[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


         THE FUTURE OF THE NORTH AMERICAN FREE TRADE AGREEMENT

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

                                HEARING

                               BEFORE THE

         SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION, AND TRADE

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           DECEMBER 12, 2017

                               __________

                           Serial No. 115-90

                               __________

        Printed for the use of the Committee on Foreign Affairs
        
        
 
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]        


Available via the World Wide Web: http://www.foreignaffairs.house.gov/ 
                                  or 
                       http://www.gpo.gov/fdsys/

                                 ______
                                 
                                 
                   U.S. GOVERNMENT PUBLISHING OFFICE                    
27-810PDF                  WASHINGTON : 2018                     
          
----------------------------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, 
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). 
E-mail, [email protected].                                 
                                 
                                 
                      COMMITTEE ON FOREIGN AFFAIRS

                 EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida         BRAD SHERMAN, California
DANA ROHRABACHER, California         GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio                   ALBIO SIRES, New Jersey
JOE WILSON, South Carolina           GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas             THEODORE E. DEUTCH, Florida
TED POE, Texas                       KAREN BASS, California
DARRELL E. ISSA, California          WILLIAM R. KEATING, Massachusetts
TOM MARINO, Pennsylvania             DAVID N. CICILLINE, Rhode Island
MO BROOKS, Alabama                   AMI BERA, California
PAUL COOK, California                LOIS FRANKEL, Florida
SCOTT PERRY, Pennsylvania            TULSI GABBARD, Hawaii
RON DeSANTIS, Florida                JOAQUIN CASTRO, Texas
MARK MEADOWS, North Carolina         ROBIN L. KELLY, Illinois
TED S. YOHO, Florida                 BRENDAN F. BOYLE, Pennsylvania
ADAM KINZINGER, Illinois             DINA TITUS, Nevada
LEE M. ZELDIN, New York              NORMA J. TORRES, California
DANIEL M. DONOVAN, Jr., New York     BRADLEY SCOTT SCHNEIDER, Illinois
F. JAMES SENSENBRENNER, Jr.,         THOMAS R. SUOZZI, New York
    Wisconsin                        ADRIANO ESPAILLAT, New York
ANN WAGNER, Missouri                 TED LIEU, California
BRIAN J. MAST, Florida
FRANCIS ROONEY, Florida
BRIAN K. FITZPATRICK, Pennsylvania
THOMAS A. GARRETT, Jr., Virginia
JOHN R. CURTIS, UtahAs of 
    12:44 pm 11/29/17 deg.

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

               Jason Steinbaum, Democratic Staff Director
                                 ------                                

         Subcommittee on Terrorism, Nonproliferation, and Trade

                        TED POE, Texas, Chairman
JOE WILSON, South Carolina           WILLIAM R. KEATING, Massachusetts
DARRELL E. ISSA, California          LOIS FRANKEL, Florida
PAUL COOK, California                BRENDAN F. BOYLE, Pennsylvania
SCOTT PERRY, Pennsylvania            DINA TITUS, Nevada
LEE M. ZELDIN, New York              NORMA J. TORRES, California
BRIAN J. MAST, Florida               BRADLEY SCOTT SCHNEIDER, Illinois
THOMAS A. GARRETT, Jr., Virginia
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Mr. Eric Farnsworth, vice president, Council of the Americas.....     8
Mr. Daniel Allford, president, ARC Specialties...................    17
The Honorable John D. Negroponte, vice chairman, McLarty 
  Associates (former Deputy Secretary of State and Former 
  Director of National Intelligence).............................    23
Ms. Celeste Drake, Trade and Globalization Policy specialist, The 
  American Federation of Labor and Congress of Industrial 
  Organizations..................................................    29

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable Ted Poe, a Representative in Congress from the 
  State of Texas, and chairman, Subcommittee on Terrorism, 
  Nonproliferation, and Trade: Prepared statement................     4
Mr. Eric Farnsworth: Prepared statement..........................    11
Mr. Daniel Allford: Prepared statement...........................    19
The Honorable John D. Negroponte: Prepared statement.............    25
Ms. Celeste Drake: Prepared statement............................    31

                                APPENDIX

Hearing notice...................................................    58
Hearing minutes..................................................    59
The Honorable Darrell E. Issa, a Representative in Congress from 
  the State of California:
  Prepared statement.............................................    60
  Material submitted for the record..............................    61

 
         THE FUTURE OF THE NORTH AMERICAN FREE TRADE AGREEMENT

                              ----------                              


                       TUESDAY, DECEMBER 12, 2017

                     House of Representatives,    

        Subcommittee on Terrorism, Nonproliferation, and Trade,

                     Committee on Foreign Affairs,

                            Washington, DC.

