[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
TRADE AND GLOBALIZATION
=======================================================================
HEARING
before the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
JANUARY 30, 2007
__________
Serial No. 110-3
__________
Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS
CHARLES B. RANGEL, New York, Chairman
FORTNEY PETE STARK, California JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan WALLY HERGER, California
JIM MCDERMOTT, Washington DAVE CAMP, Michigan
JOHN LEWIS, Georgia JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee JERRY WELLER, Illinois
XAVIER BECERRA, California KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas RON LEWIS, Kentucky
EARL POMEROY, North Dakota KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon DEVIN NUNES, California
RON KIND, Wisconsin PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama
Janice Mays, Chief Counsel and Staff Director
Brett Loper, Minority Staff Director
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C O N T E N T S
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Page
Advisory of January 23, 2007, announcing the hearing............. 2
WITNESSES
Daniel Tarullo, Ph.D., Professor of Law, Georgetown University... 8
The Honorable Grant Aldonas, William M. Scholl Chair in
International Business, Center for Strategic and International
Studies........................................................ 14
Gene B. Sperling, Senior Fellow, Center for American Progress,
and Director, Center for Universal Education, Council on
Foreign Relations.............................................. 23
John Meier, Chief Executive Officer, Libbey Glass, Inc., Toledo,
Ohio........................................................... 34
Harold McGraw III, Chairman, President, and CEO, The McGraw-Hill
Companies, and Chairman, Business Roundtable, and Chairman,
Emergency Committee for American Trade, New York, New York..... 40
Lawrence Mishel, Ph.D., President, Economic Policy Institute..... 49
SUBMISSIONS FOR THE RECORD
Alexander, Steve, Consuming Industries Trade Action Coalition,
letter......................................................... 101
American Forest and Paper Association, statement................. 103
Central America Black Organizations, statement................... 107
Executive Intelligence Review, statement......................... 113
Generic Pharmaceutical Association, statement.................... 117
National Pork Producers Council, statement....................... 124
Ohio Conference on Fair Trade, statement......................... 130
Retail Industry Leaders Association, statement................... 131
Stop CAFTA Coalition, letter..................................... 133
Wallach, Lori, Public Citizen's Global Trade Watch, statement.... 135
Williamson, Donald, Americans For Fair Taxation, Conyers, GA,
letter......................................................... 140
TRADE AND GLOBALIZATION
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TUESDAY, JANUARY 30, 2007
U.S. House of Representatives,
Committee on Ways and Means,
Washington, DC.
The Committee met, pursuant to notice, at 10:00 a.m., in
room 1100, Longworth House Office Building, Hon. Charles B.
Rangel (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
January 23, 2007
FC-3
Chairman Rangel Announces a Hearing on
Trade and Globalization
House Ways and Means Committee Chairman Charles B. Rangel today
announced that the Committee will hold a hearing on trade and
globalization. The hearing will take place on Tuesday, January 30, in
the main Committee hearing room, 1100 Longworth House Office Building,
beginning at 10 a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
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.
FOCUS OF THE HEARING:
This hearing is the third in a series on economic conditions in the
United States. Trade and globalization present opportunities and
challenges to a multitude of industries and sectors throughout the U.S.
economy, affecting farmers, workers, businesses, and even whole
communities. This hearing will explore the integration of markets
brought about by globalization and examine how U.S. trade policy can be
used as a tool to shape globalization to maximize its benefits, ensure
that they flow evenly throughout society, including to working people,
and to ensure that the forces of the global economy are harnessed most
effectively and efficiently to generate the maximum amount of broadly
based economic growth.
During the hearing, Members hope to elicit responses from witnesses
on the following: (1) the philosophy that more trade is always better,
no matter its terms or contents; (2) whether the benefits of
globalization are being spread broadly to working people, farmers,
businesses and consumers in the United States, and if not, what
specific changes to U.S. trade policy and international trading rules
should be recommended to maximize the benefits and minimize the costs
of globalization; and (3) what have been some of the most important
successes of U.S. trade policy in the recent past in terms of
maximizing the benefits of globalization and minimizing its costs.
In announcing the hearing, Chairman Rangel said, ``We need a better
understanding of the winners and losers under our current trade policy.
Congress must be an active partner with the Administration in shaping
trade policy to strengthen economic opportunities for American workers,
farmers and businesses and this hearing will provide a framework for
future legislative action.''
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Chairman RANGEL. Good morning. The Committee will come to
order.
I have been reminded that this may have been the first time
in years that we have come together to review our Nation's
trade policy, globalization, the positive and negative impact,
and what we can do to develop a bipartisan policy where we are
not talking at each other, but with each other for the goal of
taking advantage of the progress that we have made in
international trade, and also not ignoring the negative aspects
of globalization and what we can do to ease the pain or to
avoid it completely.
Soon we will have to deal with the question of trade
promotion authority. In addition to that, I think it is
realistic enough to believe that the Presidential elections may
take away the opportunity for this Committee to come up with a
bipartisan approach to trade, which of course would include the
unions, the trade organizations, as well as the Administration.
Mr. McCrery and I have received very positive responses to
attempting to see whether we can change the image of trade from
everybody in the private sector, in Congress, as well as the
Administration. So, we hope at the end of our discussions that
we could come together in an informal way, agreeing at least in
part to some approach to trade where it can get a more positive
image, and we have more people appreciating that their
government will be there with the private sector to assist them
if and when it is needed.
I would like to turn it over to Mr. McCrery, since we
chatted briefly before the hearing.
Mr. MCCRERY. Thank you, Mr. Chairman. I join you in
welcoming the input of not only the witnesses before this
Committee today, but Members of the Administration who have
been working with us to try to discover ways to improve our
approach to trade and improve the public's perception of trade,
as well as the private sector that you and I have both engaged
in conversations with, the business sector, I should say, in
trying to address this problem.
Of course, organized labor has been long a proponent of
changes in trade policy. So, we are also listening to their
points as well. I am hopeful that through hearings like this--
and I think the name that you have given this hearing, Mr.
Chairman, is particularly appropriate. It is a hearing on trade
and globalization.
I believe that many of the negative impacts that we see in
our economy, dislocated workers and the like, are not caused
directly by trade, but certainly are caused by globalization.
So, we ought to be addressing these issues together, as you
have chosen to do today. So, I commend you.
I have a full statement that I will submit for the record,
Mr. Chairman. Suffice it to say that I believe this hearing
will cover a number of areas that we need to be looking at that
are not directly related to trade, but nonetheless have an
impact on workers and consumers in this country that we need to
consider. So, thank you for doing this.
[The prepared statement of Mr. McCrery follows:]
Prepared Statement of The Honorable Jim McCrery,
a Representative in Congress from the State of Louisiana
Mr. Chairman, I am pleased that you are helping frame the debate in
a fair and open fashion. Trade flows are so deeply imbedded in our
economy, and economic activity criss-crosses national borders so
frequently, that it is no longer sensible to discuss trade and our
national economy separately from each other. Trade is just normal
economic activity that happens to take place between people in
different countries.
We must reject the myth that trade benefits only large, rich
multinational corporations. Americans who shop at large retail stores
to save money on food, clothing, and household needs are beneficiaries
of trade. And those low prices disproportionately help lower-income
families because spending on such necessities is a larger proportion of
their household budget.
American businesses of all sizes are more competitive when they can
import goods and services from overseas to make their products better
and less expensive. Trade also includes American exports, which support
10.4% of total U.S. GDP, and 20% of the growth in the U.S. economy. One
of every ten jobs in the United States is linked to the export of U.S.
goods and services, and those jobs pay on average 13-18% more than
others.
We cannot turn back the clock. It is pointless to think we can
control globalization, slow it, or stop it. Other countries recognize
this and are steaming ahead with new agreements to increase trade.
China, for example, has four bilateral and regional agreements in place
and is negotiating five more. The EU has 20 already and another seven
in negotiation. And Japan--long thought of as a ``protectionist''
power--has five, with eight more in progress.
We should be looking at how we can position ourselves to establish
a global economic environment that keeps U.S. businesses, workers, and
consumers on top. Instead of thinking about trade in isolation, we
should put it into the context of a much larger debate on our changing
economy.
What specifically should we be doing?
1. Grow trade opportunities: The most compelling argument in favor
of our recent free trade agreements is that they reduce the high
tariffs other nations charge on our products (12% on average, according
to the National Association of Manufacturers), while we charge them
little or nothing. These agreements also play to our strengths by
opening service markets to us in a dramatic way, helping build our $66
billion service surplus on $381 billion in exports (a figure that has
doubled since 1994). Also, our free trade agreements have reduced our
trade deficit by $5.5 billion. In fact, if remaining global trade
barriers are eliminated, U.S. annual income would increase by an
additional $500 billion--or roughly $4,500 per household. The choice is
clear: renew trade promotion authority and give the country a raise.
I'm delighted that the President may ask for a renewal of Trade
Promotion Authority as early as tomorrow.
2. Monitor and enforce trade agreements: We can all agree that our
trading partners are not living up to all of the obligations they
accepted, and we must take action. The Bush Administration has had some
important successes in changing that behavior through bilateral
negotiation and--when necessary--taking dispute settlement cases to the
WTO, but efforts by many of our trading partners to avoid their
obligations continue to grow. This Committee must remain second to none
in pushing for trade compliance, so we can enjoy the full benefits of
what we bargained for.
3. Help dislocated workers: Our economy sees changes not only from
trade but also from technology, productivity, and demographics. In
fact, the Council of Economic Advisors estimates that fewer than 3% of
long-term job losses are due to trade. Manufacturing jobs losses are
mostly due to productivity gains, which have increased manufacturing
output by 11% in the last 4 years, and overall industrial production by
41% between 1994 and 2005.
When we talk about workers dislocated because of import
competition, we should be looking at a solution that addresses the
problems encountered by all dislocated workers. Workers impacted by
trade are a small subset but have those same characteristics--often
they are less educated, older, unskilled minorities, and unmarried. So,
when we are working on unemployment insurance, job training, and job
creation tax incentives that help all dislocated workers and firms that
hire them, we are also working on addressing those who were dislocated
specifically because of trade.
4. Encourage savings and investment: Our trade deficit is a narrow
measure of our economic picture. The broader capital account surplus
reflects the health of our economy and its attractiveness to foreign
investors, who make a significantly positive contribution by supplying
a source of good ``insourced'' jobs. Currently over 5 million jobs are
associated with such investment, and we should continue to encourage
this growth. At the same time, because the trade deficit is related to
our shortfall in national savings, we must save more by cutting
government spending and by providing incentives for our citizens to
save. We also need to increase investment by our companies, by taxing
them less and by providing incentives to invest.
Conclusion
Mr. Chairman, trade has been wrongly blamed, often in a bipartisan
fashion I might add, for many of our economic ills. We must move toward
building a trade policy in a broad bipartisan fashion.
Chairman RANGEL. I would like to yield to Mr. Levin, who is
the Chairman of the Subcommittee on Trade.
Mr. LEVIN. Thank you, Mr. Chairman.
As you mentioned, this is really the first hearing, at
least, that I can remember where we have really addressed trade
policy issues rather than a specific trade agreement. We
haven't had a discussion like this in many, many years. It is
long overdue. I think we should expect controversy, differences
of opinion, and that will include the issue, ``do trade
policies themselves really matter?''.
Mr. McCrery refers to globalization as an overarching
issue. We need to confront this question. Within the dynamic of
globalization that is here to stay: Do trade policies
themselves really matter? Have our trade policies, for example,
contributed to the disequilibrium in income in this country and
in other countries?
So, I think we should look forward to this and to further
hearings. My own judgment is that trade policies really do
matter. My own feeling is that we have had trade policies under
this Administration that have not been active enough, that have
assumed that trade is an end in and of itself, that market
forces will work themselves out, that there isn't really a role
for government, while other nations have seen active
governmental policies.
I think we have therefore faced this issue: Is it vital
that trade be a two-way street? When it isn't a two-way street,
what is the impact on sectors within this country, including
manufacturing?
I close with this, Mr. Chairman. The President today is at
Caterpillar. He is going to be talking about globalization,
economic policy, and he is going to be talking about trade. In
a way, I wish the President were not at Caterpillar, but at a
different place that has had a different impact from our trade
from globalization and from trade policies.
I finish with this. He is also going to be talking today
about the importance of renewal of trade promotion authority.
In my view, what we need to do is to do what we are doing
today, focus on trade policies and on their consequences, and
after we work this out and work on some of the trade issues
that are going to be coming before us--Peru, Colombia, Panama--
after we have considered this, then talk about Trade Promotion
Authority (TPA).
To talk first about that before we talk about the need for
changes in trade policies in my judgment is putting the cart
before the horse. It is important to look at the horse. It is
also important to look at the cart.
Thank you, Mr. Chairman.
Chairman RANGEL. Mr. Herger.
Mr. HERGER. Thank you. I want to join in thanking you, Mr.
Chairman and Ranking Member McCrery, for this hearing. The
issue of trade and globalization is certainly one of the most
important issues, I think, that affects us as a Nation and
certainly as citizens of the United States.
Globalization is a fact of life. The United States is the
number one trading Nation, exporting Nation, in the world, and
certainly is incredibly important to the economy not just of
the Nation but particularly to the State of California where I
am from.
I think it is so important that we be working together
rather than against each other, that we be joining forces with
labor and meeting these real challenges that we have of the
fact that we do have displaced workers, but the fact that we
are gaining far more workers and gaining far more jobs, and
that we have a far lower unemployment rate than we would
otherwise, but work together rather than against each other.
So, again I thank you, Mr. Chairman Rangel. I do have a
full statement I would like to submit.
[The prepared statement of Mr. Herger follows:]
Prepared Statement of The Honorable Wally Herger,
a Representative in Congress from the State of California
Thank you, Chairman Rangel, Ranking Member McCrery. I am glad we
are discussing the importance of trade to our country's economy today.
Although we hear much about the impact of globalization on workers,
which is the exception and not the rule, trade also conveys enormous
benefits to our society through quality job creation, higher wages,
lower prices, overall economic growth and enhanced prosperity for all
Americans.
As you know, I represent the heavily agriculture dependent 2nd
congressional district of California. The simple fact is that we
produce far more agricultural goods than we can consume, so, and
therefore our farmers depend on exports, amounting to one-third of our
production. Aside from agriculture, trade in non-agricultural goods and
services is of vital importance to our State.
California is truly a global gateway--for both exports and imports
of goods and services--all of which contribute to the health and
welfare of workers in our State. Export growth helps employees by
creating jobs and advancing California's manufacturers, service
providers and farmers. Imports help keep costs low, which both supports
the continued competitiveness of California's exporting companies, and
also increases the buying power of individuals and families.
Based on differing studies, California's economy is between the
sixth and tenth largest in the world. Within that more than $1.5
trillion economy, a global demand for California-produced manufactured
goods generates more than 730,000 jobs, and accounts for an estimated
5.6 percent of the State's total private-sector employment. That means
that export-supported employment related to manufactured goods
supported 1 out of every 18 workers. In all, California exported $117
billion in merchandise in 2005, amounting to 7.2 percent of the total
State economy. And far from these being low-paying jobs, employees at
exporting plants were paid 18 percent more on average than non-
exporting plants.
Mr. Chairman, manufactured goods exports sustain the successful
operations of thousands of businesses in California, which in turn
provide livelihoods for hundreds of thousands of workers. Furthermore,
coming from a small business background myself, I am pleased to note
that of the nearly 59,000 businesses in California that ship their
products overseas, and rely on open and transparent markets abroad, 95
percent of those companies are small- and medium-sized firms with fewer
than 500 employees.
Across the entire economy, an estimated 3.7 million jobs in
California are supported by trade.
Another often overlooked benefit of America's open trade with other
nations is the insourcing of capital from other countries. According to
the Organization for International Investment, subsidiaries of foreign
companies operating in California employ approximately 547,000 workers.
Such firms have added value to our economy and expanded job creation to
the tune of 17,400 new hires between 1999 and 2004.
These firms are also responsible for providing a significant
increase in employment opportunities in other large States as well,
such as New York, Texas and Florida, and smaller and mid-sized States
like Connecticut, Washington, New Hampshire and New Mexico. And the
list goes on.
In addition to jobs, imports, exports and expanded trade in general
are responsible for supplementing State tax revenues, which fund public
services, schools, roads and other infrastructure growth and
improvement. According to the Chamber, California's businesses added
nearly $96 billion to local economies in 2005 by purchasing local
goods, which allowed them to export manufactured goods to customers
worldwide.
Overall, globalization contributes to increases in productivity and
real wages while expanding consumer choices in California. This, in
turn, leads to greater purchasing power, meaning that every dollar a
family in California earns goes farther to purchase the goods they use
on a daily basis. Globalization and lower barriers to trade can also be
credited with increasing per household incomes by more than $9,000
since 1945. And if we successfully eliminate the remaining global trade
barriers, U.S. per household incomes could increase an additional
$4,500.
Mr. Chairman, we cannot ignore this rare opportunity and must
continue to facilitate the lowering of barriers to trade through our
work in the 110th Congress. Globalization contributes to the general
welfare, economic health and competitiveness of both California's and
America's workers and economies.
Chairman RANGEL. Well, I want to thank the outstanding
panel of witnesses that have spent so much of their
professional lives in this area. You see the general theme in
which we are going. I have talked with Mr. McCrery, and we do
hope and expect that if we can get some positive ideas, that we
will meet in an informal way with the Administration, with
labor, with Members, and see if we can come up with something
that can be agreed upon to make globalization less painful and
to make America more beneficial.
We will start off with Professor Daniel Tarullo, who has
worked in this field. He is a professor. He has taught at
Harvard. He has been a part of President Clinton's
Administration. He has made an outstanding contribution to the
understanding of international economics. I thank you for
taking time to be with us.
All of the witnesses' statements will be entered into the
record without objection.
STATEMENT OF DANIEL TARULLO, PH.D., PROFESSOR OF LAW,
GEORGETOWN UNIVERSITY
Dr. TARULLO. Thank you, Mr. Chairman, Mr. McCrery, Members
of the Committee.
As you have already indicated, it is hard to find a bigger
topic than globalization. Globalization implicates important
issues of fiscal policy, exchange rate policy, innovation
policy, education policy. It also implicates the major issue as
to whether the resulting productivity growth and increase in
income in the United States is going to be fairly shared among
all of those who have contributed to those increases.
In your announcement of this hearing, you posed some
questions specifically about trade policy. Although everything
is connected, of course, domestic policies and trade policy, I
think it is quite useful to focus this morning specifically on
trade policies--our trade strategy, what agreements we
negotiate, why, how, and what is in them.
Now, this is a big panel and I know you want to get to
questions. So, let me just offer a few thoughts and place them
on the table in an effort to get the discussion started.
First, so much talk about trade and trade policy,
particularly in recent years, has had a binary quality to it.
You are either for trade or you are against trade, almost
without regard to what is in a trade agreement.
Now, in no other policy area of which I am aware do we
favor or oppose things simply by labeling them. You are for tax
policy; you are against tax policy. That shouldn't be the case
in trade, either.
Second, selection matters. The selection of trade
agreements matters enormously. Every Administration has limited
resources. They don't have an infinite supply of negotiators.
Top people in the Administration only have so much time in the
day to focus on a limited number of issues. Plus the selection
of particular agreements to negotiate has a strategic impact on
opening up or closing off other possibilities.
So, one can't simply move from whatever opportunity
presents itself exogenously to whatever opportunity next
presents itself exogenously. One needs to have a strategy if
one is going to provide leadership and move the country forward
in the direction one wishes to see it go.
Third, content matters. The content of an agreement
matters, and this for several very important reasons. First,
the day has long passed when trade agreements were essentially
about tariff reduction or reducing quotas or taking care of
customs classification issues at the border. You all have seen
the kind of agreements that have been presented to you over the
last 5, 10, or 15 years.
They now involve domestic policies. They move deeply into
the domestic policies of each participant--health standards,
safety, environmental law, labor standards, intellectual
property, industry regulation. All of these things are either
directly or indirectly addressed in many bilateral trade
agreements and in the Uruguay round of multilateral
negotiations.
When you have that kind of far-reaching trade agreement, it
is not only inevitable, but I think necessary, that the Members
of Congress and the public focus on the changes that are being
effected to our core domestic policies. This is not to say it
is inappropriate always to address these things, but asking how
they are addressed and how discretion is either limited or
granted to domestic governments is an essential part of any
Committee's oversight.
Now, the second reason why content matters so much is the
nature of the global economy which, as many of you have already
commented, is already moving us more closely to a truly
integrated economy. In this world, we do not have for most
industries the kind of competitive industry that textbooks
present us with in first-year economics--that is, lots of
producers, with nobody being able to set prices. In the
textbook world, all you need to do is remove barriers and
everybody competes and the price comes down to an efficient
level.
Trade in the 21st century, and certainly trade among the
United States, Japan, increasingly China, and Europe, involves
to a considerable extent innovative products and innovative
forms of providing services.
When you have trade based upon innovation, upon new
products, you almost always have conditions of imperfect
competition. You often have conditions of increasing returns to
scale, meaning the more you can produce, the more profitable it
is going to be for you. You have what people refer to as first
mover advantages. If you are the first entity to get out a
technology and you can establish the market, it is very hard
for people to catch up with you.
So, for all these reasons, the practices of other
countries, often mercantilist practices of other countries,
matter a lot more than an old style tariff. Let me give you an
example.
If a country establishes a standard for a new product, a
high-tech product, and the country is big enough to have a
domestic market that begins to cultivate the production of that
product, and at the same time it is able to foist its standard
on the rest of the world, or to exclude the competing foreign
product which perhaps operates to different technological
standards, then that country is well on its way to establishing
what I refer to as first mover advantages.
If you have a trade agreement with that country and you
don't address that problem of access for U.S. producers, but at
the same time you gave U.S. market access and perhaps
assurances of regulatory approval, then you have not only
failed to achieve the benefits for American firms and workers
that we ought to but you also, at least in some cases, might
even produce a net loss for that industry because you
accelerate the progress of its overseas competitor.
So, not surprisingly, in this era there are going to be
well thought through trade agreements and well thought through
trade strategies, and some not so well thought through trade
agreements and trade strategies.
This hearing, as Congressman Levin said a few moments ago,
is an opportunity to begin a more general discussion so that
this Congress and the remainder of this Administration can go
forward, I hope, with a more strategy sense of where we are
trying to take the country internationally, domestically, and
at the intersection.
Let me close, Mr. Chairman, by saying that if we can
reestablish a consensus on trade, I think there is an enormous
opportunity for the United States to recapture its leadership
role in international trade, in international economic matters.
Each of the major international post-war arrangements is
under stress. The trading system is going to change in the next
several years. We have an opportunity to shape the rules that
will govern the new trading system. I think--I believe
strongly, the only way to do that is with a strong bipartisan
domestic consensus.
Thank you very much.
[The prepared statement of Dr. Tarullo follows:]
Prepared Statement of Daniel Tarullo, Ph.D.,
Professor of Law, Georgetown University
Mr. Chairman, Ranking Member McCrery, Members of the Committee.
Thank you for your invitation to testify this morning. I am a Professor
of Law at Georgetown University Law Center and a nonresident senior
fellow at the Center for American Progress. I testify today in my
individual capacity as an academic, with no client interests or
representation.
In holding this hearing as the new Congress convenes, you provide
an occasion to step back from debate over a specific trade agreement or
legislative proposal and to address more broadly the opportunities and
challenges presented to the United States by the ongoing globalization
of economic activity. In response to your specific inquiry, let me say
at the outset that I certainly do not subscribe to the view that any
trade agreement is a good trade agreement. Given resource constraints,
the selection of agreements to negotiate is a critical decision.
Furthermore, decisions on the provisions to be included or excluded
can, almost by definition, make the difference between a good or bad
agreement.
Having said that, I think it important to note that the United
States does have an interest in negotiating additional trade
agreements. The question ought not to be whether all trade agreements
are good or all trade agreements are bad. Instead, the relevant
questions are whether the selection of negotiating partners and topics
is well-advised, and whether the terms negotiated comport with good
international and domestic policy. This judgment must be applied on a
case-by-case basis, though one would hope that an Administration would
have an overall trade strategy that more generally embodied these aims
and interests.
My testimony next explains why I believe this hearing comes at a
critical period of change in the world economy and in the institutions
that shape global economic activity. Next I will identify the role that
trade policy can and cannot play in a sensible and strategic response
to these changes. Finally, I will suggest some criteria for devising a
sensible trade policy that is growth-oriented, socially equitable, and
politically sustainable.
The Impact of Economic and Political Change
Trade policy has always occupied a point at the intersection of
economic policy, international relations, and domestic politics. An
intelligent approach to setting current trade policy must take into
account the fundamental economic and geopolitical changes we encounter
today. At the same time, we must recognize that the trade and other
international economic policies we adopt will help shape these changes,
whose end points are far from clear.
The economic changes associated with contemporary globalization are
most frequently cited in discussions of trade policy and, for that
reason, may need less elaboration. But they are useful to recall, at
least briefly, in providing the context within which trade policy is
formulated. It is particularly important to specify how the current
wave of globalization differs from prior episodes and thus calls for
new responses.
First, successive revolutions in information technology have driven
much economic change in recent decades. Past periods of economic
integration, national and international, were propelled as much or more
by technological advances that reduced transportation costs as they
were by communications advances such as the telegraph and telephone.
But there have been no revolutionary advances in land, sea, or air
transportation for decades. In the present phase of globalization,
economic distances have shrunk because of the increasing ability to
communicate by voice, data, and image nearly instantaneously at costs
that continue to decline. Meanwhile, the declining cost and growing
power of computing has enabled coordination of complex activities that
was unthinkable just a generation ago.
The implications of the IT revolutions for economic organization
are profound. Let me note several that are especially significant for
present purposes: The availability of these information technologies
has enabled companies to break up their production processes into
discrete segments that are not physically proximate to one another.
Each segment can be placed in whatever location in the world offers the
combination of infrastructure, skills, labor markets, and general
business environment best suited to produce that segment at the lowest
cost. This capacity also enables a company to contract out much of its
production process to independent suppliers while maintaining effective
communication concerning inventory, customer needs, quality control,
and other issues.
Finally, the IT revolution has opened up new possibilities for
services to be performed at locations remote from either a related
producer or an ultimate consumer. Consequently, the set of potentially
``tradeable'' services is growing and with it the likelihood of further
structural economic shifts. Note, however that much or all of this
offshoring of services can be achieved without any person or physical
product ever crossing a national border. These services, whether
provided as intermediate steps of a production process or directly to
consumers, are delivered solely through high-speed electronic
transmission of voice, data, or images.
Second, the accelerating participation by China, India, and other
emerging markets in the global economy means that the world labor force
will be increasing by a billion or more workers in a relatively short
period of time. A growing portion of these new entrants will be
reasonably well educated and trained; a significant fraction will be
highly skilled professionals whose abilities match those of their
counterparts in North America, Europe, and Japan. Combined with the
technological developments just mentioned, this explosion of the global
workforce could lead to the kind of fundamental shift in world economic
power that has occurred periodically since the Industrial Revolution.
This one, however, may occur at an unprecedented speed.
Changes in the international system have hastened economic
globalization and, at the same time, deprived it of a stable structure
for organizing the international economy. The world is moving towards a
multipolar economic system with a novel set of characteristics. The
multiple economic poles will include countries at very different levels
of development (principally China and India, as compared to Europe,
Japan, and the United States). This change reflects an ongoing secular
shift in the economic weight of the world's major regions.
Most dramatic, of course, is the rise of Asia ex-Japan. Most
countries in this fastest growing region in the world have pursued
variations on export-led growth strategies. Many have presented formal,
and sometimes less transparent but very real, barriers to market access
for foreign companies. Such practices by many of these countries
continue, to be sure, along with foreign exchange policies that often
artificially depress the values of their currencies in order to promote
exports. Yet these countries are also shifting their policies, both in
response to their own movement up the economic ladder and in response
to the impact of China on the regional economy.
Meanwhile, the World Trade Organization, the International Monetary
Fund, and the World Bank are under stress. For a variety of reasons--
the growth in the number of economically important countries, the shift
in relative economic weight towards Asia, and their roots in a bygone
era--these institutions are significantly misaligned with the
contemporary mission of creating stable, prosperous, and equitable
structures for a global economy.
Just as the end of the Cold War and the consequent passing of the
familiar bipolar system engendered uncertainty in the political sphere,
so the emergence of a multipolar economic system of such unusual
configuration leaves us in a new environment. Few of the rising
economic powers are traditional allies of the United States. They are
all, to a greater or lesser extent, skeptical of the postwar
international economic system over which America has had substantial
influence. At the same time, even from the perspective of the United
States and other mature economies, the current system seems
increasingly outdated. In such circumstances, the potential for
significant change in international economic arrangements over the
coming years seems quite high.
The Role of U.S. Trade Policy
It is important to be clear about the relationship of trade policy
and trade agreements to the phenomena described in the preceding
section. Globalization is an important manifestation of economic
changes that have simultaneously yielded remarkable leaps in
productivity and highly disproportionate concentrations of the benefits
of consequent economic growth. In many countries, including the United
States, the result has been a significant rise in income inequality.
Here at home, technological change and production specialization
have accelerated the loss of jobs, both where trade is involved and
where the relevant economic activities are dominantly domestic. Even as
these new technologies also create new jobs, many Americans worry that
the losses will outweigh the gains and, as a consequence, they and
their children will face a stagnant or declining standard of living.
The previously mentioned upsurge in the global labor pool only
increases these fears of job loss, along with a concern that the result
will be downward pressure on wages for broad segments of American
workers.
Trade agreements have often been the lightning rod for the
anxieties and anger associated with these changes. Yet the trends
described earlier will proceed regardless of whether the United States
ever signs another trade agreement. Eschewing additional agreements
would not stop emerging market nations from further developing their
industrial capacities and improving the productivity of their workers.
Nor would it halt the outsourcing of services.
A decision by the United States to forego all new trade
arrangements would not dissuade other countries, both developed and
developing, from pursuing new trade agreements of their own. In just
the last 2 months we have witnessed an acceleration of the timetable
for the creation of a free-trade zone by the Association of Southeast
Asian Nations (ASEAN) and an agreement between ASEAN and China to
liberalize trade in a number of service sectors.
The United States has a continuing interest in its leadership role
in trade and other international economic arrangements. This role gives
us the ability to shape the rules by which global economic actors must
play. If we play this role in a constructive manner, it can reinforce
overall American influence in the world. In addition, of course, the
right kinds of trade agreements can provide American firms and workers
with access to the world's fast-growing economies as favorable as that
enjoyed by other important economic powers.
Our challenge is to manage globalization to ensure that its
benefits, both at home and abroad, are not limited to one privileged
group while the costs are borne by others. Trade policy cannot do all,
or even most, of this work on its own. But a well-conceived and well-
implemented trade policy can play an important part.
Standards for a Sensible Trade Policy
Trade policy is sometimes depicted in binary terms: You are either
for free trade or you are a protectionist. Anyone who opposes any trade
agreement must be a protectionist. Or--as seen from another
perspective--if you favor any trade agreement, you must be in favor of
undermining labor or environmental or safety standards. But sensible
trade policy, like most sensible policies, must recognize the
multiplicity of interests at stake, as well as the different ways in
which those interests are balanced and realized. It again bears saying
that negotiating something called a trade agreement does not make it
good or bad, a sensible or misguided allocation of government
resources. The scope and specifics of the trade agreement itself are
what matter. In that spirit, I suggest some standards for formulating
or evaluating trade policy.
First, our trade policy should provide significant gains for U.S.
workers, consumers, and businesses. Deserving of particular attention
is the issue of whether the nation's trade policy is opening
significant opportunities for the export of goods and services produced
in the United States. Opportunities for the export of competitive goods
and services support the good jobs associated with those exports. This
standard implies both that new agreements should be conceived and
negotiated with an eye to this aim and that access granted under
existing agreements should be protected.
Judged against this standard, the performance of U.S. trade policy
in the last 6 years has been disappointing. While raw statistics can
never tell the whole story, the contrast between the 1995-2000 period
and the 2001-2006 period is striking. In the former, the United States
initiated 68 dispute settlement cases under the new World Trade
Organization procedures. In the latter timeframe, only 16 cases have
been initiated. Mercantilist practices are still prevalent in some
important export markets, either in particular sectors or more
generally. Whether through WTO dispute settlement or otherwise,
countering these practices must be an integral part of a sensible trade
policy.
Equally disappointing are the opportunities created by the new
trade agreements into which the United States has entered in that same
2001-2006 period. Cumulatively, these agreements account for less than
5% of U.S. exports. It appears that, for several years, selection of
countries with which the United States sought trade agreements was
driven almost exclusively by geopolitical considerations. While there
is nothing inherently wrong with factoring such considerations into
trade policy, application of this selection criterion by the current
Administration came at the expense of important commercial
opportunities. Negotiators are not in infinite supply and senior
officials must generally concentrate on no more than a few priorities
at any one time.
The missed opportunities include the Doha Round and the faster
growing markets that pose significant problems of access to U.S.
exporters. At least at its top levels, the Administration seemed never
more than nominally committed towards timely conclusion of the Doha
Round of multilateral negotiations, which had (and, hopefully still
has) the potential to reduce significant barriers to our agricultural
exports. While the Administration has more recently initiated
discussions with some emerging market countries in which such problems
are encountered, there is considerable doubt as to the viability of the
approach taken in those negotiations.
Second, our trade agreements should contain provisions that are
consistent with the exercise of responsible governmental authority.
Trade agreements have for some time included terms that move well
beyond border measures and into domestic economic policy. To some
extent, this is inevitable, since the reduction of border measures has
increased the impact of internal policies on trade. However, some
agreements have gone too far down this road by restricting or
prohibiting government prerogatives to take nondiscriminatory actions
that many would find best left to the discretion of each country. Not
every regulation is a ``trade barrier.'' On the other hand, some
nontraditional provisions, such as requirements for government
transparency in regulatory or procurement, could actually reinforce the
accountability of governments to their own people, as well as leveling
the playing field for commercial actors.
A related matter is the inclusion of protections for basic labor
and environmental standards. For years there has been a great struggle
over these issues, particularly where labor standards are concerned.
Yet it is hardly responsible government practice to permit violation of
the five familiar internationally labor standards, and it is certainly
not consistent with the aim of spreading the benefits of globalization
to all. The approach of simply requiring countries to enforce their own
standards--whatever they may be--is an evasion of the whole purpose of
minimal labor protections. At the same time, the refusal to include
such standards as an integral part of bilateral trade agreements,
subject to the same dispute settlement system as other provisions,
sends an unfortunate message to the average American that liberalized
trade is somehow antithetical to the most elemental protection of
worker standards. Such a position seems almost perversely designed to
stoke fears of trade and globalization.
A third standard for our trade agreements is that they support an
international economic system consistent with American economic and
political interests. This aim is particularly salient for multilateral
agreements, which set global rules for trade and associated policies.
For example, just as we must pay heed to our own citizens who may be
left behind by globalization, so it is very much in our interest to
promote development in the poorest countries of the world--for
economic, political, security, and humanitarian reasons. Trade
negotiations such as the Doha Round can advance this interest at the
same time they generate more conventional opportunities. The use of
trade agreements can bind the world more closely together in an
economic system that produces gains for all nations, thereby benefiting
the United States both directly and indirectly.
Fourth, trade policy should be situated in programs and policies
that will give all Americans a chance to prosper. Almost all proponents
of trade agreements acknowledge that there will be losers as well as
winners from liberalized trade. While there is always much talk of
compensating losers, there is rarely more than modest action to back up
this talk. In decades past, it was perhaps reasonable to expect that
most workers displaced by trade could, with some minimal assistance,
move fairly quickly into jobs of comparable skill and pay.
Whatever the reasonableness of such assumptions in the past, they
are clearly inoperative now. The social compact has been eroded in the
United States. The economic insecurity that comes with disappearing
pensions, unaffordable health care, and stagnant wages already grips
many Americans. Trade is by no means the only--or even the principal--
cause, and legislation implementing trade agreements is hardly the
place to tackle health care reform or pension portability.
Still, trade agreements should be occasions for reaffirming the
social compact. There is no single formula for doing so. What is
sensible and feasible will vary with the nature and scope of the
agreement at issue. But, in one form or another, each should include
measures specifically addressed to the needs of Americans whose
economic prospects and security are threatened by the forces of
economic change, including globalization.
Conclusion
Although I have tried, with these four standards, to develop a
starting point for assessing the kinds of trade agreements we should
pursue, application of these necessarily general standards will not
always produce clear answers as to the advisability of a proposed trade
agreement. In a sense, the best mechanism for selecting among proposals
for negotiations and evaluating the terms of agreements once
negotiations are launched is for an Administration to consult with
Congress.
The current up-or-down voting procedures for agreements under the
President's trade promotion authority were designed to prevent
delicately negotiated agreements from unraveling during the legislative
process. But the inability of Members to offer amendments places a
premium on consultation and accommodation during the conception and
negotiation of trade agreements. Traditionally, Presidents of both
parties since the time of Franklin Roosevelt tried to pursue a
bipartisan trade policy. But trade, like so many other issues, has
become increasingly partisan. While this is probably inevitable to some
degree, given the nature of trade policy today, the prevailing pattern
during the past 6 years of nonconsultation with Members of the
opposition party is surely ill-advised.
There have been signs that this pattern has changed. Obviously, the
change in control of Congress makes bipartisan consultations not just
advisable, but necessary for the Administration. I hope, and believe,
that today's hearing is the start of a forthright and open discussion
by all sides of the trade policies that will best serve American
interests.
Thank you for your attention. I would be happy to answer any
questions you may have for me.
Chairman RANGEL. Thank you, Professor. We are going to have
to try to ask you to stay closer to the 5-minute rule so that
we can ask questions.
We are lucky to have Grant Aldonas, who holds the William
M. Scholl Chair in International Business. He has a
distinguished career in international economic policy. We thank
you so much for taking the time to share your views with us.
STATEMENT OF THE HONORABLE GRANT ALDONAS, WILLIAM M. SCHOLL
CHAIR IN INTERNATIONAL BUSINESS, CENTER FOR STRATEGIC AND
INTERNATIONAL STUDIES
Mr. ALDONAS. Mr. Chairman, Mr. McCrery, Members, it is
great to be back with you. I have an enormous amount of respect
for the Committee and the task you have in front of you.
If we are going to rebuild a bipartisan consensus on trade,
this is where it has to start. Frankly, given the House is the
voice of the people, it is where it should start. We need that
respect, frankly, for the voice of the American public in this
debate.
Before turning to your specific questions, though, I want
to emphasize one point. We are not at the mercy of
globalization. We control our own destiny. Whether it is
through our trade policy, our domestic policies, we can provide
the tools necessary to succeed in the global economy. That is
going to take an effort by everybody.
Frankly, we can't afford to leave any individual in America
behind as a part of that process. I think that ought to be the
focus as we go forward through this debate. I think it is a
basis on which we can build that bipartisan consensus.
Now, turning to the Committee's questions, you asked
whether more trade is always better regardless of its contents.
I would say the answer is unequivocally yes, for three reasons.
First, more trade encourages us to specialize in what we do
best. That increases our productivity and it raises our
standard of living. That is what economic policy is all about.
Second, there is a moral dimension to trade that reinforces
the economic effect. Whether it is Mali or Mississippi,
encouraging economic development is really about giving folks
their economic freedom and the tools to shape their own
economic future.
Lifting restraints on trade, whether they are in another
country or whether our own, means lifting restraints on
economic freedom, and I have to say both the best and the worst
of our own history confirms that economic freedom is absolutely
essential to the exercise of political freedom as well.
Third, more trade is an indicator of our openness to the
global economy. That openness exposes us to new trends and
technology, consumer preferences, production methods, and
business practices, and that drives innovation. It lifts
productivity, and again, it raises our standard of living. All
economic evidence confirms that countries that are more open to
trade fare much better than those that isolate themselves from
the global economy.
Now, what that doesn't mean is that more trade agreements
are better regardless of their terms or their content. I think
we have sacrificed political support in the country for trade
by negotiating agreements that have only marginal value to U.S.
exporters rather than focusing on markets that would make a
real commercial difference or set precedents that would move
the trading system forward in some important respect. It is
also true that more trade agreements without adequate policies
intended to put the tools of the global economy in the hands of
every American don't make a lot of sense as well.
Now, the Committee also asked whether the benefits of
globalization are widely spread. In one sense, the answer to
that question is again unequivocally yes. Every day, Wal-Mart
takes a lot of criticism, but every day Sam Walton's store is
open for business, they are delivering globalization to our
doorstep. They are raising our standard of living by lowering
its cost.
That matters most to people at the bottom of the economic
pyramid, not at the top. That is important to remember as a
part of this when our friends in the retailing end of
businesses are taking a lot of criticism for what they deliver.
Now, at the same time, there is no doubt that wages for
Americans at the low end of the wage scale have not budged at
all while incomes earned by the highest quintile in America
have grown significantly. Globalization is generating higher
returns to education. That shouldn't be any surprise.
So, the question in front of the Committee should be: Do we
isolate ourselves in response to that, or do we focus hard on
improving our own educational system and encouraging young
people to finish their schooling? I think the answer is
obvious. We should be investing heavily in education.
The example underscores the basic point of my testimony,
which is that much of the tools of grappling with globalization
don't lie in trade policy. They do, however, lie in this
Committee's jurisdiction, whether it is tax, whether it is
health care, or whether it is our adjustment policy.
Finally, you asked what specific changes in U.S. trade
policy I would recommend. Let me offer just a few examples.
First of all, unless we see substantial progress in the
next month, we ought to declare Doha dead. We ought to move
instead toward moving toward a free trade agreement among
developed countries within the World Trade Organization (WTO),
with an agreement to harmonize our preference systems for
developing countries in a way that would offer members of the
least sort of effective participants in the trading system the
opportunity to have a much larger market into which they could
sell.
As a step toward that goal, I would advocate launching free
trade area negotiations with Europe and Japan, again including
a common approach to rural economic development that does not
depend on paying people to produce commodities. At the same
time, harmonizing our preference programs for the benefit of
the least developed.
As a further step in that direction, I would suggest that
in our discussions with the least developed, particularly in
Africa, we bargain for a single tariff--they have revenue
concerns that need to be addressed--but a single rate of
tariff; and beyond that, negotiate for changes in the business
conditions in those markets so they can be served both by
American companies and by their own domestic companies to
further economic progress.
I would launch free trade area negotiation with willing
partners in the Asia Pacific region to fulfill the Apex Bohar
commitments with a view toward anchoring the United States in
Asia as a counterweight to China's influence.
I would launch negotiations with all of our current free
trade agreement partners in the western hemisphere in order to
harmonize the rules of origin and create a common market, with
a specific framework that would allow for the accession of
other countries in Latin America and the Caribbean when they
are ready.
I would adopt Spencer Bachus' idea of negotiating an
agreement on financial services with China that allows our
banks, insurance companies, and other financial institutions to
enter the Chinese market and create the capital market
disciplines that would drive many of the worst distortions out
of the Chinese system.
In terms of enforcement, I would focus our efforts,
including WTO dispute settlement, on the most serious
distortions in the international trading system. I would not be
shy about losing cases. Frankly, just like the Justice
Department in the days of civil rights, oftentimes bringing
cases that highlighted the problems and the gaps in the area of
law are just as important as winning cases on behalf of
American companies. That is something that we ought to take
seriously as a part of our strategy.
In terms of trade promotion, I would focus on what it takes
to put American goods in global supply chains. We no longer
live in a world of trade between independent buyers and sellers
where we are thinking about exporting individual markets. The
key for everybody is to try and find their way into a global
supply chain. That is what we should focus on as well.
Last, I would open our own health care market unilaterally
to foreign competition. Why? The rising cost of health care is
killing our manufacturers and frankly, what we need is more
competition in that space rather than focusing on insurance.
Thank you.
[The prepared statement of Mr. Aldonas follows:]
Prepared Statement of The Honorable Grant Aldonas,
William M. Scholl Chair in International Business,
Center for Strategic and International Studies
Chairman Rangel, Mr. McCrery, and Members of the Committee, I
welcome the opportunity to be with you and want to thank you for
holding this hearing on trade and globalization as part of the
Committee's series on economic conditions in the United States. By way
of introduction, I am currently the William M. Scholl Chair at the
Center for Strategic and International Studies. I previously served as
the Under Secretary of Commerce for International Trade from 2001-2005.
In my view, these hearings are long overdue. We are in an era of
rapid and unprecedented economic change--change that has no rival even
in the industrial revolution, the previous era of globalization at the
end of the 19th century, the Great Depression, or the extraordinary
economic growth of post-World War II America. Given that fact, it is
worth remembering that the changes wrought by those earlier eras
rewrote the basic social contract in America and elsewhere in the
world.
A similar process is under way today. Like all eras of change, many
of the forces at work can be profoundly beneficial. At the same time,
change brings inevitable hardships, particularly for those in our
society who are least able to adapt to the changes they face.
I am a firm believer in free markets. Not only because they are
economically efficient, but because they are inextricably bound up with
and reinforce the exercise of the broader political freedoms that
represent the genius of our democracy and our society. The habits of
freedom are not, in fact, neatly divisible between political and
economic spheres. Much of the legacy of our own history, including both
its best and worst, underscores the point that individuals without
their economic freedom lack the wherewithal to exercise their political
rights.
That said, I am also a firm believer in democracy and in the values
that underpin our great Nation. In the midst of the Civil War,
President Lincoln pointed out a simple fact--we will either succeed
together or fail together. For we are one country, economically and
politically. The glue that holds us together is our shared commitment
to freedom and equality. It is the vision of America as an equal
opportunity society that holds us together and draws so many, including
my father, from other countries to our shores.
So, while I am a believer in the benefits of globalization, I also
think it is critical that we examine the effects of globalization, not
just in terms of economic efficiency, but also in terms of our ability
to deliver on the promise of an equal opportunity society. And, we
should measure our own actions in response to the economic challenges
we face on that same basis.
That is why it is critical for Congress--and particularly the House
of Representatives, which is as close to the voice of the American
people as any institution in our government--to play the role that our
Founding Fathers and the Constitution set out for it. Your job is to
serve as the mediator between the aspirations of all your constituents
and the reality of the economic challenges we face. Your responsibility
is to make choices that serve the best interests of all Americans, not
just a select few, whether those select few are corporate presidents or
union members.
What that means in more practical terms is that we need to have an
honest debate about the terms of our engagement in the global economy.
It is too easy to label advocates of free trade as uncaring and too
easy to label those who express concerns about international trade as
protectionists or isolationists. What's missing is what I hope your
hearings will provide--a thoughtful appraisal of where we stand in the
global economy and what it will take to ensure that all Americans have
the tools to succeed in the global economy going forward.
Now, having said that, let me lay my cards on the table in terms of
what I see both as to where we stand in the global economy and what it
will take to ensure that all Americans have the opportunity to succeed.
Free markets and the liberalization of trade serve the interests of the
poorest in our society precisely because free markets represent the
greatest leveling force we know. The reason our antitrust policy
disfavors monopoly and limitations on competition is because limits on
competition serve the interests of entrenched power and perpetuate
privilege. Contrary to what many of globalization's critics say, the
same holds true of our trade policy.
That does not mean that government does not have a role and that
only the market is relevant to achieving our economic and social goals.
Government has a critical role to play in putting the tools of the
global economy in the hands of every willing worker in the U.S. economy
and in helping every American adapt to the economic changes we will
inevitably face in the coming years.
The reasons why that is the case and the economic policies we ought
to adopt to ensure that the benefits of globalization reach every
American make up the remainder of my testimony. I want to start by
defining what drives globalization and then discuss what tools we have,
including but not limited to trade policy, to shape the terms of our
engagement in the global economy in ways that will allow us to deliver
on the promise of equal opportunity.
What Globalization Is and Is Not
It is important to be clear about what globalization is and what it
is not in order to think clearly about how we shape the terms of our
engagement in the global economy. In my view, there is no more
important topic for the Committee to consider as part of its work
because it is the forces driving globalization--rather than
globalization itself--that will shape our economic future and that of
the younger Americans who follow us.
We tend to speak of globalization as if it were a force in and of
itself. It is not. Globalization is a noun, not a verb. It is a
consequence, not an all powerful economic tide that is sweeping over
us.
The reason it is important to say that is because how we define
globalization will tend to shape our view of the options we have for
defining our economic future. Viewing globalization as a single,
monolithic external force almost necessarily implies the need to
protect ourselves from it by isolating ourselves from the world
economy. Viewing globalization purely as a function of trade policy or
trade agreements will inevitably lead us to think that retooling our
trade policy might be sufficient to shape our response to the global
economy.
I understand why that is an attractive thought. Trade policy has
become a flashpoint in American politics precisely because it
represents the interface between our economy and those of our neighbors
and trading partners. It lends itself to the easy answer about how to
address our ills. Because trade policy deals with the intersection
between our economy and the global economy, both sides of the debate
tend to invest trade policy with a power that it does not have.
If, however, there are forces at work in the process of
globalization other than trade and trade policy, I think we would all
agree that a focus on trade policy alone would not be adequate to the
task of shaping our response. We would be wise, under those
circumstances, to look beyond the tools of trade policy for the answers
to the challenges we face. And, that is where much of the truth about
responding to globalization lies.
There are three broad trends that have driven the current
integration of world markets. The first is technology, which has
sharply reduced the cost of communication and transportation that
previously divided markets even where there were no other barriers to
trade.
Plainly, trade policy tools--whether in the form of tariffs or
antidumping duties on imports--will not help us in the face of
technological change. In fact, quite the opposite, isolating the United
States and U.S. producers from international competition will only mean
that we would fall behind in terms of technology, which ultimately
contributes to our productivity and our ability to compete.
In the world of trade policy, imports get a bad rap. We tend to
think of exports as good and imports as bad. In fact, imports and the
competition and the spur to technological innovation they provide are
critical to our ability to remain in the game globally. When he was
Chairman of the Senate Finance Committee, my former boss, Senator Bill
Roth, used to say--frequently, and to all that would listen--that
``there was no protection in protectionism.'' The reason he said that
was that he understood that it was competition that kept us sharp and
continually innovating.
It may seem ironic or counterintuitive, but limiting imports as a
means of grappling with the changes that new technologies have wrought
is the surest way to be washed away by the competition those changes
generate.
The second force that has driven the accelerating integration of
global markets is not often discussed as an economic phenomenon. That
is the end of the Cold War. What the end of the Cold War represented in
economic terms was the elimination of barriers that had divided the
world into warring camps for the better part of the 20th century. Like
any markets that are divided for artificial reasons, both markets--the
west and the east--maintained production capacity in excess of what
would be needed in a single integrated world market.
With the fall of the Berlin Wall and the acceleration of China's
movement toward a market economy, the barriers that had sustained that
excess capacity fell. With the collapse of economic activity in the
former Soviet Union, the installed industrial capacity sought new
markets through exports and gained market share by cutting prices. The
effect on pricing and competition in the markets for a broad range of
industrial products reacted predictably. The price effect ensured that
we would face the burden of adjustment along with the former Soviet
states.
Developments in the steel industry provide an example of the
fallout from that process. Exports of steel from the former Soviet
Union have disrupted markets for over a decade largely because the
remaining capacity found no market in the former Soviet states and was
priced to sell on world markets. That caused a significant drop in both
world and U.S. prices, putting significant pressure on our steel
producers to adjust to new levels of competition.
We are, in fact, still in the midst of absorbing the overcapacity
that flourished in those times. And, the adjustment process has been
delayed by continuing distortions in various markets. Again, steel
offers an example. The lack of significant capital market disciplines
in China has kept an enormous amount of old steel capacity on stream
even as China has added new capacity. Fortunately, China's growth has
absorbed much of the excess, but only a slight downturn in China's
growth could drive steel prices down again, forcing another round of
adjustment.
Both instances offer some insight into how and when trade tools
might be useful, but underscore the basic point that the larger forces
driving globalization require economic policy responses that reach
beyond trade policy. There is little that either tariffs or other
border measures could have done to offset the effects of adjustment
unleashed by the end of the Cold War.
