTPA
------------------------------------------------------------------------
3. Non-U.S. or CAFTA yarn and            100 million square meters
 fabric for Nicaragua apparel.
------------------------------------------------------------------------
4. De minimus level raised from 7         25 million square meters
                 to 10 percent
------------------------------------------------------------------------
5. Retroactive duty breaks to Jan.   Encourages movement from U.S. yarns
 2004 for importers and retailers    and fabric to regional or foreign
                                     yarns and fabric in 2004 and beyond
------------------------------------------------------------------------
6. Certain fabrics--pocketings,      Eliminates incentive to use U.S.
 waistbands, interlinings and trim   pocketing and other components. In
 can be sourced form any country.    2004, 175 million square meters of
                                     these components were used under
                                                             CBTPA
------------------------------------------------------------------------
  Total damaged caused by loopholes/ Initial impact: 500-700+ million
                    side deals                       square meters
------------------------------------------------------------------------

    Especially noteworthy is the second loophole listed above which 
would allow Chinese and other third-party yarn and fabric for 
brassieres, woven boxer shorts and woven nightwear. This renders 
useless the special China textile safeguard that the Administration 
imposed last year on these very products and is considering re-imposing 
this year! Thus Chinese yarns and fabrics may legally displace U.S. 
yarns and fabrics in the production of garments in the CAFTA countries 
and those garments can still be imported into the U.S. duty-free!
    To summarize, some 500 to 700 million square meters equivalent of 
yarn, fabric and components can be sourced from countries outside the 
CAFTA--U.S. region. Therefore, non-signatory countries like China gain 
duty-free access to the American market without giving up a reciprocal 
benefit. It will also mean lost contracts for U.S. businesses, closure 
of at least 10-15 U.S. textile facilities in the near term, and the 
loss of thousands of American jobs.

China and CAFTA
    Certain proponents of this agreement argue that the U.S. textile 
industry needs CAFTA in order to compete with China. In other words, 
the only way to prevent a monopolization of the U.S. market by the 
onslaught of Chinese textile imports is to marry it with low-wage 
production platforms like those in the CAFTA countries. This will 
provide a ``regional bulwark'' against the Chinese.
    I wish this were the case and that counteracting China was as 
simple as passing CAFTA. Unfortunately, believing that CAFTA will help 
this hemisphere combat China requires one to ignore the lessons of the 
past as well as current realities of trade.
    In the previous section of my testimony, I clearly identified the 
various loopholes included in the agreement that enable China to ship 
components to the CAFTA countries for assembly. It is illogical to 
argue that CAFTA will keep China in check when China is going to be one 
of the largest beneficiaries of the agreement while giving up nothing 
in return.
    But even if all these loopholes were closed, it is still 
nonsensical to purport that some formulation of a U.S./Central American 
production platform will be the magic combination of technology and 
low-wages to compete with the Chinese juggernaut.
    Obviously, China possesses numerous advantages such as low labor 
costs, a large workforce, natural resources, etc. However, combining 
these inherent advantages with its rampant use of predatory trade 
practices is what really makes China unstoppable.
In its 2004 Report to Congress, the U.S.-China Economic and Security 
        Review Commission stated:
    China is continuing to attract massive levels of foreign direct 
investment (FDI), including $57 billion in 2003. Its policies to 
attract FDI have been supplemented by industrial policies aimed at 
developing national productive capacity in selected ``pillar'' 
industries. These policies support Chinese corporations through a wide 
range of measures that include tariffs, limitations on access to 
domestic marketing channels, requirements for technology transfer, 
government selection of partners for major international joint 
ventures, preferential loans from state banks, subsidized credit, 
privileged access to listings on national and international stock 
markets, discriminatory tax relief, privileged access to land, and 
direct support for R&D from the government budget. Such policies give 
Chinese industry an unfair competitive advantage, thereby contributing 
to erosion of the U.S. manufacturing base. Many of these policies are 
not permitted under World Trade Organization (WTO) and U.S. trade 
rules.\1\
---------------------------------------------------------------------------
    \1\ 2004 Report to Congress of the U.S.-China Economic and Security 
Review Commission, June 2004. The report is available online at http://
www.uscc.gov/researchreports/2004/04annual.report.pdf.
---------------------------------------------------------------------------
    We have already seen that China's absolute advantages outweigh 
preferential trading arrangements and close proximity once before with 
Mexico and NAFTA. We do not have to speculate about this.
    When quotas were removed under the Uruguay Round agreement for 29 
textile and apparel categories in 2002, Chinese exports to the United 
States surged dramatically, and exports from Mexico fell sharply.
    Exports from Mexico to the U.S. in these de-controlled categories 
have fallen by 45 million square meters over the last three years, with 
Mexican exports dropping from 85 million square meters to 40 million 
square meters. Mexican market share declined from 8 percent in 2001 to 
2 percent in Nov. 2004. At the same time, China moved from a ten 
percent share to a 73 percent share.
    Obviously, Mexico has a free trade agreement with the U.S. Mexico 
is in the position that the CAFTA countries will be in if CAFTA is 
approved. Yet despite having a free trade agreement and land bridge 
with the U.S., Mexico lost seventy-five percent of its share of the 
U.S. market to the Chinese in categories released from quota. China has 
clearly monopolized trade in those categories, and NAFTA did nothing to 
stop it.
    Furthermore, since NAFTA, the Mexican total merchandize trade 
deficit with China has gone from $342 million in 1993, the year NAFTA 
was passed, to $14 billion in 2004. Over the same time period the U.S. 
merchandize trade deficit with China went from $23 billion to $162 
billion. NAFTA has functioned as a back door for Chinese goods to enter 
the United States, as 98% of Mexico's maquiladora exports go to the 
U.S., and the maquiladora trade balance with China has gone from 
roughly even in 1993 to a $12 billion deficit in 2005.

[GRAPHIC] [TIFF OMITTED] T3918A.020

    NAFTA has left Mexico and the U.S. defenseless against China's 
massive economic growth. Why would CAFTA, a free trade agreement 
modeled after NAFTA, lead to a reversal of this trend?
    So what is the answer to China?
    In order to realistically address the China crisis, the U.S. must 
deal with China's pervasive and predatory trade practices directly. 
China's under valuation of its currency by approximately 40%, the $45 
billion in non-performing loans it forgave in January of 2004, its 
subsidy in the form of lax intellectual property rights enforcement, 
and the countless other ways it subsidizes its industries need real 
solutions.
    Consequently, if the U.S. does not confront China directly, CAFTA 
will become a moot issue as China overruns the U.S. market, taking 
business away from the U.S. and Central American industries. Allowing 
China to monopolize the U.S. market is bad for the U.S. and bad for 
Central Americans, and CAFTA will only exacerbate the problem.
    Do not be misled. Voting FOR CAFTA is a vote FOR CHINA and a vote 
AGAINST American manufacturing!

CONCLUSION
    In conclusion, it is clear that CAFTA replicates the flawed policy 
model that has lead to millions of job losses, crippled key 
manufacturing sectors such as the U.S. textile industry, and badly 
damaged the U.S. economy.
    Instead of perpetuating this flawed model, Congress should insist 
on policies that prevent the outsourcing of high-paying jobs, the 
destruction of America's industrial base and the exporting of America's 
strongest long-term wealth creating assets.
    In that regard, I would propose the following steps:
     In order to get our exploding trade deficit under control, we 
should only focus on trade agreements with countries that can actually 
purchase finished U.S. goods, such as Great Britain or Italy. 
Accordingly, Congress should defeat CAFTA and any other proposed free 
trade agreements with countries that will simply serve as low cost 
export platforms to the U.S. market.
    Second, the U.S. must insist that all future trade agreements share 
the benefits only between the contracting parties. This means 
precluding the inclusion of loopholes like TPLs, single transformation, 
and exemptions for so called ``non-essential'' fabrics or components. 
China's manufacturing sector already has enough advantages with the 
backing of its government's massive illegal subsidy schemes. Congress 
does not need to give China any more back-door avenues to the U.S. 
market through sieve-like trade deals such as CAFTA.
    Third, the U.S. must tackle the China problem head on. Pass 
legislation making it easier to file anti-dumping and countervailing 
duty lawsuits against non-market economies. Halt any efforts to kill 
the Byrd Amendment. Pass legislation that directs the U.S. government 
to hire more officials to monitor and litigate violations of trade 
agreements and intellectual property agreements. Stop the exportation 
of critical military industrial sectors like electronics, soft ware 
production, textiles and machine tooling. Put pressure on the 
Administration to impose safeguards on Chinese imports of textile and 
apparel products.
    Fourth, Congress must reassert its authority over trade policy. The 
Founding Fathers gave Congress the sole authority to regulate foreign 
trade for a reason. Congress, and specifically the U.S. House of 
Representatives is the branch of government designed to be closest, and 
therefore most responsive, to the people. Instead of embracing this 
responsibility, Congress has severely diluted it by passing Trade 
Promotion Authority (TPA), Permanent Normal Trade Relations (PNTR) 
status for China and other laws designed to consolidate authority to 
place trade policy in the hands of the Executive Branch. As a result, 
on critical issues such as CAFTA, the legislation cannot be amended and 
it is considered under an expedited timeframe that no other legislative 
policy initiatives enjoy. This leverage must be reversed. Congress 
should withdraw both TPA and PNTR for China and reassert its rightful 
authority over the Executive Branch in trade policy matters.
    Finally, Congress should require an independent trade impact study 
prior to the consideration of all proposed trade agreements and major 
trade bills. Do we expect the Executive Branch, which authored the 
concept and the text of CAFTA to give an objective view of its 
projected benefits? Congress must have an independent source of 
information to determine basic issues such as whether a proposed 
agreement is going to benefit U.S. producers or whether it will 
increase or diminish the trade deficit.
    While these are not all of the changes needed to rectify the flawed 
trade policies responsible for America our nearly $4 trillion trade 
deficit since 1990, they do represent a good start.
    Thank you again for this opportunity to testify today and for your 
consideration of my views.

                                 

    Mr. SHAW. Thank you. Mr. Ouellette.

  STATEMENT OF JACK OUELLETTE, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, AMERICAN TEXTILE COMPANY, PITTSBURGH, PENNSYLVANIA, 
 AND MEMBER OF THE BOARD, AMERICAN APPAREL FOOTWEAR ASSOCIATION

    Mr. OUELLETTE. Mr. Shaw and Members of the Committee, thank 
you for your endurance today. My name is Jack Ouellette. I am 
President and CEO of American Textile Co., and I am also a 
Board member of the American Apparel and Footwear Association. 
Our company is located in Pittsburgh, Pennsylvania, and we sell 
mattress protectors, pillow protectors and pillows to the 
largest retailers in this country. I would like to talk to you 
about two points today, the first one being how we were able to 
create U.S. jobs and still continue sourcing in El Salvador; 
and, second, to talk about why DR-CAFTA is important to 
American textile companies and companies like ours.
    A little bit of background. We are an 80-year-old company. 
Seventy of those years we were a manufacturer in Pittsburgh and 
we wanted to remain a manufacturer. However, in the late 
eighties our market share began to erode, so we decided to 
really emphasize products crafted with pride in the USA. 
Unfortunately, our buyers and the consumers didn't respond, our 
prices were too high, so in the mid-nineties we started to look 
beyond Pittsburgh for another solution and we decided to have 
our cutting and sewing done in El Salvador. The results have 
been remarkable. Today, we are the largest supplier of mattress 
covers and pillow covers in this country. Our company is 
growing again. We have replaced sewing jobs with higher paying 
jobs in areas such as product development, warehouse 
management, production planning and marketing and sales 
analysis. Here is a great visible byproduct of what has 
happened: We built a $7 million office and distribution center 
on top of an old steel mill, a brownfield site. The land was 
owned by Andrew Carnegie, who conveyed it to J.P. Morgan. We 
are making it productive land again. We are also part of the 
economic redevelopment of that particular community.
    Why is DR-CAFTA important to American textile? We prefer to 
manufacture in the USA. It is just a heck of a lot easier, but 
we also have to be very brutally honest with ourselves, and 
that model doesn't work anymore. We have a strong desire to 
remain in the Americas, and DR-CAFTA helps in several ways. 
First, duties on our products would be eliminated--and, by the 
way, we still pay duties on our products coming up from Central 
America. Our prices will be more competitive, and we are going 
to be able to keep our advantage of speed to market because of 
Central America's proximity to Pittsburgh. So, I ask, what 
happens if DR-CAFTA passes? How will we respond? We will buy 
more fabric made in the United States, or made from U.S. yarns, 
and that will preserve jobs in Alabama and North Carolina, for 
example. We will continue to do business in Central America and 
the duty savings that we realize will be re-invested in our 
business, and here is how that will work. We will take U.S. 
fabric, or fabric made from U.S. yarns, have them cut and sewn 
into pillow shells. Those pillow shells will be sent back up to 
the United States where they will be filled, sewn, packaged, 
warehoused and ultimately shipped from our Pittsburgh location. 
We have already invested half a million dollars in that effort, 
and we would like to see our Central American partners grow 
with us in that regard.
    If DR-CAFTA does not pass, here is what we see. We will 
gradually move away from Central America. We will source 
fabrics, regardless of their origin. We know that there is 
India, Pakistan, China as possible resources. The 
infrastructure we created in Central America will decline; that 
is, weavers, packagers, cutters, sewers. Those jobs will not 
come back to the United States; they are just going to go to 
other venues. I would like to ask for your support of DR-CAFTA 
for three primary reasons. The first one, it can preserve and 
create jobs in the United States. Second, it makes the Americas 
more globally competitive. Finally, it promotes democracy and 
economic development in countries just south of our border, and 
I think that is a very positive thing for our country. Thank 
you.
    [The prepared statement of Mr. Ouellette follows:]

  Statement of Jack Ouellette, President and Chief Executive Officer, 
  American Textile Company, Pittsburgh, PA, and member of the Board, 
                American Apparel & Footwear Association

    Mr. Chairman, members of the Committee. Thank you for the 
opportunity to talk with you today. My name is Jack Ouellette, 
President and CEO of American Textile Company and a member of the Board 
of the American Apparel & Footwear Association (AAFA). Our textile 
business is located in the heart of the rust belt in Pittsburgh, PA. We 
supply mattress covers, pillow covers and pillows to the most of this 
country's largest retailers.
    My comments will focus on two ideas:

    1.  How contracting in Central America has created jobs in the U.S.
    2.  Why CAFTA-DR is important to the future of our company and 
others like ours.

BACKGROUND
    American Textile is an 80 year old, privately held business. The 
first 70 years of our history were devoted to cutting, sewing and 
packaging textile bedding products. One of our big initiatives in the 
1980's was to emphasize products that were ``Crafted With Pride in the 
USA''. Neither our customers nor consumers responded positively. Our 
prices were too high and our products were viewed as a commodity. 
Others could produce similar products more cheaply. Our market share 
began to erode. In the early 1990's we forced ourselves to look beyond 
Pittsburgh and to adapt to changes in the world economy. We embarked on 
three important initiatives that saved our business from obscurity:

    1.  We began importing vinyl mattress covers and pillow covers from 
China, the worlds low cost producer of vinyl sheeting.
    2.  We began sewing cloth covers in El Salvador to take advantage 
of labor rates that were globally competitive in a country only a 4-day 
boat trip from the U.S.
    3.  We partnered with 3M Company to utilize a high tech fabric that 
we made into unique allergen barrier bedding.

A SUCCESS STORY
    The results have been remarkable and representative of what is good 
for this country.

    1.  Today we are the largest supplier of mattress and pillow covers 
to U.S. 
retailers.
    2.  We are the largest U.S. importer of vinyl bedding products
    3.  Our company revenues have increased on average 11% per year 
over the last 5 years
    4.  U.S. sewing jobs have been replaced with higher paying U.S. 
jobs such as:
         a.  product development
         b.  computer programming
         c.  marketing
         d.  production planning
         e.  purchasing
         f.  sales analysis
         g.  manufacturing controls
         h.  warehouse management
    5.  Two years ago we built a new $7 million headquarters and 
distribution center just outside of Pittsburgh. And the new 
construction has a unique history.
         a.  It is built on top of an old U.S. Steel plant.
         b.  The first land owner on the deed was Andrew Carnegie who 
        conveyed the property to JP Morgan.
         c.  We are part of the revitalization of brown field sites in 
        Pittsburgh.
         d.  We are contributing to the economic redevelopment of an 
        area once depressed from the loss of steel making jobs.

WHY IS CAFTA IMPORTANT?
    We would prefer manufacturing in the USA because it is easier. 
However, being brutally honest with ourselves, we realize that sewing 
jobs will not come back to this country. We are part of a much larger 
global economy, one in which the government becomes our partner in 
making trade agreements. We are obviously not opposed to trading with 
China. But we do have a strong desire to keep as much trade in this 
hemisphere. CAFTA helps us accomplish that goal in several ways:

    1.  Duties ranging from 7% to 12 % will be eliminated
    2  Our prices will be more competitive with those from Asia
    3.  We will keep our speed to market advantage vs.Asia
    4.  Our investments in this hemisphere will be maintained.

WHAT DOES CAFTA MEAN FOR THE TEXTILE AND APPAREL INDUSTRY IN GENERAL?
    U.S. textile companies are already dependent upon CAFTA countries. 
In 2004, 25% of all U.S. fabric exports and 40% of all U.S. yarn 
exports went to CAFTA countries. Between 1999 and 2004, U.S. yarns and 
fabric exports to the region grew by $2 billion--accounting for nearly 
all of the $2.4 billion U.S. yarn and fabric export growth to all 
markets.
    CAFTA creates fresh incentives to use U.S. yarn and U.S. fabric 
because the existing program will be made:

    1.  Permanent.
    2.  Reciprocal
    3.  Broader (to cover products such as the ones we make)
    4.  More flexible
    5.  Simpler.

WHAT WILL WE DO IF CAFTA PASSES?
    1.  We will buy more U.S. fabric made with U.S. yarns because the 
agreement incentivizes us to do so.
         a.  his creates jobs for our textile suppliers in Alabama and 
        North Carolina, and elsewhere.
    2.  Our business will grow in the U.S. and in Central America.
         a.  This preserves and grows job opportunities in both areas.
    3.  We will reinvest duty savings into our latest initiative: 
making bed pillows in the U.S. Here is how that will work:
         a.  Pillows are too expensive to import from Asia.
         b.  We have already invested $500,000 in pillow making 
        equipment.
         c.  Pillow shells will be made in El Salvador generally from 
        fabrics made from U.S. yarns.
         d.  Pillows will be made in, and shipped from, Pittsburgh.
         e.  Pillow sewing, filling, packaging and machine maintenance 
        jobs will be created in the U.S.

WHAT WILL HAPPEN IF CAFTA DOES NOT PASS?
    1.  We will gradually move away from Central America and source 
from Asia and other low cost countries.
    2.  We will source fabric regardless of fabric and yarn origin.
    3.  Our infrastructure (investments) in Central America will begin 
to shrink. We purchase the following type goods and services in the 
United States and Central America today:
         a.  Fabric woven in North Carolina and Alabama.
         b.  Fabric woven in Guatemala from cotton, poly cotton and 
        100% polyester
         c.  Zippers
         d.  Thread
         e.  Packaging supplies
         f.  Cutting, sewing and packaging services
    4.  But please note, these jobs will not come back to the U.S., 
they will go to other parts of the world

CONCLUSION
    On behalf of American Textile and other companies like ours, I ask 
for your support of CAFTA for the following reasons:

    1.  It will preserve and create jobs in the U.S.
    2.  Jobs will remain in this hemisphere. Strong free trade in this 
hemisphere creates security and social benefits of interest to the U.S.
    3.  In the process we will be improving the lives of thousands of 
people in Central America. We travel there often and have seen the 
difference we have made.

                                 

    Mr. SHAW. Thank you. I want to thank all the panel members 
for their testimony. As can be expected, and as planned, we 
have different views, so, the study and the information that we 
have can be balanced coming to this Committee. Mr. Shuster, I 
assume you have been here all day, you were listening to the 
Trade Representative and his testimony, and the testimony, up 
until you started your testimony, was that the cut and sew 
shops and those in Central America that would develop as Mr. 
Ouellette has talked about is going to attract raw material 
textiles from the United States which otherwise would be coming 
from cut and sew shops in China, which would have no interest 
in buying American textiles. I am trying to close the gap 
between you and the information that we received from the 
gentlemen to your left as well as from the Trade 
Representative. Could you just sum up your observations there?
    Mr. SHUSTER. Yes. It is a question of the net impact. The 
problem is that DR-CAFTA has so many loopholes in it, and if 
you combine that with the intelligence that I am sure that you 
see daily about what China is doing in the region, you realize 
that there is going to be a substitution effect. In other 
words, it is true that in the Caribbean area already, because 
of the CBI, there is a use of U.S. fabrics, but it is going to 
be less as a result of this agreement, because there weren't 
the loopholes before, and now there are the loopholes. That is 
why, basically earlier today there was some, of what I think, 
is somewhat sloppy math, or, let's call it plausible, but wrong 
conclusions. Just because tariffs will go down that doesn't 
mean that our textile exports will go up, because of the 
substitution effect. What we are going to find--we were told 
that NAFTA was going to be on net a major plus. It has turned 
out to be a major negative. So, I would be very leery of 
promises made in advance of these agreements. I would try to 
figure out what is really going to happen. I am telling you our 
analysis of what is going to happen is China will be the major 
beneficiary.
    One other slight thing you should know, because it is often 
hidden, once you allow, as these loopholes do, fabrics from 
other countries to be used, it creates an incredibly different 
transshipment opportunity than before. In other words, China, 
if you say only U.S. fabric can be used, as the situation is 
now to get duty free treatment, it is much more difficult to 
hide transshipments. If you say other countries' fabric can be 
used, now you can allow things to start getting mixed up, and 
pretty soon you have developed large transshipment platforms so 
that China can have duty free access to the U.S. market. We are 
terribly afraid, in fact convinced, that is what is going to 
happen in fact. I hope that explains the history.
    Mr. SHAW. Yes, but the history has a lot of speculation in 
it too, but we all speculate. We know that.
    Mr. SHUSTER. Absolutely.
    Mr. SHAW. Mr. Roney, I want to talk to you a little bit 
about sugar. I am having problems with your testimony as to the 
loss of jobs. As you are aware, the agreement itself provides 
that the U.S. Government can buy the sugar rather than letting 
it come into this country. Now, the sugar that you sell, and in 
your testimony you said that you have an overproduction right 
now and there is a surplus, under the subsidy that your 
industry receives by way of price supports, the Federal 
Government has purchased a lot of sugar in the last few years, 
or has paid for a lot of sugar.
    Mr. RONEY. No, sir.
    Mr. SHAW. You have not?
    Mr. RONEY. No, sir. We have been balancing the market by 
storing the sugar out of our own expense. The 2002 farm bill 
set up a no-cost policy for sugar farmers. We are deriving all 
of our income from the marketplace; we receive no income 
supports or subsidies. When we produce more sugar than the 
market needs, we store that at our own expense. The government 
is not storing that sugar.
    Mr. SHAW. You haven't received any consideration for it, 
you say? It is still your sugar, it hasn't been purchased from 
you?
    Mr. RONEY. We are holding about 600,000 tons off the market 
right now, just about 5 percent of the market, and storing that 
at our own expense.
    Mr. SHAW. How long can you do that?
    Mr. RONEY. It is expensive and it is difficult for us to do 
it, but what we fear with the DR-CAFTA is that an additional 
100,000 tons that we need to bring in will trigger off the 
market allotment program that Congress set up and that 600,000 
tons would then come onto the market. So, we are looking in the 
short run at a massive effect on our market. Of course, in the 
long run, the precedent this would set for all the FTAs lined 
up behind the DR-CAFTA would make us vulnerable to literally 
millions of tons of foreign sugar.
    Mr. SHAW. You did mention that the ITC--and I understand 
the ITC determined that the worst case scenario for the 
domestic sugar industry is that the DR-CAFTA could cause a 
decrease in the price of sugar by one-fifth of one penny per 
pound. If sugar processors get price support loans from the 
government at 18 cents per pound for raw cane sugar and roughly 
23 cents per pound for refined beet sugar, how can such a small 
drop in domestic price be so devastating to the domestic sugar 
industry and cause the wide unemployment that you spoke of in 
your testimony?
    Mr. RONEY. The ITC study is an interesting one, Mr. 
Chairman, because they underestimated the effect on sugar. They 
forgot to take into account that we have already committed 
about a quarter of a million tons of access to Mexico, and they 
thought that the DR-CAFTA sugar could come in under this 
supposed cushion below the amount that would trigger off the 
marketing allotment. Even though they underestimated that 
effect enormously, they came up with a job loss for sugar that 
was 38 times greater than job losses in the next most harmed 
sector, and that was textiles.
    The ITC, of course, also found, overall, after the 15-year 
implementation period, that the DR-CAFTA would increase our 
trade deficit with that region rather than decrease it, even 
though they far underestimated the effect on sugar.
    Mr. SHAW. Mr. Ferrara, would you care to comment on the 
gentleman's answer?
    Mr. FERRARA. Yes. First of all, I would like to state that 
the reality of the situation is that the jobs that are at risk, 
versus the jobs that are being protected by the sugar program, 
those jobs at risk outweigh those jobs by at least eight to 
one, by at least eight to one. So, if you talk about losing a 
farm job, I can tell you that in my small company, in the last 
4 or 5 years, I have moved 500 of my employees over the borders 
simply because of the sugar program. It had nothing to do with 
labor, contrary to what sugar might tell you. The purely 
economic reason is sugar. Second, Americans are paying 
approximately $2 billion more for sugar than they should be and 
carrying the burden of the sugar program. Last, the non-sugar 
farmers as well as ranchers who really depend on a lot of 
exports can really be harmed, really be harmed if we begin to 
exclude certain commodities within trade agreements. We would 
be limiting their ability to have access to other markets 
simply because we exclude sugar, so let's exclude beef. I don't 
think the gentleman two seats to my right would like that.
    I might note in Mr. Roney's presentation, I have a copy of 
it here, that he does state, and I have to find it, here it is, 
``In some States sugar is the most important cash crop or among 
the most. Sugar accounts for 44 percent of the receipts in 
Louisiana, 37 percent in Wyoming, 24 percent in Hawaii and 10 
to 20 percent in Idaho, Minnesota, Florida, North Dakota, 
Montana and Michigan.'' My response to that, and I will take 
just the last group of States, Idaho, Minnesota, Florida, North 
Dakota, Montana and Michigan, that only tells me that 80 to 90 
percent of the balance of crops are non-sugar, and I would 
think that we would want to give them the consideration of free 
trade and open markets by not protecting just sugar.
    Mr. SHAW. Yes, I know that. We did find out, and this was 
asked, I specifically asked it--sugar does get special 
treatment in DR-CAFTA, and I think to expand this would be a 
terrible mistake. I think too, Mr. Roney, I would say if the 
sugar industry brings down this trade agreement, I think there 
could be a terrible backlash. I think that sugar has been more 
than treated fairly in this regard, and I am very disappointed. 
When I heard that the agreement had been made, I was somewhat 
stunned by the generosity shown. However, that being stunned 
was outweighed by how stunned I was when I found that sugar was 
working strongly against DR-CAFTA all over the Hill after 
receiving this special treatment. Mr. Rangel?
    Mr. RANGEL. I pass.
    Mr. SHAW. Mr. Rangel passes. Mr. Brady?
    Mr. BRADY. Pass.
    Mr. SHAW. Mr. Levin.
    Mr. LEVIN. Maybe I should pass. Everybody has been so 
patient. Just very quickly, Mr. Roney, your position is that, 
if, through the WTO, all subsidies were eliminated, we could 
compete in sugar?
    Mr. RONEY. Yes, sir.
    Mr. LEVIN. Even though your chart shows, I think, that 
sugar cane, the cost of production was 26th, right?
    Mr. RONEY. Our cost of production is below the world 
average. We have made some terrific gains through technology to 
get our costs down, despite the fact we are competing against 
developing countries which have much lower labor and 
environmental standards. Our view is that absent subsidies, 
that the world price would rise to reflect the actual cost of 
producing sugar, and since our costs are below the world 
average then we could compete on that level playing field. Of 
course, we can't get there; agreements like DR-CAFTA wrench our 
market open without addressing any subsidies anywhere.
    Mr. LEVIN. Just quickly, Mr. Ouellette, under the apparel 
and textile agreement, the main advantage to you would be the 
elimination of the tariff?
    Mr. OUELLETTE. Elimination of the tariff is important, but 
also the speed to market is very important to us.
    Mr. LEVIN. Meaning?
    Mr. OUELLETTE. The fact that Central America is close to 
us.
    Mr. LEVIN. In terms of changes that DR-CAFTA would bring 
about, the main benefit would be the reduction of the tariff?
    Mr. OUELLETTE. That is the main benefit, yes, sir.
    Mr. LEVIN. There would be no benefit as to where you would 
source material?
    Mr. OUELLETTE. I don't understand your question, sir.
    Mr. LEVIN. Well, there are provisions within this agreement 
that would allow sourcing from outside of the United States. 
You would not take advantage of any of those provisions?
    Mr. OUELLETTE. Yes, sir. What we would do is use, for 
example, Guatemalan weavers, but we would encourage them to use 
U.S. yarns.
    Mr. LEVIN. You would not expect any change in your sourcing 
from the United States as a result of DR-CAFTA and shift it to 
any place in Asia?
    Mr. OUELLETTE. No, sir. I think that it is going to 
encourage us to buy even more fabric from the United States.
    Mr. LEVIN. All right. You have plants where?
    Mr. OUELLETTE. In El Salvador.
    Mr. LEVIN. Under what name?
    Mr. OUELLETTE. Hilsal, H-I-L-S-A-L, located in San 
Salvador, just outside.
    Mr. LEVIN. Thank you.
    Mr. BRADY. [Presiding.] The gentleman from Wisconsin.
    Mr. RYAN. I will pass, only just to say for one minute--I 
guess I won't pass--to the representative from the sugar 
industry that, I, too, am surprised at your opposition to this. 
The concessions that were made, I think, are very generous, and 
I think it is going to hurt your cause in the long run. I pass.
    Mr. RONEY. May I comment, sir? I would just say the U.S. 
sugar industry did not invite this negotiation. We did not 
suggest to the government that we do a series of FTAs with 
sugar exporting countries. Since 1986, at the start of the 
Uruguay round of the WTO, we have asked for genuine global 
reduction of sugar subsidies around the world through the WTO 
system, and we have also noted that sugar has been excluded 
from virtually every bilateral FTA done around the world. It 
was excluded from the U.S.-Canada portion of NAFTA, it was 
excluded from the U.S.-Australia FTA that was just done last 
year, and that the USTR touts as one of the best trade 
agreements we have ever done. They gave up nothing to achieve 
that. Many FTAs have been done this way. Now, that has been the 
rule rather than the exception, and all that we ask, and we 
testified repeatedly to this extent to the Administration, was 
that they treat sugar in the DR-CAFTA as it has been treated in 
virtually every FTA that has been done around the world, 
reserve sugar for negotiation in the WTO, because it is the 
most uniquely distorted market in the world. That is the 
unfortunate circumstance we are in. As I said to Mr. Levin, we 
are competitive by world standards, but the world market for 
sugar is extremely distorted and does not reflect the cost of 
producing sugar.
    Mr. RYAN. I guess as a person who represents a State with 
another unique agricultural products, dairy, which is distorted 
in some sense all around the world, dairy was included in the 
Australia agreement. We got good concessions for dairy in the 
Australia agreement and dairy ended up supporting the 
Australian agreement because of it. I think you can make the 
point that other specialty commodities have been included and 
dealt with in these trade agreements. So, I think there is a 
difference of opinion on this issue. I will just yield back the 
balance of my time.
    Mr. BRADY. Thank you. The gentleman from North Dakota.
    Mr. POMEROY. I thank the chairman. Let's pursue this 
inquiry a little more, led off by my friend from Wisconsin, 
because I think as the Administration dismissively holds up a 
little sugar packet and says ``This is all the consequence to 
U.S. sugar,'' they are being very dismissive about what is 
indeed a very serious threat to U.S. sugar. Mr. Roney, as an 
economist representing the sugar industry, perhaps you can help 
us understand the rather fragile nature of price today versus 
cost of production, which, literally, is the critical 
relationship in terms of determining whether we are going to 
have a U.S. sugar production capacity or not.
    In our part of the world, say the gentleman from Chicago 
alluding to the fact that is of small consequence, perhaps, to 
the economic contribution made by candy makers, a 1998 North 
Dakota State University study found the total economic impact 
of sugar beet production and processing in North Dakota and 
Minnesota to make a $2.3 billion contribution just in that part 
of the country alone. So, I think that we are talking about 
something very significant indeed. If you take, Mr. Roney, the 
amount that DR-CAFTA would allow in and the exposure under 
NAFTA, where is your price going to be relative to cost of 
production? Give us the long answer in terms of how this all 
works.
    Mr. RONEY. Well, Mr. Pomeroy, the U.S. sugar industry has 
been operating on the brink of bankruptcy for a number of 
years. Our prices last year, for example, were down 11 percent 
from the year before. Just since 1996, 30 of our beet and cane 
mills and refineries have shut down. That is one-third of all 
the mills and refineries that we had operating in 1996. We have 
been forced to close less efficient operations and concentrate 
production in the most efficient areas. Some areas have gone 
out of production completely, at tremendous job loss in those 
areas. So, we have been operating on the brink of survival for 
quite some time. That is why we are so sensitive to an increase 
in supply. Our market has shown over time to be very sensitive 
to supply increases.
    In the year 2000, before we had the market allotment 
program that we have now, our market was oversupplied by about 
400,000 tons because of our import requirements, and that 
depressed our price by 30 percent that year. It was a complete 
disaster, and that began, really exacerbated, the exit of 
companies from our industry. So, that is why we are so 
sensitive on the price front.
    Mr. POMEROY. A 400,000-ton increase knocked the price down 
a third?
    Mr. RONEY. Yes.
    Mr. POMEROY. You indicated DR-CAFTA is an additional 
100,000 tons coming in.
    Mr. RONEY. With the DR-CAFTA, what we are looking at is the 
100,000 tons causing a cascade of sugar currently blocked from 
the market and held by the producers at their own expense. 
Given that we are holding back from the market now between 
500,000 and 600,000 tons of sugar, that 100,000 tons of DR-
CAFTA sugar quickly becomes a half a million tons, and that 
would be a price disaster for us in the near term. In the long 
term then, of course, we are looking at 21 sugar exporting 
companies lined up.
    Mr. POMEROY. Even aside from that, because some would say 
that is just hypothetical, although as I questioned the 
gentleman from USTR, he refused to take sugar off the table in 
future bilateral rounds. They did not promise that this would 
not be under negotiation. Leave that as it may, what have we 
got out there with NAFTA which has already been negotiated?
    Mr. RONEY. One thing that the Administration has somewhat 
ignored is that we have committed to import up to a quarter of 
a million tons from Mexico each year of Mexico's surplus sugar 
production, again whether we need that sugar or not. Now, it 
happens that in the last couple of years, Mexico has had some 
short crops; they haven't had the sugar to send to us. We 
understand they are having a better crop this year and it is 
likely they will have sugar surpluses to send to us again, and 
that will further exacerbate our sensitivity to the DR-CAFTA 
sugar.
    Mr. POMEROY. Your own words, the Administration is ignoring 
the NAFTA to promote the DR-CAFTA. I would observe that gives 
us the shafta. A couple of things I want to put into evidence. 
I want in the record of this hearing the North Dakota Farm 
Bureau positions, which are absolutely, adamantly opposed to 
the agreement, and I would just offer that for evidence at this 
time. I yield back, Mr. Chairman. Thank you.
    Mr. BRADY. Without objection.
    [The information follows:]
                                           North Dakota Farm Bureau
                                                     4023 State St.
                                                      P.O. Box 2793
                                                 Bismarck, ND 58502
                                                   December 9, 2003
Ambassador Robert B. Zoellick
U.S. Trade Representative
Office of the U.S. Trade Representative
Room 209-A
600 17th Street, NW
Washington, DC 20508

Dear Ambassador Zoellick:

    North Dakota Farm Bureau represents the interests of more than 
26,000 farm families in the state of North Dakota. International trade 
is extremely important to our agricultural economy because more than 40 
percent of our diverse production enters the export market. We have 
supported the current and past Administrations in their attempts to 
open world markets through negotiating bilateral, multilateral and 
worldwide trade agreements. We encourage international trade agreements 
that are balanced, open international markets to U.S. agricultural 
products, provide for minimal production distorting supports, while 
eliminating export subsidies and single desk exporters. We also believe 
U.S. negotiators must demand that other countries honor existing trade 
agreements prior to signing new trade agreements. We applaud the Bush 
Administration for defending these U.S. trading principals around the 
world.
    We are concerned, however, with the direction the Administration is 
apparently taking on CAFTA and FT AA negotiations. Administration 
officials have stated that every commodity is on the table and that 
there will be no exclusions. Our trading partners have often demanded 
exclusions for market-sensitive products when negotiating trade 
agreements. By doing so, many U.S. agricultural products have been 
excluded from trade agreements, causing market distortions and 
managed-- not free and fair-- trade.
    Our principle concern with the Administration's position involves 
sugar. Sugar contributes $21 billion a year to the economy of the 
United States. It is an extremely fragile commodity in that small 
import surges will have dire impacts on the domestic sugar industry. 
CAFTA countries, for example, account for nearly two million metric 
tons of available sugar for export. The Administration has announced 
its intent to negotiate FT As with several major sugar-producing and 
exporting countries that export a total of 27 million metric tons of 
sugar-- three times the total U.S. consumption. Economic impacts to 
this sector of the economy could be potentially devastating.
    We fully agree that reform of sugar policy is necessary. However, 
true reform of distortions presently occurring in the world sugar 
market must be addressed under the auspices of the WTO. Bilateral and 
multilateral trade agreements, such as CAFTA, do nothing to reform the 
subsidy or market distortions of the world sugar industry. Furthermore, 
FT As leave the U.S. and other bilateral trading partners vulnerable to 
subsidies from outside the trade agreement area. Nor do proposed 
bilateral and multilateral agreements encompass many of the major 
sugar-producing countries that have huge market and trade distorting 
policies and programs in place.
    True reform of other countries' trade distorting policies should 
properly occur as part of the World Trade Organization. We respectfully 
request the Administration seriously consider the devastating 
consequences relatively minor changes in U.S. sugar import policy may 
have because of CAFTA and other FTAs. Not only will the sugar industry 
be negatively impacted, but other sectors of the economy such as the 
com production and sweetener industry, will be as well.

            Sincerely,
                                                   Eric Aasmundstad
                                                          President
                                 ______
                                 
    North Dakota Farm Bureau Focus: May 1, 2004--Vol. 5, Issue 5
    NDFB supports state's sugar growers, not CAFTA
    Despite the endorsement of American Farm Bureau Federation, North 
Dakota Farm Bureau cannot support the Central American Free Trade 
Agreement (CAFTA) because of the negative impact it will have on North 
Dakota sugar growers.
    ``The sugar industry is the economic cornerstone of several 
counties in North Dakota,'' said NDFB President Eric Aasmundstad. ``We 
can't ignore the negative economic impact this agreement will have on 
our sugar-growing members and the state's economy.''
    The decision by the NDFB Board of Directors means the state 
organization has officially dissented from AFBF policy.
    ``North Dakota Farm Bureau has and will continue to be a loyal and 
vocal supporter of the policies of the American Farm Bureau 
Federation,'' Aasmundstad said. ``Yet, we must dissent in this instance 
because it is in the best interest of our sugar-growing members and our 
state Farm Bureau.''
    A 1998 report by NDSU researchers Dean Bangsund and Larry Leistritz 
places the total economic impact of sugarbeet production and processing 
in North Dakota and Minnesota at $2.3 billion. The report also notes 
that for every dollar the sugarbeet industry spent in the two states, 
$1.79 in additional business activity was generated.
    Sugar is also an extremely fragile commodity because small import 
surges can have a significant impact on the domestic sugar industry. 
Aasmundstad said economists have warned that increased foreign imports 
of less than 500,000 tons could collapse U.S. sugar prices.
    An AFBF economic analysis of CAFTA's impact on each state projects 
North Dakota will see a zero net effect. Gains in wheat, soybean and 
feed grain trade, however, are offset by a single commodity--sugar.
    ``The analysis shows the negative impact to North Dakota's sugar 
producers at more than $7 million,'' Aasmundstad said. ``Any way you 
look at it, that's too much for one commodity to bear.''
    Aasmundstad said reform of sugar policy is necessary, however, true 
reform of distortions occurring in the world sugar market must be 
addressed under the World Trade Organization. Bilateral and regional 
trade agreements like CAFTA leave the United States vulnerable to 
subsidies from those outside the trade agreement area.