    The subcommittee met, pursuant to notice, at 2:00 p.m., in 
room 2172, Rayburn House Office Building, Hon. Ted Poe 
(chairman of the subcommittee) presiding.
    Mr. Poe. The subcommittee will come to order.
    Without objection, all members may have 5 days to submit 
statements, questions, extraneous materials for the record, 
subject to the length limitation in the rules.
    I will now make my opening statement.
    Twenty-three years ago, the North American Free Trade 
Agreement revolutionized trade and investment between the U.S., 
Canada, and Mexico. We share thousands of miles of border with 
Canada and Mexico. They are our neighbors and our natural 
partners in trade and security.
    And I want to emphasize the word ``neighbors.'' Sometimes 
the United States seems to be more concerned about some country 
far, far away than they are about our neighbors, Mexico and 
Canada. I think that is a mistake.
    This partnership has been shaped by NAFTA and our mutual 
histories. I am a strong supporter of free trade. America's 
strength is closely connected to its economic well-being. When 
we break down trade barriers, American trade and American jobs 
increase.
    Trade is the lifeblood of my home State of Texas. Last year 
in Texas, almost 1 million jobs were supported by some form of 
trade. Texas has been the top exporting State in the United 
States for 14 consecutive years. The overwhelming majority of 
Texas exporters are not big corporations but 93 percent of the 
Texas exporters are small and medium-size businesses.
    In my district of Houston, over half of the economy depends 
on trade. Houston has one of the largest ports in the world and 
is the oil and gas capital of the world. And guess where our 
Texas exporters export the most? Mexico and Canada, our NAFTA 
partners. Mexico is Texas' number-one exporting partner. Over 
10,000 trucks a day pass the Texas-Mexico border, all involved 
in trade.
    Texas is just one of the many States that rely on NAFTA to 
fuel the economy. Study after study have shown that increased 
trade leads to increased jobs for all Americans. More jobs mean 
more wealth for Americans. NAFTA supports 14 million jobs in 
the United States, and, thanks to NAFTA, trade between the 
U.S., Mexico, and Canada has tripled. Nearly every industry is 
affected in one way or another by NAFTA. The U.S. economy 
relies on NAFTA.
    Free trade agreements like NAFTA do more than just grow our 
economy. Trade is one of our best tools for foreign policy and 
political policy. We have seen the connection between free 
trade and freedom, opportunity, and prosperity. When we signed 
the NAFTA agreement, Mexico was considered a developing 
country. Its economy was one of the most closed in the world. 
Now, thanks in part to NAFTA, Mexico has an open economy valued 
at $2.2 trillion. The growth has made Mexico a stable neighbor.
    The increased trade between our countries has also deepened 
the ties between Mexico and Canada, allowing us to work 
together on many critical issues. Today, we cooperate with the 
Mexican Government on numerous issues, surprisingly to some 
Americans, including border security, immigration, and the 
fight against organized crime and drug trafficking. Our 
southern border security depends on our joint effort with 
Mexico.
    Cooperation with Canada has improved due to NAFTA. Our 
forces train and work together to defend North America. We 
fight side-by-side against national security threats like ISIS, 
and we are NATO partners. These are some of the most critical 
issues to our national security and to the security of our 
world.
    That brings me to the reason we are having this hearing 
today, to address the renegotiation of this critical free trade 
agreement. This negotiation, or renegotiation, is going on as 
we speak.
    A lot has changed in 23 years. The internet has transformed 
the way companies do business. Reforms in Mexico have created 
new opportunities for U.S. businesses. The renegotiation 
presents an opportunity to update the agreement in areas like 
energy, e-commerce, customs and trade facilitation, and many 
others to strengthen and promote trade.
    While there is a lot of opportunity to strengthen the 
agreement, there is also the risk of hurting U.S. businesses 
and workers. Hundreds of thousands of jobs across North America 
could be at risk if we suddenly pulled out of NAFTA or weakened 
the agreement. We could also do damage to our partnerships with 
Mexico and Canada that have made North America so strong.
    There has been some criticism, maybe harsh criticism, by 
others of NAFTA for decades, but we must separate the rhetoric 
from the facts and the criticism from people that don't have 
anything to do with trade. The fact is that NAFTA has benefited 
all three of our nations.
    I encourage the administration to strengthen and modernize 
NAFTA. There is always room to improve it to make it better for 
all three countries. And we have the rare opportunity at this 
very time to rewrite the rules of North American trade, to make 
it free trade and fair trade. We must take the opportunity to 
write them for the better.
    I believe it is important to the U.S. economy and national 
security that, throughout the renegotiations, the 
administration focuses on reaching an agreement that promotes 
free trade as well. We are sending a message to our current and 
future trading partners throughout this renegotiation. The U.S. 
should send a strong signal to support not only the NAFTA free 
trade agreement but free trade with other countries, as well, 
that want to trade with the U.S.
    A strong U.S. economy depends on a strong framework of free 
trade, and I look forward to hearing from our witnesses on how 
the administration can strengthen NAFTA and make it better.
    I will now yield to the gentleman from Massachusetts, Mr. 
Keating, former prosecutor--maybe still a prosecutor--for his 
opening statement.
    [The prepared statement of Mr. Poe follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Keating. Thank you, Mr. Chairman. Thank you, Chairman 
Poe, and thank you for having this hearing today.
    We are here in the Subcommittee on Terrorism, 
Nonproliferation, and Trade, and, as anyone who watches the 
news knows, there are many threats facing us today in these 
areas: ISIS, lone-wolf attacks, escalating tensions with North 
Korea, and the threat, again, of nuclear war. We must be 
vigilant in addressing every threat here at home and in the 
globalized world.
    The threats that cross borders and affect all of us are 
important. Threats from terrorism and proliferation of nuclear 
weapons are sobering. We must do everything in our power to 
keep Americans safe. But, additionally, we cannot afford to 