Certainly, the steel industry used antidumping actions and lobbied
heavily for relief under section 201 of the Trade Act of 1974. Based on
my own direct experience in those episodes as Under Secretary of
Commerce for International Trade, however, the real clue to the steel
industry's current success flows from higher demand among developing
countries like China and India meeting their infrastructure needs
(i.e., offsetting the decline in demand in the former Soviet states)
and the adjustments that the industry has made to lower their
productions costs, rather than trade restraints.
What's more, even in those instances, trade restraints came at a
significant cost. While the section 201 relief may have helped the U.S.
steel industry adjust, it also raised the costs of small manufacturers
in the U.S. auto parts industry that already faced incredible pressure
from U.S. car manufacturers to reduce the prices of their finished
products. In other words, the smaller downstream manufacturers could
not pass on the increase in prices resulting from higher steel costs,
despite the fact that they too faced intense international competition.
In other words, many of our traditional trade tools have become a
double-edged sword in the global economy, creating winners and losers
in their own right.
No one I know would like to return to the Cold War, even if it
looks considerably more stable than the international environment we
find ourselves in now. But, equally important, there is nothing that
our trade policy tools can do to reverse that trend. They are of some
limited use in addressing the trade-distorting aspects of it, but
ultimately we have to find a way to adjust to that competition until
markets find a new equilibrium between productive capacity in certain
industries and demand, much as has happened in the case of steel.
The last significant driver of globalization does directly involve
trade policy--that driver is the success achieved in lowering the
barriers to trade through successive rounds of multilateral trade
negotiations under the auspices of the General Agreement on Tariffs and
Trade (``GATT'') and various regional and bilateral agreements, such as
the European Union and the North American Free Trade Agreement
(``NAFTA''). The reductions in trade barriers coincided with periods of
significant long-term economic growth in the United States and other
economies that opened themselves up to the global economy. Indeed, all
of the economic evidence suggests that economies that were more open to
trade have fared better economically than those that have remained
closed.
In one sense, that should not come as a surprise. The whole purpose
of engaging in trade is to allow us to specialize in what we can do
best. Because we are more efficient at those activities, we are more
productive and that gain in productivity translates into a higher
standard of living. Economies like the United States that are more open
to trade have also maintained relatively higher standards of living.
Along those same lines, it is worth underscoring the fact that,
even as we are discussing the impact of trade and globalization on our
economy and whether it produces winners and losers, the economy
continues to grow steadily. Unemployment currently sits well below the
6 percent figure that the Clinton Administration identified as full
employment and well below the trend line of the last 30 years.
What that reflects is an economy that is extraordinarily flexible
and capable of adaptation. It is that flexibility and adaptability that
is the hallmark of success in the global economy and holds the clue to
the economic policies we should pursue in order to succeed in a global
age.
But, for now, it is worth asking what we would do with traditional
tools of trade policy to reverse the progressive lowering of tariffs
that have resulted from our network of trade agreements? The answer is,
of course, we should do better at opening markets and eliminating
trade-distorting practices. The argument most often heard is that we
have been out-negotiated and ended up signing inequitable deals that
forced us to open our economy faster than our trading partners opened
theirs.
The point, however, is that even those arguments against the recent
history of our trade agreements do not counsel a pause in negotiations.
What the criticisms necessarily imply is the need for further
negotiations to address the inadequacies of the past arrangements,
rather than rolling back the disciplines that already exist or
otherwise violating our international obligations in an effort to
redress what is perceived as an imbalance between our duties and our
rights under those accords.
In short, trade policy alone is neither the author of the economic
challenges we face as a country nor the answer to those challenges. We
do, in fact, need an adjustment policy worthy of its name. In my view,
we ought to think of every tool of economic policy, including trade
negotiations, as fair game in an effort to improve the ability of our
citizens to adapt and succeed in a global economic environment. But,
that, of course, means looking at a variety of other instruments of
economic policy that extend well beyond the purview of trade, even
though many of them reside in the Committee's jurisdiction.
The Economic Challenge Facing America
If you asked me to define the critical economic challenge
confronting America, globalization would not top the list. The greatest
challenge we face is demographic. We have a rapidly aging workforce,
which means many more retirees and fewer productive workers. With fewer
workers, we will need to raise our productivity significantly simply to
maintain our existing standard of living, much less raise it. In my
view, we should bend every tool in our economic policy arsenal--whether
in tax policy, trade policy, transportation policy, or education--
toward lifting our productivity.
That is not as simple as it sounds since professional economists do
not always agree on what economic policy inputs succeed in raising our
productivity and our economic growth. Doing it in the face of the
continuing competitive pressure generated by globalization makes it
seem doubly difficult.
The good news is that the competition that globalization brings is
absolutely essential to drive the gains in productivity that contribute
most to improving our efficiency and raising our standard of living.
What's more, by lowering the cost of putting the tools of the global
economy in the hands of American workers, trade liberalization and
globalization can contribute to their ability to compete.
Now, workers also need the training necessary not only to do their
current jobs, but to adjust to changes in the market for their
services. They would also benefit from an environment that facilitated
their ability to move from job to job and industry to industry without
losing their health insurance and retirement benefits.
Businesses need roughly the same things. They need economic
policies that encourage their ability to retool just the way workers
need the training to adjust to changes in the market. Businesses also
need policies that reinforce their ability to reap efficiencies from
the shop floor as well as the step change in technology that flows from
their spending on research and development.
What you can see immediately is that government has a critical role
to play in setting the right environment for both workers and
businesses in a way that maximizes their ability to prepare for and
shape their own economic future. Indeed, that should be the focus of
our economic policy response to globalization.
Economic Policy in a Global Age
Given the analysis set out above, what should the Committee explore
in terms of changes in U.S. economic policy? Let me offer just a few
examples that might point the way toward a more coherent response to
globalization and offer our firms and workers the opportunity to
succeed in a global economy.
By all means, the Congress should assert its traditional oversight
responsibilities with respect to the negotiation of trade agreements
and the conduct of trade policy. Congress should also focus intently on
developments in the dispute settlement processes under the World Trade
Organization and our bilateral agreements to ensure that we are using
those tools aggressively in our exporters' interest. Congress should
also reexamine our unfair trade laws to ensure that they serve their
purpose, which should be to deter unfair trade practices, rather than
become a vehicle for ongoing protection, often at the expense of other
American manufacturers.
That said, more of the Committee's focus and the Congress' focus
should bear on creating the economic environment that encourages
adaptability and adjustment. The Committee should, for instance,
reexamine the basis for the research and development tax credit which
helps startups but does nothing significant for our manufacturing base
despite the billions of dollars they invest in research and development
in order to maintain their competitiveness in the global economy.
Similarly, if the Committee wants to encourage equity investment and
entrepreneurialism, as well as close the trade deficit, it should
eliminate the preference for debt under the Tax Code that has given us
a highly leveraged economy and eliminate the double taxation of a
worker's income that a tax on interest and dividends implies.
From the perspective of workers, the Committee should reexamine our
adjustment assistance programs. First and foremost, the Committee
should question why, if the most valuable training takes place on the
job, we have a program that obliges workers to get out of the job
market for an extended time in order to qualify for benefits, all the
while their skills are eroding.
Second, the Committee should examine whether the adjustment
assistance we offer should be linked to trade, which simply creates the
need to define a layoff as trade-related in order to qualify, rather
than acknowledging that the adjustment workers face is now a permanent
feature of the American economy and that workers would be better served
by a program that was designed with that in mind, rather than a now
largely artificial link to an increase in imports.
Third, the Committee should look closely at enhancing the
portability of health insurance and retirement benefits in ways that
reach beyond the current commitments to portability.
Finally, the Committee should examine alternatives, such as picking
up the cost of moving expenses in lieu of training, when a worker can
find employment elsewhere and is prepared to move.
My own instinct is that both the business community and labor
leaders would be willing to work with the Committee in developing an
agenda along those lines because it has one important virtue--it would
actually come to grips with what both businesses and workers actually
face in terms of competing in a global economy.
Trade Policy's Role
Our trade policy should dovetail with that more comprehensive
strategy to come to grips with what globalization really demands of
both U.S. businesses and workers. In that context, the Committee has an
opportunity to shape the future goals of our trade policy as it
prepares to consider renewal of the President's Trade Promotion
Authority (``TPA'').
Indeed, the negotiating objectives set out in TPA should serve as
Congress' voice on trade policy. It should reflect the Committee's
aspirations for our trade policy, as well as providing our negotiators
with their instructions. In that regard, I do think we should renew our
focus on eliminating trade-distorting subsidies and other policies and
practices designed to shift investment and employment artificially from
one country to another.
I know that much of the focus of organized labor has been on
negotiating objectives that would require increased labor protections
and stronger enforcement of those rules under the domestic law of our
trading partners. Having worked on that issue both on the Hill and in
the Administration and having been a part of negotiations on the topic,
I have to say that I am honestly skeptical that the approach will
achieve labor's aims.
I wonder whether it would make more sense as a pro-labor, pro-
worker agenda to focus intently on those distortions in other
countries' trade policies and practices that artificially encourage a
shift in investment and employment to their markets, rather than where
the market would otherwise dictate. Ultimately, the fight is not about
labor standards, as worthy a goal as that is. It is a fight over jobs--
whether the jobs will be here in the United States or whether they will
shift in response to trade and investment-distorting practices of our
trading partners.
Let me suggest an example that illuminates not just what I think a
truly pro-employment trade policy would look like, but also underscores
why we need to engage more broadly on the negotiating front, rather
that walk away from the negotiating table at this stage, which the
failure to renew TPA would imply. The example involves China.
China's currency peg has received an enormous amount of attention
in the past couple of years. Most objective analysts agree that the
renminbi is undervalued. But, what is not clear to me is that the
currency peg is the most significant trade and investment distortion
extant in the Chinese system.
The argument generally runs that we should compel China to revalue
its currency upward or demand that it float. What most fail to consider
is that a revaluation is likely to work only under certain circumscribe
conditions, most importantly conditions under which China maintains its
currency controls at the same time. It is worth thinking through the
logic of a position that would fully eliminate all barriers
to the free float of China's currency, including the elimination of the
currency controls.
Currently, China's pool of savings is larger than its economy.
Those savings are currently invested in an effort to prop up its
currency. That means China buys our Treasury bonds as a way of sopping
up the dollars in its economy and the excess liquidity they represent.
What that means both from an individual saver's perspective in China
and from the perspective of the Chinese economy as a whole, that they
are making a poor investment--one that generates a significantly below
market rate of return.
What would happen to those savings if the average Chinese saver was
able to invest freely anywhere in the world, which is what a complete
liberalization of the Chinese currency regime would actually imply?
Those savings would seek a higher rate of return; one that would not
necessarily flow from further investment in China's overheated property
markets or another steel mill. To the extent those savings flowed
abroad in search of a higher rate of return, it would put downward
pressure on the renminbi, not encourage its appreciation. The net
result would be a fall against the dollar (or at least a limit on the
renminbi's upward rise).
In short, we should be careful what we wish for on the currency
front. But, the more serious problem, in my view, is that the focus on
currency diverts our attention from a far more injurious set of
economic policies and practices. Currently, Chinese state-owned banks
account for much of the finance that drives investment in manufacturing
capacity in China, particularly in basic manufacturing like steel.
Those state-owned banks continue to lend for political reasons in many
instances and their exorbitant nonperforming loan rates translate into
a zero cost of capital for their borrowers. Imagine what that does to
distort investment in manufacturing worldwide.
The answer to that problem, moreover, lies squarely within the
ambit of our trade policy. It involves opening the Chinese market to
U.S. and other financial institutions that would enforce stronger
capital market discipline on lending throughout the Chinese market.
Such discipline would eliminate the distortions that the current
Chinese practices create, which translates into jobs. It also
identifies a target for which our traditional trade policy tools would
be extraordinarily useful.
In other words, negotiating an agreement that opened the Chinese
market further to U.S. banks and financial firms would not only
increase our services exports and help redress the bilateral trade
balance with China, it would also offer the possibility of doing more
about the underlying complaint of U.S. workers, which relates to
employment opportunities more than labor conditions in China.
In fact, even if the goal was to address China's labor practices
directly, I wonder whether we would not be better off addressing them
in pure trade terms. To the extent that the Chinese houkou system,
which ties labor to specific enterprises, limits their ability to seek
employment elsewhere, it is, in economic terms, a significant subsidy
to any Chinese firm that benefits from the undervalued labor. That is
not to dismiss the serious and legitimate human rights questions that
attend the houkou system, but we may find that we have a better case by
presenting the problem in traditional trade terms that we would if we
make the case purely in terms of labor rights.
In short, there are many things that trade policy can do to help
create an environment in which the playing field is level and, frankly,
I think it is ultimately consistent with the notion of free trade to
ask for the elimination of those sorts of trade-distorting practices
mentioned above. But, the point should be to use trade policy where it
is best calculated to achieve our aims, rather than in those instances
in which other economic policy tools would be better equipped to help
American firms and workers succeed in the global economy.
Thank you.
Chairman RANGEL. Thank you very much.
Now we go to Dr. Gene Sperling, my friend, who has been
advisor to Presidents and a voice in international as well as
national economics. We thank you once again for sharing your
views and your time with the Congress and, more specifically,
with this Committee. Thank you.
STATEMENT OF GENE B. SPERLING, SENIOR FELLOW AT THE CENTER FOR
AMERICAN PROGRESS AND DIRECTOR OF THE CENTER FOR UNIVERSAL
EDUCATION, COUNCIL ON FOREIGN RELATIONS
Mr. SPERLING. Thank you, Chairman Rangel, Congressmen
McCrery, Herger, Levin, and the Members of the Committee. Thank
you all for the tone that you have set starting out.
I would start with the notion that when we judge economic
policy, to borrow from John F. Kennedy, we focus not just on
whether we are raising the tide, but whether or not our
policies are lifting all boats. I think the critical question
that the country wants to know about trade and globalization
is: Is it strengthening or hollowing out the middle class? Is
it leading to the development or exploitation of poor people
here or around the world? I think that is the question of which
we need to focus this and other policies.
I also think we do need to come together, as you are
suggesting, on a new compact on globalization, a new consensus.
I would like to point to three areas that I think we have to do
well on together.
One, as Dan was suggesting, or I would perhaps put it, the
debate on trade I often say is like divorce court. It is two
sides simply marshaling every bit of evidence they can against
the other with no nuance, no willingness to look at cost and
benefit. Sometimes I have called this the trade over blame game
versus the discount pain game. Let me say that I think we have
all been a part of it. I want to say I have been a part of it.
I regret it.
Five years after the North American Free Trade Agreement
(NAFTA), we helped organize an Administration press conference
on the strengths of NAFTA. We did nothing but give the
benefits. All we did was argue our case. I regret that. I don't
think that is the way that we should carry on. I think we need
to, as this Committee is trying to do, look at what works and
doesn't work, and all sides being willing to acknowledge those
benefits and costs going forward.
Second, we need to ensure in this new compact that our
trade policies are consistent with our values. Let me draw the
distinction. It may be painful, but it is one thing when we
lose jobs and productions to developing countries because they
are at a lower cost, a lower stage of development, and have
lower labor and other costs. That is one thing.
It is another thing to lose jobs because countries are
participating in a race to the bottom through child labor,
through putting labor union officials in jail, through
sweatshops. That is a type of competition that is not
consistent with our values.
Therefore, I do believe that labor standards do fit and are
a critical part of ensuring that the competition we participate
in is enlightened, and that the country and the public can look
and support it. I think labor standards therefore have to
stress that countries enforce their laws, that they strive to
reach the International Labor Organization (ILO) core labor
standards, and there be enough of an enforcement for them to be
taken seriously.
Second, however, though, we can't just take a punitive
approach to developing countries and look like we are there
just to impose our will. So, while we need enforcement, we also
need to have positive partnerships like the Cambodia agreement.
We need to look at monitoring what is happening on the ground.
We need to combine our development strategies so that we are
working together to lift up labor rights, safety nets, the
universal basic education of countries.
If that is the global--if the first two are more honest
debate, and second, a compact on our values on globalization
abroad, as has been mentioned, a critical part will be having a
compact on jobs and economic dignity here in our country. Part
of that is unquestionably helping people deal with dislocation.
I think there are a few things we need to do.
One, policies from now on have to be universal. They can't
be tied to how you lost your job. As Mr. McCrery said, the
difference between technology, globalization, and trade, they
all blend together. If a worker loses their job, they need help
regardless of how they did it.
It needs to be one stop, one place. It needs to be simple.
It needs to be broader. It needs to include wage and perhaps
help on mortgages, and most importantly, universal health
insurance. There is nothing that causes more anxiety than the
fear that losing your job will lose your health insurance.
I will also tell you something everybody in this--everybody
who runs your office knows. If you go to the public and just
say, here are all the things I am going to do once you lose
your jobs, they say, that is just a better band-aid or burial
insurance.
So, if you want to have--you need to help people ensure
economic dignity when they lose jobs. You have to have a strong
job compact that focuses on making sure there are not tax
incentives for moving jobs overseas, that there is trade
enforcement, that we have education and research. These are all
part of the compact.
The last thing, and I will go very briefly, is--and this is
a big question--is how do we deal with trade going forward
before we have implemented this broader new compact? On one
hand, you could take the approach that all trade is good and
you just have to keep going forward. On the other hand, you
could decide to put everything on hold until you have fixed all
these things.
I encourage this Committee to instead take a case-by-case
approach, where you see if you can make enough of a downpayment
on some of these things to make some progress. I think it was
legitimate for people to vote against the Central American Free
Trade Agreement (CAFTA). In that case, I don't think it was as
important, and I think the agreement represented a step
backward on labor standards.
I encourage this Committee to think differently on Doha
because I worry that the world looks at us as being anti-
multilateral, when they look at our reactions on climate
change, on international criminal court, on Iraq. I believe
that people are starting to think that the United States has
lost its desire to work in a multilateral context.
I don't want the United States to be seen as the scapegoat
for why something called the development round failed. I also
know that for many people who have been skeptical on trade,
they cannot vote for this unless there is somewhat of a
downpayment.
I encourage the Administration to try to work with you on
that downpayment, to see if they could make agreement on going
forward with the Jordan model, on future free trade agreements,
on strengthening the ILO, on getting more environmental
protections into Doha. This is the type of downpayment that I
think could be in exchange for a limited--a limited--TPA just
for the Doha round so that we are not blamed for killing the
agreement.
The last thing is simply to say that I know that many
things I mentioned may be policies people disagree with. You
can't have it both ways. If the passage of the Doha round is so
important to global peace and global economy, every side has to
be willing to make compromises.
Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Sperling follows:]
Prepared Statement of Gene B. Sperling,\1\
Senior Fellow, Center for American Progress, and
Director, Center for Universal Education, Council on Foreign Relations
Thank you, Chairman Rangel, Ranking Member McCrery, Congressman
Levin and other Members of the Committee.
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\1\ Many of the ideas reflected in this testimony are laid out in
greater depth in Gene Sperling's The Pro-Growth Progressive, Simon &
Schuster, 2005. Gene Sperling is also the Director of the Center for
Universal Education at the Council on Foreign Relations.
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I would like to take this opportunity to both suggest why we need a
new consensus on trade and globalization and what the steps are that we
might begin to make to realize that consensus.
There is little question that our Nation has benefited enormously
over its history from engaging in the free flow of ideas, goods, and
services in the global economy. Yet, that same engagement has
increasingly become a source of economic anxiety among working families
who question whether global economic integration is designed to help
the few or the many. There is real concern among typical Americans as
to whether globalization and trade will raise all boats, or will lead
to a race to the bottom.
One can see the expanded economic anxiety in several trends:
Wage Stagnation After a Period of Growth: The typical
family has not seen their income grow in inflation-adjusted terms
during the recovery. After increasing 15% between 1993 and 2000, real
median household income as calculated by the Census fell 2.7% between
2000 and 2005. Similarly, real wages as calculated by the Department of
Labor have been flat for the majority of the recovery. From November
2001 through August 2006, average weekly earnings declined in real
terms, and have now risen a mere 2.4% overall in 5 years.
Divide Between Wages and Productivity Growth: While
productivity and wages grew together during the 1990's, there has been
a recent disconnect. Between March 2001 and September 2006,
productivity grew at an annual 3.1% rate, while real average hourly
earnings grew at an annual 0.5% rate through December, one-sixth as
fast.
Up-scaling of Economic Anxiety, Spreading to White-Collar
and Service Workers: One of the most volatile economic issue of the
last 5 years has been the rise of ``tradeable services''--as Lori
Kletzer and Brad Jenson of the Institute for International Economics
have termed it--and the resulting offshoring of jobs traditionally done
in the United States. Anxiety about offshoring has deepened as more and
more types of jobs have been hit.
Even the College Educated Have Not Been Insulated: The
inflation adjusted earnings of college graduates have not risen during
the recovery. Between 2001 and 2005, mean earnings for those with a
bachelor's degree or more fell 1% for men and were flat for women,
according to data in the Current Population Survey, after significant
increases in the 1990s.
Fear of Falling--The Pain of Downward Mobility: While job
loss is always painful, Americans increasingly fear that loss of a job
will lead to a more permanent and significant fall in their standard of
living. As anthropologist Katherine Newman has written, downward
mobility is not just a loss of material comfort, but ``an eviction from
the American dream'' that ``calls into question the assumptions upon
which lives have been predicated.'' There is evidence to support this
anxiety. Yale economist Jacob Hacker has documented the rise of income
volatility over the last several decades. For instance, he shows that
for the portion of families that experience income declines (and
excluding those families that find jobs at the same or better wages),
falls are becoming deeper: In the 1970's, the median income decline was
25%, and now it is over 40%.\2\ A recent study by Princeton Professor
Henry Farber found that as a group, displaced workers faced a 17
percent decline in wages due to displacement between 2001 and 2003,
more than double the 7.8 percent decline displaced workers experienced
between 1997 and 1999.\3\
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\2\ Jacob S. Hacker, ``The Privatization of Risk and the Growing
Economic Insecurity of Americans,'' Social Science Research Council,
October, 2005.
\3\ Henry Farber, ``What Do We Know about Job Loss in the United
States?'' Federal Reserve Bank of Chicago 2Q: 13-28. 2005.
The fear of a polarized workforce--where you are okay at the top,
or okay if you have a job that requires you to be physically in the
United States, but more at risk if you have a middle class or working-
poor job that can be digitized or done elsewhere--is unquestionably
contributing to a polarized debate on trade and globalization. On one
side are those who dismiss the threats of globalization and are
entirely confident in the larger benefits it delivers; on the other
side are those who feel the current trading and globalization system is
so rigged against the typical worker that the United States should pull
back completely from any trade liberalization efforts.
Neither of these perspectives would be in the best interest of the
United States or the global economy, and therefore it seems important
for a strong effort to find a new consensus--a new common ground--on
globalization. I cannot claim to have the perfect roadmap but wish to
suggest four areas where we should seek to move forward.
I. Willingness for Less Adversarial Debate
The current debate on trade often resembles divorce court: two
bitter sides each marshal their best case for their position, and make
almost no effort to acknowledge legitimate concerns or valid arguments
of their opponent. I have described this before as the ``trade-over-
blame'' versus the ``discount pain'' game, with some seeking to over-
attribute all economic problems to trade, and others seeking to simply
assert positive historical trends while refusing to acknowledge the
dislocation that trade can cause--including the downward economic
spiral of entire communities. Few of us can claim to be exempt from
having contributed to this negative dialog. When I was National
Economic Advisor, several members of the economic team did a press
briefing on the 5th year anniversary of NAFTA. I regret to say that in
our effort to counter critics, we fell into the same trap: We simply
presented all the positive facts that existed, as opposed to giving a
balanced assessment of what had been successful or had not worked in
NAFTA.
We need to get past the point where advocates on either side feel
that acknowledging pros and cons is a sign of weakness, rather than a
sign of recognizing the complexity of the matter. Take the issue of
imports in the United States. Those who favor trade speak only of the
positive impact of imports--their role in boosting consumption, driving
innovation and competition within U.S. industries, and enhancing
productivity--without recognizing the potential negative impacts of
imports on communities and jobs in particular regions. Those focused on
the dislocation impacts, however, are hesitant to acknowledge that most
Americans like--indeed crave and search out-- lower prices for consumer
goods, and measures that raise prices on needed consumer goods can
operate like a regressive sales tax for those with the lowest incomes.
Recognizing that trade barriers may raise prices for families, or that
low-cost imports can cause real hardship to certain communities, does
not prevent one from arguing for or against a trade agreement--it
simply puts the costs and benefits in better perspective.
II. A Globalization and Trade Compact Consistent with Values
Our second goal in building a new consensus on trade should be for
both sides to establish that while we in this country welcome dynamic
markets just as much as anyone, we also commit to a type of competition
that is consistent with American values; a competition that is designed
to not only raise the tide, but to lift all boats here and abroad.
While some believe that labor standards do not belong in trade
agreements, they can play an important role in ensuring that increased
trade is not coming at the expense of the positive forms of competition
to which we aspire.
In a global economy that is already as integrated as ours is, we
cannot pretend that jobs and production will not at times shift to
locations where nations can offer lower costs of production, including
lower costs of labor. However, it is one thing to see jobs shift abroad
because a developing nation is at a lower stage of development and can
offer lower labor costs as a competitive advantage. It is another thing
to see jobs leave due to practices abroad that directly offend our
values: child labor, imprisoning labor leaders, and sweatshop
conditions.
The AFL-CIO made this point in testimony before Congress. As Thea
Lee, Assistant Director for International Economics at the AFL-CIO,
related regarding the AFL-CIO's 2004 China petition:
``The AFL-CIO's petition did not challenge China's right to
compete in the global economy on the basis of low wages. It is
natural for a developing country with an excess supply of
poorly educated rural workers to have low wages. . . . The AFL-
CIO challenge was specifically targeted to the incremental cost
advantage that comes from the brutal and undemocratic
repression of workers' human rights. That increment was then
and remains today illegitimate advantage under universal norms
of human rights.'' \4\
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\4\ Thea Lee, ``On Human Rights in China: Improving or
Deteriorating Conditions.'' Testimony International Relations
Subcommittee on Africa, Global Human Rights, and International
Operations. April 19, 2006.
To achieve a type of global competition that is consistent with
---------------------------------------------------------------------------
American values, we should draw on the following tools:
1. Clear, Enforceable Labor Standards. Labor standards, similar to
environmental standards, are a legitimate and compelling guarantor
against a race to the bottom--they are our safeguard against an
economic globalization that relies on unfair labor practices to achieve
lower and more competitive prices. In particular, labor standards need
three critical components to be effective; they need to (1) uphold the
ILO core standards; (2) make labor provisions truly enforceable; (3) be
used to incentivize change, and not just to punish.
The Jordan Model: The labor standards in the U.S.-Jordan
Free Trade Agreement should be the model for future bilateral and
regional trade agreements. First of all, the U.S.-Jordan FTA was
hallmark in that it included both an ``enforce your own laws''
provision, along with an explicit mention of the ILO core provisions.
The FTA reads: ``1. The Parties reaffirm their obligations as members
of the International Labor Organization (``ILO'') and their commitments
under the ILO Declaration on Fundamental Principles and Rights at Work
and its Followup. The Parties shall strive to ensure that such labor
principles and the internationally recognized labor rights set forth in
paragraph 6 are recognized and protected by domestic law. . . . 4. A
Party shall not fail to effectively enforce its labor laws, through a
sustained or recurring course of action or inaction, in a manner
affecting trade between the Parties, after the date of entry into force
of this Agreement.'' Second, the U.S.-Jordan FTA is a model agreement
because it ensures that both the ``enforce your own laws'' and the
``strive to improve your laws'' provisions are enforceable with tough
and meaningful sanctions. Some of the loss of support for trade
agreements in recent years has been due to movement away from the
Jordan model.
2. Promoting a Positive Partnerships and Incentives Approach, Not a
Punitive Approach. Those of us who wish to have meaningful labor
standards often stress the importance of having enforcement that is as
effective for labor standards as for other areas of trade. Yet, it is
important that in our legitimate desire for enforcement, we not give
the impression that our approach to labor standards is a punitive one.
My experience as National Economic Advisor showed me that however well-
intentioned our push for labor standards was, it was easily capable of
being viewed by poor nations as a heavy-handed U.S. intrusion on the
sovereignty of a nation at a lower stage of economic development. It is
important for us to make clear in our language and approach that our
goal is not to impose our will on others, but to provide positive
incentives and partnerships to help workers abroad rise together with
us in the global economy.
Labor Standards as Incentives: The ideal approach should
be to use labor standards in a positive way, to incentivize countries
to improve workers' rights and working conditions--in order to gain
greater access to U.S. markets. This was precisely the approach of the
Clinton Administration with the Jordan FTA; in that case, the goal was
to welcome more extensive trade with Jordan, but to condition such
engagement on real efforts by Jordanians to improve and enforce their
domestic labor codes. During the CAFTA negotiations, a willingness by
the Administration to work with Congress on securing core labor
standards in the agreement would have signaled to governments in
Central America that a commitment to reform was central to increased
access to the U.S. Unfortunately, the Administration moved backwards
with CAFTA.
Positive Partnerships and Incentives: The Cambodia Model.
Perhaps the most powerful way to incent our trading partners to upgrade
their domestic labor codes is to forge deeper partnerships, whereby we
link market access to labor standards improvements in an ongoing
manner. The U.S.-Cambodia textiles agreement is most instructive. In
1999, the Clinton Administration signed a 3 year trade pact with
Cambodia that granted up to 14 percent annual increases in Cambodia's
quota of garment imports to the U.S., in exchange for a commitment by
Cambodia to work with the ILO to improve its labor standards. Within 2
years, Cambodia had welcomed and worked with trainers from the AFL-CIO
and ILO, had passed a national minimum wage law, had unionized dozens
of factories, and had been granted a 9 percent increase in its U.S.
textile quota. Although the Cambodia pact expired at the end of 2004--
when the Multi-fiber Agreement expired--the Cambodian government as
well as garment factory owners decided it was in their interest to
continue working with the ILO, and to position themselves as a place
for socially responsible business.\5\ Since 2005, the ILO reports that
its factory inspections in Cambodia have quadrupled, and that the level
of compliance within the factories has continued to improve.\6\
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\5\ Sandra Polaski, ``Combining Global and Local Forces: The Case
for Labor Rights in Cambodia.'' World Development. May 2006.
\6\ According to the ILO, between January 2005-November 2006, the
number of factories included in the ILO monitoring program increased
from 50 to 212 and the ILO reported compliance rates of above 80% on
the five major metrics it uses to rate the factories. International
Labor Organization, ``17th Synthesis Report on Working Conditions in
Cambodia's Garment Sector.'' November 31, 2006.
3. Adding New Tools. Despite the importance of core labor
standards, there are other tools we should have in our toolkit on this
matter. It is important to recognize that as Karen Tramontano of the
Global Fairness Initiative has related, even strong labor standards
will do little to help the millions of workers in the informal economy.
Furthermore, some of the downward spiral for workers and farmers in
poor nations engaging in trade comes from not just a lack of labor
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standards, but a lack of sound safety nets.
Stronger Monitoring System. One effective tool that could
be expanded is the use of an independent monitoring system to enhance
the transparency of labor and environmental conditions abroad--in
nations with and without specific trade agreements with the United
States. This is especially important in subcontracting. Many
multinationals monitor standards in their own factories, but do not
monitor or understand the conditions of their multiple subcontractors.
Studies by economists--such as Richard Freeman and Kim Elliot of
the Institute for International Economics and Michael Hiscox of Harvard
University \7\--have shown that there is a sizable consumer market for
labor friendly products in the U.S. Anecdotal evidence shows that
reports of labor violations do make a difference for consumers, and
consequently for producers--examples include New York Times' reporting
of child labor in GAP factories in the late 90's, and Bloomberg News'
report about the use of slave labor in the production of Brazilian
charcoal last September. The Fair Labor Association, a voluntary
association of businesses, labor rights groups, and NGOs, that was
formed in 1997, operates an international network of monitoring
watchdogs, and releases annual reports. Twenty brand-name companies,
including Nike, Nordstrom, and Liz Claiborne, have signed onto the FLA.
Student activists have also pushed their colleges to go even beyond the
standards adopted by the FLA. While groups like the FLA are a step in
the right direction, Federal funding would surely build their capacity.
NGO watchdogs continue to expose labor violations throughout
international supply chains--the FLA's 2006 report alone found an
average of 18 violations per audit.\8\ Federal support to elevate the
capacity and profile of domestic and international independent
monitoring organizations would expose negative labor practices, and
give consumers more power to express their values by voting with their
dollars.
---------------------------------------------------------------------------
\7\ Richard Freeman and Kimberly Elliot, Can Labor Standards
Improve Under Globalization? Washington D.C., Institute for
International Economics, 2003; Hiscox, Michael and Nicholas F.B. Smyth.
``Is there consumer demand for improved labor standards?'' Harvard
University Department of Government, 2005.
\8\ Fair Labor Association, 2006 Annual Public Report, September
2006.
Safety-Net and Labor Rights Capacity Building. Forming
deep, capacity-building partnerships is another powerful tool the U.S.
should use to move beyond inserting labor standards provisions in trade
agreements, and towards empowering countries to deliver. Working with
foreign governments to build broad safety nets will help our trade
partners welcome responsible globalization, without fearing a backlash.
In the Cambodian textile pact, the U.S. donated $2 million over 5 years
to both Cambodia and the ILO, to provide Cambodia with the technical
assistance needed to upscale its labor standards and to get the ILO
monitoring program off the ground. The Department of Labor's
International Labor Affairs Board currently has two capacity building
programs that seek to help developing countries strengthen their labor
protections--the anti-child labor program and the labor-rights
promoting program--both of which could be significantly expanded.
Universal Quality Basic Education. In my work as Director
of the Center for Universal Education at the Council on Foreign
Relations, and as Chair of the U.S. Global Campaign for Education, I
have always argued that the investment with perhaps the strongest
return in the developing world--and the strategy that would do most to
win hearts and minds--is investing in quality basic education for all
children, especially girls. The U.S. should follow the lead of U.K.
Chancellor of the Exchequer Gordon Brown in making a major investment
in countries with strong Education For All/Fast Track Initiative plans.
One option would be the passage of the Education for All legislation
proposed by Senator Hillary Clinton and Congresswoman Nita Lowey to
help the United States take a leadership position in a global effort to
provide a free, quality basic education for every child.
III. A Domestic Compact for U.S. Jobs and Worker Dignity
A third dimension of a new globalization consensus is securing a
compact for workers in the United States--a compact that both fights
for U.S. jobs, and that provides dignity for workers who lose out in
the global economy. While there needs to be a major focus on
strengthening our adjustment assistance for workers in an increasingly
dynamic workforce, it is also clear that if that is all that is pushed
by policymakers, many will feel there is a focus only on ``burial
insurance'' or ``better band-aids.'' It is crucial that a new domestic
compact also include a strong agenda for job creation.
1. A Compact to Fight for U.S. Jobs. While I cannot list all of the
elements that would go into a jobs compact at home, below are some of
the elements.
Reduce the Burden of Health Care on Employers With Sound
Universal Health Care: Health care is perhaps the greatest additional
cost that employers have to pay in the United States as opposed to
other countries. Between 2000 and 2006, employers saw premiums for all
employer-sponsored health insurance increase by 87%. In 2006 alone, the
average firm contributed $3,615 for a single person's health plan and
$8,508 for a family plan.\9\ Meanwhile, our competitors in Europe and
Japan are covered by universal health care that is not on the back of
employers. We need a universal health care plan so that health care
costs are not an impediment to companies adding permanent jobs or
keeping their products price competitive.
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\9\ Kaiser Family Foundation, ``Employer Health Benefits Survey,''
2006.
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Encouraging Outsourcing to Rural Areas: The U.S. should
by no means throw up its hands and accept that it will be out-competed
based by jobs that can be done cheaply abroad. First of all, often
wages are less of a component of overall costs than many people assume.
Yet, even when wages are determinative, there are certainly areas in
the United States--particularly rural areas--where costs may be low
enough that we can compete. One report has found that average wages in
rural areas are 30 to 40 percent lower than those in urban areas.\10\
Providing broadband access and improvements in infrastructure to help
communities build on their competitive advantages is a way that even
when U.S. jobs are going to move to lower-cost areas, we can compete to
keep them in poorer areas of the United States.
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\10\ Doug Tsurouka, ``Rural U.S. Seeks Place on IT Map,''
Investor's Business Daily, January 11, 2005.
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End Tax Deferral: An additional ingredient of an active
U.S. jobs compact is tax policy reform. We should, as Senator Kerry
proposed, end the current system of tax deferral which allows companies
to defer tax payments on foreign operating income when they set up
operations in low-tax jurisdictions abroad, solely for the purpose of
tax avoidance.
Create a Foundation for High Wage Jobs at Home: A U.S.
jobs compact must include a more aggressive effort to lay the
foundations for new job creation at home, especially in high value
added industries. Dimensions of this approach include increasing the
Federal budget for research--as opposed to the recent flat-lining of
NIH, a dramatic new commitment to research and innovation for
alternative energy, helping regional governments and universities form
clusters that attract cutting-edge jobs, and expanding initiatives such
as the Manufacturing Extension Partnership to ensure our factories are
using first class equipment with the highest capital productivity. And
of course, strengthening our education system--especially intervening
early to get more young people from disadvantaged areas motivated and
equipped in math and sciences and interested in seeking college
degrees--is key.
Take Enforcement Seriously: In addition to pushing China
to not manipulate its currency, we should ensure American workers that
we expect adherence to trade agreements and the WTO rules to be a two-
way street. In the 6 years from the WTO's creation in 1995 to 2000, the
Clinton Administration brought 65 cases--an average of 11 per year.
Since 2001, the Bush Administration has brought forth only 16 cases--an
average of less than 3 per year.\11\
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\11\ http://www.wto.org/english/tratop_e/dispu_e/
dispu_status_e.htm.
2. Dignity for Workers. Even if globalization is undertaken in a
manner consistent with our values, and even if the U.S. is fighting
hard to create jobs at home, it is inevitable that some Americans will
lose out in the rapidly changing global economy. Adjustment assistance
is not just about reemployment: it is about fighting for the economic
dignity of Americans who have worked hard and played by the rules.
Losing a job will always be difficult, but it does not have to be
traumatic due to fear of losing health care, one's home, and taking
quick and devastating falls. There are numerous adjustment assistance
policies we could be moving forward with, that do not make the mistake
of discouraging job searches and that still bolster our very weak
system of adjustment assistance. Note that according to McKinsey Global
Institute, the U.S. spends only 0.5% of GDP to help displaced workers,
ranking us amongst the lowest for developed nations. The U.K. spends
0.9%, Germany 3.1%, and Denmark 3.7%, even though all of these nations
have lower job turnover rates than the U.S.\12\
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\12\ Dianne Farrell, ``U.S. Offshoring: Small Steps to Make it a
Win-Win.'' Mckinsey Global Institute, March 2006.
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What would a system that ensures dignity for workers look like?
\13\
---------------------------------------------------------------------------
\13\ For further information on many of these proposals, see: Gene
Sperling, The Pro-Growth Progressive; and Gene Sperling, ``A Rising
Tide Lifts All Boats,'' Washington Post, December 2005.
Policies Should be Universal--Not Tied to Trade
Agreements: It is long past time to stop linking adjustment assistance
to how one lost his or her job. Similarly situated families are just as
hard hit whether they lose a job due to trade, outsourcing, technology,
or a change in consumer trends--and in the current economy, it will be
harder and harder to even distinguish the differences. All reforms
should help all dislocated workers. The U.S. ties its most generous
adjustment assistance package to trade-specific job loss, through Trade
Adjustment Assistance (TAA). The U.S. is in fact an outlier in this
regard--all other OECD countries make the package available to all
dislocated workers. Moreover, even TAA is tailored so narrowly that it
does not necessarily reach its target population; in 2003, TAA denied
nearly half of all petitions for the program, and less than one-quarter
of workers who were certified as eligible received income support under
the program.\14\ Extensive adjustment assistance packages should be
available for all dislocated workers.
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\14\ Lael Brainard, et al. ``Insuring America's Workers in a New
Age of Offshoring.'' Brookings Institution, 2005.
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One-Stop Shopping, Awareness and Access: New policies
will do little to ease economic anxiety if they are not well-
understood, widely known about, and easy to access. Our current
adjustment assistance programs are complicated and impossible to
navigate. Nearly everyone knows where to go to get a driver's license,
for instance, but no one knows where to go when they lose their job.
Instead, there should be a single phone number, website, and series of
one-stop shops throughout the country that any dislocated worker can
visit upon job loss.
Health Care: Perhaps the single most important ingredient
to ensuring decent work, and a real safety for those who fall, is a
system of affordable, universal health insurance. Harvard Professor
Elizabeth Warren has shown that more than half of all personal
bankruptcies are due to uninsured medical costs.\15\
---------------------------------------------------------------------------
\15\ Elizabeth Warren, ``Sick and Broke,'' Washington Post, Feb. 9,
2005.
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Wage Insurance: Wage insurance should move beyond its
pilot status and be a more universal program that allows those who lose
jobs to receive, for a period of time, 50% of their lost wages upon
reemployment. While details and financing need to be explored it is
critical to recognize one fact: Because wage insurance kicks in only
when a person finds a new job, it cannot be accused of being the type
of program that discourages job search, as some European models have
been accused of.
Mortgage Insurance: Mortgage insurance programs have been
successfully piloted at the local level in numerous States to prevent
individuals who lose their jobs--and cannot meet mortgage payments--
from going into foreclosure. Specifically, North Carolina, West
Virginia, and Massachusetts all have such programs. A Federal
initiative, even one that empowered more State programs, could be a
welcome addition to the safety net for dislocated workers.
Preemptive Policies: A limitation of virtually all
existing and proposed adjustment policies is that they kick in only
after job loss or a community has started a downward spiral. Exploring
preemptive policies to ease dislocation before job loss could go a long
way in building the consensus for trade and globalization. I have
suggested new Federal policies such as ``Community Adjustment
Compacts,'' which would be modeled on the Clinton Administration's
Empowerment Zones and New Markets Tax Credits programs. Community
Adjustment Compacts would provide tax incentives for business
investment in communities vulnerable to trade, to stimulate economic
revitalization and transition ahead of the game.
Flexible Education Accounts: I have also suggested
Federal preemptive retraining policies, and a new Flexible Education
Account, to empower workers to transition to new jobs--again--before
job loss. The Flexible Education Account would replace the Lifelong
Learning Tax Credit with a 50% credit on $15,000 that could be used
each decade. This policy would enable workers to get a lot of
government help all at once--and perhaps in anticipation of a job
change--rather than granting a small credit each and every year.
Universal 401K: A matching credit for all working
families for savings could ensure greater savings for Americans, and
ensure that during times when capital is getting higher returns than
wages, more Americans are benefiting from such investment returns and
have cushions for downturns, as well as security for retirement.
IV. Moving Forward on Doha: Sending the Right Signals to the World
The fourth piece of a new consensus on trade and globalization
involves sending the right signals to the world, regarding our
commitment to a broad multilateral trading system that serves
humanitarian and development goals.
1. Need for a Case-By-Case Approach. One of the most difficult
issues the Congress and particularly the Democratic leadership will
face in the coming months is how to deal with efforts to expand U.S.
economic engagement, before the scope of a new consensus or compact
regarding trade and globalization is implemented. One perspective is
that even if there has been little progress on a broader new compact,
it is still wise to support all trade liberalization efforts because of
their general economic and political benefits. Another perspective is
to put all trade liberalization on hold until there is a complete new
global and domestic compact on globalization. I believe both of these
perspectives are a mistake, and that it would be wiser to move forward
in a case-by-case analysis.
On CAFTA, for example, while passage would have been beneficial to
our relations with these neighboring nations, a no vote was a
justifiable stance because it represented a step backwards on labor
standards especially in light of some of the CAFTA countries' poor
records on labor rights. On the other hand, Doha is not a regional
deal, but rather represents the future of our multilateral trading
system and its aim at least is to make the global trading system more
responsive to developing nations. I think it would be a mistake for the
Administration and congressional majority to not be willing to both
make compromises to allow for at least a temporary expansion of Trade
Promotion Authority, limited to the Doha round.
2. Why We Should Care About the Doha Round. For a more detailed
approach on why progressives should be concerned about the Doha Round,
one should read Dan Tarullo's The Case for Reviving the Doha Trade
Round. Yet, beyond the specific trade issues, I would encourage the
Administration as well as progressives in Congress to consider the
risks of allowing Doha to be accused of failing, due to failure of the
U.S. to grant trade promotion authority to its negotiators.
Exacerbating the U.S. Image as Being Anti-Multilateral:
One of the most distressing aspects of recent years has been the
decline of the image of the U.S. among even our traditional allies. The
Administration's actions and attitudes toward Kyoto, the International
Criminal Court, and our course in Iraq, have signaled to many that the
U.S. lacks interest in working meaningfully in multilateral contexts.
However unintentional, if Congress is seen as shutting down the Doha
process, it will only exacerbate the perspective of the U.S. as
supporting a ``go it alone'' mentality.
The Importance of International Rule of Law and Peaceful
Resolutions of Economic Disputes. Whatever legitimate problems one
might have with the WTO's internal processes and rules, progressives
should not overlook the importance of the WTO. No one should undervalue
an international system that permits nations large and small, rich and
poor, to resolve disputes through a multilateral process and the rule
of law, as opposed to through military action or ad hoc retaliatory
measures.
Allowing the U.S. to be Seen as a Scapegoat for the
Failure to Advance a Poverty and Development Agenda. One of the reasons
that progressives and conservatives should be concerned about our
perceived role in the Doha Round is that it has been explicitly
dedicated to a global development agenda since 2001. Advocates from
across the spectrum have related the power of liberalized multilateral
trade. According to Oxfam: ``Trade is one of the drivers of
development. In recent decades, countries such as Vietnam, China, South
Korea, Malaysia, Mauritius, Botswana, and Chile have used trade to
generate unprecedented growth rates. . . . If Africa were to increase
its share of world trade by 0.1 percent of world exports, the resulting
$90 billion generated would be three times what the continent receives
in aid and debt relief.'' This past November, Oxfam petitioned for the
extension of the U.S. trade preference programs--the GSP and AGOA
programs that Chairman Rangel was so instrumental in passing--touting
the number of jobs that depend on trade in developing countries.\16\
Indeed, as Oxfam themselves argued just last week, a Doha agreement in
and of itself will not guarantee significant progress on development.
Furthermore, the Doha Round may fail, regardless of the passage of
Trade Promotion Authority. Nonetheless, if the U.S. is unwilling to at
least temporarily extend a limited Trade Promotion Authority for Doha,
the U.S.--however unfairly--could very likely emerge as the global
scapegoat for why this round aimed at development failed.
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\16\ See Oxfam December 2005: ``Blood on the Floor: How the Rich
Countries Have Squeezed Development out of the WTO Doha Negotiations.''
See Oxfam, November 14, 2006 Press Release.
3. The Responsibility Rests with the Administration to Make a Major
Downpayment on a New Global Compact in Exchange for Limited Extension
of TPA for Doha. While some will be ready to blame failure of the Doha
Round specifically on the new congressional majority if TPA is not
extended for the Doha Round, I believe such a blame game on Democrats
would be unfounded--unless the Administration made a major downpayment
on a new compact for globalization. Over the last 6 years, the
Administration has largely ignored the concerns of Democrats on trade
and the status or workers here and abroad. The Administration has
undermined the role of unions, as documented by Chairman George Miller
on July 13, 2006, has made legal changes that could deny 8 million
workers the right to organize, has tried to zero out important elements
of the Labor Department's international division, and has moved
backwards, not forwards, on the enforcement of labor standards that has
been traditionally critical to forging greater bipartisan support for
trade liberalization.
If the Administration wishes to avoid the failure of the Doha
Round--as well as the blame for such--they need to reach out and show a
willingness to work with Chairman Rangel, Subcommittee Chair Levin, and
Speaker Pelosi on a downpayment on a new compact on globalization. In
light of the sensitivities witnessed in Seattle, and the late stage of
the negotiations, progress on labor issues is not likely tenable in the
Doha Round. Nor are the most important elements of a larger compact for
workers--such as universal health care--likely to be doable in time for
Doha. Yet, there are a considerable number of steps that the
Administration could take as a downpayment, in exchange for extended
TPA limited to the Doha Round. For example:
An Agreement on Labor Standards in U.S.-FTAs: Even if
there is not time to or inclination for Congress to pass a broader
extension of TPA, the Administration could help gain support for
limited TPA authority for the Doha Round by agreeing to use the Jordan
model on labor standards for all future bilateral and regional
agreements. The Administration could also call for annual reviews of
how countries with whom we have FTAs are doing, regarding the ILO core
labor standards.
Stronger Environmental Conditions in Doha: While labor
standards may be a nonstarter at this late stage of the Doha Round,
many of those closely involved believe greater progress on
environmental standards is possible.
A Major Commitment to Strengthen and Upgrade the Role and
Enforcement Powers of the ILO: The ILO's ``teeth'' in promoting
workers' rights come primarily from publicizing member countries'
violations of workers rights at its annual conventions. The U.S. could
strengthen the power of the ILO through increasing its financial
commitment, through giving greater clout and visibility to the findings
of the ILO through USTR press statements and/or high-level meetings,
and through using the ILO more extensively to monitor the
implementation of U.S.-FTAs. The Administration could also require
compliance to ILO standards by U.S. companies and affiliated
subcontractors.
Labor Protection Capacity Building: Doubling the budget
of the International Labor Affairs Board at the DOL, or making trade-
capacity building efforts more streamlined and effective, would be a
good start at working with other nations to prevent a race to the
bottom.
Encourage the Passage of the Minimum Wage with No Strings
Attached: It will not strengthen the Administration's hand in seeking
an extension of TPA for Doha Round if the minimum wage bill is tied up
in the Senate. The Administration could contribute to the downpayment
by pushing for a stand-alone passage of the minimum wage increase to
$7.25
4. The Need for Compromise: You Can't Have It Both Ways. Many in
the Administration may, based on past positions, oppose many of the
suggestions I have made for a downpayment on a new compact for
globalization. Yet, one cannot at the same time argue that passage of
the Doha Round is critical for global economic growth and development
and then at the same time be unwilling to make serious efforts--
including serious compromises--that could be necessary to achieving the
bipartisan support necessary for a limited extension of TPA for the
Doha Round.
Chairman RANGEL. Do you think it is possible to do a trade
promotion authority with conditions as relates to some of the
things that you had mentioned, limited to Doha but at the same
time taking into consideration labor and environment?
Mr. SPERLING. Here is what I think. I think that the answer
is yes, but I think one has to be realistic about what will be
seen as constructive and what would be seen as blowing up the
agreement.
I think it is unfortunate. At this late stage, if one
insisted in the Doha Multilateral Round for the first time
including labor standards directly in there, that would
probably be seen as counterproductive and I think probably
killing the agreement.
However, what I do think is that you could have a limited
TPA for Doha and do that in agreement with the Administration
pushing on environmental where I think you can make progress,
and to doing the things they can do bilaterally--on
strengthening the ILO, on encouraging the Jordan model on
bilateral agreements, on passing the minimum wage without
strings.
I think that that could be the type of limited downpayment
that could justify a limited TPA so that at least we could see
how the Doha Round finishes and whether it finishes in a way
that is worthy of being called a development round.
Chairman RANGEL. Thank you for your recommendation.
Chairman Meier, Chairman of the board and Chief Executive
Officer of Libbey since the company went public in 1993. Since
joining the company in 1970, Mr. Meier has served in various
marketing positions, including a 5-year assignment with
Durobor, South Africa. In 1990 Mr. Meier was named General
Manager of Libbey and a Corporate Vice President of Owens-
Illinois.
I want to thank you for taking time out to share your views
with us. As I told the rest of the panel, I hope that you
consider regrouping in an informal way to see whether we can
attempt to get a bipartisan agreement of things we should look
into in order to move forward with a different view of trade.
So, I thank you for sharing your experience with us.
STATEMENT OF JOHN MEIER, CHIEF EXECUTIVE OFFICER, LIBBEY GLASS,
INC., TOLEDO, OHIO
Mr. MEIER. Thank you, Mr. Chairman, Members of the
Committee. It is indeed an honor to appear before you today to
discuss our Nation's international trade agenda. I am John
Meier, Chairman and Chief Executive Officer (CEO) of Libbey.