                                 

    Mr. BRADY. As long as you will sum up fasta, that will work 
fine. The gentlewoman from Pennsylvania is recognized.
    Ms. HART. Okay. May I increase the quality now? No jokes. 
First, I want to ask Mr. Ferrara, I am from Pennsylvania and we 
make those [indicating a Hershey candy kiss]. We have heard 
from the folks, obviously, in that industry, in your industry, 
and unfortunately we have lost a number of jobs with some of 
the smaller confectionery companies in the last 10 years. I 
served in the State Senate, and it seemed every year another 
one was going out of business. Can you address for me, just a 
kind of little overview of what you think the policy, the 
current sugar policy, has done as far as the number of jobs 
lost in your industry versus how many jobs it saved?
    Mr. FERRARA. I would like to start by adding that, in 
addition to my own products, I do contract manufacture for the 
largest manufacturers and distributors in our industry, some of 
which come from your State. I will say that, in recent years 
all, of the growth in that segment of my business has only come 
at my facilities outside of the United States. So, those are 
new job opportunities that might have gone to Pennsylvania, but 
instead are in Brampton, Ontario. I have not really picked up 
any new contract manufacturing business within the State, my 
State facilities, because the non-Ferrara Pan Candy Co. 
products that I make, they insisted I go over the borders to 
save on the price of sugar.
    Ms. HART. Before you go on, that is the reason you said the 
new jobs are in Ontario, for one reason?
    Mr. FERRARA. Sugar. It is purely sugar. The products I make 
over the borders are very high in sugar content. There is 
always an argument that labor is the reason that candy 
manufacturers are going over the borders. That is absolutely 
false, absolutely false. Labor represents, of my cost of 
manufacturing, cost of goods, in the area of 4 to 5 to 6 
percent, depending on the type of product it is. However, sugar 
can represent as much as 50 to 60 percent of that cost. I did 
not go over the borders to save on labor, I went over the 
borders to save on sugar. I used to use about 2.5 million to 3 
million pounds of sugar a week in the United States. By moving 
about half of that production over the borders, if you simply 
multiply 10 to 15 cents, sometimes 20 cents a pound based on 
world price compared to U.S. price, the numbers are very, very 
significant. I don't like the fact that I have two work forces, 
multiple work forces, multiple overhead structures in different 
countries, but the sugar alone is what drives that. It is hard 
to put a number on the number of jobs that have been lost. I do 
know that statistics show that there are actually approximately 
52,000 workers in the sugar industry as far as growers and 
refiners. In the related industries, there is a minimum, the 
lowest figure I see is 420,000 people, which again gets back to 
the 8 to 1 ratio. How many of those jobs have gone over the 
borders? I can guarantee you it is more than the entire 
employment of the sugar industry.
    Ms. HART. Thank you for that, I appreciate that. I wanted 
to thank you, Jack Ouellette, for coming here. Jack is a 
constituent, and we have met on some of these issues before. 
Just another issue that I know a couple of my colleagues have 
touched on, but I think it is important because a lot my 
colleagues from the South especially, who have had very high 
numbers of jobs lost in the textile industry, are talking about 
their concerns about this particular issue and this particular 
agreement. Can you tell me--obviously markets have changed--
could you tell me, we have lost a lot of these textile and 
apparel jobs; how might that loss have been avoided? What 
should we have done differently?
    Mr. OUELLETTE. That is a fairly difficult question to 
answer. I can only tell you that the one thing we have learned 
is as we have taken a more global perspective on our business, 
that government definitely becomes an important partner in what 
we do, and certainly having trade legislation that benefits 
companies to make it easier to do business is probably the 
biggest thing.
    Ms. HART. Is most of it access to markets, would you say, 
or is it a combination?
    Mr. OUELLETTE. I think it is a combination.
    Ms. HART. I yield back, Mr. Chairman.
    Mr. BRADY. Thank you. The gentlewoman from Ohio is 
recognized for questions.
    Ms. TUBBS JONES. Thank you, Mr. Chairman. I want to 
continue down that questionline with you, Mr. Ouellette. In 
order to have trade agreements that work, you have to have 
enforcement tools that are available to you, and that are in 
fact used in order for those trade agreements to really be 
successful. Would you agree with that, sir?
    Mr. OUELLETTE. Yes.
    Ms. TUBBS JONES. Okay. The gentleman from--I want to ask 
Mr. Ferrara, the manufacturer of candies, when did--I am 
assuming back when your father or your grandfather was 
operating the candy company he was buying U.S. sugar?
    Mr. FERRARA. My grandfather started the company in 1908. We 
have always bought U.S. sugar until I went over the borders.
    Ms. TUBBS JONES. When was that?
    Mr. FERRARA. It first opened up 10, 12 years ago.
    Ms. TUBBS JONES. Mr. Roney, is that correct? When did the 
cost of sugar come to the level such that people, manufacturers 
of candy in America, decided they should go buy sugar somewhere 
else? What was the basic cause of that?
    Mr. RONEY. Congresswoman, I don't really understand. I am 
not buying sugar the way Mr. Ferrara is, but we have looked at 
national average price data. We just saw work that was done in 
2004 and found that, in Mexico, sugar prices, wholesale prices, 
that is, the price the candy makers pay for their sugar, 
averaged 28 cents per pound during the year. That is 5 cents 
higher than the U.S. price of 23 cents per pound. In Canada--
Mr. Ferrara mentioned Canada--the sugar prices there were 21 
cents a pound. That is just a couple of cents lower than U.S. 
prices. On the other hand, labor costs--and this comparison was 
Chicago with Juarez--labor costs at a candy plant in Chicago 
were over $14 per hour. That is just the wage per hour--no 
benefits--and Juarez was 56 cents an hour. Canada, the wage 
structure was a good 20 percent lower, plus health insurance 
was essentially free from the government. Energy costs were 
lower. There is quite a long list of other factors that we 
believe played a greater role in candy makers' decisions than 
sugar.
    I would also note that we have never--even as these 
companies have relocated to these areas with lower labor costs 
and supposedly lower sugar costs--we have never noticed the 
price of the product to a consumer coming down. Candy prices 
have continued upward with the rate of inflation consistently 
over the last 20 years, while sugar prices have been flat or 
declining over most of that time.
    Ms. TUBBS JONES. Mr. Shuster, is it a fair statement that 
AMTAC would be concerned about the labor environment of their 
workers, no matter what country they are in?
    Mr. SHUSTER. Absolutely. As I mentioned, I think that the 
answer to our trade policy is that we have got to look at all 
the governmentally imposed conditions of trade, top to bottom, 
that give other countries the ability to undercut the United 
States. That definitely includes environmental standards, it 
includes labor standards, it includes tax policy, it includes 
tariffs, it includes non-tariff barriers, and so forth, and so 
forth, and so forth. We constantly get outnegotiated, 
outmaneuvered because we don't pay attention to these 
absolutely vital components of cost.
    Ms. TUBBS JONES. What about you, Mr. Wooten? You have been 
kind of quiet. I guess we have been focused on sugar a little 
more. What is your position with regard to labor standards and 
other countries, as well as in the United States, as part of 
trade agreements?
    Mr. WOOTEN. Well, I represent farmers. Our farmers have 
studied this issue extensively, and, on balance, this DR-CAFTA 
will be good for American farmers.
    Ms. TUBBS JONES. I am not asking about whether DR-CAFTA is 
good. I am asking you about labor standards and the enforcement 
of them in any agreement, in countries, other countries, and in 
our own country.
    Mr. WOOTEN. Well, I think--I don't think we can force our 
labor standards, or force a country to adopt labor standards as 
part of a trade agreement here.
    Ms. TUBBS JONES. Well, what do you think we ought to force 
them to do in their own country? Maybe my question isn't clear. 
My question to you, sir, is that, within the trade agreements 
there are conditions and labor standards that countries are 
required to meet in order to be part of a trade agreement. You 
agree with that, sir, right?
    Mr. WOOTEN. Yes.
    Ms. TUBBS JONES. I am asking you, as part of that trade 
agreement, do you support that, in terms of improving the 
standard of work for people in other countries?
    Mr. WOOTEN. I think we ought to improve the standard, but 
we can't control what happens in another country, 
Congresswoman. We can't dictate what----
    Ms. TUBBS JONES. Well, people will disagree with on you 
that, Mr. Wooten. You are entitled to your position. Sir, Mr. 
Hafenfeld, is that it? Correct?
    Mr. BRADY. Excuse me. The gentlelady's time has expired.
    Ms. TUBBS JONES. Mr. Hafenfeld, I was trying to give you a 
chance to say something since you have been sitting here all 
afternoon. I apologize. My time is expired. Gentlemen, thank 
you so much for coming out this afternoon.
    Mr. BRADY. Thank you. I would like to thank the panel for 
being here today. Trade agreements are complex. It is real 
helpful to get the input from folks on the ground rather than 
in theory, and we appreciate very much your testimony. 
Appreciate it. At this time, we would like to bring forward 
Members of Congress who have indicated an interest in 
testifying on the DR-CAFTA. On behalf of Chairman Thomas and 
the Ranking Member, we would like to welcome the Members of 
Congress to the final panel on the DR-CAFTA. I am pleased to--I 
would like to place in the record statements, testimony, from 
Chairman Mike Oxley and Chairman Debra Pryce in support of the 
DR-CAFTA trade agreement.
    [The prepared statements of Mr. Oxley and Ms. Pryce 
follow:]

    Chairman Thomas and Ranking Member Rangel, thank you for the 
opportunity to testify on the Central American Free Trade Agreement or 
CAFTA. This is an important agreement between the United States and six 
countries that are key to our economic and national security: El 
Salvador, Costa Rica, Honduras, Nicaragua, Guatemala, and the Dominican 
Republic. We know that this is a highly complex agreement and we want 
to commend this Committee for all of its hard work in fostering free 
trade around the world.
    As Chairman of the Financial Services Committee and Chairman of the 
Subcommittee on Domestic and International Monetary Policy, Trade and 
Technology of the Financial Services Committee, we submit this 
statement to support free trade in financial services. U.S. firms often 
face restrictions in their ability to operate globally. The concept of 
national treatment, where foreign firms are treated like domestic 
firms, is not the norm in all Central American nations. As a result, 
U.S. banks, insurance providers, and securities dealers are often 
subject to non-transparent and discriminatory regulations which inhibit 
their ability to compete in these markets. The CAFTA agreement goes a 
long way to remedy many of these problems.
    Services industries account for nearly 80 percent of U.S. 
employment as well as GDP. This includes lawyers, architects, 
engineers, doctors and, of course, financial service providers. Over 
the past 10 years, U.S. services exports nearly doubled to $270 
billion. Trade in financial services accounts for a high percentage of 
U.S. services exports.
    We often hear about the trade deficit that the U.S. has with other 
nations. What we don't hear about is that in case of trade in services, 
we actually have a surplus. Our nation leads the world in financial 
services innovation. This agreement will help extend that surplus and 
promote state-of-the art financial services globally.
    The CAFTA agreement will allow U.S. financial firms to access these 
countries on a fair footing with their local counterparts. It will 
promote transparency in the rules that govern how these enterprises are 
supervised. Without CAFTA, the financial services sector will be 
limited in its ability to enter these markets, will have restrictions 
on the ability to establish branch offices, and the regulations 
overseeing the operations of these institutions will be written behind 
closed doors.
    CAFTA will require national treatment and MFN treatment, prohibit 
quantitative restrictions on market access of financial institutions, 
and bar restrictions on the nationality of senior management.
    Now, we know that the financial services markets in the CAFTA 
countries are not going to be major revenue generators for U.S. 
financial firms in the short-run. However, these are long-term 
strategic growth markets for our financial firms. Our economic 
prosperity will be strengthened if trade barriers between our Nations 
are eliminated.
    Economic prosperity in the region, which will foster economic 
security in the hemisphere, will also grow as competition in the 
financial services sector within CAFTA countries expands the 
availability of capital to fund new ventures. Over time, it will also 
yield a wide range of benefits, including more customers for our firms 
and more efficient markets within our hemisphere. Improved access to 
sophisticated financial services, backed by sound regulation, will 
enable these markets to grow to become buyers of other U.S. products. 
Without the development of these financial markets, manufacturers will 
be less likely to cultivate customers in this region.
    The Financial Services Committee has taken a leadership role in 
ensuring strong financial services provisions in this agreement, as 
well as the Chile and Singapore agreements. In December of 2003, the 
Committee wrote Ambassador Zoellick urging him not to accept a trade 
agreement that permitted Costa Rica to retain the government's monopoly 
on insurance. The CAFTA agreement now includes provisions permitting 
U.S. firms to provide insurance products in Costa Rica. We would like 
to submit a copy of this letter for the record.
    In closing, we strongly urge the Members of this Committee to 
support the CAFTA Agreement. It will foster economic security in our 
hemisphere and will promote the exchange of goods and services between 
our countries.

                                 

    Mr. BRADY. We are going to go to Members in order, although 
Congressman Burton has asked for first time in order to catch 
an earlier commitment. So, I would like to recognize for 5 
minutes the gentleman from Indiana, Mr. Burton.

  STATEMENT OF THE HONORABLE DAN BURTON, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF INDIANA

    Mr. BURTON: Well, thank you, Mr. Chairman. I certainly 
won't take the full 5 minutes. I want to apologize to my good 
friend, Marcy Kaptur, because we have a difference of opinion 
on this particular piece of legislation than we have had in the 
past. I was an opponent of the NAFTA Agreement, and I was an 
opponent of the General Agreement on Tariffs and Trade (GATT). 
However, on the DR-CAFTA agreement and on the Andean FTA, I 
think there is additional circumstances that the Congress of 
the United States ought to weigh when they are making their 
decision, and I hope it will take these things into 
consideration as well.
    President Ronald Reagan, when he was in the White House, 
came up with the Reagan doctrine, so to speak, and that was to 
push for democracy throughout the Western Hemisphere. He was 
very successful as President in stopping a lot of the 
tyrannical regimes that were running governments in our 
hemisphere, and he was a fighter for freedom, and he was taken 
to task many times for that. However, because of the Reagan 
doctrine, every single country in our hemisphere has 
democratically elected leaders, with the exception of Fidel 
Castro. One of the problems that we have now is we have in 
countries like Venezuela the possibility that you would see a 
return to some forms of government that might not be democratic 
in nature. I think that Central America and Latin America are--
not a tinderbox, but close to that kind of a situation as far 
as the collapse of democracies. I think it is very, very 
important that we do whatever is necessary to make sure that 
those fledgling democracies in Central and Latin America 
continue to flourish. One of the ways to do it is to work with 
them in economic terms. We need to make sure that we have good 
trade agreements so that they can start moving away from 
poverty and into countries that have a middle class that will 
want to see democracies continue to flourish.
    I am very concerned about it right now. I am the chairman 
of the Subcommittee on the Western Hemisphere of the Committee 
on International Relations. We have been looking at what is 
going on in Ecuador, where the President was removed from 
office just yesterday; in Venezuela, where we see the new 
leader down there buying 100,000 AK-47s and tanks and other 
forms of weaponry, which lead us to believe that he may have 
things in mind that aren't consistent with long-term democratic 
institutions. So, in addition to the economic ramifications of 
this FTA we are talking about, the DR-CAFTA and the Andean FTA, 
I think it is extremely important that we also weigh the long-
term issues of democracy in our hemisphere, and what that means 
for the United States of America as far as our national 
security is concerned. We are concerned about terrorism. We are 
concerned about tyrants taking power in various countries 
throughout the world. This is our backyard. Latin America is 
our backyard. Central America is our backyard.
    In addition to what I just stated, we also have the problem 
of a massive influx of illegal aliens should these countries 
not do well economically. So, I think it is extremely important 
that DR-CAFTA do pass. It is a stance that I have not taken in 
the past. I was concerned about the loss of jobs, loss of 
industry and all those sorts of things, but I think right now 
the most important thing that we have to deal with is stability 
in our hemisphere, and that is why I support the DR-CAFTA and 
the NAFTA Agreements. Thank you, Mr. Chairman.
    Mr. BRADY. Thank you, sir. Appreciate your testimony. 
Chairman Dreier, the gentleman from California.

                                 

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

    Mr. DREIER: Thank you very much, Chairman Brady and Mr. 
Rangel and Mr. Levin and Mr. Ryan, Mr. Larson, Ms. Tubbs Jones. 
Let me say that it is an honor to be here; and it is an honor 
to be here with my colleague, Dan Burton, who just spoke very 
eloquently about this issue. I was thinking about what he said 
in referring to the struggles that we have brought about, and 
so I immediately remembered back to November of 1979, when 
Ronald Reagan announced his candidacy for President. In that, 
he envisaged this accord where we can see the free flow of 
goods, services, ideas and capital among all the Americas. Mr. 
Brady, you have done an absolutely phenomenal job in providing 
leadership on this very important part of that goal as we get 
toward the FTAA.
    We have done a wide range of bilateral agreements over the 
past several years. This opportunity to take Charlie's very 
dear Dominican Republic and link it up with the Central 
American nations to finally create an opportunity for us to 
have access to those markets is very important. We all know 
that these countries involved have access to the U.S. consumer 
market today. This agreement is about a chance for the U.S. 
workers to gain access into these markets. The U.S. economy 
today--the $11 trillion economy that we have today is as strong 
as it is in large part due to the fact that the world has 
access to our consumer market. I believe that if you look at 
the statements that have been made by the presidents of the 
countries affected here, their trade ministers, business 
leaders, people across the board in these countries, one of the 
things that they regularly tell us is that, if we want to lock 
in democratization, the building of the rule of law, which, 
frankly, is in jeopardy, and Mr. Burton was just alluding to a 
bit of that, in some of these countries, the single most 
important thing that we can do for people who are struggling to 
move up that economic ladder in these countries would be for us 
to make sure that we pass the DR-CAFTA.
    For the life of me, I really have a difficult time 
understanding how anyone, anyone in the United States of 
America could oppose the DR-CAFTA. Why, again? These countries 
have access to us today, and we are simply seeking a chance to 
get into those markets. Along with that, Mr. Chairman, what is 
it that this agreement does? It focuses on some of the very 
important issues that are regularly raised as concerns here in 
the United States. Intellectual property is a key issue. 
Private property rights are very important under the rule of 
law. That is what we have got here. This agreement helps us 
address that issue. Worker and environmental rights, worker 
rights and environmental issues are also very, very important. 
We dramatically enhance that in this agreement. So, it seems to 
me that if we look at where we are today, the opportunity that 
exists for us to put into place a strong multilateral agreement 
and to build this strength in the hemisphere, we would be wise 
to pursue this goal.
    China is a great competitor of ours. We are seeing 
competition with the European Union. If you look at the fact 
that we now already have, in yarn and fabric, this great 
rapport between the United States and the Central American 
countries and the Dominican Republic, I believe we are in a 
position where we will be able to--with the implementation of 
the DR-CAFTA agreement--we will be able to better compete with 
the Pacific rim and other parts of the world. So, I hope very 
much that you will report this out just as expeditiously as 
possible. I have the honor to serve on the House Committee on 
Rules. I look to welcome any of the Members of your Committee 
before the Committee on Rules when you come, and we will look 
forward to a great victory on the House floor for workers and 
businesses alike. Thank you very much, Mr. Chairman.
    Mr. BRADY. Thank you, Chairman Dreier. Thank you for your 
comments and testimony. The Committee recognizes the gentlelady 
from Ohio, Ms. Kaptur.

                                 

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

    Ms. KAPTUR: Thank you, Chairman Brady and Ranking Member 
Rangel, especially to you for making this opportunity for the 
Members available. Congressmen Levin and Larson and my dear 
sister from Ohio, Stephanie Tubbs Jones, and Mr. Ryan, thank 
you for being here so very late in the day. Let me just say 
that I have full testimony I will submit for the record, along 
with a NAFTA at 10 Years report that was assembled by the 
Members and make that a full part of your hearing.
    Mr. BRADY. Without objection.
    Ms. KAPTUR: I thank you.
    [The information is being retained in the Committee files.]
    Ms. KAPTUR: I regret we only each have 5 minutes. I 
represent 680,000 people in a State of 11 million that have 
been adversely affected by NAFTA; and my fundamental question 
this afternoon is, if a trade agreement like NAFTA is not 
working in America's interests as promised, why replicate and 
expand it? Millions of ordinary people have been hurt. I am 
going to ask my capable associate, Jennifer Goedke, to put up 
the trade deficit numbers for our Nation as a whole first and 
then the--which, by the way, the deficit last year overall 
totaled nearly--well over a half a trillion dollars, and is 
getting worse every year. Then the Mexico and Canadian 
components of that, which are summarized very briefly in the 
handout that we have provided. This is when Mexico--Every year 
since NAFTA was signed, unlike its proponents claimed, we did 
not have surplus. We had deficits, growing deficits, and more 
job losses from the United States. My State of Ohio is one of 
the biggest losers, with over 40,000 jobs directly related to 
losses; the Canadian figures are similarly in the negative. So, 
my advice to the Committee is reevaluate what is really going 
on, and then renegotiate. Don't expand. It seems our Nation has 
been ignoring the millions of ordinary people who have been 
hurt, dislocated, unemployed and uprooted across the Americas 
due to this trade agreement. Our Nation seems to be willing to 
enforce anti-dumping provisions for goods but nothing to 
prevent the dumping of the peoples of the Americas when they 
lose their jobs, their farms and their hopes. Too often under 
these trade regimes workers and farmers have been treated like 
chattel, victims of great economic injustices caused by 
powerful market forces unleashed by these trade agreements. One 
by one, we have seen our industries fall. Furniture is the 
latest one, and this year may be the first year in which 
America's agricultural imports exceed our exports. This has not 
happened before. This is the reality that we are living in.
    This DR-CAFTA agreement is an expansion of NAFTA. Eighty-
five percent of its provisions are directly from the NAFTA 
original accord. Let me just also give you a visual image of 
what has happened in one of the major industries in my region, 
the automotive industry. Here is a graph of what happened after 
NAFTA. Yes, there was trade, but it was backward. Mexico turned 
into the export platform we said it would be, with business 
after business, supplier after supplier relocating. This 
doesn't happen in the automotive arena only, but also in steel 
and in medicines. Every single sector has been heavily 
affected. Now I would like to submit for the record a report we 
did. Several Members went down to Mexico at NAFTA's 10th 
anniversary and met with the people of Mexico. We produced a 
comprehensive report, and I would like my associate to place up 
there just one of the photos of some of the villages that we 
went to. My testimony verifies that not only have we lost jobs 
but the Mexican people's incomes have been cut. Over a 1.5 
million peasant farmers have been uprooted. It is the source of 
the immigration into this country. It is a continental 
sacrilege, what is going on. People have died at our border. 
They have died in trucks coming across the border.
    What is the source of that? The source is what is happening 
inside of Mexico today. We were actually in La Scala, down in 
southeastern Mexico, meeting with these farmers, talking about 
how NAFTA had impacted them. What NAFTA has done to the 
continent and what DR-CAFTA will do, it will create more 
surplus pools of labor of people who are disenfranchised at 
home, who have nothing else to do but to flee north and to try 
to come somewhere where they can eke out a living. It is truly 
a cruel regimen. I know that my time is about expired, but let 
me just say that many of these families have very few options 
in regions like my own. Many of the people that we have met 
with there--we met with one villager who had come up--I never 
had an experience where I asked a man how old his children were 
and he couldn't answer me. Then I asked him the name of his 
youngest child, and the name of the child. The child was ill 
and had lived for about a month and a half. The child had no 
name because the family was illiterate. I had never had that 
experience in my life. We have to pay attention to what we are 
doing in the Americas. I would urge this Committee to re-
evaluate and renegotiate. I thank you very much for receiving 
us.
    [The prepared statement of Ms. Kaptur follows:]

    Testimony of Congresswoman Marcy Kaptur On the Proposed Central 
 American Free Trade Agreement NAFTA Expansion For the House Ways and 
                            Means Committee

    Chairman Thomas, Ranking Member Rangel, and distinguished Members 
of the Committee:
    My fundamental question is: if a trade agreement like NAFTA is not 
working in America's interests as promised, why replicate and expand 
it? Millions of ordinary people have been hurt, dislocated, unemployed 
and uprooted due to this trade agreement. Why then has our Nation been 
willing to enforce ``anti-dumping provisions'' on goods, but nothing to 
prevent the ``dumping of the people of the Americas'' when they lose 
their jobs, their farms, their hopes? Too often workers and farmers are 
treated like chattel, victims of great economic injustices caused by 
powerful market forces unleashed by these trade regimes.
    Americans watched as their jobs disappeared as formerly healthy 
industries--like auto, furniture, airline, textile, steel, high-tech, 
vegetable--fall one by one. As one auto plant worker from Mexico told 
me, `` Poor countries are like crabs in a bucket. Every time one 
country starts to climb out of the bucket, another one pulls it back 
down.'' Or as Mexican Congressman Victor Suarez said, `` We want good 
trade, not free trade.''
    The Central American Free Trade Agreement (CAFTA), signed in May 
2004, would expand the economic model established in the North American 
Free Trade Agreement (NAFTA) to five Central American countries 
(Guatemala, El Salvador, Honduras, Costa Rica and Nicaragua) 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

[GRAPHIC] [TIFF OMITTED] T3918A.021

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'--such as generic drugs. 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 and Expansion 
of the Export Platform: Eleven-Year Record Demonstrates that the NAFTA 
Model Lowered Living Standards on Both Sides of the Border
    Figures don't lie: 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\ Ohio 
has been of the largest job losers with more than 46,000 good jobs lost 
due to NAFTA. U.S. income and wage inequality have gone up markedly, 
with the ratio of both income and wages of the top 5 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 6 percent of national income--a figure widely agreed to be 
unsustainable, putting the U.S. economy at risk of lowered income 
growth.\5\ Though we were promised a trade surplus by NAFTA's advocates 
the reverse is true. 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\
---------------------------------------------------------------------------
    \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 U.S. as a Net Debtor: 
The Sustainability of U.S. External Imbalances,'' New York University 
Briefing Paper, Nov. 2004.
    \6\ U.S. Census Numbers.

    [GRAPHIC] [TIFF OMITTED] T3918A.022
    
    [GRAPHIC] [TIFF OMITTED] T3918A.023
    
             $1 Billion in trade deficit = 20,000 lost jobs

    For our neighbors in Mexico, the economic outcomes of eleven years 
of NAFTA are not brighter. Indeed, their sorry plight is a continental 
tragedy of sacrilegious proportion. 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\ It is no surprise illegal immigrants are streaming 
across our border. With no agricultural adjustment promises in NAFTA, 
they have no options.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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 playingfield 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\
---------------------------------------------------------------------------
    \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.

    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\
---------------------------------------------------------------------------
    \11\ 19 U.S.C. Sec. 3802(3), Chapter 24, ``Bipartisan Trade 
Promotion Authority: Trade Negotiating Objectives.''
---------------------------------------------------------------------------
    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 significantpart, of the use or reasonably to-be-
expected economic benefit of property.'' \15\ USTR failed to remedy 
this problem in CAFTA.
---------------------------------------------------------------------------
    \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.

    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.
---------------------------------------------------------------------------
    \16\ Central America Free Trade Agreement, Final Version, Aug. 5, 
2004, Annex 10-C, at 4(b).

      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.
---------------------------------------------------------------------------
    \17\ Lucas v. South Carolina Coastal Council, 505 U.S. 1003, at 
1015-19 (1992).
---------------------------------------------------------------------------
      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.
---------------------------------------------------------------------------
    \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
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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

    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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 amendment of U.S. law, characterizing the 
Administration's remarks as ``thinly veiled blackmail.'' \25\
---------------------------------------------------------------------------
    \25\ Rep. Charles B. Rangel, ``Rep. Rangel Reacts to Reported 
`Threat' from Administration Official to CAFTA Countries,'' Press 
Statement, March 22, 2005.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \26\ Sergio de Leon, ``Police, protestors clash ahead of Guatemala-
U.S. free trade vote,'' Associated Press, Mar. 9, 2005.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \27\ Catherine Elton, ``Activists Fear Free Trade Act Will Restrict 
Access to AIDS Drugs in Central America,'' Voice of America, April 
2005.
---------------------------------------------------------------------------
    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 
rollback CBI labor provisions.
---------------------------------------------------------------------------
    \28\ ``The Real Record on Workers' Rights in Central America,'' 
AFL-CIO, Apr. 2005.

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

                               Conclusion

    The bottom line in Congress' consideration of CAFTA should be 
whether extending the seriously flawed NAFTA model will help us create 
a brighter future for our children and grandchildren, and those of our 
continent. Even considering only the well-documented NAFTA record of 
huge middle-class job loss in the U.S. and growing trade deficits 
undermining the livelihoods of 1.5 million Mexican farmers, suppressing 
real median wages in the United States and Mexico, replacing living 
wage jobs with cheap wage jobs with no benefits--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.
    Congress should 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. Scandalous provisions of CAFTA NAFTA expansion are life and 
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 diseases 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.
DR-CAFTA

----------------------------------------------------------------------------------------------------------------
                       2004 Trade                                            Per Capita
     Country            Deficit          Population            GDP             Income           Top Sectors
----------------------------------------------------------------------------------------------------------------
    Costa Rica       -$29 million          3,956,507     $35.34 billion          $9,100      agriculture: 8.5%
                                                                                               industry: 29.4%
                                                                                               services: 62.1%
----------------------------------------------------------------------------------------------------------------
     Dominican      -$185 million          8,833,634     $52.71 billion          $6,000     agriculture: 10.7%
       Republic                                                                                industry: 31.5%
                                                                                               services: 57.8%
----------------------------------------------------------------------------------------------------------------
   El Salvador      -$184 million          6,587,541     $30.99 billion          $4,800      agriculture: 9.4%
                                                                                               industry: 31.2%
                                                                                               services: 59.3%
----------------------------------------------------------------------------------------------------------------
     Guatemala      -$606 million         14,280,596      $56.5 billion          $4,100     agriculture: 22.5%
                                                                                               industry: 18.9%
                                                                                               services: 58.5%
----------------------------------------------------------------------------------------------------------------
      Honduras      -$564 million          6,823,568     $17.55 billion          $2,600     agriculture: 12.8%
                                                                                               industry: 31.9%
                                                                                               services: 55.3%
----------------------------------------------------------------------------------------------------------------
     Nicaragua      -$398 million          5,359,759      $11.6 billion          $2,300     agriculture: 28.9%
                                                                                               industry: 25.4%
                                                                                               services: 45.7%
----------------------------------------------------------------------------------------------------------------

NAFTA

----------------------------------------------------------------------------------------------------------------
                       2004 Trade                                            Per Capita
     Country            Deficit          Population            GDP             Income           Top Sectors
----------------------------------------------------------------------------------------------------------------
        Canada       -$65 billion         32,507,874     $958.7 billion         $29,800      agriculture: 2.2%
                                                                                               industry: 29.2%
                                                                                               services: 68.6%
----------------------------------------------------------------------------------------------------------------
        Mexico       -$45 billion        104,959,594     $941.2 billion          $9,000        agriculture: 4%
                                                                                               industry: 26.4%
                                                                                               services: 69.6%
----------------------------------------------------------------------------------------------------------------
 United States                n/a        293,027,571    $10.99 trillion         $37,800      agriculture: 1.4%
                                                                                               industry: 26.2%
                                                                                               services: 72.5%
----------------------------------------------------------------------------------------------------------------


                                 

    Mr. BRADY. Thank you very much. The Committee recognizes 
the gentleman from Oregon, Mr. DeFazio, for his remarks.

 STATEMENT OF THE HONORABLE PETER DEFAZIO, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. DEFAZIO: I thank the Chair. I thank the Members of the 
Committee, particularly the Ranking Member, for facilitating 
this Members' panel on this very important subject which will 
have very constrained debate without amendment on the floor of 
the House, something that is vitally important to the American 
people. I would just like the Committee to reflect a bit on 
some of the testimony they have heard. Mr. Dreier, who, of 
course I am sorry he had to leave--I don't want to talk behind 
his back, but I remember he gave the same speech about NAFTA. 
It was going to bring great prosperity to America. It was going 
to give American companies access to the Mexican markets, and 
he predicted that we would run trade surpluses and we would 
create jobs in America. Well, he couldn't have been more wrong, 
could he? It has created a large and growing deficit with 
Mexico, and it has seen the export of hundreds of thousands of 
U.S. jobs to Mexico, U.S. capital to Mexico, and it has not 
improved the plight of the Mexican people who are working in 
sweatshops and unsafe conditions. I have been to the 
maquiladora area. The environmental degradation there and the 
human suffering and the exploitation is extraordinary.
    So, what you have is losers on both sides of the border 
American workers and Mexican workers; a failed model which has 
provided an export platform for U.S. capital to access 
exploitable cheaper labor and lack of environmental 
enforcement. Now we want to replicate that further down into 
Latin America because perhaps we can find even cheaper labor 
and more exploitable people down there. Again, it is not about 
exporting goods to Central America. If the countries in 
question here devoted every penny of their economy to only 
consuming U.S. goods, they didn't buy a thing at home, didn't 
eat anything at home, nothing, everything came from the United 
States of America, it would constitute about 5 days of the 
American economy. Obviously that is not going to happen. We are 
already running a trade deficit with Central America. We know 
that this will accelerate that trade deficit.
    Mr. Dreier talked about how great it will be if our textile 
companies could move their machines to Central America instead 
of having to ship them all the way to China or have to invest 
in new machines in China and how that would somehow be a 
benefit to the Americas or to America itself in its contest 
with China. The average hourly earning of U.S. production 
workers, $16.01. The average hourly wage for Honduran workers, 
90 cents. They are going to be buying a lot of U.S.-
manufactured goods from our country. The number of DR-CAFTA 
countries found to be in compliance with basic ILO standards, 
zero. There are no enforceable labor standards in this bill. It 
is just like the head feint we had with NAFTA which gave a 
bunch of our weak-kneed colleagues an opportunity to vote for 
it under pressure from the Clinton Administration. They said, 
oh, ``we got labor, and we got the environment.'' They are just 
non-enforceable side agreements. We are going to have the same 
thing here, unenforceable labor standards; this will do nothing 
to improve the plight of exploited labor in that area.
    This is not a partisan issue. It is a bipartisan failure. 
Bill Clinton delivered NAFTA, which would have been difficult 
for a Republican president to deliver with a Democratic 
Congress, much to his discredit. Those of us who opposed it 
predicted much of what has happened, but, in a sense, we were 
all wrong. It is even worse than we thought. Last month, the 
United States of America ran a $62 billion 1 month record trade 
deficit. That is going to be over $700 billion that we are 
going to borrow from overseas. The dollar continues to decline. 
We are hemorrhaging jobs in our economic base, and what are we 
going to do? More of the same with this agreement. How many 
times are we going to listen to the siren song of, all we want 
to do is open up these impoverished countries to become 
consumers of expensive, sophisticated, U.S.-manufactured 
products, when in reality it is all about making them a 
platform to export back into the United States of America, 
using their exploitable labor and their weaker standard.
    So, I would hope that the Committee will not rubber-stamp 
this legislation and that we will begin to bring about a change 
in trade policy which will benefit all of the people of the 
United States of America. We can become a world leader. Instead 
of leading the race to the bottom in environmental and labor 
standards, let's set up a higher floor, and move it upward and 
bring the rest of the world up to our standards, instead of 
lowering ourselves and our workers to theirs. Thank you, Mr. 
Chairman.
    Mr. BRADY. I would note the gentleman finished 5 minutes to 
the second. Well done. Well timed. The Committee recognizes the 
gentleman from Minnesota, Mr. Peterson.

                                 

STATEMENT OF THE HONORABLE COLLIN PETERSON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MINNESOTA

    Mr. PETERSON: Thank you, Mr. Chairman, and thank the 
Ranking Member and other Members for hanging in there today. 
While we are here today, the Secretary of Agriculture is 
visiting the Red River Valley of Minnesota and North Dakota, 
the largest sugar-producing place in the United States; he is 
trying to address their concerns about DR-CAFTA. The feedback 
that I have received so far from those farmers, they are 
telling me, he still doesn't seem to get it. As others have 
said, we have given all these glowing promises about what was 
going to happen, but the reality of what is going on here, for 
the first time in 46 years, this year, we are going to be 
running an even balance in agriculture trade, or maybe even a 
deficit. Back in 1996, we had a $27 billion surplus in 
agriculture. This year, it is going to be zero. If we keep 
going in this direction, we are going to be in the hole big 
time.
    During the NAFTA debate, the Administration official 
promised us that we were going to add all these jobs, 170,000. 
It has been said we lost, the first 10 years here, 880,000 
jobs. This is not surprising if you consider the agriculture 
sector alone, the statistics show that our trade deficit with 
Canada and Mexico in agriculture has tripled from $5.2 billion 
to $14.6 billion. Now part of the problem, I think, and part of 
the reason that this agreement is in trouble--back in the old 
days, every agriculture Member of the Committee supported these 
trade agreements. Today, they don't have a majority; and the 
reason is they won't enforce these agreements after they--first 
of all, they are negotiating them in a bad way, and then they 
won't enforce them.
    So, we have got the situation with Brazil and the cotton 
case. We had the side letter. We had NAFTA to get sugar 
support, and it turned out not to be worth the paper it was 
written on. So, they assured us in the NAFTA with the side 
letter that U.S. sugar growers would be protected because 
Mexico would remain to be a deficit sugar producer, as they had 
been in the 5 years leading up to NAFTA. When the Mexican 
market opened up, what happened? U.S. high fructose corn syrup 
went into Mexico, into the soft drink industry, and they 
substituted that for sugar, and Mexico began to export all that 
sugar into the United States. Now if any of you have examined 
the sugar market, it is not a real market. It is a dump market 
created by the Europeans and the Brazilians, to some extent. 
Nobody can produce sugar in the world for six and a half cents. 
We have gotten ourselves into a situation now where we are 
looking down the barrel of the gun in Mexico where in 2008, 
potentially, we could have 5 million tons of sugar come into 
the United States without any way to stop it. We have been 
trying to negotiate this thing out for the last 3 years, and we 
aren't, frankly, getting anyplace. We aren't getting any help.
    Then you go up to Canada. We have got the potato situation 
that has been going on since way back when we had the U.S.-
Canada FTA, where we have got a situation up there where the 
fresh potatoes from Canada--we can't export to Canada unless we 
get a special ministerial exemption, which basically makes it 
impossible. The long and the short of it is they have got a 
supply management system for potatoes in Canada. They keep our 
potatoes out. They can bring their potatoes in. What do we do 
about it? Nothing. We can't get our people to stand behind us 
and to get rid of this obvious distortion of what the trade 
agreement was supposed to be about. So, because we--and I could 
go on and on with other examples.
    So, this DR-CAFTA is going to be the same as what we have 
got under NAFTA. There are a lot of us in agriculture that are 
very concerned about where this thing is heading. They told us, 
well, the problem is these trade agreements would work if we 
just--the value of the dollar is too strong, and once the value 
of the dollar comes down then everything is going to be fine. 
Well, what happened? The value of the dollar collapsed; and for 
the first time in the history of--well, in 50 years, we are 
probably going to run a trade deficit in agriculture in this 
country. I think people need to wake up, and I think we need to 
defeat this agreement. Send it back to the drawing board and 
come up with something that works for the American people.
    Mr. BRADY. Thanks. Appreciate your testimony. The Committee 
recognizes the gentleman from California, Mr. Lungren.

                                 

  STATEMENT OF THE HONORABLE DAN LUNGREN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. LUNGREN: Thank you, Mr. Chairman, Ranking Member and 
other Members who are here. First of all, thank you for 
allowing me to appear before you, and all of us to appear 
before you. I am one of those lucky enough to be selected to go 
to Rome this weekend, and this puts me in the proper mood 
because this room has cathedral-like properties. As someone who 
has never been on the Committee on Ways and Means, it is a real 
pleasure to be able to appear before you in this august 
setting. When I was in Congress some years ago, I recall a 
Member saying something which wasn't original with him but 
which was important nonetheless, and it was something like 
this: If goods and services do not cross national boundaries, 
armies certainly will. The suggestion was that through history 
we have seen that tariffs and other trade barriers presented in 
certain ways caused instability in regions and instability in 
many places around the world. This was brought very closely 
home, to me, when I was visited by several representatives of 
the Central American countries with which we are negotiating 
this agreement. Because I have been absent from this body for 
16 years--I was here 26--a period of time of 10 years between 
26 and 16 years ago, and at that time we weren't talking about 
DR-CAFTA, we weren't talking about NAFTA, we weren't talking 
about trade, we weren't talking about agriculture. We were 
talking about guns and bullets.
    We were talking about the effort the United States was 
sustaining to try and fight a Communist threat that was 
supported by the then existing Soviet Union, and I had to 
convey to the people that visited me that was a far greater joy 
that I engaged in that conversation with them today than 10 to 
20 years ago when we were talking about unstable situations in 
Central America. This is a consequence of those actions that we 
took back then. This is a further development of our 
relationship with that part of our own hemisphere. This is an 
opportunity for us to try and engage in meaningful trade 
negotiations which allow not a perfect solution to our side but 
a reasonable opportunity for us to establish the trade 
relationship between ourselves and the countries involved. Does 
it solve every labor problem? No, it doesn't. I was trying to 
find out how I would be informed as to how this House should 
act, and so I looked up some material with respect to one of 
the most recent trade agreements approved by this Congress, and 
that was last year, I believe, or the year 2004; that is, the 
Morocco-U.S. agreement.
    I looked at the key labor issues. There it was: 
discrimination, or child labor, or forced labor, or the ILO 
core conventions, or the freedom of association, or the right 
to collective bargaining, or the right to strike. In every one 
of those categories the labor laws of the Central American 
countries and the Dominican Republic that are covered by DR-
CAFTA are at least as good as if not superior to those of the 
Kingdom of Morocco. So, at least it gives me pause to believe 
that, upon reflection, that if the Congress believed that those 
were adequate protections that advanced the labor situations in 
that country, not perfectly, not to the total standards of the 
United States, but advanced from where they are, that it very 
well may be the case that that is what we find here. With 
respect to agriculture--and we have just heard from the 
gentleman to my right reflections on agriculture in his State, 
I might say that, as far as California agriculture is 
concerned, every representative of California agriculture that 
I have spoken with recommends the approval of this agreement. 
They specifically say that this would allow them an opportunity 
for a growing market and one that would be of benefit to 
California agriculture and, therefore, American agriculture.
    So, Mr. Chairman and Members, I would just say--I was 
trying to give you at least a view of someone who has been away 
from here for a period of time to see the tremendous change we 
have in the relationship of the United States to the Central 
American countries that are signatories to this DR-CAFTA 
agreement. Thank you, Mr. Chairman.
    Mr. BRADY. Thank you, sir. Appreciate the testimony. We 
will soon recognize the gentleman from Louisiana as the final 
testifier in a long 8-hour hearing. At this time--that was 
quite an entrance for the Cajun Congressman; that was a good 
one--the Committee recognizes the gentleman from Louisiana, 
Cajun Charlie Melancon.