lose sight of trade. It doesn't command as much attention in 
the news as some of these issues I have just mentioned, but it 
affects every single American.
    Trade has the power to affect where jobs are located, to 
affect wages, to affect the cost of goods and services we rely 
on every day without even thinking about trade policies that 
affect them when they are in front of us. Trade is an 
incredible economic and foreign policy tool if it is wielded 
effectively and responsibly. It is the duty of U.S. Government 
to take full advantage of every tool at our disposal to make 
life better and easier for everyday, hardworking Americans.
    In order to do that in trade, we must be extremely careful 
in examining who wins and who loses. There has been a similar 
debate raging in this country over winners and losers recently, 
and that is over taxes. There are a lot of numbers and 
mathematical formulas and technical terms being thrown around 
with these issues, but, at the end of the day, how sure are we 
that it is the student, the assembly-line worker, the farmer, 
the mother of three, how sure are we that they are seeing the 
benefits of these policies?
    The good news is that there are things we can do in trade 
so that all boats rise, because our economies, our security, 
our institutions are all stronger when the people at the 
receiving end of trade and tax and any policy, for that matter, 
are stronger.
    However, we also have to be honest about what that means, 
because in trade this is not the norm. It is going to take real 
work to renegotiate NAFTA so that Americans, Mexicans, and 
Canadians see the benefits of what an effective, responsible 
trade policy should look like.
    Unfortunately, on this issue, which will have a significant 
impact on each and every American's bottom line every month, I 
remain unconvinced that this President has approached this 
issue with the seriousness it demands.
    For starters, the unrealistic timing parameters placed on 
these negotiations only suggest that the administration is 
willing to accept more of the same. I hope I am wrong about 
that, but negotiating wholesale changes in trade policy that 
break with longstanding trade practices takes time, no matter 
how quickly we might want to change that to happen and how 
willing we are to make sure it works toward that end.
    This applies to tax, trade; it applies to anything. We 
should be very careful about anything that moves quickly in 
this city. And with very little oversight from Congress or 
engagement from the affected stakeholders and their 
representatives, this is an area of concern.
    To our role in Congress, I am glad we are having this 
hearing in our subcommittee today, because it is a critical 
issue for our country and our foreign policy. We are fortunate 
to have our expert panel of witnesses here to inform us and 
inform this discussion right here in Congress on the NAFTA 
negotiations and what we should be paying close attention to so 
that we are serving the interests of the hardworking Americans 
in our own districts.
    While I am pleased with our witnesses here today, they are 
not government witnesses. Our panel, they are really not the 
ones that are going to be in the room negotiating this when it 
happens. They are not negotiating in terms of the trade policy 
that might have the single greatest impact on our constituents 
during our time serving here in Congress. They are not serving 
at the State Department, the Office of U.S. Trade 
Representative, USAID, Department of Labor. They are not 
working in our Federal agencies tasked with taking a new NAFTA 
and making it function properly at all levels of 
implementation, down to the workers in the fields or the 
assembly line or the parents buying groceries.
    With something of this significance, we owe it to our 
constituents to be fully informed on the terms that are being 
written into the new NAFTA, on the economic effects those terms 
will have on our communities back home, on what we need to do 
as the United States Government to make sure that everything is 
in place if and when a new NAFTA is signed. Because there are 
always risks and uncertainties when new policy is put into 
place, and we should work together to make sure people are not 
harmed in the process.
    For today, with this opportunity before us, in what I hope 
will be the first effort at taking up the issue of NAFTA 
negotiations, I hope we can use this time today to learn more 
about what a successful renegotiation looks like. Trade is just 
like any other issue--tax, healthcare, financial regulation. We 
have learned a lot from how past practices have gone, and we 
have learned about who the winners and losers were under those 
policies. We are better not to be repeating those same 
mistakes. Our communities back home deserve better.
    I yield back.
    Mr. Poe. I thank the gentleman from Massachusetts.
    Without objection, all of the witnesses' prepared 
statements will be made part of the record.
    I ask that each witness keep your presentation to no more 
than 5 minutes. And there is an easy way to know how long 5 
minutes has passed because a red button will blink in front of 
you. But we do have all of your testimony, all members have 
your testimony, and your bios as well.
    I will introduce briefly each witness and let them make 
their testimony.
    Eric Farnsworth is the vice president of the Council of the 
Americas. He previously worked at the State Department, Office 
of the U.S. Trade Representative, and was a senior adviser to 
the White House Special Envoy for the Americas.
    Thank you, Mr. Farnsworth, for being here.
    Mr. Daniel Allford has been the president and owner of ARC 
Specialties of Houston, Texas, for 35 years. ARC Specialties 
began as a one-man operation and has grown into an 
internationally recognized automation company that employs 65 
engineers and craftsmen.
    Mr. Allford, thank you for being here and taking time away 
from your business.
    Ambassador John Negroponte is the vice chairman of McLarty 
Associates. He was previously the Deputy National Security 
Advisor under President Reagan and was the first Director of 
National Intelligence under President George W. Bush. In 
addition, he served as the Ambassador to Honduras, Mexico, 
Philippines, the U.N., and Iraq.
    Ms. Celeste Drake is a trade and globalization policy 
specialist for the American Federation of Labor and Congress of 
Industrial Organizations. Previously, Ms. Drake worked for 
Congresswoman Sanchez and Congressman Doggett, in addition to 
serving on the Advisory Committee for the U.S. Export-Import 
Bank from 2013 to 2016.
    Mr. Farnsworth, we will start with you. You have 5 minutes.

