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

[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
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
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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 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:

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:

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\
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\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

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

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.

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.

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:

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\
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\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
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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\
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\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).
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\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.
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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\
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\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.
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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\
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\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.
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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.
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\8\ To view the full Declaration, see http://www.wto.org/english/
thewto_e/mWhinist_e/min01_e/mindecl_trips_e.htm
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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.
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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\
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\2\ For concise clarity in the Asymmetries, refer to the graph
annexed at the end of document
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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.
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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\
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\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.
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\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
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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.

\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.

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