                                 

 STATEMENT OF THE HONORABLE CHARLIE MELANCON, A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF LOUISIANA

    Mr. MELANCON: You are pretty good. I will give you credit. 
You have been practicing, apparently. Thank you, Mr. Chairman 
and Members of the Committee. I appreciate the opportunity to 
be here today. Let me start by saying, and somewhat 
reiterating, maybe in a different form, former Presidential 
Candidate Perot during the campaign that he unsuccessfully ran 
for president in made a statement that has come to be reality; 
NAFTA would be that great sucking sound from south of the 
border taking our jobs away. It has occurred, and it is 
occurring. To duplicate that with the DR-CAFTA would be wrong. 
It would be wrong for the people that have businesses, the 
people that have jobs. It is going, and it is not stopping.
    If you have ever been to Guatemala in a sugar cane field, 
it is really an experience that will--I am not sure exactly how 
to explain seeing a 6-year-old boy cutting sugar cane with his 
father and has soot from head to toe and he makes several cents 
a day, but he needs to because the household income in 
Guatemala--this was 4 years ago--was $675 a year. Surely, they 
are not going to buy a Dell computer. I doubt very seriously 
they are going to call Omaha Steaks and order any. I can't 
imagine anything else that they would need from this country 
that they could afford.
    I come from a sugar background. On my father's side, I am a 
fourth generation person that has been involved in sugar; on my 
mother's side, three generations. Farmers, mill managers, 
overseers even, that have made their living in the sugar 
industry. My sisters and I owe our education and everything 
that we have that our parents were able to give us to an 
industry that has been in Louisiana for 225 years. Now people 
will talk about the benefits and do they outweigh the 
downsides. Well, during the NAFTA, the people at the Port of 
New Orleans spoke of the 45,000 new jobs that would come to 
that port; 2,200 arrived. During the DR-CAFTA, Mr. Zoellick 
talked about the 63,000 jobs that would be coming to the Port 
of New Orleans; and if it replicates what occurred during the 
NAFTA, we are going to be in sad shape. Yet in Louisiana alone, 
in the sugar industry, we have 27,000 people working. So, we 
are going to give that up on a hyper chance that we are going 
to get some more jobs? I don't think so.
    When you look at the DR-CAFTA agreement in sugar alone and 
you realize what Mr. Zoellick negotiated by himself for this 
entire country and the fact that the circumvention allowed-- 
because we, as Congressmen, who are able to represent our 
people in every way, shape and form domestically have no 
control over these negotiated agreements, other than to vote 
them up or to vote them down, that has taken away the rights of 
the people in this body to speak through their representatives 
in this body. When you look at this entire industry of sugar 
and you look at the NAFTA and you look at the bilateral 
agreements, you will find that in the NAFTA, contrary to what I 
have heard in the negotiations during DR-CAFTA or any other 
negotiated treaty, the Canadians had the option to not 
participate in the NAFTA. Explain that.
    Yet sugar, which is very important to this country, was the 
first commodity that was rationed and the last one taken off 
the ration list. It is going to be a sad day for me if I have 
to go to the sugar people in my district and tell them and 
their bankers that the 500,000 acres is going to go to scrub 
brush or back to wetlands, that those sugar mills that they 
have invested in, and kept running for 225 years, they can 
dismantle and sell for a penny on a dollar to South America. 
There is a lot more I would like to say, but my time has run 
out. Thank you, sir.
    Mr. BRADY. Thank you. We appreciate the testimony. We will 
finish our last round of questions. The Committee recognizes 
the Ranking Member from New York.
    Mr. RANGEL. Thank you, Mr. Chairman. I was just thinking as 
I heard this eloquent testimony for and against, that the DR-
CAFTA--wouldn't it be a wonderful thing if we all felt that 
Members of the House of Representatives understood the subject 
as well as you do and that they would not be forced for 
political reasons to vote yes or no or that the Chairman 
believes that this bill is ready for voting and promised the 
President that he will pass it by one or two votes. Wouldn't it 
be a wonderful thing if we understood the complexities of the 
bill, the impacts it would have on our Congressional Districts, 
to know what is in it, to know what is not in it, and to be 
able to caucus as Democrats and Republicans to see what is best 
for our Nation as a whole. Tragically, Mr. Lungren, Democrats 
were excluded from participating in what the USTR was putting 
together. I don't feel that badly about it because I don't 
think many Republicans were involved in having input in the 
bill as well. As you have seen in the papers, they go in the 
back room, they decide what they want to do, and then there is 
the package.
    I am convinced that you will not be able to find anything 
concerning labor laws in this package. They refer to it, the 
USTR and the Ambassador, saying that they have incorporated ILO 
language in it, but if they did--that is all we Democrats were 
asking for, to have an opportunity to put some basic minimum 
standards there. There is no American that believes that we 
should not be concerned about the welfare of the people in 
these countries. Communism and terrorism cannot thrive if the 
people are working, but there is no indication that anyone is 
concerned. We just had a witness that you probably heard on the 
previous panel saying we can't force people to have labor laws. 
We can't tell them what to do. Well, they--we darn sure tell 
them what to do with intellectual property, and they found some 
way to tell us what to do with our tax laws without having 
sanctions on us. So, the whole idea of forcing people to do 
anything, it is negotiation, it is working it out. As a matter 
of fact, most of the foreigners, trade ministers, they were 
anxious to have some standards in the agreement; and it was we 
who told them not to put it in.
    So, I don't know what opportunity you are going to have to 
find out what is in the bill, or whether it is going to be just 
pressure to vote up or down. It is a sad day in the Congress 
when, on international issues, we no longer vote as Americans 
but we vote party line. I hope the day will come soon, when we 
have enough respect for each other, and feel so solid about our 
positions that we are not afraid to share our views. I regret 
that you have had to stay so long in order to share your views, 
and I regret even further that you may not have much more 
opportunity to have input with what is in this package. I 
assure you that whenever we are meeting, or wherever we are 
meeting, I will see that messages get out to Republicans and 
Democrats to share your views with us. We are on this Committee 
to do just that, to listen to Members and to try to bring to 
the floor something that is good for America and good for the 
Members. So, thank you, Mr. Chairman, for giving me this 
opportunity.
    Mr. BRADY. Thank you, the gentleman from New York. At this 
time, I would like to thank the panelists for testifying. I 
would just share with you, I am a junior Member of this 
Committee, and on this trade agreement I had the opportunity 
to--was invited and able to attend each negotiating round--the 
opportunity to read the draft text, still have the opportunity 
during a mock makeup to make the points that I would like to 
make in this. I think it has been a very open process. These 
trade agreements are difficult, and I know we all have 
different views from our constituencies back home. I think 
these are--these agreements, you can get in as deep or as 
shallow as you choose. We still have an opportunity--because of 
the law we passed in TPA, we still have an opportunity before 
this comes to us to have our voices known. With that, I would 
like to thank the panel for being here today; and this hearing 
is adjourned.
    [Whereupon, at 6:23 p.m., the hearing was adjourned.]
    [Questions submitted from the Honorable Lloyd Doggett to 
Ambassador Peter F. Allgeier, and his responses follow:]

    Question: Under CAFTA-DR, can a subsidiary of a U.S. corporation 
bring an investor-state claim against the United States?
    Answer:
      One of the purposes of the denial of benefits article is 
to protect against the situation you have outlined in your first 
question. It covers the situation in which a U.S. company establishes 
an affiliate in the territory of another CAFTA-DR Party but does not 
carry out substantial business activities there--that is, it 
establishes an affiliate that is merely a ``shell''.
      The denial of benefits article allows the United States 
to deny the benefits of the FTA to that shell enterprise in the event 
that it, in turn, establishes an investment in the United States.
      Equally important, because the shell enterprise has no 
rights against the United States under the FTA, it cannot force the 
United States to defend claims under the FT A's investor-State 
arbitration provisions. By contrast, the enterprise could force the 
United States to defend claims in a U.S. court. In that respect, the FT 
A grants fewer rights to the shell enterprise than does U.S. statutory 
law.
      It is possible for a U.S. enterprise to establish an 
affiliate in the territory of another CAFTA-DR Party and for the 
affiliate to engage/in substantial business activity there. If that 
affiliate in turn establishes an investment in the United. States, the 
United States may not deny the benefits of the CAFTA-DR Agreement to 
it.

    Question: Are there clearly defined standards for determining 
whether, for the purposes of Article 10.12(2) of CAFTA-DR, a subsidiary 
of a United States corporation has ``substantial business activities'' 
in a CAFTA country?
    Answer:
      The CAFTA-DR Agreement does not define the term 
``substantial business activities,'' because the meaning of that term 
is necessarily fact-dependent. It would be difficult, if not 
impossible, to come up with a generic definition suitable for all 
business arrangements in all sectors.
      The fact-dependent nature of an inquiry into the 
existence of substantial business activity is well recognized in U.S. 
corporate and tax law.
      The fact that ``substantial business activities'' is not 
explicitly defined in our free trade agreements likely discourages 
potentially costly efforts to circumvent the intended scope of the 
benefits afforded under those agreements.

                                 

    [Submissions for the record follow:]

  Statement of Meena Khandpur, Advanced Medical Technology Association

    The members of AdvaMed join other companies in their strong 
endorsement of the U.S.-Dominican Republic-Central American Free Trade 
Agreement (CAFTA). This FTA will benefit the United States economy, the 
economies of our friends in the Dominican Republic and Central America, 
and our member companies that export and produce in this region.
    AdvaMed represents over 1300 of the world's leading medical 
technology innovators and manufacturers of medical devices, diagnostic 
products and medical information systems. Our members manufacture 
nearly 90% of the $83.4 billion in health care technology products 
purchased annually in the U.S., and nearly 50% of the $175 billion in 
medical technology products purchased globally. Exports in medical 
devices and diagnostics totaled $22.4 billion in 2003, but imports have 
increased to $22 billion--indicating a new trend towards a negative 
trade balance for the first time in over 15 years.
    The medical technology industry is fueled by intensive competition 
and the innovative energy of small companies--firms that drive very 
rapid innovation cycles among products, in many cases leading new 
product iterations every 18 months. Accordingly, our U.S. industry 
succeeds most in fair, transparent, global markets where products can 
be adopted on their merits.

Global Challenges
    Innovative medical technologies offer an important solution for 
nations that face serious health care budget constraints and the 
demands of aging populations. Advanced medical technology can not only 
save and improve patients' lives, but also lower health care costs, 
improve the efficiency of the health care delivery system, and improve 
productivity by allowing people to return to work sooner.
    To deliver this value to patients, our industry invests heavily in 
research and development (R&D), and U.S. industry is a global leader in 
medical technology R&D. The level of R&D spending in the medical device 
and diagnostics industry, as a percentage of its sales, more than 
doubled during the 1990s, increasing from 5.4% in 1990, to 8.4% in 
1995, to 12.9% in 1998. In absolute terms, R&D spending has increased 
20% on a cumulative annual basis since 1990. This level of spending is 
on par with spending by the pharmaceutical industry and more than three 
times the overall U.S. average.
    However, patients benefit little from this R&D investment when 
regulatory policies and payment systems for medical technology are 
complex, non-transparent, or overly burdensome, causing significantly 
delays in patient access. They can also serve as non-tariff barriers, 
preventing U.S. products from reaching patients in need of innovative 
health care treatments.

Utilize Regional Forums to Eliminate Taqriff and Nontariff Barriers to 
        Trade that Unnecessarily Increase the Cost of Health Care
    AdvaMed supports international trade initiatives, including 
bilateral, regional and global trade negotiations, such as the Free 
Trade Area of the Americas (FTAA) and the Doha Development Agenda in 
the World Trade Organization (WTO). We encourage Congressional and 
Administration efforts to eliminate significant tariff and nontariff 
barriers to trade for medical technology maintained by many countries, 
particularly developing countries. Such barriers represent a self-
imposed and unnecessary tax that substantially increases the cost of 
health care to their own citizens and delays the introduction of new, 
cost-effective, medically beneficial treatments. For example, the 
medical technology sector continues to face tariffs in Latin America of 
15-20% in Mercosur countries and 9-12% in Peru and Colombia.
    We strongly endorse the Administration's effort to gain 
Congressional approval for legislation implementing the CAFTA. Under 
this free trade agreement, our trading partners in the Dominican 
Republic and Central America will grant U.S. exports of medical devices 
duty-free treatment upon entry into force. This would immediately 
eliminate tariffs of around 10-15% applied to medical devices in these 
nations. Since the United States already grants imports of almost all 
products from these countries duty-free entry under the Caribbean Basin 
Initiative, we view the CAFTA as a way to level the playing field for 
U.S. exports.
     Congressional approval of CAFTA legislation would pave the way for 
progress on other international trade agreements. Under the WTO 
negotiations, AdvaMed, working with other trade associations, is 
seeking the elimination of tariffs on medical devices and other related 
health-care products. The result would be substantially expanded access 
for our products in many developing countries, where tariffs are still 
quite high. Lowering tariffs on health-care related products would 
reduce the cost of those products to patients in developing countries 
and improve their access to products that enhance, prolong, and save 
lives.
    International trade agreements, such as CAFTA, provide a vehicle 
for Administration negotiators to address other trade-related issues. 
FTAs create a council which generally allows the parties to raise a 
range of trade-related issues. AdvaMed believes the USTR, Department of 
Commerce and Congress should monitor regulatory, technology assessment 
and reimbursement policies in foreign health care systems and push for 
the creation or maintenance of transparent assessment processes and the 
opportunity for industry participation in decision making. We look to 
the Administration and Congress to actively oppose excessive 
regulation, government price controls and arbitrary, across-the-board 
reimbursement cuts imposed on foreign medical devices and diagnostics. 
The councils established by a free trade agreement could provide a 
forum to address these types of issues, which are usually not 
explicitly contained in the FTA themselves.

Conclusion
    AdvaMed appreciates the shared commitment by the President and the 
Congress to expand international trade opportunities and encourage 
global trade liberalization. We look to the President and his 
Administration to aggressively combat barriers to trade throughout the 
globe, and support the adoption of the U.S.-Dominican Republic-Central 
American Free Trade Agreement. AdvaMed is fully prepared to work with 
the President, the office of the USTR, the Department of Commerce, and 
the Congress to monitor, enforce and advance regional, multilateral, 
and bilateral trade agreements--including those with our current key 
trading partners.

                                 

  Statement of Jack R. Ouellett, American Textile Company, Duquesne, 
                              Pennsylvania
INTRODUCTION
    Mr. Chairman, members of the Committee. Thank you for the 
opportunity to talk with you today.
    My name is Jack Ouellette, President and CEO of American Textile 
Company and a member of the Board of the American Apparel & Footwear 
Association (AAFA). Our textile business is located in the heart of the 
rust belt in Pittsburgh, PA. We supply mattress covers, pillow covers 
and pillows to the most of this country's largest retailers.
    My comments will focus on two ideas:

    1.  How contracting in Central America has created jobs in the U.S.
    2.  Why CAFTA-DR is important to the future of our company and 
others like ours

BACKGROUND
    American Textile is an 80 year old, privately held business. The 
first 70 years of our history were devoted to cutting, sewing and 
packaging textile bedding products. One of our big initiatives in the 
1980's was to emphasize products that were ``Crafted With Pride in the 
USA''. Neither our customers nor consumers responded positively. Our 
prices were too high and our products were viewed as a commodity. 
Others could produce similar products more cheaply. Our market share 
began to erode. In the early 1990's we forced ourselves to look beyond 
Pittsburgh and to adapt to changes in the world economy. We embarked on 
three important initiatives that saved our business from obscurity:

    1.  We began importing vinyl mattress covers and pillow covers from 
China, the worlds low cost producer of vinyl sheeting.
    2.  We began sewing cloth covers in El Salvador to take advantage 
of labor rates that were globally competitive in a country only a 4-day 
boat trip from the U.S.
    3.  We partnered with 3M Company to utilize a high tech fabric that 
we made into unique allergen barrier bedding.

A SUCCESS STORY
    The results have been remarkable and representative of what is good 
for this country.

    1.  Today we are the largest supplier of mattress and pillow covers 
to U.S. retailers.
    2.  We are the largest U.S. importer of vinyl bedding products
    3.  Our company revenues have increased on average 11% per year 
over the last 5 years
    4.  U.S. sewing jobs have been replaced with higher paying U.S. 
jobs such as:
         a.  product development
         b.  computer programming
         c.  marketing
         d.  production planning
         e.  purchasing
         f.  sales analysis
         g.  manufacturing controls
         h.  warehouse management
    5.  Two years ago we built a new $7 million headquarters and 
distribution center just outside of Pittsburgh. And the new 
construction has a unique history.
         a.  It is built on top of an old U.S. Steel plant.The first 
        land owner on the deed was Andrew Carnegie who conveyed the 
        property to JP Morgan.
         b.  We are part of the revitalization of brown field sites in 
        Pittsburgh.
         c.  We are contributing to the economic redevelopment of an 
        area once depressed from the loss of steel making jobs.

WHY IS CAFTA IMPORTANT?
    We would prefer manufacturing in the USA because it is easier. 
However, being brutally honest with ourselves, we realize that sewing 
jobs will not come back to this country. We are part of a much larger 
global economy, one in which the government becomes our partner in 
making trade agreements. We are obviously not opposed to trading with 
China. But we do have a strong desire to keep as much trade in this 
hemisphere. CAFTA helps us accomplish that goal in several ways:

    1.  Duties ranging from 7% to 12 % will be eliminated
    2.  Our prices will be more competitive with those from Asia
    3.  We will keep our speed to market advantage vs. Asia
    4.  Our investments in this hemisphere will be maintained.

WHAT DOES CAFTA MEAN FOR THE TEXTILE AND APPAREL INDUSTRY IN GENERAL?
    U.S. textile companies are already dependent upon CAFTA countries. 
In 2004, 25% of all U.S. fabric exports and 40% of all U.S. yarn 
exports went to CAFTA countries. Between 1999 and 2004, U.S. yarns and 
fabric exports to the region grew by $2 billion--accounting for nearly 
all of the $2.4 billion U.S. yarn and fabric export growth to all 
markets.
    CAFTA creates fresh incentives to use U.S. yarn and U.S. fabric 
because the existing program will be made:

    1.  Permanent.
    2.  Reciprocal
    3.  Broader (to cover products such as the ones we make)
    4.  More flexible
    5.  Simpler.

WHAT WILL WE DO IF CAFTA PASSES?
    1.  We will buy more U.S. fabric made with U.S. yarns because the 
agreement incentivizes us to do so.
         a.  This creates jobs for our textile suppliers in Alabama and 
        North Carolina, and elsewhere.
    2.  Our business will grow in the U.S. and in Central America
         a.  This preserves and grows job opportunities in both areas.
    3.  We will reinvest duty savings into our latest initiative: 
making bed pillows in the U.S. Here is how that will work:
         a.  Pillows are too expensive to import from Asia.
         b.  We have already invested $500,000 in pillow making 
        equipment.
         c.  Pillow shells will be made in El Salvador generally from 
        fabrics made from U.S. yarns.
         d.  Pillows will be made in, and shipped from, Pittsburgh
         e.  Pillow sewing, filling, packaging and machine maintenance 
        jobs will be created in the U.S.

WHAT WILL HAPPEN IF CAFTA DOES NOT PASS?
    1.  We will gradually move away from Central America and source 
from Asia and other low cost countries.
    2.  We will source fabric regardless of fabric and yarn origin.
    3.  Our infrastructure (investments) in Central America will begin 
to shrink. We purchase the following type goods and services in the 
United States and Central America today:
         a.  Fabric woven in North Carolina and Alabama.
         b.  Fabric woven in Guatemala from cotton, poly cotton and 
        100% polyester
         c.  Zippers
         d.  Thread
         e.  Packaging supplies
         f.  Cutting, sewing and packaging services
         g.  But please note, these jobs will not come back to the 
        U.S., they will go to other parts of the world

CONCLUSION
    On behalf of American Textile and other companies like ours, I ask 
for your support of CAFTA for the following reasons:

    1.  It will preserve and create jobs in the U.S.
    2.  Jobs will remain in this hemisphere. Strong free trade in this 
hemisphere creates security and social benefits of interest to the U.S.
    3.  In the process we will be improving the lives of thousands of 
people in Central America. We travel there often and have seen the 
difference we have made.

                                 

Statement of the Honorable Sherrod Brown, a Representative in Congress 
                         from the State of Ohio

    Members who vote for CAFTA must accept responsibility for its 
impact on HIV/AIDS patients in CAFTA nations.
    Many of these people are chronically ill now, but will be 
terminally ill if CAFTA is ratified. That's because CAFTA will 
dramatically reduce access to generic AIDS drugs.
    Costa Rica alone faces AIDS drug costs so steep that available 
funds will provide medicine for only 18% of the patients who are being 
treated today.
    Most people in CAFTA nations can't afford to pay brand-name drug 
prices for one day, much less for more than 20 years. Most CAFTA 
nations are struggling to fight AIDS, TB, and Malaria with resources 
stretched whisper thin.
    But CAFTA responds by denying these struggling neighbors the 
benefits of competition in the prescription drug market.
    Let me quickly run through the specific drug industry concessions.
    Much like U.S. law, CAFTA provides for two forms of patent 
extension. The first one permits extensions based on delays in the 
patent examination process. The second one permits extensions based on 
delays in the drug approval process.
    However, while U.S. law places limits on these extensions, CAFTA 
does not.
    In the U.S., the extension only applies to the active ingredient of 
a new drug and only permits the extension of the term of a single 
patent, not multiple patents. In contrast, CAFTA allows extensions for 
any and all patents covering a drug, without any time limits.
    Here's the second concession: Because both brand-name drugs and 
their generic alternatives can be assessed using the same safety and 
efficacy data, U.S. law permits generic manufacturers to draw from the 
brand company's data when they seek approval for a generic alternative.
    However, to reward brand companies for compiling the data, U.S. law 
grants these companies a five-year window in which generic drug 
manufacturers cannot use the data to gain marketing approval.
    CAFTA provides brand companies with ``at least five years'' of data 
exclusivity, opening the door to longer delays in access to affordable 
medicines.
    Here's the third concession: Under NAFTA, when a drugmaker first 
gains approval for a new drug, the clock starts on a five-year period 
in which the drugmaker has exclusive rights to market that product.
    The same five years applies regardless of when other countries 
approve the drug. If, for example, Mexico approves a drug two years 
after the U.S. does, then the drugmaker would receive three years of 
exclusivity in Mexico.
    Under CAFTA, drugmakers receive five years of exclusivity in each 
country that approves a drug. In other words, under NAFTA, the five 
years of exclusivity starts for all trading partners when a drug is 
approved in any country, whereas under CAFTA it restarts in each 
country with approval in that country.
    Finally, under U.S. law, a brand-name drug company can delay FDA 
approval of a generic alternative by asserting that one of its patents 
would be infringed if the generic is marketed.
    Under CAFTA, a generic drug cannot be approved unless that 
country's FDA can prove that no patent is being infringed. How's that 
for bureaucracy?
    You've got to hand it to the big drug companies. They did an end-
run around U.S. laws and positioned themselves to rake in billions in 
windfall profits, and they used an unrelated trade agreement to do it.
    But CAFTA proponents will also need to take responsibility for the 
agreement's impact on U.S. citizens, because CAFTA will not only 
inflate drug costs in Latin America--it will inflate U.S. drug prices, 
too.
    Once the U.S. endorses additional drug industry favors in other 
countries, it's only a matter of time before we are forced to adopt 
those rules here. After all, how could we argue that pharmaceutical 
industry protections should be weaker here than in trading partner 
countries?
    Competition from generic drugs saves U.S. consumers, businesses and 
governments more than $10 billion each year.
    The greater the delay in generic competition, the more that 
employer-sponsored health plans, the federal government, and American 
consumers will pay.
    Prescription drug costs are already unsustainable. Blocking 
competition in the drug market can only make them worse.
    Let me conclude with a quick note on side agreements. As Acting 
USTR Allgeier noted earlier today, there is a side agreement on the 
signatories' right to fight AIDS, TB and Malaria epidemics.
    But side agreements have no legal effect. And this particular side 
agreement is frankly ludicrous.
    Its premise is that these nations will somehow be able to 
effectively respond to public health crises when CAFTA itself robs them 
of the most effective tools to respond.
    For the side agreement to have any meaning, it would have to void 
CAFTA's pharmaceutical intellectual property protections. It doesn't do 
that. The side agreement isn't fooling anybody.
    The drug industry concessions in CAFTA are indefensible.
    They are also meaningless, because CAFTA is still just a piece of 
paper.
    If enough members of Congress vote in the best interests of their 
constituents, or simply vote their conscience, that's all CAFTA ever 
will ever be.

                                 

       Statement of Robert Holleyman, Business Software Alliance

    Chairman Thomas, Congressman Rangel, and Members of the Committee, 
the Business Software Alliance (BSA) appreciates the opportunity to 
express the strong support of its members for Congressional 
implementation of the U.S.-Central America Free Trade Agreement 
(CAFTA).
    BSA represents the world's leading developers of software, hardware 
and e-commerce technologies. As one of the leading contributors to the 
U.S. balance of trade, U.S. information technology (IT) and software 
makers have contributed a trade surplus of $24.3 billion in 2002. As a 
leading engine of global economic growth, the industry contributed a 
trillion dollars to the global economy in 2002. In the U.S. alone, the 
IT industry contributed $405 billion to the U.S. economy, creating 2.6 
million jobs and generating $342 billion in tax revenues in 2002.
    Exports account for over 50 percent of revenues for most of the 
leading commercial software makers in the U.S., including the majority 
of BSA members. If we are to continue the positive contributions of 
this industry to the U.S. economy, it is critical that free trade 
agreements (FTAs) establish the highest standards of intellectual 
property protection. It is also critical that FTAs provide an open 
trading environment that promotes barrier free e-commerce and growth of 
the information technology services sector, and require open, 
transparent, and merit-based government procurement.
    The CAFTA accomplishes these goals, which is why BSA and its member 
companies strongly and unequivocally support the agreement. The CAFTA 
significantly advances the establishment of strong intellectual 
property protection and barrier free e-commerce in the region and we 
commend the Administration and Congress for these achievements.
    The six trading partners covered by the CAFTA constitute the second 
largest export market in Latin America (behind Mexico), and the sixth 
largest growth market for exports of American goods and services in the 
world. The CAFTA will deliver tangible benefits to industries, like 
ours, that depend on export income. More importantly, the CAFTA fosters 
respect for the rule of law, a commitment to open markets, and 
protection of intellectual property in a region that just a short time 
ago was plagued by civil unrest. Today, the region is home to vibrant 
democracies, growing economies and an expanding middle class. We have 
the highest praise for Congress' leadership in making the negotiation 
of this agreement possible through the approval of Trade Promotion 
Authority, and for former USTR Robert Zoellick and his team for 
bringing the negotiation of this agreement to so successful a 
conclusion.

High Standards for Intellectual Property (IP) Protection
    For the software industry, strong IP protection is essential in 
fostering continued innovation and investment. Copyright infringements 
and software piracy cost the industry more than $28 billion in lost 
revenues last year. To promote strong IP protection in a digital world, 
it is essential that our trading partners establish the level of 
copyright protection that complies with WTO Trade Related Intellectual 
Property Rights Agreement (TRIPS) and the WIPO Copyright Treaty (WCT). 
It is also essential that our trading partners fully enforce these 
obligations.
    The CAFTA, like that Australia and Singapore FTAs before it, sets 
out one of the highest standards of intellectual property (IP) 
protection and enforcement for copyrights yet achieved in a bilateral 
or multilateral agreement. The agreement addresses the critical need 
for strong IP protections in a digital trade environment by 
incorporating the obligations set out in the WCT.
    Some of the highlights of the IP provisions include:

      Protection for temporary reproductions. This treatment is 
critical in a networked world where copyrighted materials can be fully 
exploited without a user ever making a permanent copy.
      Balanced ISP liability provisions. As in the U.S. Digital 
Millennium Copyright Act, copyright owners retain their rights in an 
online environment, while Internet service providers enjoy limits on 
liability for infringement outside of their control.
      Protection of technological measures. Where technological 
measures are used to prevent copyright infringement, those who 
circumvent these measures will be liable for damages and penalties.
      Detailed enforcement provisions. The agreement details 
civil and criminal procedures and remedies designed to create a strong 
deterrence against piracy, including statutory damages to deter further 
infringement and civil ex-parte measures to preserve evidence of 
infringement. Critically, the agreement also provides strong criminal 
penalties against the most pervasive form of software piracy--corporate 
and enterprise end user piracy.
      Government legalization of software. The agreement 
requires that governments lead by example by using only legitimate and 
licensed software.

Barrier-Free E-Commerce
    With Internet usage worldwide topping 900 million people in 2004, 
e-commerce represents an important and growing part of global trade. 
The promotion of barrier-free cross-border e-commerce is a critical 
element in expanding access to global markets. The trade treatment of 
software delivered electronically is one of the most important issues 
facing the software industry. It is essential that software delivered 
electronically receive the same benefits and concessions as software 
traded on a physical medium.
    We are quickly moving to a world where online transmission is a 
predominant means by which software is delivered to customers. 
According to our CEOs, by the end of this year 66 percent of all 
software is expected to be distributed online. By eliminating the need 
to ship physical media, this will allow software providers to deliver 
the newest, most up-to-date software to consumers in all corners of the 
globe, more quickly and at lower cost than was ever conceived possible.
    The e-commerce chapter in the CAFTA recognizes a category of 
``digital products'' (which includes computer programs), and applies 
familiar trade concepts to this new category. This is critical as it 
recognizes the evolution and development of digital products during the 
last twenty years, and addresses the need for predictability in the 
trade treatment of digital products.
    Among the specific provisions of the CAFTA e-commerce chapter are 
duty-free importation and exportation of digital products by means of 
cross-border transmissions, and broad national treatment for like 
digital products. These provisions promote nondiscriminatory and 
barrier free e-commerce that is so essential in promoting the growth 
and development of the IT industry.
    With respect to the physical delivery of digital products customs 
duties are to be applied on the basis of the value of the carrier 
medium. This provision is essential as valuation on content results in 
highly subjective assessments of projected revenues.
    The parties also agreed to cooperate in numerous policy areas 
related to e-commerce, further advancing the work on e-commerce with 
our trading partners.

Liberalized Trade in Information Technology (IT) Services
    During the past decade, a vast array of new e-commerce and 
information technology services have been developed including data 
storage and management, web hosting, and software implementation 
services. Given the increasing trend for technology users to purchase 
information technology solutions as a combination of goods and 
services, full liberalization in this area is more important now then 
ever.
    It is thus critical that our trading partners provide full market 
access and national treatment in information technology services 
including those that are delivered electronically. It is also important 
that no barriers are created for the new and evolving information 
technology services.
    All parties to the CAFTA agreed to provide full market access and 
national treatment on services. The agreement adopted a negative list 
approach, which means that new services will be covered by these 
obligations unless specific reservations were listed in an annex to the 
agreement. We commend this approach, and we are pleased to note that 
none of the six trading partners covered by the CAFTA have scheduled 
any commercially significant reservations affecting information 
technology services.

Opening of Government Procurement Markets
    Around the world, governments are among the largest consumers of IT 
products and services. Opening government procurement markets to 
foreign trade, and ensuring that government procurement is conducted 
fairly and openly, is a priority for our industry.
    The CAFTA chapter on government procurement applies national 
treatment rules to substantial numbers of government purchases both at 
the central and sub-central government level. It includes obligations 
to apply fair and transparent procedures in the procurement process. In 
addition, it requires that purchases be merit-based and technology-
neutral. These elements are essential to IT industry access to 
important government procurement markets.
    In conclusion, the CAFTA promotes strong intellectual property 
rights protection, barrier free e-commerce, full liberalization of 
trade in information technology services with and among our trading 
partners in the region, and fair and open government procurement. We 
commend these achievements, and we urge Congress to approve and 
implement the agreement.

                                 

    Statement of Harley Shaiken, Center for Latin American Studies, 
                          Berkeley, California

    Economic integration offers the possibility to expand trade, spur 
development, and strengthen democracy in the Dominican Republic and 
Central America. For the peoples of the region the stakes could not be 
higher. These countries have been trapped between anemic economic 
growth and corrosive inequality. The result has been a quagmire of 
poverty, social dislocation, and shattered dreams for millions. If 
these countries can break out of this trap, not only do their citizens 
look towards a better future, but the people of the United States 
benefit as well. At the very least, more prosperous economies translate 
into a higher demand for U.S.-produced goods and a healthier trading 
relationship.
    The standard by which to judge this agreement is straightforward: 
does the Dominican Republic--Central America Free Trade Agreement (DR-
CAFTA) promote development and democracy, or does it create a small 
circle of wealthy winners and a far larger group of impoverished 
losers? Expanded trade has the potential to propel the former, but this 
agreement delivers the later. The result threatens rather than benefits 
U.S. workers. It's not that the train is moving too slowly, it's that 
DR-CAFTA is running in the wrong direction.
    Plaguing the agreement is an unfortunate, unnecessary tradeoff: DR-
CAFTA opens trade while locking in the labor status quo or worse. For 
citizens of Central America and the Dominican Republic, the tradeoff 
represents a squandered opportunity; for U.S. workers and their 
communities, it means an assault on wages and working conditions; for 
firms it may mean easier access to markets tomorrow but diminished 
markets in the coming years. This is not an inherent problem of more 
open trade but rather the result of a poorly conceived managed trade 
agreement. DR-CAFTA provides strong language and tough penalties in all 
areas related to investment at times riding roughshod over the six 
countries but abandons labor rights largely to rhetoric and good 
intentions.
    In other areas tough provisions favor special interests at the 
expense of the Central American countries and the Dominican Republic. 
Consider agriculture. The rural population ranges from 34 percent in 
the Dominican Republic to 60 percent in Guatemala.\1\ How are small 
farmers supposed to compete with heavily subsidized U.S. exports? Due 
to subsidies for rice production, the U.S. exported paddy rice to 
Central America at a price that was 18-20 percent lower than its cost 
of production.\2\ In pharmaceuticals, Professor Angelina Godoy has 
found that ``the intellectual-property provisions in CAFTA actually 
extend the length of time during which the major pharmaceutical 
companies' products are guaranteed sole access to markets'' which, in 
her view as well as that of many other observers such as Amnesty 
International, ``just may be a death sentence for many in the Dominican 
Republic and Central America.'' \3\ Many Latin Americans are likely to 
view provisions such as these as indicating that the U.S. is more 
serious about strong-arming weaker neighbors than sustainable economic 
integration.
---------------------------------------------------------------------------
    \1\ Ferranti, D., G. Perry, W. Foster, D. Lederman, A. Valdez, 
``Beyond the City: The Rural Contribution to Development,'' (Washinton 
D.C.:World Bank, 2005).
    \2\ Oxfam International, ``A raw deal for rice under DR-CAFTA,'' 
November 2003, (5), http://www.oxfam.org.uk/what_we_do/issues/trade/
downloads/bp68_rice.pdf
    \3\ Angelina Godoy, ``What makes free trade free?'' Seattle Times, 
April 14, 2005, http://seattletimes.nwsource.com/html/opinion/
2002240604_nocafta14.html; and Amnesty International, ``Guatemala, 
Memorandum to the Government of Guatemala: Amnesty International's 
concerns regarding the current human rights situation,'' (Washington, 
D.C.: Amnesty International, April 20, 2005), http://web.amnesty.org/
library/Index/ENGAMR340142005
---------------------------------------------------------------------------
    Let's be clear from the start. This is not a debate about ``free 
trade'' versus ``protectionism.'' Instead, the challenge is defining 
free trade for the twenty-first century. The right trade agreement 
could both encourage growth and move towards a more broadly shared 
prosperity, defining what one might call ``smart trade.'' To do this, 
comparative advantage must be defined by innovation rather than 
repression. Labor standards are vital for protecting workers, but they 
also can help expand purchasing power, build healthier markets, and lay 
the basis for more robust trade.
    Why are labor rights so important? In Central America and the 
Dominican Republic working conditions range from bad to appalling. 
Workers face everything from rampant discrimination against older 
people and pregnant women to physical abuse, lack of bathroom breaks, 
and no overtime pay. ``It makes me angry when they say we have good 
laws for workers' rights,'' said Marina del Carmen Leiva, a 32-year-old 
seamstress and mother. ``In four years I won't have a job because 
factories don't want us after we turn 35 years of age and then what 
will I do?'' In the meantime, the pressure on the job is so intense, 
she reports, that to avoid slowing production she and her co-workers 
are denied even a drink of water.\4\ The employer lays down the law and 
impunity rules. Wages are determined by economic power not 
productivity, leaving many workers and their families anchored to the 
bottom. What options do workers have to break this cycle? One of the 
few is the ability to join a union and bargain collectively.
---------------------------------------------------------------------------
    \4\ Elizabeth Becker, ``Amid a Trade Deal, A Debate Over Labor,'' 
New York Times, April 6, 2004.
---------------------------------------------------------------------------
    What then is wrong with the labor provisions in DR-CAFTA? They send 
a clear message to the governments involved: the current situation on 
labor rights is acceptable and even fewer rights for workers will do. 
The agreement lays out lofty labor rights goals and then backs them up 
with weak, convoluted language and meager resources. Moreover, these 
inadequate provisions replace language that has had a modest positive 
impact. Consequently, firms willing to travel the low road will define 
competitiveness, cutting off those who want to do the right thing.
    The economic dimensions of this trade agreement are not large by 
U.S. standards. The combined economic output of the six DR-CAFTA 
countries is roughly equal to that of metropolitan San Jose, CA and 
these countries only accounted for about 1.5 percent of U.S. trade in 
2003. Why then is this debate so important?
    First, the region has geopolitical importance to the United States 
and the rest of the world. As we saw in the 1980's, extreme wealth 
combined with raw poverty is a volatile mixture.\5\ Historically it has 
translated into a few exercising a monopoly over political power and 
cycles of social upheaval followed by violent repression. Strengthening 
worker rights builds civil society and supports democratic governance, 
reinforcing long-term stability.
---------------------------------------------------------------------------
    \5\ Perry, G., F. Ferreira, and M. Walton, ``Different Lives, 
Inequality in Latin America and the Caribbean,'' in Inequality in Latin 
America: Breaking with History, 51 (Washington D.C.: World Bank, 2004),
---------------------------------------------------------------------------
    Second, the shortcomings of this trade agreement could spur far 
more undocumented immigration. A lack of opportunity at home leaves few 
options for increasing numbers of people. Today, an estimated 11 
million undocumented immigrants reside in the United States, nearly 81 
percent of them from Latin America.\6\ Some estimates place the number 
from Central America at 1.5 million.\7\
---------------------------------------------------------------------------
    \6\ Jeffery Passel, ``Estimates of the Size and Characteristics of 
the Undocumented Population,'' (Washington D.C.: Pew Hispanic Center, 
March 21, 2005), http://pewhispanic.org/files/reports/44.pdf
    \7\ Karen Brooks, ``Migrant Plan Vital to Central America,'' Star 
Telegram Border Bureau, January 19, 2004.
---------------------------------------------------------------------------
    Third, healthier economies and improved conditions for Central 
American workers are in the immediate interest of U.S. workers. A free 
trade agreement puts workers in Tegucigalpa, Honduras, and in 
Charlotte, North Carolina in the same labor market. If textile workers 
in Tegucigalpa suffer today, textile workers in Charlotte will feel it 
tomorrow and so will others in the area. The challenge is to harmonize 
upwards rather than downwards and this requires strong language and 
enforcement in a trade agreement.
    Finally, DR-CAFTA represents an important precedent in shaping 
future trade agreements. What happens here is the prelude to the Free 
Trade Agreement of the Americas and will prove influential in 
determining the ways in which countries integrate into the global 
economy. This agreement rewards narrow financial interests in the short 
term and sacrifices broader purchasing power in the long term.
    In this testimony, I plan to explore five themes: contemporary 
labor issues, labor laws and their enforcement, the promotion of 
reform, the global context, and finally ``smart trade.''

Contemporary labor issues
    For millions throughout Central America and the Dominican Republic, 
the issue of labor rights is not an abstraction, but an urgent need. 
Consider the larger political context of this agreement. Strong, 
unyielding oligarchies have defined most of these economies for 
centuries. Several of these countries remain in the shadow of vicious 
civil wars in which state-sponsored violence and impunity ruled 
supreme. The rule of law remains tenuous and civil society subject to 
threat. In its most recent report on Guatemala, the largest economy in 
the region, Amnesty International stated that ``it remains concerned at 
the apparent lack of political will of the present government to take 
concrete and effective action to eliminate impunity and to ensure the 
rule of law prevails in Guatemala.'' \8\ The report found that 
``clandestine and illegal armed groups still operate with impunity in 
Guatemala'' and that these groups are linked not just to organized 
crime, but to the police, army, and state institutions.\9\
---------------------------------------------------------------------------
    \8\ Amnesty International, ``Guatemala, Memorandum to the 
Government of Guatemala: 
Amnesty International's concerns regarding the current human rights 
situation,'' (Washington, 
D.C.: Amnesty International, April 20, 2005), http: / / web.amnesty.org 
/ library / Index / ENGAMR340142005
    \9\ Ibid, 9.
---------------------------------------------------------------------------
    Although labor laws differ among these six countries, there is 
little serious debate among scholars as to the situation on the ground. 
The issue is not simply selective abuses but a systematic denial of the 
right to freely join a union or the right to bargain collectively. 
Numerous reports from the ILO, Human Rights Watch, the United Nations, 
and the United States Department of State confirm the seriousness of 
the problems.\10\
---------------------------------------------------------------------------
    \10\ See: U.S. State Department Bureau of Democracy, Human Rights, 
and Labor, ``Country Reports on Human Rights Practices 2004,'' for 
Costa Rica, Dominican Republic, El Salvador, Guatemala and Nicaragua, 
February 29, 2005, http://www.state.gov/g/drl/rls/hrrpt/2004/
c14138.htm; Human Rights Watch, ``Deliberate Indifference: El 
Salvador's Failure to Protect Workers' Rights,'' vol. 15, no. 5, 
December 2003, http://www.hrw.org/reports/2003/elsalvador1203/; Human 
Rights Watch, ``CAFTA's Weak Labor Rights Protections: Why the Present 
Accord Should be Opposed,'' March 2004, http://hrw.org/english/docs/
2004/03/09/cafta90days.pdf; ILO, ``Fundamental Principals and Rights at 
Work: A Labour Law Study,'' (Geneva, International Labour Office, 
2003), http://www.ilo.org/public/english/dialogue/download/cafta.pdf
---------------------------------------------------------------------------
    Why is it so important that workers have the right to join or 
reject a union without coercion? First, collective bargaining can 
address abuses on the job and link wages to productivity. Former 
Secretary of State George Schultz, who early in his career was a labor-
management arbitrator, maintained that in ``a healthy workplace, it is 
very important that there be some system of checks and balances.''
    Second, independent unions strengthen civil society, particularly 
important in a climate of impunity. George Schultz could not have been 
clearer when he said ``unions and democracy go together.'' \11\
---------------------------------------------------------------------------
    \11\ Leonard Silk, ``Worrying Over Weakened Unions,'' New York 
Times, December 13, 1991.
---------------------------------------------------------------------------
    When it comes to making the choice on whether or not to join a 
union, however, workers currently risk dismissal, blacklist, violence, 
and even death. The results are readily apparent in the low union 
density. In Guatemala less than 3 percent of the workforce belongs to a 
union.\12\ In El Salvador, no independent trade unions have been formed 
in the last four years.
---------------------------------------------------------------------------
    \12\ U.S. State Department, Bureau of Democracy, Human Rights, and 
Labor, ``Guatemala Country Report on Human Rights Practices 2004,'' 
February 29, 2005, http://www.state.gov/g/drl/rls/hrrpt/2004/41762.htm
---------------------------------------------------------------------------
    The low trade union density is only the tip of the iceberg. The 
unions that do exist tend to be fragmented, weak, and isolated. 
Effective collective bargaining has become a rarity rather than the 
norm. Table 1 provides data on the percentage of workers covered by 
collective bargaining agreements in four of the six DR-CAFTA countries 
for which data is available. The coverage ranges from 1.4 percent in 
Nicaragua to 4.3 percent in El Salvador, not exactly a critical mass 
for effective collective bargaining.