 STATEMENT OF MR. ERIC FARNSWORTH, VICE PRESIDENT, COUNCIL OF 
                          THE AMERICAS

    Mr. Farnsworth. Thank you very much, Mr. Chairman. And good 
afternoon to you, Mr. Ranking Member, and members of the 
subcommittee. It is a real privilege to have the opportunity to 
appear before all of you to discuss the future of NAFTA.
    If I may, let me give you the bottom line first. NAFTA was 
a true innovation in economic relations. It was designed to 
increase trade and investment among its three parties, promote 
North American economic integration, and support a vision of 
open-market democracy for Mexico, providing that nation with a 
clear path toward political and economic development. It has 
succeeded on all three metrics, promoting our strategic, 
economic, and foreign policy interests as well as our values.
    Ending NAFTA would be a significant, lasting, and wholly 
unnecessary strategic mistake. At the same time, it is 
inevitable that after a quarter-century NAFTA has become dated 
and can usefully be modernized. And there is a landing zone, if 
the parties would like to achieve it.
    Since 1993, U.S. trade in goods and services with Canada 
and Mexico increased from $307 billion to well over $1 trillion 
by 2016. Annual trade between the United States and Canada has 
more than doubled. With Mexico, trade has quadrupled. Canada is 
the top trading partner of the United States, and Mexico is our 
second-largest export market and third-largest trading partner. 
More than 40 U.S. States count either Canada or Mexico as their 
top export destination.
    NAFTA has expanded trade and investment while organizing 
the majority of North American economic relations under a 
rules-based framework. As China continues its inexorable march 
up the development ladder and becomes increasingly economically 
assertive, our ability to compete economically will be further 
enhanced from a North America platform rather than the United 
States alone.
    Perhaps more importantly, NAFTA institutionalized a vision 
for North America that would have been impossible absent 
significant political and economic reforms in Mexico, both 
catalyzing such reforms and also benefiting from them. NAFTA 
has directly supported Mexico's democratic transformation while 
also establishing a framework of trust, supporting close U.S. 
cooperation across a range of security issues, including 
counternarcotics, counterterrorism, and migration. Such 
cooperation is at risk if the United States continues on its 
current path.
    Negotiations to revise NAFTA are now well underway. Press 
reports indicate that the most difficult issues remain to be 
addressed. Unless they are soon resolved, the possibility is 
increasing that talks may break down altogether and that the 
U.S. might consider giving notice of withdrawal.
    According to The Wall Street Journal, some 80 percent of 
economists surveyed anticipate withdrawing from NAFTA would 
depress U.S. growth, even as Congress is right now pushing 
forward on a tax package designed to kickstart growth. 
Withdrawal would also reduce growth in both Canada and Mexico, 
perhaps leading to a recession and creating economic conditions 
that traditionally cause migration, especially from Mexico to 
the United States.
    Much depends on the outcome of discussions surrounding 
rules of origin as a means to address the trade balance, 
although other significant issues also remain, including a 
sunset provision proposal and disagreements on intellectual 
property, government procurement, and dispute settlement 
procedures. Backward steps on these issues would cause 
irreparable damage to fully integrated supply chains and the 
workers whose jobs depend on them, in part because companies 
would find it difficult, if not impossible, to meet the 
required rules of origin currently under discussion.
    Were NAFTA to be eliminated, the parties to the agreement 
would then return to previous bound tariff rates, Mexico's 
being far higher than ours. Agriculture exports would suffer 
immediately, giving up the significant advantage that has 
turned Mexico into the U.S.' second-largest--$18 billion--
market, after only Canada.
    Meanwhile, to escape tariff barriers raised by Mexico, 
those seeking to supply Mexico's growing market and 
increasingly middle-class population, may, in fact, seek to 
move production to Mexico. This is exactly the opposite of the 
intended result.
    Having said all of this, the uncertainty that has been 
caused by the negotiations has already had negative 
consequences. Doubts will linger about whether the word of the 
United States, even one that is confirmed on a bipartisan basis 
by both houses of Congress, can be fully trusted again. Were we 
intentionally to seek ways to undermine our own global 
strategic interest, we might not find a better means of doing 
so than this.
    The challenges that face the United States at this moment 
are significant and they are real, but NAFTA is not the 
culprit. Rather, the relaunch of an updated and modernized 
NAFTA, fully acknowledging the rapid technological advances 
that continue to be made, informed by a vision of a more 
economically integrated North America to compete effectively on 
a global stage, is part of the solution.
    And, in the meantime, the strong, public, timely assertion 
by Congress of institutional prerogatives on trade and NAFTA, 
in particular, would be a welcome and, in my view, appropriate 
step.
    So I want to thank you again, Judge Poe and the ranking 
minority member, for the opportunity to be with you today, and 
I look forward to your questions.
    [The prepared statement of Mr. Farnsworth follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Poe. Thank you, Mr. Farnsworth.
    Mr. Allford?

  STATEMENT OF MR. DANIEL ALLFORD, PRESIDENT, ARC SPECIALTIES

    Mr. Allford. Mr. Poe and members of the Terrorism, 
Nonproliferation, and Trade Subcommittee of the Committee on 
Foreign Affairs, thank you for inviting me today to talk on 
NAFTA.
    I am Dan Allford, president of ARC Specialties in Houston, 
Texas. We design, program, and build automated machines and 
robots used around the world.
    I started in 1983 in Houston when I built a hot tap welding 
machine for a plutonium processing plant in Idaho. I have 
always suspected that if the customer had known it was a young 
man in his garage building this they might have been a little 
bit worried. However, it worked so well, we built another one 
in the 1990s.
    The business grew out of the garage around 1990, and, over 
the last 35 years, we have engineered and built hundreds of 
machines that are operating in 25 countries on 6 continents. We 
now occupy over 100,000 square feet of engineering and 
manufacturing space and employ 65 engineers and craftsmen.
    I have personally worked in and observed the market systems 
in 15 different countries. This experience has made me an 
enthusiastic free-market capitalist.
    ARC Specialties has always built machinery used for the 
manufacture of equipment used in the exploration and refining 
operations in the energy industry. In 2015, when oil prices 
crashed and the Houston economy slowed, we needed new markets. 
We found that the solutions we had developed to solve oil 
industry problems worked equally well in other industries 
around the world.
    Since the beginning of 2015, we have designed, built, and 
shipped machines to Canada, Mexico, Romania, Singapore, Oman, 
Saudi Arabia, China, India, France, and the U.K. exports have 
account for 30 percent of our revenues. Canada and Mexico 
accounted for half of our exports. In the process, we have 
learned to deal with trade barriers ranging from red tape to 
tariffs.
    Most of my knowledge of NAFTA comes from personal 
experience doing business across the globe. My experience is 
that NAFTA has helped us sell machines in Mexico and Canada. I 
sincerely believe that the free-market system used here in the 
United States is a major contributor to the success and 
productivity of our country. Tariffs and subsidies distort 
markets and degrade efficiency. A free market and a level 
playing field bring out the best in people by rewarding their 
efforts. I firmly agree with the adage that competition breeds 
excellence.
    In 1960, one transistor cost $4. Now, $4 will purchase 1 
billion transistors. This is the result of the free market 
encouraging technological improvements through automation. The 
whole process is driven by fair competition. I don't fear 
competition. I relish the challenge.
    I can beat the competition, but I can't beat the tariff. 
The United States innovates, others duplicate, and the cycle 
starts over, and everyone benefits from increased productivity. 
Better products are made available to consumers at lower 
prices.
    What I do fear is an unfair environment. Tariffs and red 
tape on one side tend to create reciprocal tariffs and red tape 
on the other. Technical problems can be solved using 
engineering and ingenuity, while tariffs create political and 
administrative cost barriers that restrict trade.
    I export machines to Brazil, where Brazilian tariffs can 
add as much as 40 percent to the cost of my equipment. This is 
counterproductive for all parties. These machines are used to 
apply welded internal coatings to valves and pipes used in the 
oil industry. These coatings create a corrosion-resistant 
barrier to the hydrogen sulfide or sour gas present in 
Brazilian crude and help prevent catastrophic failures and oil 
spills. Brazilian tariffs make my machines unaffordable for 
most companies. These tariffs cost my company revenues and cost 
the U.S. jobs. I fear the same thing will occur in Mexico and 
Canada if changes are made to NAFTA that distort the free-
market system.
    I believe that everyone should have an opportunity to work 
and provide for their family. This is a great stabilizer in the 
world. In a free-market system, prices for goods and services 
are determined by the open market and consumers. A free market 
works when the laws and forces of supply and demands are 
unhindered by government intervention.
    I am proud to be involved in manufacturing because it is 
one of the few segments of our economy that creates wealth. Our 
robots and machines help U.S. companies compete in a global 
economy, and our exports of equipment help the balance of 
trade.
    I am honored to be here today, and I ask you to help me to 
continue to create jobs in the United States of America by 
encouraging international free trade.
    [The prepared statement of Mr. Allford follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Poe. Thank you, Mr. Allford. Well said.
    Ambassador?