We are the world's second largest glassware manufacturer.
We are headquartered and have manufacturing operations in
Toledo, Ohio, in continuous operation there since 1888. In
addition, we have facilities directly and through subsidiaries
in Louisiana, New York, and Wisconsin. Last fall we expanded
our distribution facilities in Shreveport, and were honored to
have a representative from Ranking Member McCrery's office join
us for the announcement. Libbey is a public company, traded on
the New York Stock Exchange. We have 3,000 U.S. employees and
about 4,000 international employees.
We are an international producer. In addition to our U.S.
facilities, we have operations in Mexico, the Netherlands,
Portugal, and now China. In addition, we export to over 100
countries.
Glassware is America's oldest industry, dating back to the
Jamestown colony in Virginia. Our company is principally
engaged in the manufacture of the kind of glassware, tumblers,
stemware, mugs, household glass you would find in your kitchen
cabinets at home or at your favorite restaurants and hotels all
over the world.
In addition, we make and market ceramic plates, bowls,
flatware, and other products. We are a world-class producer,
but we face enormous competitive challenges from companies,
often supported by their governments, operating all across the
globe.
Mr. Chairman, I have submitted prepared testimony for the
record, but as your advisory indicated, you had a number of key
questions, and I will address those.
The philosophy that more trade is always better, no matter
its terms and contents: I am here today not to argue the
ideology of trade but the reality of trade. As the Chairman and
CEO, I have to answer to the shareholders. I also have to
answer to other stakeholders in Libbey--our customers, our
workers, and our communities in which we operate.
I take those responsibilities seriously, and I am
interested in results, as all of our stakeholders are at
Libbey. I do not believe that simply the more trade there is,
the better. The terms of trade, the conditions of trade, the
content and quality of our trade flows matters. It is a clear
and direct impact on this Nation's economic strength and our
standard of living.
Glassware is the product of high capital investments,
cutting-edge technology, and well-trained workers. It is added
value that produces good jobs, family supporting jobs. The
hourly workers at my company, union members, are paid decent
wages and benefits, the kind of jobs that many Americans aspire
to.
The reality of trade today is far different in that--what
is described by theorists. Comparative advantage may exist for
basic commodities, but in today's world where transportation
speeds products to marketplace all over the globe, where
capital flows freely to the place it can find and gain the
highest return, where technology can be applied in virtually
any environment, competition is not governed by theories and
textbooks but by profits and national interests.
The benefits of globalization are they are being spread
broadly. I am a corporate executive. I am not an economist. I
will leave to the economists and the policymakers the debate
about whether the benefits are being spread broadly enough. I
will say our first priority must be to have a trade policy that
creates growth, jobs, and equity.
During my career at Libbey, which now spans 37 years, every
major domestic competitor that I have faced is either out of
business, Chapter 11, or up for sale. Why would we allow
foreign governments to get away with subsidizing producers, not
enforcing their laws, while turning to the remaining producers
here in the United States and saying, we need to make it easier
for more imports to come to our markets?
Effectively, many of us would tell you we have an eight-
lane highway coming into Peoria, only to face a dirt road back
to Rio, Jakarta, or Istanbul. The unfair trade practices of
other countries documented year-after-year in the United States
Trade Representative's (USTR) annual National Trade Estimates
Report and by government agencies puts my company and
manufacturing concerns across the country at a disadvantage--
subsidies for energy, gas, and other inputs; massive
intellectual property violations that affects many products
that my company makes as well; the continued ability of our
trading partners to rebate their Value Added Tax (VAT) at the
border on their exports and apply VAT on imports. It has
outdated itself.
Some of the fiercest competitors enjoy dramatically lower
labor rates. That is in part a function of their level of
development. It is my job to find a way to compete against
that, and I am fully prepared to do so.
The question of enforcement of labor rates is not a
theoretical esoteric issue. I want other countries to enforce
their laws across the board. Simple as that. I have been an
advocate of free trade in theory. Unfortunately, in reality it
doesn't always exist.
More important to me is the assurance of fair trade--
support for further trade liberalization understandably weakens
in light of continued foreign unfair trade practices and
inadequate enforcement of our laws. I want to make sure that
the laws that we have and the trade agreements we have entered
into are enforced.
I want to know that our support for the multilateral system
of WTO does not mean that we allow for rights and obligations
to be imposed on us. I want our negotiators to pursue results-
oriented trade agreements and with the benefits that they will
yield.
Let me quickly address an important issue that always comes
up, training and adjustment. I recognize that we live and work
in a global economy, and technology can be shifted from country
to country, and transportation and communication continues to--
barriers continue to fall.
Our people are not as mobile. Sure, they may be willing to
move from region to region as there are major shifts in
regional and State economies. Even that, as we know, causes
disruption in people's lives and their communities.
Unfortunately, the theorists may treat people simply as assets,
just like any other input in the process.
I don't view my workers that way. Every job matters. At the
same time, every business leader faces the challenge of
balancing requirements. In the face of these challenges, I have
shut factories in Canada, in California, and now in Mexico. I
don't relish those decisions. I don't buy the approach that
training and adjustment is the answer for those affected in the
U.S.A.
Those issues are part of the equation. All too often they
are the primary approach offered by those who refuse to deal
with the reality of today's global trading system and the tough
competition that we face. I have workers who hope to be able to
keep their jobs and work a lifetime in our facilities. They
work hard. They play by the rules. Every 3 years, we negotiate
with our unions.
Among the topics covered is pensions. It is a pension that
gives them a set dollar amount based on years of service. Our
ability to maintain this feature in the face of already fierce
competition from imports is problematic.
If they lose their job, they may jeopardize their dream to
a safe and secure retirement. All too often they go to a job
that pays less and has fewer if any benefits. Pensions are cut
drastically and retirement as they planned it is gone forever.
It is easy to say, get rid of pensions, corporate
executives. Cut wages 30, 40 percent. That isn't reality, and
frankly, it is not that simple. Of course as the leader of my
company I bargain for a contract that treats my workers fairly
but will allow my company to survive and prosper.
All we ask for is policies in trade that permit us to go
forward in that hard bargaining. We can find a way. Trade
policies that open the floodgates further takes that equation
out of our hands and dooms many companies and industries with
the stroke of a pen, and I find it unacceptable.
What have been some of the more important successes that
you have asked for? I believe our negotiators, our
policymakers, have been pursuing many of the right goals, and I
believe that the creation of the WTO, with multilateral rules
fairly negotiated and fairly enforced, was the right thing to
do. I believe that seeking to gain China's entry into the WTO
was the right thing. In execution, through acts of commission
and omission, I believe our trade policy has not adequately
advanced national interest.
In summary, what I do know is that I and many of my
colleagues in business feel that the cards are somewhat stacked
against us and that we are fighting an uphill battle. I want to
find the level playing field that everyone talks about. I know
that, given that chance, my company and others can compete with
the best that anyone has to offer.
Mr. Chairman, Members of the Committee, like many other
businessmen and women around the country, I have faith in the
ingenuity and productivity of the people of my company. They
make great products, but they do not leap tall buildings in a
single bound, and they do not run faster than a speeding
bullet. They are not Superman.
I simply want them to have a fair chance to compete. The
American dream should be available to anyone who works hard and
plays by the rules. We need a trading system that respects and
rewards hard work and ensures our ability to fight a fair
fight, not one that ties our hands behind our back while
somewhat blindly worshiping at the altar of free trade.
Thank you.
[The prepared statement of Mr. Meier follows:]
Prepared Statement of John Meier, Chief Executive Officer,
Libbey Glass, Inc., Toledo, Ohio
Mr. Chairman, Members of the Committee. It is indeed an honor to
appear before you today to discuss our Nation's international trade
agenda.
I am John Meier, Chairman and CEO of Libbey Inc., the world's
second-largest glassware manufacturer. We are headquartered and have
manufacturing operations in Toledo, Ohio. In addition, we have
production facilities directly, or through our subsidiaries, in
Louisiana, New York and Wisconsin. Last fall we expanded our
distribution facilities in Shreveport, Louisiana and were honored to
have a representative from Ranking Member McCrery's office join us for
the public announcement. Libbey is a public company traded on the New
York Stock Exchange with just under 3,000 U.S. employees.
Libbey is an international producer. In addition to our U.S.
facilities, we have operations in Mexico, the Netherlands, Portugal and
now China. In addition, we export to over 100 countries.
Glassware is America's oldest industry--dating back to the
Jamestown colony in Virginia. Our company principally is engaged in the
manufacture of the kind of glassware--tumblers, stemware, mugs, and
household glass you would find in your kitchen cabinets at home or at
your favorite restaurants, and hotels all over the world. In addition,
we make and market ceramic plates, bowls, flatware, and other products.
We are a world-class producer, but we face enormous competitive
challenges from companies--often supported by their governments--
operating all across the globe.
During my career with Libbey--which now spans 37 years--every major
domestic competitor that I have faced is either out of business, in
Chapter 11 or up for sale. Some of the more recognizable names: Corning
Consumer Products, now under the name of World Kitchen, has gone
through Chapter 11; Oneida, Chapter 11; Anchor Hocking, Chapter 11;
Wheaton Glass, Chapter 7, shut down, and gone; Federal Glass, Chapter
7, shut down and gone; and Indiana Glass, up for sale. Talk about an
industry facing challenge.
I'm here today not to argue the ideology of trade, but the reality
of trade. As the Chairman and CEO, I have to answer to the
shareholders. But I also have to answer to the other stakeholders in
Libbey--our customers, the workers and the communities in which we
operate. I take these responsibilities very seriously. I'm interested
in results--as are all Libbey's stakeholders.
The reality of trade today is far different than that described by
the theorists. Comparative advantage may exist for basic commodities,
but in today's world where transportation speeds products to
marketplaces all over the globe, where capital flows freely to the
place where it can gain the highest return, where technology can be
applied in virtually any environment, competition is not governed by
theories in textbooks, but by profits and national interest.
I'm proud of the products the people who work for Libbey produce.
Our hourly employees are members of the United Steelworkers,
International Brotherhood of Electrical Workers and the Glass, Molders
and Pottery Workers, with the vast majority being Steelworkers.
We produce high quality products and continually invest in new
technology and equipment to remain ahead of our competition. Globally,
as a percentage of sales, our capital expenditures have been an average
of 7.7% per year between 2002 and 2006. Over this period that
translates to $183 million we've invested in maintaining and enhancing
our competitiveness. We've dramatically accelerated these expenditures:
In the last 4 years we made capital improvements equal to the amount
spent over the previous 9 years.
Glassware has been treated as an import-sensitive product for more
than three decades. In essence, this means that imports of glassware
have been subject to tariff rates to moderate their impact on domestic
manufacturers like Libbey. NAFTA and the WTO Uruguay Round treated
glass tableware and ceramic dinnerware used in hotels and restaurants,
as import-sensitive products by making smaller tariff cuts and/or
providing longer tariff phase-out periods than generally applied to
other products, and even exempting certain product categories from any
tariff reductions.
Nevertheless, Libbey, and other domestic producers, have faced an
onslaught of imports into the U.S. market. We have seen our industry
face the same problems that many domestic manufacturers have faced.
Between 1975 and 2000, the industry has seen a 38% decline in the
number of operations. During this same period, union membership in the
industry declined by 47%. These trends continue.
In 1996, two of our major competitors--China and Turkey--accounted
for 12% of the market in one important category of glassware. By 2006,
this had skyrocketed to 53%! During this period, the compounded annual
growth rate in these products from Turkey was 27.8% and from China was
23.2%. To say it another way, our trade policies have hardly been a
hindrance to dramatic import growth.
Libbey is prepared to compete. We're investing in plant, equipment,
technology and our people. And, while it has become the term of the day
in political circles, to be honest, all we really want is a level
playing field.
Why would we allow foreign governments to get away with subsidizing
their producers and not enforcing their laws while turning to the
remaining producers here in the U.S. and say: ``We need to make it
easier for more imports to flood our markets?'' Effectively, many of us
would tell you, we have an eight-lane highway coming into Peoria, only
to face a dirt road back to Rio, Jakarta, or Istanbul.
The unfair trade practices of other countries--documented year-
after-year in the USTR's annual National Trade Estimates Report and by
other government agencies--puts my company, and manufacturing concerns
all across this country, at a tremendous disadvantage: Subsidies for
energy, natural gas and other inputs; massive intellectual property
rights violations--and this doesn't just effect movies and music--but
the products my company makes as well. The continued ability of many of
our trading partners to rebate their VAT taxes at the border on their
exports, and apply their VATs on imports, further adds to our problems.
This last issue is clearly an outdated approach that should be
abandoned.
Some of our fiercest competitors enjoy dramatically lower wage
rates. That is, in part, a function of their level of development. It
is my job to find a way to compete against that, and I'm fully prepared
to do so. But the question of the enforcement of labor rights is not a
theoretical or esoteric issue to producers like Libbey. I want other
countries to enforce their laws all across the board as it has an
impact on their cost structure and their ability to compete here and
around the world.
I have always been an advocate of free trade--in theory.
Unfortunately, in reality, it just doesn't exist. More important to me
is the assurance of fair trade. And, support for further trade
liberalization understandably weakens in light of continued foreign
unfair trade practices and inadequate enforcement of our trade laws.
And in the face of this I have seen U.S.-taxpayer resources offered
to help enhance the competitive posture of my competitors.
As I noted earlier, my company is an international producer. We
import from and export various products to China to expand our product
line here and to help build demand for our products in China. We have
begun development of a facility in China to serve the dramatically
growing China market.
I recognize that we live and work in a global economy.
Transportation and communication barriers continue to fall. Capital is
freely mobile. Technology can be shifted from country to country on a
moments notice.
But, our people are not as mobile. Sure, they may be willing to
move from region to region as there are major shifts in regional and
State economies. Even that, as we know, causes major disruptions in
people's lives, and in their communities. Unfortunately, the free trade
theorists treat people simply as assets just like any other input in
the production process.
I don't view my workers that way. Every job matters. Every business
leader faces the challenge of balancing his requirements. And in the
face of these challenges I have shut factories in Canada, California,
and now Mexico. I do not relish those decisions. And I don't buy the
approach that training and adjustment are the answer for those affected
in the U.S.A. Yes, those issues are part of the equation. But, all too
often, they are the primary approach offered by those who refuse to
deal with the reality of today's global trading system and the tough
competition we face.
I have workers who hope to be able to keep their jobs and work a
lifetime in Libbey's facilities. They work hard and play by the rules.
They deserve my support as well as that of their government. Every 3
years, we sign a contract with our union. Among the topics covered have
been pensions. It is a pension that gives them a set dollar amount
based on each year of service. Our ability to maintain this feature in
the face of already fierce import competition is problematic. And if
they lose their job, they may jeopardize their dream of a safe and
secure retirement. All too often, the job they may have to go to pays
less and may have fewer, if any, benefits. Their pensions are cut
drastically, and their retirement, as they planned it is gone forever.
It is easy to say get rid of pensions or cut wages 30-40%; but reality
isn't that simple. Of course, as the CEO I have to bargain for a
contract that treats my workers fairly but that will allow the company
to survive and prosper. All we ask is for trade policies that permit us
to go forward and do that hard bargaining. We can find a way. But trade
policies that further open the floodgates take the equation out of our
hands, and dooms many companies and industries with the stroke of a
pen. That I find unacceptable.
Our first priority must be to have a trade policy that creates
growth, jobs and equity. Leading with transition assistance sends the
strong message that our policies are heading in the wrong direction. It
sends a message that we are effectively ready to abandon companies and
industries on a wholesale level. A part of the package, yes. A lead
feature, hardly.
I've spent most of my life in manufacturing. I believe that a
country, to be strong, needs to have a strong and vibrant manufacturing
base. Sure, like any consumer, I want the opportunity to buy products
from anywhere in the world at the cheapest possible price. But, I also
know that the huge growth in imports is influenced by the national
competitive strategies of our trading partners--subsidies, dumping,
inadequate enforcement of laws.
Mr. Chairman, Members of the Committee. Like many other businessmen
and women around this country, I have faith in the ingenuity and
productivity of the people in my company. They make great products. But
they do not leap tall buildings in a single bound, they do not run
faster than a speeding bullet. They are not Superman. Idealism has its
place; but so does reality. I simply want them to have a fair chance to
compete. The American Dream should be available to anyone who works
hard and plays by the rules. We need a trading system that respects and
rewards hard work, and ensures our ability to fight a fair fight. Not
one that ties our hands behind our backs, while blindly worshipping at
the altar of free trade.
Thank you.
Chairman RANGEL. Thank you, Mr. Chairman. I not only want
our businesses to have a level playing field, but I want them
to have a fair advantage over other companies. So, we have a
lot to work together on. I look forward to working with you.
The next witness is Harold McGraw, Chairman and CEO of The
McGraw-Hill Companies and also the Chairman of the Business
Roundtable and the Emergency Committee for American Trade.
Since my transition, I have had long discussions with him. I
want to thank you so much for the assistance and advice that
you have given, but more importantly, your willingness to work
with this Committee to see, with the Administration, whether we
can come up with something that is a lot easier to work with
than what we are wrestling with today. So, thank you again, Mr.
McGraw.
STATEMENT OF HAROLD MCGRAW III, CHAIRMAN, PRESIDENT, AND CEO,
THE MCGRAW-HILL COMPANIES, AND CHAIRMAN, BUSINESS ROUNDTABLE,
AND CHAIRMAN, EMERGENCY COMMITTEE FOR AMERICAN TRADE, NEW YORK,
NEW YORK
Mr. MCGRAW. Well, thank you and good morning, Mr. Chairman
and Congressman McCrery and Members of the Committee. As the
Chairman said, I am Harold McGraw. I am the Chairman and CEO of
The McGraw-Hill Companies, and I am here on that behalf as well
as being Chairman of the Roundtable and the Emergency Committee
on American Trade.
We really, really welcome, Mr. Chairman, and applaud your
bipartisan approach--and these are vital subjects, obviously,
globalization and trade--because in many ways we are at a
defining moment for America's future and its role in the world
economy.
Globalization for sure transforms markets, industries,
people, economies. The question for the United States is not
whether to participate in global integration and the global
economy, but how to compete, how to win, and how do we make the
benefits of globalization fair and inclusive.
Currently the United States is the largest economy in the
world. Going forward, as we all know, we are entitled to
nothing. The world is changing rapidly. We either engage and
deal with change or we fall behind.
This is about America's competitiveness and economic growth
in a global economy. Trade, a critical component, is a subset
of globalization. Pursuing a pro-trade agenda is a growth
issue.
We also need to enhance U.S. competitiveness through
changes in our domestic policies to ensure a competitive
workforce, as well as competitive cost structures. My written
statement provides some recommendations and some examples of
the value of these pro-growth policies and the benefits of
globalization.
In my remaining time, Mr. Chairman, I will address your
questions.
First, trade is vital to the economic growth of our
citizens and our economy. In fact, imports are essential to our
standard of living and U.S. competitiveness. Without imports,
many U.S. households would not be enjoying home computers,
fresh fruit in the winter, or a morning cup of coffee.
Imports enable U.S. companies and their workers to compete
in the global economy by ensuring access to competitively
priced inputs and end products. As our domestic automobile
companies recently explained before the International Trade
Commission, imports are an important part in promoting their
competitiveness overall.
Exports provide U.S. businesses with access to new and
expanded markets they otherwise would not have without a global
marketplace. They support 15 million American jobs, 10 percent
of
our workforce. Investment also has strengthened the United State
s.
Second, the benefits of globalization are being spread
broadly, but we need changes in our trade policy. Consumers
benefit from imports, which have led to improved variety,
quality, and price of goods. U.S. productivity is supported
significantly by global engagement, in part from companies'
responses to competition such as innovation and investment in
research and development and other areas. Workers in firms that
are globally engaged receive wages and benefits that are 13 to
18 percent higher than employees in purely domestic firms.
More must be done. We must level that playing field for
U.S. companies, farmers, and their workers through
multilateral, regional, and bilateral agreements. We need to
complete the Doha development agenda negotiations. We need to
implement the Peru, Colombia, and Panama trade agreements. We
need to move forward aggressively with negotiations with Korea
and Malaysia.
We need to revitalize and make bipartisan that
congressional/executive/trade relationship, including renewing
trade promotion authority. We need to promote enforcement of
commitments with China and other key economies. We need to
eliminate these regressive tariffs and other U.S. barriers on
products such as clothing, footwear, or sugar, which have a
particularly negative effect on lower income consumers.
Finally, we need to ensure that those facing the costs of
globalization are not left behind. The quickening pace of
innovation and the level of globalization has increased worker
displacement and the normal phenomenon of job turnover.
For instance, in any given 3-month period, we know that we
gain 7 to 8 million jobs, at the same time that we eliminate 7
to 8 million old jobs. This is little consolation to workers
who lose their jobs or undergo serious disruptions. The
response cannot be to freeze the U.S. economy at any one stage.
We need to renew and significantly modernize the trade
adjustment assistance program to effectively provide workers
and farmers with new skills necessary to compete. These changes
also will help spread globalization's benefits internationally,
and together with capacity-building and technical assistance
will help bring hundreds of millions out of poverty,
particularly in Africa and the Middle East.
Finally, there are many, many successes fostered by trade,
and we put those in our written statement, Mr. Chairman.
Certainly the U.S. information technology industry is one of
the most globally engaged of all U.S. industries. U.S. service
firms are also among the most competitive in the world. The
United States is the leading worldwide exporter of services,
with over $380 billion in exports in 2005. Finally, there are
just many, many examples of small- and medium-sized companies
competing globally with great success.
Mr. Chairman, I applaud your push for bipartisanship, and I
hope this means that we have a chance for a new beginning.
[The prepared statement of Mr. McGraw follows:]
Prepared Statement of Harold McGraw III, Chairman, President, and CEO,
The McGraw-Hill Companies, and Chairman, Business Roundtable, and
Chairman, Emergency Committee for American Trade, New York, New York
Mr. Chairman, Congressman McCrery, 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 address the
vitally important and complex issues of trade and globalization not
only on behalf of The McGraw-Hill Companies, but also as Chairman of
the Emergency Committee for American Trade (ECAT) and Chairman of
Business Roundtable.
The McGraw-Hill Companies is a global information services provider
headquartered in New York. We employ 20,000 people in 280 offices in 40
countries worldwide. You know us best through the McGraw-Hill imprint
in education, Standard & Poor's, J.D. Power and Associates and Business
Week.
Both Business Roundtable and ECAT are associations of chief
executives of major American companies with global operations who
represent all principal sectors of the U.S. economy. Business
Roundtable and ECAT companies are significant participants in the U.S.
and global economy.
We are at a critical moment for the future of the United States and
its role in the world economy. Globalization transforms markets,
industries, people and economies:
We face the rise of powerful global economic rivals, some
of whom were minor competitors a decade ago, competing beyond national
boundaries.
We face economic integration and competition on a global
scale.
We face global competitors who are moving forward with
their own domestic competitiveness initiatives and actively negotiating
free trade and investment agreements to eliminate barriers that
adversely impact their trade.
We face a rapidly evolving international business climate
driven by technological innovation and a surge in world energy prices.
Whether the United States should pursue a pro-trade agenda is not a
partisan issue. It is a growth issue. Therefore, the question for the
United States is not whether to participate in global integration and
the global economy, but how to compete, how to win in it, and how we
make the benefits fair and inclusive.
International trade and investment policies are among the key
policies to meet the challenge of globalization. However, standing
alone, they are not sufficient to ensure U.S. international success and
the broad enjoyment of globalization's benefits. We will need to
enhance U.S. competitiveness more broadly in order to lay the
foundation for the success of our businesses, workers, and farmers in
the global economy. We need a competitive workforce (which requires,
among other things, a new focus on science, technology, engineering and
math education), a competitive cost structure (which requires, among
other things, health care reform), and other policies that promote
innovation and leadership. Solutions must involve the wide cross
section of this country--business leaders, Congress, the
Administration, workers, farmers, consumers and communities--and a
broad, sustained bipartisan effort to advance our national interest. In
short, this hearing could not be more timely.
My testimony will examine the opportunities and challenges
presented by increasingly integrated economies throughout the world and
how we believe trade and investment policy, as well as domestic
policies, can best and broadly promote economic growth and rising
living standards here and abroad.
The Importance of Trade and Investment for All Sectors of the U.S.
Economy
As recognized by the Chairman in noticing this hearing, ``trade and
globalization present opportunities and challenges.'' We agree.
Overall, trade and investment liberalization has provided strong
benefits for the United States, its farmers, manufacturers, service
providers, workers and consumers. While oftentimes so widely dispersed
that it is difficult to recognize, these benefits provide a strong case
for continuing the path of trade liberalization that the United States
started more than 70 years ago. Nevertheless, improvements should
certainly be explored to ensure even greater benefits for the United
States. Before discussing ways to improve and expand these benefits, I
think it is important to focus first on the benefits the United States
is currently enjoying from trade and investment.
The Benefits of Exports
As the world's largest exporter of goods and services, the United
States enjoys substantial benefits from the rules-based trading system
and the lowering of tariff and non-tariff barriers worldwide. The more
than $900 trillion in goods exports and $380 billion in services
exports, based on 2005 figures, represent impressive productivity and
opportunities here in the United States.
Ten percent of all U.S. jobs (approximately 15 million
jobs) depend on exports.
Jobs that depend on exports pay 13 to 18 percent more
than the average wage.
These benefits go to large and small companies. For example,
Pacific Plastics & Engineering, a small specialty plastics manufacturer
started in 1989 in Soquel, California, is not only succeeding in the
U.S. market but in the Indian market as well. While the company has
invested in India, it has also doubled its workforce in the United
States to over 100. The flexibility to export products and access
production abroad has enabled the company to maintain competitive
prices and better serve customers in both India and the United States.
While we face steep competition from companies abroad, the United
States' world-class farmers, manufacturers and service providers have
continued to succeed. U.S. manufacturing exports have increased 82
percent since the end of the Uruguay Round that created the World Trade
Organization in 1995. U.S. services exports have doubled since 1994.
One in every three U.S. farm acres is planted for export, and 27
percent of farm profits accrue from exports.
The potential liberalization in agriculture, manufacturing and
services that is the objective of the Doha Development Agenda
negotiations provides the potential of enormous benefits, particularly
when nearly 96 percent of the world's consumers live outside the United
States. We strongly support the work of our negotiators in seeking a
breakthrough in those talks that will promote new and concrete market
access in all key sectors, including agriculture, manufacturing and
services.
The importance of exports to the U.S. economy makes bilateral, sub-
regional and regional trade agreements that open markets a vital piece
in the strategy of moving forward on a beneficial trade policy. U.S.
trade with existing FTA partners has proven to be a significant benefit
to the U.S. economy, accounting for approximately $925 billion, or
nearly 36 percent, of total U.S. trade and 45 percent of U.S. exports.
U.S. goods exports to each of its major FTA partners have increased
significantly after the FTA was first implemented. Consider the
following growth in U.S. goods exports:
U.S. goods exports to the NAFTA countries more than
doubled between 1993 and 2005, from $142 billion to $332 billion,
growing faster than U.S. exports to the rest of the world.
U.S. goods exports to Chile almost doubled between 2003
and 2005, increasing from $2.7 billion to $5.2 billion in just 2 years.
U.S. goods exports to Singapore increased by nearly 25
percent, from $16.6 billion in 2003 to $20.7 billion in 2005.
U.S. goods exports to Australia increased 10.5 percent,
from $14.3 billion in 2004 to $15.8 billion in 2005.
Overall, U.S. exports to FTA partners have grown 20 percent faster
than U.S. exports globally. Similarly, U.S. services exports to our FTA
partners have expanded at high rates.
The Benefits of Imports
The benefits of imports to the U.S. economy are widely enjoyed, but
not always recognized.
Imports increase the variety and availability of products
accessible to consumers throughout the United States, providing
Americans with improved choices, such as seasonal fruits and vegetables
now increasingly available all year, a wider variety of consumer
products, and access to products not produced in significant quantities
in the United States, such as our morning cup of coffee.
U.S. consumers and the economy as a whole also benefit
from the lower prices and, therefore, greater purchasing power, that
increased international competition promotes. This has enabled, for
example, 73.4 percent of households to own a personal computer.
Imports support millions of American jobs in the
transportation, wholesale distribution, retail, marketing and other
sectors, while also supporting American manufacturing jobs by allowing
use of lower-priced inputs.
For many companies, imports of key inputs improve their
competitiveness in the global economy. Conversely, testimony by the
major U.S. automakers in the recent sunset reviews of certain steel
antidumping and countervailing duty tariffs emphasized how higher
tariffs hurt U.S. competitiveness overseas. Similarly, restrictions on
sugar imports have undermined the competitiveness of many confectionery
and processed food manufacturers in the United States.
The impact of imports on prices also plays an important
role in dampening inflationary pressures and, in turn, keeping interest
rates low.
U.S. trade policy and the role of imports is an area of particular
importance as the Committee considers how to broaden the benefits of
globalization. At present, U.S. tariffs are highly regressive. That is,
they place a higher burden on lower-income individuals by maintaining
some of the highest tariffs on staple products required by all
consumers, such as clothing and footwear. As analyzed by last year's
Economic Report of the President, overall U.S. tariffs are very low--
about 1.4 percent, while tariffs on staple consumer products are over
30 percent. Furthermore, tariffs on items more commonly purchased by
lower-income individuals, such as lower-priced sneakers, are oftentimes
higher than tariffs on items bought by higher-income individuals. As
the Committee considers how U.S. citizens can more broadly share in the
benefits of trade, we strongly urge that work continue, as it has in
free trade agreements with Central America and the Dominican Republic,
to lower highly regressive U.S. tariffs. In other areas, tariffs and
barriers to imports of input products, such as sugar, undermine the
competitiveness of our manufacturers of further processed goods.
The Benefits of Investment
Investment, both within and outside the United States, is also an
important driver of economic growth and productivity. U.S. foreign
direct investment outflows generate substantial U.S. exports; indeed,
the largest market for U.S. exports is foreign-based subsidiaries of
U.S. companies. As examined in depth in ECAT's Global Investments,
American Returns (GIAR) (1998) and the 1999 Update, as well as other
major studies, foreign direct investment of American companies has
complemented, rather than substituted for, economic activity in the
United States in areas determinative of productivity, such as research
and development and capital investments. In addition, over 70 percent
of the total income earned by the foreign affiliates of U.S. firms is
repatriated. This in turn has promoted economic growth and a higher
standard of living in the United States.
At the same time, the foreign affiliates of American firms are an
important market for American companies with global operations,
accounting for over 40 percent of U.S. exports. As Business
Roundtable's March 2004 paper Securing Growth and Jobs: Improving U.S.
Prosperity in a Worldwide Economy showed, ``outsourcing'' is
considerably more complex than generally depicted, and when global
sourcing is analyzed in detail, we see a net positive for the United
States.
Some numbers tell the story of the important role investment plays
in supporting U.S. jobs and growing the U.S. economy:
Exports of goods by U.S. companies to their foreign
affiliates totaled $157 billion in 2003, accounting for nearly one-
quarter of all U.S. goods exports.
Approximately two-thirds of U.S. exports are made by U.S.
companies with investments overseas.
Every dollar of outward foreign direct investment is
associated with $2 in U.S. exports.
U.S. companies' foreign affiliates remitted more than
$250 billion in income to the United States in 2005 alone. Total sales
of U.S. affiliates abroad exceed $2.2 trillion annually.
For every one job that U.S. companies created in their
foreign affiliates, they created nearly two U.S. jobs.
Foreign businesses invest in the United States, employing
over 5 million Americans.
Like other benefits, these benefits go to companies of all sizes.
For example, Behlen Manufacturing, a mid-size company located in
Columbus, Nebraska, designs and produces metal buildings, grain storage
and drying systems and hydraulic presses. The company sells its
products in over 70 foreign countries. With a factory in China, it has
been able to both export more from the United States and develop new
business opportunities in the world's fastest-growing large economy.
Revenues in China increased 12 percent in 2006, and foreign sales now
represent a key portion of the company's overall revenue growth.
Other Benefits From Global Integration
Trade and investment liberalization also have worked together to
play a vital role in fostering the growth and use of information
technology products and services that, in turn, promote productivity
and competitiveness of U.S. business entities throughout every sector
of the economy as explained in ECAT's 2003 study, Mainstay IV:
Technology, Trade and Investment: The Public Opinion Disconnect. This
and other studies have documented the openness of the information
technology sector, which has been increasingly characterized by low
tariffs, substantial investment abroad and global product networks.
This global integration has helped promote the success of the U.S.
high-tech sector, which in turn has helped spur increased labor
productivity, a key measure of a country's overall standard of living.
Proposals to Ensure U.S. Economic Growth in a Global Economy
Open trade and investment within a rules-based system have thus
served the U.S. well, and the evidence of their benefits is well-
established. How do we ensure that our businesses, workers, farmers and
consumers continue to enjoy these benefits in the face of new global
challenges, and how do we ensure that these benefits are broadly
enjoyed, both within the United States and around the world? I would
like to put forth eight proposals that I think will put us more clearly
on this course. Many of these ideas are set forth in the materials of
both Business Roundtable and ECAT, including Business Roundtable's
September 2006 report, Expanding Economic Growth Through Trade and
Investment: A Blueprint for U.S. Leadership in the 21st Century, and
ECAT's comprehensive look at trade and investment policy, the ECAT 2006
Agenda.
1. Lay the Groundwork for American Competitiveness Through Domestic
Policy
U.S. competitiveness in the global economy requires scientific and
technological capabilities that keep U.S. companies at the forefront of
innovation and make U.S. workers the first choice for companies seeking
a skilled and productive workforce. Appropriate government programs
should ensure that all American workers have the skills they need to
compete and prosper in a rapidly evolving economic environment.
The increasing pace of innovation and level of globalization have
increased the problem of worker displacement and the normal phenomenon
of job turnover. We know that this process creates far more jobs than
it eliminates. For instance, in the third quarter of 2005, the economy
created 8.1 million new jobs while eliminating 7.4 million old jobs.
But this is little consolation to workers who lose their jobs and
undergo serious disruptions. The response cannot be to freeze the U.S.
economy at any one stage. Government policy should instead aim to
facilitate these structural transitions, to facilitate job creation and
growth, while at the same time easing the short-term pain accompanying
transition. We look forward to working with this Committee as it works
to renew and, where appropriate, modernize the Trade Adjustment
Assistance program that expires on September 30, 2007, so that it can
help workers meet the challenges of the 21st century.
At the same time, many companies, including Business Roundtable and
ECAT members, have developed their own worker retraining programs to
help address the concerns about dislocations caused by technological
developments, trade, and other forces. These companies have focused on
continued education and intensive retraining through the use of
community colleges, the Internet, and other education resources. These
programs, in conjunction with government efforts, represent an
important facet of worker readjustment and training efforts.
Other critical steps that we need to take include the following:
Strengthen American leadership in research and
development and innovation.
Improve education, particularly in science, technology,
engineering and math, to build a competitive workforce.
Revise the U.S. international tax rules to make our
companies more competitive.
Address America's energy challenge.
Eliminate disincentives to U.S. trade and investment.
2. Support U.S. Negotiators in Achieving a Breakthrough in the Doha
Development Agenda (DDA) Negotiations
The successful conclusion of the DDA negotiations has the greatest
potential to increase benefits for the widest number of consumers,
farmers and businesses in the United States. With the world's largest
and most open economy, the United States has much to gain from these
negotiations. The completed agreements could dramatically change
agricultural trade, eliminating export subsidies and creating enormous
new market opportunities for U.S. farmers. Adoption of U.S. proposals
would result in the elimination of all tariffs by 2015 and eliminate
many key tariff barriers, providing enormous opportunities for U.S.
manufacturers and service providers. Depending upon the final outcome,
some estimates predict that the DDA could provide a net increase in
annual incomes of $2,500 for a typical American family of four; lift
500 million people out of poverty; and help promote an improved
standard of living at home and abroad.
As I discussed earlier, the more that the United States can do to
eliminate its own regressive tariffs and barriers in this context, such
as on apparel, footwear and sugar, the more it can promote effectively
benefits of trade liberalization throughout the U.S. economy.
3. Level the Playing Field by Supporting the FTAs with Peru, Colombia,
Panama, Korea and Malaysia and Russia's Entry into the WTO
The United States signed two comprehensive, high-standard bilateral
trade agreements in 2006 that will require congressional review and
approval in 2007: the United States-Peru Trade Promotion Agreement and
the United States-Colombia Trade Promotion Agreement. The agreements
will open market opportunities in agriculture, manufacturing and
services for U.S. companies and their workers, will promote continued
economic reform within Peru and Colombia and will help foster improved
ties and broader interests in our own hemisphere. Approval of these
agreements when they are sent to Congress will further expand the
benefits for the U.S. economy, as well as for the economies of these
two trading partners. We strongly support their approval by the U.S.
Congress.
U.S. officials have also negotiated a trade agreement between the
United States and Panama, which will provide many of the same benefits.
This agreement also provides unique economic opportunities for U.S.
manufacturers and service providers, given Panama's approval late last
year of a multi-billion plan to expand the Panama Canal. We look
forward to the United States-Panama Trade Promotion Agreement being
submitted to the Congress and strongly support congressional approval.
It is also important to support U.S. negotiators as they seek high-
standard, comprehensive and commercially meaningful trade agreements
with Korea (our seventh largest trading partner) and Malaysia (our
tenth largest trading partner).
In addition, Russia is seeking to join the WTO, having completed a
strong bilateral agreement on accession with the United States last
November. More work needs to be done at the multilateral level, as well
as in meeting the commitments Russia made in its bilateral agreement
with the United States. When Russia has taken the needed steps,
however, we believe that it is strongly in the interest of the United
States to support Russia's accession to the WTO and to provide
permanent normal trade relations--PNTR--as was done last Congress for
Vietnam, to ensure that the United States gets the full benefit of
Russia's market opening and its WTO commitments.
4. Revitalize the Congressional-Executive Relationship on Trade
Negotiations
The cornerstone of any successful U.S. international economic
policy needs to be a strong congressional-executive relationship on
trade policy. There is no higher priority in this Congress than to
revitalize that relationship. One aspect is renewal of Trade Promotion
Authority (TPA), a vital tool for continued American international
economic leadership. The Administration and Congress should work
together to craft an enduring solution to TPA renewal that gives both
branches, on a bipartisan basis, the tools necessary to provide global
leadership in developing international trade and investment policies
and guiding negotiating objectives.
The current congressional-executive trade negotiating framework,
commonly known as Trade Promotion Authority--TPA--or by its earlier
name--fast track--will expire on July 1, 2007. TPA establishes
negotiating authority for global, bilateral and regional trade
negotiations, consultation requirements and congressional procedures
guaranteeing an up-or-down vote, without amendments in a time certain
for agreements meeting the requirements of TPA. TPA serves several
purposes, including setting forth Congress' overall and principal
negotiating objectives; procedures for Presidential consultation with
Congress; and procedures for congressional consideration of legislation
to implement a trade agreement.
TPA is critical to: (1) enhance U.S. leadership on trade and the
President's ability to conclude negotiations with foreign trading
partners; (2) facilitate Congress' consideration and implementation of
trade agreements; and (3) provide for greater Administration-
congressional consultations on issues where both the President and the
Congress have overlapping constitutional prerogatives.
If TPA is not renewed, America's ability to negotiate important
bilateral, regional and multilateral agreements will be severely
compromised. Our ability to open global markets to our industrial
goods, agricultural products and services will be diminished, and we
will risk losing market share to our global competitors. We will also
lose an important tool to anchor U.S. strategic influence around the
world.
Between 1994 and 2002, when the President did not have this
authority, the United States fell dangerously behind in negotiating
FTAs and investment agreements, causing U.S. businesses and farmers to
lose market share in Latin America, Africa, and Asia and leadership
mantles in these key regions. Since TPA was renewed in 2002, the United
States has kept pace with foreign competitors and helped level the
playing field for U.S. farmers, companies and their workers.
Today, with the Doha Round in serious question, with unfinished
negotiations with key countries in Asia, Africa, and Latin America, and
the pressing need for new initiatives highlighted in this testimony,
the need for TPA has never been greater.
5. Maximize the Effectiveness of U.S. FTAs
Trade agreements help ensure that U.S. firms, workers and farmers
can compete most effectively with their competitors around the world.
Without FTAs, U.S. exporters face trade discrimination. For instance,
prior to the U.S.-Chile FTA, U.S. exporters faced an across-the-board
11 percent tariff, while Canadian exporters--by virtue of the Canada-
Chile FTA--could sell to Chile duty-free.
Congress and the Administration have an opportunity to set a new
path, including consideration of FTAs with some of our largest markets,
such as the EU and Japan. Given the high stakes in these trading
relationships, policymakers should test the conventional wisdom that
has ruled out such FTAs and explore pragmatic and effective ways to
move forward. Indeed, a U.S.-Japan FTA, endorsed in a joint statement
earlier this month by Business Roundtable and Japan's Keidanren, would
bring further together the two largest single-country economies in the
world with more than $250 billion in bilateral trade.
We also need to ensure that we are tapping the full benefits of our
existing FTAs and that they best serve the needs of the U.S. economy.
The United States now has a series of FTAs around the world with rules
that are not always consistent across agreements. We should forge those
FTAs into a coherent system, to harmonize disparate trading rules and
link them together--building more formidable trading networks in both
scope and membership. The EU has taken such an approach with respect to
rules of origin, which define what goods are eligible for preferential
treatment under an FTA. The results have increased trade among EU FTA
partners by 22 percent.
6. Close the Gaps on Investment and Tax Protection
To succeed in a global economy, U.S. companies must be able to
conduct business around the world in an open and equitable environment.
Key investment and tax instruments should be expanded to other
countries to reach this objective:
Bilateral investment treaties and the investment chapters of our
FTAs are critical in protecting U.S. investment against unfair
government action that undermines U.S. competitiveness. These
instruments can facilitate, protect and increase foreign direct
investment and trade. Despite the major stakes involved, U.S.
businesses often lack the protections that their European or other
counterparts enjoy around the world. The United States has negotiated
only 47 BITs. Germany alone has negotiated nearly three times that
number. The U.S. shortfall includes some key emerging markets,
including China, India, and Indonesia, which have entered into more
narrow BITs with many countries, including many countries in Europe. A
priority for our future agenda should be narrowing this gap and
negotiating meaningful BITs with key markets.
Similarly, tax treaties provide clear ground rules that govern tax
matters relating to trade and investment. They protect traders and
investors from double taxation of the same income. And they ensure that
U.S. investors do not suffer discrimination in the application of
foreign tax laws. The United States has an extensive array of tax
treaties; but some key markets are missing, and we should continue to
press for tax treaties with those markets.
7. Bring the Benefits of Trade and Investment to the World's Poor
This is both a moral imperative and a geopolitical necessity.
Free trade has already shown that it can be the world's most
effective anti-poverty program. It has lifted from poverty hundreds of
millions of people in Brazil, Mexico, India, South Korea, China and
others in the 20th century. It has had a terrific impact on so many
lives once consigned to the shadows of the modern world. But it has so
far failed to lift hundreds of millions more--people who struggle to
survive on 2 dollars a day or less.
U.S. leadership is necessary to integrate the people of the least
developed nations into the global economy. We can and should expand our
capacity-building programs and reinvigorate appropriate preference
programs, along with our broader trade agenda, to help further address
these important issues. We can help fill the resource gap that prevents
the poorest countries from realizing their potential growth, such as
promoting capacity, from physical infrastructure (e.g., seaports and
paved roads) to regulatory infrastructure.
8. Continue to Strengthen U.S. International Competitiveness
Finally, as I have set out in my testimony today, we hope this
Committee and the Congress will move forward with new trade and
investment and competitiveness initiatives to expand U.S. economic
growth. However, while enacting and implementing new policies is
important, avoiding policy missteps is critical as well. As in the
Hippocratic Oath, the most important step U.S. policymakers can take is
to avoid unintended harm to the U.S. economy by resisting ideas that
may appear to be useful but that may actually have an adverse impact.
Whether we like it or not, the forces of globalization cannot be
stopped at the water's edge. Retreating from the worldwide economy to
save U.S. jobs would be ignoring not only the lessons of economic
change but also the lessons of history. The economic worries of the
1980s--the idea that Japan was replacing the United States as the
world's technological leader, the loss of U.S. manufacturing jobs, the
growing U.S. trade deficit, and the surge of foreign investment in the
United States--sparked numerous proposals to limit on imports and
inward and outward investment. The debate today echoes many of the grim
predictions that were voiced then.
To its credit, the Congress resisted the many counterproductive
ideas then on the table for trade and investment restrictions. Instead,
the Congress enacted the Omnibus Trade and Competitiveness Act of 1988
to authorize new trade negotiations and to promote more education,
training, technology development and protection of intellectual
property. Within 5 years, U.S. companies reestablished their
competitiveness, and the U.S. economy, after a brief recession in 1991,
created more than 20 million jobs, and produced one of the longest
periods of economic expansion in U.S. history.
I do not mean to suggest that the economic picture now is
completely rosy. The rate of job creation and wage growth in the United
States should be higher. As the source of most job creation, the
business community is keenly aware of the employment situation and of
our role in training employees and fostering career opportunities. That
is why Business Roundtable and ECAT advocate an optimal mix of
governmental policies that will be most supportive of higher economic
growth and job creation.
We all need to remember the lesson that Japan learned in the 1990s:
When you build walls to protect your own companies and workers, in the
long run you end up hurting them. Japan went into a recession more than
a decade ago from which it has only recently begun to emerge.
As this Committee considers changes to U.S. trade laws, especially
U.S. trade remedy laws, we urge you to take into consideration the
broader implications of globalization for U.S. companies that are
increasingly globally integrated and on U.S. consumers who rely on
imports to improve their standard of living. With the changes in the
global economy, the simple trade-remedy paradigm of a domestic industry
trying to protect itself from unfair trade imports with no other
ramifications on the larger economy is rarer and rarer. Increasingly,
cases are brought by one U.S. industry that have very negative impacts
on other U.S. industries. The recent testimony of the U.S. automakers
before the U.S. International Trade Commission in favor of terminating
tariffs on imports of steel was based on the competitive needs of a key
U.S. industry that was being disadvantaged unfairly by the application
of these rules. In other cases, petitioning companies are seeking to
block imports from one country to enhance, not necessarily their
production in the United States, but their own ability to import from a
third country. And no longer is the United States the chief user of
these laws; China, India, Mexico and other countries have increasingly
been using these types of laws to limit U.S. imports into their
markets. I urge the Committee to consider these broad implications
carefully as it considers changes to these rules.
Proposals to regulate U.S. foreign investment and investment in the
United States by foreign companies also need careful consideration. As
I pointed out earlier in my testimony, foreign investment, like trade,
has been, and will continue to be, an important catalyst for U.S.
economic growth.
And finally, the challenges of China trade should be dealt with on
their own terms and not as a stand-in for broader anxieties about
globalization. There have been important successes in the U.S.-China
relationship, including the enormous U.S. export growth. At the same
time, major challenges remain. The Administration, Congress, and the
private sector should continue to work together on effective steps to
improve access to China's market and adherence to WTO commitments while
preserving what is good in the relationship. China trade is too
important--in terms of both the real challenges and substantial
benefits--to get wrong.
Thank you again, Mr. Chairman, Congressman McCrery, Members of the
Committee. I appreciate this opportunity to express my views, and those
of Business Roundtable and ECAT, about key trade issues for the 110th
Congress. I welcome your questions.
Chairman RANGEL. Thank you, Mr. Chairman.
The last witness on this panel is Dr. Lawrence Mishel, who
is the President of the Economic Policy Institute. I thank you
for coming and bringing a different view to the serious
question of globalization. Thank you for sharing your views
with us.
STATEMENT OF LAWRENCE MISHEL, PH.D., PRESIDENT, ECONOMIC POLICY
INSTITUTE
Dr. MISHEL. Thank you very much, Mr. Chairman. Let me just
jump right into the questions you posed.
First, is more trade better regardless of its terms? First,
the benefits of trade. Now, economists believe in transactions
among consenting adults. I am an economist, and I believe that
trade should be given the benefit of the doubt that it provides
benefits.
A big question is: Benefits for whom, and whether it is
important to put the pedal to the metal of trade liberalization
to make us better off. I don't believe that further
liberalization has bountiful gains for the American people. We
are a very open economy. It is not as if the issue is: Will we
have trade or do we not?
Let me also be the skunk at the party, I am sorry to say,
to talk about the real costs of globalization and what is
really happening out there to people's jobs and wages. As you
know, Mr. Chairman, the typical working family now makes less
money than it did 6 years ago. The productivity of this economy
has been tremendous in the last 5- or 6-year period, but
people's wages are really just a little bit higher. That is for
high school workers and for college-educated workers. People
are profoundly upset about the economic circumstances, and I
think we have seen that in the last election.
So, the question is: How do we address the needs of the
American people? The question for this Committee would then be:
Does further trade liberalization advance that goal of
addressing the needs of the American people, or are there
other, higher priorities that we need to seek?
Let me outline the costs of globalization because I think
it is usually not talked about. Even economists who deal with
this are usually chastised by their fellow colleagues for
addressing the costs. You cannot have a conversation with the
American people without addressing the things that they see all
around them and they experience, the things they hear from
their employers, who tell them, you cannot have higher wages or
I am going to move your jobs offshore. It is not a matter of
economic studies. It is a matter of what people understand
sitting around their kitchen table.
The costs of globalization are broad, they are widespread,
they are pervasive, and they are large. First and foremost, we
see the people who are displaced by trade who have to find
other jobs, frequently for less money. That is just a small
part of the costs of globalization.
A second cost is the fact that we are now competing with
nations across the world. Their increased capacity, our
increased competition, lowers the prices of our traded goods.
That in turn lowers the wages of the people who are producing
those tradeable goods.
Third, employers across the board tend to use the threat of
globalization, the need to be competitive, to lower wages. I
didn't see anybody challenge the Delphi company when they said,
you can no longer earn the wages you have and now can only earn
$10 an hour. They say, well, that's not true. Globalization
really doesn't have those bad effects. In fact, they are really
tremendous effects.
Fourth, investment flows overseas, increasing capacity
there, helping them improve productivity, and costing us jobs
here.
Perhaps most important, the jobs that we no longer have in
manufacturing and in the tradeable goods sector means that
those people who worked in those sectors are now competing with
workers elsewhere, and the young workers can't get those jobs.
That means, as every economist who studies trade knows,
that the costs of trade are the lower wages of all the
basically non-college-educated workforce in this country, which
is about three-fourths of the workforce. It is not about a
small group of dislocated workers. It is about the lower wages
of the vast majority.
Those who claim we have big benefits from trade, you can't
get big benefits without breaking the engaging. You can't say
that there are big benefits without acknowledging that there
are substantial costs. We need to look at the costs for the
vast majority, not just the costs for the economy as if we are
just one consumer and one worker.
We think we need a new approach to globalization. I think
the first and foremost starts with what we call a strategic
pause. No more trade agreements. Let's get things right in the
United States before we press further down this road.
We need to address people's needs for health care. We need
to address people's needs for pension. We need to find a way to
reconnect the wages and wage growth of people to the growth of
the economy and productivity. We need the minimum wage. We need
people to be able to have a right to organize a union.
How are people going to accept further liberalization when
they are so anxious in their everyday life? It is not all
because of globalization. If globalizers don't take into
account that the context that your trade policies are operating
in are a very anxious group of people who vote, then it would
be a mistake.
We need to deal with exchange rate policy, first and
foremost. We need targeted investments in energy, education,
and new technologies. We need to restore the bargaining power
of American workers. We need affordable and accessible health
care and pension reform.
We need to freeze programs that encourage importing skilled
immigrants rather than allowing Americans to be able to be
trained for those jobs. We need to renegotiate a social
contract for NAFTA to allow for greater aid flows to Mexico and
greater policy autonomy and worker and social protections for
all three signatory countries. We need to think about the
global architecture for globalization.
We cannot address the costs of globalization with a few
middle class tax cuts here and there, nor can we do it with
some programs of adjustment, even ones that are generous and
high-minded as things like wage insurance.