               Table 1. Collective agreement coverage rate
------------------------------------------------------------------------
              Country                    Year                Rate
------------------------------------------------------------------------
                                                              (%)
------------------------------------------------------------------------
          Costa Rica*                    2001                 2.4
------------------------------------------------------------------------
          El Salvador                    2003                 4.3
------------------------------------------------------------------------
             Honduras                    2003                 1.4
------------------------------------------------------------------------
            Nicaragua                    2003                 1.5
------------------------------------------------------------------------
* Most recent data available
Source: International Labour Organization Decent Work Indicators
  Database http://www.oit.or.cr/estad/td/indexe.php

Labor laws and their enforcement
    A trade agreement should stimulate positive change, not ratify the 
status quo or worse. What type of labor standards might be rigorous 
enough to improve the conditions of work yet flexible enough to 
recognize different levels of development? One model is the five core 
labor standards developed by the International Labor Organization 
(ILO).\13\ Particularly critical are the first two: the right of 
association (Convention 87) and the right to organize and bargain 
collectively (Convention 98). The recognition and enforcement of these 
rights allows workers some say in their economic futures; their 
violation further marginalizes workers.
---------------------------------------------------------------------------
    \13\ International Labor Organization, ``Fundamental ILO 
Conventions,'' http://www.ilo.org/public/english/standards/norm/
whatare/fundam/index.htm
---------------------------------------------------------------------------
    Although DR-CAFTA pays rhetorical homage to these standards, the 
approach it uses throws them overboard. The agreement calls for each 
country to enforce its existing labor codes, no matter how inadequate 
or distant from the ILO standards. The agreement recognizes ``the right 
of each Party to establish its own domestic labor standards, and to 
adopt or modify accordingly its labor laws.'' It then goes on to state 
that ``each Party shall strive to ensure that its laws provide for 
labor standards consistent with the internationally recognized labor 
rights . . . and shall strive to improve those standards in that 
light.''\14\ ``Strive to ensure'' and ``strive to improve''? This is 
the kind of language many would like to see on April 15 when they have 
to pay their taxes since it is virtually unenforceable. A standard 
based on effort is hardly a serious standard.
---------------------------------------------------------------------------
    \14\ United States Trade Representative, ``The Dominican Republic-
Central America Free Trade Agreement,'' August, 5, 2004, http://
www.ustr.gov/Trade_Agreements/Bilateral/DR-CAFTA/DR-CAFTA_Final_Texts/
Section_Index.html
---------------------------------------------------------------------------
    Instead of ``striving to ensure'' international standards are met, 
the agreement could commit to upholding them and provide clear 
penalties if they are not upheld.
    The domestic laws often read as if they are designed to thwart the 
formation of unions, and slipshod enforcement hardly improves the 
situation. Companies wanting to avoid unions can do just about 
anything; workers seeking to join unions face threats and intimidation. 
Protection against anti-union bias is akin to snow in San Francisco; it 
happens but not frequently. ``In practice, labor laws on the books in 
Central America are not sufficient to deter employers from 
violations,'' an International Labor Rights Fund (ILRF) study 
found.\15\ Byzantine regulations tend to tie unions into knots, laying 
out registration procedures that are more maze than procedure. In 
Honduras, the ILRF found ``obstacles and delays in union registration 
constitute a violation of ILO Convention 87 on the right to 
associate''.\16\ Laws encourage employer interference in union affairs, 
restrictions prohibit anything above an enterprise union, rights for 
temporary workers are truncated, and public workers often are 
prohibited from organizing. Finally, there are severe limits on the 
right to strike. Weak as labor rights are, the track record hardly 
inspires confidence that they won't be ratcheted downwards in response 
to globalization.
---------------------------------------------------------------------------
    \15\ International Labor Rights Fund, ``An Examination of Six Basic 
Labor Rights--Executive Summary of Reports on Honduras, Costa Rica, 
Nicaragua, El Salvador and Guatemala,'' based on a study by Asociacion 
Servicios de Promocion Laboral (ASEPROLA), April 5, 2005, http://
www.laborrights.org/
    \16\ Ibid.
---------------------------------------------------------------------------
    Consider El Salvador. The government-appointed Human Rights 
Ombudsman told the Washington Post in late 2004 that both industry and 
the government have ``an explicit intent to destroy unions.'' \17\ A 
recent Human Rights Watch report concluded that the country's laws ``do 
not adequately protect workers against anti-union suspensions or 
dismissals, thereby undermining the right to freedom of association and 
to form and join trade unions.'' \18\ The report documents that 
``employers routinely fire union affiliates and pay the small fine for 
ridding their facilities of trade unionists,'' a practice that is 
widespread in the other countries as well.\19\
---------------------------------------------------------------------------
    \17\ Kevin Sullivan, ``Slaying of U.S. Labor Organizer Opens Old 
Wounds in El Salvador,'' Washington Post, December 2, 2004.
    \18\ Human Rights Watch, ``Deliberate Indifference: El Salvador's 
Failure to Protect Workers' Rights,'' vol. 15, no. 5 (2), December 
2003, http://www.hrw.org/reports/2003/elsalvador1203/
    \19\ Ibid, 11.
---------------------------------------------------------------------------
    Enforcement is squeezed by impunity and corruption; ineptitude and 
fear. In Guatemala, the U.S. State Department concluded in its 2005 
human rights report that ``Workers had little confidence that the 
responsible executive and judicial institutions would effectively 
protect or defend their rights if violated.'' The report stated that 
``the weakness of labor inspectors, the failures of the judicial 
system, poverty, the legacy of violent repression of labor activists 
during the internal conflict, the climate of impunity, and the long-
standing hostility between the business establishment and independent 
and self-governing labor associations all constrained the exercise of 
worker rights.'' \20\ The document also pointed out that ``the 
prevailing business culture ignores labor contracts because, in 
practice, they are largely unenforceable due to the weak, cumbersome 
and corrupt legal system . . . [the system] perpetuates the violence 
that workers face if they attempt to exercise their rights.'' In Costa 
Rica, the International Federation of Free Trade Unions found 
diminished collective bargaining stemming from a lack of protection for 
union organizing.\21\ The labor courts provide little remedy.
---------------------------------------------------------------------------
    \20\ U.S. State Department, Bureau of Democracy, Human Rights, and 
Labor, ``Guatemala Country Report on Human Rights Practices 2004,'' 
February 29, 2005, http://www.state.gov/g/drl/rls/hrrpt/2004/41762.htm
    \21\ International Federation of Free Trade Unions, ``Annual Survey 
of Violations of Trade Union Rights 2003,'' (Brussels: IFCTU, 2003), 
89.
---------------------------------------------------------------------------
The promotion of reform
    There is little dispute that labor conditions are bad today; the 
real question is will DR-CAFTA make them better? In fact, it will make 
them worse. What makes the DR-CAFTA approach particularly problematic 
is that it replaces the modest existing protections for labor rights 
embedded in two unilateral trade preference programs: the Generalized 
System of Preferences (GSP) and the Caribbean Basin Initiative (CBI). 
Much of the halting, modest reform that has taken place in the region 
over the last 15 years stems from the pressure brought through these 
programs. For example, El Salvador was put on GSP review for abusing 
worker rights in 1992 and labor law reform followed within two 
years.\22\ More broadly, Kimberly Ann Elliott found that ``the U.S. 
experience in applying worker rights conditionality to trade benefits 
under the GSP suggests that external pressure can be helpful in 
improving treatment of workers in developing countries and that linkage 
of trade and worker rights need not devolve into simple 
protectionism.''\23\ Without external pressure, it is very naive to 
expect any substantive change. Rather than learn from this experience, 
DR-CAFTA ignores it.
---------------------------------------------------------------------------
    \22\ AFL-CIO, ``The Real Record on Workers' Rights in Central 
America,''(Washington D.C.:AFL-CIO, April 2005), http://www.aflcio.org/
issuespolitics/globaleconomy/upload/CAFTABook.pdf
    \23\ Kimberly Ann Elliot, ``Preferences for Workers? Worker Rights 
and the U.S. Generalized System of Preferences,'' speech given at the 
conference on ``Globalization and Inequality,'' Calvin College, Grand 
Rapids, Michigan, May 28-30, (9).
---------------------------------------------------------------------------
    What impetus is supposed to change destructive practices this 
deeply rooted? The core problem is one of political will, not lack of 
technical resources. The most powerful incentive for change is 
conditioning U.S. ratification on domestic labor law reform. 
Unfortunately, that horse has already left the barn. Some proponents 
argue expanded trade will result in more democratic rights. Burgeoning 
trade does not seem to have done much in Mexico--especially in the 
export sector--in the first decade of NAFTA. Cross border trade between 
the U.S. and Mexico has tripled yet the number of independent unions 
remains in single digits. This approach certainly was not the path that 
the U.S. itself followed 70 years ago. Instead, the U.S. passed 
legislation such as the Wagner Act and the Fair Labor Standards Act in 
the midst of the Great Depression, hardly the most opportune moment, as 
a foundation for future progress. The rights workers won in the 1930s 
and 1940s propelled economic growth for decades to come and laid the 
basis for the middle class today.
    Realistically, powerful elites retain a strong hold on the DR-CAFTA 
economies. If expanded trade simply translates to expanded income for 
these elites, a small number of wealthy families may become wealthier 
and happier, but little will be passed along to the majority of the 
people of these countries. The growth of the middle class will be 
thwarted and, ironically, the potential market for U.S. goods dampened. 
By the same token, the pressure will correspondingly increases on the 
wages and working conditions for U.S. workers. The goal should be to 
harmonize standards upwards not the other way around.

Global context
    Trade among the DR-CAFTA countries takes place in a tough global 
context. Are strong labor standards possible in a world in which China 
is emerging as a defining manufacturing power? Put differently, how can 
the countries of this region compete with China if they emphasize 
worker rights? This question itself highlights a central choice in the 
global economy: the high road versus the low road to competitiveness. 
For these six countries the high road would involve competing based on 
innovation, response time, efficiency, and geographical proximity to 
the U.S. Competitive success could translate into both higher profits 
and higher wages.
    ``Low cost labor,'' a Congressional Research Service (CRS) report 
maintained, ``is not the only or even the most important factor driving 
competitiveness. Studies suggest that the economic and social networks 
that developed between U.S. and Central American firms effectively 
created a comparative advantage for the region in apparel exporting 
that has held up even with the entry of China in the market.'' \24\ 
What is this comparative advantage based on? ``This relationship was 
made possible by the proximity of production, operational efficiencies, 
and quick turn around times for meeting increasingly shortened 
deadlines demanded of large retailers.'' The CRS may be overly 
optimistic on how sustainable this advantage proves to be, but in 
conjunction with other policy measures it could contribute to a high 
road alternative.
---------------------------------------------------------------------------
    \24\ J.F. Hornbeck, ``Report for Congress on the Dominican 
Republic-Central America-United States Free Trade Agreement (DR-
CAFTA),'' (Washington D.C.: Congressional Research Service, April 5, 
2005), http://guatemala.usembassy.gov/wwwfcrscafta2e.pdf
---------------------------------------------------------------------------
    The low road emphasizes the lowest possible wages and intensified 
working conditions. Over 60 percent of DR-CAFTA exports to the United 
States are in apparel, a sector known for maquiladora export plants, 
rock bottom wages, and fierce competitiveness.\25\ Although tempting 
for many firms in the short run, the problem with the low road is that 
China already occupies most of the lanes. No amount of wage cutting 
will effectively compete with China, which is building a far better 
infrastructure and, has a far larger domestic market, and access to 
state-of-the-art technologies. Central America needs a long term 
strategy that provides its' labor force with more education, fosters 
effective innovation, and builds on its geographical proximity to the 
U.S. market. Instead, DR-CAFTA encourages wage cutting tomorrow, 
possibly boosting profits next quarter, but ensuring a frontal 
collision with China next year or the year after. Not only is the low 
road damaging; it won't work in the global economy today.
---------------------------------------------------------------------------
    \25\ Daniel P. Erikson, ``Central America''s Free Trade Gamble,'' 
World Policy Journal, Winter 2004/2005, 19.
---------------------------------------------------------------------------
Smart trade
    Ambassador Peter F. Allgeier, Acting United States Trade 
Representative, has referred to DR-CAFTA ``as an important tool of 
reform that will help deepen and strengthen democracy.'' \26\ While the 
goal is worthy, the reality falls far short. The pressures were such 
that the DR-CAFTA countries had little choice but to sign. As a 
consultant for the Nicaraguan government, himself a former trade 
official for Mexico, put it ``I advised them to sign whatever the 
United States put in front of them.'' \27\ This entire process has 
caused severe strains and protests in civil society throughout Central 
America. Alvaro Ramazzini Imeri, Bishop of the Dioceses of San Marcos 
(Guatemala's third poorest province) and president of the Episcopal 
secretariat of Central America (SEDAC), commented last May that 
``Guatemalan society is not suitably informed about the content and 
consequences of CAFTA. The negotiations that took place did not take 
into account the great majority of poor people in the country, who are 
represented in popular and rural organizations.'' \28\ Reflecting the 
gap between the ratification process for DR-CAFTA and popular sentiment 
is the fact that legislatures often had to pass the agreement in the 
dead of night. The Honduran Congress ratified CAFTA in an early morning 
surprise vote specifically because protests were expected. The 
Guatemala Congress approved CAFTA in emergency session and under 
exceptional circumstances also because of anticipated protests. It 
passed by a lopsided vote of 126-12 on March 10; a Gallup poll carried 
out two weeks later (March 14-23) found that 65 percent of those polled 
felt that the agreement would harm the country.\29\
---------------------------------------------------------------------------
    \26\ Ambassador Peter F. Allgeir, ``Statement before the Committee 
on Finance, United States Senate--The U.S.-Central America-Dominican 
Republic Free Trade Agreement,'' Washington D.C., April 13, 2005.
    \27\ Bruce Stokes, ``Will Free Trade Help Nicaragua?,'' National 
Journal, June, 5, 2004, 1790.
    \28\ Bishop Alvaro Ramazzini Imeri, letter to the Members of the 
United States Congress, Washington, D.C., May 28, 2004.
    \29\ Matthew Kennis, ``Despite Ratification Anti-CAFTA protests 
Continue in Guatemala,'' IRC Americas Program, (Silver City, NM: 
International Relations Center, April 13, 2005), http://
www.americaspolicy.org/pdf/commentary/0504guatcafta.pdf
---------------------------------------------------------------------------
    When it came to the issue of labor rights, tough negotiating 
dissolved into acceptance of the status quo. The danger, according to 
former President of Costa Rica Rodrigo Carazo Odio, is that 
``corporations take advantage of cheap labor, operating in enclaves 
with limited links to the national economy, trapping the region in a 
spiral of low salaries, low aggregate value and lack of compliance with 
basic labor standards, such as the freedom of association and the right 
to collective negotiation.'' \30\
---------------------------------------------------------------------------
    \30\ Rodrigo Carazo Odio, letter to the Members of the United 
States Congress, Washington, D.C., May 27, 2004.
---------------------------------------------------------------------------
    The ability for citizens of any society to assemble freely and act 
collectively when they so desire is a fundamental democratic right. 
Without this right, you can have fair elections, but you do not have 
democracy. In fact, for democracy to flourish in this region so ravaged 
by social upheaval and war, one needs to strengthen, not weaken civil 
society. The ILO embeds these principles into its five core labor 
rights. For DR-CAFTA to work, labor rights need to be strengthened 
considerably in a fundamental arena: the decision an ordinary worker 
might take as to whether or not he or she chooses to join a union. The 
checks and balances that unions provide are essential in the workplace, 
but are even more central in sustaining fledgling democracies.
    We need to reframe the debate on the issues of labor rights and 
development. It is not a question of free trade versus protectionism, 
but rather ``smart trade'' versus ``polarizing trade.'' Smart trade 
recognizes rights, spurs economic growth with equity, and promotes 
democracy; polarizing trade might spur trade in the short run but the 
benefits go to the winners' circle while the number of losers grows far 
larger. Democracy itself could be a casualty.
    Smart trade requires four provisions:

    1.  Upward harmonization of domestic labor law to match the core 
ILO conventions as the goal of a three-year phase-in period. The 
granting of trade and investment benefits would follow agreed upon 
reform in a country's labor law.\31\
---------------------------------------------------------------------------
    \31\ Carol Pier, ``The Right Way to Trade,'' Washington Post, 
August 1, 2003.
---------------------------------------------------------------------------
    2.  The ILO five core labor rights embedded in the core agreement, 
subject to strong enforcement provisions and penalties.
    3.  A development fund targeted for infrastructure and education. 
This fund would reinforce competitiveness in the six countries and 
place them on the ``high road.''
    4.  Expanded adjustment assistance for U.S. workers negatively 
impacted by trade. This assistance should also be proactive in 
industries threatened by trade.

    No trade agreement can solve all the problems of development and 
globalization, but it should point in the right direction. A trade 
agreement that fosters prosperity and promotes democracy is possible 
and essential for the region and for the United States. Smart trade 
lays the basis for growing incomes and markets in Central America and 
the Dominican Republic and expanded U.S. exports and jobs. It begins to 
define a better model for integrating into the global economy. 
Unfortunately, that model is not this DR-CAFTA.

                                 

Statement of Joseph E. Brenner and Ellen R. Shaffer, Center for Policy 
        Analysis on Trade and Health, San Francisco, California

EXECUTIVE SUMMARY
    The Intellectual Property (IP) provisions of the Dominican 
Republic--Central America Free Trade Agreement (CAFTA) would delay 
competition from generic medicines, helping to prop up high prices for 
brand name pharmaceuticals in the U.S., and effectively denying access 
to life-saving drugs in some of the poorest nations in the Americas. 
CAFTA IP provisions that would discourage generic competition include 
extended terms for patents and for data exclusivity, and linkage, which 
are further discussed below. They also present barriers to compulsory 
licensing.
    These provisions contradict Congress' objectives in the Trade Act 
of 2002 to balance its interest in strengthening intellectual property 
rules with its interest in assuring access to affordable drugs. They 
reflect the published views of the U.S. Trade Representative's Advisory 
Committee on Intellectual Property Rights. Seven of 15 members of this 
Committee are affiliated with the pharmaceutical industry. There are no 
representatives of organizations concerned with the effects of trade on 
health. Addenda to this testimony document the IP Committee's comments 
and membership.
    CAFTA would establish rules for trade among seven nations: the 
U.S., Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the 
Dominican Republic. The rules apply to both the U.S. and to Central 
American countries. A side letter to the agreement on public health 
does not protect access to medicines.

How CAFTA Delays Affordable Prescription Drugs In The U.S. And Central 
        America
    CAFTA's IP rules extend two types of intellectual property rights 
that brand name companies now use to maintain monopoly control on the 
sale of prescription drugs: 1) Patents; and 2) Clinical trial test 
data. Generic competitors need to refer to these data to get regulatory 
approval for marketing. CAFTA's data exclusivity rules present an 
insurmountable barrier to a third key policy, compulsory licensing.
    The rules increase pricing protections for brand-name drugs and 
delay competition by affordable generics. They would cause years of 
delay in providing access to affordable versions of new life-saving 
drugs by:

      Extending patent terms.
      Establishing periods of ``marketing exclusivity'' for 
brand name drugs, beyond current U.S. law. During this time, generic 
copies could not be approved for sale even if the brand name drug's 
patent has already expired.
      Requiring drug regulatory agencies to enforce the many 
independent patents claimed for each brand name drug.

    The result would be to:

       Compromise access to affordable drugs in the U.S. if 
U.S. law is ``harmonized'' to match the drug regulatory rules in CAFTA 
and other agreements.
      Severely handicap the thriving generic industry in 
Guatemala and Costa Rica, and deter investment in new generics.
      Impede issuance of ``compulsory licenses'' that enable 
governments to authorize generic drug production, or compel lower 
prices by brand name drug companies. Countries can issue a compulsory 
license to compel generic production of a patented drug, in order to 
make the drug more widely available at an affordable price. In most 
cases, a government's credible threat to issue a compulsory license has 
induced brand-name companies to drastically lower their prices. Bayer 
lowered its price for Cipro after the U.S. threatened to issue a 
compulsory license for Cipro during the anthrax scare, for example. 
Under CAFTA, it is possible that countries could still overcome the 
originator company's patent right. But CAFTA's ``data exclusivity'' 
provisions present an insurmountable barrier to generic company access 
to the originator company's clinical trial data, and thus are a barrier 
to compulsory licensing.

    Generic competition drastically reduces drug prices. According to 
Doctors Without Borders, generic competition led to a dramatic drop in 
cost for antiretroviral drugs for HIV/AIDS in Guatemala. In the first 
half of 2000, the lowest cost of treatment was $10,439 per year per 
person for brand-name drugs and $2,767 for generics. In less than a 
year, the price dropped to $727 for brand-name drugs and $201 for 
generics.

USTR Advisory Committees Are Dominated by the Pharmaceutical Industry, 
        and Lack Public Health Views
    The Trade Promotion Authority Act of 2002 (PL 107-210; 19 USC 3802, 
Sec. 2102.(b)(4)(C), Trade Negotiating Objectives) calls on the U.S. 
Trade Representative (USTR) to balance Congress' interests in 
strengthening intellectual property rules, and in assuring access to 
affordable drugs. It calls for the U.S. to respect the World Trade 
Organization's Doha Declaration, which recognizes that trade agreements 
must support a nation's ``right to protect public health and, in 
particular, to promote access to medicines for all.'' The USTR's 
Advisory Committees are an important conduit for views from the 
concerned public, and could help balance these interests. However, 
there are no representatives for the public's health or for access to 
medicines on any of the USTR's Advisory Committees, including those 
that address intellectual property negotiations. Seven of 15 members of 
the Industry Trade Advisory Committee on Intellectual Property Rights 
(ITAC 15) are affiliated with the pharmaceutical industry. There are no 
representatives of organizations concerned with the impact of trade 
agreements on the health of individuals, communities, and vulnerable 
populations.
    These advisory committees routinely advocate intellectual property 
provisions that delay and deny access to affordable drugs in the U.S. 
and abroad, while extending pharmaceutical company rights beyond U.S. 
patent law and the WTO TRIPS Agreement (Agreement on Trade-Related 
Aspects of Intellectual Property). They are referred to as ``TRIPS-
Plus'' rules. There has been opposition to these policies in the U.S. 
and in our trading partners. Because there is no public health 
representation on the advisory committees, and trade negotiations are 
secret until the agreements are completed, this opposition has been 
expressed only after it has been too late to influence the agreement. 
Better representation during the process would contribute to more 
effective outcomes.

CAFTA Side Letter Does Not Assure Access to Medicines
    A side letter to CAFTA, ``Understanding Regarding Certain Public 
Health Measures,'' does not protect access to affordable prescription 
drugs, including generics. As documented elsewhere by CPATH 
(www.cpath.org), the side letter's language leaves important loopholes 
about which government measures to provide medicines would be 
considered sufficiently ``necessary'' or urgent. Language that protects 
access to medicines should be unambiguous, should conform entirely with 
the spirit and letter of the World Trade Organization's Doha 
Declaration on the TRIPS Agreement and Public Health, and should be 
included in the main text of the agreement. IP provisions that could 
restrict access to affordable medicines should not be included in 
regional and bilateral trade agreements.

SPECIFIC CAFTA PROVISIONS THAT DELAY ACCESS TO AFFORDABLE MEDICINES
Extending Patents
    1. CAFTA would cover plants as patentable. Patents of plants may 
directly impact the economic livelihood and health of local farmers who 
have traditionally depended on their knowledge of and access to 
medicinal and nutritional plants. Under CAFTA they may be required to 
pay transnational corporations that patent plants. Patenting of plants 
is not required by TRIPS.
    CAFTA Provision: Article 15.9: 2. Nothing in this Chapter shall be 
construed to prevent a Party from excluding inventions from 
patentability as set out in Articles 27.2 and 27.3 of the TRIPS 
Agreement. Notwithstanding the foregoing, any Party that does not 
provide patent protection for plants by the date of entry into force of 
this Agreement shall undertake all reasonable efforts to make such 
patent protection available. Any Party that provides patent protection 
for plants or animals on or after the date of entry into force of this 
Agreement shall maintain such protection.
    2. CAFTA gives very limited rights to provide exceptions to 
patents. The Bolar Amendment in the U.S. authorizes generic companies 
to prepare for marketing approval in advance of the expiration of a 
patent, so that generic products may be available when the patent 
expires. Under CAFTA's weak language, a country ``may provide'' 
exceptions, suggesting it also may not, particularly if there is 
continuing pressure from U.S. not to do so.
    CAFTA Provision: Article 15.9: Patents.
    15.9.3. A Party may provide limited exceptions to the exclusive 
rights conferred by a patent, provided that such exceptions do not 
unreasonably conflict with a normal exploitation of the patent and do 
not unreasonably prejudice the legitimate interests of the patent 
owner, taking account of the legitimate interests of third parties.
    3. Export of a generic appears to be prohibited, even if a patent 
has expired. U.S. law explicitly permits the export of a generic 
pharmaceutical product once the patent has expired regardless of the 
existence of marketing exclusivity.
    CAFTA Provision: Article 15.9: Patents.
    15.9.5. Consistent with paragraph 3, if a Party permits a third 
person to use the subject matter of a subsisting patent to generate 
information necessary to support an application for marketing approval 
of a pharmaceutical or agricultural chemical product, that Party shall 
provide that any product produced under such authority shall not be 
made, used, or sold in the territory of that Party other than for 
purposes related to generating information to meet requirements for 
approval to market the product once the patent expires, and if the 
Party permits exportation, the product shall only be exported outside 
the territory of that Party for purposes of meeting marketing approval 
requirements of that Party.
    4. CAFTA extends patents by up to 5 years from the date of filing a 
patent application in a country (beyond the 20 year patent term) for 
unjustified delays that may occur during the process of granting a 
patent. This could extend patents after the patent has expired in U.S.
    This provision is independent from and cumulative to a related 
provision that requires extension of length of patent term for an 
indeterminate period, to compensate a patent holder for unreasonable 
reduction of patent term due to market approval process. 
``Unreasonable'' is not defined. No clear criteria exist for 
determining the extension. No maximum period for the patent extension 
is specified. The clock can start after the patent expires in U.S.
In current U.S. law, patent extensions attributable to delays in 
        marketing approval of a drug cannot be greater than 5 years.
    CAFTA Provisions. Article 15.96. (a) Each Party, at the request of 
the patent owner, shall adjust the term of a patent to compensate for 
unreasonable delays that occur in granting the patent. For purposes of 
this paragraph, an unreasonable delay shall at least include a delay in 
the issuance of the patent of more than five years from the date of 
filing of the application in the territory of the Party, or three years 
after a request for examination of the application has been made, 
whichever is later, provided that periods attributable to actions of 
the patent applicant need not be included in the determination of such 
delays.
    15.9.6 (b) With respect to any pharmaceutical product that is 
covered by a patent, each Party shall make available a restoration of 
the patent term to compensate the patent owner for unreasonable 
curtailment of the effective patent term resulting from the marketing 
approval process related to the first commercial marketing of the 
product in that Party.

Data Exclusivity/Marketing Exclusivity
    Generics manufacturers must be able to refer to the originator 
company's clinical trial data, presented to regulatory authorities to 
establish that the drug is safe and effective. Once the originator's 
drug is approved, a generic company only needs to show that its product 
is biologically equivalent, meaning that it works the same way in the 
human body as the originator's drug. If it cannot refer to the approval 
of the originator drug, it cannot obtain approval for marketing. A 
combination of CAFTA rules delay generic companies' ability to rely on 
originators' approvals.
    1. No approval will be given to a generics manufacturer to use test 
data for marketing a generic product for at least 5 years for 
pharmaceutical products and 10 years for agricultural chemical products 
from the first approval of the patented drug in that country.

Problems:
    Delay in marketing. If generic companies cannot rely on approvals 
based on pharmaceutical data from the brand drugs, they will 
effectively be barred from the market for years. Repeating the safety 
and efficacy tests required to obtain marketing approval would be 
costly, and expose human subjects to unnecessary and therefore 
unethical risk.
    Multiple delays for indeterminate times. CAFTA prohibits generic 
companies from preparing generic drugs for marketing until at least 5 
years--possibly an undefined longer term--for pharmaceutical products 
after approval is given to the originator drug company in the new 
country. The clock can therefore start after the patent expires in the 
U.S. These provisions also apply even when there is no patent in effect 
in a country.

These provisions go beyond U.S. law. Market/data exclusivity provisions 
        of Hatch-Waxman cannot exceed 5 years.
    Under TRIPS 39.3, test data can be protected only when national 
authorities require their presentation as a condition of marketing 
approval. Countries must protect undisclosed pharmaceutical test data 
from ``unfair'' commercial use. If a country accepts reference to 
approval given in a foreign country, there is no obligation to protect 
test data.
    De facto barrier to compulsory licensing. This is a de facto 
prohibition of compulsory licensing for at least 5 years for 
pharmaceutical products. This is because there is no provision for 
issuing a compulsory license (CL) to override data protection. Such a 
CL can only be issued to override a patent, which is a separate right.
    Countries can issue a ``compulsory license'' to compel generic 
production of a patented drug, in order to make the drug more widely 
available at an affordable price. In most cases, a government's 
credible threat to issue a compulsory license has induced brand-name 
companies to drastically lower their prices. Bayer lowered its price 
for Cipro after the U.S. threatened to issue a compulsory license for 
Cipro during the anthrax scare, for example. Under CAFTA, it is 
possible that countries could still overcome the originator company's 
patent right. But CAFTA's ``data exclusivity'' provisions present an 
insurmountable barrier to a generic company's ability to refer to the 
originator company's clinical trial data for marketing approval, and 
thus are a barrier to compulsory licensing.
    CAFTA Provision: Article 15.10: Measures Related to Certain 
Regulated Products. 1. (a) If a Party requires, as a condition of 
approving the marketing of a new pharmaceutical or agricultural 
chemical product, the submission of undisclosed data concerning safety 
or efficacy, the Party shall not permit third persons, without the 
consent of the person who provided the information, to market a product 
on the basis of (1) the information, or (2) the approval granted to 
theperson who submitted the information for at least five years for 
pharmaceutical products and ten years for agricultural chemical 
products from the date of approval in the Party.
    Question for USTR: CAFTA would delay competition by generic drug 
companies by many years, and prevent governments from issuing or 
threatening to issue compulsory licenses. How does this benefit 
consumers of drugs in the U.S. and other CAFTA countries? Why does it 
contradict the Doha Declaration, which authorizes governments to 
protect public health and access to medicines?
    2. CAFTA extends the protection of test data beyond the signatories 
to the CAFTA agreement. It prevents reliance on test data which was 
previously presented to any foreign country in the world (``another 
territory''). It prevents reliance on prior approval of a drug in any 
foreign country, for at least 5 years for pharmaceutical products and 
10 years for agricultural chemical products. The protection starts from 
the date that the patent holder seeks approval of the drug in a CAFTA 
country.
    For example, a brand name company may have a product on the market 
in the U.S., but not in Guatemala. Guatemala could not authorize 
generic versions of the product for at least 5 years from a future date 
when the brand name company seeks approval in Guatemala. A country can 
require that the innovator company request approval within 5 years 
after obtaining marketing approval in another country, but does not 
have to do so. If a brand name company seeks marketing approval in 
Guatemala, for example, in the fifth year, this would delay 
authorization of a generic product for 10 years total (5 years due to 
marketing approval in the U.S., plus an additional 5 years after 
marketing approval is sought in Guatemala).
    These provisions may also apply even if the patent holder has no 
patent or marketing approval in a CAFTA country.
    These provisions also create barriers to compulsory licensing 
during emergencies. As noted above, during the anthrax scare in the 
U.S., the threat by HHS to issue a compulsory license for the 
antibiotic Cipro induced Bayer, the manufacturer, to drastically reduce 
its price. Under CAFTA a generic licensee could not use the safety and 
efficacy data from Bayer or rely on its previous regulatory approval, 
but also would not have had time to repeat Bayer's clinical trials.
    CAFTA Provision: 15.10.1(b) If a Party permits, as a condition of 
approving the marketing of a new pharmaceutical or agricultural 
chemical product, third persons to submit evidence concerning the 
safety or efficacy of a product that was previously approved in another 
territory, such as evidence of prior marketing approval, the Party 
shall not permit third persons, without the consent of the person who 
previously obtained such approval in the other territory, to obtain 
authorization or to market a product on the basis of
    (1) evidence of prior marketing approval in the other territory, or
    (2) information concerning safety or efficacy that was previously 
submitted to obtain marketing approval in the other territory,
    for at least five years for pharmaceutical products and ten years 
for agricultural chemical products from the date approval was granted 
in the Party's territory to the person who received approval in the 
other territory. In order to receive protection under this 
subparagraph, a Party may require that the person providing the 
information in the other territory seek approval in the territory of 
the Party within five years after obtaining marketing approval in the 
other territory.
    3. New Product. A new product does not have to contain a new 
chemical entity. Under TRIPS, data protection applies to new chemical 
entity, not to an undefined new product.Test data protection does not 
apply to second uses, new formulations or changes in doses. Under 
TRIPS, a country can require a drug company seeking test data 
protection to prove that this is the result of a substantial 
investment.
    CAFTA Provision. 15.10.1. (c) For purposes of this paragraph, a new 
product is one that does not contain a chemical entity that has been 
previously approved in the territory of the Party.

Linkage
    CAFTA links the registration of drugs with the existence of a 
patent for a pharmaceutical product. The terms ``shall implement 
measures . . . to prevent'' requires the country's drug regulatory 
agency, which is responsible for ensuring safety and efficacy, to take 
on the additional responsibility of legal enforcement of existing 
patents. There are typically many patents associated with a single 
drug, administered by a patent office. Neither the U.S. nor Central 
American countries have the administrative capacity to coordinate 
patent office functions with drug regulatory authorities.
    In the U.S., the FDA informs patent holders through the so-called 
``Orange Book'' about requests made by third parties regarding the same 
drug. The patent holder bears the responsibility to ensure that its 
intellectual property right is not violated. The patent holder can take 
the case to court to stop an application for registering a generic 
drug.
    CAFTA Provision: 15.10.2. Where a Party permits, as a condition of 
approving the marketing of a pharmaceutical product, persons, other 
than the person originally submitting safety or efficacy information, 
to rely on evidence or information concerning the safety and efficacy 
of a product that was previously approved, such as evidence of prior 
marketing approval in the territory of a Party or in another country, 
that Party:
    15.10.2. (a) shall implement measures in its marketing approval 
process to prevent such other persons from marketing a product covered 
by a patent claiming the previously approved product or its approved 
use during the term of that patent, unless by consent or acquiescence 
of the patent owner; and (b) shall provide that the patent owner shall 
be informed of the request and the identity of any such other person 
who requests approval to enter the market during the term of a patent 
identified as claiming the approved product or its approved use.

CONCLUSION
    CAFTA presents numerous new obstacles to competition by generic 
drug companies. These provisions in many cases exceed the requirements 
of TRIPS and U.S. law. CAFTA would delay access to life-saving generic 
drugs by many years, and contribute to additional deaths from HIV/AIDS 
and other conditions. The legal architecture established by CAFTA will 
maintain higher drug prices in the U.S.
    CAFTA fails to respect Congress' negotiating objective to implement 
the Doha Declaration on public health and access to medicines. Instead, 
it advances monopoly rights for pharmaceutical companies that maintain 
high drug prices. It reflects the opinions of the USTR advisory 
committees, which include numerous pharmaceutical company 
representatives, and no representatives of public health.
                                 ______
                                 
ADDENDUM I: USTR ADVISORY COMMITTEE REPORTS ON CAFTA UNDERMINE ACCESS 
        TO AFFORDABLE MEDICINES 
    The Industry Functional Advisory Committee on Intellectual Property 
Rights for Trade Policy Matters (IFAC-3) was the predecessor to the 
present Industry Trade Advisory Committee on Intellectual Property 
(ITAC 15). Like ITAC-15, IFAC-3 had numerous pharmaceutical company 
representatives, and no representatives of public health. It 
consistently advised the USTR to advance negotiating positions that 
strengthen IP rights for pharmaceutical companies, beyond TRIPS rules.
    The March 2004 Report of the Industry Functional Advisory Committee 
on Intellectual Property Rights for Trade Policy Matters (IFAC-3) 
regarding Intellectual Property Provisions in the U.S.-Central America 
Free Trade Agreement stated:
    ``CAFTA takes into account the significant legal and technological 
developments that have taken place since the TRIPS and NAFTA 
agreements--to establish clear precedents in most key areas of IP 
protection for future FTA negotiations.'' (p.4)
    ``IFAC-3 views the TRIPS Agreement as reflecting minimum 
international norms of intellectual property protection that most 
countries should already have in place. The role of the FTAs is to 
clarify, where necessary, those obligations and to improve upon them by 
enhancing the level of intellectual property protection in the 
negotiating partner.'' (p.5)
    ``The patent section of CAFTA provides a number of clarifications 
and improvements to the protection standards articulated in the TRIPS 
Agreement. Once implemented, these standards will improve the 
effectiveness of patent protection in the CAFTA countries.
    ``IFAC-3 notes that CAFTA is the first to be completed with 
countries that are not among the more advanced developing countries, 
indeed some with relative low per capita incomes. That these countries 
found it in their interest to significantly increase their levels of 
IPR protection beyond that required by TRIPS is testament to the 
principle that high levels of protection benefit indigenous creators 
and inventors in the same manner as they do in developed countries.'' 
(p.4)
In fact, the TRIPS-Plus provisions of CAFTA do not represent U.S. 
        policy, or the best interests of the people of the U.S., 
        Central America and the Dominican Republic.
    1. Central Americans cannot afford drugs now and CAFTA will make 
the problem worse. The vast majority of Salvadorans and Guatemalans 
cannot afford brand name drugs. Many people do not have health 
insurance and must pay for medicines out-of-pocket. Guatemala has one 
of the highest rates of HIV/AIDS in the region and the population 
suffers from many diseases, both those associated with poverty as well 
as those, such as cancer and diabetes, common in the developed world. 
Guatemala and Costa Rica have a relatively thriving generics industry 
for pharmaceuticals, the main source of medicines in those countries. 
The Guatemalan generic drug industry adamantly asserts that CAFTA will 
undermine their operations and deprive more Guatemalans of access to 
drugs.
    2. Guatemalans did not willingly accept CAFTA provisions related to 
IP and health. Guatemalan law on data exclusivity (DE) has changed 
several times since 2000. Most recently, last November, law 9-2003 
imposing DE was repealed, by vote of an overwhelming majority of the 
Guatemalan Congress, even though CAFTA requires such data exclusivity 
rules. In December 2004, a new law went into effect that is compliant 
with TRIPS and has a very limited protection of test data against 
commercial theft or fraud.
    On January 9, the U.S. Embassy issued a statement suggesting that 
Guatemala's action on DE could mean that not one single member of the 
U.S. Congress would vote in favor of CAFTA. (This misleading statement 
was subsequently contradicted by several members of Congress.) The 
statement insisted that Guatemala revert to the CAFTA standard, which, 
again, exceeds what TRIPS requires. Guatemala subsequently passed yet 
another new law which the U.S. has declared is compliant with CAFTA.
    3. Costa Rica did not willingly accept CAFTA provisions related to 
IP and health. The official Costa Rican position is that IP and health 
services should not be included in CAFTA. Costa Rica agreed to include 
these issues as a trade off for other perceived economic benefits.
    4. When health deteriorates in Central America, the U.S. is 
affected. A high proportion of immigrants to the U.S. come from Central 
America. The vast majority of immigrants are young and healthy when 
they arrive in the U.S. They pay taxes that contribute in part to the 
expense of U.S. health services. Nevertheless, when their health 
deteriorates due to lack of medicines, they are more likely to 
experience illness while in the U.S.

ADDENDUM II: Members of the USTR Advisory Committee on Intellectual 
        Property Rights

 Industry Trade Advisory Committee on Intellectual Property Rights--ITAC
                                   15
------------------------------------------------------------------------

------------------------------------------------------------------------
               Chairman
      Mr. Eric H. Smith                    Ms. Mary A. Irace
              President              Vice President, Trade and Export
                                                     Finance
International Intellectual Property  National Foreign Trade Council, Inc
                Alliance
------------------------------------------------------------------------
          Vice-Chairman
  Mr. Jacques J. Gorlin              Jeffrey P. Kushan, Esq.--P
              President                        Trade Counsel
       The Gorlin Group              Sidley, Austin, Brown & Wood LLP
                                     Representing Biotechnology Industry
                                                Organization
------------------------------------------------------------------------
Ms. Catherine P. Bennett--P            Shira Perlmutter, Esq
Vice President, Federal Tax and      Vice President and Associate
            Trade Policy                             General
           Pfizer, Inc.              Counsel, Intellectual Property
                                                      Policy
                                             Time Warner Inc
------------------------------------------------------------------------
Hope H. Camp, Jr., Esq.--P            Mr. Timothy P. Trainer
             Consultant                            President
                       Law Offices ofInternational AntiCounterfeiting
                    P.C.                           Coalition
      Representing Eli Lilly and Company
------------------------------------------------------------------------
Susan K. Finston, Esq.--P             Neil I. Turkewitz, Esq
Associate Vice President for         Executive Vice President,
   Intellectual Property             International Recording Industry
                                      Association of America
Pharmaceutical Research and
 Manufacturers of America
------------------------------------------------------------------------
Morton David Goldberg, Esq.--P       Mr. Herbert C. Wamsley--P
                Partner                   Executive Director
                Cowan, Liebowitz & LaIntellectual Property Owners
                                                 Association
------------------------------------------------------------------------
Mr. Francis (Frank) Z. Hellwig,         Ms. Deborah E. Wiley
                 Esq.--A
Senior Associate, General Counsel    Senior Vice President, Corporate
Anheuser-Busch Companies, Inc.                Communications
                                     John Wiley and Sons, Inc.
                                     Association of American Publishers,
                                                         Inc
------------------------------------------------------------------------
Dr. Joseph Anthony Imler--P
Director, Public Policy
  Merck & Company, Inc.
------------------------------------------------------------------------
                                                             Total
                                              Members = 15
------------------------------------------------------------------------
Key: P = Associated with the Pharmaceutical Industry; A = Associated
  with the Alcohol Industry
Total Industry Representation Related to Public Health and Health Care:
  Pharmaceutical Industry, 7; Alcohol Industry, 1.