 STATEMENT OF THE HONORABLE JOHN D. NEGROPONTE, VICE CHAIRMAN, 
MCLARTY ASSOCIATES (FORMER DEPUTY SECRETARY OF STATE AND FORMER 
               DIRECTOR OF NATIONAL INTELLIGENCE)

    Mr. Negroponte. Thank you. Thank you, Chairman Poe----
    Mr. Poe. Your microphone.
    Mr. Negroponte. Oh, sorry. I should have remembered at 
least that. I haven't been out of government that long.
    Thank you to Chairman Poe and Ranking Member Keating and 
other members of this subcommittee for inviting me to testify 
at this hearing on NAFTA, a topic that has long been of 
personal and professional interest and that is highly relevant 
for Congress at this critical juncture. NAFTA's modernization 
is both necessary and important.
    For my part, I am proud to say that I have been an advocate 
for transforming North America into a more competitive economic 
force for decades. During my time as United States Ambassador 
to Mexico, I had the privilege to be involved in NAFTA's 
conception and negotiation. When I went down to Mexico, our 
trade relationship was modest and the United States-Mexico 
political relationship was frequently fraught. ``Distant 
Neighbors'' was the title of the book that best described our 
bilateral interaction.
    Through NAFTA, we hoped to be able to integrate our 
economies in a way that would benefit all three countries and 
allow us to better compete, including with Asia and with the 
countries of Eastern Europe that were emerging after the fall 
of the Soviet Union.
    I will never forget my meeting with President George H.W. 
Bush and Secretary of State James Baker where I walked through 
the pros and cons of having a NAFTA, an idea that they green-
lighted, seeing the economic and security benefits in such a 
strategic alliance.
    While the economic and social pressures of an increasingly 
globalized world have made NAFTA a controversial subject, I am 
of the view that NAFTA has been beneficial to our country. Its 
renegotiation should recognize the strategic importance of our 
North American partnership from both a geopolitical and 
economic perspective. Our work with our neighbors on law 
enforcement, counternarcotics, and counterterrorism are key 
components to keeping America safe. We simply do not have the 
luxury of putting this collaboration at risk.
    And, economically, trade with Canada and Mexico supports 
millions of jobs, and our North American partners buy more U.S. 
manufactured goods every year than the next 10 largest markets 
combined. Rather than offshoring to Asia, critical supply 
chains have been able to remain in North America, enhancing our 
ability to compete.
    NAFTA created unprecedented export opportunities for U.S. 
manufacturers, farmers, energy and service providers, small- 
and medium-size enterprises, and, yes, even workers, building 
the foundation of a closer strategic trilateral partnership.
    At the same time, NAFTA has long been a punching bag, as 
our country has failed to effectively address the needs of 
communities hit by shifting market demand, enhanced 
globalization, and technology. These are pressing matters that 
we must take head-on. But withdrawing from NAFTA to attempt to 
address these issues is like putting a splint on your arm to 
try to heal a broken leg. It is not likely to work. The 
uncertainty created by withdrawal benefits no one, least of all 
the United States.
    Do we need to modernize this agreement? Absolutely. The 
world has moved on since NAFTA's entry into force. Do we need 
to threaten withdrawal to do so? Absolutely not.
    So what can we do? First and foremost, I think it is 
important that Congress exercise its prerogatives in matters 
concerning trade and commerce. Hopefully this hearing will be a 
piece of that. And my hope is that local communities threatened 
by a dissolution of NAFTA will help to build a national 
consensus for the status quo, ideally for NAFTA modernization 
as well.
    Most importantly, I think we must rebuild a consensus not 
on trade necessarily but on competitiveness, on the need to 
ensure that the United States remains one of the most 
competitive economies in the world. This will mean engaging in 
real policy debates about the causes of economic struggle in 
certain parts of the country rather than turning to NAFTA as a 
convenient scapegoat.
    Wouldn't it be ironic if it were the United States' actions 
that harmed the bilateral relationship with Mexico, returning 
us once again to being distant neighbors?
    Thank you again for the opportunity to testify today. I 
look forward to your questions, Mr. Chairman.
    [The prepared statement of Mr. Negroponte follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Poe. Thank you, Ambassador.
    Ms. Drake?