The issue is not how to take care of a few people that are
dislocated and are going to suffer, who we need to take care
of. The issue is how are we going to address the people's
economic needs and what role trade can do to damage them
further, or will we have policies that are going to lift
everybody together.
Thank you very much.
[The prepared statement of Dr. Mishel follows:]
Prepared Statement of Lawrence Mishel, Ph.D.,
President, Economic Policy Institute
Thank you, Mr. Chairman and Members of the Committee, for inviting
me to testify today. I am submitting as written testimony a paper Jeff
Faux wrote for EPI's Agenda for Shared Prosperity that addresses the
problems globalization poses for America's working families and a set
of policy solutions for managing globalization in their interest.
My oral remarks will respond to the questions you posed in the
hearing notice.
More Trade Is Not the Answer
First, is more trade better, regardless of its terms? Not for all
Americans, and often not even for most. For working Americans, the
effects of the enormous growth in foreign trade have been mostly
negative, resulting in the loss of good-paying manufacturing jobs,
significant downward pressure on wages, and increased inequality. The
doubling of trade as a share of our economy over the last 25 years has
been accompanied by a massive trade deficit, directly displacing
several million jobs. Most of these jobs were in the manufacturing
sector, which included millions of union jobs that paid better-than-
average wages. In just the 5 years from 2000 to 2005, more than 3
million manufacturing jobs disappeared. We estimate that at least one-
third of that decline was caused by the rise in the manufactured goods
trade deficit.
U.S. multinational corporations are engaged on both sides of our
international trade. About 50% of all U.S.-owned manufacturing
production is now located in foreign countries, and a significant part
of our manufacturing job loss has been the result of U.S. firms
exporting back to the U.S. or producing abroad what they once produced
here.
Although the effect of trade on U.S. wages has been less obvious
than factory closings or the disappearance of entire industries,
trade's effect on wages has been even more significant and widespread.
Despite enormous productivity gains and a steady growth in the gross
domestic product, the wages and benefits of nonsupervisory workers--80%
of the workforce--have been essentially stagnant for the last quarter
century. What makes this especially troubling is the fact that, in the
past 25 years, the economy has expanded steadily and a better-educated
workforce has become far more productive but without sharing in the
Nation's economic growth. From 1980 to 2005, productivity in the U.S.
economy grew 71%, while the real compensation of nonsupervisory workers
grew only 4%. The gap in the tradable manufacturing sector is even
greater: productivity rose 131%, while compensation of nonsupervisors
grew only 7%. Real median hourly wages for male workers were lower in
2005 than they were in 1973.
This enormous and still-growing gap between the growth in
productivity and that of median (or production worker) compensation
baffles many economists, but the contribution of trade and
globalization to this stagnation is straightforward and predicted by
mainstream economic theory. There are many ways in which globalization
has created downward pressure on U.S. wages:
First, the loss of manufacturing jobs to imports leads to
wage losses for the displaced workers, many of whom never regain their
former wage levels, even when they find reemployment.
Second, growing world production capacity lowers the
price for traded goods, and because pay is tied to the value of the
goods produced, the pay of workers competing to make those goods is
reduced.
Third, the threat of direct foreign competition is used
by employers to resist wage increases or to bargain for concessions
from their employees.
Fourth, the flow of investment in plant and equipment and
technology overseas raises foreign productivity in sectors that used to
be U.S. export strengths, resulting in declining terms of trade and
hence declining real income growth.
Fifth, as trade drives workers out of manufacturing into
lower-paying service jobs, the new supply of workers competing for
service jobs lowers the wages of similarly skilled service workers.
The cumulative downward pressure on wages and benefits is the most
significant economic impact of increased trade on America's families.
Neither the Costs Nor the Benefits of Globalization Are Being Widely
Shared
In answer to your second question about whether the effects of
trade are being fairly shared, the answer again is clearly, no. That
trade will make the distribution of income worse is embedded in
fundamental economic logic. When American workers are thrown into
competition with production originating from low-wage nations, both
those workers employed directly in import-competing sectors and all
workers economy-wide who have similar skills and credentials will have
their wages squeezed. In fact, at the same time as trade flows with
low-wage nations have increased, the distribution of income and wealth
in the U.S. has grown more and more unequal. Between 1979 and 2004, the
richest fifth of American households saw their share of pre-tax income
rise by 8 percentage points (from 46% to 54%). The other 80% of
American households saw their income shares decline. At the very top of
the income scale, the changes are even more dramatic: The richest 1%
alone saw their income share rise by 7 percentage points (from 9% to
16%) over this same period, meaning that even the income gain of the
richest 20% was actually skewed overwhelmingly toward the very richest
of the rich.
While it is hard to quantify the precise contribution of trade to
this huge and growing inequality, a large number of studies in the
early 1990s made an attempt. The resulting estimates are spread widely
but most indicated that trade could account for 10% to 30% of the total
rise in inequality between (roughly) 1979 and 1995. The commonly made
observation that ``most'' of the rise in inequality was generated by
factors other than trade is often emphasized to allay anxieties about
globalization. This is true but not very comforting: 10-30% of a very
large number is still a large number. As my colleague Josh Bivens puts
it, if I threw myself into a chasm that was only a fifth as deep as the
Grand Canyon, I would still be dead.
Framed either in terms of dollars per household or scaled against
other economic benchmarks that loom large in the public debate, the
results are less comforting. If, for example, trade caused 10-30% of
the 25-percentage-point change in the ratio of median-to-average wages
over the last 25 years, this translates into wages for the median
worker that are 2.2% to 6.6% lower relative to a counterfactual of no
increase in trade. Given data on hours worked and wages, this
translates into a reduction in annual earnings of $1,000 to $3,000 for
the median household by 2005.
The volume of U.S. trade conducted with lower-wage trading partners
is the key to assessing how much trade impedes U.S. wage growth. Since
1995, trade with lower-wage countries has more than doubled--scaled
against total GDP--implying that the effect of trade on wages may be
twice as large as what the earlier literature estimated. In short,
trade has likely cost the median household between $2,000 and $6,000 in
annual earnings by 2005. Note that $2,000 is roughly the amount of the
average annual Federal income tax paid by households in the middle of
income distribution.
To be clear, increased trade does bring benefits, most obviously in
terms of reduced prices for traded goods. Two things need to be noted,
however. First, the costs described above to American workers are net
of any benefits accruing to these workers from lower-priced imports.
Second, the scale of these benefits are routinely overestimated, often
by a lot. As an example, EPI economist Josh Bivens has examined a
literature review published by the Institute for International
Economics (IIE) that was cited in a recent paper by the Hamilton
Project. This IIE review estimated that the benefits to the U.S.
economy of trade liberalization stood between $800 billion to $1.5
trillion in 2004 (roughly 8% of total U.S. GDP). Bivens points out that
this estimate is larger by an order of magnitude than what is predicted
by standard trade models. The studies reviewed by IIE, and which
provide the foundation for the enormous figure they cite, are generally
high-quality. It should be noted, however, that these various studies
identify numerous different channels through which trade could
conceivably boost incomes, some contradictory, and not a single one of
these argues for a figure anywhere close to the interpretation in IIE's
literature review. In fact, one of the studies most heavily cited by
IIE actually finds that trade liberalization has added absolutely
nothing in benefits to the U.S. economy since 1982, making the IIE
conclusion even more puzzling.
If nonsupervisory workers (80% of the labor force) had benefited
from globalization, their real wages should have increased over the
past three decades. Wage suppression should have been offset by lower
prices paid for the goods bought by workers. But real wages of these
workers have stagnated, as we have seen. Despite what you hear from
many economists, cheap shoes and clothes from WalMart have failed to
compensate workers for the costs of globalization (see Atkinson 2002
and Gresser 2006).
There are, of course, industries that benefit from trade, including
much of agriculture, various extractive industries, and even some
manufacturers. U.S. manufactured exports have increased rapidly since
the dollar began to fall in 2002 (8.5% per year through 2005). Exports
have grown fastest (in dollar values) in sophisticated and high-tech
manufacturing industries such as aerospace and parts, pharmaceutical
and medical products, agricultural, construction and other general
purpose machinery, and motor vehicles and parts.\1\ However,
manufactured imports were 83% larger than exports in 2002, and imports
have grown even faster than exports (12.9% per year). As a result, the
U.S. trade deficit expanded in every single major manufacturing
industry in this period. Exports would have had to grow 83% faster than
imports (23.7% per year) just to keep the manufacturing trade deficit
from growing.
---------------------------------------------------------------------------
\1\ Source: USITC ``Trade Data Web,'' http://dataweb.usitc.gov/.
---------------------------------------------------------------------------
A New Approach to Globalization
The specific changes we recommend for dealing with trade begin with
what my colleague Jeff Faux has called ``a strategic pause''--halting
negotiation and approval of trade agreements until Congress and the
President agree on a strategy to cut the trade deficit, increase U.S.
competitiveness, prevent further erosion of wages, and provide an
effective safety net for Americans. This strategic pause is critical
because the more we trade under present conditions, the larger the
current account and trade deficits grow and thus the more damage we do
to working families.
Elements of such a strategy should include:
Convening a ``Plaza II'' conference with major trading
partners, including China, to manage a gradual depreciation of the
dollar, particularly against those nations that actively manage the
value of their currency for competitive gain in the U.S. market.
Targeted investments in energy, education, and new
technologies aimed at expanding U.S. production.
Restoring the bargaining power of American workers who
have been undercut by globalization, through increasing (and indexing)
the minimum wage and undertaking labor law reform that closes the
enormous gap between workers' desires to join unions and their ability
to do so.
Enactment of universal, affordable health care and
pension reform that delivers retirement security to all Americans, not
just the wealthiest 20%.
Freezing programs that encourage importing skilled
immigrants rather than training Americans for higher skilled jobs.
Renegotiating a social contract for NAFTA, allowing for
greater aid flows to Mexico and greater policy autonomy and worker and
social protections for all three signatories.
Using U.S. influence in the International Monetary Fund,
World Bank, and other global agencies to promote interests of workers,
both in the U.S. and abroad.
Once the policies are in place to make U.S. exports and domestic
industries more competitive and to ensure that the benefits of economic
growth are broadly shared, trade deals ought to be pursued under new
rules that better protect the interests of workers both here in the
U.S. and abroad, and which promote stability in the international
financial system. Trade agreements that get ``fast track'' protection
must have:
Enforceable labor rights and environmental standards,
with the same priority status as investor rights;
No restrictions on U.S. or state governments from
favoring domestic producers in economic development policies; and
Inclusion of protections against currency manipulation.
It should go without saying that compensation programs focused only
on job losers, let alone a small subset of them, are an insufficient
response to the damage caused by current trade and globalization
policies. That damage is widespread throughout the labor force, and a
program that makes payments only to certain workers who find a job
after being displaced by imports could never be adequate, even if it
were a supplement to current programs such as TAA and were carefully
structured to avoid encouraging workers to take jobs beneath their
level of skill and experience.
The measure of our Nation's trade policies, and for all of our
economic policies, must be whether they improve the standard of living
of the vast majority of Americans who work for a living. Our current
policies have failed that test. It's past time for a change.
References
Gresser, Edward. 2002. ``Toughest on the Poor: Tariffs, Taxes and
the Single Mom.'' Progressive Policy Institute; PPI Policy Report,
Sept. 10.
Griswold, Daniel T. 2006. ``Damaging Taxes on Trade,'' The Washingto
n Post. Oct. 5.
Chairman RANGEL. Thank you. I am new at this job, and I am
76 years old. So, all this business about pausing and stopping
and waiting and--if you were my lawyer, I would ask, can you
put this on fast forward? I don't think too many people would
see you as the skunk at a picnic. You are just a--we wish you
weren't there.
I think that the panel is saying in some form what you have
said. So, we can't wait. If we don't give trade promotion
authority, we have to have a good reason for not giving it. I
am depending on a lot of you on this panel to share with the
Administration that this is a positive first step, or as Gene
Sperling said, we want to get out of divorce court into a
reconciliation.
If it doesn't work, all it means is that we tried. I am
convinced that Mr. McCrery and I are reading from the same
page, even though we have different philosophical beliefs. At
the end of the day, we don't believe that trade and
globalization is in our hands. We believe that we have a
responsibility to do the best we can to form a policy that we
can better agree on because as long as we are in divorce court,
there are no winners in this thing.
So, I hope that each of you might take the time out after
hearing each other to send a paper to us to see whether it
would warrant regrouping and asking you to use your good
offices as you talk with people at the Roundtable, at the
Chamber, in the Administration, to let them know that it is
embarrassing that we are lauded for just talking to each other.
That is how bad it has been.
I agree with you it is a good first step, and I yield to
the Ranking Member.
Mr. MCCRERY. Thank you, Mr. Chairman. In fact, Mr.
Chairman, I would say that this hearing today signifies that we
are now officially out of divorce court and have moved into
counseling. I welcome that.
The problems that our country faces because of
globalization are real. We shouldn't deny that on either side
of the political line. We should come together to try to find
ways to address that and make it better.
The question, though, one question, is: What do we do with
trade in the meantime? Dr. Mishel, you have suggested a pause.
Mr. Sperling talked a little bit about a pause. I don't think
his pause was on the same level as your pause, Dr. Mishel.
Let me just ask you a couple questions about where we would
go during that pause because you seem to indicate that trade
and getting goods into this country that are less expensive to
the consumer are--that is not a good thing; that somehow we
need to protect American jobs.
I am just wondering if that is your point, and if so, how
would you do that? Would you erect higher tariffs on imports to
ensure that we can continue manufacturing those items here in
the United States? Or would you construct non-tariff barriers
that would simply keep out imports?
Dr. MISHEL. Well, thank you very much for the question. I
am not for either one of those solutions. I am not saying that
it is not a benefit to have imports. I am saying we have a
trade deficit which is extraordinarily large. We haven't even
dealt with the vulnerabilities of the macro-economy to that
circumstance.
I am talking about the fact that in the current global
trading system, there is nothing that keeps--we have broad
access to technologies and imports from around the world. It is
not--to me, it is not a big problem in this country to have
further liberalization or further access to trade. We are the
most open economy the world knows. So, we have ready access to
that.
The question is----
Mr. MCCRERY. You are not suggesting that we change that
posture?
Dr. MISHEL. I am saying that we have gone down a road. We
are now vulnerable because we have an incredible trade deficit,
current account deficit; that we have an American people that
are ailing in their economics, in their basic family budgets;
that we need to think about what do we do to address their
basic needs before we think about further trade globalization.
The American people don't need that, and people who want to do
that----
Mr. MCCRERY. If, Dr. Mishel--let me just interrupt.
Dr. MISHEL. Wait, wait.
Mr. MCCRERY. No. It is my time. Let me just interrupt
because I want to get to the point here.
If our very open market here--you don't want to close that.
You don't want to change that. Then let's try to boil down the
focus to trade here, not currency exchange rates and all that
stuff that might affect the macro-situation, which I agree with
you we need to address.
With respect to trade, the narrow focus of trade, if we
have the most open economy for trade, then it seems to me that
these bilateral or multilateral trade agreements that we are
entering into don't do us much damage, and in fact tend to
equalize or level the playing field because in most part, we
are taking down tariff rates and non-tariff barriers in other
countries so our manufacturers, our service providers, can
compete in those other countries.
Is that not the case?
Dr. MISHEL. It is just hard for me to see that in order to
generate the growth that I think good economic policy needs to
generate for the typical American, that pursuing things like
CAFTA has much to do with that, that pursuing many of these
trade deals has much to do with bettering the lives of the
typical working family in this country. I think it is----
Mr. MCCRERY. Okay. If you come up with something, let us
know, on the trade front particularly, that we could improve.
Let's get to----
Dr. MISHEL. Can I just respond to one thing you said?
Mr. MCCRERY. No. Let me--because I am about to run out and
I don't want to go past my time. I want to give everybody a
chance. I just ran out of my time.
Chairman RANGEL. Go right ahead.
Mr. MCCRERY. Mr. Meier, you said--and I think Dr. Mishel
agreed a little bit--that trade adjustment assistance is not
the answer. So, I would be interested in hearing from you, not
today but maybe if you want to get us something in writing.
What do you think the answer is to help workers who lose
their jobs because of globalization?
Mr. MEIER. One thing----
Mr. MCCRERY. Chairman Rangel and I have been talking about,
and I have been talking with the Administration about, changing
trade adjustment assistance to globalization adjustment
assistance so we cast a wider net. It is not directly related
to trade, but we try to help workers generally in our economy
who are dislocated because of globalization, whether it is
trade or not.
So, if that is not the answer, then we can stop those
efforts. Don't--because I have run out of time. Mr. Sperling, I
would be interested in your thoughts on that as well because
you seemed to indicate that you thought we should broaden that
net of assistance to workers. So, that would be great if you
could help us out with that.
I have a lot of other interesting questions, but I will
pass. Thank you, Mr. Chairman.
Chairman RANGEL. Thank you.
Before I recognize Mr. Levin, who is the Subcommittee
Chairman, I seriously hope since all of you have a large
degree--there is a threat even for the doctor who called
himself a skunk--all of you are reading from the same page.
I submit you almost owe it to your country to help us to
keep this thing together by coming up with something that
business says, hey, it wasn't on my immediate agenda, but it
makes a lot of sense.
After you do that, we then would like to meet without the
mikes, and sit and talk and see whether we can give the
Administration an offer they can't refuse in a bipartisan way.
Mr. Levin.
Mr. LEVIN. Thank you, Mr. Chairman. You and I and Mr.
McCrery and others, Mr. Herger, joined in this that the best
way to try to restore bipartisanship that is eroded is--maybe
it is ironical--taking the lid off our differences, bringing
them to the surface. This is the first step in that.
My own view is that what we need to do is not in a sense
pause, but really the opposite. That is to try to actively
straighten out our trade policies and our trade programs, and
do it right away. That relates to Peru, Colombia, Panama. My
own judgment is it means to renegotiate certain provisions,
which is doable within the TPA time.
I want to concentrate, if I might, Mr. McGraw, on you
because in a sense, your testimony comes across as kind of a
passive approach to trade. Kind of let it roll and maybe have
some kind of a Free Trade Agreement (FTA).
Let me ask you about Korea. Korea has immense barriers
against U.S. industrial products, automotive and otherwise. We
are negotiating a Korea FTA. Should we insist in those
negotiations that they tear down those walls? If you could give
me kind of a quick answer because I want to----
Mr. MCGRAW. Yes. The first thing is I am sorry if it came
across as passive. There is nothing more passionate on my
agenda than the globalization in trade and getting it right.
On the Korean free trade agreement, absolutely. One of the
things that opening up a new market--and the whole purpose of a
trade agreement--is to bring down walls and make it more
competitive for both partners. There has to be a relationship
in that part.
So, I do think that with Korea, we do have an opportunity
to be able to explain very clearly why--in terms of
manufactured goods, why it is very important to have serious--
--
Mr. LEVIN. Okay. Good. We are going to count on the
Roundtable because we are having discussions with the
Administration about having that as a major premise, and some
measurement. Let me go on. I didn't say you weren't passionate.
I said it was kind of passive. Let me pick out a few examples.
You say, ``With the changes in the global economy, the
simple trade remedy paradigm of a domestic industry trying to
protect itself from unfair trade imports with no other
ramifications on the large company is rarer and rarer.''
Using an example--I don't want to take that example. Just
to--it comes across as saying, when it comes to unfair trade
imports, we should not be--industries that are affected by them
should not have an activist, aggressive effort. Is that what
you mean?
Mr. MCGRAW. No. I think that the whole comment when you are
starting to talk about the benefits of imports is focusing once
again on having very clear rules and enforcing those rules.
So, no, I don't think in any way that would be laissez
faire in any sense.
Mr. LEVIN. Okay. Good. Now let me read another. ``The
economic worries of the '80s--the idea that Japan was replacing
the United States as the world's technological leader, the loss
of U.S. manufacturing jobs, the growing U.S. trade deficit, and
the surge of foreign investment in the United States--sparked
numerous proposals to limit imports and investment. The debate
today echoes many of the grim productions that were voiced
then.''
Now, look. We have had a--I don't know if that accurately
describes the '80s. I was somewhat involved. Look, we have had
a tremendous loss of U.S. manufacturing jobs. True?
Mr. MCGRAW. True.
Mr. LEVIN. So, in that sense, if there is a worry of the
'80s, it is a worry of 2007. Right?
Mr. MCGRAW. It is.
Mr. LEVIN. Okay. The growing U.S. trade deficit, we were
worried about that in the '80s. It is multiple times that
today. Right?
Mr. MCGRAW. Right. Eighty-five percent of our trade deficit
comes from countries where we don't have trade agreements.
Mr. LEVIN. Well, we have a trade agreement through the WTO
with China, with Japan. We have obligations of China that were
negotiated in Permanent Normal Trade Relations. That is a
trade--a multilateral agreement is a trade agreement. Right?
Mr. MCGRAW. Well, that was for accession to WTO. That is
correct. That makes it binding in terms of WTO rules. Right.
Mr. LEVIN. So, we should actively enforce those provisions.
Mr. MCGRAW. Well, the WTO should actively enforce the
accession agreement.
Mr. LEVIN. No. We are the ones who have to file the
complaint. Right?
Mr. MCGRAW. Correct.
Mr. LEVIN. Okay. My time is up. I just--and I wanted to
quote one other thing, about the lesson of Japan. You say,
``When Japan went into a recession more than a decade ago from
which it is only beginning to emerge,'' that when they build
``walls to protect your own companies and workers, in the long
run you end up hurting them.''
I think you would have to acknowledge that in the short
run, Japan's industrial policies had some advantages in terms
of their development, did it not?
Mr. MCGRAW. Any blanket statement has its implications.
Closing borders and going protectionist and any kind of
isolationist move is only going to hurt businesses. Japan is a
good example. India is another.
Mr. LEVIN. In the long run. I am not talking about
isolationism or protectionism. I am talking about government
policies. I thank you.
Chairman RANGEL. Let me notice for the Committee that our
dear friend and colleague, Mr. McDermott, lost his 97-year-old
mother over the weekend. We pray for him.
I would like to recognize Mr. Herger, the Ranking Member of
the Trade Subcommittee.
Mr. HERGER. Thank you, Mr. Chairman.
The topic of trade and globalization is critically
important to our Nation. It is appropriate that we devote a
hearing to it, especially given the Members' interest in trade
during our earlier hearings we held last week.
In the testimony today, there was a great deal said about
the growth opportunities from trade. In particular, some of you
mentioned that many well-paying jobs are created in export-
oriented industries.
As you know, in California we have an enormous export
sector that supports a vibrant economy. All the sector employs
more than 730,000 individuals and ships $117 billion in
manufactured goods in the world. My own district is one of the
richest agricultural areas in the country, and depends on
exports of high-quality products.
At the same time, we need to focus on the value of imports
in the trade debate. Often the fact that we import is heavily
criticized. However, imports are a positive force in our
economy, allowing our manufacturers access to less expensive
inputs, driving down costs for us as consumers, and keeping
inflation in check. To me, this means that we must maintain a
balance in our trade policy that allows us to import as well as
export.
Mr. McGraw, would you mind commenting or would you like to
comment on that?
Mr. MCGRAW. I think you are absolutely right. The benefits
of exporting and the benefits of importing are very clear. It
makes us more competitive. It allows us to gain different
advantages and therefore new jobs in our marketplace.
We talked about 15 million American jobs are associated
with exporting. On the import side, once again, the benefits to
our competitiveness is quite strong.
I think the issue that we face in terms of American
competitiveness is the fact that the pool for low-skilled work
in the United States a couple decades ago was very defined.
Therefore, we could pay higher wages for some of that work.
What we have seen with the globalization initiative is that
the pool for that low-skilled work has multiplied, and
therefore it has put downward pressure on some of those wages,
and therefore has created some of the inequality that we have
seen.
The domestic policy side to support the rise of those
imports has to be focused on domestic policy issues that make
our workforce more competitive. That is simply in terms of
education reforms in technology, computing, math, science, and
those kinds of initiatives, as well as one of the comments that
was made here about cost pressures like health care where we
spend $4,900 per person compared to $2,800 per person in
Germany, $2,100 in Japan.
So, again, it makes us more competitive but it forces us to
rethink some of our domestic policies to combat that
competitive threat.
Mr. HERGER. Thank you. Mr. Aldonas, do you have any
comments?
Mr. ALDONAS. Thank you, Mr. Herger. Yes, imports get a bad
rap. We export so we can import. The goal really is to move in
a direction where we are producing what we do best. It is like
the old line about Michael Jordan doesn't mow his own lawn. He
focused on playing basketball. He got somebody else to mow the
lawn as a practical matter.
That is what trade really is about. It is about that
specialization, and we need the imports to do it. I am reminded
of Ricardo's example, his famous one, where he said England
should specialize in cloth, Portugal should specialize in wine,
and they should trade. Oftentimes when I hear the debate about
trade, I think people got it wrong. They are telling the
Portuguese to produce wine and go naked. Right? Export but
don't import.
In fact, we want the benefits of the imports in the system.
What we really need to focus on, though, is that there are
tools that we have to provide to our workers in this economy.
Most of those tools don't lie in the trade area. It is our
adjustment policy. It is education. It is what we do with tax
policy. That is what we have.
We are now facing a demographic challenge where we need
every worker to be productive. We are going to have more
retirees, fewer workers. The challenge for us to raise our
standard of living, we need everybody as a part of that
process.
That is why I applaud the focus of the hearing because we
need to be pulling everybody along if we are going to continue
to raise our standard of living. Imports help by lowering the
cost of accomplishing that task.
Mr. HERGER. I thank both of you. I thank each of you for
your comments. I think what you concluded with is exactly right
on target, Mr. Aldonas.
Again, I want to thank Chairman Rangel for this hearing and
the fact that if nothing else, hopefully we are beginning to
have a dialog between these forces that have been at
loggerheads that really should be going hand-in-hand to help
each other and help our economy and help our workers and those
who are hurting in this.
There is many that are gaining, many that are prospering.
Together we can do it. Thank you, Mr. Chairman.
Chairman RANGEL. Thank you.
Mr. Aldonas, we also during this period have to find out
what language means. When you say it is not in the trade area,
it emphasizes that our U.S. Trade Representative represents
business. She represents the United States of America. Now, if
she has to bring on the Secretary of Education and the
Secretary of Commerce, whatever it is that is good for America,
then that is what she represents. We can agree on that
language.
Mr. ALDONAS. Couldn't agree with you more.
Chairman RANGEL. Great. It is good to be Chairman. Mr.
Lewis.
Mr. LEWIS OF GEORGIA. Well, thank you very much, Mr.
Chairman.
Mr. Chairman, thank you very much for holding this hearing.
I think it is one of the best that we have had on trade in
many, many years, I know since I have been on this Committee. I
am grateful to you for calling us together for this
unbelievable hearing.
I want to thank each Member of the panel for being here. If
we listen to Mr. Meier, and I think we may be out of the
divorce court and we are moving toward mediation and
reconciliation. I was very moved by what you had to say. You
sound more like a labor leader than a business leader. I hope I
am not getting you in any trouble. If it is trouble, it is good
trouble. It is okay.
Would you like to say more, Mr. Meier, about your
testimony?
Mr. MEIER. Sure. Thank you, Congressman Lewis.
No, I am not a labor leader, but I respect the values that
they bring and I respect the rights of their people. Where my
position on globalization and trade in the United States of
America comes down, as with many things in life, moderation
versus opening the floodgates sometimes is called for and very
much in order.
During the Uruguay Round, as tariffs were modified--and I
recognize they will be--and they moved. We respected that and
we needed to adjust to it. Where I get concerned representing a
small industry, with all due respect, in reading about the Doha
Round, much notoriety about agriculture, agriculture,
agriculture. It deserves to be heard.
Our industry only employs a little over 15,000 people. My
concern at the midnight hour: Will the needs of an industry
such as ours, and others, be swept by when I hear discussions
of a Swiss formula and a rather rapid implementation of duty
elimination?
In due course we will get there. I just don't believe at
this time, with the deficits and everything else that we have
talked about in this room, that it is a hell-bent for election,
let's go in that direction--not that anyone has said that.
I do reflect back on the past negotiations and the way in
which our negotiators have found a way to, in a very, I am
sure, involved scenario look at the total interest of many and
all industries, not to the exclusion of a few smaller ones,
which I in this testimony would represent.
Mr. LEWIS OF GEORGIA. Thank you.
Mr. Sperling, I agree with you that when it comes to trade,
we need a revolution of values at home and abroad. That is
something core, core values.
Could you go into some detail and elaborate? What do you
really mean when it comes to core values in trade?
Mr. SPERLING. What I mean is that competition, economic
competition in any form, always entails some pain and upheaval.
If it was just U.S. companies competing against each other,
some win out. Some people lose jobs. Technology changes jobs.
We try to structure that in a way that we think is overall a
positive sum.
We outlawed child labor. That was not an acceptable form of
competition. Jailing workers, union leaders, is not an
acceptable form of competition for getting price advantage.
I think that the trick for us is to have those same values
when we go globally. Now, if you try to impose on Africa that
they be at the exact same stage we have, that they have a $7
minimum wage or something, that would be unfair. They are not
at that stage of development. That would not be realistic.
The basic values that are, I think, in the core ILO
standards, in our human rights standards on child labor, these
are things all countries have agreed on. So, the reason why
labor standards are important is it says that when you are
competing, yes, we cannot protect you from all the dislocations
in the global economy. There may be somebody who can do
something as well as we can for cheaper, and we can't protect
everybody against that. That is a price advantage that is part
of global competition.
If that price advantage is coming from destroying your
environment or sweatshops or child labor or from not letting
countries have decent labor laws, then that is the type of
values that are inconsistent with our values. It is a price
advantage by exploiting people in ways we are against.
So, what labor standards say is that when we are opening
trade, we are not putting our values on the sideline when we
are expanding trade in that----
Mr. LEWIS OF GEORGIA. I am going to run out of time here. I
want to try to get another question in here.
There is a perception that our trade policy is hurting
hundreds and thousands and millions of our people here at home,
and that people are falling farther and farther behind, and the
gap, the economic gap, the wage gap, is widened.
How can you destroy or remove that perception? Is trade
good in itself?
Mr. SPERLING. First of all, I think a lot of the statistics
that Larry Mishel mentioned are ones I agree with. It is not
just lower income, non-college-educated people that have not
been doing well. There has been enormous wage stagnation, and
it has happened at a time with high productivity.
So, I think when people are talking about anxiety and
difficulties for average workers in the economy, I agree with
them. I think the question is: How do you go forward? My
disagreement is that I think that the way we have to go forward
is we have to--it can't just be a trade policy.
It has to be, as I said, about first putting the type of
values we want in our trade agreements, and then having a
strong compact at home that is showing we are not only
committed to the kind of globalization adjustment that
Congressman McCrery was talking about, which I support, but
also that you really are fighting to protect the jobs you can,
to create the new jobs that you can, so that you really are
saying to American workers, I can't make China and India go
away. We can't make all the difficulties involved in global
competition go away.
We are waking up every day to make sure you have universal
health care. We are waking up to make sure that the Tax Code
doesn't discourage job location here, that we are investing in
innovation and resources. If I can say, when you say, is trade
good in and of itself, no. I think it does depend. That is what
I was saying. If trade is based on price competitiveness by
people using child labor or things offensive, then I would say
no, that is not good.
I do want to make one point. We have talked just about
economics here. Congressman McCrery, I am not for a pause of
any kind. What I was for was case-by-case, like you do in any
policy, as Dan said. In any policy you look at the pros and
cons.
I felt on CAFTA that that didn't step forward enough on our
labor standards. I didn't feel it was so important that we had
to vote yes, even though I think it would have helped our
relations. On China to WTO, I just could not be more offended
by some of their labor practices. They are offensive. We should
be pressuring them.
I had to ask myself, and President Clinton had to ask
himself, will we have a safer world 30 years from now for our
kids if we bring China in or keep them out? It was a case-by-
case. In that case, the foreign policy arguments, I think, were
important.
What I just wanted to say in terms of the Doha Round is
that I think it is different because the whole world is trying
to put together an agreement. Those of us who are progressive,
who should care about having disputes resolved by the rule of
law, not military force; those of us who believe that we can
resolve things in a multilateral way, who don't like the fact
that the United States has an image these days of being more
unilateral--we should not allow ourselves to become the
scapegoat, particularly when the aspiration, whether it
succeeds or not, is to help countries like Africa and poor
people elsewhere.
So, I do think we have to look at the signals we send. I
fear if we send the signal that we are just putting everything
on pause, the signal to the rest of the world will be that
America is going alone. I just don't think at this stage in our
image in the world, that is what we should be portraying.
That is why I encourage the idea of a limited TPA for Doha
where the Administration comes through with a limited
downpayment on some of these things. They can't pass universal
health care tomorrow. They can't do everything you want.
If they could make enough of a limited effort to justify a
limited trade promotion authority, that could be the first step
in showing that we are listening to each other and we are
making steps, making some progress, perhaps slowly, but
progress together.
Mr. LEWIS OF GEORGIA. Thank you, Mr. Chairman, for being so
patient and allowing the witness to go on.
Chairman RANGEL. Mr. Camp.
Mr. CAMP. Thank you, Mr. Chairman. I also want to thank the
panel for their testimony.
Dr. Tarullo mentioned in his written statement--he sort of
outlined some of the factors of globalization--the revolution
in information technology; the rise of other economies,
particularly in Asia--and said that these trends would proceed
regardless of whether the United States ever signed another
trade agreement.
Is that something you agree with, Mr. Aldonas and Mr.
Sperling? I would like to hear your comments if you agree with
that precept.
Mr. ALDONAS. Absolutely. The fact of the matter is that
technology is changing--our economy, actually, relative to a
lot of others in the world is not as open in terms of
percentages.
What that means is we just have this huge market that is
generating competition and innovation on a daily basis. We
would see those technological changes, frankly, even if the
market wasn't open to the rest of the world, and we would
continue to have to participate, grapple with that, try and
educate our people to live in that world.
We are better off actually being in an open environment
where we can get the benefit from the world economy under those
circumstances. It is something that we are going to face.
The other point is I think we are going to see the rise of
other countries. It is inevitable. They are acquiring our
skills. They now have the chance to compete. That means we have
to put in place policies that are gearing to make sure we stay
apace.
Mr. CAMP. Thank you. Mr. Sperling, would these trends
continue whether or not we entered into another trade
agreement?
Mr. SPERLING. Well, I think that we often do underestimate
technology, both its good and its dislocative impacts. The
travel agents who have lost jobs--and many have--have lost jobs
due to the Internet, not due to international trade. The same
with ATMs and bank tellers, et cetera.
So, I do believe that technology would largely go forward.
It is the case that when we have more expanded globalization, I
think you get more of the good and probably more of the
difficulties. The good comes from the competitiveness that
happens when our companies have to compete globally and have to
face that competition and that innovation and the pressure.
They are more likely to be on the cutting edge.
Yet on the other hand, one of the issues we do see is that
it is the connection of technology and globalization that is
causing lots of dislocation regardless of the trade. It is my
experience that a lot of the anxiety in the economy right now
is kind of white collar anxiety due to outsourcing and
offshoring to India and other places.
That doesn't really have much to do with your trade
agreements. That has to do with globalization and technology.
That is to me why in terms of globalization I wouldn't even try
to determine whether a person lost their job because of
domestic technology or globalization or trade. I think it is
going to be too difficult to tell in the future.
If two families are next door to each other, they got three
kids, they are the same, they each lost their job, instead of
figuring out what was the cause of it, I think we should figure
out how we can best help them.
Mr. CAMP. Well, I think both of you have made that comment.
I would agree with delinking trade adjustment assistance, as it
is described in trade, because a lot of times that is an
artificial distinction. So, there is a lot of agreement on some
of these concepts that I have heard from the panel that I
frankly didn't expect to hear today.
Then Mr. Aldonas, you made a comment and I would like to
hear a little bit more about that, if you could elaborate on
that. If we could open our health care market to foreign
competition, that that would be something we should do. Could
you elaborate on what you meant by that?
Mr. ALDONAS. Yes. One of the ironies is when you look at
the Massachusetts proposal and the California proposal, the
mandates for health insurance, is it is focusing on the
downstream market for health insurance. It is not talking about
lowering the cost of health care in this country, and I am
skeptical that it actually will.
What we really need to do is open up the services market in
ways that would drive the cost down. At this point, what you
could do is you could provide public health clinics in this
country by relying on telemedicine that would reach a broad
spectrum of people that go without health care at this point at
a much lower cost if we were willing to think in those terms.
The reason I say it is really to be provocative. We need to
think about trade as a tool to accomplish the goals we all want
to achieve in our society. That is the way we should do it. We
should see it in that context.
Mr. CAMP. All right. Thank you very much. Thank you, Mr.
Chairman.
Chairman RANGEL. Mr. Neal.
Mr. NEAL. Thank you very much, Mr. Chairman.
Mr. McGraw, in your testimony you offered the classic
textbook analysis. There is very little to dispute based upon
what you suggested. Let me just cite an example, however, of
where the textbook really didn't work very well.
I am sure you are familiar with that mom and pop operation
called Danaher Tool. In Springfield, about 3 years ago, they
announced that they were going to close that operation.
Many people in the audience, as well as Members of the
Committee, are familiar with the Easco Hand Tool Company, which
made the Sears ratchet, arguably the best in the world. Year
after year, as a very young man, I used to go to these award
ceremonies where Easco would kind of thank but present to Sears
and others the annual award that they received by the U.S.
Chamber of Commerce based upon the best hand tool in the world.
Well, they decided, Danaher, to close that plant in
Springfield, and they said it wasn't competitive. Now, it might
raise the rhetorical question of, how could it not be
competitive? It was operating every single day of the week with
three shifts, more than 300 employees, with an average wage of
about $14 an hour and decent health care benefits. Many Vietnam
veterans and Korean veterans who had come through there.
The corresponding truth here is that they have done their
part. They have really done their part in an honorable fashion.
Now they find that through no fault of their own, that a plant
that was operating 7 days and 7 nights a week with three shifts
is going to close because it is not competitive at $14 an hour.
Where do we go from there, Mr. McGraw?
Mr. MCGRAW. Congressman, first of all, I am not as familiar
with it, but I have the gist of the analogy there. In all
markets, they are going to face change. The business has a
responsibility to its stakeholders to grow, and find ways to be
able to be efficient in being able to do that.
There are times when your efficiency is not going to be
competitive to be able to survive. Therefore, you are going to
have to be able to do things to improve upon that. The whole
question of outsourcing or the whole question of movement of
various plants to different areas, I can give you two examples,
one in Ireland and one in Dubuque, Iowa.
We had a situation in Ireland where we had created an
Information Technology (IT) order fulfillment center because we
could use our technology facilities in the States during down
periods, and it was very efficient. The Irish government was
terrific to work with in terms of the training and in terms of
the benefits that we were able to achieve in doing that.
Over a 15-year period--and it was a very difficult
decision--we had to close that plant because they just became
very, very overpriced and inefficient relative to the
competitive pressures to be able to do it elsewhere in a
different way.
In Dubuque, we had a situation where--Dubuque has been
going through a revival over, I guess, the last 12 years or so.
It has been a very economically disadvantaged city. The elders
took upon themselves to really renew and revive Dubuque, and
they did it through an initiative called the Port of Dubuque
Development Center.
In doing so, we opened the first major facility in Dubuque.
We did so not because there was Dubuque versus something else;
because of the environment, the area, what it meant to our
workers and to raise families, and because it had all of that
positive behind it.
So, change is always going to take place, and you have to
be very sensitive to all the people. Now, the comments about
trade adjustment assistance, I think that we have a lot of work
to do, and I look forward to working with the Committee on
seeing if we can strengthen the framework, first of all. I
would also say to you that a good example is what companies do
when you have displaced workers. That becomes very important.
For example, United Technologies, they move plants all the
time. What they will do to anybody displaced for any trade-
related or any globalized initiative is they will offer 4 years
of college paid by them on any subject they want. If you have a
college degree, they will pay for a graduate degree in any
subject you want. They will also have other kinds of out-
service.
We do the same thing. J.P. Morgan Chase does the same
thing. So, you have to be competitive to the markets and
competitive to where you want to be, but you also have to find
very meaningful ways to help the displaced worker.
Mr. NEAL. Just a brief followup, Mr. Chairman.
Frequently, business leaders--and understandably so--will
point to the Irish economy and they will discuss marginal tax
rates, corporate tax rates. There is also very little
corresponding emphasis given to the fact that no country in
Europe has done better with agricultural subsidies than the
economy. That is another very important issue to zero in on.
I appreciate the response that you gave about the whole
question of retraining, and I am grateful. Mr. McCrery and Mr.
Rangel have both spoken at the need to refocus attention on
that issue.
The truth is that those 300 workers, they are really not
going to move to Dubuque and they are really not going to move
to Iowa. They are going to stay where they are, and what
retraining for them has come to mean is lower wage. Thank you.
Chairman RANGEL. We will try to treat that down like
Baghdad and we get on with it.
Mr. Becerra.
Mr. BECERRA. Thank you, Mr. Chairman, and thank you to all
of you for your testimony.
Actually, before I ask a question of all of you, let me--
Mr. Aldonas said something at least in your testimony that I
thought was--I agree with, to a degree. In your statement, you
say, ``In the world of trade policy, imports get a bad rap.'' I
think you said that in response to some questions that were
asked of you.
We tend to think of exports as good and imports as bad. I
think you are right. We have this knee-jerk reaction that
unless we are doing the selling, it is not good. That doesn't
take into account what is going on all around us. Sometimes it
is better for us to buy something than try to make it ourselves
at a much higher cost.
Let me give you an analogy here. If we are in a boxing ring
and we are boxing with our trading partners because they are
our competitors, if we are following the rules that say you
can't hit below the belt but they are not, then we are going to
have a tough time winning that boxing match if they are
constantly hitting below the belt. At least I know I would have
a tough time staying up.
China today--maybe things have changed; the statistic I
have is probably a year old--in its industrial heartland pays
its industrial workers about 65 cents an hour. What is left of
our industry, our industrial heartland pays--our industry pays
workers in America today about 20, $22 an hour, which by the
way is still probably one-fourth of what everyone at that panel
makes today and probably about a fourth of what we make today.
Actually, for some of you, it is probably a lot less than a
fourth of what you get paid. So, 20, $22 an hour is still not
going to make you rich, but it lets you live and feed your
family.
Maybe China is playing by the rules in that boxing match
when it has its industrial workers earning 60 to 65 cents an
hour to produce steel or some other product, and then sends it
over here to compete against steel made by Americans who are
making 20, 22, $25 an hour. Maybe that is a really high wage
there.
If it is not, and if that wage is constrained artificially
by other things--compulsive labor, no institution to enforce
their labor laws--then that is bad trade policy, to allow those
types of imports to come into this country.
So, my question to you all now would be this: Does anyone
here believe that we should allow a country that uses extensive
child labor to send a product produced by children here to this
country to compete against products in America that would be
produced by American workers? If you do, just raise your hand.
[No response.]
Mr. BECERRA. Okay. Does anyone on this panel believe that
we should allow a foreigner to compete with American products
if that foreigner produces those goods using slave labor?
[No response.]
Mr. BECERRA. Okay. Nobody is raising their hand. Does
anyone on this panel believe that we should allow products to
come in under a free trade agreement if that foreign competitor
is discriminating against its workforce to produce its product?
Say it tells a woman, it is fine for you to sew that garment so
long as you are not pregnant; but the moment we find out you
are pregnant, you are out of here. Is it fair to have a company
or a country that allows its producers to discriminate within
its workforce trade with us?
[No response.]
Mr. BECERRA. Okay. Is it fair for us to have a trade policy
with a country that prohibits its workforce to associate and to
say, hey, we want to as workers talk to each other, see if we
could improve our living conditions with our employer? If a
country prohibits its workforce from being able to associate
freely, would that be a basis to allow that country to have a
free trade agreement with us? If you believe so, raise your
hand.
[No response.]
Mr. BECERRA. Okay. No one is raising their hand. Now, final
question: If a country had laws that prohibited or, in effect,
prevented workers from deciding to collectively bargain with
their employer if they choose to--not that they have to, but if
they choose to come together and say, hey, we want to negotiate
our wages with you based on all of us here at your company, not
just individually; if a country prevented a workforce from
being able to collectively bargain, should we have a trade
agreement with that country? If you believe we should, raise
your hand.
[No response.]
Mr. BECERRA. Okay. I saw no hands go up on the five areas
that I asked--child labor, forced labor, discrimination,
collectively bargaining, and association of workforce.
So, if you don't object to that, I am going to assume--and
this is a final question, and maybe a yes or no since my time
is now expired--should we include within any negotiated
agreement with any country that wishes to have a free trade
agreement with us a condition that says that you must abide by
those five basic standards when you talk about your workforce?
You can't discriminate, you can't use slave labor, you can't
use child labor, you must allow people to collectively bargain
if they choose to, and you must allow them to associate? Any
problem in including those five conditions in a trade
agreement?
I didn't hear a yes or no. I am going to assume if you
believe it is a no, we should not include those, if you could
just raise your hand.
[No response.]
Mr. BECERRA. Okay. Thank you.
Mr. MCGRAW. Congressman, can I make one comment?
Mr. BECERRA. Mr. Chairman, I don't know if--yes, Mr.
McGraw?
Mr. MCGRAW. We all wish that people would adhere to the
kinds of values that we possess all the time. We would like
other people's behaviors to be the most honorable. That is not
reality, and that is not the real world.
When you talk about China, China is now the third--on
purchasing power parity, the third largest country in the
world. It is somebody that we have to deal with, and we have to
make sure that we are doing everything we possibly can to
encourage better behavior.
So, trying to force China, through isolation, to change
something that we know exists isn't the answer. We have to do
more to help provide the leadership to encourage better
behavior.
Mr. BECERRA. Mr. Chairman, if I could just inquire of Mr.
McGraw.
Are you saying, Mr. McGraw, that knowing that China is not
abiding by all of these standards, that we should allow them to
continue to trade with us? Or are you saying we should try to
encourage them to change their behavior?
Mr. MCGRAW. We want to try and encourage better behavior.
Mr. BECERRA. Okay. So, are you saying you would like to be
in the boxing ring with China allowed to hit below the belt
against America?
Mr. MCGRAW. Well, the issue, Congressman, is we are in the
ring with China.
Chairman RANGEL. Mr. Johnson.
Mr. JOHNSON. Thank you, Mr. Chairman. I appreciate this
hearing.
I would like to, Mr. McGraw, ask you: We know our services
account for over 80 percent of the U.S. economy. Of course, the
United States has a services surplus with the world because of
our highly competitive firms. People fear that foreign firms
can out-compete us there as well, and high-paying service jobs
will leave the United States.
It seems to me that this fear is unjustified if we continue
to produce more educated and trained workers to maintain our
edge. I would like to know if you think we are truly at the
mercy of countries with lower-paid workers, or is our destiny
in our own hands in creating the best educated workforce to
operate competitive firms in a business-friendly environment?
Does this need to be part of our trade relations?
Mr. MCGRAW. Yes, I do. I do believe that, Congressman. I
think that the comment about the U.S. information technology
industry is a good one. We do have and enjoy some of the most
wonderful skilled capabilities, and we can demonstrate that
around the world.
That doesn't make us the only one. We are having that kind
of competition elsewhere. I come back to the domestic policy
side again. We have in this country, from an education
standpoint, lost a lot of our technical skills. We have not
pushed for a lot of the science, engineering, applied
mathematics capabilities. Therefore, India today has more
engineers than ourselves by far.
One of the problems that we have is that, one, we have to
promote better practice so that we do have those technical
skills. If you flip the switch right now, it is going to take
15, 20 years to get back to that level of capability that we
once enjoyed that helped give us the technology and helped give
us the productivity gains that we enjoy.
We need to do things like H-1B visas. We have to double,
triple that capability. We need to encourage that technical
assistance to be here such that we can then be able to again
maintain that kind of competitiveness.
So, I think there is a lot of domestic issues that we need
to do to support that continued strength that we have there,
but we are not----
Mr. JOHNSON. Those H-1B visas, though, bring foreign guys
in here and we train, some of them----
Mr. MCGRAW. Hopefully they stay.
Mr. JOHNSON [continuing]. And they go back home.
Mr. MCGRAW. Some will. Hopefully some will stay and work.
There are more Chinese students, talented Chinese students, in
the U.K. today than there are in the United States.
Mr. JOHNSON. Well, what does that portend?
Mr. MCGRAW. Well, I think that to your comment about
leadership in the IT field in particular, I think what you are
going to see is more and more IT firms going offshore and
developing those kinds of plants and capabilities because they
are going to have more access to the skilled talent.
Mr. JOHNSON. So, Microsoft can do it right next time
instead of taking 5 years?
Mr. MCGRAW. Around the world.
Mr. JOHNSON. I would like to pose a question to anybody
that wants to answer it. If we have a situation in which U.S.
tariffs are practically zero and where one of our trading
partners has tariffs of 12 percent or higher, aren't we better
off signing a trade agreement that makes the trading partner
lower its tariffs? Isn't that precisely the situation we had in
the CAFTA debate, in which the United States provided
unilateral tariffs to CAFTA while they were able to maintain
tariffs against our products? Is that good or bad for us? Yes,
sir?
Mr. ALDONAS. It is good.
Mr. JOHNSON. It is good?
Mr. ALDONAS. Absolutely.
Mr. JOHNSON. Okay. So, you recommend getting rid of the
Africa Growth and Opportunity Act, the Caribbean Basin
Initiative, the Andean Trade Preference Act, and the
generalized system of preferences? Those provide unilateral
duty cuts.
Mr. ALDONAS. I don't, but I think we are far better off if
we engage, for example, with our trading partners in Africa in
a true trading relationship. In some respects, when we use
those preferences and they are simply exporting to us, think
about it. They are isolating themselves from a lot of the other
trends in the world.
We want them in our supply chain if they are going to
succeed in the world, but that means we have to have an open
trading relationship on both sides. So, they are actually
better served by negotiating a free trade arrangement rather
than relying simply on the preferences.
There are areas where they can facilitate their ability to
get into the global economy if in fact they are lowering the
cost to put those tools in the hands of people in Mali, for
example. One of the debates we have about trade is whether or
not we should be changing our cotton programs for the benefit
of cotton farmers in Mali.
I will tell you honestly, if all we did was change our
cotton programs, the cotton farmer in Mali would not benefit.
There is one buyer. It is a Swiss company. The middleman takes
all the economic rents. What the cotton farmer needs is a cell
phone, more information, and the ability to find another buyer.
Reducing the cost of putting a cell phone in that individual's
hand, which means trade liberalization, would actually do a lot
for bringing Mali into the supply chain that would put the
cotton in the shirt on my back.
That is the way we need to start thinking about trade, both
in terms of our interest as well as our friends in the
developing world.
Mr. JOHNSON. I appreciate that answer. Thank you.
Mr. SPERLING. I----
Mr. JOHNSON. Excuse me.
Mr. SPERLING. I am sorry.
Mr. JOHNSON. If the Chairman will allow you to answer.
Mr. SPERLING. Oh, okay.
Mr. JOHNSON. Okay. Go ahead.
Mr. SPERLING. Again, you talk about the Africa growth
initiative that Chairman Rangel I know worked very hard on, and
an extension, and many of you did.
It really--beyond the economics, and the economics are
important, and I do think it has the potential to help
alleviate poverty there if it is done right. We should
continually monitor and not assume that it is just
automatically going to be good. We should look.
Again, I think that--agree that exchange also has positive
value. I am always struck by what it meant just to people in
Africa that the United States made that engagement. It is a
meaningful--it is something meaningful. It affects how people
look at us and our concern for a world that has broad growth.
I would have liked to have also said the same thing with
CAFTA, but I guess where I would just disagree is that I do
think to the degree in reasonable ways that we can use our
leverage of being engaged in our market as an incentive to
raise core labor standards, we should--and there are countries
there that had very, very bad histories of how they treated
workers.
I would have loved to have supported that. I wish we had
just used our leverage a little bit more to have encouraged
some of those countries to do more so that I think that a lot
more people on this Committee on both sides would have felt
comfortable voting yes.
Mr. JOHNSON. Thank you, sir. Thank you, Mr. Chairman.
Chairman RANGEL. Mr. Tanner.