                                 

Statement of Kathleen McNeely, Center of Concern, on behalf of the U.S. 
                        Gender and Trade Network
    The Center of Concern, on behalf of the U.S. Gender and Trade 
Network urges the House Ways and Means Committee to oppose CAFTA and 
not introduce implementing legislation. There is no good reason to 
support CAFTA at this time. It is an undemocratic agreement that was 
negotiated in secret and did not include the meaningful participation 
and support of a broad cross-section of civil society in the U.S. CAFTA 
does not promote fair trade and sustainable development policies 
designed to reduce poverty by benefiting women, who are the vast 
majority of the poor throughout the region, and enable them to lift 
themselves and their families out of poverty. CAFTA is largely a 
political agreement, a near identical replica of the flawed NAFTA, 
being used to build momentum for a Free Trade Area of the Americas. It 
does not represent any real economic benefit to U.S. business so what 
is the hurry in signing before we get it right? The push for an up/down 
vote without a long-term vision for sustainable development between the 
U.S., Central America and the Dominican Republic is particularly 
troubling given the following flaws in the agreement:

      CAFTA investment provisions replicate NAFTA Chapter 11 
and will undermine national sovereignty and local democratic processes 
by allowing foreign corporations to challenge legitimate state 
regulation of the environment, economic development, etc.
      CAFTA fails to include adequate measures to ensure 
environmental improvement throughout the region and to correct the 
serious labor rights abuses existing in Central America, the Dominican 
Republic and the U.S, particularly with respect to women worker's 
rights.
      CAFTA's rules on government procurement could threaten 
the right and authority of state and local officials to decide the 
conditions under which state tax dollars as spent. Currently 16 U.S. 
states have committed, in varying degrees, to be bound by these rules. 
AFTA's rules on agriculture, like those in NAFTA, privilege 
agribusinesses that promote export-led food production, threatening 
small farmers and rural economies across the region.
      CAFTA's chapter on intellectual-property rights [IPR] 
threatens the health and well-being of persons in the region by 
restricting production and access to generic, life-saving medicines.
Given that there is no role for Representatives to change the 
        agreement, we urge the House Ways and Means Committee to oppose 
        CAFTA and not introduce implementing legislation.
                                 ______
                                 
Dear Member of Congress in the United States and Central America:

    We write to you as representatives of women's organizations and 
social movements in Central America and the United States to express 
our concerns about the U.S.-Central American Free Trade Agreement 
(CAFTA). We support fair trade and sustainable development policies. If 
trade is to succeed in reducing poverty, it must benefit women, who are 
the vast majority of the poor throughout the region, and enable them to 
lift themselves and their families out of poverty.
    CAFTA does not do this. Experience with NAFTA has demonstrated that 
this model of free trade does not benefit poor women. Ten years of 
NAFTA has resulted in increased poverty, job loss, and loss of 
affordable services for women in the United States, Canada and Mexico. 
A recent study showed that in Mexico, poverty for female-headed 
households increased by 50 percent since NAFTA was implemented.\1\ We 
oppose the extension of that model to Central America. Furthermore, we 
understand that the process for negotiating CAFTA has been 
undemocratic. The CAFTA text was not released until it was completed 
and there has been no meaningful national debate on this agreement in 
the United States or in Central America. We are specifically concerned 
with the content of CAFTA that would:
---------------------------------------------------------------------------
    \1\ Women's Edge Coalition, 2003.

      Promote the privatization of essential public goods and 
services. Privatization often leads to price hikes. Women would have to 
make up for increases in prices of these services in order to ensure 
adequate health, education and food conditions for themselves and their 
families, increasing their workday within and outside of the home.
      Increase unemployment in both Central America and the 
United States, especially that of women. It is not true that CAFTA 
would generate socially sustainable jobs for women. In the United 
States, the NAFTA experience shows that job losses were concentrated 
among industries employing women and minorities.\2\ In Mexico, while 
women gained new jobs in export-agriculture, these jobs did not lift 
women and their families out of poverty.
---------------------------------------------------------------------------
    \2\ Breaking Boundaries II--Women and the Free Trade Area of the 
Americas: Understanding the Connections, USGTN, September 2003, p. 5.

    In Central America, the reductions in the State and the bankruptcy 
of small and medium-scale companies that would result from CAFTA would 
mean that women are thrown out of the formal labor force and forced to 
---------------------------------------------------------------------------
join the informal sector without any kind of labor protections.

      Lead to a decrease in respect for labor laws. CAFTA would 
consolidate a model of maquiladora development in Central America that 
treats women as cheap labor, without ensuring decent working conditions 
or protecting women's rights.
      Not resolve the challenge of mass migration out of the 
region and the serious problems that immigrants face in host societies. 
CAFTA deals exclusively with the free movement of goods and services, 
not persons. There is nothing in CAFTA that would resolve the grave 
labor conditions suffered by the hundreds of thousands of Central 
American women working in the United States.
      Destroy local farm economies. With its focus on 
production for export instead of farming for the local economy, CAFTA 
would destroy family farms, which supply domestic markets and which 
employ and support the majority of women throughout Central America. 
Poor farmers will also face an uphill battle competing with highly 
subsidized U.S. products.

    We are not against trade or against development in Central America. 
The conditions and rules presented by CAFTA would, however, generate 
far-reaching negative impacts on economies and societies in both 
regions and further threaten the well being of women, families, and 
communities across the region. Given that there is no role for Congress 
to change the agreement, we urge you to oppose this agreement should it 
come before Congress for approval.
            Sincerely,
    This letter was written by the Asociacion de Mujeres por la 
Dignidad y la Vida, Las Dignas, together with members of the U.S. 
Gender and Trade Network (USGTN).
    Additional Sign-ons in support of this letter:
B
U.S. Gender and Trade Network (USGTN)  
AFL-CIO  
Alliance for Responsible Trade (ART)  
California Coalition for Fair Trade and Human Rights  
Center of Concern  
CISPES  
Citizens Trade Campaign  
Code Pink: Women for Peace  
Congregation Justice Committee, Sisters of the Holy Cross, Notre Dame, 
IN  
Congregation of St. Joseph, Cleveland  
Congregation of St. Joseph Justice Office, Cleveland  
Development Group for Alternative Policies (DGAP)  
Ecumenical Program on Central America and the Caribbean (EPICA)  
Global Exchange  
Holy Cross International Justice Office  
Institute Justice Team, Sisters of Mercy of the Americas  
IntercommunityCenter for Justice and Peace  
International Labor Rights Fund (ILRF)  
Leadership Conference of Women Religious  
OFM Justice, Peace and Integrity of Creation Council--English Speaking 
Conference (OFM-JPIC-ESC)  
Maryknoll Office for Global Concerns  
Medical Mission Sisters: Alliance for Justice  
Mexico Solidarity Network  
Migration and PolicyResourceCenter, OccidentalCollege  
National Organization for Women (NOW)  
NETWORK: A National Catholic Social Justice Lobby  
Nicaragua Network  
Quixote Center/Quest for Peace  
SHARE  
Sisters of Mercy Institute Team  
STITCH  
Sweatshop Watch  
Tennessee Economic Renewal Network  
United for a Fair Economy  
Washington Office on Latin America (WOLA)  
Women's Edge Coalition  
El Salvador
Asociacion de Mujeres por la Dignidad y la Vida (Las Dignas)  
Asociacion de Mujeres Melida Anaya Montes (Las Melidas)  
Centro de Estudios sobre Inversion y Comercio de El Salvador (CEICOM)  
Centro para la Defensa de Consumidores (CDC)  
Concertacion de Mujeres Salvadorenas. Integrada por: FUNSALPRODESE, 
CRIPDES,  
Fundacion Redes entre otras.  
Insituto de Desarrollo de la Mujer (IMU)  
Marcha Mundial capitulo El Salvador. Integrada por: Comite 25 de 
noviembre, MSM, CORAMS  
Movimiento Salvadoreno de Mujeres (MS)  
Movimiento Salvadoreno de Mujeres (MSM)  
Red de Accion Ciudadana frente al Comercio e Inversion (Sinti Techan)  
Tiempos Nuevos Teatros (TNT)  
Union Nacional Ecologica Salvadorena (UNES)
Honduras
    Bloque Popular de Honduras  
Centro de Derechos de Mujeres--CDM  
Centro de Estudios de la Mujer de Honduras--CEM-H
Guatemala
    Agrupacion de Mujeres Tierra Viva de Guatemala  
Coordinadora Nacional de Organizaciones Campesinas--CNOC--de Guatemala
Nicaragua
    Centro de Estudios Internacionales (CEI)  
Mujer y Comunidad (COMPA) de Nicaragua
Costa Rica
    Agenda Cantonal de Mujeres Desamparadenas (ACAMUDE)  
Alianza de Mujeres Costarricenses  
Asociacin de Servicios de Promocion Laboral (ASEPROLA)  
Consejo de los 12 Puntos de Costa Rica  
Encuentro Popular
Mexico
    Coordinadora Diocesana de Mujeres (CODIMUJ)  
Red Nacional de Genero y Economia
Peru
    Red Latinoamericana de Mujeres Transformando la Economia (REMTE)  
Grupo Genero y Economia--Peru

                                 

      Statement of Robert Vastine, Coalition of Service Industries

INTRODUCTION
    The Coalition of Service Industries (CSI) is pleased to have this 
opportunity to submit comments for the record on the U.S.-DR-CAFTA Free 
Trade Agreement.
    CSI strongly supports the U.S.-DR-CAFTA trade agreement, and we 
hope that Congress will approve it promptly. The Agreement provides for 
meaningful liberalization of trade and investment in services between 
the United States and the DR-CAFTA countries, and will open up new 
markets and opportunities for U.S. companies across a range of service 
industries. It will also demonstrate to other developing countries, in 
this hemisphere and elsewhere, that commitments to liberalization and 
internal economic reform are necessary for economic development, higher 
standards of living, and global competitiveness.
    The Agreement does not meet industry objectives in all respects; 
for example, the lack of temporary entry provisions. Notwithstanding, 
both the United States and the Central American nations stand to gain 
significantly from this Agreement, and it unquestionably merits 
Congressional approval.

BACKGROUND: THE IMPORTANCE OF SERVICES TO THE U.S. ECONOMY
    The DR-CAFTA Agreement and its merits should be viewed against the 
role services play in the U.S. economy. Services account for the 
overwhelming share of U.S. employment and economic output, and a large 
and growing share of our foreign trade. As Congressmen Kolbe and Cardin 
pointed out in a March 18, 2005 Dear Colleague letter, services ``are 
key to the future growth of the American Economy.''
    Services jobs represent approximately 80% of all non-farm, non-
government workers in the U.S. Between 1993 and the 2003, the service 
sector added 17 million new U.S. jobs, and of the 19.2 million new 
American jobs forecast to be created by 2012, 90% will be in the 
service sector. Moreover, the service sector generates 78% of U.S. 
private sector GDP. Efficient, high-quality services are crucial inputs 
into the production of virtually all products. The price and quality of 
services influences the costs and productivity of all sectors, 
including manufacturing and agriculture.
    The magnitude of U.S. services trade is under-appreciated. Last 
year, U.S. crossborder exports of services were $338 billion, up from 
$307 billion the previous year, and represented about 40% of the value 
of U.S. merchandise exports. The $49 billion services trade surplus 
that the U.S. ran last year partially offset our merchandise trade 
deficit. An even larger share of U.S. services trade is delivered 
through the foreign affiliates of U.S. parent companies. In 2002, the 
services sales of U.S. foreign affiliates worldwide reached slightly 
over $400 billion. These foreign operations are crucial to U.S. 
companies' competitiveness in global markets. Thus, expanded market 
access under DR-CAFTA will help U.S. companies become even more 
competitive in the global marketplace.
    The U.S. is extremely competitive across the range of services 
sectors, from banking and financial services to insurance, computer and 
related services, entertainment and audio visual services, express 
delivery, architecture and engineering, and others. The liberalization 
of these areas, as provided for in the Agreement, thus plays to a U.S. 
strong suit.
    During negotiations, every effort was made to ensure that CAFTA's 
services coverage was comprehensive, with minimal reservations taken. 
Under CAFTA, services trade and investment will be liberalized on a 
``negative list'' basis, which requires that a country list in detail 
the activities which will be excluded from liberalization. This 
approach is absolutely crucial to ensuring truly comprehensive 
coverage. The negative list has the further major advantage that new 
services are automatically free, which is particularly important in the 
services sector where new services are regularly being created. This 
was a significant achievement on the part of U.S. negotiators, given 
the reluctance of the CAFTA countries to negotiate on that basis at the 
outset of the talks. Moreover, important concessions have been obtained 
in the context of political controversy in some of the CAFTA countries. 
For example, the liberalization of insurance and telecommunications 
services in Costa Rica were particularly sensitive issues in that 
country.
    The agreement contains important provisions for services-related 
investment, regulatory transparency, and for trade in key service 
sectors. These are discussed below.
    CSI represents the interests of the dynamic American service 
economy, which employs 80% of the U.S. workforce and generates a 
similar proportion of national economic output. CSI was formed in 1982 
to ensure that U.S. trade in services, once considered outside the 
scope of U.S. trade negotiations, would become a central goal of future 
trade liberalization initiatives. CSI has been actively engaged in, and 
a strong supporter of, services negotiations in the WTO, as well as in 
our regional and bilateral free trade agreements, including the DR-
CAFTA Agreement.
    The broad range and diversity of the U.S. service economy is 
reflected in CSI's membership, which includes major international 
companies from the banking, insurance, telecommunications, information 
technology, travel and tourism, transportation, and diversified 
management service sectors. CSI members conduct business in more than 
100 countries, have global sales of about $800 billion, and employment 
of about 2.3 million.

INVESTMENT
    The Agreement will help promote a secure and predictable legal 
framework for U.S. investors in Central America and the Dominican 
Republic. Such provisions are particularly important to service 
providers, for whom a local presence is often required to supply 
services.
    The Agreement reduces barriers to U.S. investment. It assures U.S. 
investors greater opportunities to establish, acquire and operate 
investments in each of the Central American countries in all sectors. 
Such investors are to be accorded equal treatment with local investors 
and may not be subjected to special or discriminatory requirements for 
the use of local inputs, export obligations, or to extend licenses to 
local companies. Rights to manage and direct such investments with 
personnel other than from the host country are also provided.
    The Agreement ensures the protection of U.S. investment. It 
includes a broad definition of investment, the guarantee of prompt, 
adequate and effective compensation for expropriation, fair and 
equitable treatment, full protection and security, the free transfer of 
capital, no performance requirements, as well as the national treatment 
and most-favored nation provisions. Very importantly, the Agreement 
includes the investor-state dispute settlement mechanism that is vital 
to afford U.S. investors the opportunity to ensure that their 
investments are protected against arbitrary, discriminatory and unfair 
government actions.
    At the same time, the Agreement protects the legitimate exercise of 
each government's regulatory authority to protect ``public welfare 
objectives, such as public health, safety, and the environment.''
TRANSPARENCY
    The Agreement provides for a high standard of transparency in 
administrative, licensing, and adjudicatory proceedings. Transparency 
in regulatory processes is absolutely essential for services 
industries, because they generally are the most highly regulated. A 
government's regulations governing financial services, energy services, 
and professional services, for example, can vitiate or nullify trade 
agreements that would otherwise provide full market access and national 
treatment.
    The overarching provisions in the introductory chapter on 
transparency require the essentials: the designation of a contact point 
for inquiries, the requirement for prompt publication; the requirement 
that ``to the extent possible'' measures that each Party proposes to 
adopt are published in advance, and that persons of both Parties have a 
reasonable opportunity to comment. Further, the chapter provides that 
parties at interest to proceedings receive reasonable notice of such 
proceedings, and that they are allowed to present their case prior to 
final administrative actions. Each Party must establish independent 
tribunals or procedures for prompt review of administrative actions, 
and has the right to a decision based on evidence. The provisions in 
the cross border services chapter provide further assurance that 
administrative decisions related to licensing are prompt and fair. This 
chapter also provides for the Parties to reach agreements mutually 
recognizing their qualifications and standards for professional 
practice. The transparency provisions set out in the financial services 
chapter are consistent with the other transparency provisions in the 
Agreement but are tailored to the needs of this sector.
BENEFITS FOR KEY SERVICE SECTORS
    The CAFTA-DR Agreement is comprehensive and provides for new 
liberalization and market access across a broad range of service 
industries. Some of Agreement's benefits for key sectors are listed 
below.
    Dealer Protection: The Agreement addresses restrictions on 
distribution in Central America created through restrictive dealer 
protection regimes. Such regimes have placed substantial burdens on the 
distribution of U.S. exports to the region by locking U.S. companies 
into inefficient, exclusive and effectively permanent relationships, 
oftentimes regardless of the performance of the local dealer. The 
Agreement will allow U.S. exporters and their dealers freedom to 
contract the terms of their relationships. These provisions will 
substantially help promote more efficient and improved distribution for 
U.S. companies within the region.
    Accounting Services: The Agreement provides for U.S. accountants to 
obtain local qualifications and licenses on a reciprocal basis.
    Architecture: The Agreement's provisions on the development of 
professional standards, and temporary licensing and review, provide for 
equity and reciprocity in this sector. Further provisions provide 
access to the Central American markets while promoting capacity 
building within the profession.
    Asset Management Services The Agreement provides legal certainty 
that U.S. asset management firms will be afforded national treatment, 
non-discrimination and the right of establishment. It also permits 
cross-border provision of portfolio management services by asset 
managers of mutual funds. The financial services transparency 
commitments in the agreement also would benefit the asset management 
industry.
    Audiovisual Services: The Agreement provides for strong 
intellectual property protections, and strengthened enforcement. The 
FTA demonstrates that a trade agreement can harmonize two important 
objectives--trade liberalization and the promotion of cultural 
diversity. It avoids the ``cultural exceptions'' approach, while 
demonstrating that a trade agreement has sufficient flexibility to take 
into account countries' cultural promotion interests. The Agreement 
includes important provisions to ensure market access for U.S. films 
and television programs over a variety of media including cable, 
satellite, and the Internet. It provides for zero tariffs on audio 
visual products, reaffirms that customs duties are based on the value 
of carrier media and not the value of the movie or other content. It 
provides commitments to non-discriminatory treatment of digital 
products including DVDs and CDs, and agreement not to impose customs 
duties on such products.
    Computer and Related Services: The Agreement ensures full market 
access and national treatment for computer and related services. The 
Agreement covers all modes of delivery, including electronic delivery. 
The ``negative list'' approach ensures that rapidly evolving computer 
services, driven by continual advances in technology, will 
automatically be covered by the Agreement.
    Electronic Commerce: The Agreement includes important language on 
electronic commerce. As with previous FTAs, the Agreement establishes 
the concept of ``digital products''; prevents the application of 
customs duties on electronically-delivered digital products; assures 
the non-discriminatory treatment of digital products; addresses the 
valuation of physically delivered digital products; and provides 
commitments to cooperate on electronic commerce policy.
    Energy Services: The Agreement's provisions on regulatory 
transparency and investment provide a framework that can provide 
opportunities for U.S. energy services firms and facilitate the 
provision of energy services between the United States and Central 
America.
    Express Delivery Services: The Agreement includes important 
provisions for the sector, including an appropriate definition of 
express delivery services (EDS). The Agreement recognizes EDS as a 
unique service sector and contains important commitments to maintain 
market access for the industry and to facilitate customs clearance, 
which is critical to the efficient operation of express carriers. The 
Agreement includes significant language proscribing monopoly abuse by 
postal administrations when they compete in the supply of express 
delivery services.
    Financial Services (other than insurance and asset management): The 
Agreement contains important provisions relating to branching, pension 
management and regulatory transparency.
    Healthcare Services: the Agreement breaks new ground concerning the 
temporary licensing of physicians and surgeons that will be helpful for 
U.S. hospitals engaged in international medical care to gain market 
presence.
    Insurance: The Agreement's insurance commitments are comprehensive 
and provide good treatment for insurance. While these countries already 
have fairly open insurance markets, in most cases these insurance 
commitments are significant improvements over current WTO obligations. 
Perhaps most significantly, Costa Rica's insurance sector, which is 
currently dominated by a monopoly, will be opened for the first time 
under this agreement. All major aspects of insurance are covered, 
including life, non-life, reinsurance, intermediation and services 
auxiliary to insurance. Similarly, key cross border insurance products 
and services are covered (marine, aviation and transport (MAT), 
reinsurance and intermediation).
    Legal Services: The Agreement preserves the ability of U.S. lawyers 
to serve as foreign legal consultants or otherwise to provide advice 
and assistance respecting the law they are authorized to practice in 
the United States.
    Telecommunications: The Agreement includes new international cost-
oriented interconnection obligations for fixed traffic (although mobile 
services, unfortunately, are excluded from this obligation). The 
Agreement also contains commitments to provide access to and use of 
telecommunications networks, and commitments for fixed services, 
including competitive safeguards, interconnection, universal service, 
licensing, independent regulator, and allocation of scarce resources. 
``WTO-Plus'' obligations are incurred for major suppliers with respect 
to resale, provisioning of leased circuits and collocation. The 
Agreement includes new market access commitments, including cross-
border obligations.
    Vessel Repair: the Agreement provides for the elimination of the 
50% U.S. tariff on vessel repairs performed in the Central American 
countries, thus eliminating a significant burden on U.S. shipping 
companies that require repair work when servicing foreign markets.
CONCLUSION
    The DR-CAFTA Agreement provides for substantial new market access 
for a broad range of U.S. services industries to a growing market of 
nearly 45 million consumers. It thus opens up significant new 
opportunities for U.S. services trade and investment, and deserves 
prompt approval by the Congress.

                                 

   Statement of Rachel Cohen, Doctors Without Borders/Medecins Sans 
                     Frontieres, New York, New York
Introduction
    Doctors Without Borders/Medecins Sans Frontieres (MSF) is pleased 
to submit this testimony to the Committee on Ways and Means of the 
House of Representatives about the potential negative consequences of 
intellectual property (IP) provisions in the United States-Dominican 
Republic-Central America Free Trade Agreement (DR-CAFTA) on access to 
essential medicines in the concerned countries.
    MSF is deeply concerned that provisions in the Chapter on 
Intellectual Property in DR-CAFTA \1\ will lead to devastating 
consequences in terms of access to medicines for millions of people in 
the region with HIV/AIDS and other diseases. MSF is also concerned that 
this trade agreement, among others already signed or currently being 
negotiated, undermines the right and obligation of countries to protect 
public health and promote access to medicines for all, in accordance 
with the World Trade Organization (WTO) Ministerial Declaration on the 
Agreement on Trade-related Aspects of Intellectual Property Rights 
(TRIPS) and Public Health (``Doha Declaration''), which the U.S. 
adopted along with all other WTO members in November 2001.\2\ The Doha 
Declaration clearly recognized concerns about the effects of patents on 
prices and stated unambiguously that TRIPS can and should be 
interpreted and implemented in a manner ``supportive of WTO members' 
right to protect public health and, in particular, to promote access to 
medicines for all.'' \3\
---------------------------------------------------------------------------
    \1\ Chapter 15, available at http://www.ustr.gov/Trade_Agreements/
Bilateral/CAFTA/CAFTA-DR_Final_Texts/Section_Index.html
    \2\ Paragraph 4 of the Declaration states ``We agree that the TRIPS 
Agreement does not and should not prevent members from taking measures 
to protect public health. Accordingly, while reiterating our commitment 
to the TRIPS Agreement, we affirm that the Agreement can and should be 
interpreted and implemented in a manner supportive of WTO members' 
right to protect public health and, in particular, to promote access to 
medicines for all.''
    \3\ To view the full Declaration, see http://www.wto.org/english/
thewto_e/mWhinist_e/min01_e/mindecl_trips_e.htm
---------------------------------------------------------------------------
    MSF has called repeatedly on the Office of the United States Trade 
Representative (USTR) to ensure that the Doha Declaration remains a 
ceiling for trade negotiations on IP as they relate to public health 
technologies. Because of the clearly stated negotiating objectives of 
the U.S., however, we have been forced to go one step further in 
recommending that IP be excluded from bilateral and regional trade 
agreements altogether. The WTO TRIPS Agreement already establishes more 
than sufficient standards for IP protection in WTO member states.
    Specifically, MSF has raised concerns about the following IP 
provisions in various FTAs:

      New obstacles related to pharmaceutical test data, which 
will delay the registration of generic medicines (``data exclusivity'') 
and render compulsory licensing ineffective;
      Rules that will confer abusive powers to regulatory 
authorities to enforce patents (``linkage''); and
      Extensions of patent terms on pharmaceuticals beyond the 
20-years required in TRIPS.

    Each of these provisions, which are elaborated upon below, appear 
in DR-CAFTA and threaten to hamper generic competition--the only 
reliable mechanism for ensuring lower drug prices--and therefore 
restrict access to affordable medicines in the Central American 
region.\4\
---------------------------------------------------------------------------
    \4\ It is important to note that USTR ``side letters'' about DR-
CAFTA and public health--which are not legally enforceable and do not 
supercede the (contradictory) language in DR-CAFTA--make dangerous 
attempts to restrict the scope of diseases and cannot be seen as 
providing any assurance for countries to make use of TRIPS safeguards.
---------------------------------------------------------------------------
    We urge members of this Committee in the strongest possible terms 
to take every necessary measure to ensure that the health and lives of 
millions of people in the Central American region are not jeopardized 
because of DR-CAFTA.
Background: MSF
    Doctors Without Borders/Medecins Sans Frontieres (MSF) is an 
international independent medical humanitarian organization that 
delivers emergency aid to people affected by armed conflict, epidemics, 
natural and man-made disasters, and exclusion from health care in more 
than 70 countries. Through longer-term programs, MSF treats patients 
with infectious diseases such as HIV/AIDS, tuberculosis, malaria, and 
other neglected diseases, and provides medical and psychological care 
to marginalized groups such as street children. The organization was 
awarded the 1999 Nobel Peace Prize. MSF currently has field operations 
in two of the countries affected by DR-CAFTA--Guatemala and Honduras.
    In Guatemala, MSF provides antiretroviral (ARV) treatment for more 
than 1,600 people with HIV/AIDS in Guatemala City, Coatepeque, and 
Puerto Barrios, as well as psychological support and medical care for 
street children in Guatemala City. In Honduras, MSF is providing ARV 
treatment for approximately 300 people with HIV/AIDS in Tela, as well 
as care for street children and victims of urban violence in 
Tegucigalpa.
Spotlight on ``data exclusivity'' and HIV/AIDS in Guatemala 
Brief Summary of ``Data Exclusivity'' in Guatemala
    There are many troubling IP provisions in DR-CAFTA, but of 
particular concern is the U.S. Administration's attempt to push 
countries to accept new obstacles related to pharmaceutical test data 
(so called ``data exclusivity''), which will delay the availability of 
generic medicines.
    Guatemala is a case in point.
    Under extreme pressure from the U.S. Administration, Guatemala went 
back and forth from 2003 to 2005 between proposed legislation that 
guarantees multinational pharmaceutical companies monopoly-like 
exclusivity on the Guatemalan market and amendments that would have 
maintained some degree of public health protection. In March 2005, 
despite strong opposition from civil society groups in Guatemala, the 
Guatemalan Congress eventually passed an amendment that provides at 
minimum of five years of data exclusivity and cleared the way for 
ratification of DR-CAFTA.
    MSF is concerned that the new law, which is considered a first step 
in the implementation of DR-CAFTA in Guatemala, will prevent the 
Department of Regulation and Control of Pharmaceutical Products from 
granting marketing approval to generic medicines in Guatemala for five 
to 10 years,\5\ thereby giving a market monopoly to originator drug 
manufacturers and preventing access to affordable medicines for five to 
10 years in the country (see below for a more lengthy explanation of 
data exclusivity).
---------------------------------------------------------------------------
    \5\ Because the originator has five years of data exclusivity from 
the first date of approval in another country, and then receives 
another five years of protection from the date of approval in 
Guatemala, for a total of up to 10 years.
---------------------------------------------------------------------------
    In a worst case scenario, the new legislation will prevent generic 
medicines from entering the Guatemalan market during the period of 
exclusivity even if the originator medicine is not marketed in 
Guatemala. This means that patients may have no access at all to some 
medicines for five years--even exorbitantly priced originator versions. 
While this provision is, for the moment, only in place in Guatemala, 
DR-CAFTA would force all parties to the agreement to implement similar 
laws at the national level.
HIV/AIDS in Guatemala
    According to the World Health Organization (WHO) and UNAIDS, more 
than 78,000 Guatemalans are currently living with HIV/AIDS, and annual 
AIDS-related deaths totaled 5,800 in 2003. Approximately 13,500 of all 
those living with HIV/AIDS now are in urgent need of antiretroviral 
(ARV) treatment. Yet only 3,600 Guatemalans were receiving it as of 
December 2004.
    MSF has been providing ARVs to Guatemalans since 2001 and is 
currently treating more than 1,600 people living with HIV/AIDS in 
hospitals and clinics in Guatemala City, Coatepeque, and Puerto 
Barrios. Our clinical outcomes parallel those found in the U.S. and 
other industrialized countries.
    Most of the patients in MSF's treatment programs are receiving 
generic medicines, which allows MSF to treat the largest possible 
number of people. MSF currently pays as little as $350 per person per 
year for the most commonly prescribed World Health Organization-
recommended first-line regimens. Generic competition on the Guatemalan 
market has brought down the prices of originator ARVs, and the 
Guatemalan government is slowly moving from purchasing only originator 
ARVs to including generic suppliers in the national tender.
    Still, Guatemala's social security system has spent significantly 
more on ARVs--in some cases more than 20 times more than MSF--because 
it has procured mostly originator drugs. For example, whereas MSF pays 
$216 per person per year for a generic version of the ``back-bone'' 
double combination of AZT+3TC, Guatemala's social security system paid 
$4,818 (open tender 2004) for the same combination from the originator, 
GlaxoSmithKline. This is 22 times more than what MSF pays.
    Guatemala has the opportunity to expand access to ARV treatment 
significantly, particularly because of a $40 million grant from the 
Global Fund to Fight AIDS, Tuberculosis and Malaria. In fact, there is 
no reason that Guatemalan authorities should not be able to ensure 
universal access to ARV treatment. But if the government is paying 20 
times more--or even two times more--for ARVs, only a small fraction of 
those in need will be treated. Treating fewer people means condemning 
others to premature death.
     If current data exclusivity provisions had been in effect prior to 
2001, generic ARVs would not have been marketed in Guatemala and MSF 
would not have been able to access generics. This would have limited 
our ability to expand access to treatment and demonstrate the 
feasibility of delivering ARV treatment.  In order for the Guatemalan 
government to expand access to ARV treatment for all those in need, it 
will need to retain the right to procure affordable generic AIDS 
medicines.
    DR-CAFTA threatens the ability of Guatemala to do so.
The Example of Atazanavir
    In November 2004, the Congress of Guatemala repealed Decree 9-2003, 
which provided for five-year data exclusivity. In December, the 
Congress replaced Decree 9-2003 with Decree 34-2004, which passed by an 
important majority. This was seen by Guatemalan civil society groups, 
MSF, and others as a positive step forward, and a critical moment for 
the government to commit to ensuring treatment for greater numbers of 
people with HIV/AIDS in Guatemala. (As explained above, data 
exclusivity was again enacted in Guatemala in March 2005.) In the 
roughly 18 months during which Decree 9-2003 was in effect in 
Guatemala, 25 medicines received ``data exclusivity'' protection under 
the law. Among those medicines affected is the ARV atazananir. 
Atazanavir is a protease inhibitor, which is a key part of second-line 
therapy for people with HIV/AIDS once they experience treatment failure 
on their first-line regimen, and is used widely, in the U.S., Europe, 
and Brazil.
    Today, the U.S. price of atazanavir is more than US$10,000 per 
person per year--there is no differential price for developing 
countries and it must be combined with at least two additional ARVs. 
There is no generic version of atazanavir available on the world market 
because it is a relatively new drug, but based on experience with other 
ARVs, it is possible that the price could drop by approximately 95% 
with robust generic competition.\6\
---------------------------------------------------------------------------
    \6\ In some countries, a WHO-recommended first-line fixed-dose 
combination (e.g. d4T/3TC/NVP) is now available for as little as $140 
per patient per year (Clinton Foundation price) because of robust 
international generic competition. The same combination is available in 
Western countries as originator companies' separate products at $8,773 
per patient per year (the only country for which prices are publicly 
available is Australia and this price was calculated based on the 
schedule of Pharmaceutical Benefits for Approved Pharmacists and 
Medical Practitioners, May 2004; exchange rate used for conversion 1 
Australian $ = 0.72213 U.S. $). This means that the price in developing 
countries for WHO-recommended first-line therapy is 98% lower than what 
the same combination costs in Western countries.
---------------------------------------------------------------------------
    If a more affordable generic version of atazanavir is developed, 
however, it will not be able to enter the Guatemalan market until 2009 
(given that the original atazanavir of Bristol-Myers Squibb was 
registered in Guatemala in February 2004). This means that BMS will 
have a monopoly during the entire period of exclusivity (at least five 
years) and, free from competition, will be able to charge whatever the 
market will bear--far more than what the average Guatemalan will be 
able to afford. It is therefore unlikely that the vast majority of 
Guatemalans who will need this medicine will be able to access it.
    This is just one example of what could happen to all new medicines 
entering the Guatemalan market--not only AIDS drugs--now that a U.S.-
style data exclusivity law has been implemented. If DR-CAFTA is fully 
enacted in all countries, similar problems will be encountered in Costa 
Rica, El Salvador, Honduras, Nicaragua, and Dominican Republic. Newer 
medicines will be crucial to the longer-term survival of people with 
HIV/AIDS and other illnesses.
Brief analysis of IP provisions in DR-CAFTA & implications for access 
        to medicines
    1. Exclusive rights over pharmaceutical test data (``data 
exclusivity'')
    Even when a drug is not under patent, ``data exclusivity'' will 
create a new patent-like monopoly by blocking the registration of 
generic medicines. Data exclusivity prevents a national drug regulatory 
authority from using data provided by an originator company to 
authorize the use of an equivalent generic version of the same drug, 
thereby providing a de facto monopoly for the original manufacturer.
    At present: To register a medicine with a national drug regulatory 
authority (NDRA), an applicant has to show that its medicine is safe, 
effective and of quality. It is the first applicant who must show 
clinical trial data to prove the drug's safety and efficacy.
    When generic manufacturers seek registration (or ``marketing 
approval'') of generic versions of medicines, they only have to show 
that the drugs are of quality and therapeutically equivalent to the 
original version--in other words, they function the same way as the 
original medicine. The generic company does not have to submit new 
safety and efficacy data.
    The NDRA can rely on the safety and efficacy data submitted by the 
originator producer to register the generic medicine. Under these 
conditions, the introduction of generics to the market is accelerated 
and facilitated.
    In DR-CAFTA: Provisions in DR-CAFTA establish and expand 
``exclusive rights'' over pharmaceutical test data provided by 
originator companies to prevent an NDRA from using that data to 
register a therapeutically equivalent generic version of the drug. The 
exclusivity would last for at least five years from the time the 
originator drug is first registered in the country. During this period, 
if another company wants to register a generic version of the drug, it 
would have to generate and submit its own test data.
    Further, provisions in DR-CAFTA provide for what could be described 
as ``data exclusivity-plus'': if the original manufacturer has not 
registered the drug in the country, then the data exclusivity period 
would start running from the date of approval in the other country (ie. 
usually the United States).
    If accepted, ``data exclusivity'' provisions apply regardless of 
whether or not a drug is patented.
    Likely impact: These provisions will keep generic versions of 
originator drugs that have already been registered out of a country 
during the period of data exclusivity (ie. five to 10 years). The 
requirement for a company to generate its own test data will likely 
discourage generic manufacturers from seeking registration for their 
drugs. It may even make it impossible, especially for domestic firms in 
developing countries, given the costs of test data and low margins of 
generics production.
    The main effect of this provision will be on drugs which are not 
under patent, as the generic manufacturer will still be unable to use 
the originator's test data to obtain registration. In such an instance, 
data exclusivity acts as a de facto patent, preventing competition.
    This impact is heightened since the data exclusivity applies from 
the date of approval in the U.S. as it means that a brand-name 
originator drug does not even have to be registered (and thus 
available) in the country for generic competitors to be blocked from 
entry. This could lead to a complete lack of availability of essential 
medicines (either generic or originator versions) if originator 
companies decide for whatever reason not to market a drug in a given 
country.
    The requirement to re-test a drug already proven to be safe and 
effective is medically unethical, because it forces a number of 
patients to take part in clinical trials which are not necessary, and 
requires some to take placebos in order to compare outcomes with the 
actual drug and therefore forego a proven treatment. It will also 
increase the cost of the generic medicine.
    Whereas patent barriers can be overcome through compulsory 
licensing or government use, there is no legal ``remedy'' for data 
exclusivity. Further, data exclusivity could effectively block 
compulsory licenses. Even if a company is given authority to produce a 
generic drug under a compulsory license, it still needs to register the 
drug with the NDRA. Data exclusivity would prevent such registration 
for the period of exclusivity, and thereby prevent the use of a 
compulsory license during that time.
    TRIPS compatibility: Nowhere does TRIPS state that countries should 
provide exclusive rights to the originator of the data for a given 
period. Rather, TRIPS simply refers generally to the need to protect 
``undisclosed test or other data'' from ``unfair commercial use'' and 
``disclosure'' (Art. 39.3), without answering the question of how such 
protection should occur. The language in the TRIPS Agreement makes it 
clear that countries can determine what constitutes ``unfair'' and that 
there are multiple approaches that countries can take to satisfy this 
mandate. Indeed, during negotiations on the TRIPS Agreement, prior to 
1994, negotiators rejected the option to include stronger ``data 
exclusivity'' provisions in the TRIPS Agreement, as originally proposed 
by the United States.
    2. Abusive powers to national drug regulatory authorities (NDRAs) 
to enforce patents
    The U.S. has devised a new role for national drug regulatory 
authorities in DR-CAFTA through negotiating provisions that require 
these NDRAs to act as ``enforcers'' of drug patents. They will be 
prevented from registering a generic version of a drug that is under 
patent in the country unless the patent holder gives consent--even if 
the generic has been proved to be safe, effective, and of quality. 
Linking a drug's registration (also known as its ``marketing 
approval'') to its patent status is an underhanded way of preventing 
generic competition.
    At present: A drug's patent status and its registration status are 
two separate things. In principle, two different bodies look after the 
two different areas of competency: patent offices assess whether a drug 
is innovative and novel enough to be patented, and NDRAs assess whether 
a drug is of quality, safe and effective enough to be used by the 
population they are responsible for.
    When assessing whether a generic drug should be registered, a NDRA 
pays no attention to whether or not a patent may be infringed, as this 
is simply not their job--just as it is not the job of the patent office 
to assess the quality, safety and efficacy of a drug. It is up to the 
patent owner itself to sue an infringer before a court--a practice 
which ensures that the validity of a patent can be publicly questioned 
and held up to scrutiny before it is enforced.
    In DR-CAFTA; Provisions in DR-CAFTA will prevent NDRAs from 
registering a generic version of a drug that is under patent. Under 
these conditions, registration would not be granted to a generic 
manufacturer before the patent expires. If a drug is not registered, it 
cannot be legally used in a country.
    Likely impacta: These provisions amount to an outright ban on 
generic versions of patented medicines, by preventing their 
registration if there is a patent in force. The NDRA becomes the 
enforcer of a company's private patent rights.
    This is of considerable advantage to the patent holder. Rather than 
the company having to sue through the courts to enforce its patent, the 
job is done behind the scenes and without publicity by the NDRA.
    It is also more likely that patents that have been awarded 
improperly will be wrongfully enforced. The NDRA will be obliged to 
enforce a patent monopoly, even though it does not have the power of a 
court to judge whether a patent has been properly awarded or not.\7\
---------------------------------------------------------------------------
    \7\ NDRAs could also enforce patents in other ways that could 
threaten public health: for example, a patent on a salt or a polymorph 
of a given product may also be used to block registration even if the 
active ingredient is off-patent.
---------------------------------------------------------------------------
    Further, the linking of patent status and drug registration could 
undermine the possible use of compulsory licences. A company given 
authority to produce a generic drug under compulsory licence (ie. 
without the patent holder's consent) still needs to register that drug 
with the NDRA. But if the NDRA is not allowed to register generics 
until the patent expires, the compulsory licence is effectively 
useless.
    TRIPS compatibility: Nowhere in the WTO's Agreement on Trade-
Related Intellectual Property Rights (or TRIPS Agreement) is there any 
reference to an obligation to link patent protection and drug 
registration. On the contrary, the Preamble recognises that 
intellectual property rights are ``private rights''--meaning that it is 
up to patent holders to enforce their rights, not NDRAs.
    3. Extensions of patent terms beyond the 20-year TRIPS requirement
    There is no more straight-forward way to extend a company's 
monopoly over a drug than to extend the life of the drug's patent--but 
the impact on patients' access to that drug could be dire.
    At present: Patents on drugs in most countries last for 20 years 
from the date of filing. The originator company usually applies for a 
patent at the stage of basic research, well before the company even 
applies for drug registration. The process of drug registration usually 
takes two-three years. The process of patent granting can also take 
two-three years.
    In DR-CAFTA: Provisions in DR-CAFTA seek to ``compensate'' drug 
companies for any ``unreasonable'' time a national drug regulatory 
authority takes to examine an application for registration, or a patent 
office takes to examine a patent application. The life of the patent 
would be extended by the length of ``unreasonable'' time the authority 
takes to approve the respective applications.
    Likely impact: The extra years added to the patent are extra years 
in which the patent holder can maintain a monopoly position and 
continue to charge artificially high prices for the drug, free from 
generic competition. There would be considerable questions over what is 
considered ``reasonable'', especially given the resource constraints on 
NDRAs and patent offices in developing countries.
    TRIPS compatibility: Nowhere in the TRIPS Agreement is any 
reference made to an obligation to extend patent life to ``compensate'' 
for ``unreasonable'' delays in granting registration or patent 
approval. Indeed, countries rejected such proposals when originally 
negotiating the TRIPS Agreement.
Conclusion
    Over three years ago, 142 countries, including the U.S., negotiated 
and adopted the Doha Declaration, firmly placing public health needs 
above commercial interests and offering much needed clarifications 
about key flexibilities in the TRIPS Agreement related to public 
health. Today, these flexibilities are being threatened by bilateral 
and regional trade agreements such as DR-CAFTA.
    The WTO TRIPS Agreement already establishes more than sufficient 
standards for IP protection in WTO member states. The promise of Doha 
is that the TRIPS Agreement can and should be interpreted and 
implemented in a manner ``supportive of WTO members' right to protect 
public health and, in particular, to promote access to medicines for 
all.'' \8\ DR-CAFTA threatens to make it impossible for the concerned 
countries to exercise the rights reaffirmed in Doha.
---------------------------------------------------------------------------
    \8\ To view the full Declaration, see http://www.wto.org/english/
thewto_e/mWhinist_e/min01_e/mindecl_trips_e.htm
---------------------------------------------------------------------------
    If DR-CAFTA is fully enacted, IP provisions may block the use of 
affordable generic medicines, which will be a catastrophe for our 
patients and millions of others in the region with HIV/AIDS and other 
diseases.
    As a medical humanitarian organization, we cannot accept the 
subordination of the health needs of our patients and millions of 
others to U.S. trade interests.