STATEMENT OF MS. CELESTE DRAKE, TRADE AND GLOBALIZATION POLICY 
 SPECIALIST, THE AMERICAN FEDERATION OF LABOR AND CONGRESS OF 
                    INDUSTRIAL ORGANIZATIONS

    Ms. Drake. Thank you. Good afternoon, Chairman Poe, Ranking 
Member Keating, members of the committee.
    I am pleased to testify about NAFTA on behalf of the 
American Federation of Labor and Congress of Industrial 
Organizations, representing 12\1/2\ million working people in 
every sector of our economy, including mining, retail, 
manufacturing, transportation, public service, and 
construction.
    While CEOs and global corporations have generally benefited 
from NAFTA, it has failed the working people of North America. 
While it has increased the amount of trade between Mexico, 
Canada, and the United States, it has also cost jobs, depressed 
wages, weakened worker negotiating power, and destabilized 
communities across all three countries.
    Trade will always be disruptive, both creating and 
destroying jobs, but NAFTA's rules redistributed income 
upwards, providing rewards to the wealthiest and most powerful, 
while making it tougher to succeed for the rest of us. Trade 
does not inevitably have to redistribute income in this manner. 
So if we change the rules, we can change the outcomes.
    That is why today's hearing is so important. The 
renegotiation process that began in August is continuing even 
as we meet today here in Washington, DC. Unfortunately, due to 
the secrecy of the talks, we cannot discuss at this open 
hearing the specifics of the texts that each party is 
proposing.
    But we do know some of the general outlines. Canada has 
been very transparent about its ambition to protect its workers 
from being undercut by U.S. and Mexican policies that suppress 
wages by limiting the negotiating power of working people. And 
the U.S. has been equally transparent about its proposal to 
limit NAFTA's special legal privileges for foreign investors, 
which act as a subsidy for U.S. employers who outsource to 
Mexico.
    The AFL-CIO believes these proposals represent positive 
steps toward the transformation of NAFTA that is necessary to 
reverse its race-to-the-bottom model. We also commend 
Ambassador Lighthizer and his team for their willingness to 
consult with Labor.
    But initial steps and respectful consultations are not 
sufficient to provide confidence that the future of NAFTA will 
vary from its past. To truly set up a fair and level playing 
field, NAFTA, in renegotiation, must address labor issues that 
were basically swept under the rug the first time around. 
NAFTA's labor and environment side deals must be replaced with 
clear, effective, binding rules in the core text.
    Put simply, NAFTA's side agreements don't work. Over 23 
years, they have done nothing to ensure that NAFTA's labor 
rules are monitored or enforced, including in the case of 
Mexico, where the government cooperates with employers and 
employer-dominated unions to keep wages low and workers from 
having an independent voice in the workplace. Indeed, just last 
week, two senators from Mexico's ruling party introduced a bill 
that would undermine constitutional amendments as well as 
commitments already made to the U.S.
    This failure to address longstanding denials of worker 
rights and freedoms in Mexico is a key reason that NAFTA has 
not raised wages, benefits, or freedoms for North American 
families. If effectively addressing Mexico's entrenched system 
of labor repression is not part of the NAFTA renegotiation, 
there is little chance that it will stop hurting North American 
families.
    For this committee, this issue is critical. Working people, 
not just in the United States but around the globe, have been 
expressing more and more doubt about the current model of 
globalization--not about trade, but about global economic rules 
that reward exploitation and pollution, that fail to protect 
migrant workers, that deny working families open access to 
global rulemaking, that provide special privileges to Wall 
Street banks and brand-name pharmaceutical companies, and that 
make the American Dream harder to reach, particularly for the 
two-thirds of working Americans who lack a bachelor's degree.
    Congress should demand that NAFTA negotiators think bigger. 
Negotiators must consider how to incorporate rules that allow 
the U.S. to develop manufacturing policy to bring new family-
wage jobs to our industrial heartland. The new NAFTA should 
also include rules to combat tax avoidance and promote 
infrastructure investments. Without such rules, disinvestment 
in the U.S. economy will continue to undermine productivity and 
the middle class.
    For NAFTA to have a bright future, it must incorporate 
lessons learned from mistakes of the past, including the failed 
9-year case against Guatemala. A new NAFTA that addresses these 
issues should be viewed as the first of a new line of trade 
deals that have the confidence of the people making the 
products and providing the services that are traded.
    I will stop here, and I am happy to answer any questions 
you may have.
    [The prepared statement of Ms. Drake follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
                              ----------                              