Mr. TANNER. Thank you. Thank you, Mr. Chairman, and I want
to thank you and Mr. McCrery. This is a breath of fresh air. It
is the first time in 6 years that I know of that we can come in
here and have an exchange of ideas as Americans trying to solve
a common problem that we face as a country rather than as a
political party.
It is really, I think, exciting to be able to have a panel
as distinguished as you all are to come in here and give us
ideas that the country so desperately needs. I want to thank
you for your patience. I will be very short.
I, as you know, believe engagement is better than non-
engagement. I think that we have a chance now to begin to
assuage, hopefully, some of the programs that have gone along
with and are attendant to a top-down approach to trade in that
we did not have the--we were not able to reach a consensus in
this Committee or in the Congress on some of the trade
agreements that we have been voting on.
I think we can get a consensus. One of the problems, one of
the sticking points to get that consensus from this Committee,
which I believe will transfer itself to the floor of the House,
is the question of enforcement.
I would welcome your--any of your ideas on how we can give
the Members of this Committee and the Members of Congress some
confidence in the enforcement mechanism so that we can in some
instances sell the product to our constituents, which after all
is something that is--trade is so easily demagogued.
I know I and others want to engage, and we think it is
better--and sometimes I do, anyway--but we need some help on
how to craft the deal where enforcement has more meaning to the
citizens that we represent than maybe it has in the past. Does
that make sense?
Dr. TARULLO. Yes, Congressman.
Mr. TANNER. I welcome any comment.
Dr. TARULLO. Congressman, you have raised an issue which
hadn't been raised to this point, which I think bears some
emphasis.
It pays people in the government more to conclude an
agreement than to enforce one. You conclude it. You get on at
least the front page of the business section, and sometimes,
depending on the agreement, the front page of the whole paper.
Then you go on to something else, and your boss goes on to
something else, and the agreement does not get monitored and
enforced.
There has been a lot of talk over the last 5 or 10 years
about a better monitoring mechanism. I don't know whether there
is a better monitoring mechanism, but it sure hasn't shown up
in the results. There was a dramatic dropoff over the last 6
years in initiation of cases in the WTO on behalf of U.S.
exporters by the United States Government. I don't understand
it. I honestly don't understand why that has happened.
In terms of going forward on enforcement, the Chairman was
asking earlier about how you craft a trade promotion authority
extension, how you craft agreement over a particular trade
agreement that comes before you. I think you are never going to
be able to put everything on paper because it is always so
forward-looking.
What we need here is a level of trust, which I think by
implication every Member of this Committee has suggested maybe
hasn't been existent over recent years, so that you are
skeptical of what is going to happen once you give authority,
and thus you are less inclined to extend it.
So, although I can't suggest a micro-managed approach for
you, Congressman, I guess if I were in your shoes, I would want
Ambassador Schwab and her deputies up here explaining their
monitoring and enforcement program to you; explaining how they
filter cases; explaining how they make strategic decisions on
what they are going to do; and making some form of commitment
to keep your staffs, both sets of staffs, apprised of how they
are moving forward.
In game theory, people say you have to go step-by-step. One
side makes a nice gesture. The other side reciprocates. Then
you can go to the next step. That is what I would suggest here.
Mr. ALDONAS. Congressman Tanner, if I could, I have been
responsible for those enforcement programs at the Commerce
Department. I have to admit I was frustrated for two reasons:
One, the relatively unwillingness and sort of the risk-averse
nature of the folks that litigate our cases to take on tough
issues, issues that really did break some china. I say that
advisedly.
The other thing is that I was frustrated by the fact that a
lot of American businesses don't come forward to present cases
because they are concerned about market access. Well, my view
has always been that is why people in the executive branch bear
the responsibility of trying to develop these cases on their
own.
That is what I was saying earlier. If you think about what
we did in the civil rights era with an awful lot of litigation,
it wasn't because there was some individual who was going to
come and present the case. It was because we had lawyers at the
Justice Department who were going to try and aggressively
prosecute certain behaviors. It was consistent with our values.
Let me give you an example which I know will break some
china. China still has a Hoku system which binds labor to
specific enterprises. That reduces the cost of that labor
because they could go elsewhere and find a higher wage. That is
a subsidy.
What I would do is challenge the Administration to say, how
are you going to take that on? Even if you lose that case in
the WTO, what you are highlighting is one of the inadequacies
of the rules. Wholly apart from negotiating labor rights, as
Mr. Becerra was talking about, I think we have the tools to act
more aggressively on these problems now, and we should do it.
It is not going to be American companies that are going to
step up to do that. That really is the responsibility of the
Administration.
Mr. SPERLING. Just one fact to support what Dan Tarullo had
said. In the 6 years between 1995 and 2000, the Administration
at that time brought 65 cases, an average of 11 per year. Since
2001, there have been only six cases brought, less than an
average of three a year.
Part of the response to Congressman Becerra, I think, in
terms of China was that one of the good things about maybe
sometimes even having someone part of--whether we have a free
trade agreement with them, having them part of the WTO, is that
it does allow you to try to go after their poor practices, not
in an ad hoc way but through a legal process.
I think one of the things that was too bad, I thought, was
the American Federation of Labor-Congress of Industrial
Organizations (AFL-CIO) brought a 301 case on March 16, 2004
with very compelling arguments of the labor abuses. Now, this
was the AFL-CIO trying to go through the legal process.
I understand the Administration may have felt that actually
putting sanctions on China may have been too divisive in light
of all of our other foreign policy issues, but had we just
accepted it, had they just accepted that and gone through the
investigations, I think that is the kind of pressure you need
to do to send the signals that we are not just going to sit
back and, just because we have agreed to take you in without
the kind of labor standards that we think fit our values, that
we are going to at least apply constant pressure and shine a
spotlight against those kind of abusive practices, including
the one Grant just mentioned.
Chairman RANGEL. Mr. Doggett.
Mr. DOGGETT. Thank you, Mr. Chairman. Thanks to all of our
witnesses. I think your testimony has been enlightening, and I
think the queries that we have made indicate there really is an
interest in a bipartisan agreement in developing a broader
consensus to promote trade.
Though I heard the term ``fresh air'' mentioned a number of
times, and about clearing the air, one thing as I reviewed your
written testimony earlier that I found omitted from it is any
reference to the environment. That is not surprising because
the environment has been largely omitted from any discussion in
this Committee for the last many years, and largely omitted, of
course, in any meaningful way--other than the ludicrous
provisions that were included in CAFTA and some other
provisions concerning the environment--from any trade
agreements that were presented.
Mr. Sperling, I know that in response to a question that
the Chairman asked earlier, you indicated that you think that
there could be some room for improvement on the environment in
Doha. I wondered if you might elaborate on what else might be
done in that area, in your opinion.
Mr. SPERLING. Well, first of all, one can certainly seek to
put environmental standards within the free trade agreements
that we do. The question that I had looked at is at this late
stage in Doha, what could still be done that, as I said, could
be more of a downpayment on a compact that would justify you
giving them some additional time to try to negotiate it.
I actually--I have to, I guess, protect my sources. I went
to some people internationally who were very, very
knowledgeable about the state of play. I said, is there any way
to try to bring more labor standards, which has never been done
before, into the Doha Round? They said, I know it is well
intentioned, but India, Brazil, it would just blow it up. That
would be tantamount to blowing it up.
I said, what about environmental standards? They said, that
is different. That is different. I think that if there was a
push, there could be some willingness to make some progress.
That was why I put that at the end of my testimony.
Again, I have to protect my source, but to say that it is a
very knowledgeable person internationally, and a person heavily
engaged and who wants an agreement and was willing to say they
thought this was an area that the Administration could perhaps
get some last-minute gains on.
Mr. DOGGETT. One of the areas that I have offered
amendments in a couple of the recent trade agreements that this
Committee has considered is in the area of multilateral
environmental agreements, and specifically the convention on
trade and endangered species.
Do those offer potential not only with reference to Doha
but with reference to future trade agreements? Those would be
agreements that the countries have already really signed onto
and said they wanted to enforce, like the convention on trade
and endangered species.
Dr. TARULLO. Congressman, you have identified a lingering
problem, not just with the environment but with some other
areas as well, where there are multilateral agreements that
allow in some cases for restrictive activities by countries in
order to enforce the terms of those agreements, which might be
argued to be contraventions of a WTO obligation.
I think there has been a consensus--at least among
academics, which is maybe why nothing has happened--but a
consensus among academics for some time now that we need to
clear that up. We need to acknowledge that the WTO should not
even be considering sanctioning countries for taking action
which is not only approved of, but in some cases required,
under a multilateral environmental agreement.
That kind of discrete issue, I think, is probably the sort
of thing that Gene has in mind in talking about something that
can be done without disrupting what we hope are the end stages
of the negotiations.
Mr. ALDONAS. Congressman, if I could add, I think that is
absolutely right. Frankly, it is also true of an agreement on
slave labor. You might be surprised to know that there is a
labor exception inside the WTO. Labor is already there. It
happens to be prison labor, and it is driven by competitive
issues rather than values.
I have always puzzled over why we don't have a simple
exception inside the WTO for blocking goods that are made with
slave labor. That doesn't seem like a stretch in the kind of
civilized society we want to see in the world. That is where I
do think, whether it is that or on the environment, where we
have reached that kind of multilateral agreement. We should be
able to move forward.
I would say one other thing. I also think--and this is a
very sensitive topic tradewise--we have rules, negotiations
that are very sensitive because people are worried about making
changes in the dumping laws, the countervailing duty laws,
things that we would use.
Those negotiations hold the greatest hope to actually
accomplish some good on the environment--eliminating fish
subsidies, eliminating the over-forestation. All of that
relates to subsidies that we can address inside the system. It
comes home to roost in a very difficult area of the
negotiations.
Mr. DOGGETT. Well, I am all for addressing them there. I
think there are concerns as to whether that is sufficient to
address either what Congressman Becerra referred to or what I
am referring to in the environment. Particularly that is a
concern in Peru and Colombia with logging, the amount of
illegal logging that is going on.
A number of us have expressed our concern about Ambassador
Schwab, as we have our strong feeling that considering
multilateral environmental agreements needs to be an important
aspect of new trade agreements and really ought to be
considered in renegotiation of some of the agreements that we
have out there now.
With climate change finally being recognized 7 years late
by President Bush, we need to be aware that the destruction of
some natural resources that could occur through and be
encouraged by increased trade is counterproductive.
I believe, Dr. Mishel, that your paper that you had
attached did make reference to environmental standards that we
often hear talk about labor and environmental standards. It is
not surprising that most of the emphasis gets on labor because
there are so many people that have been impacted and continue
to be impacted. I think it is very important that we include
the environmental side in this discussion as well.
Thank you, Mr. Chairman.
Chairman RANGEL. Mr. English.
Mr. ENGLISH. Thank you, Mr. Chairman, and thank you very
much for sponsoring this excellent and very balanced
discussion.
Mr. Sperling, I appreciate your coming back before the
Committee. As always, you have given eloquent testimony, so
eloquent that I am almost persuaded to believe that the Clinton
Administration would have affirmatively accepted the AFL-CIO's
complaint against China. I can't quite bring myself to that
point, but certainly I believe you are sincere in raising the
point.
On the question of core labor standards, Mr. Sperling, I
think you have raised a very important point because I think
there clearly has to be an interaction between our trade
agreements and insisting on some sort of common standard. You
reference, of course, the ILO.
I note that the United States is not a signatory to all of
the ILO core labor standards. I wonder if that is going to be--
with your interest in multilateralism, which I support to some
degree, is the ILO going to be the source of these standards?
If so, should we be held to being sanctioned if we don't meet
all of the ILO standards ourselves? What would be your comment?
Mr. SPERLING. Well, when we, for example, were pushing for
the Section 182, which was the ILO standard that we did agree
to on the most abusive forms of child labor, we did have to
look at some of our own laws. Some of them were touchy, I have
to say, because some of them had to deal with fairly young
people working in agriculture situations.
I do think that when you are part of this, you have to at
least look at your own situation as well. Yes, one of the
problems, of course, you always have when you are pushing
another country on their labor standards is they come back to
you and start saying, not everything is so terrific in your
country as well.
Mr. ENGLISH. Sure. So, should they be able to sanction us
if, for example, we don't allow management employees to
automatically join a union? Should we be sanctionable if, for
example, we don't allow a right to strike to some public
employees?
Mr. SPERLING. I would not know which would be at the level
of sanctions. I do think that when you are agreeing to global
standards, when you are signing an agreement, when you are part
of the WTO, you obviously have to live by those rules.
My guess is that we in the United States do not have things
that would be at the level of being sanctioned. I do think
that--what I do want to say about labor standards is sometimes
I think we want them to be enforced so much, and we want to
make sure that there are not--intellectual property is treated
as a first-class issue, and labor standards is treated as a
second-class issue----
Mr. ENGLISH. Sure.
Mr. SPERLING [continuing]. That the message we give is that
we want to be somehow punitive to developing countries instead
of, I think, trying to have that as a backdrop but then figure
out the ways that we can work together.
Mr. ENGLISH. I accept your point on messaging. I guess my
point is that when you get into the details and potentially
unintended consequences, it is far more complicated than the
rhetoric suggests.
Now, Mr. Aldonas, I am very grateful to you for your
testimony, and also for the fact that as Under Secretary, you
were part of the Organization for Economic Cooperation and
Development (OECD) negotiations. As past Chairman of the steel
caucus, I want to thank you for your efforts, albeit not
successful, in bringing the parties to the table to try to come
up with a way of rationalizing our overcapacity in steel
globally.
Since the OECD negotiation broke down, China has
dramatically, and on a scale we have never seen in the history
of the world, increased their capacity to produce steel.
One, does this cause you concern?
Two, recognizing your criticism, which I don't fully share,
of this Administration's attempts to provide a steel policy, do
you see this as a basis for future problems that we should be
anticipating today?
Finally, what does this say, given Mr. McGraw's testimony,
somewhat critical of our domestic trade remedy laws--what does
this say about the need for us to consider strengthening our
domestic trade remedy laws and updating them to recognize the
new global realities? Mr. Aldonas.
Mr. ALDONAS. I do think we actually have to take a look at
the remedies and update them to live with the new global
realities. I think that also means we have to be concerned
about the knock-on effects.
To your basic point, Congressman, I think you are
absolutely right about what is going on in China. In terms of
the steel capacity, there are two fundamental things. One is
you can get a loan that you don't have to repay from a State-
owned bank to finance the addition of capacity. You can get
more subsidies at the provincial level to keep that in place.
The guys who installed the old capacity don't have to repay
their loan, they can keep that old capacity in place. Even
though it is environmentally unsound, it adds capacity.
We don't need much of a downturn in the Chinese economy for
all that steel to slip into the world economy. I think that we
need to do--rather than waiting for that moment, we need to be
aggressive with the tools that we have inside the WTO,
particularly the subsidies agreement, to underscore for the
Chinese that these distortions are going to create problems for
us.
I would rather see us act aggressively now on that front
than wait until our industry suffers, frankly. I also think it
is healthier to even be using the trade rules that we have,
whether it is countervailing duties or anti-dumping, as a way
of trying to attack problems and solve them.
It is a little bit like using the anti-dumping agreement in
cement to try and encourage an agreement that would clean up a
lot of unfair trade practices rather than simply leaving it in
place. That is the sort of flexibility that I wish we had under
the dumping laws, to try and encourage changes in behavior
rather than simply leaving the duties in place.
Those are the kind of updates we need to be thinking about
as we go forward. The issue of steel in China, I am just
waiting to see what is going to happen because frankly, they
are adding more capacity than we have capacity in this country.
It is going to happen.
Mr. ENGLISH. We are all waiting, Mr. Aldonas. I thank you,
Mr. Chairman.
Chairman RANGEL. Ms. Tubbs Jones.
Ms. TUBBS JONES. Mr. Chairman, thank you very much, and
thank you for your leadership in giving us an opportunity to
have a hearing such as this.
Most everybody knows I come from Ohio, and in Ohio we had
significant job loss between 2000 and 2005, in the city of
Cleveland alone, about 60,000 jobs. In one of my cities within
my congressional district, I currently have a 13.6 unemployment
rate. That 4 percent national stuff, I don't know where that
came from.
What I want to focus in on, and I don't know because I was
out of the room earlier, if anybody has talked about trade
adjustment assistance and how do we in the course of our
discussion about trade see that people in Ohio, other than the
people who have companies that are involved in export
business--but the people working on the street don't want to
hear anything about trade because they can't seem to understand
how it is going to help them improve their lot.
I want to start with Mr. Sperling, and then anyone else who
wants to answer the question. Take me back to Ohio and tell me
what I can say to my constituents about how we make trade work
for American workers in States like Ohio.
Mr. SPERLING. I think probably the single toughest thing
for anybody is to have to talk about this kind of larger
concept when you are dealing with people who are suffering,
feeling anxiety, and most importantly, when you get a kind of
downward spiral in a community where it is very difficult,
having had plant closures, et cetera, to get the economic
activity. I think it is the single most difficult thing.
I think there are a couple things I would say. One, and I
put this out as an idea, Mr. Chairman, is that everything that
we talk about in adjustment is after you have already lost your
job. We don't give many of you any ideas when you feel the
threat coming.
Perhaps we need to think more about what kind of preemptive
policies we can have so when a community is under threat, we
don't just say, well, wait until you have lost your job, or
wait until this trade agreement--trade enforcement happens, and
then maybe we will have some assistance afterward.
Perhaps we have to find ways of providing more assistance,
more of the kind of empowerment zone approach that Chairman
Rangel has worked on, to communities that are being--that are
on the verge of the downward spiral so that we can stop before
then.
I think that on the adjustment side--we have talked about
this some, and I think one of the good suggestions that has
been made by the two leaders here is that you need to broaden
it beyond trade so that everybody is helped.
I also think, look, there is probably not 8,000 people in
the United States of America who, if they lost a job, even know
exactly where to go or what the difference between dislocated
worker training is and NAFTA FTA and FTA. How are you going to
affect people's anxiety? People don't even know where to go.
The benefits are staggered a little.
I think we have to have a one-stop system. I think it has
to have broader help, from helping people not lose their house
to wage insurance to, most importantly, universal health
insurance. I think that would do a lot to help people, at least
in this difficult situation. That is one.
Two, as I said, more preemptive policies. Three--you know
this as well as I do--your folks don't want to hear just about
what you are going to say once they have lost a job. You need a
real active, strong strategy that shows that you are fighting
to create jobs and preserve jobs in nonprotectionist ways.
I think if you don't have that active component, I am not
sure people are going to listen to just what you are going to
do for them after they lose their job.
Ms. TUBBS JONES. Who else is anxious to help me out?
Mr. MEIER. I will.
Ms. TUBBS JONES. Mr. Meier, Ohio.
Mr. MEIER. I live in Ohio. We have those same issues.
Ms. TUBBS JONES. About 90 miles from me.
Mr. MEIER. Right. We have those same issues in northwest
Ohio.
My comments earlier relative to assistance, it is part of
the equation. It is not the entirety of the answer. Let me walk
you through a typical employee at my company.
Ms. TUBBS JONES. Okay. Now, wait a minute. I may not have
enough time to walk through a typical employee, so you want to
make it quick.
Mr. MEIER. It will take 30 seconds.
Ms. TUBBS JONES. Go ahead.
Mr. MEIER. It will take seconds.
Ms. TUBBS JONES. All right.
Mr. MEIER. Twenty years with the company, he loses his job.
What pension he thought he was building has quickly evaporated
on him. He will not immediately replace that no matter where he
goes or how he is retrained.
That is what they worry about. That is really what they are
worrying about. I think to the extent that the Committee, and
as we all interface and continue to hear each other's opinions
going forward, can be proactive in making sure that, as
Congress has in the past viewed certain industries as being
import-sensitive, and history records that, that perhaps we
identify those pockets of the country and those industries
where, as we negotiate the WTO Doha Round, our negotiators are
increasingly sensitive of what are the total aspects and
attributes to give some of these companies a chance.
I am not a proponent of no duty elimination. Duties will be
reduced. We recognize that. We can negotiate with our labor
counterparts on our business issues, but we cannot negotiate
when unilaterally things befall us.
Ms. TUBBS JONES. Mr. Meier, thank you. I am out of time,
and I will tell Marcy Kaptur that you said hello. Mr. Chairman,
thank you.
Mr. MEIER. Thank you.
Chairman RANGEL. Mr. Weller.
Mr. WELLER. Thank you, Mr. Chairman, and thank you for
convening this hearing today.
Economically, the State of Illinois where I come from is an
old State. Been around a long time. The communities I
represent, Joliet and others, are communities that look at how
they can grow their economy. They face the challenges of high
energy costs that we have in America compared to the rest of
the world.
They also recognize that 4 percent of the globe's
population is represented by the people of the United States.
We are 300 million people. If we are going to grow our economy,
we have to figure out a way to create jobs here at home and
sell products overseas.
I have been one of those who has been disappointed that we
have been unable to make progress on the multilateral level
over the last decade. At the same time, I believe we have made
progress on the bilateral level with some pretty good trade
agreements.
In Illinois, one out of six manufacturing workers is
totally dependent on exports. Forty-two percent of the
agricultural revenues of the State of Illinois result from
exports. So, clearly, exports are really the future for the
part of Illinois that I represent.
November of this year, exports are at a record high, $125
billion for that month. So, clearly, we have benefited from
expanded trade opportunities, from the reduced trade barriers,
as a result of the bilateral agreements.
I listen to some of my colleagues. They talk about the need
for trade to be a two-way street. I think of the Dominican
Republic-Central American Free Trade Agreement we voted on this
past year, where essentially, prior to the Dominican Republic-
Central American Free Trade Agreement (DR-CAFTA), trade was a
one-way street with those countries.
With great bipartisan fanfare, we created the Caribbean
Basin Initiative back in the 1980s to keep the Communists out
of Central America. It worked. Those countries had the
opportunity to penetrate our market and sell to our market with
essentially no tariff barriers on their manufacturing goods, no
tariff barriers on their agricultural products.
Products made in Joliet, Illinois faced tariff barriers.
Agricultural products in Illinois face barriers up to 40
percent. Caterpillar, my biggest manufacturer, which is a
company which is a prime example of a U.S. company that very
aggressively has pursued the opportunities that these
agreements have resulted in, faced a 12 percent tariff on a
bulldozer made in Joliet, Illinois. So, clearly DR-CAFTA
eliminated a one-way trade and made it a two-way so that
Illinois workers benefited from the opportunity to sell in
those markets.
Peru is one of the trade agreements we have before us.
Peru, Colombia, the other Andean countries, they enjoy the
Andean trade preferences that have passed with bipartisan
support, unconditionally, which operate essentially in the same
way as the Caribbean Basin Initiative. Their products enter the
United States essentially duty-free, but our products suffer
high tariffs both in agriculture and manufactured goods.
In Decatur, Illinois and Joliet, Illinois, the big mining
trucks, those gigantic vehicles that cost about a million
dollars that are used for mining in Peru, suffer a $120,000
tariff because of the current tariff structure. It is almost to
Caterpillar's advantage to make that product in Peru and then
sell it to the United States because it wouldn't face that
tariff barrier when they brought that manufactured good here to
this market.
So, clearly, as we look at the bilateral agreements that
are before this Congress, the Peru trade agreement is similar
to DR-CAFTA in that it eliminates the one-way benefits because
it essentially eliminates all the tariff barriers. That
$120,000 tariff on that mining truck is gone, which means that
U.S.-made, Illinois-made construction equipment will be
competitive with the Japanese and our Asian competition. We
benefit from that.
Now, Mr. McGraw, some on the left have argued that we need
a strategic pause in trade, that we should just essentially
shut down any effort to expand additional trade agreements,
that we no longer pursue reducing these trade barriers that are
suffered by U.S. manufacturers and U.S. farmers.
What are the consequences if agreements like Peru, which
would open up a new market for Caterpillar workers--who happen
to be machinists and United Auto Workers members in my
district, 6,000 of them--what would be the consequences for
U.S. manufacturers and U.S. farmers and producers if we
initiated this so-called strategic pause to shut down expanded
trade efforts?
Mr. MCGRAW. Well, Congressman, I think there is no such
thing as a pause in economic development. The world will
continue to grow. It will continue to change. It will continue
to be challenged. You are either dealing with it or you are not
dealing with it.
We deal with various countries. They all are in varying
degrees of development. There are times when a country is in
such dire shape that it is pure aid that is required to help
support their infrastructure in order for them to get started.
Maybe it is capacity-building and technical assistance to be
able to do that, to help them get to a position where they can
start to become more competitive.
We can start to talk about preference agreements.
Therefore, we will have preference agreements. We will have aid
agreements. We will have all sorts of things, depending upon
that country's development. We have come to a time with Peru
where it is time to pass a free trade agreement to make sure
that the benefits that they enjoy are also the benefits that we
enjoy as well.
So, I believe that the time in their development has come
that a free trade agreement makes a great deal of sense.
Mr. WELLER. Thank you, Mr. Chairman. I see the red light is
on. So, I appreciate your generous allotment of time. Thank
you.
Chairman RANGEL. Mr. Larson.
Mr. LARSON. Thank you, Mr. Chairman. Let me join with the
other Members in expressing the sentiments to you and Mr.
McCrery for the panelists that you have assembled today. It has
been very encouraging listening to what they have to say.
Let me further thank Mr. McGraw as well for recognizing
United Technologies Corporation and George David, one of the
most enlightened CEOs in America, and for the educational
training that they provide. Let me commend you and your company
as well for that most desirous of programs for our workforce.
Let me further add with respect to globalization, I
appreciated Mr. Aldonas' comment that in your testimony, you
define what it is not in saying that it is clearly not a verb.
It is a noun. It is not this all-encompassing, overwhelming
tide. It is a series of consequences. It is the consequences
that I would like to get to and address.
First and foremost, with respect to a lot of the issues
that have been discussed, we talk in terms of tools and
education and assistance and adjustment and retraining. Those
ring pretty hollow at Augie & Ray's in East Hartford. People
are interested in a job.
How would the panel feel about having a permanent
infrastructure system in the United States like a permanent
Works Progress Administration or a civilian conservation corps
where there was always a guarantee of jobs to keep the circular
flow of goods and services in this country and keeping benefits
intact, number one, similar to something I believe Mr. Rangel
proposed, like where you could couple both education, by making
sure our school systems were constantly upgraded and
technologically fit in a manner in which they could compete in
a global economy.
Second, in some of your testimony, Mr. Tarullo and Mr.
Sperling, of course, with regard to the social compact, I
believe an infrastructure program would be part of a social
compact with the people. I believe Mr. Tarullo says it is
broken or near broken, or the public feels that it is broken.
Mr. Sperling provides some insight and some clear objectives as
to how to get there.
The point being this: A, do you feel that it is--that the
system is broken? B, if it is, what is this new compact, or do
we need a new basic agreement with people fundamentally so that
their health care, their education, and their ability to have a
job is something that they can count on? That would encompass,
of course, a number of the issues with regard to pension
security that you have raised in this discussion as well.
To get there, assuming that a lot of you are going to be in
agreement with that, how would you pay for it? Should the
United States, should the country, be looking at--and
particularly, should the Roundtable be looking at, in this era
of globalization, global transactions that currently don't come
into our domain and revenue that doesn't come into the United
States that could go toward it? Should we be considered value-
added taxes? Should we be looking at transactions in order to
accomplish some of the end goals of health care, education, and
jobs?
Dr. TARULLO. Congressman, let me take just a little piece
of that question because I know Gene is eloquent on the larger
issue of the social compact. I just want to address very
quickly your infrastructure point.
That has fallen off the table a bit when people give us the
litany of what we need to do in order to enhance productivity.
I think it needs to be back on the table. There are two kinds
of infrastructure at issue.
One, of course, is dissemination of broadband technologies,
some of the modern IT technologies, where we still need work in
getting them to all parts of the country and accessible to all
people so that they can participate in the increased
productivity from those technologies.
Old-style infrastructure--bridges, roads, seaports, airport
capacities, the things that actually allow us to get goods and
services and people in and out of the country----
Mr. LARSON. It is also tied into our national security.
Dr. TARULLO. They are tied to the national security and to
our national productivity. Any of us who lives on the east
coast certainly knows that in our major cities, a lot of the
infrastructure is in serious need of upgrading, and in some
cases full replacement.
So, I think it surely would provide good jobs. However, it
would provide good jobs in pursuit of enhancing productivity
for everyone in the country.
Mr. SPERLING. Well, I have too much to say on this so I
will try not to say as much.
I just would say that I do think that people have a sense,
and should have a sense if they work hard, if they get
educated, that there is a degree of economic security they have
in their lives. I think that is being shaken right now, and
globalization is part of it.
A lot of the remedies are at our disposal. I believe if
people felt that they had health care regardless, even when
they lost their job, that they--wage insurance is a way to
provide some of the protection for the falls, that there was
the kind of unified, simple training system that I think the
Chairman and Congressman McCrery are talking about--what that
affects? It affects dignity. It affects the dignity of people
not feeling that their economic dignity is threatened by losing
jobs. That is an important part of the compact.
What you are suggesting on the jobs and infrastructure, I
don't know exactly what the mix is. I think there has to be
something a lot more active. I think people have to think that
we are less passive, whether it is encouraging--there are
probably a lot of twofers, like energy innovation, where we can
do a lot to both help us have an alternative energy future and
create jobs.
Then the final thing I just want to say, not going into
every element, is just like we can't have the yes or no on
trade/not trade, I think we have to be careful about not having
the yes or no on spending/not spending.
Some of the things we are talking about would cost more
money. They are done in the purpose of encouraging an open,
global economic innovation economy. You have bankruptcy--do you
know what bankruptcy laws do in our country? It lets someone
know they can go out and be an entrepreneur and they can try to
create a job, and if they fail, they are not going to debt
prison. So, they are willing to take more risks.
When you provide a broader safety net and more
opportunities to create jobs and people to have pensions, that
is not like just government spending. That is providing the
foundation for people to take more risk and to accept an
economy that might be more innovation-oriented and more
dynamic.
Mr. LARSON. Thank you, Mr. Chairman.
Chairman RANGEL. Mr. Lewis.
Mr. LEWIS OF KENTUCKY. Thank you, Mr. Chairman.
I would like to go back. Mr. Neal had a statement and a
question for Mr. McGraw earlier. He was telling about a
community within his district, that a company shut down and no
hope. Workers couldn't move, and so there they were, stuck.
That hasn't been the case in the district that I serve.
There is a small community, Campbellsville, that the town is
probably a population of 10,000. The county is something like
22,000. From the fall of 1997 until the summer of 1998, Fruit
of the Loom permanently laid off its entire Taylor County
workforce. As a result, approximately 3,200 people in a county
of 22,000, as I just mentioned, were unemployed.
The layoffs had a ripple effect throughout the region, and
unemployment hit 30 percent. It looked pretty devastating. Due
to the efforts of an active and focused economic development
team, the university that was truly part of the community and
aid through trade adjustment assistance, Taylor County created
13 new companies to that community within a period of something
like 2 or 3 years.
They didn't look at their glass as being half empty. They
looked at it as being half full. They had 3,200 workers who had
gotten up every day for years and gone to work and provided a
benefit for Fruit of the Loom. The new employment opportunities
came from growing local companies, large private companies, a
Fortune 500 company, the area's first Japanese facility, and
the first Brazilian investment in Kentucky. Insourcing. They
didn't just look across the country. They looked across the
entire globe for help.
The comeback there is just truly amazing. Through the trade
adjustment assistance, and our Ranking Member, Mr. Herger, came
down and visited a couple years ago that community and saw
firsthand what they had been able to achieve.
My question to Mr. McGraw and maybe anyone else who would
want to answer: How common is that, for communities to--and by
the way, Campbellsville, the infrastructure there is certainly
challenged. There are no four-lane highways into
Campbellsville. The highway system is pretty limited.
So, they were kind of in a tough situation. They were able
to succeed, and no one had to move. They brought new companies
in. So, I am just asking, how common would that be across the
country? That is what we are told about trade, that we may lose
some unskilled, low-paying jobs, but the opportunities for new,
higher-skilled, higher-paying jobs will come along. So, how
common is it?
Mr. MCGRAW. Well, you are talking about leadership,
Congressman. It sounds like a very good example of how it can
work and work very well. It has to do with what the Chairman is
talking about, too, in terms of bipartisanship. When business
and the local community work together, when the State
governments and the municipalities work together and find ways
to get things done, they can make progress.
In your very example and the example that I used about
Dubuque, Iowa--the problem in Dubuque, now that they have built
it up and they are very excited about attracting other
businesses to come there, is that they have virtually zero
unemployment.
So, what we have done with them, as part of a process
because in building this building, we are going to need more
employees to grow and develop, we have worked with the
University of Dubuque. We are getting them to get more
aggressive in being able to attract people from Chicago and
elsewhere to come there. We can give the intern jobs, and we
can give all of that.
So, it is a sense of community, that everybody is involved
and it is coordinated to be able to get things done. It can
work.
Mr. LEWIS OF KENTUCKY. Yes. By the way, Kentucky is the
fourth largest automobile-producing State now in the union. A
lot of those jobs are insourced jobs. We have 10,000 jobs
provided by Toyota, and the component parts industry is
tremendous throughout the State and throughout the district.
So, we have brought a lot more jobs in than we have lost
through outsourcing. So, for Kentucky, this thing is working.
Mr. MCGRAW. Congressman, I would also say--to your point,
too, Gene--is that where you have practices and policies that
encourage innovation and creativity and risk-taking, where you
have certain support networks like research and development tax
credits and the like, you are putting people in a position to
be able to succeed.
Mr. LEWIS OF KENTUCKY. Yes. Thank you.
Chairman RANGEL. Mr. Pascrell.
Mr. PASCRELL. Thank you, Mr. Chairman. I appreciated the
testimony that we have heard from our witnesses. I hear less of
a plea for fair trade. More what I am hearing is honest trade,
which I think is an important distinction.
I appreciate the framework moving forward for trade
promotion authority, that there appears to be a broad
willingness to make some adjustments. I personally just was
stunned that President Bush rejected the appeal that some of us
made to him personally to not sign a trade promotion authority
bill that didn't have 250 votes.
If he would have been willing to say, don't give me a 218
piece of partisan goofiness, we wouldn't be having part of this
discussion today, I believe. Deeply disappointing to me, but I
feel, with the leadership of our Chair and Ranking Member and
the spirit that you are hearing on the Committee, that maybe we
can move back from that mindless partisanship in trade.
I am personally interested in some things that we may be
able to do, and your reaction. We have focused a lot on
manufacturing jobs. People are concerned about the loss of
manufacturing jobs. I certainly am in my State.
My impression is that manufacturing jobs are in decline
everywhere in the world, that China has lost significant
manufacturing jobs as they started to modernize some of the
State-owned industries. We are starting to see modern
technological advances, as I visited developing countries
around the world, where yes, they are having more manufacturing
jobs, but they are displacing things in older industries.
So, I am wondering if there are a couple of things we might
be able to focus on to jump-start. One, the reference that has
been made here to the Doha Round. You have mentioned--I think
each of you referenced some of the problems we have with our
antiquated agricultural policies, where we are penalizing
American consumers, taxpayers, and apropos my friend Mr.
Doggett's comment, the environment because of really
agricultural policies that may have worked for the 1940s but no
longer work today for the majority of American farmers.
Is it possible that we might be able to take some
unilateral action to try and move forward on this when we have
a farm bill that is up for reauthorization, that the majority
of the benefits now flow to a handful of States. Something like
80 percent of the benefits flow to 22 congressional districts,
with the distortions and the hypocrisy.
I am curious if any of the panel has some thoughts about
maybe jumping on the farm bill that we will be working on now
and trying to weave this into something where the United States
might exercise a little leadership that benefits everybody.
Dr. TARULLO. Congressman, I don't purport to be an expert
on all details of agricultural policy. I have learned enough to
know how complicated it is.
I do have a trade perspective on your question, which is
the following: If, as appears likely, we are going to be making
changes in our agricultural policies, both to ensure that
benefits are actually flowing to family farmers and to deal
with some of the environmental issues that you alluded to, it
seems to me that we would do best if we could get something for
those changes--that is, to get some other countries to change
some of their policies at the same time.
That is why many of us have hoped that there was a way to
move the farm bill and Doha in parallel so that they could
build off one another. That is imperiled right now, of course,
with the problems in Doha and the farm bill coming down the
line.
So, it may be you will be thrown back on the course of
action you asked about. I think it would be best, it would be
preferable, if we could wrap those things together. If you are
going to make some changes, let's negotiate for Europe and
others to make some changes at the same time.
Mr. ALDONAS. Could I add something to that? I think you are
exactly right. We need to untie our hands at the negotiating
table. They are tied right now by agricultural policies that
pay people to produce things as a model of rural economic
development.
We would be far better trying to go with a distributed
network that Dan was talking about to provide different sorts
of economic opportunities in rural America than simply
continuing to pay people to produce commodities. Let's
remember, communities are the most sensitive and the most risky
things to invest your life in because of the vicissitudes of
weather, energy prices, all the other things that go with it.
Most of the people where I am from in Minnesota don't
expect that the next generation is going to stay on the farm.
In fact, what we need to be thinking about is how we achieve
that because we really would untie our hands in terms of the
broader trade effort.
I want to--I am sorry if I----
Mr. PASCRELL. Well, I see my time has expired. Let me just
say--I don't want to impose on the patience of the Chairman,
and there are other Members here--I would welcome, if there are
any thoughts that any of you may have to toss over the transom.
This would be something that I would find a great help.
Mr. Chairman, I noted the reference to infrastructure. I am
hopeful that our Committee at some point, using its vast
jurisdiction, can look at the opportunities to do a little bit
of investment in infrastructure to help provide some other
elements of this grand bargain that would both improve the flow
of international trade and provide high-value, family-wage jobs
that might have some income security for communities across the
country.
Thank you, sir.
Chairman RANGEL. Mr. Brady.
Mr. BRADY. Thank you, Chairman, for holding this important
hearing. I come from Texas, the largest exporting State in the
Nation, and NAFTA has created enough new manufacturing jobs to
fill every seat in the Astrodome twice over. We have seen
nearly 1 billion dollars of clean air and water projects along
our border we would never have seen without that trade
agreement.
It seems to me the principle of free trade is this: If
Americans build a better mousetrap, we ought to be able to sell
it anywhere in the world without discrimination. If someone
else builds a better mousetrap, we ought to be able to buy it
for our families and for our businesses.
The choices we have from that principle is one of the
reasons that families in America have, I think so much greater
purchasing power, enough that the average family goes to the
grocery store once a month for free in this country because of
the savings of trade--cheaper telephones, cheaper groceries,
cheaper television sets, all that goes with it.
I think our problem is how inconsistent we apply trade
policy in this Congress. For example, labor and environment are
truly important issues we need to resolve, yet in one way, in
trade preferences, like the Caribbean Basin Initiative and the
African Growth and Opportunity Act, labor environmental
standards are nowhere to be found.
Yet when we open two-way trade and say it is our time to
sell to other countries, to other markets, all of a sudden we
erect every barrier that we can imagine. It seems to me that we
ought to be able to find a third way, a common ground,
standards on those issues, and apply them consistently across
our trade agreements.
We give a lot of lip service to fair trade, but in my
view--I have not been in Congress as long as Chairman Rangel
and other senior Members here, but what I have learned is when
someone claims they are for fair trade, what they mean is it is
fair for their wallet and no one else's, fair for their
communities and not yours.
It seems to me that when you have special interests in
Washington who basically use fair trade as a veneer to limit
what our families can buy or dictate what they have to pay,
that we lose.
I think our fair trade focus should be on vigorous
enforcement of fair trade rules, the things we come together
on, as diverse as this panel is, on what we agree are fair
rules, and then we don't cede an inch on enforcing them.
Finally, we talk about trade deficit and encouraging U.S.
manufacturing jobs. Just last week in the House we voted to
essentially remove American energy workers from the Tax Code
and tax them as foreign workers and foreign companies. We
actually discouraged American investment in the American energy
industry, and claim that to be important to America's energy
security. It makes no sense from a trade perspective, a jobs
perspective, or an investment perspective.
It seems to me, and I will finish with this, the prime
issue facing Congress--and Chairman, the reason you called this
hearing--is what are we going to do as a Congress to extend
TPA? Will we pursue it or not?
I heard Mr. Sperling, very respected, talk about a
suggestion that we do a limited TPA for Doha and not for the
rest. It seems to me just the opposite is the better solution.
Doha is the least productive of our trade pursuits. Our
individual agreements have been extremely productive. Our
exports are doubling in many of those markets. Those which we
have trade agreements in represent a small part of the world
economy, 7 percent, but they are half of all of our sales
overseas, incredibly productive.
It seems to me that rather than a buy losers/sell winners
strategy on trade, it ought to be the investment advice: Don't
put all our eggs into the Doha basket, but continue to
diversify. Pursue that and diversify the winning ones that are
actually helping day-by-day strategically in sales for
Americans today.
So, the question I have for the panel, and I have almost
run out of time, as usual, is that at a time when our American
companies go out to compete overseas, three times the world is
tilted against us in the rules. The trade agreements we face,
three times the world are tilted against us. We don't have that
level playing field.
How does unilaterally dropping our negotiating power help
create a more level playing field for American companies? How
is ceding the trade field by not pursuing an aggressive TPA,
how does that open more markets and create fair rules? In other
words, how does walking off the field help us win the game?
I open it up to any panelist to respond.
Dr. TARULLO. Congressman, I certainly wouldn't advise----
Chairman RANGEL. While the gentleman's time has expired,
since you started to respond, I will yield to you for a
response.
Dr. TARULLO. Thank you, Mr. Chairman. Just very briefly,
then, Congressman, I don't think most of us have any interest
in walking off the field. Personally, I think what we need is a
strategy. You want to be on the field. You want to have a
strategy.
The selection of whom you negotiate with, the selection of
what you negotiate, what the terms of those negotiations are
and, finally, the assurance that at the end of the day the
benefits that we garner are going to be spread fairly across
everyone in America, I think those are the considerations that
go into a good strategy.
So, I at least would agree with you. We don't want to be
just standing on the sidelines. I think we want to have a
pretty good sense of what we are doing.
Chairman RANGEL. Thank you.
Mr. Pascrell.
Mr. PASCRELL. Thank you, Mr. Chairman. Mr. Chairman, thank
you for the breath of fresh air on this subject. Particularly I
want to thank all of those who have come here to be presenters
today.
You are addressing a broken branch of government. If we
read carefully Article 1, Section 8, under the war powers and
under commerce, who has that responsibility, you are looking at
them. If you look back at what has happened over the past--not
only in this Administration but in the past Administration, to
a lesser degree, we have given up our will to in any manner,
shape, or form shape our trade agreements with other countries.
I think that this is dangerous. I think it creates a clear
and present danger to two things, and that is the global
strategy that we need in order to bring about a better chance
at world peace; and second, our own homeland security.
So, this is a very critical issue, as you well know. I am
concerned about why folks sent me down to Washington. They sent
me there 10 years ago so that I could fulfill the obligations
of the Constitution of the United States. I raise my hand every
2 years to do that.
Do you think that under the commerce powers given to the
legislature of our forefathers and with the support of the
Federalist Papers, do you think that we have--Mr. Mishel, do
you think that we have incorporated and complemented and worked
to make sure that we have fulfilled those constitutional
obligations? Particularly in the area today of commerce, and
specifically now trade. Very short answer, please.
Dr. MISHEL. No. I think it is important for the
representatives of the American people to shape the way that we
are globalizing, and rather than to give up your rights to in
fact provide a serious input into what is going on.
The measure of our success is not exports unless we also
take into account imports. That is like reporting Yankees 9 and
another team, we don't even report their score. Imports are far
larger than our exports, and we need to recognize that we have
dug ourselves a very deep hole.
Mr. PASCRELL. Gene, are you--where did Gene go? Okay.
Mr. Tarullo, do you believe that this has been a docile
Congress over the last 10 years, particularly with regard to
trade and globalization? Or do you think that the Congress has
met its obligations?
Dr. TARULLO. Congressman, one thing I have learned in my
time in Washington is not to characterize Congress as a whole.
I think you can only characterize output. What I see today is
an interest on the part of all of you to try to come together
and reach an agreement among yourselves and then, importantly,
with the Administration on how to go forward.
I return to what I said in an earlier response. There has
to be trust between the Congress and the Administration. I
don't think that has existed. I don't think I am telling any
secrets out of school to say I know it hasn't existed between
the Democrats in Congress and the Administration on this and
many other issues.
I think now, with last November's elections, with the
President's indication that he is interested in working in a
bipartisan fashion, with the Chairman and the Ranking Member
setting the tone that they have, now is the time to put aside
what may or may not have happened in the past--for you to
figure out what kind of trade agreements you want and you are
willing to vote through, to communicate that to the
Administration, and for them to have the good faith to proceed
with whatever authority you give them to negotiate those
agreements.
Mr. PASCRELL. What I have heard so far, Mr. McGraw, today
concerns me to this degree. You have all spoken about what we
should do when people are displaced out of their jobs. Mr.
Sperling addressed the issue, well, maybe we should anticipate
some things happening.
That has been the whole problem. We are talking about
whether we can get assistance to the people who have been
displaced or laid off. We are talking about people 40, 50 years
of age who have a very specific frame of life, a standard of
living. Then they lose 25, 30 percent of their income
capabilities, and we have serious problems not only in cities
but in many suburban areas around the country where you have
manufacturers.
We have no manufacturing policy in this country. We have
none. We keep on fighting over the--re-fighting and revisiting
Hamilton v. Jefferson. That battle was settled. We decided we
are going to have a multifaceted economy even though we are
losing jobs today.
Mr. McGraw, what do we do before the situation happens?
What do we do before folks are displaced in order to bolster
that infrastructure we call manufacturing? We have lost that
infrastructure, and God forbid if a danger, a real danger,
comes to this Nation, I don't know who is going to produce our
armor.
How would you respond to that?
Mr. MCGRAW. Well, Congressman, market factors and
competitive thrusts and all of those kind of things are going
to take place on a business. A business doesn't get into
trouble overnight. A business has to anticipate what it is
about and what it is doing and how it goes about doing it.
If you are on top of that, then you are obviously
developing preventative kinds of measures, especially through
education, to make sure that people are developing those kinds
of skills.
One of the things that I was talking about in terms of
business best practices is that we make sure our employees are
obviously going into education programs and the like, and are
continuing to develop those kinds of skills.
Mr. PASCRELL. Thank you. Mr. Chairman, can I just have half
a second?
Chairman RANGEL. You can have it.
Mr. PASCRELL. Okay. Mr. Meier, I grieve, and I am in sorrow
when I hear your situation because I have a situation right
outside of my district. A Marcal Paper Company, which has
attempted in every manner, shape, or form to live by
environmental rules, labor rules, the whole thing, can't keep
up with the competition. One of the largest paper companies in
the United States of America. I know exactly what you are
talking about, and the frustration on those workers.
Mr. Chairman, this is something we need to address as a
full body here because it increases the number of people who
cannot hold onto their homes, who lose their job security,
their retirement security which follows. It is at the
heartbeat.
What has happened to manufacturing in this country is
sinful and immoral. I think we need to do something about it.
You have friends here, and we need to do something about it
together. I thank you for your story today.
Thank you, Mr. Chairman.
Chairman RANGEL. Mr. Ryan.
Mr. RYAN. First of all, I want to thank the Chairman for
holding this hearing. I think this is a great opportunity for
all of us to expand our dialog on trade issues and to find a
way to move together on a bipartisan basis.
This has been a very enlightening conversation with all the
different panelists we have had. As the Chairman knows, I have
enjoyed working with him on these issues, and I am pleased we
have made great progress while working together, especially on
the labor front. Perhaps that is a window of opportunity to
move forward with.
In fact, during the last session of Congress--I just wanted
to point out a couple points before I get to my question--we
worked together quite extensively on trade agreements that we
completed in the Middle East region. For example, with the
Chairman's help, we passed the free trade agreement through the
House with Bahrain that included numerous commitments to
strengthen Bahrain's labor laws.
In addition to strengthening their labor compliance regime
and better educating workers on their rights, Bahrain committed
to introduce education in its parliament to accomplish these
five things: provide mandatory reinstatement for workers
dismissed for trade union activities; introduce strong
penalties for anti-union discrimination; make a public
statement regarding procedures for strikes, and engage in
consultations should those procedures be amended; allow more
than one federation; and allow more than one union per
enterprise.
Bahrain has followed through with all of these commitments.
Not only did they introduce but they passed four of the five
laws I just mentioned. In fact, the only reason that not all of
these five laws were passed was the fifth one was actually
opposed by Bahrain's labor unions.
So, now these unions are sitting down at the negotiating
table trying to work things out. That is significant progress.
So, we have shown in the past, just a year ago, that we have
been able to come together as Republicans and Democrats around
the issue of labor to get something done and to make a
difference and to get a free trade agreement. We did this
because we had TPA.
As for Oman, we also worked together to help move forward
on their labor laws. In conjunction with the FTA, they ratified
two ILO conventions, a United Nations protocol, and committed
to making eight reforms to its labor laws to meet the concerns
that the Democrats on this Committee had raised.
So, today Oman has made substantial progress that we can
unequivocally say has made great progress on labor. So, I am
very hopeful that this progress can continue. However, if we do
not pass extension of TPA, which expires in June, we are not
going to be able to have similar successes like we had today.
So, we need to work together on this. We need to find a way
that we can pass TPA with labor standards that will provide a
template for continuing to make progress with our future
trading partners like we did in Oman, like we did in Bahrain.
There are just a few questions I have and a couple of
points that I think we are going to have to consider. We are
going to have to have a talk about this in this Committee. That
is, we need to be careful.
Yes?
Chairman RANGEL. When you are talking about ``we,'' who are
you talking about on the Republican side, so that I can get my
thinking more clear. Who are the ``we'' that was cooperating
with the minority? If that worked, I would like to continue
that. I can't for the life of me, with the exception of you----
Mr. RYAN. I was going to say, you and I had a lot of--we
talked dozens of times about these agreements. I am a
Republican.
Chairman RANGEL. I yield back.
Mr. RYAN. Okay. USTR as well, obviously, was deeply
involved in dialog with you.
Chairman RANGEL. I never really wanted to look at her as a
Republican. Yes, you can continue.
Mr. RYAN. Okay. Thank you. Reclaiming the little time I
have.
Chairman RANGEL. I will give you back the time you lost.
Mr. RYAN. Thank you, Chairman.
The concern is this: If we don't properly craft this, we
may properly leave, subject to dispute resolution and trade
sanctions, our own labor laws. So, we have to watch out how we
do this so that we don't get a backfire on the way we structure
our TPA. It would be a bad situation that would undermine the
reason we enter into trade agreements, which is to help
American workers and business.
In addition, we need to be careful not to adopt a model
that would dissuade potential trading partners from negotiating
with us in the first place. If we demand too much, we end up
with nothing, not even the improvements in labor laws like we
had from these agreements I just mentioned.
Worse yet, we may have all of our potential trading
partners turn to China for an FTA that is going to be a lot
easier to get than turning to us. So, we are in competition
with other economic superpowers to get good trade agreements
for us. So, we have to find a way to get that fine line.
So, with that, I think we have an ability, between Mr.
McCrery and yourself and the great relationship we are
starting, with the past that we have had with some Republicans
on this side of the aisle with the Chairman, to get----
Chairman RANGEL. ``Some'' means more than one.
Mr. RYAN. ``Some'' means more than one. Well, sure.
Chairman RANGEL. Who is the other person?
Mr. RYAN. I will get back to you on that.
[Laughter.]
Mr. RYAN. The point is, we can't overplay our hand because
if we overplay our hand on the way we write TPA, no one will
want to have an agreement with us. We may put our own laws up
for dispute settlement. We may put our own laws up for possible
sanctions.
So, Mr. Aldonas, I will start with you because you just are
fresh from government experience, and then anybody else who
wants to chime in. Where is that sweet spot? Where is that area
that we can get TPA so that we can have a functioning TPA
without putting our own laws up for possible sanctions and so
that we can encourage other countries to negotiate with us?
Mr. ALDONAS. I think it lies in whether or not our
policies, including our labor policies, are artificially
distorting investment and trading decisions.