                                 

                    [BY PERMISSION OF THE CHAIRMAN:]

 Statement of Farabundo Marti National Liberation Party, San Salvador, 
                              El Salvador
    The Farabundo Marti National Liberation Party (FMLN) of El 
Salvador, Central America, as the majority party in Congress, we write 
to you respectfully at this time to inform you about our position on 
the ratification of the Free Trade Agreement between El Salvador and 
the United States (DR-CAFTA).
    Free trade agreements contain many aspects that go beyond import-
export issues to include a wide variety of topics such as investment, 
intellectual property rights, governmental purchases, services, 
competition policies, telecommunications, and the financial sector, 
worker rights, environmental issues among others.
    For small countries who subscribe to them, these agreements end up 
defining the framework for public policies. Regulations established in 
the chapters on intellectual property rights and investments, 
government purchases, and trade in services, which infringe on the 
sovereign jurisdiction of the State, by promoting the privatization of 
public services through concessions.
    If States are unable to define national economic policy and control 
strategic services, they will
    face serious limitations in their ability to assure the economic, 
social, and cultural rights of the great majority of the population of 
which 80% of households are in different levels of poverty.
    With the ratification of these agreements by our countries' 
legislative branches, the agreements become the law of the land. El 
Salvador is then faced with an all-encompassing instrument that 
legalizes the privileges of transnational corporations and turns them 
into rights. As this occurs the basic rights of workers, women, 
children and elders will be lost.
    The FMLN rejects the mercantilist logic of the ``free trade'' 
agreements. A critical analysis of the CAFTA texts reveals the many 
negative impacts of the agreement, which would have on the daily life 
of the people and ecosystems of our countries--especially on women and 
impoverished families--as national sovereignty is eroded, legal 
frameworks are corrupted, and the neo-liberal nature of public policy 
is reinforced.
    Defining free trade agreements as a synonym for economic growth, 
job creation, environmental protection, and wellbeing of the people is 
nothing but demagoguery aimed at generating a favorable opinion and the 
acceptance of neo-liberal policies. In fact, these policies cause a 
greater concentration of income and the wealth into the hands of 
transnational corporations and the wealthiest people of our lands. At 
this time, only 1 out of 3 people in El Salvador are permanently 
salaried employees. Given the projections from the United States, DR-
CAFTA will massively increase the exportation in agriculture products 
which implies only for El Salvador, that in the first fourteen years of 
the agreement we will lose 400,000 permanent jobs only in the 
agricultural and textile industry.\1\ This will further increase 
poverty in El Salvador and all Central America and the Dominican 
Republic, therefore, democracy and political stability will continue to 
weaken and at the same time the migration will augment profusely from 
El Salvador and Central America. This has been proven with Nafta.
---------------------------------------------------------------------------
    \1\ United States International Trade Commission, Investigations 
No. TA 2104-13. USITC Publication 3717, August 2004.
---------------------------------------------------------------------------
     The following is a summary of the principle reasons why we reject 
DR-CAFTA and why we ask the representatives of the United States 
Congress to do the same.

    1.  The Mirage of Free Trade. Free trade is not possible within a 
context where a country like the United States relies on subsidized and 
protectionist measures for its own economy (especially to protect 
against imported agricultural products) while at the same time forcing 
other countries to open their economies indiscriminately to U.S. 
exports and capital.
    2.  Unrecognized Asymmetries. There is an unwillingness to 
recognize the asymmetries that exist in our economies and businesses--
especially micro, small, and medium-sized businesses--that operate at 
low levels of efficiency and are unable to compete. These asymmetries 
exist because of the lack of an effective policy of incentives, 
innovations, training, and access to financial services. They are 
heightened by deteriorating infrastructure and by constant and 
substantial increases in the rates of telephone and electric services 
provided by transnational monopolies.\2\
---------------------------------------------------------------------------
    \2\ For concise clarity in the Asymmetries, refer to the graph 
annexed at the end of document
---------------------------------------------------------------------------
    3.  Impediments to Migration. DR-CAFTA facilitates only the 
movement of ``business people'' who work in large corporations, yet it 
does not incorporate or recognize the fundamental labor rights in El 
Salvador and Central America. This is a direct violation of the 
Salvador Constitution.
    4.  Weakening of the State's Social Obligations. The State is 
increasingly abandoning its obligation to assure the economic and 
social wellbeing of all of its inhabitants, favoring instead the 
interests of transnational corporations and foreign investment in new 
laws on tariffs, competition, labor rights, environment, quality of 
services and taxes, among others.
    5.  Exclusionary and Anti-democratic Negotiations. Negotiations for 
these agreements are carried out in quasi-secret conditions, outside 
the control of citizens. The ratification of DR-CAFTA in El Salvador 
was done without the consensus of the Salvadoran people. Refusal to 
contemplate a serious debate within Congress lead to the lack of 
substantial research and evaluation on DR-CAFTA and it's effect on the 
political, social, and economic impact in the country. Sectors that 
represent micro, small, and medium-sized businesses have been excluded 
from trade negotiations, as have workers, consumers, professionals, and 
other representatives of civil society. In the case of the uprising in 
Guatemala the population opposed openly DR-CAFTA and the response of 
the government was a repressive answer which concluded in violence. The 
similarity in the approval of DR-CAFTA in Guatemala, Honduras and El 
Salvador goes to show the anti democratic process to impose DR-CAFTA in 
Central America.
    6.  No Assessment of Real Impact. None of the Central American 
countries has undertaken studies to evaluate the economic, social, 
environmental, and cultural impacts of CAFTA, to forecast the net 
balance in terms of jobs created and lost in the various sectors of the 
economy, or to measure the environmental, social, and cultural impacts 
of new investments.
    7.  The Privatization of Public Goods and Services. This agreement 
creates ideal conditions for transnational corporations to become the 
owners of the remaining public enterprises and opens the door for 
services like water, security, health, education, museums, parks, 
highways, ports, and airports to become private monopolies or 
oligopolies.
    8.  The Consolidation of the Maquila Development Model. Maquilas 
generate miserable and unjust conditions of employment, especially for 
young women, and corporations that take advantage of permissive 
legislation to abuse the rights of workers. Within the maquila model, 
the ability to compete depends on cheap labor and the use of 
contaminating and extractive technologies that help to lower production 
costs even further. So, even this sector has not adequately 
incorporated in DR-CAFTA the protection of Maquilas permanent future 
within the countries of Central America. The projections of the CBI 
countries will lose a market equivalent of 6.3 billion dollars with a 
massive loss of employment that only for El Salvador will imply 60,000 
losses of permanent jobs. This is the result of the open market of the 
textile and garment industry from China.
    9.  The Legalization of Bio-piracy and the Looting of Natural 
Resources. A permissive framework is established for transnational 
companies that work in biogenetics, biotechnology, the food industry, 
or chemicals and pharmaceuticals. Doors are further opened for our 
people to be victimized once again by the extraction of their natural 
resources, which now include plant species, micro-organisms, and 
traditional knowledge that could be ``patented'' by transnational 
corporations.
    10.  A Coup de Grace to Agriculture and a Threat to Food Security. 
The elimination of tariffs as well as the invasion of agricultural 
goods subsidized in the United States will bankrupt local producers and 
cause irreversible damage to our capacity to produce our own food. The 
region will then become simply a market that trades basic goods for 
commercial reasons, even as the quality of the imported food 
(genetically modified) may seriously threaten the health of consumers.
    11.  A Violation of the Constitution. Constitutionally established 
jurisdictions of the executive, legislative and judicial branches are 
being undermined in order to pass laws and policies compatible with DR-
CAFTA. National territory is also undermined, as sovereignty up to 200 
miles from shore would not be recognized. The Legislative Assembly has 
also been forced to ratify the agreements without the due deliberation 
required of this body. Finally, corporations are given the right to sue 
governments if government actions damage in some way their ability to 
make a profit. Citizens of our countries do not even have this right.
    12.  Lack of access to Generic Medicine. There is a duplicitous 
conflict which results in the protection of the interest of the large 
biochemical corporations and the denial and lack of healthcare of the 
population in El Salvador and Central America.

    For these reasons, we oppose the passage of the Dominican 
Republic--Central America Free Trade Agreement (DR-CAFTA), and manifest 
the following:
    First: We call on the Salvadoran population and the people of 
Central America to increase their struggle against the governments' 
willingness to turn the country over to powerful corporations. We call 
on them to strengthen the articulation of their organizing efforts and 
to present alternative proposals elaborated by civil society, with the 
participation of actors from various territories and sectors, in order 
to promote a true process of social integration among our peoples.
    Second: We propose the participatory construction of an alternative 
Central American integration plan (including Belize and Panama) that 
would promote unity; improve the quality of life of our peoples; 
guarantee full respect for human rights; guarantee sustainability in 
harmony with the ecosystem and with our multicultural, multi-lingual 
societies; and strengthen the sovereignty of our country. We stand 
firmly in favor of the integration of Central America with all of the 
peoples of the Caribbean and Latin America which DR-CAFTA denies.
    Third: We invite social and labor organizations of the United 
States--where more than two million of our brothers and sisters 
reside--to work with us to create an agreement an agreement for 
development which includes technical cooperation and a positive social 
and economic integration with the United States that emphasizes full 
respect for human rights; the free migration of persons; socio-
environmental sustainability; fair trade; investments that transfer 
clean technologies and production processes; the cancellation of the 
foreign debt; and the payment of the ecological debt, in order to 
achieve a democratic, sustainable, and just society in Central America.
    Fourth: We ask all legislators to vote NO on DR-CAFTA and to work 
instead for the rights and interests of all people and for a regional 
integration that is just, sustainable, and mutually supportive.
    Fifth: In El Salvador DR-CAFTA was approved without any respect for 
our judicial process which violates our constitution. DR-CAFTA clearly 
violates the countries constitution and we have presented a law suit to 
the Supreme Court in El Salvador to declare DR-CAFTA unconstitutional. 
Congress Representatives were not allowed to debate the contents of DR-
CAFTA and the President of the National Congress declared ``although he 
wasn't knowledgeable about DR-CAFTA he was going to allow approval of 
DR-CAFTA''.
    San Salvador, April 11, 2005
    Diputado Salvador Arias, member of the Ad--Hoc DR-CAFTA Commission; 
Permanent Economic and Agricultural Commission and Permanent Finance 
Commission Member of the Steering Committee of the FMLN Fraccion

                                 

    Statement of Maria Riley, Interfaith Working Group on Trade and 
                               Investment

                       CAFTA Does Not Measure Up!

    Fair trade agreements are possible, and if accompanied with aid and 
investment, can play n important role in promoting development within 
the context of a more just society. Based on the following analysis the 
final CAFTA text, we join with American Friends Service Committee 
(AFSC) in concluding that, on balance, the CAFTA agreement does not 
serve the interests of justice and the common good.
    This document measures the proposed Central American Free Trade 
Agreement (CAFTA) \1\ against the principles that are central to the 
Interfaith Statement on International Trade and Investment by the 
Interfaith Working Group in Trade and Investment (IWG).\2\ Critical 
provisions in the content of the final CAFTA text reveal that it does 
not advance the goals of a more just, sustainable and prosperous human 
society.
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    \1\ The complete CAFTA text is available at http://
www.interaction.org/library/detail.php? id=2605
    \2\ Full text available at: http://www.tradejusticeusa.org/about/
eng-prin.htm
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BACKGROUND
    AFSC and other organizations in the IWG have worked for many 
decades in Central America and in the U.S. on issues that concern this 
region. Our work has been that of witness and listening to those with 
whom we work, providing them with the opportunity to speak to a wider 
audience and being present on their behalf when they cannot. In this 
work, we regularly provide information and analysis of complex economic 
justice issues and advocate with our partners for just economic 
policies.
    Given the failure of World Trade Organization (WTO) Ministerial 
talks in Seattle (1999) and Cancun (2003) to come to agreement, the 
U.S. government is now actively pursuing regional and bilateral trade 
agreements modeled on the North American Free Trade Agreement (NAFTA). 
After ten years, the accumulated evidence surrounding the NAFTA 
demonstrates that many dire predictions made by its opponents were not 
borne out. But on the other hand, it was clearly not the panacea some 
thought it would be. A growing number of experts are questioning 
whether the NAFTA model is the best template for future trade and 
investment agreements as many negative impacts are uncovered--most 
severely felt by small farmers and the poor. Since the CAFTA extends 
the harmful aspects of
    NAFTA rather than correcting them, the chances for fair, 
sustainable development in the region will be diminished.
    Even in the face of the emerging criticism of this model, U.S. 
policy has been to attempt to expand NAFTA to all 34 countries in the 
Western Hemisphere, excluding Cuba, in the Free Trade Area of the 
Americas (FTAA) agreement. But their efforts have met severe 
resistance. Brazil, Argentina, Venezuela and Bolivia are unwilling to 
accept the U.S. demand for a comprehensive FTAA agreement like NAFTA, 
and have instead been negotiating for a more flexible model that allows 
countries to opt in or out of different parts of the agreement. Not at 
all pleased with this strategy, the U.S. is now focused on passing the 
CAFTA in hopes of isolating Brazil and pressuring them to change their 
tactics.
    The CAFTA text was released to the public for the first time on 
January 28, 2004, two years after the start of negotiations. Although 
CAFTA has been ready to go to Congress since President Bush signed the 
agreement on May 28, 2004, supporters have held back due to a lack of 
votes needed to get it passed.
    Thanks to ``Fast Track'', Congress can only vote yes or no without 
amending the trade agreement. If CAFTA passes Congress in its current 
form, it will harm the most vulnerable in Central America, will be more 
comprehensive and intrusive upon national sovereignty than the NAFTA 
agreement, and if ratified, will become the model for future U.S. 
regional trade agreements.
    Visit www.afsc.org/trade-matters or www.tradejusticeusa.org for 
more resources on CAFTA
EVALUATING CAFTA AGAINST THE INTERFAITH PRINCIPLES
    Below is an evaluation of the new CAFTA text against the principles 
from the Interfaith Statement on International Trade and Investment by 
the IWG and adopted by the AFSC Board in 2001. For each principle, one 
or two examples are provided to demonstrate how the CAFTA agreement is 
in violation.

    1) International trade and investment systems should respect and 
support the dignity of the human person, the integrity of creation, and 
our common humanity.

    We observe:

    In order to attract manufacturing jobs from multinational 
corporations, the human person and integrity of creation has been 
systematically violated as Central American countries allow practices 
that breach internationally recognized labor and environmental 
standards. A recent report by Human Rights Watch found workers in El 
Salvador export processing factories are often denied overtime pay, 
deprived by employers of their social security contributions, and 
systematically denied their right to freedom of association.\3\ CAFTA's 
chapter 16 on labor only requires countries to effectively enforce 
their own labor laws, regardless of the fact that many are far below 
the International Labor Organization (ILO) core labor standards.\4\ 
Fines are the penalty mechanism used when parties cannot resolve the 
dispute over a country that failed to enforce its own labor laws.\5\ 
But this is likely to be ineffective because penalties are levied on 
governments of the countries where the violations occur, not the 
companies that violate. In fact, the fines that the governments pay 
would actually be paid back to themselves to fund ``appropriate'' labor 
initiatives. And nothing stops governments from shifting the amount 
equal to the fine out of the labor budget into the budget that paid the 
fine, effectively canceling out the fine.
---------------------------------------------------------------------------
    \3\ Human Rights Watch. (2003) El Salvador: Government Ignores 
Widespread Labor Abuse CAFTA Must Include Strong Protection for 
Workers' Rights. Dec. http://www.hrw.org/press/2003/12/
elsalvador120403.htm
    \4\ The ILO core labor standards include the rights to freedom of 
association, collective bargaining, the elimination of forced labor, 
the abolition of child labor, and the elimination of discrimination.
    \5\ U.S. Central American Free Trade Agreement, Art. 20.17.
---------------------------------------------------------------------------
    Also a threat to common humanity, CAFTA's Intellectual Property 
Rights rules in Chapter 15 would grant exclusivity on medical test data 
to pharmaceutical companies for five years. This would have the effect 
of establishing a five-year patent monopoly and a ban on generic 
production of certain medicines.\6\ This would be the case even if the 
patent term have expired and even if countries have issued compulsory 
licenses that would otherwise allow them to produce and sell generics 
while a product is patented--making it difficult for Central American 
governments to obtain cheaper drugs to meet their public health needs.
---------------------------------------------------------------------------
    \6\ This analysis came in part from Weissman, Robert. (2004) Dying 
for Drugs: How CAFTA Will Undermine Access to Essential Medicines. 
Essential Action, March.

    2) International trade and investment activities should advance the 
common good and be evaluated in the light of their impact on those who 
---------------------------------------------------------------------------
are most vulnerable.

    We observe:

    The final CAFTA agreement is closely modeled after the NAFTA and 
will have similar impacts on the poor and vulnerable. Although the 
agreement helped provide employment opportunities and improved 
standards of living for some, NAFTA has not fully measured up to the 
principle of advancing the common good. Nobel Laureate economist Joseph 
Stiglitz has described NAFTA's impact on Mexico since the agreement 
passed ten years ago: poor Mexican farmers have faced an uphill battle 
in their effort to compete with highly subsidized American corn, local 
small-sized enterprises have lost access to credit from foreign-owned 
banks, growth has slowed, income disparities between the U.S. and 
Mexico grew and real wages have fallen.\7\ In an analysis of the CAFTA 
text by Oxfam International,\8\ they found that many Central American 
producers of basic grains, such as corn, rice, beans and sorghum, as 
well as poultry, pig, cow and dairy farmers, will be forced out of 
business by the flood of cheap subsidized goods coming from the U.S. 
The only products that will continue to receive protection under CAFTA 
are white corn in Central America, fresh onions and potatoes in Costa 
Rica, and sugar in the U.S. Because of the importation of highly 
subsidized U.S. yellow corn, prices in the region will likely suffer a 
dramatic drop, seriously affecting producers. As happened in Mexico, 
subsistence and small farmers will migrate off their lands to the 
already overcrowded urban centers experiencing high levels of 
unemployment.
---------------------------------------------------------------------------
    \7\ Growth has slowed to 1% on a per capita basis (from 3.2% during 
1948-73), income disparities between the U.S. and Mexico has grown by 
10.6%, and real wages have been falling at a rate of 0.2% a year. 
Stiglitz, Joseph. (2004) The Broken Promise of NAFTA. The New York 
Times, Op-Ed. Jan. 6
    \8\ Galian, Carlos. (2004) CAFTA: The Nail in the Coffin of Central 
American Agriculture. Oxfam International, March.

    3) International trade and investment policies and decisions should 
be transparent and should involve the meaningful participation of the 
---------------------------------------------------------------------------
most vulnerable stakeholders.

    We observe:

    The negotiating text of CAFTA was never available to civil society 
until the negotiations were completed. Without creating negotiating 
mechanisms that include the participation of all who are affected, we 
cannot expect the outcomes to benefit them. In the U.S., Congress 
approved Trade Promotion Authority (TPA) also known as `fast track'. 
This legislation gives the executive branch the power to negotiate 
trade agreements and leaves Congress with two options: vote yes or no. 
As a result, Congress cannot respond to constituents and influence or 
amend the agreement.

    4) International trade and investment systems should respect the 
legitimate role of government, in collaboration with divil society, to 
set policies regarding the development and welfare of its people.

    We observe:

    The CAFTA would prevent government procurement processes that give 
preferences to local firms in granting contracts--making criteria other 
than price and quality `unnecessary barriers to trade'. This means that 
the use of government contracts to promote gender equity, social 
justice and respect for human rights would be prohibited. For example, 
living wage legislation, which mandates that a municipality can only 
hire suppliers that pay their employees a living wage--higher than 
minimum wage and determined locally--would be undermined. Although the 
U.S. negotiated an exception for procurement policies on behalf of its 
own small and minority businesses--and Costa Rica and Nicaragua did the 
same for small, medium and micro enterprises--El Salvador, Guatemala 
and Honduras filed no such exceptions.\9\
---------------------------------------------------------------------------
    \9\ U.S. Central American Free Trade Agreement, Annex 9.1 Section G
---------------------------------------------------------------------------
    The U.S. pushed for an investment agreement in the CAFTA that 
prohibits performance requirements intended to influence the behavior 
of foreign investors. As a result, governments cannot mandate that a 
foreign company buy a certain percentage of its inputs from a domestic 
producer or hire a certain percentage of local people. Historically, 
this was a common tool used by now developed countries to spur the 
growth of local industries.

    5) International trade and investment systems should safeguard the 
global commons and respect the right of local communities to protect 
and sustainably development their natural resources.

    We observe:

    The CAFTA rules in Chapter 15 on Intellectual Property Rights could 
be used to weaken national or international health and environmental 
standards. According to an analysis of the text done by the Institute 
for Agriculture and Trade Policy \10\ CAFTA would require Central 
American countries to adopt the U.S. model of corporate patenting 
rights including ratification of the Union for the Protection of New 
Varieties of Plants (UPOV) of 1991.\11\ The UPOV allows for patents on 
plants that trump farmers' traditional rights to save their own seeds. 
This would essentially permit multinational biotech corporations to sue 
farmers for patent violations, even when using their own seeds if crops 
become contaminated by pollen drift or distribution systems.
---------------------------------------------------------------------------
    \10\ Olson, Dennis. (2004) Central America Free Trade Agreement: 
Implications for Farmers in Both the U.S. and Central America. 
Institute for Agriculture and Trade Policy/ART, March.
    \11\ U.S. Central American Free Trade Agreement, Art. 15.1
---------------------------------------------------------------------------
CONCLUSION
    Guided by the principles of the Interfaith Statement on 
International Trade and Investment, fair trade in the Western 
Hemisphere is an achievable goal. With these principles incorporated 
into trade agreements, they could foster a more just, sustainable, and 
prosperous human society. In its current form, the CAFTA does not 
measure up to the principles articulated by the Interfaith Working 
Group on Trade and Investment (IWG) and adopted by the board of AFSC in 
2001. For this reason, the IWG and AFSC take a stance against the CAFTA 
agreement in its current form.
                                 ______
                                 
    The following members of the Interfaith Working Group on Trade and 
Investment submit the attached testimony to the House Way and Means 
Committee Hearing on the Implementation of the Dominican Republic-
Central America Free Trade Agreement (DR-CAFTA):
American Friends Service Committee  
Africa Faith and Justice Network  
Center of Concern  
Church World Service  
Columban Missionaries Justice, Peace and Integrity of Creation Office  
Congregation of St. Joseph, Cleveland  
Congregation Sisters of St. Agnes Leadership Team  
EPICA--Ecumenical Program in Central America  
International Jesuit Network for Development  
Leadership Conference of Women Religious  
Maryknoll Office for Global Concerns  
Maryknoll Affiliates  
Medical Mission Sisters: Alliance for Justice  
Mennonite Central Committee U.S. Washington Office  
Missionary Oblates of Mary Immaculate  
Presbyterian Church USA, Washington Office  
Sisters of Charity of Saint Augustine  
Sisters of the Holy Cross Congregation Justice Committee  
United Church of Christ--Justice and Witness Office  
United Methodist Church, General Board of Church and Society  
Women's Division, Global Ministries, United Methodist Church  
Washington Office on Africa  
Witness for Peace  

                                 

       Statement of Trina Tocco, International Labor Rights Fund
    The International Labor Rights Fund (ILRF) would like to thank the 
Committee on Ways and Means, U.S. House of Representatives for the 
opportunity to present testimony related to the Central America Free 
Trade Agreement (CAFTA). ILRF is deeply concerned about ongoing labor 
rights violations in Central America. We believe the agreement will 
force the developing nations of Central America to compete against one 
another to attract limited new U.S. investment by offering low wages 
and foregoing enforcement of labor and environmental laws.
    A strong and enforceable labor chapter might have served to 
mitigate this ``race to the bottom.'' However, as currently written, 
the CAFTA labor chapter will not serve to deter labor rights abuses, 
nor will it effectively deter national governments from downgrading 
their existing labor laws. Thus, as currently written, CAFTA can only 
lead to further degeneration of the labor rights situation in Central 
America, with no effective mechanism available to counteract downward 
pressures.
Analysis of the CAFTA Labor Chapter Enforcement Mechanisms
    Although the CAFTA labor chapter refers to the ILO Declaration on 
Fundamental Principles and Rights at Work, the agreement does not bind 
any of its Parties to ensuring that internationally recognized worker 
rights are incorporated into national laws, or that they are properly 
enforced. The language of the agreement is merely aspirational, 
directing parties to strive to improve their laws, but providing no 
effective reward or sanction for countries in this regard. Indeed there 
is no language in the agreement that would prevent or sanction 
countries from reforming their laws in such a manner as to abrogate the 
internationally recognized worker rights.
    The agreement is thus a step backward from the earlier trade 
arrangements with each country under the Generalized System of 
Preferences (GSP) program. While imperfect, at least the GSP program 
does require beneficiaries to be able to demonstrate that they are 
taking steps to ensure that workers enjoy the internationally 
recognized rights to associate and bargain collectively, to abolish 
child labor, to abolish forced labor and to provide the right to decent 
wages and working conditions. In contrast, CAFTA merely requires 
countries to be enforcing their existing laws, however inadequate those 
laws may be.
    Given the history of the Central America region, we find it 
disingenous to suggest that these countries can be entrusted with 
enforcement of their own labor laws. ILRF and its partners throughout 
the region have conducted extensive research on labor law 
implementation in Central America, dating back to the late 1980s. 
During the past two decades ILRF has used this research to support GSP 
petitions related to Honduras, El Salvador, Costa Rica and Guatemala. 
ILRF and its partners conducted new research on labor law enforcement 
in the region in 2003 and 2004, and found evidence of systematic 
failures to enforce labor laws in all Central American countries. The 
systematic problems identified included a lack of political will at the 
highest levels, corrupt and inefficient labor ministries and courts, 
and intimidation and harassment of workers who attempted to utilize 
legal channels to protect their rights. The language of the CAFTA labor 
chapter, which, as we have mentioned, is largely aspirational, ignores 
the realities of legal enforcement in these countries.
    The single enforceable provision of the chapter, on labor law 
enforcement, does not give us reason to believe that governments will 
improve in this regard. The process for invoking a review of a 
country's compliance is too weak, opaque and limited to create real 
change in labor law enforcement. The CAFTA labor chapter effectively 
sets the fox to guard the henhouse, by creating a review process that 
can only be invoked by another government that is party to the 
agreement. Specifically, a review of one country's labor law 
enforcement can only be triggered if another CAFTA country files a 
request for such a review. Given that there is an extremely poor 
pattern of law enforcement throughout the region, it is extremely 
unlikely that any one country would file a complaint against another, 
for fear of retaliation. In short the very mechanism of the CAFTA labor 
chapter creates the preconditions for a conspiracy of silence among all 
parties to the agreement on the issue of labor law enforcement.
    Civil society actors, in particular workers and their 
representative organizations have no means by which to affect this 
process. The process can only be triggered by a national government, 
and there is no mechanism created by which a civil society organization 
can petition its government to initiate such a review. Moreover, the 
agreement does not even provide the general public with information 
about the outcome of a review, should one ever take place. Thus there 
is no way that the general public in any of the CAFTA countries can 
ever know whether or not the review process, if ever invoked, actually 
resulted in any meaningful dialogue on the issues identified.
    In contrast, the existing GSP provides for a public review process. 
Any individual or organization can utilize this process, which is 
comparatively transparent and accessible, by filing a submission to the 
Office of the U.S. Trade Representative. Throughout the past two 
decades a handful of organizations, including ILRF, the AFL-CIO, and 
Human Rights Watch have researched and filed lengthy petitions 
documenting labor rights abuses in GSP recipient countries. Although 
not all of these cases were successful, nevertheless, the cases obliged 
both the U.S. Administration and regimes in the targeted countries to 
respond, point by point, to allegations of abuse. In Malaysia in 1991, 
an ILRF petition succeeded in convincing the Malaysian government to 
recognize union rights in the electronics sector. A 1996 AFL-CIO 
petition on Thailand succeeded in pushing the Thai government to 
recognize the right of state enterprise workers to form trade unions. A 
1997 petition against Cambodia, filed separately by both the AFL-CIO 
and ILRF, persuaded the Cambodian government to ratify a new Labor 
Code. This process, while admittedly limited in effectiveness, is at 
least superior to the CAFTA process in its relative public 
accessibility and transparency. The fact that the existing GSP process 
will be replaced by the weaker CAFTA review mechanism will create 
further disincentives for the CAFTA governments regarding improvement 
of their labor laws and labor law implementation.

Failure to Guarantee Non-Discrimination
    While the CAFTA labor chapter references the ILO Declaration on 
Fundamental Principles and Rights at Work, it fails to include any 
obligation of governments, even aspirational, with regard to the right 
to a workplace free from discrimination. This right is universally 
recognized as a core labor right and defined in ILO Conventions No. 100 
and 111. We note that a large percentage of the workers expected to 
find employment in export-oriented sectors, such as the maquila 
industry, are women. Our research and that of our allies has found that 
these women workers are subject to discrimination through, among other 
problems, pregnancy testing as a precondition for employment, sexual 
harassment on the job, and non-provision of maternity leave benefits. 
In most instances they have limited legal recourse, and often are 
subject to social and economic pressures that make it in reality 
impossible to claim what legal protections they may have on paper.
    We urge Congress to insist that CAFTA and any future trade 
agreements reference the essential right to a workplace free from 
discrimination. Such a clause would help bring the attention of 
developing countries throughout the world to the plight and problems of 
vulnerable women workers.

Downward Pressure on Labor Laws and Legal Enforcement in Central 
        America
    In December 2004, ILRF and ASEPROLA, a Costa Rican labor rights 
NGO, co-filed GSP petitions against five Central American countries. We 
found that, despite the U.S. Trade Representative's public claims to 
the contrary, even during the period of CAFTA negotiations, Central 
American countries, preparing for competition with one another for 
limited U.S. investment, were taking steps to downgrade their labor 
laws. USTR has not yet responded to the request for review of these 
countries' GSP privileges, and if CAFTA is ratified, then no such 
review will ever take place. We note below some instances, documented 
in these petitions, of legal reforms that would weaken worker 
protections in the region.

    Costa Rica: During the CAFTA negotiations, the Costa Rican 
government has taken steps to weaken existing national labor 
protections. In early 2004 the government introduced a project to 
reform the country's labor code. In particular, proposed legislation 
would modify working hours through a year-long calendar of work shifts 
and the weekly accumulation of working hours, eliminating the standard 
eight-hour workday. The proposed legislation would also eliminate the 
rights to mixed and absolute overtime hours, as it would allow 
employers to increase work hours at times of high demand, and lessen 
work hours in times of low demand. When introducing this legislation to 
the Costa Rican parliament, the government argued that such 
flexibilization of working hours and overtime rules was necessary in 
order to allow Costa Rica to remain competitive with the other Central 
American countries once the CAFTA was ratified. Public pressure on the 
Costa Rican government resulted in some modifications to the proposed 
legislation, which has not yet been introduced to the legislature.

    El Salvador: The emergency law for economic reactivation (LERE), 
which was introduced to the Assembly in 1999, has continued during the 
period of CAFTA negotiations to work its way through the legislative 
process in El Salvador. If approved, LERE would modify salaries and 
working shifts, and increase the allowed length of a trial period for 
new workers and the use of fixed-term contracts. These changes affect 
benefits currently guaranteed by labor law, including vacations and 
social security. The current Labor Code includes indefinite contracts 
and a 30-day test period (during which time the contract can be 
terminated). LERE would make fixed-term contracts and 180-day test 
periods the norm, which means that the social security payments for 
these workers are not made for almost 6 months. This drastically 
increases job instability, making it easier for employers to make 
workers work overtime without extra pay, and to dismiss workers without 
paying penalties or benefits. El Salvador is also considering new 
legislative measures that would weaken existing health and safety 
regulations.

    Panama: There is some evidence that Panama has continued to weaken 
its labor law regime during the past two years when it has been 
involved with trade negotiations with the U.S. (While not a CAFTA 
country, Panama has been negotiating a separate bilateral agreement 
with the U.S., with discussions regarding the possibility that Panama 
would `dock on' to CAFTA). In February 2002, a new regulation was 
passed that provides incentives to companies to hire ``young workers'' 
between the ages of 18 and 25. The incentives include temporary 
exoneration from certain legal protections for these workers. In 
particular, the regulations suspend the protections of certain articles 
of the Labor Code for such workers, in particular the protections for 
maternity benefits. Other reforms are in progress, although they have 
not yet been presented to the Panamanian parliament. These include an 
initiative to modify the Labor Code to eliminate minimum wages 
altogether, and a proposal to reform the country's social security 
benefits to increase the retirement age, quotas, and years of 
contribution to the system. The proposed social security reforms are 
expected to be presented to the Panamanian parliament in early 2005.

    Honduras: In its petition, ILRF and ASEPROLA noted that the USTR 
has failed to implement the terms of a Memorandum of Understanding 
negotiated with the Honduran government as a result of a 1995 GSP 
complaint. The MOU, if implemented would have resulted in important 
changes to Honduran labor law and its labor inspections system. Rather, 
the CAFTA negotiations have tacitly discouraged the Honduran government 
from implementing those commitments and created perverse incentives for 
labor law reform. Currently, the Honduran Ministry of Labor, working 
with employers' groups, is promoting a project to modify the labor law 
with reforms that would generalize fixed-term contracts. It would also 
make the payment for severance payable only on an annual basis so that 
it would not be possible to create special funds with these monies. A 
policy of freezing salaries continues, and Honduran employers are 
increasingly delaying negotiations with workers.

    Guatemala: In 2003, USTR accepted for review GSP petitions filed by 
ILRF and by the AFL-CIO to review Guatemala's country eligibility based 
on its failure to uphold internationally recognized worker rights. 
These petitions cited the judicial impunity with regard to threats and 
violence against trade unionists in Guatemala, the systematic failure 
of the government to enforce existing labor laws, and the need for 
further reforms to the country's labor laws in order to bring it into 
full compliance with international standards. The new ILRF/ASEPROLA 
petition states that the review has failed to bring about meaningful 
progress in these three areas. The labor code reforms passed in 2001 
did not bring Guatemala's labor practices up to acceptable standards, 
and some of these reforms have been reversed by Guatemala's 
Constitutional Courts. A number of promised legislative reforms have 
never materialized.

A Better Alternative
    ILRF strongly urges that any new trade agreement with Central 
America contain a strong, transparent and enforceable labor rights 
mechanism. Sustained economic development will elude a vast majority of 
the populations of the Central American countries without such a 
mechanism.
    The key elements of a workable enforcement mechanism to apply upon 
the failure of a national enforcement system can be easily stated. 
First and foremost, any enforcement process must be democratic and 
transparent. A major criticism of the WTO enforcement panels is that 
they are closed to the public and operate in secrecy. CAFTA replicates 
this secretive model. All processes involving enforcement must be fully 
transparent, including a written public record of all proceedings and 
open hearings. There also needs to be a clear appeals process.
    Second, access to the enforcement process must be available to all 
interested parties, not just the government signatories to the trade 
agreement. The key constituency here is the workers themselves, most of 
whom are not currently represented by a trade union. They must have 
direct access to an enforcement process. Also, other stakeholders, such 
as NGOs and labor organisations, must have access to the process.
    Third, the enforcement process must make a distinction between 
violations that are attributable to private actors, including 
multinationals, and therefore require remedies more in the line of 
penalties, and those that are attributable to governments, and might be 
better addressed by trade sanctions. Penalties directed at companies, 
with the cooperation of the host government, will resolve most 
problems. This also leaves problem solving within the firm control of 
the individual governments and allows them to act to prevent any 
protectionist use of the enforcement process. If a country ultimately 
refuses to enforce its own laws, as per the commitment made in its own 
laws and the international standards, there must be a system of 
penalties to encourage compliance, with the ultimate sanction being 
exclusion from the benefits of the trade agreement.
    Finally, in keeping with the ILO standards, a model labor clause in 
CAFTA or any other trade agreement must include language recognizing 
the right of workers to a workplace free from discrimination, as 
defined by ILO Conventions No. 100 
and 111.

                                 

   Statement of Mark Berlind, Kraft Foods, Inc., Northfield, Illinois
    Mr. Chairman, Members of the Committee, I am Mark Berlind, 
Executive Vice President, Global Corporate Affairs, Kraft Foods, Inc. 
Thank you for allowing me to submit this statement on the U.S.-Central 
America-Dominican Republic Free Trade Agreement (CAFTA-DR). Trade is an 
issue of vital importance to Kraft, our 50,000 U.S.-based employees, 
our stakeholders, other U.S. food manufacturers, and thousands of 
American farmers who supply high quality raw materials to the U.S. food 
processing industry.
    Kraft Foods, which recently celebrated its one hundredth 
anniversary, traces its origin back to the days when James L. Kraft 
rented a horse and wagon and started selling cheese in Chicago. The 
company he founded and built is now the largest branded food company in 
the U.S. and the second largest in the world. Last year, Kraft reported 
net revenues of over $32 billion from sales in 155 countries.
    The Chicago area is still our home, and America remains our biggest 
market. Kraft products can be found in 99% of American households. In 
addition to our flagship cheese brands, we take pride in producing and 
marketing many other iconic food and beverage brands, including Ritz 
crackers, Post cereals, Maxwell House coffee, DiGiorno pizza, Oreo 
cookies, Planters nuts, and Oscar Mayer meat products.
    Kraft is essentially in the business of transforming raw or semi-
processed farm commodities into consumer-ready products. On a global 
basis, Kraft buys $7 billion worth of agricultural commodities 
annually. We are one of the world's largest buyers of dairy products, 
sugar, meats, coffee, oils, and nuts. We also purchase large quantities 
of wheat, rice, corn, and soy and other crops.
    Last year, for use in our U.S. manufacturing facilities, we bought 
$3.6 billion worth of farm commodities. This included $1.3 billion 
worth of dairy products, nearly half a billion dollars worth of pork, 
and almost one quarter of a billion dollars worth of sugar.
    We believe that the growth and success of Kraft and the strength of 
our brands is directly linked to the emphasis we place on providing 
consumers with high quality, good-tasting, convenient and fun products 
at the right price. This involves a constant challenge to provide 
better products to our customers at the best value.
    The 50 U.S. states are currently Kraft's largest market. Given U.S. 
demographic realities, however, future growth for Kraft--as well as for 
the entire U.S. food and agriculture complex--is inextricably tied to 
our ability to access export markets. Mr. Chairman, as you and most 
other farm state Members know, 95 percent of the world's consumers live 
outside the U.S. That is where future growth will take place.

Kraft and Entire U.S. Food Industry Would Benefit from Access to CAFTA-
        DR 
        Markets
    There are about 46 million consumers living in the six CAFTA-DR 
countries (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and 
the Dominican Republic). With moderate population growth, rising 
incomes, and improved diets, demand for U.S. processed foods is 
expanding.
    For U.S. food and agricultural producers, in particular, population 
age and growth are among important indicators of market potential. For 
comparison purposes, the median age of the U.S. population is 36 years, 
and rising. Median ages for our six prospective CAFTA-DR partners are 
dramatically younger, ranging from 18.4 years in Guatemala to 25.7 
years in Costa Rica. And, while the U.S. population is growing at a 
rate of less than one percent (.92%) annually, rates for the six 
countries range from 1.33 percent for the Dominican Republic to 2.61 
percent for Guatemala. These numbers have striking implications for 
projected levels of food consumption inside the U.S. vs. within the six 
CAFTA-DR countries over the foreseeable future.
    In general, U.S. exports of processed food products already capture 
roughly one quarter of total food imports into the six countries, and 
U.S. brands--including a number of well-known Kraft brands--are popular 
throughout the region. Already, exports of many processed food products 
are growing faster than other agricultural products. We are convinced 
CAFTA-DR would make Kraft products even more competitive, and more 
popular, in the region.

Cereals, Cookies, Soups, Pet Food Would Benefit from Immediate Tariff 
        Relief
    Food, beverages, and consumer products currently face an average ad 
valorem tariff of 15 percent in the five CAFTA countries and 20 percent 
in the Dominican Republic (DR). Some food products like processed 
cheese and cream cheese--products of special interest to Kraft--face 
tariffs that range up to 66 percent in some CAFTA countries. Under the 
Agreement, tariffs on U.S. exports of most food and beverage products 
would be reduced to zero over fifteen years. Certain products, such as 
breakfast cereals, cookies, and pet food products would receive 
immediate duty free treatment. This means Kraft would benefit 
immediately on products like our Post breakfast cereals, Oreo cookies, 
and Milk Bone pet foods.
    The DR is currently the largest market of the six for Kraft 
products. And, that market could be much larger if it were not 
constrained by the most daunting tariffs we face in the region. During 
2004, Kraft shipped nearly 700 tons of food products, worth $1.7 
million, to the DR. This included 192 tons of Kraft Mayonnaise, 65 tons 
of Oreos and Chips Ahoy cookies, and 62 tons of Kraft Macaroni and 
Cheese. While the DR technically maintains a tariff of 20 percent on 
most food products, other added import charges lift the total effective 
rate to 33 percent. Consequently, it cost Kraft over a half million 
dollars in tariffs to enter the products we shipped to the DR in 2004. 
Much of this cost would be passed forward to the DR consumer. Because 
it is fundamental that the higher the price, the less the consumer 
buys, there is no question that the present 33 percent effective DR 
tariff retards sales of Kraft and other imported U.S. food products. 
Elimination of tariffs would boost sales and could encourage the 
introduction of new product lines.
    Others have already stressed that the U.S. charges no tariffs on 
nearly all of the food and agriculture products received from the 
CAFTA-DR countries. From Kraft's perspective, CAFTA-DR would simply 
level the playing field, and create a more equitable trading 
relationship.

Solid Prospects for Export Growth in Processed Foods
    A recent study by the Grocery Manufacturers of America (GMA) 
estimated that the potential savings to the processed food industry 
from the tariff reductions and tariff-rate quota expansions provided 
for under CAFTA-DR would be nearly $8.8 million in the first year of 
the Agreement. This figure grows to nearly $28 million annually upon 
full implementation of the Agreement. Upon elimination of tariffs, food 
exports could, according to this study, increase from $359 million to 
$662 million--an 84% increase over current exports to the region, 
according to the GMA study.
    During 2004, the value of shipments of Kraft consumer products from 
the U.S. into the six CAFTA-DR countries totaled $10.6 million. Well 
over $2 million in tariffs were paid to enter these goods. Full 
implementation of the Agreement would, of course, eliminate tariffs on 
all of our sales to the region. While we expect significantly increased 
sales associated with implementation of the Agreement, we have not 
projected expected growth in sales of Kraft products. Ultimately, the 
greatest benefits to Kraft may come in cheese categories--a sector of 
the CAFTA-DR market where we now often face insurmountable barriers. 
The GMA growth forecast could very well be conservative.