    Mr. Poe. Thank you.
    Thank all of you.
    I will recognize myself for 5 minutes.
    Just answer this question ``yes'' or ``no''; it is easy. 
Has NAFTA benefited the United States?
    Mr. Farnsworth?
    Mr. Farnsworth. Yes.
    Mr. Poe. Mr. Allford?
    Mr. Allford. Yes.
    Mr. Poe. And Ambassador?
    Mr. Negroponte. Yes.
    Mr. Poe. Ms. Drake?
    Ms. Drake. No.
    Mr. Poe. Three to one.
    Mr. Allford, you heard the testimony of Ms. Drake. And you 
started out as a single owner, inventor, businessperson, 
worker. You were all of the above when you started. You said 
NAFTA has helped you. You have 65 employees. Is that correct?
    Mr. Allford. That is correct.
    Mr. Poe. How much of your trade--how much do you trade with 
Mexico? Can you give us a percentage?
    Mr. Allford. Over the last 3 years, it has been 15 percent 
of our revenues, but it fluctuates year to year.
    Mr. Poe. Okay. How about Canada?
    Mr. Allford. Again, the same, 15 percent.
    Mr. Poe. What would happen to your business if the United 
States hit the road with NAFTA?
    Mr. Allford. We would probably lay off 15 people.
    Mr. Poe. Ambassador, the renegotiation with NAFTA is taking 
place now. What should we do, the United States do, to make it 
better, specifically?
    Mr. Negroponte. Well, I think some of the changes, the new 
concepts that were introduced to the Trans-Pacific Partnership, 
which, of course, we have not entered into--we have withdrawn 
from that agreement. But in that TPP negotiation, things like 
intellectual property protection, e-commerce, updating the 
labor and environmental provisions, those kinds of features are 
things that I believe ought to also be introduced into a 
bilateral--or into the NAFTA discussion.
    And my understanding is that they have been, although, like 
Ms. Drake, I haven't seen the specific language being 
discussed, but----
    Mr. Poe. So you agree with her that we need to update the 
labor provisions in NAFTA?
    Mr. Negroponte. Yes. And I----
    Mr. Poe. For the United States. That would benefit the 
United States.
    Mr. Negroponte. Right. And just as a reminder of the 
history of this, I think we have to remember that in 1993 and 
1994 the labor and environmental provisions were sort of an 
afterthought. In other words, Mr. Bush signed the agreement, 
and then Mr. Clinton, as a condition, when he came into office, 
for actually going through with the agreement, insisted on 
negotiating these environmental and labor accords. And so it 
really was an afterthought. I think now it is less so.
    Mr. Poe. Mr. Farnsworth, I mentioned in my opening 
statement that United States policy, economic policy, foreign 
policy, whatever you want to call it, we seem to get involved 
in working with countries across the seas and trying to help 
their economy, but we seem to ignore our neighbors, 
specifically helping the economy of Mexico, which I think not 
only helps Mexico, it helps us.
    Do you agree with that statement?
    Mr. Farnsworth. Judge Poe, I strongly agree with that 
statement, and I thank you for raising that as a priority of 
this hearing.
    Mexico also has politics, and Mexicans will go to the polls 
in July for a Presidential election. It is too early, at this 
point, to declare who is going to be the winner in Mexico, but 
simply to say that, to the extent they feel that the United 
States is being a partner that is looking to distance the 
relationship rather than make it closer, that could very well 
encourage folks to vote for candidates in the Mexican process 
who may take a view of the United States that is less 
charitable.
    And the last thing we would want, in my view, would be to 
have a Mexico that views the United States in the way that we 
had in terms of the relationship back before NAFTA was 
finalized.
    We have to remember that the recent relationship over the 
last 23, 24 years is actually not the traditional relationship 
that Mexico and the United States have had. That relationship 
tended to be more acrimonious at times, but, at the best of 
times, benign.
    Now, over the last 23, 24 years, we have had the 
opportunity for real, intensive, and mutually supportive 
cooperation across a range of issues, yes, on the economy but 
also on the security side and on the migration side, and that 
would be put immediately at risk. Mexico has its own interests; 
they might view some of these issues differently. And I think 
we have to remember that.
    Mr. Poe. Historically, the relationship between Mexico and 
the United States, especially Mexico and Texas, has been tense, 
in my opinion, and has changed for the better but slowly. I 
think we need to work with our next-door neighbors and look at 
them closer than we start--people across the seas.
    And one last question. Does Mexico and Canada want to 
renegotiate NAFTA? Anybody can weigh on this. Just ``yes'' or 
``no.''
    Mr. Farnsworth. Yes, they have indicated a willingness to 
do so.
    Mr. Poe. Ambassador, I think you wanted to say something?
    Mr. Negroponte. Yes, sir. I think they do, but within 
limits. I think there are some provisions that have been 
suggested that I think they probably would not be willing to 
accept. For example, a sunset provision, a 5-year sunset 
provision, would be one, I think, rather significant example 
of----
    Mr. Poe. A sunset provision is bad for business, wouldn't 
you think?
    Mr. Negroponte. Well, it is hard to make an investment----
    Mr. Poe. That is right.
    Mr. Negroponte [continuing]. If you only have 5 years.
    Mr. Poe. I will yield to the ranking member, Mr. Keating 
from Massachusetts.
    Mr. Keating. Thank you, Mr. Chairman.
    And, indeed, a lot has happened over the last decades since 
the NAFTA agreement was negotiated. One of those areas is 
really--and I mentioned the growth of Mr. Allford's business is 
indicating that--the growth of artificial intelligence and 
robotics and the new industries there.
    So I would like to ask you all, you know, given that, you 
know, what importance in retraining workers and preparing them 
for new industries should be part of this agreement in terms of 
promoting this? You know, can we use this opportunity to deal 
with, you know, the dislocation that comes from these new 
industries? Can we use this to make sure that American workers 
have the option of retraining and have the resources to do it, 
in preparing them for these new industries?
    Ms. Drake?
    Ms. Drake. Thank you.
    I think not only can we but we must do that.
    The problem is that all the training and education in the 
world doesn't create one single job. So, while we are investing 
in training and education to get U.S. workers up to a world-
class level, we also have to make the investments that will 
help create the jobs, so promoting innovation, investing in 
infrastructure, making the U.S. a more attractive place to 
invest.
    Right now, it takes as long for a freight train to get from 
Los Angeles to Chicago as to just get through Chicago. And 
compare that to the investments, for example, that China is 
making in its infrastructure that makes it an attractive place 
to invest.
    So we need to combine training and education to prepare 
workers and to retrain workers who have lost their jobs, but we 
