[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












                                  ______

                      U.S. GOVERNMENT PRINTING OFFICE
  34-735                  WASHINGTON : 2010
___________________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer 
Contact Center, U.S. Government Printing Office. Phone 202-512-1800, or 
866-512-1800 (toll-free). E-mail, [email protected].  




                      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

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


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of 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

                              ----------                              


                       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.''
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``110th Congress'' from the menu entitled, ``Committee Hearings'' 
(http://waysandmeans.house.gov/Hearings.asp?congress=18). Select the 
hearing for which you would like to submit, and click on the link 
entitled, ``Click here to provide a submission for the record.'' Once 
you have followed the online instructions, completing all informational 
forms and clicking ``submit'' on the final page, an email will be sent 
to the address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Tuesday, 
February 13, 2007. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
deliveries to all House Office Buildings. For questions, or if you 
encounter technical problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

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

                                 

    Chairman 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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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 
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
    \9\ Kaiser Family Foundation, ``Employer Health Benefits Survey,'' 
2006.
---------------------------------------------------------------------------
      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.
---------------------------------------------------------------------------
    \10\ Doug Tsurouka, ``Rural U.S. Seeks Place on IT Map,'' 
Investor's Business Daily, January 11, 2005.
---------------------------------------------------------------------------
      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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \12\ Dianne Farrell, ``U.S. Offshoring: Small Steps to Make it a 
Win-Win.'' Mckinsey Global Institute, March 2006.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \14\ Lael Brainard, et al. ``Insuring America's Workers in a New 
Age of Offshoring.'' Brookings Institution, 2005.
---------------------------------------------------------------------------
      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.
---------------------------------------------------------------------------
      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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    (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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \6\ Master Planning is described in The New Paradigm documents that 
will be forwarded.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    ``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\
---------------------------------------------------------------------------
    \9\ Stewart demographic study presented at the 2003 Annual Meeting 
of CABO/ONECA.
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    ``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\
---------------------------------------------------------------------------
    \11\ Stubbs.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \12\ World Bank and Afro-Latin.
    \13\ Stubbs.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \14\ World Bank and Afro-Latin.
---------------------------------------------------------------------------
    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.)
---------------------------------------------------------------------------
    \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.)
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
    \11\ This also applies to the U.S.-Jordan FTA.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \13\ Trade Act of 2002, Sec. 2102. Trade Negotiating Objectives. 
(b)(4)(A)(iv).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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 
---------------------------------------------------------------------------
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.)
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \20\ Trade Act of 2002, Sec. 2102. Trade Negotiating Objectives. 
(b)(4)(B).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \21\ Trade Act of 2002, Sec. 2102. Trade Negotiating Objectives. 
(b)(4)(C).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \22\ Doha Declaration on the TRIPs Agreement and Public Health 
(Point No. 4). 2001 Doha Ministerial. www.wto.org.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \26\ Trade Act of 2002, Sec. 2102. Trade Negotiating Objectives. 
(c)(6).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \28\ 35 U.S.C. Sec. 112.
---------------------------------------------------------------------------
    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

                                 