Agreement Should Remain Comprehensive--No Exclusions
    One of the most important features of the Agreement for Kraft and 
for the entire U.S. processed food industry is its comprehensiveness. 
All products are included in the Agreement, including sugar, a key 
ingredient for Kraft and for many food and beverage manufacturers. The 
Agreement provides for increased access to lower-priced Central 
American and DR sugar, but in a very modest way that fully recognizes 
the sensitivity of this commodity in our country.
    Kraft is a strong supporter of trade liberalization and a vigorous 
advocate for this and most other trade agreements. We believe such 
agreements create opportunity and are good for our employees, our 
stakeholders, our industry, and our country.
    The food industry believes that no products should be excluded from 
FTA's negotiated between the U.S. and other countries. We--and most of 
the U.S. food industry--did not support the U.S.-Australia FTA because 
sugar was excluded. We're convinced that--as the Australian experience 
proved--the exclusion of any single commodity from free trade 
agreements because of our import sensitivities provides our trading 
partners with an excuse to take their import sensitive issues off the 
table as well. This downward spiral in ambition jeopardizes the very 
benefits that our economy derives from free trade. In the case of 
CAFTA, we would expect that an attempt to re-negotiate sugar would, at 
a minimum, erode benefits for other U.S. agricultural commodities, 
possibly dairy and poultry, but more likely this would cause the entire 
delicately balanced Agreement to unravel.
    As a country that enjoys the world's strongest economy, our message 
to other countries simply can't be that we're only interested in free 
trade in those goods and services for which we maintain a competitive 
advantage. I am here today to express Kraft's strong endorsement of 
this Agreement in its entirety, even though some benefits for U.S. 
exporters will literally take years to be realized. However, if there 
were to be a decision subsequent to this hearing that upsets the 
delicate balance that the negotiators reached in order to forge an 
agreement by taking specific commodities off the table--including 
nullification of the current sugar provisions--Kraft would have a very 
difficult time continuing to support this pact.
    As I noted earlier, Kraft is a major buyer and user of sugar. Since 
a penny change in the U.S. per pound price of sugar means $8 million 
annually to Kraft, we regard ourselves as a major stakeholder in the 
sugar program debate. We recognize the need to preserve a viable 
domestic sugar industry. The current support scheme, however, 
essentially imposes a regressive tax on U.S. consumers of sugar-
containing products. According to U.S. submissions to the WTO, the tax 
transfers a trade-distorting subsidy of over $1 billion annually to 
U.S. sugar growers. This is money that comes directly out of consumers' 
pockets.
    Kraft favors safety net assistance to agricultural producers, 
including sugar. There is broad agreement that CAFTA-DR, provides more 
protection for sugar than for any other commodity, while at the same 
time adhering to the principle that every commodity needs to be 
addressed--even if minimally--in free trade agreements. The overall 
compromise that the negotiators reached on these difficult issues needs 
to be preserved.
    CAFTA-DR, like all trade agreements, is fundamentally a political 
agreement. As all of you know, political agreements involve compromise 
and are rarely perfect from all perspectives. While Kraft supports this 
Agreement, there are elements of the pact we, too, wish were different. 
For example, it would take 20 years for CAFTA tariffs on cheese and 
other dairy goods--products of keen interest to Kraft--to reach zero. 
Twenty years is the longest tariff phase-out period in the entire 
Agreement and the longest tariff phase-out the U.S. has accepted in any 
trade agreement. On the import side, the increases for sugar are very 
small and the over-quota tariff on sugar is never eliminated--another 
feature of this Agreement unique to sugar. Though not perfect, we 
regard this as a good Agreement for us on balance, and we are 
determined to do all we can to advocate that it is implemented as 
negotiated.

Critical Non-Commercial Considerations
    While we believe that there are adequate commercial reasons to 
approve this agreement, there are additional factors that should be 
considered in evaluating this issue. As I noted earlier, Kraft is 
already active in these countries. Not only do we have customers in 
these markets, we have employees and shareholders in the region. We are 
aware that business and industry leaders in these countries are eagerly 
looking forward to forging a new and stronger trade relationship with 
the U.S. Kraft believes that CAFTA-DR would strengthen our mutual 
competitiveness, enhance political stability and contribute to the 
security of the entire North American continent.
    Leaders of these six nations appear to be fully committed to 
economic development, including the dismantlement of trade barriers. If 
the United States is unwilling to support and partner with them, the 
reality is that they would find other eager partners, ceding these key 
and growing markets to others and further disadvantaging U.S. 
businesses, employees, ranchers and farmers.
    Finally, we believe that Congress should seriously consider the 
effect of its decision regarding CAFTA-DR on the credibility of U.S. 
negotiators. Failure of Congress to approve legislation to implement 
CAFTA-DR would dash the credibility of our trade negotiators and cast a 
chill over all ongoing U.S. trade negotiations. The perception of our 
trading partners would be that commitments made by U.S. negotiators 
cannot be trusted and that the U.S. is abandoning the leadership 
position it has held on trade since the end of World War II.
    Kraft strongly supports CAFTA-DR. We urge the Committee and the 
Congress to vote for legislation that would implement this critically 
important agreement.

                                 

 Statement of Gabriela Lemus, League of United Latin American Citizens
    Thank you for the opportunity to share my organization's views on 
the proposed Central America Free Trade Agreement (CAFTA). I submit my 
statement for the record.
    With approximately 115,000 members throughout the United States and 
Puerto Rico, the League of United Latin American Citizens (LULAC) is 
the largest and oldest Hispanic Organization in the United States. 
LULAC advances the economic condition, educational attainment, 
political influence, health and civil rights of Hispanic Americans 
through community-based programs operating at more than 700 LULAC 
councils nationwide. The organization involves and serves all Hispanic 
nationality groups.
    LULAC strongly supports enhanced economic opportunities for 
Hispanic Americans, and we have been supporters of trade agreements in 
the past, including the North American Free Trade Agreement (NAFTA) 
over a decade ago. Today, however, we oppose the expansion of NAFTA to 
five additional Central American countries and the Dominican Republic 
through CAFTA.
    Eleven years ago, we were promised that NAFTA would offer economic 
gains for U.S. Latinos and development for Mexico, that NAFTA side 
agreements would help raise labor and environmental standards on both 
sides of the border, and that substantial funds would be provided for 
U.S.-Mexico border clean-up efforts.
    None of these promises have been kept. Instead, Hispanics have been 
disproportionately negatively impacted by these trade agreements. All 
told, nearly a million U.S. jobs have been lost in the United States 
due to NAFTA trade. The tragedy for Hispanics is that, according to a 
Government Accountability Office study, in some years as many as half 
of the workers displaced by NAFTA trade have been Hispanics, as 
Hispanics have consistently accounted for more of the Trade Adjustment 
Assistance certifications than their share of the U.S. population. 
Moreover, Hispanics have shared in the experience of most U.S. working 
families in seeing the median real wage scarcely grow since the 1970s, 
while productivity has grown over 80 percent and income inequality has 
skyrocketed.
    The deterioration of economic opportunity has extended to the other 
side of the border as well. In Mexico, 1.5 million farmers have been 
thrown off of their land as a result of NAFTA trade, while the Mexican 
minimum wage has lost nearly a fifth of its value and industrial wages 
a tenth of theirs. Mexicans' income growth has been particularly 
disappointing, not even a third of what they had prior to their period 
of trade liberalization. The real tragedy for development is that if 
the Mexican economy had continued to grow at its historic pace, 
Mexicans would have doubled their living standard by now and enjoyed 
near European living standards. CAFTA would replicate the same anti-
development model.
    At a minimum, LULAC and others that supported NAFTA were promised 
that any damage that might come about as a result of the agreement 
would be mitigated by the pact's labor and environmental side 
agreements. But these side agreements were left severely under funded 
and were never given real enforcement power. In short, they lacked the 
teeth to truly help improve and ensure the quality of life on both 
sides of the border.
    The results of the San Diego-Tijuana Environmental Health 
Coalition's (EHC) landmark case concerning the Mexican government's 
refusal to clean up toxic waste left by an abandoned Tijuana factory, 
Metales y Derivados, is instructive. EHC's claim was processed and won 
through the adjudication procedures of the North American Commission 
for Environmental Cooperation (NACEC), which was created by NAFTA's 
environmental side agreement.However, despite the ruling, the NAFTA 
side agreement commission could not compel the cleanup of the more than 
7,000 tons of toxic waste, which still lie exposed to the elements just 
a mile from the U.S. border. There have been a series of cases under 
NAFTA's investment rules in which corporations have been awarded cash 
compensation from governments based on claims of violations of their 
NAFTA-granted investor rights. In contrast, the only outcome of EHC's 
citizens-claim was a report from the commission acknowledging that 
there had been a violation, with no other result or penalty.
    Other examples of NAFTA failure abound. The North American 
Commission on Labor Cooperation (NACLC), the tri-national NAFTA body 
that was supposed to ensure that countries enforced their own labor 
laws, never received its full funding. In fact, out of the $2 million a 
year in U.S. contributions that was authorized to be appropriated in 
the NAFTA implementing legislation, only a third was ever actually 
disbursed. This is a real tragedy given that even the authorized amount 
was woefully insufficient. Furthermore, the labor side agreement had 
such a cumbersome process for getting a review of labor rights 
violations that, as of today, 30 submissions has been made under the 
labor agreement, none of which have made it past the earliest stages of 
review, report and intergovernmental consultation. Not a single 
illegally fired worker has been reinstated, not a single independent 
union has been established and bargained collectively, and not a single 
workplace hazard has been corrected as a result of NAFTA and the NACLC.
    Things were not much better for the NAFTA promises made for the 
border environment. Estimates for clean-up on the U.S.-Mexico border 
range from $8 to 21 billion, or six times the entire capital of the 
North American Development Bank (NADBank), established as a part of the 
NAFTA implementing legislation. But even the minimal promise was not 
kept. In fact, the U.S. Treasury Department reports that the NADBank 
had only directly loaned $23.5 million in low-interest loans to finance 
projects over its first seven years of operation, and disbursed only 
$11 million of that money--or less than 0.4 percent of its lending 
capacity-- in large part because of the inability of impoverished 
border communities to afford the high interest rates and user fees.
    The promise that NADBank would dedicate ten percent of its capital 
to helping communities adjust to trade was also dramatically broken, as 
the bank's domestic adjustment window has made direct loans totaling 
only $7.84 million, or just over two percent of the $300 million 
envisaged.
    It is this history of failure to achieve the minimum of what was 
promised that informs LULAC's opposition to CAFTA. These unsuccessful 
policies have led to a doubling of undocumented migration to the United 
States from Mexico since NAFTA was enacted, and increased U.S. border 
policing and militarization that have led to more than 2,700 deaths 
from failed border crossings in desperate attempts to seek the American 
dream. We are concerned that CAFTA will preclude and prevent real and 
much needed economic and social development.
    In this regard, one ought to notice CAFTA's enhanced monopoly 
protection for brand name pharmaceuticals, a provision which led the 
U.S. Administration to directly pressure Guatemala to rescind a public 
health law expanding access to generic, low cost medicines. For many of 
the Central American countries, who experience relatively high rates of 
infant mortality and exposure to infectious diseases, such a provision 
is morally unacceptable.
    We are also concerned that the welfare of women, children and their 
families will be worsened under a CAFTA. Human Rights Watch has amply 
documented the labor standards of Central American countries, which 
fail to meet ILO standards and include instances of child labor on 
sugar plantations and the abuse of pregnant women in the export 
processing zones. LULAC has consistently spoken out against the abuses 
against women in the maquila industry on the U.S.-Mexico border, where 
violence and even disappearances of women have soared since NAFTA has 
taken place. The toothless labor provisions of CAFTA--like those of 
NAFTA before them--will hinder the efforts of civil and human rights 
groups to seek meaningful solutions to these problems.
     In short, LULAC believes that what Hispanics need is economic 
opportunity, and what Latin America needs is development. There is no 
evidence that this model of trade agreement, nor its side accords, have 
contributed in any way towards attaining this goal in the past, and 
there is no reason to think it would do so in the future with Central 
America. The track record is clear: the NAFTA/ CAFTA model has failed.
    Finally, much has been made about CAFTA serving as a lifeboat for 
the Central American textile and apparel industry in the face of 
enhanced Chinese competition in following the global quota expiration. 
We know that the U.S., Mexican and Central American industries have 
indeed already lost much production to Asia. This loss will continue 
due to China's cost advantage--even after one accounts for shipping and 
tariff costs--over other regions. The NAFTA/ CAFTA model does nothing 
to change this reality. It offers a promise which it can never fulfill.
    Central America already has duty-free access to the U.S. market 
under the Caribbean Basin Initiative (CBI), and in CBI there are 
stronger incentives to use the U.S. inputs that Hispanics in the U.S. 
textile industry help produce, along with stronger mechanisms to force 
labor standards improvements in Central American countries. While some 
have suggested that the ability of the United States to impose 
safeguards on Chinese imports offers a relative advantage to the 
Central American apparel industry, U.S. law allows these to be applied 
only until 2008. The anti-development bias in the NAFTA/ CAFTA model, 
however, would last forever.
    After three lost decades in terms of real gains in U.S. family 
incomes and Latin American growth rates, the cause of economic 
development and civil rights are best served without more of the same 
under CAFTA.

                                 

    Statement of Dan Glickman, Motion Picture Association of America
    On behalf of the Motion Picture Association of America (MPAA) and 
the Entertainment Industry Coalition (EIC), of which MPAA is a member, 
I would like to take this opportunity to thank the committee for 
holding this hearing on the U.S.-Dominican Republic Central America 
Free Trade Agreement (DR-CAFTA). The DR-CAFTA creates new opportunities 
for America's entertainment industries and workers in terms of U.S. 
jobs and exports. This agreement also establishes important precedents 
for future Free Trade Agreements (FTAs) to be negotiated with other 
countries.
    The MPAA is a trade association representing the interests of seven 
of the largest producers and distributors of films, home video 
entertainment and television programs. Its members are Buena Vista 
Pictures Distribution; Metro-Goldwyn-Mayer Studios Inc.; Paramount 
Pictures; Sony Pictures Entertainment Inc.; Twentieth Century Fox Film 
Corporation; Universal Studios from Universal City Studios; and Warner 
Bros. Entertainment Inc.
    The EIC is a coalition representing trade associations, guilds, a 
labor union and companies that produce, distribute and exhibit films, 
recorded music and video games. The coalition's members include the 
MPAA, the Recording Industry Association of America, the National 
Association of Theater Owners, Independent Film & Television Alliance 
and the Electronic Software Association.
Importance of the Copyright Industries to the U.S. Economy
    The copyright industries reach across all fifty states and into 
almost every corner of the globe. The innovation and creative works 
they produce not only entertain us and make our lives easier; they 
represent an enormous engine of economic growth, prosperity and job 
opportunity. In 2002, the U.S. ``core'' copyright industries \1\ 
accounted for an estimated 6% of the U.S. gross domestic product 
($626.6 billion), and employed 4% of U.S. workers in 2002 (5.48 million 
workers). Between 1997-2002, the core copyright industries added 
workers at an annual rate of 1.33%, exceeding that of the U.S. economy 
as a whole (1.05%) by 27%. Factoring out the difficult economic year of 
2002, between 1997-2001, employment in the core copyright industries 
grew at an annual growth rate of 3.19% per year, a rate more than 
double the annual employment rate achieved by the U.S. economy as a 
whole (1.39%).
---------------------------------------------------------------------------
    \1\ The ``core'' industries are those industries whose primary 
purpose is to produce or distribute copyright materials. These 
industries include newspapers, book publishing, recording, music, and 
periodicals, motion pictures, radio and television broadcasting, and 
computer software (including business application and entertainment 
software).
---------------------------------------------------------------------------
    In 2002, the U.S. ``total'' copyright industries \2\ accounted for 
an estimated 12% of the U.S. gross domestic product ($1.25 trillion) 
and employed 8.41% of U.S. workers (11.47 million workers). This level 
approaches the total employment levels of the entire health care and 
social assistance sector (15.3 million) and the entire U.S. 
manufacturing sector (14.5 million workers in 21 manufacturing 
industries).
---------------------------------------------------------------------------
    \2\ The ``total'' industries are composed of four groups called the 
core, partial, non-dedicated support, and interdependent sectors.
---------------------------------------------------------------------------
    In 2002, the U.S. copyright industries achieved foreign sales and 
exports estimated at $89.26 billion, leading other major industry 
sectors such as: chemicals and related products, food and live animals, 
motor vehicles, parts, and accessories, and aircraft and associated 
equipment sectors.
    Protecting the copyright industries and the intellectual property 
they are based upon goes hand in hand with protecting the U.S. economy 
and job market. To that end, the DR-CAFTA provides for better 
intellectual property (IP) protections and more improved market access 
than the industry has seen in previous agreements. Central America and 
the Dominican Republic are currently pirate markets for the MPAA's 
member companies; this agreement would go a long way toward 
establishing legitimate markets and will help set the stage for 
effective enforcement of intellectual property laws. Moreover, the DR-
CAFTA will set higher standards of IP protections and market access in 
future trade agreements.
TRIPS Plus Provisions For IP Protections In The Digital Economy
    The DR-CAFTA builds on the framework of copyright protections 
provided by the World Trade Organization's agreement on trade related 
intellectual property. The signatories of the DR-CAFTA agree to 
implement the WIPO Internet Treaties, which provide world-class IP 
standards on treatment of digital copyrighted material, upon entry into 
force of the Free Trade Agreement. This establishes strong anti-
circumvention provisions to prohibit tampering with technologies that 
are designed to prevent piracy and unauthorized distribution over the 
Internet. It also ensures that copyright owners have the exclusive 
right to make their works available online, and it provides an 
expeditious process that allows for copyright owners to engage with 
Internet Service Providers and subscribers to deal with allegedly 
infringing copyright material on the Internet. In addition, DR-CAFTA 
protects copyrighted works for extended terms, in line with emerging 
international trends.
Strengthened IP Enforcement
    The DR-CAFTA offers strengthened intellectual property enforcement 
in several ways. The agreement increases in criminal and civil 
protection against the unlawful decoding and distribution of encrypted 
satellite TV signals, and it criminalizes end-user piracy, providing 
strong deterrence against piracy and counterfeiting. It requires both 
parties to authorize the seizure, forfeit, and destruction of pirated 
products and the equipment used to produce them and also provides for 
enforcement against goods-in-transit, to deter violators from using 
ports or free trade zones to traffic in pirated products. In addition, 
it includes agreed criminal standards for copyright infringement and 
stronger remedies and penalties.

Broadcast Policy
    The members of the MPAA have had a long-standing and serious 
problem with broadcast piracy--the unlicensed and illegal 
retransmission of broadcast signals--in the Dominican Republic. 
However, an August 5, 2004 side letter to the DR-CAFTA agreement 
already provides a strong commitment to eliminate broadcast piracy by 
the Government of the Dominican Republic. One favorable judgment 
against a notorious pirate broadcaster was received late last year.

Zero Tariffs On Entertainment Products
    The Agreement committed to zero tariffs on all movies, music, 
consumer products, software, books and magazines that our companies 
export into the countries. It also reaffirmed that customs duties are 
based on the value of carrier media and not the value of the movie, 
music, or software contained on the carrier media in order to assist in 
efforts to create global consensus on this customs valuation standard.

Improved Market Access For Audiovisual Services
    DR-CAFTA demonstrates that a trade agreement can harmonize two 
important objectives--trade liberalization and the promotion of 
cultural diversity. It avoids the ``cultural exceptions'' approach, 
while demonstrating that a trade agreement has sufficient flexibility 
to take into account countries' cultural promotion interests. This 
agreement includes important provisions to ensure market access for 
U.S. films and television programs over a variety of media including 
cable, satellite, and the Internet. It also has strong investment 
protections that will benefit theater chains. U.S. cinemas are building 
new multiplexes in Central American countries and the investment 
protections that they receive in DR-CAFTA will help to protect and 
promote their growth. These multiplexes in turn provide an important 
base for expanding the filmed entertainment market.
    The Agreement also has broad commitments to open services markets 
(with few exceptions) across a range of sectors important to the 
entertainment industries, including but not limited to computer and 
related services, telecommunications services, audiovisual services, 
advertising, and distribution services, such as wholesaling and 
retailing. In addition, there are disciplines that ensure a more 
competitive telecommunications market including disciplines that 
require cost-based Internet access (through leased circuit services). 
Such disciplines will be particularly important in safeguarding 
competition against Costa Rican state-owned telecomm company.

Free Trade In Digital Downloads/E-Commerce
    The Agreement contains groundbreaking commitments on e-commerce, 
which will help stimulate development of advanced telecommunications 
infrastructure in these countries. These commitments will in turn 
ensure benefits for the filmed entertainment industry under this 
Agreement far into the future. The DR-CAFTA also includes a commitment 
to non-discriminatory treatment of digital products including DVDs and 
CDs; and agreement not to impose customs duties on such products.

Agriculture
    The Chief Executive Officer of the Motion Picture Association of 
America would not generally be expected to opine on issues involving 
trade in agriculture. But, as a former Secretary of Agriculture, I was 
honored to join five other former Secretaries of Agriculture: Ann 
Veneman, Mike Espy, Clayton Yeutter, John Block and Bob Bergland in a 
letter released on April 19, 2005, in recognizing the significant 
benefits this Agreement will bring to U.S. farmers, ranches, food and 
agriculture organizations and in urging members of congress to support 
this Agreement. A copy of our letter is attached.

Conclusion
    In conclusion, the Motion Picture Association of America has long 
been appreciative of the leadership shown by the Office of the U.S. 
Trade Representative in negotiating important provisions for good 
market access and intellectual property rights protections in previous 
FTAs, and we thank them again for their hard work on the DR-CAFTA. In 
turn, Congress has in the past and should again recognize the 
importance of these agreements to the U.S. economy and job market by 
approving them. On behalf of the MPAA, its member companies, and the 
members of the Entertainment Industry Coalition, I hope that Congress 
will vote in favor of the U.S.-Dominican Republic Free Trade Agreement 
and the job opportunities, market expansion, and strong intellectual 
property and investment protections it provides to the entertainment 
industry. Thank you.
                                 ______
                                 

             Letter from Former Secretaries of Agriculture

  To Members of the U.S. House of Representatives and the U.S. Senate

Dear Member of Congress:

    As former secretaries of agriculture, we understand the importance 
of negotiating trade deals that minimize the costs and maximize the 
benefits to U.S. farmers, ranchers, and food and agriculture 
organizations. We support the Free Trade Agreement with Central America 
and the Dominican Republic (CAFTA-DR) because the benefits are very 
significant and the costs are minimal. We urge you to pass CAFTA-DR 
quickly and without amendment.
    A vote for CAFTA-DR is a vote for fairness and for reciprocal 
market access. Under CAFTA-DR all of our food and farm products will 
receive duty free treatment when the agreement is fully implemented.
    A vote against CAFTA-DR is a vote for one-way trade. Virtually all 
of what we import from the six CAFTA countries now enters the U.S. duty 
free as a result of the Generalized System of Preferences (GSP) and the 
Caribbean Basin Initiative (CBI). Yet, our food and agricultural 
exports to these six nations are restricted significantly because of 
high tariffs. As a result of the current one-way trade deal, we are 
running an agricultural trade deficit with these six countries.
    In addition, a formal trade agreement with the United States will 
help ensure the economic stability and growth that the region needs to 
avoid a return to the civil wars, insurgencies, and dictatorships of 
the recent past. As economic freedom and democracy take deeper root, 
incomes will increase and demand for our food and agriculture products 
will expand.
    Failure to approve CAFTA-DR will have a devastating effect on U.S. 
efforts to negotiate trade agreements on behalf of U.S. agriculture. 
The World Trade Organization Doha Development Round would be dealt a 
serious blow. Other countries would be less willing to negotiate with 
the United States knowing that CAFTA-DR, a trade agreement so clearly 
beneficial to U.S. interests, could be rejected by the U.S. Congress.
    The future of American agriculture continues to lay in expanding 
opportunities for our exports in the global marketplace, where 96 
percent of the world's population lives. We must not forego these 
opportunities, especially when the benefits to our nation are so 
unmistakable.
                                                       Ann M. Veneman  
                                                         Dan Glickman  
                                                            Mike Espy  
                                                      Clayton Yeutter  
                                                           John Block  
                                                         Bob Bergland  

                                 

  Statement of the Honorable Pete du Pont, National Center for Policy 
                                Analysis
    Congress is considering the most significant trade liberalization 
agreement since passage of the North American Free Trade Agreement 
(NAFTA) more than 10 years ago. The Central America Free Trade 
Agreement (CAFTA) was signed last year by the United States and Costa 
Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican 
Republic. These six nations make up the second largest market for U.S. 
goods exports in Latin America, behind only Mexico. They purchased 
$15.1 billion worth of U.S. exports in 2003, an increase of 11 percent 
from 2000. Meanwhile, U.S. imports from the region totaled $16.8 
billion in 2003, up 4 percent from 2000, making it the 15th-largest 
supplier to U.S. consumers and businesses.\1\
---------------------------------------------------------------------------
    \1\ CIA World Fact Book.
---------------------------------------------------------------------------
    CAFTA is the first major test of the Trade Promotion Authority 
sought by President Clinton and finally granted to President Bush. It 
would eliminate tariffs on most goods and services and substantially 
reduce other trade barriers.
    Unfortunately, passage of CAFTA is in doubt. Its defeat would be a 
setback for wider efforts to expand trade and thereby improve economic 
conditions in poor developing countries. More than 100 Democrats voted 
for NAFTA, but apparently CAFTA does not enjoy similar bipartisan 
support. There is also weakness among some Republicans.
    Both opponents and supporters of freer trade have complaints about 
CAFTA: Free traders are disappointed that it exempts two domestic 
industries that are protected from overseas competition--sugar and 
textiles--and delays the elimination of some trade barriers by a decade 
or more. Opponents of liberalized trade claim that increasing imports 
will harm U.S. workers, and some of them claim (somewhat 
contradictorily) that increased exports from the region will harm 
workers in those countries.
    Mutual Gains from Trade. Setting aside the objections of rent-
seeking economic interests that support trade barriers simply because 
tariffs and regulations limit their competitors, opposition to trade 
liberalization is based on a fundamental misunderstanding about the 
nature of trade. Both buyer and seller benefit from any exchange, 
whether it is a purchase from a local convenience store or a worker 
exchanging his or her labor for a wage. In fact, exchange is the 
principal way in which humans create wealth and raise their living 
standards. Similarly, the economies of both importing and exporting 
countries benefit from the international exchange of goods and 
services.
    None of us asks of prices charged at the 7-Eleven: ``Is it fair? Is 
it just?'' We ask: ``Is it too high?'' Or, ``Is it a bargain?'' And of 
course, if the price is lower than that charged by competing stores, we 
don't ask, ``Shouldn't I pay more?'' Yet there is a presumption among 
misguided opponents of international trade that unless trade is 
``fair'' or ``just,'' someone loses out. None of us says to the clerk 
at 7-Eleven: ``I will not buy your products unless you patronize my 
business.'' Yet with respect to international trade, some claim we 
should only buy from other countries exactly as much as they purchase 
from ours.
    The gains from trade are mutual, but they are seldom equal. In the 
case of CAFTA, because the six developing countries that have entered 
into the agreement with United States are poorer and have more 
protectionist trade policies than we do, they have more at stake. It is 
true that U.S. producers and workers will benefit from lower trade 
barriers in these six countries, and U.S. consumers will benefit from 
their imports. But it is the poor in developing countries who will 
benefit the most.
    Benefits of Economic Growth. The reduction in trade barriers in the 
six CAFTA countries will benefit the poor in those countries by raising 
rates of economic growth. Empirical economic research has established 
that nations that trade more enjoy higher rates of economic growth and 
hence higher living standards, measured in per capita gross domestic 
product.
    Tariff rates in most of the CAFTA partners are two to three times 
higher than in the United States. They already have duty-free access to 
the U.S. market under the Caribbean Basin Trade Partnership Act (CBTPA) 
program. In fact, most of the products on which U.S. tariffs fall to 
zero immediately under CAFTA are already afforded duty-free access 
under the provisions of the CBTPA. Under CAFTA, however, there will be 
fewer restrictions and lower compliance costs to qualify for 
preferential access. The difference between the CBTPA and CAFTA is that 
CAFTA will grant American goods that are currently subject to tariffs 
duty-free access to Central American markets. On average, 75 percent of 
the tariff product categories will be duty-free for U.S. exports to the 
region upon enactment of the agreement.
    There is a link between openness to trade and economic growth. 
According to the World Bank, tariff rates in almost all of the CAFTA 
countries are significantly higher than United States' average of 2.6 
percent.\2\ Specifically, the most recent data available show weighted 
average tariffs of 10.1 percent in the Dominican Republic, 5.8 percent 
in Costa Rica, 6.1 percent in El Salvador, 5.8 percent in Guatemala, 
7.3 percent in Honduras and 2.3 percent in Nicaragua. These countries 
are also relatively poor, with per capita GDPs (in terms of local 
purchasing power) ranging from $2,200 in Nicaragua to $9,000 in Costa 
Rica, compared to about $38,000 in the United States.
---------------------------------------------------------------------------
    \2\ World Development Indicators 2004, World Bank.
---------------------------------------------------------------------------
    Larger nations with bigger economies have faster growth than 
smaller ones because larger economies experience higher growth. This 
puts smaller economies at a disadvantage. However, smaller economies 
can tap into the economic robustness of larger economies through trade. 
According to economists Alberto F. Ades and Edward L. Glaeser, the 
initial size of the economy in open, or trading, nations has a minimal 
role in determining the rate of GDP growth.\3\ The initial size of the 
economy has a larger role for a relatively closed economy, in which 
trade accounts for less than 22 percent of GDP. Thus, they conclude 
that contrary to protectionists' beliefs, free trade benefits poorer 
nations.
---------------------------------------------------------------------------
    \3\ Alberto F. Ades and Edward L. Glaeser, ``Evidence on Growth, 
Increasing Returns, and the Extent of the Market,'' Quarterly Journal 
of Economics, August 1999.
---------------------------------------------------------------------------
    The CAFTA countries have already made progress due to trade 
liberalization spurred by CBTPA and the democratization that has 
occurred in these countries. Between 1991 and 2001 the average ratio of 
imports to GDP for the six countries rose from 33 percent to 49 
percent. Moreover, on a range of social indicators, all six countries 
have made progress.
    According to the World Bank, literacy rates for men and women 15 
and older have risen significantly in every one of the CAFTA-plus 
countries since 1980.\4\ In fact, between 1980 and 2001, the average 
literacy rate in the region increased from 67 percent to above 80 
percent; the percentage of children aged 10 to 14 in the workforce has 
steadily declined; and the average share of children in the labor force 
has dropped from 17.4 percent in 1980 to 10.0 percent in 2002. 
Expanding trade with the United States would accelerate this progress.
---------------------------------------------------------------------------
    \4\ World Development Indicators 2004, World Bank.
---------------------------------------------------------------------------
    Conclusion. CAFTA would substantially liberalize trade and 
investment and encourage further economic liberalization among 
America's trade partners. It would open economic opportunities for the 
United States, Central America, and the Dominican Republic and set the 
stage for economic growth and social development.

                                 

     Statement of Craig Updyke, National Electrical Manufacturers 
                    Association, Arlington, Virginia

    Chairman Thomas, Ranking Member Rangel, Distinguished Members of 
the Committee,
    Thank you very much for the opportunity to provide this statement 
in support of the Free Trade Agreement with Central America and the 
Dominican Republic. On behalf of the U.S. electrical equipment 
industry, NEMA calls on the Committee to favorably report implementing 
legislation for the Agreement to the full House of Representatives, and 
strongly urges the full House to approve the legislation as soon as 
possible.
    NEMA is the largest trade association representing the interests of 
U.S. electrical industry manufacturers, whose worldwide annual sales of 
electrical products exceed $130 billion. Our more than 400 member 
companies manufacture products used in the generation, transmission, 
distribution, control, and use of electricity. These products are used 
in utility, industrial, commercial, institutional and residential 
installations. The Association's Medical Products Division represents 
manufacturers of medical diagnostic imaging equipment including MRI, 
CT, x-ray, ultrasound and nuclear products.
    This Agreement is essentially a one-way, favorable deal for the 
United States. Since these six countries already enjoy ready U.S. 
market access for items in our Association's product scope, it levels 
the playing field for manufacturers in our sector by featuring foreign 
tariff elimination, much of it immediate. In fact, based on current 
annual trade levels, over $1 billion worth of tariffs applied on U.S. 
exports in our sector will be eliminated when the Agreement takes 
effect. This Agreement also promises to reduce non-tariff barriers and 
benefit joint efforts to eliminate counterfeit products.
    NEMA members already enjoy surprising levels of commerce with these 
nations despite their frequently high duties, and our exports stand to 
expand even further under the Agreement:

      The Dominican Republic is already the U.S. electrical 
equipment industry's number three export market and trading partner in 
Latin America and the Caribbean after Mexico and Brazil.
      The five participating Central American nations (Costa 
Rica, El Salvador, Guatemala, Honduras and Nicaragua) combined already 
constitute a larger export market and trading partner for the U.S. 
electrical equipment industry than Brazil.

    In short, NEMA members believe this Agreement should be allowed to 
take effect as soon as possible and prompt approval of implementing 
legislation by the House is essential. Thank you for your support of 
this important legislation.

                                 

             Statement of Stephanie Weinberg, Oxfam America
    Oxfam is an international development and humanitarian relief 
agency committed to developing lasting solutions to poverty, hunger and 
social injustice. We work in over 120 countries around the globe, 
including the five Central American countries and the Dominican 
Republic that are party to the free trade agreement with the United 
States, known as DR-CAFTA.
    Oxfam believes that trade can be an important means to achieving 
sustainable development and poverty reduction. Trade and development 
are intimately linked. A global system that has fair trade rules and 
practices has the potential to lift millions of people out of poverty. 
For this reason, Oxfam has focused on making global trade rules fair 
and consistent with development goals, as an integral part of our work 
to improve livelihoods and reduce poverty in developing countries.
    Trade agreements present both opportunities and risks, especially 
when they involve developed and developing countries. The DR-CAFTA is 
the first such agreement the U.S. has negotiated with some of the 
poorest countries in the hemisphere, two of which have annual per 
capita incomes below $1,000. The U.S. trading partners in the DR-CAFTA, 
with a population of 42.5 million, have high levels of poverty and very 
unequal distributions of income and wealth. They depend heavily on 
agriculture for the livelihood of significant portions of their 
populations. These countries are ravaged by curable diseases due to 
poverty and inadequate health-care coverage. They sorely lack public 
infrastructure and, in several cases, are highly indebted.
    In order for a trade agreement to be fair for these countries and 
promote their development, it must ensure that governments are able to 
provide for the food security needs of their people. And for an 
agreement to contribute to their poverty reduction, it must not prevent 
citizens from being able to access life-saving drugs they desperately 
need to effectively combat contagious diseases like HIV/AIDS or 
prevalent illnesses like diabetes. Trade agreements inevitably have 
winners and losers. Oxfam believes that those who stand to lose in the 
DR-CAFTA are the ones who are already disadvantaged in these highly 
unequal societies, where the majority of poor people live in rural 
areas, rely on income from agriculture and must pay for medicines out-
of-pocket.
    There has been much public debate about what the passage or 
rejection of the DR-CAFTA will mean for the U.S. trade agenda. Oxfam, 
however, believes that the DR-CAFTA must be judged only on the basis of 
what this particular agreement will mean specifically for the seven 
countries involved. Congress should look carefully at the terms of the 
DR-CAFTA to understand their implications in a region of high geo-
political importance to our country. On balance, Oxfam believes the 
agreement, in its current form, will do more harm than good. It will 
threaten the livelihoods of millions in Central America and the 
Dominican Republic and may contribute to increased insecurity and 
instability in that region.
    Oxfam wishes to focus attention on provisions in the DR-CAFTA 
involving agriculture, intellectual property and investment. As a 
result of our analysis in these areas, Oxfam believes the DR-CAFTA is a 
bad deal for millions of farmers, workers, and consumers in Central 
America and the Dominican Republic and should therefore be rejected.
Agriculture
    Agriculture currently comprises between 10 to 23 percent of GDP in 
the six DR-CAFTA trading partners, while it represents less than two 
percent of GDP in the U.S. Nearly a third of employment in these six 
countries depends on agriculture, much of which involves food 
essentials for consumption in the region, and most of these workers are 
poor and low skilled.
    There are two major reasons why Oxfam believes many farmers in 
Central America and the Dominican Republic are at significant risk of 
losing their livelihood under DR-CAFTA. Market access rules for 
agriculture in the agreement deny developing country governments the 
ability to adopt measures to ensure domestic food security and promote 
rural livelihoods. Under DR-CAFTA, countries must eliminate import 
tariffs on virtually all agricultural goods, including those food 
essentials that are most important for small farmers' incomes--rice, 
yellow corn, beans and dairy products.
    At the same time, the agreement requires Central American countries 
and the Dominican Republic to open the door for dumping of highly 
subsidized U.S. agricultural exports at prices below their cost of 
production. This situation is not only profoundly unfair, but it risks 
creating poverty and economic dislocations among the 5.5 million 
farmers and farmworkers in the region.
    Although DR-CAFTA provides for longer tariff elimination periods 
for some basic commodities in Central America and the Dominican 
Republic, duty-free quotas are immediately created or expanded 
beginning in the first year of the agreement. These duty-free quotas 
are nearly equal to current U.S. exports to these markets (quotas begin 
to surpass current U.S. export levels starting in the second year of 
DR-CAFTA) and will immediately drive down prices for local producers. 
The region's small farmers--who receive no subsidies, lack access to 
credit and depend on the income from each year's harvest for their 
subsistence--will be unable to compete with subsidized U.S. exports. 
And as more local farmers go out of business each year, the region's 
grain imports in following years are likely to surpass the annual quota 
increases, as occurred in Mexico under NAFTA, making the longer tariff 
phase-out periods irrelevant.
    The case of corn in Mexico under NAFTA is illustrative. An extended 
15-year period for tariff elimination was instead reduced to little 
more than 30 months, and real corn prices in Mexico fell more than 70 
percent in the first eight years under NAFTA, without benefiting 
Mexican consumers. It is estimated that since NAFTA's passage, 1.7 
million Mexican peasants working in the agricultural sector have lost 
their jobs. In addition, 15 million small farmers have lost significant 
income because they could not compete with subsidized U.S. exports, 
such as corn. Many left their land and fled to urban areas. It is no 
coincidence that the number of Mexicans crossing the U.S. border 
without authorization seeking employment and a better life more than 
doubled between 1990 and 2000--with most of that growth occurring after 
NAFTA went into effect in 1994--and has continued to increase in this 
decade.
    A similar outcome can be expected under the DR-CAFTA for producers 
of basic grains such as rice. In fact, the experience of the rice 
sector in Honduras in the 1990s offers a case study of the likely 
impact on small farmers in the region. In 1991, the Honduran government 
cut tariffs on rice imports to make up for a shortage due to drought, 
and a flood of imports at harvest time equivalent to the country's 
annual consumption left local producers without a market. Rice prices 
fell by more than 28 percent in one year and, as a result, areas under 
rice cultivation decreased by 35 percent the following year. Over a 
decade, the number of rice producers dropped from 25,000 to fewer than 
2,000, and the jobs generated from rice production fell from 150,000 to 
11,200. As a result, rice production was reduced by 86 percent between 
1991 and 2002, and the amount of foreign exchange spent on rice imports 
increased 20-fold (from $1 million in 1989 to $20 million in 2003). At 
the same time, the price of rice to consumers rose 140 percent in 
nominal terms, or 12 percent in dollar terms, over the decade.
    The market access rules for agriculture in the DR-CAFTA deny 
developing country governments the policy flexibilities necessary to 
promote rural development, protect livelihoods, and provide food 
security to their citizens. The agreement negates the principle 
governing multilateral trade negotiations for the past 50 years that 
developing countries are not required to make reciprocal commitments to 
reduce trade barriers if these are inconsistent with their individual 
development needs. Instead, the DR-CAFTA does not incorporate pro-
development concepts, such as special and differential treatment, and 
precludes use of flexibilities available to developing countries at the 
WTO. It does not allow developing countries to use differentiated 
tariff reduction formulae or designate special products eligible for 
more flexible treatment. It prohibits the use of the WTO safeguard, and 
the safeguard mechanism provided under DR-CAFTA is weak and temporary: 
a price drop could render it useless since it is linked to volume 
instead of prices of imports, and it can only be applied until the 
tariff is completely phased out.
    This will have a devastating impact on the 5.5 million Central 
Americans who depend on agriculture for their livelihoods. What will 
the U.S. gain at the expense of the loss of livelihoods of small 
farmers in Central America and the Dominican Republic? According to the 
U.S. International Trade Commission, U.S. grain exports can be expected 
to expand by 1.2 percent annually once tariffs are fully eliminated 
under DR-CAFTA. Overall, the market access provisions are expected to 
increase U.S. GDP by less than 0.01 percent annually. Considering the 
cost in terms of increased poverty and social problems for our 
neighbors, not to mention the potential increase in immigration to our 
borders, the DR-CAFTA is not only a bad deal for development in the 
region, but it provides no appreciable benefits to U.S. citizens.
Intellectual Property
    The rules on intellectual property in DR-CAFTA are another serious 
area of concern for Oxfam. All of the Central American countries and 
the Dominican Republic are WTO members and are therefore bound to 
implement the intellectual property provisions in the WTO's Agreement 
on Trade-Related Intellectual Property Rights, known as ``TRIPS''. But 
the DR-CAFTA goes well beyond the existing TRIPS provisions, imposing 
new so-called TRIPS-plus provisions related to pharmaceuticals. Most of 
these provisions are aimed at delaying the introduction of generic 
competition, thereby prolonging a patent holder's monopoly over the 
marketing of a medicine. When generic drugs cannot enter the market to 
compete with brand-named products, drug prices are higher and fewer 
people have access to medicines.
    At the heart of intellectual property rights systems is a balance 
between the rights of patent holders and the public interest. In 
particular, determining the appropriate balance between protections 
related to pharmaceuticals and public health is a complex task still 
being debated in the United States--for example, the ``drug re-
importation'' debate in Congress. Oxfam does not believe that there is 
one ``size'' of intellectual property protection that fits all, 
however. The appropriate balance depends upon a variety of factors, 
such as the level of poverty in a country, the likelihood that 
protections will generate innovation, and the real-world effects from 
higher medicine prices resulting from protections.
    Many public health and intellectual property experts have warned 
that TRIPS-plus provisions may undermine public health in poor 
countries, without generating any appreciable gains in innovation. This 
concern became a major issue at the WTO, and the importance of 
preserving public health was affirmed in the 2001 Doha Declaration on 
TRIPS and Public Health in 2001 by all WTO members, including the 
United States. The Doha Declaration confirmed that WTO members may use 
``flexibilities'' built into TRIPS to modify intellectual property 
rules to address public health needs, and constitutes a commitment to 
favor public health over intellectual property rights.
    In 2002, Congress endorsed this commitment as part of Trade 
Promotion Authority, under which DR-CAFTA was negotiated, by 
instructing the U.S. Trade Representative to respect the Doha 
Declaration in trade negotiations (Section 2102(b)(4)(C) of the Trade 
Act of 2002). Yet USTR has ignored the direction of both the WTO and 
Congress by forcing the governments of Central America and the 
Dominican Republic to adopt some of the highest levels of intellectual 
property protections for drugs in the world. This completely undermines 
the protections for public health laid out in the Doha Declaration. 
Oxfam believes that many of these provisions are not suitable for the 
small, poor developing economies in Central America and will result in 
reduced access to needed medicines and therapies, with no appreciable 
benefit in innovation or research and development spending.
    Many of the intellectual property provisions in DR-CAFTA tip the 
balance of intellectual property protections in favor of the short-term 
commercial interests of U.S. pharmaceutical companies, at the expense 
of public health. These provisions:

      Extend patent protection beyond the 20-year period 
required under TRIPS. Contrary to U.S. law, no upper limit is placed on 
such extensions. Twenty years of patent protection is more than an 
adequate monopoly for patent holders to recover investments and 
generate profits. Extending this monopoly period unfairly favors patent 
holders to the detriment of the broader public interest in accessing 
affordable medicines.
      Require test data protection for periods of up to 10 
years. These rules will delay for up to 10 years the introduction of 
generic medicines, even in the absence of patent barriers.
      Effectively eliminate the ability of Central American 
countries and the Dominican Republic to use compulsory licensing, a key 
tool available to governments to meet their citizens' public health 
needs. Compulsory licenses provide an important safeguard to 
governments to counterbalance the monopoly rights granted to patent 
holders. Both developing and developed countries--including the United 
States--have used compulsory licenses or the threat of them to bring 
down medicine prices.
      Force national drug registration authorities to serve as 
patent police, which prevents these authorities from granting marketing 
approval for generic versions of drugs until after the patent expires. 
This could prevent or delay access to affordable generic versions of 
new medicines, as well as undermine the use of compulsory licenses. 
Furthermore, this goes beyond U.S. law, which places the burden on the 
patent owner to enforce its own rights. DR-CAFTA forces the government 
to bear the cost, expense, and delay of enforcing private patent 
rights.