If in fact what we are using is our labor laws to try and
encourage our exports, or we are using our labor laws to track
investment, isn't that something we would be--is that something
we would be concerned about having in the dock? In other words,
if it were focused on in terms of other people's labor
practices, is the fact that their practices may distort the
decision to invest, the decision to trade?
I think you actually find a pretty good line there because
it is also something that is susceptible to the normal kind of
trade analysis that we do. We have tools that we can use to
come to grips with that.
So, in some respects, while I want us to achieve standards,
and if we have multilateral agreements, I could see us saying
that ought to be part of the picture in any trade agreement
that we negotiate. I also know that in this area, when we are
talking bilaterally, I think the single most important thing to
be thinking about is whether or not what somebody has done with
those practices, environmental or labor, in fact is distorting
that investment and trade decision. I think that is a standard
we could live with at the end of the day.
Mr. RYAN. Thank you.
Dr. TARULLO. Congressman, if I could, just a couple of
thoughts on that. One, I think it is important to note that the
list of five standards people often cite is a list that was
derived from the Generalized System of Preferences legislation,
which in turn was the product of some considerable thought.
My second point is we don't--at least I certainly have
never advocated, and I don't think the Chair has, either,
putting ILO conventions into our bilateral agreements. I think
the point that has been made on a number of occasions is these
five labor standards are internationally recognized, meaning we
didn't just make them up on our own. They are out there. They
have some legitimacy.
The third point I would make is the way that the provisions
that people have supported are worded, we talk about a failure
systematically to enforce. We talk about a pattern of non-
enforcement. We are not just sort of zeroing in every time
there is a little problem.
I certainly think the United States should be more than
happy to affirm that we do enforce our labor laws. We do
enforce our laws. We enforce our labor standards. I don't think
we should be worried--I hope we don't have to be worried--about
a failure, a pattern of non-enforcement, to gain some sort of
trade advantage.
Dr. MISHEL. May I just make two quick points, following up?
One, let us never forget that we are the largest economy.
People need to export to us. We have lots of leverage in all
our dealings with other countries.
Second, we do have a problem of some labor standards and
how they operate in this country. Just last year there was a
labor law decision that removed collective bargaining rights
from 8 million workers such as nurses. If a nurse can direct an
LPN to do something with a bedpan, she now no longer will have
access to be able to be represented by a union.
That is, I think, contrary to some very basic standards. I
don't see why we shouldn't be subject to those internationally.
Chairman RANGEL. Let me publicly thank the gentleman for
the cooperative spirit we did work last year, and I look
forward to working further with him.
Mr. Davis. Thank you for your patience.
Mr. DAVIS. Thank you, Mr. Chairman, and gentlemen. I think
in the Chair's exchange with Mr. Ryan, the Chair was
identifying the famous congressional tendency to say ``we''
when we really mean ``I.'' It is a congressional thing.
Let me pick up on a point that Mr. Brady made earlier. He
was talking about the benefits of NAFTA with respect to Texas
and with respect to Mexico. Let me ask you, and I am not sure
which of you knows the answer to this question: What is the
rate of poverty in Mexico today? Any of you happen to have a
ballpark estimate?
Dr. MISHEL. Substantially higher than it used to be.
Mr. DAVIS. Well, you anticipated my next question. I was
going to ask you what the rate of poverty was at the time that
NAFTA was concluded.
Do any of you challenge Dr. Mishel's point? I actually
don't know if it is substantially higher, but I think his point
is that there has not been a substantial improvement in the
poverty rate. Do any of you challenge that point empirically?
Mr. Aldonas.
Mr. ALDONAS. Yes. I do. What I think it does is it
obscures----
Mr. DAVIS. Can you do it in less than 15 seconds?
Mr. ALDONAS. I will. It obscures too much. What you are
seeing is increases in income closer to the United States,
where there is more trade, more investment. What you are seeing
in places like Oaxaca, farther south, is you are seeing a
deterioration of living conditions.
Mr. DAVIS. So, it has been mixed. What about the rate of
illegal immigration? Does anyone have a point to make with
respect to the rate of illegal immigration in 1993 as opposed
to today? Someone has to answer verbally for the record to pick
you up.
Dr. MISHEL. I would just note that when NAFTA was
presented, it was suggested that it would address the problem
of immigration. I think it appears to most observers--it
appears that way to me that in fact it has exacerbated the
situation.
Mr. DAVIS. Does anyone empirically challenge Dr. Mishel's
point?
Mr. ALDONAS. Yes. I lived and worked in Mexico in 1980 as a
Foreign Service officer. I was punching visas. I will tell you
honestly, what has happened is there has been a change in the
complexion of the illegal immigration. What we are seeing is
less from Mexico, in part because there is more investment
there. We are seeing much more that is coming out of Central
America and farther south.
Mr. DAVIS. Well, Mr. McGraw, let me pick up on that point.
It seems that it is a consensus of the panel that we have had
mixed results, if not net negative results, from NAFTA. Why
should we expect anything different from CAFTA?
Mr. MCGRAW. I think you have a little bit of a different
situation. With Mexico, you had a real focus on certain
domestic policies that haven't materialized well. Take
education, for example, where we have not seen much change.
Rounded numbers now, you have about 20 million students in
elementary school. You have about 5 million in secondary, and
about 1\1/2\ million going to higher ed. It is about the same
as it was. The reason is that they don't have access to jobs in
that area, and therefore the benefits of that kind of education
hasn't lent itself.
Mr. DAVIS. Well, I think that is a good narrative. The
question is: Tell me why you expect a different outcome with
CAFTA.
Mr. Sperling.
Mr. SPERLING. When I talk about, I think, trying to
strengthen the debate, I think it is too easy to get into
these--the United States created 23 million jobs in the 8 years
after NAFTA, so therefore NAFTA worked; or poverty went down in
NAFTA, and therefore it didn't.
I think we all have responsibility. There are lots of
arguments on each side like that. Poverty is a bit worse than
it was at the moment we signed it, but it is kind of better
than it was at the height of the peso crisis.
Joe Stiglitz, somebody who is very critical of a lot of
trade things, would argue that it did help Mexico come back
quicker. On the other hand, I think a lot of the things critics
said about small corn farmers being devastated in Mexico turned
out to be true.
So, I really think that rather than kind of take this did
it work or not work, I think NAFTA is, as you said, a very
mixed story. I think, for example, I know in the Clinton
Administration we felt that the labor side agreements in there
were too weak. We never went back to anything that weak again.
Mr. DAVIS. Let me stop you just----
Mr. SPERLING. So, I guess I just wanted to say that I think
it is better in looking at NAFTA to try to take--Mr. Chairman,
you have created such a wonderful dialog to kind of do what is
so rarely done, where you can look at the pros and cons.
There are some things in NAFTA that went well. There are a
lot of things that didn't. Whether you are for it or against
it, I think it is better to look at it by kind of breaking up
the components. I think you will learn more about what would
work or not work in CAFTA.
Mr. DAVIS. Let me quickly shift gears before my time runs
out. China has come up several times today. As a lot of you are
aware, countervailing duty laws are not applicable against
China because of the U.S. Commerce Department's interpretation
of the phrase ``non-market economy.''
How many of you agree with the proposition that
countervailing duty laws should apply to church if they also
apply to undeveloped market economies? How many agree with that
proposition?
The question was about the application of countervailing
duty laws right now because of the U.S. Department of Commerce
interpretation that is about 20 years old. Countervailing duty
laws apply to market economies. China is not treated as a
market economy. At the same time, the anomaly is that
countervailing duty laws apply to relatively underdeveloped, in
fact very underdeveloped, market economies.
How many of you agree with that state of play?
Mr. ALDONAS. Well, it is a little more complex than that in
the sense the countervailing duty law has de minimis provisions
for developing countries that offer them benefits. So, in one
sense, it doesn't apply with the same force as it does--in the
case of China, you have methodologies on the dumping side,
which significantly penalize China in some respects, are a
surrogate for the countervailing duty law.
I think even under the Doha----
Mr. DAVIS. With the market economies, you get both, do you
not? You get dumping and you get countervailing duties?
Mr. ALDONAS. Right. What I would say, having administered
this, is that within the framework of the dumping laws, there
is a lot of flexibility to try and capture what are the effects
of the CVD law.
Now, that doesn't go to your point precisely. I do think
that we are at a juncture where you have to make a decision
about certain parts of the Chinese economy. There, there is
flexibility under the law called something market-oriented
sector specific, where you could take a look at the
flexibility.
I just want to be clear. Legally, the Commerce Department
has the authority to apply the countervailing duty law if it
makes certain determinations. I am not sure you need a
legislative change to get there.
Mr. DAVIS. They haven't done it.
Mr. Sperling, were you trying to jump in?
Mr. SPERLING. I was just going to say, actually, one of the
things----
Mr. DAVIS. They haven't done it in 22 years. Go ahead.
Mr. SPERLING. One of the things Sandy Levin and others
pushed in the final stage of the negotiations with China really
did come from some of the Democrats on this Committee, was to
make sure that the anti-dumping provisions would apply. That
was actually, I would say, among the two or three last issues
that were pushed as part of getting the WTO Agreement.
Chairman RANGEL. Mr. Porter.
Mr. PORTER. Thank you, Mr. Chairman. I would also add that
in my 30 days on the Committee, we have had a lot of
cooperation. I appreciate it very much. Thank you.
[Laughter.]
Mr. PORTER. I am from the State of Nevada, and we look at
globalization and trade a little bit different than some other
States in that we are a travel and tourism economy, if not the
largest in the country or certainly in the world for a
destination. Comments are going to be more of a comment and not
a question.
I think that we need to look at tourism and travel as a
major part of our economy. It is about a $90 billion business
in the United States. If you look at every State in the union,
tourism and travel is one, two, and three in every State as far
as economic opportunities and tax revenues and/or pure business
dollars.
If you look at this industry--and again, I'm bringing it up
because you folks are the experts--I think it should also be
included as we look at where we are as a country, where we are
going. Travel and tourism has been reduced since 9/11 to the
United States about 17 percent. That is pretty substantial.
We are seeing also tourism and travel as a bellwether for a
strong economy. In Nevada, we have created 60,000 new jobs last
year. We are building another 40,000 hotel rooms. We soon may
well have 200,000 hotel rooms. Our occupancy is about 98
percent. Now, what does that mean? It means that the American
people are traveling, and are feeling comfortable about their
jobs and about their future.
I bring up the travel and tourism--I think many times it is
left out of the debate because it is not necessarily a line
item in Wall Street or steel or some other major industries. I
think it should be included in the future.
Now, if my time allows me, I do have a specific question
regarding some of the tax questions. Some say that the cost of
labor in a finished product determines whether the product will
be competitive. Direct labor costs are often only a small
portion of the total manufacturing cost.
With our high productivity, the labor cost per unit for our
goods is quite competitive. Don't corporate taxes, tort
litigation, and complex regulatory compliance have a far
greater effect on our competitiveness?
Mr. ALDONAS. It depends on the product and the industry.
There is no doubt it has an impact. Certainly--people would be
surprised to know that we have among the highest corporate tax
rates in the world right now. People are always stunned when I
say that European countries have lower corporate tax rates than
we do, but that is the reality, and it does make us less
competitive globally.
The other thing I would say is that, particularly in
manufacturing where we--efficiencies have drained much of the
labor content out of every finished product, whether it is
produced here or whether it is produced in China.
The other things that drive competition, even in China, are
far more powerful. That is why, when I think about China, I
actually think less about wage rates than I think about the
other subsidies in the Chinese system, whether it is the
nonperforming loans that mean a zero cost of capital for
somebody who wants to build a steel mill; whether it is the
outright grants, the relief from paying their electricity
bills--all those things actually have a powerful effect on the
decision to invest.
It is not just affecting the United States. It is affecting
all our other trading partners as well. If you looked at wage
rates in China, textiles would no longer be in China. It would
be in Africa, if it was just wage rates. In fact, there are an
awful lot of other things in the Chinese system that are
designed to keep the investment there.
One of the things we really haven't focused on are the
distortions. The rub here is not always about labor standards.
It is really about jobs. It is about employment. One of the
things that we should focus on is the distortions that attract
investment and jobs to a place like China. Those should be the
targets of our trade policy, whether it is negotiation, whether
it is enforcement, whatever it might be, because I think in
part that is a better answer to some of the feelings of
insecurity that Americans feel at the end of the day.
Dr. MISHEL. Mr. Porter, I am a labor market economist, and
I think it is important when we are dealing with the labor side
of that, the wage part, that it is really all of the labor
embodied in the products, not just what is directly in the last
place before it goes overseas.
So, the labor costs embodied in a product are probably far
larger than what is directly--the direct labor costs you are
talking about; one particular plant, what its labor does.
Second, just quickly, I have looked voraciously for any
evidence that torts provide any competitive cost that creates
an imbalance in this country versus other countries. I have not
been able to find it. Every sort of examination of this that I
have looked at and done myself, I just couldn't see any
relationship. I think it is a really small thing, and is blown
out of proportion to anything plausible in much discussion.
Mr. PORTER. Thank you, Mr. Chairman.
Chairman RANGEL. Mr. Pomeroy.
Mr. POMEROY. Thank you, Mr. Chairman. Thank you for holding
this hearing. It is very important for us to, from kind of a
30,000 feet level, look at trade issues, not just when we have
something pending and we are talking about the advantages or
dislocations that a given agreement might present, but this
view is precisely important.
I have been monitoring it through the morning even though I
haven't been able to be in this chair. You have been at it for
several hours, and I wouldn't even think about asking further
questions except for one that I just feel so strongly about.
Grant, it gets to a line that I think is a very interesting
one in your testimony. You said, ``Your job is to''--you write
to us, ``Your job is to serve as a mediator between the
aspirations of all your constituents and the reality of the
economic challenges we face.''
Now, I think some basically mean, well, if your folks don't
like trade, you go back and you just tell them how good it is
for them. I think there is a reciprocal dimension. First of
all, I will accept what you say there. That is true. That is
part of our responsibility.
Another part of our responsibility is to bring into
Washington, to the macroeconomic view that pervades Washington,
the microeconomic reality reflected by the voters we represent.
I was astounded when new Members--they got up and introduced
themselves at one of the meetings we had. These are people that
took often Republican seats, swing districts. It was concern
about trade, the economic insecurity that was pervasive in
their districts, that people wanted a change and they were able
to beat incumbents. This is swing territory, previously
Republican represented.
Last week we had the anomalous situation of setting a
record for the Dow Jones average, and having 71 percent of the
people record themselves as believing the country is on the
wrong track, as captured in an ABC poll.
In my opinion, what the Administration has not owned up to
is that this macroeconomic view of growth in this country has
been detached to whether the average Joe feels like they are
getting ahead or not.
Not to talk about--there are two issues to whether they are
getting ahead or not. Economic disparity, I am not going to get
into that. Economic insecurity is what I do want to make a
point on because I believe that people are feeling more and
more insecure. I believe economic insecurity is the greatest
threat to future globalization of trade.
If we are going to have a pro-trade strategy, Republican,
Democrat, Administration, Congress, it has to go right at this
core feeling of insecurity held by the households of this
country.
I would be interested in particular--Gene, your testimony
speaks to the lot. Grant, you have kind of indicated the
macroeconomic view. I would like you two to play with the issue
of what is the priority of dealing with this feeling of
economic insecurity that is so broadly felt. I notice that even
the economist, conservative economist, had this as a major
piece in their deal last week.
One final thing before I yield the microphone and won't
talk again. There have been some disparaging comments made
about our farm bill and our agriculture policy in this country.
Don't believe a word of it. We are rationally based and
competing with some of the most heavily subsidized exports in
the world, and that is why we have the farm bill. Okay, but
that is an aside.
Back to economic insecurity, Grant and Gene, thank you very
much. Thank you, Mr. Chairman.
Mr. SPERLING. Well, I don't think there is any question
that what we have seen--people can talk about 25-year trends,
but the last 10 or 11 years in themselves are instructive, and
I think in some ways humbling, because the last 5 years of the
'90s, you saw increased job churning. You saw lots of
globalization, lots of change. Yet it had a very pretty face to
it; 23 million jobs in 8 years. Wages went up across the board.
Poverty went way down.
The last 5 or 6 years have showed a very different face.
You have seen such a divide between productivity and wage
growth. We are not just seeing the manufacturing or the low
income workers. You are seeing a real threat at the middle. You
are seeing real pressure on wages.
I think there is a dramatically more significant fear of
falling, in other words taking deep falls when you lose. I
think people expect you are going to lose a job at times in
your life and it is not going to be pleasant. I think the fear
that you may take a dramatic fall in your standard of living,
and that sense of downward mobility, is really very difficult
for people.
I think the truth is that we have to be honest and that
there is no silver bullet here. It really is going to take a
comprehensive policy. There are things that you can try to do
on the anxiety front--wage insurance, training, universal
health care. These are important. Of course, they are just one
piece.
I think the type of savings, the kind of universal 401(k)
to make sure people are building up savings, these are the
things you do at the personal side. I also think we have to
still keep stressing higher education even though--and this is
the trick--higher education has never been more important, and
yet it is less of a sure thing. That is the difficulties.
So, we have to do that side. As I have said before, if you
don't have an aggressive job, if your folks back home don't
believe that you are fighting for the jobs now and for job
creation and have strategies, that you are just about
adjustment assistance and long-term investment, I don't think
they will listen to you, and I think they may go for more
protectionist, less productive strategy.
So, I think it is incumbent on all of us to take that
anxiety seriously, realize there is something behind it, and
try to come up with the productive things that we can do so
that we don't--because I feel if we do nothing and are passive,
we will end up either letting people suffer or we will have
backlashes, which I think will lead to less productive
policies.
I will say, just as an advertisement, that nothing ever
documents so much of the statistics we have better than the
State of Working America that Larry Mishel has been the author
of with Jerry Bernstein for so many years.
Mr. ALDONAS. With your permission, Mr. Chairman.
I have given this a lot of thought, and I appreciate the
question because I come at it from the different angle. I think
we have refracted our politics through the lens of security,
and everybody is more anxious as a consequence. We are anxious
about the terms of our engagement in the world, not just
economically.
I think the Federal Government has fallen down in terms of
grappling with basic tasks that even very conservative people
like me think is their responsibility, whether it is Katrina,
whether it is the borders, whatever it might be. Then on top of
that you have this very real wage compression and the anxiety.
Gene points out that it is not just a blue collar phenomenon.
You add all that together and it is a pretty potent brew.
What I think is most critical is one of the points I was
making early on, Congressman, which is that we have to feel
like we control our own destiny. What I think is so incredibly
important about what you are doing here today, Mr. Chairman, is
you are defining the path that would allow every congressman to
go to the American public and say, you what? We do control our
own destiny. We don't have to be afraid about this, but we do
have to have a strategy for how we come to grips with the
challenges we are going to face.
If we do that together, I actually think we will find a way
of reducing that anxiety. On the other hand, if we don't do
that, I think it will grow. It will metastasize, and it will
defeat any kind of positive trade agenda.
Chairman RANGEL. Mr. Levin.
Mr. LEVIN. Well, Mr. Chairman, and how good it is to call
you that. This is really a breakthrough. You have been here
more years than I. I can't remember the last time we had a
hearing like this. I think it is a good kickoff to try to open
up, take off the lid, and see if we can't do much better. Thank
you.
Chairman RANGEL. Thank you.
The Ranking Member asked me to apologize that he had to
attend another meeting. You are right, Sandy. This is a
beginning. What is remarkable is why people enjoyed being for
trade or against trade, I don't know. I guess that is the
easiest way to handle complex legislation.
The goodwill that has been evidence of the private sector,
we have to find some way. You had mentioned, Gene, the
empowerment zones. It just seems to me if we can identify where
America is suffering pain and recognize that there are
investments--I don't know, some people call them dynamic
scoring. Whatever you want to call it.
If you recognize that if you invest in education, if you
keep people out of trouble, if you bring in the private sector,
then evidence an international genius in creating opportunities
for people, whether in Baghdad or wherever, you come in and you
are prepared to say, I am prepared to join the government and
assist my country in recovery here as we do so well in
developing countries.
We can designate where the pain is. Gene, we don't really
have to make a person whole. They come to a certain age, they
just take a hit. They were in the wrong business at the wrong
time. I used myself as an example, as someone who--no one would
know anyone with a college education.
My grandfather was a big shot uniformed elevator operator
in the criminal court building of New York. You couldn't touch
him. Then they automated the elevators. He almost died. When he
saw his grandson become an assistant district attorney in that
building, it eased the pain.
I think, no matter where you go in the country, when a
person, a family, and community loses their help and self-
esteem, America can do better. Just as we have had problems
with communication between Republicans and Democrats, we have
had a problem in communication as though business had an agenda
that had nothing to do with America. That is just not so
because they never differed.
The only way we can get Republicans and Democrats to be
able to do the right thing, especially during a time of budget
restraint, is that everyone can go home and explain that they
are in that bill.
So, I hope that if there is any success in this, tragically
it will be historic. You could be a part of that success if
some of the things that you stated, not for the Congress but
for the country, you can help us in putting this together so
that we have more competition, more productivity, more
business, more health insurance, more education, and most
importantly, where no American feels that they are not going to
make it.
It is not too bad being poor if you have hope that in this
country, you can make it. So, I think that if this is dramatic
in talking about it, imagine what we could do if we did
something about it.
Thank you so much for what you have thought, what you have
contributed. I will be sending a letter thanking you personally
and asking you to just put a couple of pages together so that
we can come together in a room without cameras, without
stenographers, and see what we can come up with. Thank you so
much.
[Whereupon, at 1:52 p.m., the hearing was adjourned.]
[Submissions for the Record follow:]
Consuming Industries Trade Action Coalition
February 13, 2007
Hon. Charles Rangel, Chairman
Committee on Ways and Means
U.S. House of Representatives
1101 Longworth Building
Washington, D.C. 20515
Dear Mr. Chairman:
On behalf of the Consuming Industries Trade Action Coalition
(``CITAC''), a coalition of companies and organizations committed to
ensuring that consuming industries and manufacturers in America have
access to reliable supplies of globally priced materials necessary for
those industries to produce their products, we are pleased to submit
these comments to supplement the record of the Committee's recent
hearing on Trade and Globalization. Our comments will focus on the
impact of protective trade remedy measures imposed by the United States
on consumers, especially ``consuming industries,'' those manufacturers,
distributors and retailers that rely on imported products to serve
their customers at home and abroad.
The Committee has jurisdiction over the trade remedy laws of the
United States, principally antidumping, countervailing duties and
safeguard measures. These laws, while they serve legitimate aims, can
also be fundamentally unfair to consuming industries as presently
constructed and applied. In the current world economy, competition is
fierce and intensifying, and U.S. consuming industries must be given
every opportunity to become and remain competitive in this environment.
Current U.S. trade remedy laws can erode consuming industries'
competitiveness in very specific ways. We will comment here on two
trade remedy issues of concern to consuming industries: zeroing and
industrial user standing in trade remedy cases.
1. Zeroing Should Be Eliminated
Zeroing is the practice of ignoring antidumping comparisons where
the export price or constructed export price is higher than the foreign
``normal value'' of that product. Table 1 below gives a simplified
example of the way zeroing works to increase margins of dumping and
distort the effect of dumping on the domestic economy. Accurate
calculation of dumping margins is important to consuming industries
because they ultimately pay the cost of excessive protection, through
higher prices, not only of imports, but also for domestic raw materials
and production inputs. The end of zeroing will bring substantial
benefits to consuming industries.
----------------------------------------------------------------------------------------------------------------
Average Total Domestic Domestic
Normal Export Export Dollars Value of Producers' Shipments if
Value Price Quantity Dumped Imports Shipments NV=EP
----------------------------------------------------------------------------------------------------------------
Month 1 $100 $90 150 $1,500 $13,500 $67,500 $75,000
----------------------------------------------------------------------------------------------------------------
Month 2 $85 $90 150 -$750 $13,500 $67,500 $63,750
----------------------------------------------------------------------------------------------------------------
Month 3 $150 $120 120 $3,600 $14,400 $72,000 $90,000
----------------------------------------------------------------------------------------------------------------
Month 4 $120 $130 110 -$1,100 $14,300 $71,500 $66,000
----------------------------------------------------------------------------------------------------------------
Month 5 $100 $140 105 -$4,200 $14,700 $73,500 $52,500
----------------------------------------------------------------------------------------------------------------
Month 6 $110 $130 110 -$2,200 $14,300 $71,500 $60,500
----------------------------------------------------------------------------------------------------------------
Totals 745 -$3,150 $84,700 $423,500 $407,750
----------------------------------------------------------------------------------------------------------------
The ``margin of dumping'' if zeroing is used would be 6.02 percent,
meaning that importers and consuming industries in this example would
pay a tax of more than 6 percent. However, the domestic industry's
sales figures in this example are actually better than they would be if
all import sales were actually at or below normal value. Clearly, the
impact of the import sales must include the negative comparison sales
to be accurate.
It is critically important in making policy to balance the
interests of domestic producers, importers and consuming industries.
This is certainly the case in calculating antidumping duties. In
CITAC's view, antidumping duties must consider all sales of the subject
product in the U.S. market, because all sales affect prices and
competition. Thus, sales at prices greater than ``normal value'' must
be counted or the result is inaccurate and distortive.
The U.S. antidumping statute does not mention zeroing, and U.S.
courts have held that zeroing is permitted under the statute, but not
required. Thus, the Department of Commerce is able to end the practice
without amending the statute.
However, zeroing does violate the WTO Antidumping Agreement to
which the United States is a party. In our comments to the Committee on
zeroing, submitted February 7, 2007, CITAC detailed the reasons why
zeroing is not required by U.S. law, why it is prohibited by WTO
agreements, and why it is bad economic policy for the United States. We
commend the Department of Commerce for taking steps to eliminate this
practice in narrow circumstances effective February 22, 2007, although
in this step they have not gone far enough.
Six decisions of the WTO Appellate Body have held that zeroing
violates the terms of the Antidumping Agreement. These WTO decisions
are, in CITAC's view, entirely in keeping with the letter of the WTO
Antidumping Agreement. These cases properly conclude that a ``product
as a whole'' under investigation or review is the subject of a dumping
``margin'' calculation, and individual sales comparisons are not a
``margin of dumping.'' Based on accepted principles of treaty
interpretation, this result is entirely proper. We urge the Committee
not to countenance defiance of the WTO rulings, but to comply with
them.
The U.S. national interest would be served by compliance with the
WTO rulings. American manufacturers that rely on vigorous competition
in securing their supplies of raw materials and production inputs also
face the same or greater competition from global suppliers of their
products. Excessive taxation of U.S. manufacturers in the form of
actual or threatened antidumping duties makes it more difficult for
them to compete from their U.S. manufacturing base and encourages
manufacturers to look to other countries. This should be discouraged.
The practice of zeroing has been condemned by the WTO and it must
be changed. We have urged the Department of Commerce to abandon the
practice in all phases of antidumping proceedings, including
investigations, administrative reviews, sunset reviews and changed
circumstances reviews. Only a full elimination of zeroing will truly
serve the interests of all American manufacturers and conform to WTO
rulings. We urge the Committee to work with all stakeholders to change
this policy and foster U.S. competitiveness in the global economy.
2. Industrial Users Should Have ``Interested Party'' Status in
Antidumping/Countervailing Duty Proceedings
Under current law, in contrast to domestic producers, foreign
sellers and importers of products in antidumping/countervailing (AD/
CVD) duty investigations, U.S. industrial users of these products have
no standing. Industrial users have no right to have their concerns
addressed during the proceedings, or to seek judicial review of adverse
Department of Commerce or International Trade Commission
determinations. Indeed, the International Trade Commission is not even
required to consider the impact of antidumping/countervailing duties on
U.S. consuming industries and industrial users in its final
determination. This is fundamentally unfair and unsound economic policy
for the United States.
U.S. industrial users must have access to adequate supplies of
globally priced raw materials and production inputs to be competitive
in a global market. Undue restrictions on imports reduce that access,
and result in the loss of U.S. jobs in industries that rely on those
raw materials and production inputs. Without equal standing under the
law, industrial users have no assurance that relevant facts, such as a
loss of manufacturing competitiveness and/or a loss of U.S. jobs in
consuming industries, will be part of any trade remedy determination.
Under current law, U.S. industrial users' only avenue for
participation in trade cases is to ask to be allowed to speak during
the time granted to the respondents in the case (foreign sellers or
importers of the products). But U.S. manufacturers' interests cannot be
adequately represented by foreign sellers or importers in these
proceedings--and they should not have to be.
Even if industrial users are granted time by foreign producers to
provide comments in a proceeding, which is by no means certain, current
law does not require that their input be taken into account by the ITC
in a final determination.
Not only are U.S. industrial users directly and adversely affected
by AD/CVD cases, they are often uniquely qualified to provide relevant
information in such proceedings on issues such as quality, delivery
lead times, domestic availability of unique products, whether U.S.
producers are able to meet domestic demand, and the likely impact of
the AD/CVD orders on U.S. demand for the subject merchandise.
Fundamental fairness and sound economic policy dictate that U.S.
industrial users be afforded the same status as all other participants
in trade remedy cases.
Conclusion
CITAC appreciates the opportunity to submit these comments for the
record of the Committee's recent hearing on trade and globalization. We
look forward to working with the Committee to ensure that U.S. trade
policy achieves the best outcome for all stakeholders in the American
economy.
Very truly yours,
Steve Alexander
Executive Director
Statement of American Forest and Paper Association
The American Forest and Paper Association (AF&PA) appreciates this
opportunity to present the forest and paper products industry's views
regarding trade and globalization. AF&PA is the national trade
association of the forest, pulp, paper, paperboard and wood products
industry. The industry accounts for approximately 6 percent of the
total U.S. manufacturing output, employs more than 1 million people,
and ranks among the top 10 manufacturing employers in 42 States with an
estimated payroll exceeding $50 billion. Sales of the paper and forest
products industry top $230 billion annually in the U.S. and export
markets.
As is the case with many U.S. manufacturing industries, we face
increasing domestic and international challenges. Since early 1997, 128
pulp and paper mills have closed in the U.S., contributing to a loss of
85,000 jobs, or 39 percent of our workforce. An additional 60,000 jobs
have been lost in the wood products industry since 1997.
U.S. and Global Trade in Forest Products
The U.S. forest products industry for many years has faced the
competitive forces unleashed by globalization. The United States is one
of the world's most diverse exporters of forest products, as well as
the largest importer. In 2005, U.S. exports of forest products grew to
$22.9 billion, a year-on-year increase of 7.7 percent, and were
composed of $5.9 billion of wood products and $17 billion in pulp and
paper products. Exports accounted for approximately 10 percent of total
sales of U.S. forest products last year.
However, U.S. imports of forest products have consistently grown at
a faster rate than American exports, resulting in an ever-widening U.S.
trade deficit. This trend has been intensified as many key foreign
competitors have used various tools including protective tariff and
non-tariff barriers, subsidies and undervalued currencies to develop
world-class, export-oriented forest products industries, which have
been able to exploit the open American market. The U.S. trade deficit
in forest products grew to $21.7 billion in 2005, an increase of 63
percent from 2001.
One of the most significant international trends that has emerged
over the past two decades is the increasingly important role of
developing countries in the global trade of forest products--as both
exporters and importers--and similarly as consumers and producers. For
example, forest product exports from seven geographically dispersed
countries--Brazil, Chile, China, Indonesia, Malaysia, South Africa, and
Thailand--have more than doubled since 1998 and developing countries
are rapidly increasing their share of global forest products
production.
In addition to being involved in international trade, AF&PA members
are international producers, with primary mills and converting
facilities in Canada, Europe, South America and Asia that supply local
markets. Other AF&PA members have U.S. operations of Canadian, European
and other foreign countries.
Opening Global Markets
As an industry that believes in the economic benefits of trade
liberalization, we have been a strong supporter of the trade
negotiating agenda of both Republican and Democratic Administrations.
We believe that multilateral trade liberalization is the best way to
achieve greater market access for our companies. However, when
multilateral negotiations have stalled or have not produced the desired
elimination of tariff and non-tariff barriers, our industry has
supported the negotiation of bilateral free trade agreements.
To achieve further trade liberalization, AF&PA strongly supports
the President's recent request for renewal of Trade Promotion Authority
(TPA) before it expires on June 30, 2007. TPA provides U.S. negotiators
with the credibility they need to extract the best possible outcome in
new trade agreements. To continue pursuing the reduction of both
multilateral and bilateral tariff and non-tariff barriers, the
Administration will need a renewal of a Congressional authority to
negotiate trade agreements under ``fast track'' conditions.
The Doha Development Agenda
AF&PA strongly supports the World Trade Organization (WTO) Doha
Development Agenda (DDA) and we hope the negotiations, which were
suspended in July 2006, can resume quickly and conclude with a final
agreement this year. AF&PA backs the Administration's market access
proposal for the WTO negotiations. We believe that sectoral tariff
elimination should be a principal negotiating modality of the Non-
Agricultural Market Access (NAMA) talks to go along with an ambitious
overall tariff formula cut that results in substantial cuts in applied
tariffs. It is critical to our industry that the early elimination of
tariffs on wood and paper products, through a forest products sectoral
agreement, be achieved. But for such a forest products sectoral accord
to be viable, it is essential that all developed and advanced
developing countries that are significant producers, are major markets,
and with substantial forest resources--e.g., Brazil, China, India,
Indonesia, Malaysia--fully participate.
The U.S. and most other developed countries agreed in the Uruguay
Round to eliminate tariffs on pulp and paper products (Chapter 47, 48)
by January 1, 2004. However, developing countries did not make any
commitments to reduce tariffs and continue to maintain substantial
duties on both paper and wood products. U.S. tariffs on imports of wood
products (Chapter 44) are already at or near zero with only a few wood
product categories subject to higher rates. Also, these higher rates
apply only to a very limited number of countries which are not members
of preferential tariff agreements such as the Generalized System of
Preferences.
As a result, the U.S. forest products industry has been forced to
operate under a significant competitive disadvantage vis-a-vis emerging
competitors such as Brazil, China, Indonesia, and Malaysia. High
tariffs (combined with non-tariff barriers discussed below) have
allowed countries in Europe, Asia and South America to build world-
class paper and wood processing industries, at times supported by
government financial assistance, which compete with U.S. suppliers both
at home and in third country markets. For example, in recent years,
China has significantly expanded and modernized its forest products
industry, aided by subsidies and other government policies designed to
grow and promote a domestic industry, while tariffs and non-tariff
barriers (NTBs) limit the ability of competitive U.S. suppliers to
fully take advantage of this fast growing market. So while China has
significantly reduced its wood and paper tariffs under its WTO
accession agreement, China's participation in a forest products
sectoral agreement will ensure that U.S. products of wood and paper
products have the same duty-free access to the Chinese market as
Chinese producers enjoy in the U.S.
Free Trade Agreements
As a supplement to the multilateral process under the WTO, free
trade agreements (FTAs) can also serve as a way to address the U.S.
forest products industry's trade liberalization objectives. AF&PA has
been a strong supporter of the FTA negotiation process and we have
already seen the benefits to our industry resulting from the bilateral
elimination of tariffs. For example, the U.S.-Chile FTA has been a
benefit to our industry's exports. On January 1, 2004, when the FTA was
implemented, Chile eliminated its 6% duty on all forest products. Since
then, U.S. exports to Chile have more than doubled and exceeded $100
million in 2006.
To achieve maximum benefits from future FTAs, AF&PA believes that
the U.S. should seek the immediate tariff elimination on forest
products as was negotiated in the Chile and Australia FTAs. Should that
not be feasible due to special product sensitivities, the U.S. should
seek tariff elimination in as front-loaded a manner as possible. In the
ongoing FTA negotiations with Malaysia and South Korea, as well as in
other future FTAs, the U.S. should also focus on the elimination of
non-tariff barriers and pursue the industry's policies which seek to
address subsidies for capacity building, exchange rates that are not
market-based, and commitments to combat illegal logging and related
trade.
Subsidies
Subsidies provided by foreign governments for capacity additions or
for upgrading existing facilities pose a serious challenge to the
competitiveness of the U.S. forest products industry. Government
subsidies distort markets by financing new capacity in sectors already
experiencing global overcapacity, and supporting production capacity in
inefficient facilities that would otherwise be closed in an open market
environment. The distortions associated with subsidized capacity
building or capacity maintenance have worldwide implications. As
American firms compete in a global market, limiting and eliminating
these types of market distortions is critical to the economic health of
the U.S. forest products industry and to ensuring that American
companies are competing on a level playing field.
AF&PA believes that the Doha Round Rules negotiations must address
the distorting effects subsidies by foreign governments have on the
U.S. forest products industry. Specifically, WTO members should agree
to prohibit all subsidies in capacity-sensitive sectors, whether direct
subsidies or indirect subsidies provided through government-owned or
government-controlled banks, with possible exceptions for capacity
closure and associated worker adjustment assistance schemes. This would
entail an expansion of existing subsidies disciplines, and measures
would be enforceable through the WTO dispute settlement process. The
U.S. also needs to seek aggressive commitments to eliminate government
subsidies in FTAs, with the current FTA negotiations with South Korea
being a prime opportunity.
The emergence of China as a major global economic and forest
products industry player has created both business opportunities for
AF&PA member companies and a source of market and trade distortions. We
are concerned that the Chinese government has provided substantial
direct and indirect subsidies to the Chinese paper industry in the form
of grants, low interest loans, loan forgiveness and the bailout of
failing enterprises. AF&PA has conducted extensive research regarding
government subsidies to the paper industry in China and we believe that
some of these practices may not be in compliance with China's WTO
obligations.
We note that China's 11th Five Year Plan might signal an important
change in emphasis from previous plans when it comes to government
policy toward industry. Based on publicly available information, it
seems that the new Five Year Plan has a more market oriented approach
toward economic development and addresses some of the ``unhealthy''
outcomes of China's rapid industrial expansion, namely the potential
for environmental pollution, excessive energy and water consumption,
and China's raw material deficit. We hope that greater government
concern about the negative impacts of excessive investment will lead to
more balanced and sustainable growth in China's paper production and
capacity. In the meantime, AF&PA supports the increased scrutiny which
USTR and the Department of Commerce have placed on China's industrial
subsidy practices. We also continue to support legislation that would
apply U.S. countervailing duty (CVD) law to subsidized imports from
non-market economies such as China.
Relationship Between Currency and Market Access
Distortions in foreign exchange markets, stemming from currency
manipulation by foreign governments, alter international trade patterns
and adversely impact the competitiveness of U.S. firms, including
forest products manufactures. A number of the U.S.'s principal trading
partners, such as China, Japan and South Korea, intervene in foreign
exchange markets to keep their currencies undervalued in order to
support exports and effectively limit imports into their markets. It is
essential that the U.S. Government address the persistent challenge of
currency manipulation in an active and responsible manner.
The critical role of exchange rates in determining the quality of
market opportunities obtained in trade negotiations is widely accepted.
For this reason, Trade Promotion Authority legislation should include
language which recognizes that significant or unanticipated changes in
exchange rates can negate U.S. market access gains in trade agreements
and call for consultations with our trading partners under such
circumstances. We recommend that USTR assess the comprehensive impact
of exchange rates on market access when negotiating trade agreements,
and provide a mechanism for consultations on this subject in the text
of trade accords. Otherwise, U.S. trading partners may be able to
negate market access negotiated for American producers under
multilateral, regional and bilateral trade agreements.
Trade and Environment
The U.S. forest products industry strongly supports efforts to
ensure that products entering international commerce in general and the
U.S. market in particular, are produced in a sustainable manner. AF&PA
members are committed to the highest level of forestry practices, as
required by the independently reviewed Sustainable Forestry Initiative
(SFI) and our Environmental Health & Safety Principles. We oppose trade
practices that permit or foster environmental degradation to gain
competitive advantage. We encourage U.S. trade policies that promote
enforcement of domestic environmental laws, provide positive incentives
for improvements in environmental practices, and preclude the use of
environmental standards as barriers to trade.
For example, illegal logging is a shared concern among governments
and producers, manufacturers, importers and exporters of forest
products and a problem that compromises the economic, environmental,
and social objectives of sustainable forestry. Illegal harvesting can
have harmful impacts on biodiversity and the overall environment. It
also affects the competitiveness of legal forest product producers when
illegally harvested wood enters the marketplace without reflecting the
true cost of sustainable forest management, especially as the cost of
wood is the largest cost component in any forest product, making it
difficult for honest companies to compete.
The presence of illegal material in the marketplace significantly
affects the ability of U.S. producers to export. A 2004 report
commissioned by AF&PA analyzed the extent and economic impacts of
illegally produced and traded wood products. According to that report,
up to 10 percent of global timber production could be of suspicious
origin and illegal logging depresses world legally harvested wood
prices by 7-16 percent on average, depending on the product. If
illegally harvested wood was eliminated from the global market, the
study estimated the value of U.S. wood exports could increase by over
$460 million each year. Domestic shipments are also impacted by a
comparable amount ($500-$700 million annually) because illegally
sourced wood depresses prices for wood products globally, even for
those produced in the United States.
The recent Memorandum of Understanding (MOU) on combating illegal
logging and associated trade between the U.S. and Indonesia
specifically recognizes that illegal logging undermines trade in
legally produced timber and forest products, reduces the economic value
of forests, weakens efforts to promote sustainable forest management,
and robs governments and communities of important revenues. AF&PA
applauds the U.S. Government's efforts in completing this MOU and
recommends that consideration be given toward using this MOU as a model
for future agreements with countries where illegal logging has been
identified as a concern.
Trade and Labor
The U.S. forest products industry strongly supports efforts to
ensure that products entering international commerce in general and
U.S. markets in particular, are produced in accordance with
internationally recognized labor standards. The U.S. forest products
industry opposes the use of unfair labor practices to gain competitive
advantage. We encourage U.S. trade policies to provide positive
incentives for improvements in labor standards and enforcement of
domestic labor laws.
Conclusion
AF&PA appreciates the Committee's interest in these important
issues, and the ability to provide comment on them. We look forward to
working with the Committee in the 110th Congress to advance the U.S.
international trade agenda to the mutual benefit of our member
companies and their employees through policies that will enhance their
competitiveness.
Statement of Central America Black Organizations
(1) Responses to the Committee concern about the philosophy that
more trade is always better, no matter its terms or contents;
(1a) The Central America Black Organization and the constituents
they represent do not agree that more trade no matter its terms is
better.
(1b) There are instances where the net effect of certain trade
transaction contradicts and presents obstacles to the concept that
global trade activity should result in the maximum amount of broadly
based economic growth.
Transactions that result in runaway jobs to Latin America and the
Caribbean for the sole purpose of taking advantage of labor conditions
in the region while not affording a living minimum wage and/or
opportunity for labor to bargain for fair wages based on productivity
for the workers in the region, negatively affects both the worker in
the region and the worker in the United States.
Trade transactions that cause the destruction of domestic farm
production with resultant flight of the bankrupt farmers to local
cities where they are faced with starvation wages produces an eventual
increase in attempts to migrate to the United States in search of any
available opportunity to make a living abroad even at below the United
States minimum wage.
(1c) Under the Current Paradigm
The Central America and Dominican Republic Free Trade Agreement
(CAFTA) will generate millions of dollars of new economic activity in
the respective countries involved with limited benefit to people of
African Descent, Indigenous Descent and other ethnic minorities. People
of African and Indigenous Descent and other ethnic minorities are the
ones who suffer most during the adjustment period, because racism and
discrimination against these groups serve as obstacles to their ability
to access resources needed to adjust to new economic activity and rules
of trade interaction.
Sophisticated systems of discrimination exist in Central America
and the Dominican Republic that, in an almost invisible manner to
outsiders, prevent equality of opportunity to participate. Even more
sinister is the fact that the discriminatory practices translate into
lack of opportunities for employment, except at starvation wages, for
many in the affected groups, and accounts for their unusual high
numbers among the poor of these societies.
According to a Trade Impact Review case study conducted by the
Women's Edge Coalition \1\ adverse conditions that affected many
Mexicans during the North American Free Trade Agreement (NAFTA)
adjustment experience contributed to increased waves of Mexican
economic refugees to the United States. That review recommended the
provision of development funds to affected populations to alleviate
push factors for migration as evidenced in the migration patterns
emanating from Mexico.
---------------------------------------------------------------------------
\1\ (http://www.womensedge.org/documents/
mexicocasestudyfactsheet.pdf).
(2) Responses to the Committee concern about whether the benefits
of globalization are being spread broadly to working people, farmers,
businesses and consumers in the United States, and if not, what
specific changes to U.S. trade policy and international trading rules
should be recommended to maximize the benefits and minimize the costs
---------------------------------------------------------------------------
of globalization.
(2a) The Central America Black Organization and its Diaspora
network in the United States contend that opportunities to participate
in providing technology exchange, training, research and capacity-
building related to globalization is not being spread broadly to
institutions and research centers based in and that provide services to
communities in the United States of peoples of African Descent,
Indigenous Descent, and other ethnic minorities formerly victims of
Colonialism in Latin America and the Caribbean.
The Diaspora network in the United States also contend that whole
communities in the United States impacted by high incidences of poverty
and especially communities of peoples of African Descent, Indigenous
Descent, and other ethnic minorities formerly victims of Colonialism in
Latin America and the Caribbean are being bypassed and do not have the
opportunity to participate in globalization.
(2b) The Central America Black Organization contend that the
positive aspects of globalization are not being spread broadly to
working people, small farmers, small businesses from communities of
peoples of African Descent, Indigenous Descent, and other ethnic
minorities formerly victims of Colonialism in Latin America and the
Caribbean.
The Central America Black Organization also contends that whole
communities in Latin America and the Caribbean impacted by high
incidences of poverty and especially communities of peoples of African
Descent, Indigenous Descent, and other ethnic minorities formerly
victims of Colonialism in Latin America and the Caribbean are being
bypassed and do not have the opportunity to participate in
globalization.
(3) Responses to the Committee concern about what have been some of
the most important successes of U.S. trade policy in the recent past in
terms of maximizing the benefits of globalization and minimizing its
costs.
The Central America Black Organization and its Diaspora network in
the United States are affiliated with and proponents of the ``New
Paradigm for the Eradication of Poverty Movement.'' \2\ The proponents
contend that research work in progress of the Consortium of
Universities and Research and Development Centers for Technology
Exchange and Capacity Building in the Americas \3\ which includes
universities and research centers based in minority communities of the
Southern Diaspora should be commissioned to recommend ways of
connecting the benefits and opportunities of historic successes to a
multi-regional partnership that includes peoples of the U.S. Diasporas
of discriminated peoples of Central America and the Caribbean. The
group believes that research will reveal that U.S. Government policy
allows for millions of dollars of set-aside purchases from minority
businesses which are much underutilized, especially in the defense
manufacturing sector that could result in the conversion of these
initiatives to trade policy that allows U.S. minority firms to
subcontract or joint venture with counterparts in the CAFTA region in a
multi-regional minority set-aside program with the groups we describe
in section 2 above.
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\2\ The New Paradigm Publication and Movement establishes
strategies for community development, capacity building, partnership
human resource investment, cash investment and leveraged consumption by
the invisible majority in Latin America and the Caribbean to generate
production of goods and services and inclusion in Fair Trade.
\3\ New Paradigm Publications will be forwarded for the records and
use of the Committee.
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Some ideas being explored by the Southern Diaspora Research and
Development Center Member of ONECA and also member of the Consortium of
Universities and Research Centers include: \4\
---------------------------------------------------------------------------
\4\ A concept paper ``The Central America and Dominican Republic
Capacity Building Initiative for Community Participation in Creation of
New Wealth Opportunity and Eradication of Poverty,'' (Revised Dec. 11,
2006) being prepared by Dr. Waldaba Stewart, Dr. George Irish, Dr.
Marco Mason, Esmeralda V. Brown, Tonya Frishner, Dr. Celio Alvarez of
the Southern Diaspora Research and Development Center and the Medgar
Evers College Research Center will be forwarded.
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(a) Utilizing tax benefits, and trade concessions in ``operation
bootstrap'' in Puerto Rico which resulted in millions of dollars in the
936 Program and a viable pharmaceutical and related manufacturing
sector. There are a host of nonsensitive defense components and
products that could be produced in the region and stimulate
technological and production growth in linked industries. . . .
(b) Facilitating investment and trade between U.S. Small Minority
Enterprises (SMEs) and their minority counterparts in the CAFTA region
could be encouraged with tax benefits to the U.S. partners. Transition
from exports to production sharing can be achieved by allowing the U.S.
firms to receive multi-year tax benefits/relief on earnings generated
from investments in production in the region. This could be modeled
after or tacked on to the evolving IC-DISC to ETI experience.
A concept paper ``Doors of Opportunities for Fair Reciprocal Trade
Partnership and Enterprise Growth Involving Discriminated Communities
in the Americas Through a Capacity Building and Social Investment Set-
Aside Fund'' being prepared by Dr. Marco Mason, Dr. Waldaba Stewart, et
al., of the Southern Diaspora Research and Development Center will be
forwarded upon completion.
(4) Response to Chairman Rangel's announcement that: ``We need a
better understanding of the winners and losers under our current trade
policy. Congress must be an active partner with the Administration in
shaping trade policy to strengthen economic opportunities for American
workers, farmers and businesses and this hearing will provide a
framework for future legislative action.''
(4a) Introductory response to this section by the Central America
Black Organization CABO/Organizacion Negra En Centro America ONECA
An understanding of the winners and losers under our current trade
policy must take into consideration the fact that under the current
paradigm, there is an invisible majority of people of African Descent,
Indigenous Descent, and other ethnic minorities formerly victims of
Colonialism in Latin America and the Caribbean who are losers in this
process due to racism and ethnic discrimination.
The losers among that invisible majority in Latin America and the
Caribbean include the unemployed, underemployed working people
functioning at starvation wages, small farmers who are being forced off
of their lands, and potential small business entrepreneurs who are not
able to obtain access to capital, credit and technology exchange so
that they can compete and participate in global production and trade.
An understanding of the winners and losers under our current trade
policy must take into consideration the fact that due to racism and
ethnic discrimination, there are people of African Descent, Indigenous
Descent, and other ethnic minorities formerly victims of Colonialism in
the United States who are losers in this process.
The losers in this population include unemployed, poor, working
people; medium size farmers; potential small businesses; potential and
existing community based traders; and Institutions of higher learning
and Research and Development Centers from the Diasporas in the United
States that could provide capacity building, technology exchange and
research in the United States from and in communities of peoples.
(4b) Analysis of CAFTA by the Central America Black Organization/
Organizacion Negra En Centro America (ONECA)
``Unfortunately the CAFTA provisions to date do not contain
adequate provisions to ensure that countries with highly unequal income
distribution and afflicted by racism and insufficient government
political will provide for meaningful participation of ethnic
minorities in CAFTA implementation.'' (See CAFTA Summary Attached.)
Current CAFTA law does not include adequate provisions to deal with
instances of racism and discrimination by government officials, civil
society and developers that prevent an equal playing field and
opportunities for the participation of people of African Descent in
Central America, the Dominican Republic and the Diaspora in sustainable
development and trade in Central America and the Dominican Republic.
People of African and Indigenous Descent in Central America and the
Dominican Republic, people of African and Indigenous Descent from
Central America in the U.S. and their allies and associates in the
African American Community of the United States will have problems
competing in a free trade environment by the blockage of access to
resources for development, upgrade and credit for trading.
Given the current unequal treatment of peoples of African and
Indigenous Descent in Central America and the Dominican Republic, funds
and other resources must be found to enable investors of African and
Indigenous Descent and others in the U.S. and in Central America to
access affordable interest financing for Community-based Non-
Governmental Organizations (NGOs) and Coalitions of African Descent
involved in small- and medium-size farming, services including tourism,
trade and other sustainable economic development activities.
Many groups have concluded that to succeed in the implementation of
CAFTA the United States must help build bridges of inclusion and
linkages with ethnic minority communities in Central America and the
Dominican Republic.
For example, funds could be set aside for capacity building grants
distributed by the Inter American Development Foundation to ``enable
small farmer coalitions and urban trade consortiums of people of
African and Indigenous Descent to engage in joint venture operations in
the area of trade and economic development between African Americans,
Afro Latinos in the U.S. Diaspora and Afro Latinos and Indigenous in
Central America and the Dominican Republic, so that they can compete
under CAFTA in fair two-way trade, in the provision of services, in the
development of tourist destination sites on land they own or control,
and to manufacture and sell nontraditional agricultural products and
their own cultural products.''