    When the DR-CAFTA was signed on August 5, 2004, a side letter or 
``understanding'' on intellectual property and public health was 
included in response to criticism that the intellectual property 
restrictions in the agreement could undermine public health. However, 
this ``understanding'' does nothing to allay Oxfam's concerns with 
these provisions. In reality, it merely states that CAFTA provisions 
``do not affect a Party's ability to take necessary measures to protect 
public health by promoting access to medicines for all'' or from 
``effective utilization'' of the WTO decision on TRIPS. This clause is 
virtually meaningless from a legal standpoint because it is just a 
declaratory statement, similar to a preamble or an objective. It is not 
a legally binding exception to the very clear obligations in the 
Agreement but at best has interpretive value. USTR has studiously 
avoided describing the ``understanding'' as a legally binding 
exception.
    Oxfam believes that TRIPS-plus provisions relating to 
pharmaceuticals should not be included in a trade agreement with 
Central America and the Dominican Republic. Central America has the 
second highest death rate from communicable diseases in Latin America. 
Over 165,000 people are living with HIV/AIDS and more than 30,000 cases 
of full-blown AIDS have been reported in the region. Resources for 
public health in the DR-CAFTA countries are extremely limited. 
Medicines sold at monopoly prices are too costly for these countries to 
provide through their public health systems and too expensive for poor 
people to pay for out-of-pocket. These countries should be able to use 
the TRIPS public-health safeguards to the fullest to protect public 
health and promote access to medicines for all, as affirmed by the Doha 
Declaration.
    DR-CAFTA is often described as a ``cutting-edge'' trade agreement 
that will serve as a model for future trade agreements. Oxfam feels 
this is a grim prospect. Imposing new intellectual property burdens on 
developing countries that increase the cost of medicines for poor 
people is a very bad model indeed, particularly looking towards the 
other countries with which the U.S. is currently negotiating trade 
agreements.
Investment
    Investment rules in the DR-CAFTA are another important concern for 
Oxfam in this trade agreement. These rules are clear and strong on the 
rights of foreign investors, but say little about the rights and 
obligations of governments to ensure that investors behave responsibly 
and that investment serves the public good. Specifically, DR-CAFTA 
restricts governments' ability to regulate foreign investment through 
the use of measures such as performance requirements, technology 
transfers, and capital controls. Oxfam believes that prohibiting pro-
development measures such as these will reduce the positive impact that 
investment in the region can have and may create large new financial 
and policy burdens for already over-stretched governments.
    In Central America and the Dominican Republic, increased investment 
is critical to achieving sustainable development. Yet several recent 
studies show that trade and investment agreements themselves do not 
stimulate additional foreign investment. Rather, macroeconomic and 
political stability, as well as market size, are determining factors. 
Furthermore, Oxfam believes that the quality--not just quantity--of 
investment is key in promoting development. Positive incentives to 
direct investment can help distribute wealth and promote economic 
growth, which can result in improved livelihoods. By setting 
performance requirements, governments can ensure the use of local 
inputs, which helps create backward linkages to the domestic economy. 
Through technology transfers, governments can help establish valuable 
linkages between foreign and domestic producers.
    However, DR-CAFTA will forbid governments from using local content 
rules and technology transfers. Without the flexibility to utilize 
these measures, governments are powerless to direct investment so that 
it benefits the rest of the domestic economy. This will lead to a 
scenario in which a limited number of investors may prosper without 
contributing more broadly to sustainable growth in the countries where 
they operate. This defies the spirit of the DR-CAFTA agreement, which 
claims to have the development of Central America and the Dominican 
Republic as one of its goals.
    Much of the foreign direct investment recently flowing into the 
region has been directed towards maquiladora factories or export 
processing zones, mostly for garments manufacturing. While these 
factories do provide some badly needed jobs, they usually contribute 
little to the overall economy because of the enclave nature of their 
production. Moreover, jobs in these factories are increasingly at risk 
with the removal of global quotas for textiles and apparel.
    Oxfam is also concerned that DR-CAFTA forbids restrictions on the 
repatriation of profits and limits governments' ability to impose 
controls on highly speculative investments. This means that foreign 
investors in the region will have unrestricted ability to bring capital 
into and out of countries, while governments will have little recourse 
to deal with economic instability, should investors suddenly pull their 
money out of the country. While a stable business climate is important, 
so too is ensuring that investment contributes to domestic growth and 
broad-based sustainable development. Unregulated capital flight can 
have devastating consequences, especially in case of a financial 
meltdown, such as occurred in Argentina in 2001.
    Also of serious concern is the investor-state dispute settlement 
mechanism in the DR-CAFTA, which, similar to NAFTA, will enable foreign 
investors to bring suits before international arbitral tribunals when 
they believe their business interests have been impaired by government 
regulatory actions. Investment rules in the DR-CAFTA broadly define 
what constitutes an expropriation and leave open the possibility that 
these ad-hoc tribunals will interpret social and environmental 
regulations as an ``indirect expropriation.'' Thus, foreign investors 
will be able to challenge laws or regulations at the national, state or 
local levels, even if these are enacted for legitimate public interest 
objectives, including public health, safety, and environmental 
protection.
    These special international tribunals are neither open to the 
public nor accountable to democratic processes. They lack the 
transparency generally afforded by normal judicial proceedings, yet are 
empowered to order governments to directly compensate investors for 
regulations that hurt them, regardless of the public good that the 
regulations might serve. Claimants are not required to exhaust domestic 
judicial remedies before bringing investment claims to these 
international tribunals, thus allowing foreign investors to bypass 
domestic legal systems. Although the DR-CAFTA was intended to 
strengthen and support democratic institutions in Central America and 
the Dominican Republic, it may actually undermine the judiciaries in 
the region.
    This dispute settlement mechanism has been used to challenge 
important regulations that are expressly designed to protect public 
health, safety, the environment, and other public interest objectives 
that enhance social welfare. To date, over 40 suits have been filed by 
corporations under NAFTA's investment rules in special tribunals, 
seeking $28 billion in claims from the U.S., Canadian and Mexican 
governments. If NAFTA is any indication, the investment provisions of 
DR-CAFTA could create large new liabilities for the governments of 
Central America and the Dominican Republic. Perhaps more problematic is 
the chilling effect the threat of litigation by investors could create 
on policy-makers interested in generating new environmental, public-
health, and pro-development safeguards.
    Highlighting this problem is a bitter dispute between Canadian-
owned Glamis Gold, Ltd., which is seeking to construct a mine in San 
Miguel, Guatemala, and the local citizens who oppose the project. 
Backed by the Catholic Church, local residents fear that the mining 
project will wreak havoc on the local environment. They successfully 
pressured the Guatemalan government to agree to freeze issuance of 
future mining permits. However, under DR-CAFTA, foreign investors will 
be able to challenge local measures like this one, claiming 
discrimination as foreign investors. At risk will be governments' 
ability to provide effective regulation to protect workers, health and 
safety, and the environment. Any agreement that contains investment 
rules that limits governments' ability to protect the health and well-
being of its citizens should be opposed.

Conclusion
    CAFTA is likely to increase inequality and exacerbate poverty in a 
region that is still struggling to recover from the devastation of 
wars, hurricanes and droughts. Under the Caribbean Basin Initiative 
(CBI), Congress established trade preferences to facilitate the 
economic development and export diversification of the CaribbeanBasin 
economies. These benefits were permanently extended in 1990, and in 
2000 the list of products eligible for duty-free access to the U.S. 
market was expanded, in part in response to the devastation wrought by 
Hurricane Mitch. Nevertheless, the region continues to suffer from 
serious problems of poverty and inequality.
    Oxfam believes it is in the interest of the United States to 
promote economic development in the region, including increased 
development assistance, institution-building, and increased trade. 
However, the DR-CAFTA is, at best, a mixed bag. The agreement provides 
very modest and incremental trading opportunities for our poorer 
neighbors, while it imposes major new obligations and restrictions in 
the process.
    In general, Oxfam believes that the U.S. trade negotiation strategy 
has set the wrong priorities. With limited resources, the USTR has 
pursued numerous smaller bilateral and regional trade agreements even 
while a much bigger, and more important, trade agreement has stalled. 
For both the U.S. and the world, the WTO Doha Round offers potential 
benefits that are orders of magnitude larger than those in free trade 
agreements with small countries such as DR-CAFTA. While negotiating 
trade agreements at the global level is certainly a messy and 
cumbersome process, the alternative is a very scattered and 
asymmetrical trading scheme that adds complexity and increases entry 
costs. This is not good for the U.S., but it is far worse for 
developing countries, many of which are already very marginal players 
in global trade. And while the U.S. is likely to have to make more 
concessions--particularly in agriculture--at the multilateral level, 
than in bilateral agreements, this is where the U.S. can demand 
concessions from other rich countries like Europe and Japan. Investing 
in, rather than neglecting, the WTO and the Doha Round, will help build 
a more common, rules-based system that provides more opportunity and 
stability for both the U.S. and developing countries.
    The rules set forth in the DR-CAFTA on agriculture, intellectual 
property, and investment add up to a bad deal for farmers, workers, and 
consumers in Central America and the Dominican Republic. Rather than 
setting out provisions that will foster broad-based economic growth and 
sustainable development, DR-CAFTA will put millions of poor people at 
risk of losing their livelihood. The U.S. should do better if it wants 
to promote peace, political stability, and economic security in this 
region that has struggled with poverty and inequality, and the 
resulting instability, for so long. Unfortunately, the DR-CAFTA is 
wrong way to achieve these goals, which is why Oxfam urges Congress to 
vote no.

                                 

 Statement of Hon. Michael G. Oxley, a Representative in Congress from 
the State of Ohio, and Hon. Deborah Pryce, a Representative in Congress 
                         from the State of Ohio

    Chairman Thomas and Ranking Member Rangel, thank you for the 
opportunity to testify on the Central American Free Trade Agreement or 
CAFTA. This is an important agreement between the United States and six 
countries that are key to our economic and national security: El 
Salvador, Costa Rica, Honduras, Nicaragua, Guatemala, and the Dominican 
Republic. We know that this is a highly complex agreement and we want 
to commend this Committee for all of its hard work in fostering free 
trade around the world.
    As Chairman of the Financial Services Committee and Chairman of the 
Subcommittee on Domestic and International Monetary Policy, Trade and 
Technology of the Financial Services Committee, we submit this 
statement to support free trade in financial services. U.S. firms often 
face restrictions in their ability to operate globally. The concept of 
national treatment, where foreign firms are treated like domestic 
firms, is not the norm in all Central American nations. As a result, 
U.S. banks, insurance providers, and securities dealers are often 
subject to non-transparent and discriminatory regulations which inhibit 
their ability to compete in these markets. The CAFTA agreement goes a 
long way to remedy many of these problems.
    Services industries account for nearly 80 percent of U.S. 
employment as well as GDP. This includes lawyers, architects, 
engineers, doctors and, of course, financial service providers. Over 
the past 10 years, U.S. services exports nearly doubled to $270 
billion. Trade in financial services accounts for a high percentage of 
U.S. services exports.
    We often hear about the trade deficit that the U.S. has with other 
nations. What we don't hear about is that in case of trade in services, 
we actually have a surplus. Our nation leads the world in financial 
services innovation. This agreement will help extend that surplus and 
promote state-of-the art financial services globally.
    The CAFTA agreement will allow U.S. financial firms to access these 
countries on a fair footing with their local counterparts. It will 
promote transparency in the rules that govern how these enterprises are 
supervised. Without CAFTA, the financial services sector will be 
limited in its ability to enter these markets, will have restrictions 
on the ability to establish branch offices, and the regulations 
overseeing the operations of these institutions will be written behind 
closed doors. CAFTA will require national treatment and MFN treatment, 
prohibit quantitative restrictions on market access of financial 
institutions, and bar restrictions on the nationality of senior 
management.
    Now, we know that the financial services markets in the CAFTA 
countries are not going to be major revenue generators for U.S. 
financial firms in the short-run. However, these are long-term 
strategic growth markets for our financial firms. Our economic 
prosperity will be strengthened if trade barriers between our nations 
are eliminated.
    Economic prosperity in the region, which will foster economic 
security in the hemisphere, will also grow as competition in the 
financial services sector within CAFTA countries expands the 
availability of capital to fund new ventures. Over time, it will also 
yield a wide range of benefits, including more customers for our firms 
and more efficient markets within our hemisphere. Improved access to 
sophisticated financial services, backed by sound regulation, will 
enable these markets to grow to become buyers of other U.S. products. 
Without the development of these financial markets, manufacturers will 
be less likely to cultivate customers in this region.
    The Financial Services Committee has taken a leadership role in 
ensuring strong financial services provisions in this agreement, as 
well as the Chile and Singapore agreements. In December of 2003, the 
Committee wrote Ambassador Zoellick urging him not to accept a trade 
agreement that permitted Costa Rica to retain the government's monopoly 
on insurance. The CAFTA agreement now includes provisions permitting 
U.S. firms to provide insurance products in Costa Rica. We would like 
to submit a copy of this letter for the record.
    In closing, we strongly urge the Members of this Committee to 
support the CAFTA Agreement. It will foster economic security in our 
hemisphere and will promote the exchange of goods and services between 
our countries.
                                 ______
                                 
                                    Committee on Financial Services
                                      U.S. House of Representatives
                                               Washington, DC 20515
                                                  December 16, 2003
The Honorable Robert B. Zoellick
United States Trade Representative
600 17th Street, N.W.
Washington, DC 20508

Dear Ambassador Zoellick:

    I want to commend you for entering into negotiations with the 
Central American countries of Honduras, Guatemala, Nicaragua, El 
Salvador, and Costa Rica. These countries are important allies and 
trading partners of the United States. As you know, I serve on the 
Congressional Oversight Group on trade which was created through the 
landmark Trade Promotion Authority legislation in the 107th Congress. 
In this capacity I have been closely following the Central American 
Free Trade Agreement (CAFTA) negotiations as they relate to trade in 
financial services.
    I am encouraged that you and your counterparts in the CAFTA 
countries have negotiated several good faith offers to allow access for 
U.S. financial institutions into these markets. Commitments on improved 
regulatory transparency, as well as improved branching rights and the 
ability to offer multiple business lines, when combined with the market 
access provisions, will increase the availability of capital in the 
CAFTA countries and will foster economic growth.
    I am writing today, however, to express concern regarding the 
position Costa Rica is taking regarding access to its insurance market. 
Specifically, I understand that Costa Rica has been reluctant to 
include within the CAFTA commitments to provide U.S. firms with 
meaningful access to its insurance sector. I have been briefed on the 
most recent U.S. offer to Costa Rica. I believe that this offer, while 
quite minimal compared to other offers that have been approved by Costa 
Rica's neighbors, is an acceptable compromise. This offer will enable 
Costa Rica to maintain components of its insurance monopoly, including 
its compulsory business lines which constitute nearly 70% of its total 
premium volume, through 2015. As a strong advocate of free trade, I 
would prefer full establishment of rights and immediate access to all 
lines of business. I believe that the Costa Rican insurance monopoly 
goes against the very spirit of these trade negotiations. However, I 
understand that it is important to show flexibility in order to obtain 
an agreement with this important trading partner.
    I am particularly concerned about the situation regarding these 
financial services issues since I understand that Costa Rica may grant 
access to its telecom monopoly, but may not grant the same access to 
its insurance monopoly. I strongly urge you and your negotiating team 
to ensure that no monopolies are permitted to endure in this age of 
open borders and free trade. I also strongly urge you and your 
negotiating team to devote equal importance to the financial services 
matters that remain on the table. I would be deeply disappointed if it 
seemed that elimination of the telecommunications monopoly were 
achieved only by sacrificing similar progress in a key component of the 
financial services market.
    It is my hope that the CAFTA negotiations would generate a unified 
agreement between the United States and the five Central American 
countries instead of five bilateral agreements, or even worse, 
excluding one of the countries because it was unwilling to open its 
protected markets. Although I understand that each country has a unique 
position in the global economy and concessions must be made 
accordingly, I do not believe that maintenance of an insurance monopoly 
in Costa Rica qualifies as a unique economic position that must be 
maintained. Increased access to affordable insurance products will 
allow Costa Rican businesses to develop and expand while reducing risk.
    In a global financial services marketplace, ring-fencing a domestic 
market is at best a misplaced protectionist strategy that will only 
undermine the local market. Without the kind of market access for 
insurance activities currently under negotiation in the CAFTA, Cost 
Rica may find itself in a position where its neighbors become the 
preferred countries for U.S. financial firms to establish and expand 
their businesses. Continued commitment to the insurance monopoly in 
Costa Rica could thus undermine the local economy. It could also 
undermine Costa Rica's ability to exercise appropriate local prudential 
supervision of insurance activities as access to other insurance 
providers in nearby countries within the CAFTA could create incentives 
for local companies and individuals to seek coverage outside the 
borders of Costa Rica. I trust you an your negotiating team will be 
able to impress these points upon your counterparts in Costa Rica.
    Thank you for your hard work on this agreement and I look forward 
to your reply.
            Yours truly,
                                                     Michael G. Oxley  
                                                           Chairman

                                 

     Statement of Lori Wallach, 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 NFATA 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\
---------------------------------------------------------------------------
    \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 U.S. as a Net Debtor: 
The Sustainability of U.S. External Imbalances,'' New York University 
Briefing Paper, Nov. 2004.
    \6\ U.S. Census Numbers.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\

    \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.

    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\
---------------------------------------------------------------------------
    \11\ 19 U.S.C. Sec. 3802(3), Chapter 24, ``Bipartisan Trade 
Promotion Authority: Trade Negotiating Objectives.''
---------------------------------------------------------------------------
    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 significantpart, of the use or reasonably-to-be-
expected economic benefit of property.'' \15\ USTR failed to remedy 
this problem in CAFTA.

    \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.

    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.

    \16\ Central America Free Trade Agreement, Final Version, Aug. 5, 
2004, Annex 10-C, at 4(b).

      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.
---------------------------------------------------------------------------
    \17\ Lucas v. South Carolina Coastal Council, 505 U.S. 1003, at 
1015-19 (1992).
---------------------------------------------------------------------------
      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.
---------------------------------------------------------------------------
    \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
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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

    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \25\ Rep. Charles B. Rangel, ``Rep. Rangel Reacts to Reported 
`Threat' from Administration Official to CAFTA Countries,'' Press 
Statement, March 22, 2005.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \26\ Sergio de Leon, ``Police, protestors clash ahead of Guatemala-
U.S. free trade vote,'' Associated Press, Mar. 9, 2005.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \27\ Catherine Elton, ``Activists Fear Free Trade Act Will Restrict 
Access to AIDS Drugs in Central America,'' Voice of America, April 
2005.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \28\ ``The Real Record on Workers' Rights in Central America,'' 
AFL-CIO, Apr. 2005.

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

                               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.

                                 

   Statement of Lori L. Denham, Retail Industry Leaders Association, 
                          Arlington, Virginia

    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 
toRussia, 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 Ways and Means 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 
or Jonathan Gold, Vice President Global Supply Chain Policy.

                                 

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

    Mr. Chairman, thank you for the opportunity to offer my concerns 
regarding this important issue. I strongly oppose 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.
    As in Mexico with NAFTA, DR-CAFTA would cause the loss of family 
farms and lure more workers, most of them women. DR-CAFTA may create 
jobs of women, but the working conditions are unimaginable to the 
American public. The bulk of these jobs are in the Export-Processing 
Zones, also known as 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 our women workers, but also hurt American workers.
    Over 750,000 jobs in the United States have been lost due to NAFTA 
and immigration to the United States has only increased. 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% of the total U.S. workforce, they 
account for 26% of textile and apparel industry workers. In California, 
Latinos make up an estimated 80% of the California garment industry, 
which has been especially hard-hit by NAFTA's impact. As a result, 
Latino workers have been significantly hurt by NAFTA. According to the 
Department of Labor, 47% of individuals that applied for NAFTA's Trade 
Adjustment Assistance (TAA) program due to lay offs were Latino.
    Americans believe that we should NOT peruse future free trade 
agreements similar to NAFTA. In fact, the League of United Latin 
American Citizens, LULAC, the oldest and largest Latino organization in 
the U.S. publicly opposes DR-CAFTA. LULAC claims 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.

                                 

       Statement of Jeff Vogt, Washington Office on Latin America

    On May 28, 2004, the United States and the Central American 
countries (Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica) 
signed the U.S.-Central America Free Trade Agreement (CAFTA) in the 
Hall of Americas in the Organization of American States. Upon signing 
the agreement, U.S. Trade Representative Robert Zoellick suggested that 
``CAFTA will put the U.S. relationship with Central America on a more 
solid, mutual foundation, firmly grounded in our shared commitment to 
democracy, free markets, free people, and hope.'' The Washington Office 
on Latin America (WOLA), however, is deeply concerned that DR-CAFTA 
will only result in free markets without the anticipated freedom and 
hope for the millions of people in the region. In particular, WOLA 
believes that DR-CAFTA's provisions on agriculture, labor and 
intellectual property will frustrate, rather than promote development 
in the region. WOLA therefore urges all members of congress to reject 
DR-CAFTA.

1. DR-CAFTA Will Increase Rural Unemployment and Jeopardize Food 
        Security
    DR-CAFTA's likely impact on the Central American rural sector is a 
cause for concern. Under the agreement, the Central American countries 
will eliminate over time tariffs on basic grains, such as rice, beans 
and corn, products on which the lives of millions of people now depend. 
With ever-greater access to the Central American market, U.S. agro-
export corporations, which produce and export grains at artificially 
low prices due to government supports, will undercut their Central 
American counterparts, mostly small and family farmers. Dumping 
cheaper, subsidized grains into the Central American market could lead 
to a significant loss of agricultural jobs, creating greater poverty, 
hunger and rural emigration. Indeed, a 2004 U.S. International Trade 
Commission report on DR-CAFTA projects that Central America will 
significantly increase imports of basic grains upon implementation of 
the agreement.\1\ In a region where roughly half of all employment is 
in agriculture, this will have devastating long-term effects.
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    \1\ U.S. International Trade Commission, U.S.-CentralAmerica-
DominicanRepublic Free Trade Agreement: Potential Economy-Wide and 
Selected Sectoral Effects, August 2004 at pp. 59-72.
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a. The Face of the Central America Rural Sector
    Agriculture still remains the largest source of employment in many 
Central American countries. In Guatemala, Honduras and Nicaragua, 
agriculture still remains the largest source of employment, engaging 
52.5, 43.9 and 43.2% of the economically active population 
respectively. In the U.S., by comparison, only 2% of the labor force is 
employed in the rural sector. In addition, the region is dependent on a 
few, key export crops, which are highly vulnerable to the volatility of 
international markets. In Central America, poverty is concentrated in 
the rural sector. According to the International Fund for Agricultural 
Development, 64% of Latin America's rural population lives in poverty, 
compared to 59.9% in 1980. Official support for the rural sector has 
also declined significantly over the last two decades, and structural 
adjustment programs in the 1980s and `90s have resulted in minimal 
investment in rural infrastructure, financial services and human 
capital in the region. Not only has productivity of Central American 
farms suffered as a result, but lack of overall employment 
opportunities has been the impetus of outward migration to the U.S.
b. Potential Impacts and Lessons Learned
    The U.S. steadfastly refused to discuss the issue of subsidies to 
its own agricultural producers, preferring to discuss this issue at the 
level of the WTO. In response, the Central American negotiators and 
producer federations demanded that sensitive agricultural crops such as 
basic grains, dairy and pork be exempt from the negotiations until the 
U.S. eliminates its unfair agricultural subsidies. Again, the U.S. 
refused any exemptions for these products. This forced the Central 
American governments to offer a weaker proposal for special and 
differential treatment; they called for increased market access for 
some products and the maintenance of high tariffs and longer 
liberalization periods for sensitive agricultural products. Once again, 
the U.S. refused.
    According to the Mesoamerican Initiative for Trade Integration, 
Central Americans conceded much more than they received in agriculture. 
By the end of the negotiations, the four remaining Central American 
countries received a small amount of new market access for certain 
products such as sugar, and a 15 to 20 year liberalization period for 
several sensitive crops. Farmers, analysts and government negotiators 
alike recognize that these are very small gains, compared to the blows 
the agricultural sector will sustain under CAFTA. On December 31, 2003 
the lead Guatemalan Negotiator Guido Rodas, stated, ``Rice, pork, corn, 
beer, telecommunications and generic medicines are among the losers who 
will pick up the tab of the CAFTA negotiation.''
    Some proponents of CAFTA have argued that small-scale farming in 
Central America is a dying industry, and that subsistence farmers are 
becoming obsolete in the global economy. However, far from 
obsolescence, small and medium-scale agriculture plays multiple, 
important roles in Central America. Small and medium farms create 
significant rural employment, with backward and forward linkages in the 
rural economy. Local food production is also important for food 
security and nutrition. Small farmers play an important role as 
environmental stewards, caring for the land, just as agriculture plays 
an important cultural and historical role in the social fabric of 
Central America. Finally, rural development and opportunities in 
agriculture help to decrease migratory pressure on cities and the U.S.
    It has been said that trade agreements create winners and losers; 
there are people who benefit from trade liberalization, and those who 
do not. NAFTA has demonstrated, as will DR-CAFTA if it passes, that the 
biggest losers in these trade deals are in the agricultural sector, 
especially small and medium farmers and day laborers. The experience of 
NAFTA in the Mexican agricultural sector is illustrative. At least 1.5 
million Mexican farmers lost their livelihoods to NAFTA. According to a 
Carnegie Endowment for International Peace report published in 2004, 
approximately 8 million of Mexico's active labor force worked in the 
agriculture sector in 1993; by 2003, it was roughly 6.5 million. The 
report states, ``Agricultural trade liberalization linked to NAFTA is 
the signal most significant factor in the loss of agricultural jobs in 
Mexico.'' Similarly, a recent report by Oxfam International, entitled 
``A Raw Deal for Rice,'' predicts that 1.5 million jobs directly and 
indirectly related to the rice sector could be lost upon full 
implementation of DR-CAFTA.
    As proponents of NAFTA then argued, displaced farmers will simply 
move to new industries, but job creation--particularly in the export 
processing sector--is being eroded as jobs move to new markets in Asia. 
The situation is even worse now with the expiation of the Multi-Fiber 
Agreement. Without quotas, many small and medium sized producers are 
likely to close. A 2004 report issued by U.S. AID on the garment 
industry in the Dominican Republic, for example, projects that the 
garment exports to the U.S. will decrease by 25% even after DR-CAFTA is 
implemented. Although the impact of the phase-out is expected to be 
softened slightly by CAFTA, the agreement is by no means a salvation.
    Congress must view trade agreements and the impact of trade through 
the lens of poverty reduction, and measure the agreements by the extent 
to which people are able to exercise their economic and social rights. 
Trade is an important factor in any economy, but, as studies such as 
the Carnegie report demonstrate, agricultural liberalization is not 
good for developing countries that have huge trade asymmetries vis-`-
vis their trading partners. Like their Mexican counterparts, Central 
American farmers will be unable to compete against highly subsidized 
production in the U.S. and elsewhere in the developed world. This will 
result in increased poverty, greater levels of rural unemployment and 
more migration--further violating Central Americans economic and social 
rights. Simply put, CAFTA is not the development strategy that the 
region needs.

2. The CAFTA Labor Chapter Is Insufficient to Address Systematic Labor 
        Violations
    The labor laws of the Central American countries fail in many 
respects to meet the minimum standards set forth in international 
instruments such as the ILO's Fundamental Declaration of Rights at 
Work. Moreover, enforcement of labor rights is seriously deficient. In 
some cases, for example, labor ministry personnel encourage or 
participate in employer abuses of workers' rights by acting upon 
illegal requests that harm workers. In other cases, labor ministry 
officials use obstructionist tactics to avoid granting recognition to 
unions. The action or inaction of labor courts also deny workers their 
rights, as long delays in court proceedings, at times due to judicial 
collusion with employers or simple incompetence, and non-enforcement of 
court orders result in the effective denial of justice to workers
    The situation of impunity with regard to workers' exercise of 
freedom of association and collective bargaining is a serious problem 
that undermines the rule of law and the prospects for social and 
economic justice throughout Central America. This situation can only be 
addressed by policies that promote democratic, equitable, and 
sustainable development, based on respect for fundamental labor and 
human rights. As explained below, the CAFTA does not contain adequate 
mechanisms that encourage positive labor law reform or, indeed, 
discourage retrenchments in existing laws. Indeed, the labor chapter 
does little to even ensure that existing laws are adequately enforced. 
Because the CAFTA will not encourage social and economic development, 
as it does not adequately promote respect for the fundamental human 
rights of the people of Central America, CAFTA must be opposed.
a. DR-CAFTA Does Little to Protect Worker Rights
     At a February 9, 2005 conference hosted by the Center for 
Strategic and International Studies (CSIS), former U.S. Trade 
Representative Mickey Kantor rejected the DR-CAFTA for its lack of an 
adequate, enforceable labor clause. ``I think it should go back to 
negotiating table,'' said Kantor, who found several shortcomings with 
the labor clauses negotiated in various free trade agreements by the 
current USTR. Upon reading Chapter 16, the labor chapter, and with an 
understanding of the labor laws of the region, it is obvious why Mr. 
Kantor concluded that the DR-CAFTA as ``a major step backwards on this 
issue.''
    Under Chapter 16, member states are under absolutely no obligation 
to meet the core labor standards articulated by the International Labor 
Organization (ILO), or the international worker rights standards 
incorporated into previous, unilateral U.S. trade laws. Rather, member 
states have committed only to ``strive to ensure'' that these 
principles are protected by local law. Incredibly, member states do not 
have to strive to eliminate discrimination in employment, as that right 
is explicitly beyond the scope of the agreement. Thus, only a 
``fail[ure] to effective enforce [] labor laws, through a sustained or 
recurring course of action or inaction, in a manner effecting trade 
between the Parties'' could ever subject a country to a fine. Even 
then, Article 16.2(a) excuses the action or inaction of member state if 
it is deemed ``a reasonable exercise of discretion'' or a ``bona fide 
decision regarding the allocation of resources.'' Thus, the negative 
``failure to enforce'' standard may be denied any force of law if a 
member state can satisfy the ambiguous test of ``reasonableness'' or 
show that their under-funded Ministries of Labor allocated resources 
toward some other reasonable objective.
    Because local labor laws in many respects fall short of 
international minimum standards, the CAFTA language does nothing more 
than requires that existing, inadequate practices be continued. 
Moreover, a member state is under no enforceable obligation to maintain 
those inadequate laws and could weaken those laws further to gain an 
unfair trade advantage. As such, a country may violate international 
labor law and continue to enjoy all of the market access benefits of 
the trade agreement. The procedures and remedies for addressing 
violations that do exist under CAFTA are completely also inadequate. 
The labor enforcement procedures cap the maximum amount of fines and 
sanctions available at an unacceptably low level, and allow violators 
to pay fines to themselves with little oversight. These provisions not 
only make the labor chapter's one limited obligation virtually 
unenforceable, they also differ dramatically from the enforcement 
procedures and remedies available for commercial disputes.
b. DR-CAFTA is Weaker Than Previous Agreements
    The texts of previous free trade agreements demonstrate that the 
USTR is capable of negotiating a more rigorous labor clause when it so 
decides. The labor clause negotiated in the U.S.-Jordan Free Trade 
Agreement is one such example. The USTR's ``fact sheets'' aside, the 
U.S.-Jordan Agreement is far superior to DR-CAFTA on the issue of labor 
rights. Under U.S.-Jordan, all labor right obligations, not simply the 
obligation to enforce domestic laws, may be brought under the dispute 
resolution and enforcement mechanisms. For example, a claim that a 
state party relaxed its laws to attract trade or that it failed to 
ensure that its domestic laws provided protections consistent with 
international labor standards could be brought under Jordan, but not 
DR-CAFTA. This is a critical distinction. Moreover, the dispute 
resolution mechanism in U.S.-Jordan is the same as the commercial 
mechanism; the same is not true of DR-CAFTA.
     The CAFTA labor chapter is also a step backwards from the 
Generalized System of Preferences (GSP), the only tool that has 
generated the political leverage to demand the reform of labor laws in 
Central America. U.S. unilateral trade preference programs provide for 
the withdrawal of trade benefits if steps are not taken to meet 
international labor standards, including steps to reform weak domestic 
laws. Almost every labor law reform that has taken place in Central 
America over the past fifteen years has been the result of the threat 
to withdraw trade benefits under our preference programs. Indeed, on 
the merits of petitions submitted by the AFL-CIO and the International 
Labor Rights Fund, Guatemala was put under GSP review in 2002 for its 
failure to amend its labor code consistent with international 
standards, its failure to effectively enforce its existing labor code 
and its failure to investigate the murder of numerous trade unionists. 
This important tool will be lost once the CAFTA is enacted.
c. The White Book Should Not Assuage Concerns
    The much anticipated ``white book,'' entitled ``The Labor Dimension 
in Central America and the Dominican Republic,'' does little to assuage 
WOLA's well founded fear that the governments of Central America and 
the Dominican Republic will fail to adopt, implement and/or enforce 
internationally recognized worker rights. Indeed, the book demonstrates 
that the Labor Ministers are in denial about their labor laws. The 
white book repeats the often stated myth that the reports authored by 
the International Labor Organization (ILO) in 2003 and 2004 held that 
the constitutions and labor codes of Central America incorporate ILO 
fundamental rights and principles. This is simply not true. For 
example, a letter from the House Committee of Ways and Means to the 
U.S. Trade Representative, dated April 5, 2005 identifies over twenty 
instances where, according to reports from the ILO and the State 
Department, Central American labor laws still fail to comply with 
international norms relating to freedom of association and collective 
bargaining. Far from being technical violations, these substandard laws 
prevent workers from exercising their basic rights.
    Also, while the white book acknowledges some of the most serious 
problems on the issue of enforcement and makes several recommendations 
to correct them, it is worth noting that a number of those reforms have 
been promised for years and have yet to materialize. In other cases, 
Legislation to reform some of these laws has been languishing in the 
legislature for years for lack of political will. Moreover, it does not 
appear that there are any new funds currently allocated to act upon the 
report's recommendations. The authors call for a conference of donors 
to be held within 30 days to obtain commitments on funding the 
recommendations and further funding for management of the technical 
assistance. Given the deep cuts in the U.S. international labor affairs 
budget, it is unlikely that sufficient funds will be allocated.
d. The Case of Guatemala
    As firmly established by the International Labor Organization, 
Guatemalan labor law simply fails to meet international labor 
standards. These shortcomings have been elaborated numerous times by 
the ILO's Committee of Experts on the Application of Conventions and 
Recommendations (CEACR), by local and international trade unions, and 
by GSP petitioners. Although Guatemala did approve labor reforms in 
April 2001 (Decree 18-2001), these reforms did not take into account 
many of the ILO's observations. Moreover, key aspects of those reforms 
were recently challenged and deemed unconstitutional by the 
Constitutional Court of Guatemala in August 2004. The much-needed 
additional reforms to the Labor Code, promised by the Berger 
Administration, have still not been enacted.
    Most troubling is that the Constitutional Court divested the 
General Inspector of Labor of its authority to levy administrative 
fines against labor-law violators in August 2004. Until the labor code 
is reformed, labor inspectors will be essentially powerless to punish 
violations of labor rights in Guatemala. Given that the only 
enforceable clause in the DR-CAFTA is that a country enforced its own 
laws, Guatemala is simply unable to comply with this basic requirement.
    These and other concerns, including continuing violence against 
trade unionists, were raised in a recent GSP petition, filed with the 
USTR on December 13, 2004. The USTR has yet to determine whether to 
accept the petition. The full petition is available at: http://
www.wola.org/economic/cafta_gsp_petition_press_release.htm. A letter 
from over 30 members of congress to the U.S. Trade Representative, in 
support of the GSP petition, is available at: http://www.wola.org/
guatemala/gsp_dear_colleague_letter.pdf.

3. The Intellectual Property Chapter Goes Beyond TRIPS, Threatening 
        Access to Affordable, Generic Medicines
    International conventions, including the International Covenant on 
Economic, Social and Cultural Rights (ICESCR), recognize that access to 
health care is a fundamental human right. For example, Article 12 of 
the ICESCR obliges states to ``recognize the right of everyone to the 
enjoyment of the highest attainable standard of physical and mental 
health.'' Of course, access to affordable medicine is an integral part 
of the right to health care. In the trade context, the TRIPS Agreement, 
together with the Doha Declaration, requires that intellectual property 
rules will not interfere with promoting access to medicines. DR-CAFTA 
does not embody the letter or the spirit of these international 
obligations, frustrating access to affordable medicines to millions of 
people in Central America.
    For example, Chapter 15 of DR-CAFTA appears to set up barriers to 
compulsory licenses, which allow governments to obtain cheaper generic 
drugs by temporarily overriding a pharmaceutical patent. The agreement 
does so by prohibiting generic suppliers of patented drugs from 
obtaining marketing approval during the lifetime of the patent. Thus, 
governments would be unable to make affordable generic equivalents of 
patented medicines available to its citizens. Also troubling is the 
requirement that governments recognize exclusivity on test data, which 
is used by drug companies to demonstrate the safety and efficacy of 
drugs, for five years on new pharmaceuticals. This would deny the 
manufacturers of generic drugs of the information necessary to prove 
the safety or efficacy of their products.
    The USTR's insistence that Guatemala revoke legislation that sought 
to ensure access to generic medicines--and which was TRIPS consistent--
is just one more example where the development needs of Central America 
were frustrated by overreaching by the USTR. In December 2004, 
Guatemala had passed a law to increase access to affordable, generic 
medicines. Under that law, local manufacturers of generic medicines 
could obtain market registration by relying on the tests conducted by 
brand-name manufacturers if they could demonstrate that their drug was 
equivalent to the brand-name product. The U.S. insisted, however, that 
the law was inconsistent with DR-CAFTA and demanded that Guatemala 
revoke the law if it wished to remain a party to the agreement. After 
intense U.S pressure, Guatemala repealed the law just days before 
ratifying DR-CAFTA, effectively putting new, affordable generic drugs 
out of reach.

4. Conclusion
    The Washington Office on Latin America recognizes that trade can be 
mutually beneficial for the nations, communities and individuals 
involved by creating new economic opportunities. However, we are 
concerned that, on balance, this agreement does not promote the best 
interests of Central America, the Dominican Republic or, in the long 
run, the United States. We believe that a bilateral trade relationship 
that promotes economic opportunity and respects fundamental human 
rights is possible. WOLA therefore urges the U.S. Congress to reject 
the DR-CAFTA and instead to work to support far trade and development 
initiatives that will stimulate sustainable, equitable economic growth 
in the region.

                                 

 Statement of Reed Kelley, Western Organization of Resource Councils, 
                            Meeker, Colorado

    WORC is a regional network of seven grassroots community 
organizations that include 9,500 members and 50 local chapters. WORC 
helps its member groups succeed by providing training and coordinating 
issue work.
    In the West, farming and ranching is a way of life. The trade of 
livestock, sugar and grain fuels rural communities and provides 
American families with safe, high quality food.
    The proposed Central American Free Trade Agreement (CAFTA) would 
hurt rural America by outsourcing American farmers and ranchers and 
their way of life. CAFTA would clear the way to import foreign food 
produced under standards that do not protect the public health, safety 
and the environment. The import of these cheaply produced, poor quality 
foods makes it harder for American farmers and ranchers to provide 
safe, high quality food for our families.
    CAFTA would give foreign corporations the ability to challenge 
local, state, and national laws in closed tribunals that are 
unaccountable to U.S. law.
    CAFTA Chapter 10 contains the same language of the North American 
Free Trade Agreement (NAFTA) Chapter 11. This chapter includes 
``investor to state'' provisions allowing foreign companies to sue 
local, state and federal governments over laws protecting the health 
and safety of your constituents' families. Under this provision, three 
unelected bureaucrats determine if corporate profits should take 
precedence over the health and safety of U.S. citizens, preempting the 
U.S. judicial system. CAFTA would open the way for more investor-to-
state cases from six more countries. The U.S. Trade Representative 
should not be allowed to negotiate trade agreements that undermine your 
right and ability to enforce the very laws you pass to protect human 
health and safety.
    A recent NAFTA Chapter 11 case directly challenges our ability to 
protect U.S. food safety and to prevent cattle disease in the U.S. 
cattle herd. A Canadian cattlemen's organization has sued the U.S. 
Department of Agriculture (USDA) under NAFTA Chapter 11 provisions. The 
Canadian group claims they are due payment for loss of profits because 
of USDA's regulations Canadian cattle imports. This case is being 
brought even though the USDA regulations are a direct result of mad cow 
disease in Canada, even though the regulations were put in place to 
protect the health of U.S. consumers and cattle markets.
    U.S. trade agreements should not deny farmers and ranchers access 
to tools that provide American consumers access to safe, high quality 
food. Trade agreements must honor local, state and national 
governments' right to protect the public health and safety of their 
citizens.
    WORC calls on the Senate Finance Committee to enact trade policies 
that expand markets for American farmers and ranchers while providing 
consumers with good food choices.
    Relaxing import restrictions is unwise until we implement mandatory 
country-of-origin labeling. Until then, consumers will not have the 
opportunity to choose food grown and processed in the U.S. over 
imported food from Central America and the Dominican Republic. 
Mandatory labeling provides a set of comprehensive standards that 
ensure all food is labeled consistently, in a way that is easy for the 
consumer to identify and access. This is also vital for livestock 
producers who want to differentiate their high quality product from 
products of other countries. Without implementation of the U.S. 
mandatory country of origin labeling law for meat and produce, these 
trade agreements short-change our consumers and our producers.
    Congress has a clear choice. You can continue to approve trade 
agreements that undermine U.S. laws and chip away at rural America, or 
you can enact trade policies that provide more opportunities for our 
farmers and ranchers, keep high quality, safe food for our families, 
and honor laws that protect Americans.
    WORC urges the House Ways and Means Committee to choose policies 
that strengthen rural America by rejectingthe Central American Free 
Trade Agreement. Instead, this country should enact trade policies that 
expand markets for American farmers and ranchers while providing 
consumers with good food choices.

                                  
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