In response to emerging global economic development and trading
trends around the world and in the multi-regions of Central America,
the Caribbean and the United States of North America, an effort is
underway in the Southern Diaspora, in the Caribbean and in Central
America to organize individually and in groups to meet the rigors of
survival in the new international climate of Free Trade and/or Fair
Trade.
A multi-regional self-organized Tri-Partner structure has been
launched of Peoples of the United States Southern Diaspora, the Peoples
of the Dominican Republic, peoples of the Caribbean Common Market and
Economy and Peoples of Central America.
According to ONECA, ``We want our communities to be included as
active participants in the implementation of the agreement--as
entrepreneurs with our own businesses, or as partners with
international investors--not only as potential workers in low-paying
jobs created by CAFTA at the Maquiladora or other activities. For this
to be possible, our governments must create the conditions to
facilitate our participation as competitive players in Central
America's new market conditions.'' \5\
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\5\ Board Resolution from CABO/ONECA prior to passage of CAFTA.
Celio Alvarez Casildo, President.
(4c) The New Emerging Reality and Implications for Minority Groups
---------------------------------------------------------------------------
in the United States
The Southern Diaspora of African descent and other ethnic and
minority communities in the United States of North America are now
exposed to a new world where jobs are not only based on domestic
activity but instead a large number of future jobs will be based on
global outsourcing as well as on involvement in international trade.
The U.S. community of African descent and other ethnic and minority
communities must find ways of getting involved in trade and commerce,
domestically and internationally. Success in international trade will
depend heavily on taking advantage of the various linkages to people in
markets abroad and in the U.S.A. In this respect, New York State, and
similarly endowed States which includes major groups that are
affiliated to, associated with, and could be linked with, people of
African descent in Central America and the Caribbean can lead in this
endeavor.
New York has for a long time been working on this concept first
conceived when the Hon. Charles Rangel proposed a Trade Center to
facilitate the participation of Southern Diaspora people in the U.S. in
trade.
There is an emerging realization that free trade that is unfair
and/or one-way has serious, unintended consequences and does not result
in the win/win situation originally proposed. Unfair one-way trade has
produced flight of jobs, from one region to other regions, and
opportunities for large, organized business to exploit the situation as
they seek to acquire supplies at the lowest possible price. At the same
time invasion of developing areas with subsidized products eliminate
production capacity in the developing countries, and the starvation
wages paid by multi-national corporations are sufficient to offset the
losses of jobs in the developing countries and in the developed
countries. The resulting economic depression in developing regions
increases the flight of people to developed areas and create
immigration crises.
On a global basis, the developed areas of the world will have to
compete with each other for the consumer markets in developing
countries. A substantial part of that consumer market consists of poor
people. If those poor persons were included in and benefited from
development in their area, their purchasing power would increase and
contributes to overall success of the implementation of applicable
Trade Agreements and present opportunities for partnerships with their
Diasporas in the United States.
(4d) Unfortunate Obstacles to Partnerships and Trade Between People
in the U.S. Diaspora and Peoples in Central America and the Caribbean
A substantial portion of the People of African and Indigenous
Descent in Central America, the Dominican Republic and some other parts
of the Caribbean are unemployed and underemployed persons and are
denied equal treatment for jobs in major sectors of the society.
Ironically, in some of these societies those under 21 and those over 45
are often not offered jobs.
The subsistence production of these people are in danger of being
wiped out by subsidized products from abroad while locally they are
denied access to resources that would enable them to enhance their
capacity to compete and/or increase their production of value-added and
nontraditional products.
People of African and Indigenous Descent in Central America who
attempt to obtain business loans from the banks are routinely turned
down and/or offered outrageous terms that would make proposed business
initiatives unfeasible.
In spite of the present adverse opportunity circumstances, some
peoples of African Descent in Central America have come together to
create Master Plans that would enable them to participate in
sustainable economic development in their respective countries.\6\
Similar self-determination activities are being discussed among peoples
of Indigenous Descent. In this context, a Central American Free Trade
Agreement (CAFTA) presents a unique opportunity to bring minority
groups that have been traditionally marginalized into the mainstream of
international trade.
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\6\ Master Planning is described in The New Paradigm documents that
will be forwarded.
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Providing opportunities as part of CAFTA to the growth, development
and well-being of the people of Central America, the Dominican Republic
and the CARICOM Region would not only ensure them a fair share in the
benefits of CAFTA, but also protect the collective socio-cultural and
economic well-being of all of the peoples of the CARICOM and Central
American Regions. This will require a set-aside of resources to
overcome racism and discrimination as obstacles to participation during
the CAFTA transition period.
(4e) A New Paradigm for the Eradication of Poverty calls for
Community Participation in the U.S. and in the Caribbean in New
Community Enterprise expansion based on belief:
That providing tools to peoples in disadvantaged
communities for the generation and implementation of economic
initiatives can make a significant impact on the quality of life of
peoples within the communities.
That there is a reservoir of capable persons within every
community that could
become entrepreneurs, individually or collectively under the right circu
mstances.
That it is possible to work with community people to
develop sustainable economic and environmentally friendly master plans
for the community.
That with joint venture participation in selected
projects in the master plans developed, the communities can facilitate,
own, operate and support the resultant products of the collective
planning efforts and thus ensure improvement in the quality of life and
environment of the community.
That Sustainable Economic Development work based on
community participation in economically sound and environmentally
friendly projects can be profitable for all of the participants in such
an effort.
That once the processes for Community Participation in
Sustainable Economic Development bears fruit, economically empowered
communities of the Processes can be involved in Fair Two-way Trade.
(4f) The proponents of a New Paradigm look forward to additional
dialogue toward forging and implementing approaches designed to help
achieve the goals of democratizing access to financing in Latin America
and the Caribbean thus providing enterprise expansion in partnerships
between the Southern Diasporas of the U.S. and the Real Majorities (as
used here this term is polemical and unsubstantiated instead, use the
term in Marginated and Discriminated Communities) in Latin America.
(4g) Other Observations
According to the authors of the recently published document ``A New
Paradigm for the Eradication of Poverty'' (available to this
Committee):
``In parts of the Caribbean and Central America the peoples of
African Descent, Indigenous peoples and ethnic minorities of Central
America and parts of the Caribbean find themselves the least prepared
and least able to participate effectively because of racial and
discrimination barriers to access to resources that could enable them
to compete and make positive contribution to their societies, the world
in general and their potential partners in the United States.'' \7\
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\7\ Dr. Waldaba Stewart and a task force of 11 co-authors,
presented the New Paradigm publicly at the Carib News Conference in
Panama, November 2006, and available on the Web Site
southngocaucus.org.
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According to the Inter American Development Bank (IADB) document
Building Opportunity for the Majority, ``It is one of the profound
lessons of economic history that democracy and free markets together
provide the best foundation for both economic prosperity and a vibrant
civil society. These systems reinforce each other when markets provide
opportunity for the vast majority of citizens to participate
effectively in economic life as both producers and consumers. When
markets empower the majority economically societies can flourish and
compete successfully in the global market place.'' \8\
---------------------------------------------------------------------------
\8\ Inter American Bank Publication, 2006.
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``Unfortunately the governments in the various countries of Latin
America have historically made it difficult to generate demographic
data that would highlight exclusion of African-descent and ethnic
minorities in matters of access to resources for development and their
fair share of government social services. By understating the figures
those in power are able to utilize corrupt practices to siphon off
resources that should go to marginalized (majority) groups while still
receiving the votes of the discriminated majorities.'' \9\
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\9\ Stewart demographic study presented at the 2003 Annual Meeting
of CABO/ONECA.
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The insistence in misconstruing who the majority is has enabled the
following contradictions according to the IADB (Building Opportunity
for the Majority). ``Even if the period of uninterrupted growth from
1960 to 1980 were included there would still be no improvement in
poverty or inequality despite a 95 percent real growth in per capita
gross domestic product over the past 45 years. This lack of broad-based
growth manifests itself in social and economic exclusions. Typically
exclusion refers to minority groups that are marginalized because of
race, ethnicity, and gender.'' \10\
---------------------------------------------------------------------------
\10\ Inter American Bank (IADB) Publication (Building Opportunity
for the Majority).
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``There are widespread discrepancies in the census counting African
Descendants in the Americas. The World Bank estimate provides a rather
conservative number, indicating that about 34% of the 520 million
people living in Latin America and the Caribbean Region or roughly 150
million people are of African descent.'' \11\
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\11\ Stubbs.
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According to CEPAL, ``The top five ranking Latin American countries
with substantial African Descendent populations are the Dominican
Republic (84%), Cuba (62%), Brazil (45%), Colombia (26%) and Panama
(14%).\12\ Despite their considerable numbers and significant
contributions to the region's economic development, the African descent
population in Central America remained marginalized from the
socioeconomic mainstream of their societies.'' \13\
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\12\ World Bank and Afro-Latin.
\13\ Stubbs.
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The Inter American Development Bank rightly identifies the gap
between commercial banking that produces the leverage for enterprise
development and growth and the fact that theoretically there is plenty
of opportunity to engage persons from the minority sectors in a way
that would produce profits for the commercial banking system.
In this context, it is noteworthy that as a region, Latin America
has the highest level of inequality in the world. Throughout the region
92% of the African descent population live in disproportionate
poverty.\14\
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\14\ World Bank and Afro-Latin.
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Central America chronically reflects the hemisphere's chronic and
deep-seated patterns of racial/ethnicity based social and economic
exclusion. In Central America this pattern has resulted in desperate
lack of opportunities and living in extreme poverty for the bulk of the
African descendant population. The same is also true for indigenous and
ethnic minorities in the region.
(4h) Recommendations
ONECA and its regional partners hereby firmly proposes a strategy
designed to ensure that U.S. Trade Policy and the forces of the global
economy are harnessed to maximize yielding fairness, effectiveness and
efficiency toward generating optimum beneficial impact, promoting
enterprise growth and economic development conditions in the United
States as well as in the Americas that would foster opportunities, that
would foster expanded trade and for the benefits of globalization to
positively impact the industrial multi-sector throughout the
hemispheric economy, and correspondingly having positive impact on
small businesses, farmers and workers in the traditionally marginated
and discriminated African Descendant Communities in the Americas. This
proposed strategy is anchored on the establishment and operation of a
regional fund designed to enable members and groups in Discriminated
Communities to gain capacity development for enterprise growth that
will enhance, expand and organize import, export and production
activity for participation in the Fair Trade Initiatives and facilitate
economic development opportunities that will contribute to a reduction
in unemployment, social inequality and poverty.
The fund will allocate mini-grants to facilitate the creation of
economic development structures, strengthening organizational
infrastructure and facilities and to help foster conditions that are
conducive to the production of high-quality goods and trade activity in
Discriminated Communities with Master Plans for Sustainable
Development.
It is hoped that when deliberating on fostering greater economic
activity in minority communities that there be a substantial emphasis
on creating new opportunities and benefits for businesses and
entrepreneurs in the African descendant communities in Latin America,
the Caribbean and the United States.
Funds could be set aside for capacity-building grants to enable
small farmer coalitions and urban trade consortiums of people of
African and Indigenous Descent to engage in joint venture operations in
the area of trade and economic development between African Americans,
Afro Latinos in the U.S. Diaspora and Afro Latinos and Indigenous in
Central America and the Dominican Republic, so that they can compete
under CAFTA in fair two-way trade, in the provision of services, in the
development of tourist destination sites on land they own or control,
and to manufacture and sell nontraditional agricultural products and
their own cultural products.
The Committee should support the Southern Caucus of NGOs for
Sustainable Development Task Force for Access to Capital and Credit of
which ONECA/CABO is a Partner and which includes a network of Minority
Banks in developing a financing fund to enable investors of African and
Indigenous Descent and others in the U.S. and in Central America to
access affordable interest financing for Community-based Non-
Governmental Organizations (NGOs) and Coalitions of African Descent
involved in small- and medium-size farming, services including tourism,
trade and other sustainable economic development activities.
ONECA/CABO recommends that resources be made available so that the
University and Research Center Consortium previously mentioned can work
in partnership with ONECA/CABO to conduct a definitive study of the
demography of the region ``Now.'' If we did nothing else but that we
would go a long way toward correcting the problems with the present
implementation of economic initiatives in the region.
Statement of Executive Intelligence Review
Dear Chairman Charles B. Rangel, and other Honorable Members of the
Committee:
We fully support your opening of the work of the 110th Congress, by
holding a series of hearings on the economic conditions of the United
States; and in that spirit, we respond bluntly to your questions for
this third hearing--on how to identify the ``successes'' of
globalization and improve its ``benefits''--by stressing this one
central point: Globalization has been a raving success for those
financial interests who imposed it over the past 40 years; and a
disaster--as they intended--for the nations and peoples that are being
looted. Therefore, it should be stopped--NOT improved or adjusted to.
So-called free (rigged) trade must be stopped, and a set of monetary,
foreign policy and economic measures initiated for the mutual benefit
of building up nations again.
``Too late? Can't be done?'' Not at all. The popular groundswell
for ``fair'' trade, not free trade, and for curbing the ``excesses'' of
globalization, is evident across the United States. Just look at the
many articles and books by your fellow Congressmen on the topic. The
Nov. 7 election results are a mandate to end the globalization
disasters of the last three decades of GATT/NAFTA/WTO/``free trade
democracy,'' and all the other variants. Internationally, a rush of
support is awaiting any congressional initiative in this direction,
even for the most preliminary measures. It would signify that the
United States is returning to sanity and its founding principles.
Second, we have no choice but to confront the real nature of the
menace involved in globalization. We are at a blow-out stage of the
world monetary and financial system. The unprecedented volumes of
speculative activity--mostly denominated in U.S. dollars--are at the
point of chain-reactions of nonpayment. Look at the bursting of the
home mortgage bubble, the commodities prices volatility, the frenzied
hedge fund takeovers of economic activity, the privatization-grab for
government infrastructure assets, not to mention gambling, otherwise
known as derivatives.
``Globalization, The New Imperialism''
``Globalization, The New Imperialism,'' was the title of a policy
document by Lyndon LaRouche in October 2005, which was a forewarning,
to provide policymakers the means to understand what we're up against.
(See www.larouchepac.com, ``A Strategic View of European History Today;
Globalization, The New Imperialism.'') The United States and other
republics would not exist today, if in the 1700s, the leaders of the
American colonies, and their European allies, decided to lobby to
merely ``improve'' the conduct of the British and Dutch East India
Companies, rather than to break from their imperial control. (In
historical fact, the British East India Co. itself backed fake
``popular movements'' to plead with the Company to not overcharge for
goods, to go easy on slaves, and to provide chaplains on commercial
missions, etc.).
Unfortunately, these networks were not trounced in the American
Revolution, and have attempted to regain dominance at many times since.
Today, the particulars may be different from the 18th century, but
there is a continuity of both the nature of imperial control, and even
of the pedigree of major financial interests involved, whose practices
are called by economic historians, ``Anglo-Dutch liberalism.'' LaRouche
warned in 2005:
``The long-ranging drive of the Anglo-Dutch Liberal financier-
oligarchical establishment, over the post-Franklin Roosevelt period of
world history, has been to destroy the institution of the sovereign
nation-state republic throughout the planet, an intention which has
been turned loose, full force, with the collapse of the Soviet system.
The name given to this global destruction of sovereignty of nations,
including that of the U.S.A. itself, is `globalization.'
``The systemic characteristic of this transformation, most clearly
since the middle to late 1960s, has been the destruction of the so-
called ``protectionist model'' of the U.S. economy. The intent has
been, including from the government of the U.S.A. itself, to destroy
the role of the U.S.A. as a sovereign nation-state, by destroying the
so-called `protectionist' system on which the superiority of the U.S.
economy to that of other parts of the world had depended, prior to the
1971-1982 transformation of the U.S. into the presently bankrupt
`service economy' rubbish-bin it has become. The intent of
globalization is to make the poverty of the so-called `developing
sector' permanent, by degrading the physical economies of the Americas
and Europe to the notoriety of `Third World' conditions, and by making
`Third World' conditions the standard for economy worldwide.''
From this vantage point, we here provide summary documentation and
references to back congressional action to end the globalization era,
under three main points:
History of the imposition of globalization,
Review of the damage from globalization,
Emergency measures called for.
Globalization Was Imposed, Not ``Evolved''
At the 1944 Bretton Woods conference, which set up the post-WW II
financial system, a proposal to establish an ITO--International Trade
Organization--was voted down. This reflected the prevailing principled
view that trade between nations was a prerogative of sovereign
governments to determine what was in their mutual best economic
interest, and not that of either supra-national agencies, nor private
multi-national financial interests. Over the subsequent 15-20 years,
this principle continued, despite exceptions and assaults, as post-war
reconstruction took place, new nations gained independence, and the
prospects for a vast advance in economic conditions globally were
indicated in the ``Atoms for Peace'' program, to harness nuclear power.
The original goal of Franklin Delano Roosevelt, for a post-war
``International New Deal'' for deliberate multi-nation collaboration on
infrastructure and rapid economic development was thwarted,
because of direct opposition through the Truman Admin- istration. But
there was still a vector of development underway until the mid-1960s.
However, by the 1970s, this dynamic had been seriously undermined
by the opponents of national sovereignty and development. In brief: In
1971, the dollar was ``floated,'' which ushered in the era of
increasing uncertainty from fluctuating currency exchange rates, and
speculative activity amounting to a World Casino. The graph here shows
that over two decades, the volume of currency exchange associated with
trade in goods collapsed, in contrast to exchange associated with
speculation.
In the United States, deregulation was launched in all manner of
vital functions--trucking and rail, health care (1973 was the first HMO
Act), and energy, culminating in Enronomics. In the 1980s, Margaret
Thatcher's Britain became the world model for radical privatization and
deregulation. In 1986, with the ``Uruguay Round'' of the U.N. ``General
Agreement on Tariffs and Trade,'' a Thatcher-type campaign was launched
to ``reform'' the entire world farm and food systems by taking away
``trade-distorting'' practices such as tariffs and national food
reserves.
The sophistry of the GATT globalist movement was shown in its
slogan, ``One World, One Market'' to argue that citizens of every
nation had the ``right'' to access their food and all other needs
directly from world sources, not from the ``confines'' of their own
nations. ``Borderless'' free trade was the goal across the board for
banking, labor, industrial and agricultural goods and services, and
especially access to minerals and natural resources.
In January 1988, the Canada-United States Free Trade Act was
signed. In 1992, NAFTA was concluded. In 1995 the World Trade
Organization was established. During this process, when Germany was re-
unified in 1990, the ``free trade'' movement was imposed on it,
including on Russia, and other parts of the former Soviet bloc.
In the course of all this, a ``blob'' of cartels and multi-national
financial networks positioned themselves for near-total control and
killer-profiteering. In 1968, this was described explicitly as a
``world company'' project, by George Ball, a former Under Secretary of
State, and Chairman of Lehman Brothers, in a speech to a conference of
the Bilderberg Society, on whose steering committee he then served.
Ball gave an outline of how the archaic nation-state system should be
replaced by globalized corporate cartels.
The ``names'' associated with this process indicate the networks
involved. Lehman Brothers itself, along with Lazard, are foremost
entities, and have been in the forefront of the sell-off of the U.S.
auto/machine tool capacity and other industrial assets, as well as
infrastructure rip-offs through what's now politely termed, ``Public
Private Partnerships.'' The poster boy for this process is Felix
Rohatyn, long at Lazard, and now a top consultant for Lehman. Also in
the line-up is George Shultz, direct collaborator of Rohatyn et al. One
view of how the networks operate, is provided by John Perkins' book,
``Economic Hit Man.''
This gang is now under scrutiny for their global equity fund and
hedge fund frenzy of LBO grabs of companies, whose operations are then
indebted, downsized and ruined.
Below Economic Breakeven
The net effect on the physical economy, of the years of out-
sourcing industry, ``global-sourcing'' food supply and all related
hallmark practices of globalization, has been a net reduction of
productive capacity and living conditions overall, so that the world
economy as a whole is way below even a breakeven threshold of required
activity. Specifically: shutting down manufacturing and farming in the
United States, and relocating it abroad to cheap labor and low
infrastructure sites, causes harm and a net reduction in productivity
in all nations involved. Look at some of the features of this, sector
by sector.
Industry. There has been an absolute loss of 5.5 million U.S.
manufacturing jobs since 1979--including elimination of nearly half the
employment in the aerospace and auto industries, the two major machine-
tool reserves of the economy. The reemployment of contingents of these
former manufacturing workers at less-skilled, lower-wage jobs has
lowered the productivity of the American workforce. U.S. consumption of
machine tools is now only 60% of the 1980 level, and 60-70% of that
consumption is imported machine tools.
What remains of global industrial capacity is now being
concentrated in fewer and fewer hands, for example, the Mittal Steel
empire, part of the Anglo-Dutch imperium. Steel and heavy industrial
goods--measured on a per capita basis of consumption, are declining.
Agriculture. The United States is now food import dependent for 30
to 80 percent of various consumption items, from fruits and vegetables
to seafood, even while its former farm counties are experiencing
drastic population reductions. On the continent of Africa, food
availability per capita is declining. Expected life span itself is
dropping in Sub-Saharan Africa. A very few agro-cartels now exert vast
control of global food supply lines, including such names as Cargill,
Archer Daniels Midland, Bunge, Louis Dreyfus, as well as Smithfield,
Suiza and others. International retail food sales are now dominated by
Wal-Mart, Carrefour and a few others.
Population. Millions of people are being dislocated by the takedown
of national economies. In the United States, there are 12 million
Mexicans who would otherwise be in their homeland, but for the free-
trade breakdown process. The nation of the Philippines is dependent on
remittances from its citizens who are forced to seek work abroad. This
is true for all of Central America. In Africa, the refugee population
is in the millions. The population of Russia is declining in absolute
numbers.
Biological Breakdown. With the decline in infrastructure over the
past years--water, power, transportation, health care--the rise of new
and resurgent diseases now poses the threat of biological holocaust.
This is typified, but not confined to avian flu, or to the new strain
of ``super''-tuberculosis, now spreading in southern Africa.
Food shocks are also in store, because of the absence of food
reserves, and contingencies for botanical pests. A new wheat rust is
making its way from eastern Africa, across the Arabian Peninsula,
eastward toward the Indian sub-continent, on a spread-path potentially
involving 25% of global wheat output. The reason for the danger is that
in recent decades, resources were not put into having standby resistant
wheat varieties, but instead, private agro-companies came to dominate
seed development--including gaining sweeping patent rights--for their
own purposes of control and furthering monoculture.
Emergency Measures/The FDR Paradigm
These then, are just a few elements of the ``Big Picture'' of how
far gone we are under globalization. No fix-ups will work, of labor
standards or environmental codes, or the like. Emergency action is
required. In brief, there are two main areas for legislative
initiative. First, to stabilize currency exchange, and put in place
measures to prevent insolvencies causing out-of-control shutdown of
vital goods and services activities. In particular, the Federal Reserve
banking system--with trillions in unpayable claims of derivatives and
other ``assets''--is bankrupt; and government action is required to
place the Federal Reserve under bankruptcy protection and re-
organization, in order that required levels of banking function are
maintained and obligations honored, but claims equivalent to gambling
are frozen at lowest priority.
Going along with this, is the need to initiate nation-to-nation
agreements for mutually beneficial fair trade, and to call a halt to
the harmful ``free trade'' commitments and flows. Roll-back the free
trade agreements completely.
Second, for both domestic and state-to-state economic activity,
initiatives are needed to further large-scale shifts away from the so-
called ``services economy'' model, and shift into a capital-intensive
production model, for all national economies. For the U.S. economy,
draft legislation has been provided to your Committee, in testimony for
your Jan. 23, 2007 hearing, called ``The Economic Recovery Act of
2006.''
What is involved most simply, is to take a ``capital budget
approach,'' in which the Federal Government initiates low-interest
credit for priority national infrastructure projects, to be carried out
by private contractors. The precedents are clear from the FDR period.
And today, the range of infrastructure required is also crystal clear--
as described, for example, by the American Society of Civil Engineers.
Dams, bridges, new health facilities, ports, water treatment and
conveyance, and as the centerpiece: high-tech railroads and advanced
nuclear power.
Gearing up to fulfill these infrastructure projects generates the
need for millions of new skilled jobs, and for re-tooling, restoring,
and expanding the U.S. machine tool/manufacturing capacity.
A detailed policy document on this process is available: ``What
Congress Needs to Learn: The Lost Art of the Capital Budget,'' Dec. 22,
2006, by Lyndon LaRouche. (Available in EIR, Vol. 34, No. 2, Jan. 12,
2007, on www.larouchepub.com).
Science Driver
In summary, the program that is now required to bury globalization
can be accomplished by a ``return to the kind of thinking associated
with a `fair trade,' rather than `free trade' economy.'' LaRouche
describes this as, ``thinking about physical and financial capital as
we did under Franklin Roosevelt.
``The principle on which the success of such a program depends, is
the principle of fostering the increase of physical productivity, per
capita and per square kilometer, through science-driven technological
progress in the improvement of the productive powers of labor. This
means technological progress as expressed by emphasis on a science-
driven economy of the type which brought the U.S. and its allies to
victory over Hitler et al. in the preparation for, and conduct of World
War II.
``Against the customary carping critics of such measures, consider
the following.
``Had Franklin Roosevelt lived, the freeing of the world from the
imperial legacy of colonialism and the like, would have created a vast
capital market for the products of a converted U.S. war production
buildup, the reinvestment of the war debt margins in new capital
formation, here and abroad, although it would have been associated with
the combination of a temporary austerity, but a healthy accumulation of
real capital. . . .''
Now, over 50 years later, we face the severe depletion of our
capital stock after three decades of globalization. But the principles
of ``FDR thinking'' still apply. If we take the right emergency
measures during the transition, we can drive the economy ahead through
resuming the science associated with nuclear power--the ``fourth
generation'' (high temperature) reactors, the R&D to harness fusion
power, and the entry into an ``isotope economy'' of man-made
``natural'' elements to overcome exhausted resources.
There can be life after globalization, better than ever.
General Atomics
This fourth generation nuclear power design couples a high-
temperature helium reactor, the GT-MHR, to a sulfur-iodine cycle
hydrogen production plant. Nuclear power is vital for desalinating
seawater; and for providing local generation of hydrogen-based fuels.
Statement of Generic Pharmaceutical Association
The Generic Pharmaceutical Association is pleased to have this
opportunity to submit written comments in connection with your hearing
on ``Trade and Globalization.''
We share your belief, Mr. Chairman, that ``U.S. trade policy can be
used as a tool to shape globalization to maximize its benefits, ensure
that they flow evenly throughout society, including to working people,
and to ensure that the forces of the global economy are harnessed most
effectively and efficiently to generate the maximum amount of broadly
based economic growth.''
One important way we believe this goal can be achieved is by
addressing the concerns that follow of the Generic Pharmaceutical
Association as they relate to the intellectual property provisions
affecting pharmaceuticals in U.S. free trade agreements (FTAs).
Overview
The Generic Pharmaceutical Association (GPhA) represents the
manufacturers and distributors of finished generic pharmaceutical
products, manufacturers and distributors of bulk active pharmaceutical
chemicals, and suppliers of other goods and services to the generic
pharmaceutical industry.
GPhA members manufacture the vast majority of all affordable
pharmaceuticals dispensed in the United States. Our products are used
in more than 1 billion prescriptions every year. Generics accounted for
56% of all prescriptions dispensed in the United States in 2005, but,
because generics cost, on average, 30% to 80% less than their brand
counterparts, generics account for less than 13% of every dollar spent
on prescription drugs.
The generic pharmaceutical industry is a source of robust
competition in the United States that offers real and growing benefits
to American consumers much in need of affordable medicines. The U.S.
generic pharmaceutical industry is beginning now to expand beyond the
borders of the United States to help provide much more affordable
medicines worldwide.
The successes of the U.S. health care system and the U.S.
pharmaceutical industry writ large may be attributed to the prudent
balance in the structure of the U.S. pharmaceutical market that
encourages true innovation while also facilitating access to affordable
generic medicines. FTAs should export the U.S. balance of
pharmaceutical innovation and access to affordable medicine in order to
ensure that globalization provides the same prosperity abroad as that
enjoyed by the United States today and in the future.
Yet, as my testimony will explain, that balance is lacking in U.S.
free trade agreements. Congress has a unique opportunity to restore the
balance between drug innovation and access to affordable medicines
through generic competition when it reauthorizes Trade Promotion
Authority this year. And GPhA urges the Congress to call on the
Administration to correct the current flaws and put the consumer
interest of having access to affordable medicine on an equal footing
with the protection of pharmaceutical innovation in the ongoing
negotiations with Korea, Malaysia and Thailand that would otherwise
diverge from U.S. law and restrict the public's timely access to
affordable medicine at home and abroad.
Principal Negotiating Objectives for Pharmaceutical Intellectual
Property
The Trade Act of 2002, in which the Congress granted bipartisan
Trade Promotion Authority (TPA) to the President of the United States
subject to certain negotiating objectives, contains the ``marching
orders'' for U.S. trade negotiators.
In the Trade Act of 2002, the Congress identified three principal
negotiating objectives with respect to trade-related intellectual
property rights.
The first of these is ``to further promote adequate and effective
protection of intellectual property rights.'' \1\ The Congress further
required that in ``any multilateral or bilateral trade agreement
governing intellectual property rights that is entered into by the
United States'' adequate and effective protection is to be achieved
through provisions that ``reflect a standard of protection similar to
that found in United States law.'' \2\ (emphasis added.)
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\1\ Trade Act of 2002, Sec. 2102. Trade Negotiating Objectives.
(b)(4)(A)(i)(II) The other two principal negotiating objectives for
intellectual property under TPA will be discussed later in my
testimony.
\2\ Ibid. It is worth noting that intellectual property is one of
only three negotiating topics for which the Congress gave explicit
instructions with respect to bilateral free trade agreements. (The
other two topics are market access and labor.)
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GPhA fully supports this objective if implemented properly. The
standard of protection in U.S. law carefully balances fostering
pharmaceutical innovation with ensuring access to affordable medicine.
The strength of a pharmaceutical market depends on the security of
intellectual property and the protection of the incentive to innovate
new products. Of equal importance to a nation's health and the
effectiveness of its pharmaceutical market, however, is the cultivation
of a robust generic industry able to provide affordable access to
medicines. In free trade agreements, as with U.S. law, these interests
must be balanced to provide the greatest benefit to the health of
America and to our partners in trade.
It is not unusual for U.S. negotiating objectives to call for the
standard of U.S. law or for balance between competing objectives or
between competing U.S. industries. For example, the principal
negotiating objectives with respect to foreign investment direct U.S.
negotiators to ``secure for investors important rights comparable to
those that would be available under United States legal principles and
practice'' while at the same time ``ensuring that foreign investors in
the United States are not accorded greater substantive rights with
respect to investment protections than United States investors in the
United States.'' \3\ The principal negotiating objectives for
electronic commerce carefully balance the interests of merchants on the
Internet and merchants on Main Street by directing U.S. negotiators
``to ensure that electronically delivered goods and services receive no
less favorable treatment under trade rules and commitments than like
products delivered in physical form.'' \4\ Trade Promotion Authority
even seeks balance among the principal negotiating objectives
themselves, calling for dispute settlement provisions that treat the
principal negotiating objectives equally with respect to the ability to
resort to dispute settlement and the availability of equivalent
procedures and remedies.\5\
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\3\ Ibid., Sec. 2102. Trade Negotiating Objectives. (b)(3).
\4\ Ibid., Sec. 2102. Trade Negotiating Objectives. (b)(9)(B)(i).
\5\ Ibid., Sec. 2102. Trade Negotiating Objectives. (b)(12)(G)(i),
(ii), (iii).
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In each of these instances, U.S. negotiators spent considerable
effort in interagency policy councils, in consultations with Congress
and the private sector, and in negotiation with our trading partners to
achieve an outcome that would satisfy the principal negotiating
objectives laid out by Congress in Trade Promotion Authority.
And indeed, many parts of the Intellectual Property Chapter
demonstrate the care with which U.S. negotiators sought to ``reflect a
standard of protection similar to that found in United States law'' in
areas outside pharmaceuticals. For example, the copyright provisions in
U.S. free trade agreements contain numerous exceptions that maintain
the balance between strong intellectual property rights for rights
holders and the ``fair use'' provisions in U.S. law that protect the
public's interest.\6\ And as far back as the Chile and Singapore FTAs,
the IP (intellectual property) enforcement sections of U.S. free trade
agreements have included an extensive article that lays out with great
precision the Limitations on Liability for Internet Service Providers
(ISP), ``reflecting the balance struck in the U.S. Digital Millennium
Copyright Act between legitimate ISP activity and the infringement of
copyrights.'' \7\ To avoid any ambiguity, the more recent FTAs \8\ also
enshrine the balance found in the Online Copyright Infringement
Liability Limitation Act in a separate side letter.\9\
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\6\ For example, even though other principal negotiating objectives
for intellectual property explicitly call for ``ensuring that
rightholders have the legal and technological means . . . to prevent
the unauthorized use of their works,'' nonprofit libraries, archives,
educational institutions and public noncommercial broadcasting entities
cannot be criminally prosecuted under certain copyright provisions,
such as those designed to prevent circumvention of technology
protection measures. See U.S.-Colombia Trade Promotion Agreement,
Article 16.7. (4)(a).
\7\ USTR Fact Sheet, ``Free Trade with Chile: Summary of the U.S.-
Chile FTA,'' 12/11/02, www.ustr.gov.
\8\ For example, see Morocco, Peru and Colombia trade agreements.
\9\ Pub. L. No. 105-304 112 Stat. 2860, 2877. See, for example, the
ISP Side Letter for the Morocco, Peru and Colombia trade agreements.
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This is in sharp contrast to the treatment of pharmaceutical
patents and data protection in U.S. free trade agreements. The branded
pharmaceutical industry applauds U.S. free trade agreements for
clarifying the obligations contained in Article 39.3 of the WTO's
Agreement on Trade-Related Aspects of Intellectual Property Rights (the
TRIPS Agreement) with respect to data exclusivity and for providing
additional protection with respect to pharmaceutical products subject
to a patent.\10\ But these agreements blatantly exclude provisions to
ensure affordable access to safe and effective generic medicines.
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\10\ See any of the various Reports of the Industry Trade Advisory
Committee on Intellectual Property Rights on the bilateral free trade
agreements that have been signed while Trade Promotion Authority has
been in effect. For example, see page 17 of their report on the
Intellectual Property Provisions of the U.S.-Colombia Trade Promotion
Agreement. www.ustr.gov. Neither GPhA nor its members participate on
this committee, although GPhA has an application pending with USTR.
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Deficiencies in U.S. Free Trade Agreements
Recent FTAs that either have been or are being negotiated under the
current grant of Trade Promotion Authority diverge from U.S. law in
important respects.\11\ In some instances, U.S. FTAs lack the basic
elements of the Hatch-Waxman system put into place in 1984--the law
that created the generic pharmaceutical industry as we know it. In
other instances, the problem may be one of timing.
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\11\ This also applies to the U.S.-Jordan FTA.
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The ``model'' IP text which the branded pharmaceutical industry
champions was first developed in the course of the Chile and Singapore
negotiations. These negotiations started toward the end of 2001 and
concluded around the end of 2002. TPA itself did not pass the U.S.
Congress until August 2002, when U.S. negotiating positions with
respect to pharmaceuticals had already been well advanced. The goal of
the branded pharmaceutical industry has been to improve aspects of the
model text in each subsequent negotiation so that it becomes a new
baseline for all future FTAs. In the words of the Industry Trade
Advisory Committee on Intellectual Property Rights (ITAC-15), ``[t]his
baseline is continually reflected in the model FTA agreements, which
are constantly changing based on what we learn through negotiating each
of the FTAs.'' \12\ (emphasis added.)
---------------------------------------------------------------------------
\12\ Ibid., p. 5.
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Ironically, what has not been captured in our FTAs is what we were
learning from our domestic experience in the United States. Prior to
passage of the Medicare Modernization Act (MMA) in 2003, U.S. brand
companies were able to exploit loopholes to extend product monopolies
to the detriment of consumers. The MMA fixed many of these loopholes,
but the ``model'' pharmaceutical texts have never incorporated these
``course corrections'' in U.S. law. So it is perhaps not surprising
that these are many of the same areas that suffer from a lack of
balance in our FTAs.
Just as TPA calls for ensuring that IP standards of protection and
enforcement are updated to keep pace with technological
developments,\13\ we need to ensure that the IP standards of protection
and enforcement are updated to keep pace with U.S. law.
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\13\ Trade Act of 2002, Sec. 2102. Trade Negotiating Objectives.
(b)(4)(A)(iv).
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Let me provide you with a few examples.
Bolar Provision
The Bolar provision in the United States guarantees a generic
company the ability to research an innovator's drug during the patent
term so that a generic version may be developed and marketed promptly
when the patent expires. Just as ``Bolar'' is required by U.S. law,\14\
so too should a safe harbor provision be mandated by the terms of U.S.
free trade agreements. A Bolar-type provision is key to maintaining a
robust generic industry which helps to strike the proper balance
between the interests of innovation and access to affordable medicine.
GPhA would like to endorse the statement by witness Daniel Tarullo at
the Committee's hearing that ``decisions on the provisions to be
included or excluded can, almost by definition, make the difference
between a good or bad agreement.'' \15\
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\14\ Required--35 U.S.C. 271 (e)(1). Export allowed under 21 U.S.C.
382.
\15\ Statement of Daniel Tarullo Ph.D., Professor of Law,
Georgetown University, January 30, 2007, p. 1.
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Extension of Patents
Patent extensions are awarded to drug manufacturers to compensate
for the time lost during the development of a new chemical entity
(``NCE''), i.e., to those medicines that are truly novel. The U.S.
restores approximately half of the time during which the safety and
efficacy of the drug is investigated in clinical trials, in addition to
the entire regulatory review period (from submission of the New Drug
Application (NDA) to approval). Thus, in order to balance the interest
in encouraging pharmaceutical innovation with access to affordable
medicine, patent extensions are limited. Under U.S. law, a drug may
receive one extension per NCE, the extension may not exceed 5 years,
and the total remaining effective patent term may not exceed 14 years
from the date of approval.
In contrast, current FTAs provide for an unlimited number of patent
extensions and can include ``everyday'' products. Just as bad, there
are no limitations on the duration of each of those extensions. The
result is to allow for continual ``ever-greening'' of the patent
protection for brand products, with the potential to indefinitely block
generic competition a true windfall for the patent holder.
Market Exclusivity
Another incentive to innovate is market exclusivity. In the United
States, market exclusivity for pharmaceuticals is generally limited to
a maximum of 5 years and eligibility is limited to new chemical
entities (NCEs), i.e., to those medicines that are truly novel, and 3
years for ``new condition of use'' of a drug. In order to obtain market
exclusivity for a new condition of use for a drug, the innovator must
conduct new clinical studies that are essential to the approval of that
condition of use.\16\
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\16\ Five years for new active ingredients--21 U.S.C. 355
(j)(5)(D)(ii). Three years for new condition of use--21 U.S.C. 355
(c)(3)(E)(iii)-(iv).
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Many FTAs include terms that would broadly prevent marketing of
``same or similar product[s]'' during the period of market exclusivity,
providing greater protection than that afforded under U.S. law. Many
FTAs also would allow 3 years of market exclusivity to apply to the
``products'' rather than the ``new conditions of use'' of the drug
product. To make matters worse, this protection would be available
without any requirement that ``new condition of use'' be based on ``new
clinical investigations [that are] essential to [its] approval.''
The provisions in our FTAs can be interpreted to delay generic
approval even for nonprotected conditions of use (off-patent and off-
market exclusivity) of the same drug and related drug products, such as
an original multi-day dosage form.
Best Mode
In order to obtain a patent, U.S. law requires the applicant to
disclose the ``best mode'' of practicing the invention. The disclosure
of best mode serves the public's interest in maintaining a strong
patent system and progressing technologically, as well as the interest
in having access to such technology upon patent expiry.
FTAs have materially omitted best mode as a requirement for
patentability. For example, CAFTA provides as follows:
``[A] disclosure of a claimed invention shall be considered
to be sufficiently clear and complete if it provides
information that allows the invention to be made and used by a
person skilled in the art, without undue experimentation, as of
the filing date.'' \17\
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\17\ Central America-Dominican Republic-United States Free Trade
Agreement, Art. 15.9 (9).
In contrast, the U.S. law provides that a patent application shall
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include:
``[t]he specification [containing] a written description of the
invention, and of the manner and process of making and using
it, in such full, clear, concise, and exact terms as to enable
any person skilled in the art to which it pertains, or with
which it is most nearly connected, to make and use the same,
and shall set forth the best mode contemplated by the inventor
of carrying out his invention.'' \18\ (Emphasis added.)
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\18\ 35 U.S.C. 112, first paragraph (2001).
Thus, our FTAs require a significantly lower standard of
transparency than that found in U.S. law, to the detriment of generics
that could enter the market after patent expiry.
Patent Linkage
``Linkage'' refers to the obligation in our FTAs and in U.S. law
that marketing approval for generics by the health authorities needs to
be mindful of brand patents. However, U.S. law provides checks to
linkage that protect generics from dubious patent claims and protracted
litigation that do not exist in our FTAs.
Under U.S. law, a generic manufacturer may submit, along with its
ANDA (abbreviated new drug application), a ``paragraph IV'' challenge
attesting to either non-infringement or invalidity of the patent. The
patent holder has 45 days to file a patent infringement action which
triggers an automatic 30-month stay of approval of the generic
manufacturer's application (which can be shortened by court order in
egregious cases). U.S. law allows FDA approval and marketing at the
expiration of the 30-month stay, even if the lawsuit is still pending.
U.S. law also provides another mechanism to facilitate timely
resolution of patent disputes by allowing generic applicants to seek a
declaratory judgment on the expiration of the 45-day window. These
measures balance strong patent protection with the ability to challenge
weak and questionable patents and encourage timely resolution of patent
disputes. The U.S. Hatch-Waxman system embodies this concept; yet, it
also specifies the types of patents that may be listed for a drug--
those patents to which an applicant must refer in seeking approval for
a generic drug. Additionally, U.S. law provides a countermeasure for
improperly listed patents that would otherwise cause unjust delay of
approval. Known as ``delisting,'' the term refers to an applicant
obtaining a court order that requires the patent holder to correct or
remove patent information listed with the FDA for a product.
Many recent free trade agreements mandate linkage, but provide no
means for generic companies to challenge questionable patents, offer no
incentive for the early resolution of patent disputes and do not limit
the types of brand patents that can be listed for a drug product.
Without such measures, the terms of the FTAs could provide de facto
patent extensions to the brand industry, encourage lower quality
patents and allow unjust delays in access to affordable medicine.
Adopting all the particularities of the U.S. system may be
unnecessary to achieve a balance between encouraging innovation and
ensuring access to affordable medicine with respect to linkage. Rather,
it is the fundamental principles of the U.S. system that must be
promoted by USTR:
Mechanisms that facilitate challenges to questionable
brand patents, and
an incentive that expedites the resolution of patent
disputes are essential to an efficient health care system--a system
that allows protracted patent litigation to become de facto patent
extensions will undoubtedly be bogged down with lawsuits and ultimately
unworkable.
Finally, a mechanism to eliminate poor quality or
extraneous patents is necessary to prevent the improper brand patents
from obstructing the approval pathway for a generic applicant.
Harmful Effects of FTA Provisions
Some have suggested that it is unnecessary to include access
protections in our free trade agreements, arguing that USTR's mandated
objective is to foster innovation \19\ and besides, our FTAs don't
prohibit U.S.-style access provisions. But continuing with the current
approach comes at real costs.
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\19\ Reflecting this bias, USTR recently changed the name of its
IPR unit to the Office of Intellectual Property and Innovation
(emphasis added). Interestingly, the word ``innovation'' does not
appear anywhere in the TPA provisions that define the principal trade
negotiating objectives for Intellectual Property.
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Blocks Generic Drug Exports.--The current unbalanced approach
unfairly delays generic drug exports and diminishes the ability of
generic companies and workers to take advantage of the expanded market
opportunities available in our FTA partners as a result of lower tariff
barriers. It is true that the second principal negotiating objective
for intellectual property is ``to secure fair, equitable, and
nondiscriminatory market access opportunities for United States persons
that rely upon intellectual property protection.'' \20\ (emphasis
added.) But surely Congress was referring to the market access
conditions faced by U.S. persons relative to foreign competitors, and
did not intend for this principal negotiating objective to favor the
foreign market success of U.S. persons that rely upon intellectual
property protections over other U.S. persons.
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\20\ Trade Act of 2002, Sec. 2102. Trade Negotiating Objectives.
(b)(4)(B).
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Undermines other TPA objectives and WTO commitments.--The current
unbalanced approach undermines the spirit, if not the letter, of the
third principal negotiating objective for intellectual property under
TPA, namely ``to respect the Declaration on the TRIPS Agreement and
Public Health, adopted by the World Trade Organization at the Fourth
Ministerial Conference at Doha, Qatar on November 14, 2001.'' \21\
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\21\ Trade Act of 2002, Sec. 2102. Trade Negotiating Objectives.
(b)(4)(C).
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In that Declaration, the Members of the WTO--including the United
States--agreed ``that the TRIPS Agreement does not and should not
prevent Members from taking measures to protect public health.'' They
went on to say in their Declaration, ``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.'' \22\
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\22\ Doha Declaration on the TRIPs Agreement and Public Health
(Point No. 4). 2001 Doha Ministerial. www.wto.org.
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Since then, in a Decision in 2003,\23\ and in a Decision in
2005,\24\ the Members of the WTO have reinforced their emphasis on the
need ``to promote access to medicines for all'' by clarifying and
strengthening the ability of developing countries that are Members of
the WTO to engage in compulsory licensing of pharmaceuticals under the
terms of the TRIPS Agreement.
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\23\ Decision of the General Council of 30 August 2003 on the
Implementation of Paragraph Six of the Doha Declaration on the TRIPs
Agreement and Public Health (WT/L/540) and the WTO General Council
Chairman's statement accompanying the Decision (JOB(03)/177, WT/GC/M/
82) (collectively the ``TRIPS/health solution'').
\24\ Amendment of the TRIPS Agreement. 2005 Doha Ministerial.
www.wto.org.
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Thus, the Members of the WTO, while preserving the careful balance
of rights and obligations relating to trade-related intellectual
property rights that they established in the TRIPS Agreement, have
clearly emphasized, in this Declaration and in their subsequent
decisions implementing this Declaration, the crucial importance to WTO
Members of increased access to affordable medicines.
In this context, any trade agreement governing intellectual
property rights that is negotiated by the United States should, in the
words of the Congress, ``respect'' this historic global Declaration.
The United States deserves credit for playing a leading role in finding
a workable compromise in the WTO \25\ (indeed, at one point even
issuing a unilateral moratorium on dispute settlement cases until a
consensus had been reached); and recent U.S. free trade agreements have
contained ``Understandings Regarding Certain Public Health Measures''
to clarify that the Intellectual Property Chapter does not prevent the
effective utilization of the TRIPS/health solution.
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\25\ The U.S. played a key role in the Doha WTO Ministerial (Nov.
2001) reaffirmation that global trade rules allow countries to decide
what constitutes a health emergency and to issue compulsory license
drugs to fight epidemics. Also at Doha, Ministers accepted a U.S.
suggestion to extend the global patent rules participation period for
Least Developing Countries (LDCs) from 2006 to 2016.
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However, the overall approach in our FTA negotiations has been
entirely unyielding with respect to a more general commitment to
affordable access to medicines, even when the specific proposals being
put forward by our trading partners have their origin in U.S. law. This
inability to acknowledge the legitimate role of access to medicine
provisions has made the United States appear overbearing at the
negotiating table to our trading partners and the world, and has
unfavorably affected the balance of concessions that U.S. negotiators
have needed to offer in other U.S. industries to ``pay for'' the
intransigence of the U.S. brand pharmaceutical industry.
Pose a risk to U.S. consumers through international harmonization
efforts.--The current unbalanced approach could come back and ``bite''
U.S. consumers if it affects future U.S. law through international
harmonization efforts. In that sense, the current unbalanced approach
also contravenes TPA's dictate that ``the President shall . . . take
into account other legitimate United States domestic objectives
including . . . consumer interests and the law and regulations related
thereto.'' \26\
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\26\ Trade Act of 2002, Sec. 2102. Trade Negotiating Objectives.
(c)(6).
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The U.S. generic industry is far from the only U.S. industry to
view FTAs through the lens of how they might affect domestic law and
practice. For example, during the Andean FTA negotiations, U.S.
telecommunications companies differed over the desirability of a
``carve-out'' for mobile services providers. Some companies wanted the
carve-out because they feared removing it could have led to regulatory
oversight of U.S. companies' pricing practices in the United States; to
date, the Federal Communications Commission (FCC) has not seen the need
to regulate the mobile industry because of significant competition in
the U.S. market. The fact that Congress was drafting updates to key
telecommunications laws at the time was also a concern. USTR brokered
these differences and ultimately accompanied the carve-out with new
language that lessened the concerns of those who saw the carve-out as
``WTO-minus'' and encouraging ``egregious behavior'' on the part of our
trade partners.\27\ This type of balanced solution simply hasn't been
sought in the pharmaceutical IP provisions.
---------------------------------------------------------------------------
\27\ Letter to U.S. Trade Representative Robert Portman from
Sprint, NII Holdings Inc. and Avantel, dated November 9, 2005.
---------------------------------------------------------------------------
There are real reasons for the generic industry to raise this
concern. Recent harmonization efforts in Congress and the WTO indicate
that the U.S. will continue to face pressure to adapt its laws to
international standards. Yet, U.S. FTAs spur on the establishment of
international pharmaceutical standards that are counter to our own.
This is true not only directly, as in the examples I have previously
given, but also indirectly. In 2005, Congressman Lamar Smith (R-TX)
introduced Patent Reform bill H.R. 2795, which proposed to eliminate
the ``best mode'' disclosure requirement that is currently mandated
under U.S. law.\28\ Thus, it is conceivable that FTAs lacking a best
mode provision could unduly influence patent reform legislation through
pressure to harmonize.
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\28\ 35 U.S.C. Sec. 112.
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Finally, jurists in WTO dispute settlement increasingly interpret
the WTO Treaty in the context of other international law. In some
respects other international law is incorporated by specific reference
into the WTO Treaty (such as with various international IP conventions
in the TRIPS Agreement). In other respects the standards established by
various international standard setting organizations are given legal
status in the WTO (such as those that are referenced in the Agreement
on the Application of Sanitary and Phytosanitary Measures).
Furthermore, it is likely that WTO jurists will increasingly be
called upon to give legal credence in multilateral dispute settlement
to relevant provisions in various bilateral agreements to which
disputing WTO members are also parties. This can be expected to be the
case with respect to provisions relating to pharmaceutical patents and
other rights relating to intellectual property and pharmaceuticals.
Thus, when--not if--harmonization efforts succeed, U.S. consumers
will have to wait longer to gain access to affordable generic medicine,
causing U.S. pharmaceutical expenditures to increase exponentially.
Conclusion
In conclusion, Mr. Chairman, for the sake of global health and the
health of Americans, our trade agreements should not contribute to the
establishment of greater intellectual property standards than those
already provided under U.S. law. But I am confident that if we can
introduce in our free trade agreements the balance found in U.S. law
between fostering innovation and ensuring access to affordable
medicines that these pharmaceutical intellectual property provisions
would work to spread the benefits of globalization throughout society
in the United States and in our trading partners. I ask for the
Committee's support in achieving this laudable objective.
Statement of National Pork Producers Council
The National Pork Producers Council is a national association
representing 44 affiliated States that annually generate approximately
$15 billion in farm gate sales. The U.S. pork industry supports an
estimated 550,200 domestic jobs and generates more than $97.4 billion
annually in total U.S. economic activity and contributes $34.5 billion
to the U.S. gross national product.
Pork is the world's meat of choice. Pork represents 40 percent of
total world meat consumption. (Beef and poultry each represent less
than 30 percent of global meat protein intake.) As the world moves from
grain based diets to meat based diets, U.S. exports of safe, high-
quality and affordable pork will increase because economic and
environmental factors dictate that pork be produced largely in grain
surplus areas and, for the most part, imported in grain deficit areas.
However, the extent of the increase in global pork trade--and the lower
consumer prices in importing nations and the higher quality products
associated with such trade--will depend substantially on continued
agricultural trade liberalization.
PORK PRODUCERS ARE BENEFITING FROM PAST TRADE AGREEMENTS
In 2005, U.S. pork exports totaled 1,157,689 metric tons valued at
$2.6 billion, an increase of 13 percent by volume and 18 percent by
value over 2004 exports. U.S. exports of pork and pork products have
increased by more than 389 percent in volume terms and more than 361
percent in value terms since the implementation of the NAFTA in 1994
and the Uruguay Round Agreement in 1995. Pork exports for the first 11
months of 2006 have continued to grow. January-November exports were
1,147,835 metric tons valued at $2.6 billion. This is an increase of 9
percent by volume and 8 percent by value over pork exports during the
same time period in 2005.
The following eight export markets in 2005 are all markets in which
pork exports have soared because of recent trade agreements.
Mexico
In 2005 U.S. pork exports to Mexico totaled 331,488 metric tons
valued at $514 million. January-November 2006 export figures indicate
U.S. pork exports to Mexico increased 9 percent by volume and 11
percent by value over January-November 2005 exports. Exports during
this timeframe in 2006 were 324,630 metric tons valued at $508 million.
Without the NAFTA, there is no way that U.S. exports of pork and pork
products to Mexico could have reached such heights. In 2005, Mexico was
the number two market for U.S. pork exports by volume and value. U.S.
pork exports have increased by 248 percent in volume terms and 358
percent in value terms since the implementation of the NAFTA growing
from 1993 (the last year before the NAFTA was implemented), when
exports to Mexico totaled 95,345 metric tons valued at $112 million.
Japan
Thanks to a bilateral agreement with Japan on pork that became part
of the Uruguay Round, U.S. pork exports to Japan have soared. In 2005,
U.S. pork exports to Japan reached 353,928 metric tons valued at just
over $1 billion. Japan remains the top value foreign market for U.S.
pork. U.S. pork exports to Japan have increased by 322 percent in
volume terms and by 191 percent in value terms since the implementation
of the Uruguay Round.
Canada
U.S. pork exports to Canada have increased by 1,816 percent in
volume terms and by 2,422 percent in value terms since the
implementation of the U.S.-Canada Free Trade Agreement in 1989. In 2005
U.S. pork exports to Canada increased to 130,581 metric tons valued at
$396 million. January-November 2006 pork exports to Canada increased to
126,913 metric tons valued at $400.5 million--a 6 percent increase by
volume and a 11 percent increase by value over January-November 2005
exports.
China
From 2004 to 2005, U.S. exports of pork and pork products to China
increased 22 percent in value terms and 16 percent in volume terms,
totaling $111 million and 92,255 metric tons. U.S. pork exports have
exploded because of the increased access resulting from China's
accession to the World Trade Organization. Since China implemented its
WTO commitments on pork, U.S. pork exports have increased 60 percent in
volume terms and 67 percent in value terms.
Republic of Korea
U.S. pork exports to Korea have increased as a result of
concessions made by Korea in the Uruguay Round. In 2005 exports climbed
to 71,856 metric tons valued at $155 million, an increase of 1,425
percent by volume and 1,705 percent by value since implementation of
the Uruguay Round. Exports to the Republic of Korea in 2006 grew
aggressively. January-November 2006 pork totaled 94,722 metric tons
valued at almost $200 million--this is a 47 percent increase in volume
terms and a 43 percent increase in value terms over the same time
period in 2005.
Russia
In 2005 U.S. exports of pork and pork products to Russia totaled
40,315 metric tons valued at $72 million. January-November 2006 exports
to Russia exploded to 80,594 metric tons valued at $160 million--a 111
percent increase in volume terms and 129 percent increase in value
terms over the same period in 2005. U.S. pork exports to Russia have
increased largely due to the establishment of U.S.-only pork quotas
established by Russia as part of its preparation to join the World
Trade Organization. The spike in U.S. pork export to Russia in the late
1990s was due to pork shipped as food aid.
Taiwan
In 2005, U.S. exports of pork and pork products to Taiwan increased
to 24,555 metric tons valued at $41 million. U.S. pork exports to
Taiwan have grown sharply because of the increased access resulting
from Taiwan's accession to the World Trade Organization. Since Taiwan
implemented its WTO commitments on pork, U.S. pork exports have
increased 94 percent in volume terms and 132 percent in value terms.
Australia
The U.S. pork industry did not gain access to Australia until
recently, thanks to the U.S.-Australia FTA. U.S. pork exports to
Australia exploded in 2005 making Australia one of the top export
destinations for U.S. pork. Even with the disruption caused by a legal
case over Australia's risk assessment of pork imports, U.S. pork
exports to Australia in 2005 totaled $60 million--a 463 percent
increase over 2004 exports.
Benefits of Expanding U.S. Pork Exports
Prices--The Center for Agriculture and Rural Development (CARD) at
Iowa State University has calculated that in 2004, U.S. pork prices
were $33.60 per head higher than they would have been in the absence of
exports.
Jobs--The USDA has reported that U.S. meat exports have generated
200,000 additional jobs and that this number has increased by 20,000 to
30,000 jobs per year as exports have grown.
Income Multiplier--The USDA has reported that the income multiplier
from meat exports is 54 percent greater than the income multiplier from
bulk grain exports.
Feed Grain and Soybean Industries--Each hog that is marketed in the
United States consumes 12.82 bushels of corn and 183 pounds of soybean
meal. With an annual commercial slaughter of 105.3 million animals in
2006, this corresponds to 1.34 billion bushels of corn and 9.63 million
tons of soybean meal. Approximately 16 percent of this production is
exported, and these exports account for approximately 216 million
bushels of corn and 1.54 million tons of soybean meal.
However, as the benefits from the Uruguay Round and NAFTA begin to
diminish because the agreements are now fully phased-in, the creation
of new export opportunities becomes increasingly important.
NPPC 2007 Trade Priorities
With 96 percent of the world's population residing outside of the
United States, it is essential that U.S. pork producers continue to
gain access to more of these potential customers. While pork exports
have exploded in recent years, future growth is dependent on further
trade liberalization. NPPC continues to support expanded market access
through multilateral and bilateral trade negotiations.
WTO Doha Round--Notwithstanding the staggering growth of U.S. pork
exports in recent years, according to USDA, the average global tariff
on pork is a staggering 77 percent. The WTO Doha Round presents an
opportunity to increase market access for U.S. pork in many countries,
including the two top priority markets of the pork industry--the
European Union and Japan. An extension of trade promotion authority may
be needed to bring the Doha Round to a successful completion.
Peru Trade Promotion Agreement--The Peru Trade Promotion Agreement
will provide new market access to more than 28 million consumers in the
South American country. When fully implemented, according to Iowa State
University economist Dermot Hayes, the Peru agreement will cause live
U.S. hog prices to be 83 cents higher than would otherwise have been
the case. That means the profits of the average U.S. pork producer will
increase by 7 percent based on 2005 data. NPPC strongly supports
congressional passage and implementation of the Peru Trade Promotion
Agreement. The aggressive market access provisions coupled with the
agreement on inspection equivalence make the Peru agreement a state-of-
the-art agreement for U.S. food and agriculture to which all future
FTAs will be compared.
Colombia Trade Promotion Agreement--NPPC strongly supports
congressional passage and implementation of the Colombia Free Trade
Agreement. U.S. pork producers will benefit significantly from the
increased exports resulting from this agreement. According to Iowa
State University economist Dermot Hayes, the Colombia agreement, when
fully implemented, this FTA will cause live U.S. hog prices to be $1.63
higher than would otherwise have been the case. That means that the
profits of the average U.S. pork producer will expand by 14 percent,
based on 2005 data. NPPC strongly supports congressional passage and
implementation of the Colombia Trade Promotion Agreement. Like the Peru
agreement, the Colombia agreement is a state-of-the-art agreement for
U.S. food and agriculture to which all future FTAs will be compared.
Panama Trade Promotion Agreement--The Panama Trade Promotion
Agreement will benefit U.S. pork producers by creating new export
opportunities to the 3 million new customers in Panama. According to
Iowa State University economist Dermot Hayes, the Panama agreement,
when fully implemented, will cause hog prices to be 20 cents higher
than would otherwise have been the case. Therefore exports to Panama
will be worth approximately $20.6 million to the U.S. pork industry in
additional revenue than otherwise would have been the case. U.S. pork
producers support congressional passage and implementation of the
Panama agreement.
Permanent Normal Trade Relations with Russia--Russia, with a
population of 142 million people, in 2005 was the sixth largest market
in the world for U.S. pork and pork product exports. A bilateral trade
deal was reached November 10, 2006, between the United States and the
Russian Federation concerning Russia's accession to the World Trade
Organization. The WTO accession agreement will give U.S. pork producers
even more access to Russia, which in September 2003 reached agreement
on a country-specific quota for the U.S. That so-called WTO downpayment
has allowed U.S. pork exports to Russia to increase tremendously. To
complete its accession to the WTO, Russia must finalize its remaining
bilateral market access negotiations and complete multilateral
negotiations on a comprehensive Working Party Report and Protocol of
Accession. The U.S. Congress will need to pass permanent normal trade
relations (PNTR) status for Russia so that the United States can
benefit from the trade concessions that country makes in its accession
to the WTO.
In conclusion, U.S. pork producers continue to benefit from past
trade agreements. Exports are increasingly important to the
profitability of the U.S. pork industry.
Statement of Ohio Conference on Fair Trade
The Ohio Conference on Fair Trade is a statewide coalition of
faith, labor, environmental, family farm, community and social justice
organizations. We formed in 2001 in response to growing concerns about
a globalization policy that seemed to be creating more problems for the
Nation and in our international relationships, rather than resolving
problems. We have grown to represent literally tens of thousands of
citizens in Ohio through our diverse collection of organizations. We
thought it was important for you to hear from local and community
groups in our Nation to know that our trade policies have an impact on
all levels of civil society.
We do not endorse the current model of free trade as represented by
NAFTA and CAFTA, and believe that these failed policies are responsible
for many of our current economic problems. We contend that our trade
policies must contain incentives for preserving good jobs, protections
for workers, and protections for the environment. We also believe that
our trade policies are undermining the family farmers of the U.S. and
of our trading partner countries. Furthermore, our current trade model
threatens the health and sovereignty of our communities and States.
Ohio has experienced record job loss since the introduction of
NAFTA. Policy Matters Ohio and the Economic Policy Institute have
documented our domestic economic problems related to these unfair trade
practices. The correlation between our soaring trade imbalance, so-
called ``free'' trade and the resultant loss of manufacturing jobs is
indisputable. Since NAFTA, Ohio has lost more than 200,000
manufacturing jobs. This dismantling of our industrial sector has not
yet stabilized but continues in a downhill spiral with the commencement
of CAFTA and other giveaway trade deals.
How does it make sense to spend generations fighting for fair and
safe work places in our country, only to send our industrial base
overseas? When did we lose sight of the prize: safe and secure
employment for all the citizens in our country? When did we make the
choice to favor providing obscene advantages and control to a few
corporations instead of protecting the security, sovereignty and well-
being of our own citizens?
When NAFTA was implemented in 1994, the U.S. enjoyed a $1 billion
trade surplus with Mexico. We were promised more jobs in the United
States. We were told we were doing the ``right thing'' by Mexicans who
would be lifted out of poverty. Ten years later we had a $45 billion
deficit with Mexico, we had caused more job loss from the U.S., we had
seen rising rates of poverty in Mexico and rising food costs, we had
decimated parts of Mexico's environment, and we witnessed skyrocketing
illegal immigration as we put 1.5 million Mexican farmers out of work.
Did trade cause these problems? No! What caused these problems was the
mismanagement of our trade deals.
Obviously, we cannot discuss trade without looking at China. China
now accounts for over one-quarter of our global trade deficit which is
nearing $600 billion. Ninety-eight percent of China's exports are
manufactured goods with 40% of its exports landing in the U.S. As the
U.S. trade deficit soars, States like Ohio have reached all-time lows
for job loss, wage growth, uninsured citizens and mortgage foreclosure
rates, not to mention a State budgetary fiasco that has resulted in the
draining of our rainy day funds, rising sales tax rates, expanding fees
on goods and services and across the board cuts in State services. Once
we had a trade policy that we employed to address human rights
violations. Now we have granted PNTR status to China and trade has
become an end to achieve, rather than a tool to achieve health,
security and prosperity for our citizens.
Our Nation is blessed with fertile soils, temperate climates, a
strong network of family farms and a technological infrastructure
envied around the world. Historically we were a robust net exporter of
food and fiber. But over the past two decades, our agricultural exports
have stagnated despite a nearly 30% reduction in the major commodity
prices, and imports of food products have soared. We are now a net
importer of food. This is one major indicator of a failed trade policy.
Family farms are decreasing at an alarming rate in our country.
Despite the fact that having control and self-determination of our food
and fiber production within our own borders has become a health and
security issue in recent years, we continue to allow agribusiness to
mismanage our global trade policies, resulting in the decrease of our
national natural resources, decrease in jobs and security, and a
stunning increase in food safety issues as we insist that food
inspections and safe, quality production practices are yet another
deterrent to ``free'' trade.
The negative environmental impact of our trade agreements also
demonstrates the inadequacy of addressing serious issues through so-
called ``side agreements'' rather than addressing them within the core
agreement. Since the introduction of NAFTA, which was accompanied by
environmental ``side agreements,'' 66 documented toxic waste sites have
been created within the Mexican border states, with millions of tons
more of dangerous industrial waste not accounted for within these
documented sites. The Mexican government's pollution monitoring of
manufacturing sites has decreased 45% since 1994, and even the NAFTA
Commission for Environmental Cooperation which was established to
document environmental injustices, admits that it has no authority to
correct these injustices. As of 2004, only 5% of the companies required
to report industrial toxic discharges were actually doing so. Pollution
and public health issues have increased dramatically in the Mexican
border areas where U.S. corporations, totally free of regulation and
oversight, have created manufacturing sites to exploit cheap labor.
Another distressing aspect of NAFTA-style trade agreements is the
extent to which they have extended into regulatory issues governed by
State legislatures, mayors, and city and county councils. Local land-
use laws, local health care and education regulations, local
procurement practices (how our local tax dollars are spent!) are all
now subject to international agreements. Our personal freedoms, our
rights to seek self-determination, and our democratic processes have
all been traded away, and most of us don't even know it yet!
We called them ``free'' trade agreements. If they were ``free''
they wouldn't require a thousand pages to describe. If they were
``free'' they wouldn't include an abundance of non-trade-related and
``investors rights'' provisions to protect the profits of the multi-
national corporations who we have encouraged to operate without
conscience or concern for workers or environment. This is not ``free''
trade. This is a corporate ``free-for-all.''
Despite all the evidence available that the original promises of
NAFTA had not been realized, instead of having responsible and
intelligent oversight of the results of our trade agreements, we
allowed this Administration to continue to abuse its Fast Track trade
authority by instituting more bad trade deals in the form of CAFTA, and
other deals in the Middle East.
We are not opposed to trade. We believe that it needs to be engaged
in with responsibility, intelligence and fairness. We would agree with
the findings of the International Forum on Globalization (IFG), an
alliance of leading scholars, economists, researchers, activists and
authors, representing 60 organizations in 25 countries, which maintains
that the 10 principles upon which all economic activity should be based
are: democracy, subsidiarity, ecological sustainability, common
heritage, diversity, human rights, sustainable livelihoods and
employment, food security and safety, equity, and the precautionary
principle. What a different world we could have if we were guided by
these principles rather than being led by the biggest and most powerful
corporations!
We believe that IFG and many other nonpartisan, nongovernmental
organizations that have made it their mission to analyze our trade and
globalization policies are in a far better position to offer
alternatives for our current failed policies. Clearly it is essential
to bring multiple noncorporate groups to the table to resolve these
problems.
Statement of the Retail Industry Leaders Association
The Retail Industry Leaders Association (RILA) welcomes the
opportunity to submit written comments for the record of this hearing
on globalization and U.S. trade policy. RILA is the trade association
of the largest and fastest growing companies in the retail industry.
Its members include retailers, product manufacturers, and service
suppliers, which together account for more than $1.5 trillion in annual
sales. RILA members operate more than 100,000 stores, manufacturing
facilities and distribution centers, have facilities in all 50 States,
and provide millions of jobs domestically and worldwide. Our members
pay billions of dollars in Federal, State and local taxes and collect
and remit billions more in sales taxes. Our members are also leading
corporate citizens with some of the Nation's most far-reaching
community outreach and corporate social responsibility initiatives.
The retail sector, along with the suppliers and customers that it
serves, is an essential part of the U.S. economy. Retailers meet the
needs of U.S. consumers, and in doing so are essential drivers of the
U.S. economy. We also serve the global market for consumer goods and
bring U.S. products to the foreign markets where they operate.
Retailers provide quality jobs at all employment levels with good
benefits. The industry also creates opportunities for entry-level
employment, part-time work, jobs for nonskilled workers, and management
training for front-line workers.
Trade Expansion is a Positive and Powerful Economic Force
Virtually all of RILA's members, both retailers and suppliers, rely
on international trade to conduct their businesses. Our members depend
on imports of both finished consumer products and production inputs for
merchandise that will eventually be sold at retail stores. Many RILA
members are also working to expand retail outlets and operations in
countries that are open to U.S. investment and expand market access for
American products.
RILA and its members are champions for trade expansion and
recognize that building upon trade partnerships is essential to
providing U.S. consumers with the quality and variety of products they
expect at prices they can afford, and to creating opportunities for
global retailers to offer goods and services to customers around the
world. International trade is a powerful force that can empower people
to provide a better life for themselves and their families. RILA
believes that comprehensive free trade agreements (FTAs) such as those
recently negotiated with Colombia, Peru, and Panama can create valuable
new opportunities to expand economic activity while also ensuring that
the benefits of trade are not undermined by a lack of respect for or
enforcement of adequate workplace, environmental, investment, or
intellectual property rights and obligations. These trade agreements
not only benefit American consumers, workers, and businesses but also
help to create jobs for workers in developing nations who are trying to
lift themselves out of poverty. RILA urges the most rapid possible
submission and passage of implementing legislation for these
agreements. We would also like to see FTAs in the pipeline,
particularly with larger trading partners like Korea and Malaysia,
successfully concluded during the effective period of the current Trade
Promotion Authority (TPA) procedures.
Spreading Trade's Benefits
As mentioned above, trade can be a powerful economic force to help
people to improve their standard of living. Trade liberalization raises
productivity and real wages while expanding consumer choice and
purchasing power. One change in U.S. trade policy that could be made to
benefit consumers and workers at the bottom of the income ladder would
be to eliminate the disproportionately-high tariffs on low-cost items
such as footwear and clothing. Today, U.S. tariffs on consumer goods
are regressive; the lowest earners pay the highest rates, in percentage
terms. Tariffs on some products are in the double digits, such as on
certain clothing, footwear, luggage, dinnerware, and food such as
butter and cheese. Some of the highest tariffs apply to the types of
goods that people of modest means tend to buy, and lower duties are
imposed on similar products that are more often purchased by upper-
income individuals. For example, tariffs on low-end sneakers range
between 48 and 67 percent, but tariffs on higher-end sneakers are only
20 percent, and for leather dress shoes, the tariff is 8.5 percent.
This trade policy forces consumers with limited means to pay a greater
percentage of their disposable income on life's necessities.
RILA recommends reducing the disproportionately high tariffs on
everyday consumer products, either through unilateral action or through
free trade agreements, and particularly if U.S. producers cannot supply
the goods at a commercial level. Further, RILA believes the existing
FTA template could be improved with less-restrictive rules of origin
such as cumulation and other techniques in the textile and apparel
sector.
RILA also believes that U.S. trade policy would be improved to
spread the benefits of trade more broadly if retailer and consumer
interests are allowed to provide input in ongoing trade remedy cases
regarding the impact those cases would have on their livelihoods. Under
current law, retailer and consumer interests may not even participate
in trade remedy cases, and policymakers are forced to make decisions
with impartial information. Legislation to make this change was
introduced by Congressman Knollenberg in the 109th Congress (H.R.
4217). RILA believes similar legislation should be introduced and
positively considered in the 110th Congress, with the suggestion that
retailer interests also be included.
Trade Policy Successes
RILA and our member companies support the aggressive trade
liberalization agenda that has been pursued under the bipartisan TPA.
RILA's members benefit from, and have energetically supported, the
bilateral and regional trade agreements that have been concluded under
TPA. RILA members have also benefited from the various U.S. trade
preference programs, and we support the continuation and improvement of
these programs such as the Generalized System of Preferences, the
African Growth and Opportunity Act, and the Haitian Hemispheric
Opportunity through Partnership Encouragement (HOPE) Act. These
programs provide tangible benefits to America and our trading partners,
and help to pave the way for future two-way trading relationships.
Conclusion
RILA congratulates the Committee for its attention to and oversight
of U.S. trade policy. Negotiated trade liberalization and ongoing
autonomous reform of our own trade regime are essential elements of
America's economic success story. RILA stands ready to work with the
Committee in pressing forward an ambitious pro-trade agenda. If you
have any questions on this statement or require any assistance, please
contact Lori Denham, Executive Vice President, Public Affairs, or
Andrew Szente, Director, Government Affairs.
Stop CAFTA Coalition
January 30, 2007
The Honorable Chairman Charles B. Rangel
2354 Rayburn House Office Building
Washington, DC 20515
Dear Chairman Rangel,
In conjunction with the House Ways and Means Committee Hearing on
Trade and Globalization, the Stop CAFTA Coalition would kindly like to
submit this written statement for consideration by the Committee and
for inclusion in the printed record of the hearing.
While it is important to acknowledge that trade and globalization
have presented opportunities and challenges to several industries and
sectors throughout the United States, we would also like the Committee
to focus on the devastating effects of U.S. trade policies on
developing countries and their impoverished citizens. In particular, we
ask that the Committee keep in mind the preliminary results and effects
of the Dominican Republic and Central American Free Trade Agreement
(DR-CAFTA) on our Central American neighbors in lieu of determining the
fate of the Peru, Colombia and other proposed trade agreements.
In September 2006, the Stop CAFTA Coalition, in coordination with
friends, allies, and counterparts in Central America, issued the
Monitoring Report: DR-CAFTA in Year One (which can be downloaded in
English and Spanish at www.stopcafta.org), looking primarily at the
process of implementing DR-CAFTA since January 1, 2006. While it is far
too early to detail long-term trends in labor, textiles, agricultural
practice and policy, investment patterns, services, and environmental
consequences of DR-CAFTA, some early trends have emerged demonstrating
how the benefits of DR-CAFTA are not being broadly spread to working
people, farmers, local businesses, and consumers in Central America,
despite promises to the contrary.
BACKGROUND
As the Committee is aware, the U.S.-Central America Free Trade
Agreement (CAFTA) was initiated by the Bush Administration in January
of 2002 as an effort to revitalize faltering talks for a Free Trade
Area of the Americas. After a year of preliminary discussions,
``negotiations'' began in February of 2003 and were completed in
December of that year between the United States, El Salvador,
Guatemala, Nicaragua, and Honduras. Costa Rica joined the accord in
January of 2004, and all six countries formerly signed in May of 2004.
In August of 2004 the Dominican Republic was docked to the core
agreement creating the U.S.-Dominican Republic-Central America Free
Trade Agreement (DR-CAFTA).
DR-CAFTA was adopted first by El Salvador in December of 2004;
Honduras and Guatemala in March of 2005; the United States in July of
2005; and Nicaragua and the Dominican Republic in September of 2005.
DR-CAFTA was initially intended for implementation on January 1,
2006. Shortly before, in mid-December 2005, the United States Trade
Representative (USTR) announced that in its estimation, countries in
Central America had failed to fully enact laws necessary to bring their
legal systems into compliance with changes mandated by DR-CAFTA. At
this point the USTR set in motion a process of rolling implementation,
whereby, the USTR would certify countries as ready to implement CAFTA
on a case-by-case basis. As a result of this policy DR-CAFTA was
implemented first by the United States and El Salvador on March 1,
2006; Nicaragua and Honduras on April 1, 2006; and Guatemala on June 1,
2006.
The USTR has yet to allow the implementation of the agreement in
the Dominican Republic. Costa Rica remains the only country to have not
ratified the agreement.
FINDINGS OF ``DR-CAFTA IN YEAR ONE'' MONITORING REPORT
The process of rolling implementation has had negative consequences
for the region and for the United States particularly by creating
confusion surrounding the governing rules of origin for textiles. The
result has been lost jobs in the United States and parts of Central
America. Far from creating the promised regional textile complex to
offset competition from China, the ham-handed approach to implementing
DR-CAFTA has contributed to a trend, already in place, of Central
America losing market share to competitors from Asia.
The confusion surrounding implementation has been by and large the
creation of the United States Trade Representative and congressional
leadership. The USTR has insisted on new concessions from Central
American counterparts that go beyond items negotiated during CAFTA
discussions. These concessions include:
Demands to re-interpret intellectual property rules to
grant extended periods of protection for U.S.-based pharmaceutical
companies.
Requirements that governments in Central America adopt
U.S. Department of Agriculture meat inspections protocols, thereby
foregoing their rights to inspect meat packers prior to issuing export
licenses in the United States and re-inspecting meat at the border.
Forcing countries to accept USTR interpretations of a
host of disagreements concerning tariff rate quotas and distribution of
import licenses.
Demands that all of these disputes be settled by changes
in the civil codes of all of the countries in order to cut off the
potential for legal challenges later.
The USTR has been unwilling to meaningfully compromise with any of
its partners, even when the new demands were part of side deals between
the Bush Administration and congressional Republicans that helped pass
DR-CAFTA by a slim 2-vote margin.
The delays in implementation have been especially long in Guatemala
and the Dominican Republic. In Guatemala, outstanding issues concerning
pocket linings and taxes on beer were still not settled even after the
implementing deadline had passed. The USTR has halted implementation in
the Dominican Republic due to issues surrounding taxes on imported
vehicles, intellectual property rules regarding prescription drugs, and
the transportation of petroleum throughout the island.
There is already evidence of stress to the rural economy of Central
America that is being exacerbated by DR-CAFTA. Imports of items such as
fresh beef and a variety of dairy products to Central America have
increased dramatically. Guatemala has already submitted a case before
the World Trade Organization for dumping of chicken quarters by U.S.
poultry exporters. In El Salvador, inflation is increasing, including
for food items, indicating that despite promises to the contrary,
increased food exports from the United States are not leading to lower
food prices.
Another impact of DR-CAFTA implementation is the cost to the
government of initiating programs to prepare the rural economy for the
disruptions. The Nicaraguan government has established a program to
administer support funds; however, those support funds are being
absorbed by larger producers, not small farmers who desperately need
them. Further disruptions to the rural economy will lead to expanded
migration, both within Central America and to countries outside the
region.
There has been no improvement of the human rights situation in
Central America under DR-CAFTA. Indeed, there is evidence that DR-CAFTA
and other neo-liberal reforms are increasing social conflicts. In El
Salvador, Guatemala and Honduras the state is responding with increased
violence, or failing to protect social activists nonviolently demanding
their rights.
What is more, coalitions of legal scholars, lawyers, and civil
society organizations in the Central American countries have presented
legal challenges to domestic and regional courts calling into question
the constitutionality of the implementing laws.
Finally, there was a great deal of concern about the situation of
worker rights in Central America expressed by Members of Congress
during the DR-CAFTA fight. While too early to draw specific
conclusions, we simply note that few collective bargaining agreements
exist with noncompany unions in the free trade zones of Central
America, and the age old practice of firing union leadership in an
effort to squash organizing efforts continues unabated.
CONCLUSION
Given this brief synopsis of how DR-CAFTA has failed to maximize
the benefits of globalization while minimizing its costs to the
impoverished in Central America, the Stop CAFTA Coalition strongly
encourages the House Ways and Means Committee to review our Monitoring
Report: DR-CAFTA in Year One in full, which can be downloaded in
English and Spanish at www.stopcafta.org. Supported with empirical data
from experts in the field, the Report will provide the Committee with a
better understanding of ``the winners and the losers'' throughout the
region under DR-CAFTA. In reviewing the Stop CAFTA Coalition's
Monitoring Report, the Committee will be better equipped to address the
trade policy issues concerning the Peru, Colombia, and other future
free trade agreements.
The task of monitoring the impacts of DR-CAFTA is an ongoing one.
Therefore, as a Coalition, we assure the House Ways and Means Committee
that we will continue to monitor and periodically report on the effects
of DR-CAFTA on our Central American neighbors. We encourage the
Committee to use our findings as a resource in establishing future U.S.
trade policies, and for the future review and repeal of DR-CAFTA.
We thank you for your time and consideration of our request.
Sincerely,
The Stop CAFTA Coalition
Statement of Lori Wallach, Public Citizen's Global Trade Watch
On behalf of Public Citizen's 200,000 members, I thank the Ways and
Means Committee for the opportunity to share my organization's views on
the current state of trade and globalization policy. Public Citizen is
a nonprofit citizen research, lobbying and litigation group based in
Washington, D.C. Public Citizen, founded in 1971, accepts no government
or 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.
In announcing this hearing, Chairman Rangel said he hoped to gain
``a better understanding of the winners and losers under our current
trade policy'' and to look for ways that Congress can ``be an active
partner with the Administration in shaping trade policy to strengthen
economic opportunities for American workers, farmers and businesses.''
Public Citizen applauds the endeavor to make the benefits from trade
more widely shared. The search for a trade policymaking process that
better reflects the checks and balances America's Founders created
regarding trade policy is a necessary first step.
Since Fast Track was first introduced in 1974 by then-President
Richard Nixon, many of the worst U.S. trade agreements, including the
North American Free Trade Agreement (NAFTA) and the Uruguay Round of
the General Agreement on Tariffs and Trade establishing the World Trade
Organization (WTO) have been negotiated using Fast Track. Before Fast
Track we had balanced trade and rising living standards; since then the
U.S. trade deficit has exploded as imports surged. In fact, in 1973,
the United States had a small trade surplus, as it had in nearly every
year since World War II. But in every year under Fast Track save one,
the United States has run a trade deficit.
The average American worker is only making a nickel more per hour
in inflation-adjusted terms than in 1973, the year before Nixon's Fast
Track was first used to grab Congress' constitutional trade authority.
Better trade policy can do better for America's workers than this
pathetic 0.28 percent raise. Were it not for trade agreements that pit
U.S. workers in a race-to-the-bottom with poverty-wage workers
worldwide, U.S. workers' wages would better track productivity
increases, and workers in developing countries could fight to raise
their wages also.
We need a new mechanism for negotiating trade agreements that puts
a steering wheel--and when necessary, brakes--on our trade negotiators
so that Congress and the public are back in the driver's seat. Only by
replacing the unbalanced, outdated Fast Track trade authority
delegation system can we chart a new course on trade that can harness
trade's benefits for the majority.
How have we gotten into this mess? While the U.S. Constitution
gives Congress exclusive authority to ``regulate commerce with foreign
nations'' (Article I-8), Fast Track delegates away to the executive
branch Congress' constitutional authority to control the contents of
U.S. trade agreements, as well as other important powers. This means
the branch of government closest to the people has been ejected from
the driver's seat of our trade policy.
Fast Track's structural design ensures Congress cannot hold
executive branch negotiators accountable to meet the negotiating
objectives Congress sets in Fast Track legislation. Thus, simply adding
new negotiating objectives to the existing Fast Track structure, for
instance regarding labor and environmental issues, will not result in
trade agreements that reflect Congress' goals and objectives. In fact,
the 1988 Fast Track used to negotiate and pass NAFTA and WTO explicitly
required that labor rights be included in U.S. trade agreements.
President George Herbert Walker Bush and his negotiators simply ignored
these objectives, while satisfying the negotiating objectives desired
by their business supporters. Under Fast Track, the Bush Administration
was empowered to sign such agreements despite failing to meet Congress'
labor rights objectives and submit them for a no-amendments, expedited
vote. Members of Congress were thus forced into a position of having to
vote against these entire agreements, having no earlier recourse to
ensure the agreements met the objectives necessary to make them
supportable.
This is because Fast Track ensures that Congress' role is performed
too late to do any good: Congress only gets a ``yes'' or ``no'' vote on
a trade agreement after it's been signed and ``entered into.'' That
vote also ok's hundreds of changes to wide swaths of U.S. nontrade law
to conform our policies to what the ``trade'' deals require. By
eliminating Congress' right to approve an agreement's contents before
it is signed, Fast Track also allows outrageous provisions to be
``super glued'' onto actual trade provisions. Did the U.S. Congress
really intend to extend U.S. drug patent terms from the pre-WTO 17-year
terms to the WTO-required 20-year terms? This requirement was tucked
into the WTO's Trade Related Intellectual Property provisions. The
University of Minnesota School of Pharmacy found that the WTO's
windfall patent extensions cost U.S. consumers at least $6 billion in
higher drug prices and increased Medicare and Medicaid costs nearly
$1.5 billion just for drugs then under patent.\1\ Because under Fast
Track, Congress never had the ability to review, much less vote on the
WTO text before it was signed, this and numerous other outrageous
nontrade policy changes were bundled in with legitimate trade
provisions.
---------------------------------------------------------------------------
\1\ Stephen W. Schondelmeyer, Economic Impact of GATT Patent
Extension on Currently Marketed Drugs, PRIME Institute, College of
Pharmacy, University of Minnesota, March 1995, at Table 1.
---------------------------------------------------------------------------
Federalism is also flattened by Fast Track. In a form of
international preemption, state officials also must conform our local
laws to hundreds of pages of nontrade domestic policy restrictions in
these ``trade'' pacts, yet state officials do not even get Congress'
cursory role. Fast Track is how we got stuck with NAFTA, WTO and other
race-to-the-bottom deals.
Fast Track trashes the ``checks and balances'' that are essential
to our democracy--handcuffing Congress, state officials and the public
so we cannot hold U.S. negotiators accountable during trade
negotiations while corporate lobbyists call the shots. In one lump sum,
Fast Track:
Delegates away Congress' ability to veto the choice of
countries with which to launch negotiations;
Delegates away Congress' constitutional authority to set
the substantive rules for international commerce. Congress lists
``negotiating objectives,'' but these are not mandatory or enforceable
and executive branch negotiators regularly ignore them. In fact, the
1988 Fast Track used for NAFTA and WTO explicitly required that labor
rights be included in U.S. trade agreements.
Fast Track permits the executive branch to sign trade
agreements before Congress votes on them, locking down the text and
creating a false sense of crisis regarding congressional wishes to
change provisions of a signed agreement.
Fast Track empowers the executive branch to write
legislation (Congress' constitutional role), circumvent normal
congressional committee review, suspend Senate cloture and other
procedures, and have guaranteed ``privileged'' House and Senate floor
votes 90 days after the President usurps one more congressional role by
submitting legislation (Congress' role).
Fast Track rules forbids all amendments and permits only
20 hours of debate on the signed deal and conforming changes to U.S.
law.
All of these authorities are transferred to the executive branch
conditioned only on the requirement the executive branch gives Congress
90-day notice of its intent to start negotiations with a country and
then another 90-day notice before it signs a completed agreement.
Congress has no recourse to revoke its delegation of authority if the
executive branch ignores the negotiating objectives Congress lists in
its Fast Track statutes. The closed rule, expedited procedures for
consideration can only be revoked for failure to go through specific
notices and formal consultations, while failure to listen is not
actionable.
The result has been retrograde trade agreements that are
devastating the U.S. middle class while increasing poverty and
instability overseas.
Fast Track's Legacy: U.S. Wages Stagnate as Trade Deficits Soar,
Displacing Good U.S. Jobs
The average American worker is only making a nickel more per hour
in inflation-adjusted terms than in 1973, the year before Nixon's Fast
Track was first used to grab Congress' constitutional trade authority.
In 1973, the average U.S. worker made $16.06 hourly in today's dollars.
That same worker only makes $16.11 today despite U.S. workers' average
productivity nearly doubling since 1973.\2\ Better trade policy can do
better for America's workers than this pathetic 0.28 percent raise.
Were it not for trade agreements that pit U.S. workers in a race-to-
the-bottom with poverty-wage workers worldwide, U.S. workers' wages
would better track productivity increases, and workers in developing
countries could fight to raise their wages also.
---------------------------------------------------------------------------
\2\ Bureau of Economic Analysis and Bureau of Labor Statistics
figures, accessed January 2007.
---------------------------------------------------------------------------
Our Fast Track-enabled trade policy is suppressing U.S. wage
levels. Trade's downward pressure on U.S. wages comes from both the
import of cheaper goods made by poorly-paid workers abroad (displacing
the market for goods made by better paid U.S. workers) and the threats
during wage bargaining of corporations moving overseas. The result is
growing inequality with workers losing while the richest few make
massive gains.
The pro-Fast Track Peterson Institute for International Economics
estimates that about 39 percent of the observed increase in wage
inequality is attributable to trade trends.\3\ But, such proponents of
our current trade rules also cite trade theory to say that even so,
U.S. workers win when imports increase because when production is done
by low-paid workers overseas, we all can buy cheaper goods. Yet, the
nonpartisan Center for Economic and Policy Research applied the actual
data to the trade theory. They found that when you consider the lower
prices of cheaper goods versus the income lost from low-wage
competition, U.S. workers without college degrees (the vast majority of
us) lost an amount equal to 12.2 percent of their current wages. That
is to say, under our current policy the losses in wages from trade
outweigh the gains in cheaper prices from trade. For a worker earning
$25,000 a year, this loss would be slightly more than $3,000 per year!
\4\ Talk about unfair trade.
---------------------------------------------------------------------------
\3\ William Cline, Trade and Income Distribution, (Washington,
D.C.: Peterson Institute for International Economics, 1997).
\4\ Dean Baker and Mark Weisbrot, ``Will New Trade Gains Make Us
Rich?'' Center For Economic and Policy Research (CEPR) Paper, October
2001.
---------------------------------------------------------------------------
Before Fast Track we had balanced trade and rising living
standards; since then the U.S. trade deficit has exploded as imports
surged. In fact, in 1973, the United States had a slight trade surplus,
as it had in nearly every year since World War II. But in every year
since 1974 save one, the United States has run a trade deficit. Since
Fast Track paved the way for NAFTA and the WTO, the U.S. trade deficit
surged from under $100 billion to $800 billion or 6 percent of national
income.\5\ This is a trade deficit widely agreed to be unsustainable,
exposing the U.S. and global economy to risk of crisis, shock and
instability.
---------------------------------------------------------------------------
\5\ Bureau of Economic Analysis figures, accessed January 2007.
---------------------------------------------------------------------------
Unbelievably, the United States is also becoming a net food
importer. While American farmers were told by NAFTA-WTO supporters that
they will be ``breadbasket to the world,'' the amount of food imports
beat out exports in August 2006.\6\ Meanwhile, hundreds of thousands of
U.S. farms are shuttered due to careless trade pacts.
---------------------------------------------------------------------------
\6\ U.S. Department of Agriculture's Economic Research Service
figures, accessed January 2007.
---------------------------------------------------------------------------
Over 3 million American manufacturing jobs--1 out of every 6
manufacturing jobs--have been lost during the Fast Track era. The U.S.
manufacturing sector has long been a source of innovation, productivity
growth and good jobs--especially for the nearly 70 percent of Americans
without a college degree.\7\ But by the end of 2006, the United States
had only 14 million manufacturing jobs left--nearly 3 million down from
our pre-NAFTA-WTO level.\8\
---------------------------------------------------------------------------
\7\ Bob Baugh and Joel Yudken, ``Is Deindustrialization
Inevitable?'' New Labor Forum, 15(2), Summer 2006.
\8\ L. Josh Bivens, ``Trade Deficits and Manufacturing Job Loss:
Correlation and Causality,'' Economic Policy Institute Briefing Paper
171, March 14, 2006.
---------------------------------------------------------------------------
Job offshoring is moving rapidly up the income and skills ladder.
Economy.com estimates that nearly 1 million U.S. jobs have been lost to
offshoring since early 2001 alone, with 1 in 6 of those in information
technology, engineering, financial services and other business
services.\9\ The Progressive Policy Institute, a think-tank associated
with the pro-NAFTA-WTO faction of the Democratic Party, found that 12
million information-based U.S. jobs--54 percent paying better than the
median wage--are highly susceptible to offshoring.\10\ Independent
academic studies put the number of jobs susceptible to offshoring much
higher. Alan S. Blinder, a former Fed Vice Chairman, Princeton
economics professor and NAFTA-WTO supporter, says that 28 to 42 million
service sector jobs (or about 2 to 3 times the total number of current
U.S. manufacturing jobs) could be offshored in the foreseeable
future.\11\ Yet, if we even implemented the same policies Europe now
uses that halt offshoring of such jobs if our private health and
financial data might be compromised, we could have the lower offshoring
rates of also wealthy Europe.
---------------------------------------------------------------------------
\9\ Marla Dickerson, `` `Offshoring' Trend Casting a Wider Net,''
Los Angeles Times, Jan. 4, 2004.
\10\ Robert D. Atkinson, ``Understanding the Offshore Challenge,''
Progressive Policy Institute Policy Report, May 24, 2004.
\11\ Alan S. Blinder, ``Offshoring: The Next Industrial
Revolution?'' Foreign Affairs, March/April 2006.
---------------------------------------------------------------------------
Fast Track's Legacy: Increased Income Inequality in the U.S. and
Worldwide
U.S. economic inequality is at astronomical levels not seen since
the Robber Baron era. The richest 10 percent of Americans are taking
nearly half of the economic pie, while an even more elite group--the
top 1 percent of the income distribution--is taking nearly a sixth of
the pie.\12\ As noted, nearly all economists agree that our trade
policy has partially driven this widening inequality.
---------------------------------------------------------------------------
\12\ Thomas Piketty and Emmanuel Saez, ``The Evolution of Top
Incomes: A Historical and International Perspective,'' National Bureau
of Economic Research Paper 11955, January 2006.
---------------------------------------------------------------------------
American families are now less able to improve their own lot, as
trade policy shifts during the Fast Track era have had a direct impact
on American workers' ability to bargain for higher real wages. How
could it come to pass that American workers' wages stayed flat while
our productivity doubled? Where did all those gains go? In the past,
American workers represented by unions were able to share in these
gains. But since the Fast Track-enabled NAFTA and WTO went into effect,
as many as 62 percent of U.S. union drives face employer threats to
relocate abroad, according to U.S. Government-commissioned studies. The
``trade'' agreements include special ``foreign investor'' privileges
for corporations that move out of the United States and indeed, the
factory shutdown rate following successful union certifications tripled
since NAFTA went into effect.\13\ The Fast Track-hatched trade
agreements' attack on America's working families' ability to lift
themselves up has led increasing numbers to turn against any active
expansion of international trade.\14\
---------------------------------------------------------------------------
\13\ 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.
\14\ Peronet Despeignes, ``Poll: Enthusiasm for free trade fades;
Dip sharpest for $100K set; Loss of jobs cited,'' USA Today, Feb. 24,
2004.
---------------------------------------------------------------------------
The worldwide gulf between rich and poor has also widened since
Fast Track. At the time that Congress approved implementing legislation
to join NAFTA and the WTO, we heard a lot of hype about how these Fast
Tracked trade agreements would reduce poverty in the developing
countries. Yet, the reality is that the corporate globalization era
policies enabled by Fast Track have increased income inequality between
developed and developing countries. Income inequality has also
increased between rich and poor within many nations under these
retrograde trade agreements. According to one United Nations study, the
richest 5 percent of the world's people receive 114 times the income of
the poorest 5 percent, and the richest 1 percent receives as much as
the poorest 57 percent.\15\ According to another, ``In almost all
developing countries that have undertaken rapid trade liberalization,
wage inequality has increased, most often in the context of declining
industrial employment of unskilled workers and large absolute falls in
their real wages, on the order of 20-30 percent in Latin American
countries.'' \16\ This trend is widening over time. In 1960, the 20
richest nations earned per capita incomes 16 times greater than non-oil
producing, less developed countries. By 1999, the richest countries
earned incomes 35 times higher, signifying a doubling of the income
inequality.\17\
---------------------------------------------------------------------------
\15\ U.N. Development Program, ``Human Development Report:
Millennium Development Goals: A compact among nations to end human
poverty,'' 2003, at 39.
\16\ United Nations Conference on Trade and Development (UNCTAD),
Least Developed Countries Report, 1998, at 3.
\17\ UNCTAD, Least Developed Countries Report, 2002, at 17.
---------------------------------------------------------------------------
Fast Track's Legacy: Stagnant Growth, Poverty and Hunger in Poor Countri
es
Progress on growth and social development in poor countries has
slowed during the Fast Track era. Increasing economic growth rates mean
a faster expanding economic pie. With more pie to go around, the middle
class and the poor have an opportunity to gain without having to
``take'' from the rich--often a violent and disruptive process. But the
growth rates of developing nations slowed dramatically in the Fast
Track period. For low- and middle-income nations, per capita growth
between 1980 and 2000 fell to half that experienced between 1960 and
1980! The slowdown in Latin America was particularly harmful. Their
income per person grew by 75 percent in the 1960-80 period, before the
International Monetary Fund began imposing the same package of
economic, investment, and trade policies found in NAFTA and the WTO.
Since adopting the policies, per capita income growth plunged to 6
percent in the 1980-2000 period. Even when taking into account the
longer 1980-2005 period, there is no single 25-year window in the
history of the continent that was worse in terms of rate of income
gains. In other world regions, growth also slowed dramatically, while
in sub-Saharan Africa, income per person actually shrank 15 percent
after the nations adopted the policy package also required under the
WTO and NAFTA! \18\ Improvement measured by human indicators--in
particular life expectancy, child mortality, and schooling outcomes--
also slowed for nearly all countries in the Fast Track period as
compared with 1960-80.\19\
---------------------------------------------------------------------------
\18\ Mark Weisbrot, Robert Naiman and Joyce Kim, ``The Emperor Has
No Growth: Declining Economic Growth Rates in the Era of
Globalization,'' CEPR Paper, November 2000.
\19\ Mark Weisbrot, Dean Baker and David Rosnick, ``Scorecard on
Development: 25 Years of Diminished Progress,'' CEPR Paper, September
2006.
---------------------------------------------------------------------------
Poverty, hunger and displacement are on the rise. The share of the
population living on less than $2 a day in Latin America and the
Caribbean rose following the implementation of the Fast Track-enabled
NAFTA and WTO, while the share of people living on $1 a day (the World
Bank's definition of extreme poverty) in the world's poorest regions,
including sub-Saharan Africa and the Middle East, has increased during
the same period.\20\ According to the Food and Agriculture
Organization, ``Since the [1990] baseline period, progress [toward
reducing hunger] has slowed significantly in Asia and stalled
completely worldwide.'' \21\ From Mexico \22\ to China \23\ and beyond,
the displaced rural poor in the Fast Track era have had little choice
but to immigrate or join swelling urban workforces where the oversupply
of labor suppresses wages, exacerbating the politically and socially
destabilizing crisis of chronic under- and unemployment in the
developing world's cities that fuel instability. Many who have not fled
rural areas are no longer with us. According to the Indian government,
tens of thousands of farmers bankrupted by trade policies commit
suicide, leaving their children and families without alternate means of
support.\24\
---------------------------------------------------------------------------
\20\ Shaohua Chen and Martin Ravaillon, ``How Have the World's
Poorest Fared since the Early 1980's?'' World Bank Research Observer,
vol. 19, no. 2, 2004, at 152-3.
\21\ Food and Agriculture Organization, ``The State of Food
Insecurity in the World,'' United Nations Report, 2005, at 6.
\22\ Carlos Salas, ``Between Unemployment and Insecurity in
Mexico,'' Economic Policy Institute, September 2006.
\23\ ``Chinese farmers face bleak future,'' BBC News, Dec. 14,
2000.
\24\ Somini Sengupta, ``On India's Farms, a plague of suicide,''
New York Times, Sept. 19, 2006.
---------------------------------------------------------------------------
Developing countries that did not adopt the package fared better.
In sharp contrast, nations like China, India, Malaysia, Vietnam,
Chile--and Argentina since 2002--which chose their own economic
mechanisms and policies through which to integrate into the world
economy, had more economic success. These countries had some of the
highest growth rates in the developing world over the past two
decades--despite ignoring the directives of the WTO, IMF or World
Bank.\25\ It is often claimed that the successful growth record of
countries like Chile was based on the pursuit of NAFTA-WTO-like
policies. Nothing could be farther from the truth: Chile's sustained
rapid economic growth was based on the liberal use of export promotion
policies and subsidies that are now considered WTO-illegal.\26\
---------------------------------------------------------------------------
\25\ Mark Weisbrot, Dean Baker and David Rosnick, ``Scorecard on
Development: 25 Years of Diminished Progress,'' CEPR Paper, September
2006.
\26\ Todd Tucker, ``The Uses of Chile: How Politics Trumped Truth
in the Neo-Liberal Revision of Chile's Development,'' Public Citizen's
Global Trade Watch, September 2006.
---------------------------------------------------------------------------
Conclusion: Replace the Fast Track With a Good Process to Get Good
Trade Agreements
Fast Track was designed 30 years ago as a way to deal with
traditional tariff and quota-focused trade deals. Today's ``trade''
agreements affect a broad range of domestic nontrade issues like local
prevailing wage laws, Buy-America procurement policy, anti-offshoring
measures, food safety, land use and zoning, the environment and even
local tax laws. Congress, state officials and the public need a new
modern procedure for developing U.S. trade policy that is appropriate
to the reality of 21st century globalization agreements.
Critical to such a new system is restoring Congress' ability to
control the contents of U.S. trade agreements, as well as empowering
Congress to decide with which countries it is in our national interest
to negotiate new agreements. Because the Constitution grants the
executive branch the exclusive authority to negotiate on behalf of the
United States with foreign sovereigns, a system of cooperation between
the Congress and executive branch is needed. However, in contrast to
Fast Track, which by its very structural design sidelines Congress, a
new trade negotiating mechanism must provide early and regular
opportunities for Congress to hold negotiators accountable to the
substantive objectives Congress sets.
This is needed to ensure future pacts contain terms beneficial to
most Americans. With a new forward-looking trade negotiating process,
we can ensure U.S. trade expansion policy meets the needs of America's
working families, farmers and small businesses.
Americans For Fair Taxation
Conyers, Georgia 30012
January 30, 2007
America is now and forever will be a cog in the global economy. For
many years, we have enjoyed being the prime mover, but that status is
quickly changing and the evidence is all around us. America is becoming
a consumer-based nation rather than a manufacturer to the world
marketplace. The main reason our economy has grown thus far is mainly
due to the profits earned by the major retailers who are still based in
this country. Two of the most visible economic indicators that all
Americans realize as being a cause for fewer and fewer good-paying jobs
is the relocation of manufacturers or the use of outsourcing to produce
a cheaper product or service.
But these two obvious events are not causes of lower-paying jobs:
They are the effects resulting from companies wishing to maintain their
profit margins and looking for a more viable area of the world to
justify the maintaining of the bottom line. The root cause for all the
ills that America is suffering is the incomprehensible Tax Code that
all Americans must abide by.
It is important to realize that while the income tax system may
have worked as a viable means of government revenue collection in the
past, it must also be realized that Americans drove the global economy.
Today, it is the global economy that is driving Americans, and we are
shackled to an outdated system of tax collection. It is now being
reported that China is seriously considering revamping their system to
a 15% sales tax system and relying solely on the consumption of goods
and services to sustain their growth.
We have the chance to do the same by supporting H.R. 25, and bring
our manufacturers back to the U.S.A. where they belong. It is our tax
system that has failed us and it is the overhauling of our tax system
that will save us. America has been the leader of the world for many
years, and if nothing is done, we will very soon be number 2 or 3. We
the American people do not need another 1,000 or more pages added to
the Tax Code, but really need for the Tax Code to be keel-hauled and
start with The Fair Tax.
Donald Williamson
Volunteer