also need to do the homework to make sure that we are creating 
those jobs for the trained workers to go into.
    Mr. Keating. I think, incidentally, as I have talked to 
business leaders and I asked them to prioritize their needs, 
enhancing our infrastructure is either one or two in everyone's 
comments. And that is one reason I am concerned, quite frankly, 
about this tax plan, because there is going to be no money left 
for that. And I believe infrastructure should be, if it is not 
parallel, incorporated with our plans.
    You mentioned the Guatemalan case. Is there anything--and 
this is open to all our panelists--is there anything that we 
should learn from that case in terms of reshaping this 
agreement?
    Ms. Drake. I will start, that the Guatemalan case, it 
lasted for more than 9 years. So one thing is just in terms of 
timeliness and delay.
    But, secondly, there is no question on the world stage that 
Guatemala is not enforcing its laws, any laws--labor laws, 
criminal laws of any kind. The U.N. High Commissioner on Human 
Rights has an office there to deal specifically with rule-of-
law issues and, in particular, freedom of association and human 
rights in the economic sphere. That is exactly what we are 
talking about.
    But because the CAFTA, the Central American Free Trade 
Agreement, limited the way that we could enforce labor 
obligations--it had to be in a manner affecting trade and a 
sustained or recurring course of action, or inaction--the panel 
said the U.S. had failed to prove its case.
    So what we have to do is make sure that these additional 
hurdles to labor enforcement aren't repeated in the NAFTA. 
Labor obligations should be as enforceable as every other 
obligation, and right now, with that language, they are not.
    Mr. Keating. Yeah.
    I think a final question--and the panel can answer the 
previous question or this, as they see fit. But looking at 
changes that have occurred over this time and what we should 
take into consideration, do you think there should be 
commitments about climate change as part of the NAFTA or trade 
agreement negotiations? And why or why not?
    Ms. Drake. I would say absolutely. And the reason why is we 
would not want to lose high-value manufacturing, in particular, 
to a trading partner that says, ``Pollute all you want. 
Contribute to global warming all you want. You can produce 
here, and it will be cheaper.'' And the problem is that 
everyone has to live with the effects of putting that high 
carbon output into the global environment.
    Mr. Keating. Ambassador?
    Mr. Negroponte. Yeah, I think that--I took a look at the 
TPP language, and I would say it is good in terms of 
encouraging proper environmental behavior, but I don't think it 
goes so far as to impose enforcement within the agreement 
itself. I think it allows for domestic enforcement in each of 
the cases. But I think it goes farther than the agreement we 
had back in 1993, in terms of encouraging the right kind of 
environmental policies.
    And having dealt with both Canada and Mexico on 
environment, I think they both want to make the environment 
better. I don't think there is any doubt about it. When I got 
to Mexico, you could barely see in front of your nose, there 
was so much particulate matter in the air. There was leaded 
gas; they hadn't gotten rid of leaded gas yet.
    Mr. Keating. I am encouraged, myself. I think that is one 
area where we have the three countries sharing some of these 
values together. And together, if we move forward on this, it 
will be a strong example for other agreements as we go forward. 
So it is great to have some common areas where we can agree.
    And I want to thank you. This is a fascinating area. I am 
so pleased you are here.
    And I yield back.
    Mr. Poe. I thank the gentleman from Massachusetts.
    The Chair recognizes the gentleman from Florida, Mr. Mast.
    Mr. Mast. Thank you, sir. I appreciate that.
    You know, I only have 5 minutes, so I don't want to 
necessarily hear from everybody on each one of these questions, 
but I do generally open this up to each and every one of you, 
whoever champs at the bit first.
    But I want to start by asking a little bit about e-commerce 
and some of the provisions that we should be looking at to 
strengthen what is going on with NAFTA and e-commerce in 
benefiting the United States of America.
    I mean, obviously, that is always a fair thing to say. We 
can assume that Canada will be looking at any NAFTA 2.0 to 
strengthen provisions for Canada. Mexico would be looking to do 
the same. I think they rightfully fear any intrusion of 
products coming in from Asia, which is probably the way most 
Americans feel about products that have come in from other 
places, even throughout our own region.
    But what do you see as things that we can do to strengthen 
e-commerce through any NAFTA 2.0 for the United States of 
America?
    Don't all start at once.
    Mr. Farnsworth. There is one thing that we could do. We 
have tried already in multiple fora, and it resides with the 
Government of Mexico to make this decision, but we could change 
the de minimus levels for package delivery from the United 
States to Mexico. From an e-commerce perspective, that would 
have a potentially dramatic impact.
    Mr. Mast. Do you see the other players, Canada and Mexico, 
being willing participants for compromise in this region?
    Mr. Farnsworth. As I say, this has been a perennial issue 
between the United States and Mexico. They have indicated that 
they are not ready to entertain those proposals, but I think we 
need to continue pushing forward on that.
    And this is an entire industry that really didn't even 
exist when NAFTA was first negotiated. And I think the broader 
point here is something that bears focus. You know, if you 
think back to, for example, the automobile that you were 
driving in 1993, mine had a tape deck in it and that was about 
it. Now, the automobiles are literally driving themselves.
    I mean, the world has changed so fundamentally, and NAFTA, 
the provisions in the auto sector and every other sector that 
are included, actually still maintain the provisions, in large 
measure, of the world as it existed in 1994, when NAFTA went 
into effect.
    This is something that, from the updating perspective, we 
really need to have a hard look at. And it can actually help 
the innovation agenda for all three economies. But there are 
some sand in the gears, like the one that you have just 
referred to. I think that would be a good place to start.
    Mr. Mast. Are you pointing, to some degree, in terms of the 
origin of parts and the percentage that we need in, say, a U.S. 
automobile, 62 percent of it being made in the region, 
something like that?
    Mr. Farnsworth. Certainly, rules of origin plays into that, 
absolutely. And this is a very complicated issue, there is no 
question about it. We have to be careful here. With the right 
intentions, if we try to manage rules of origin in a way that 
is ultimately counterproductive from a commercial perspective, 
we could actually decrease production in the North American 
zone and force that production overseas in a way that is 
unhelpful to job creation in the United States.
    So this is something that is currently being negotiated 
among the three parties right now. It is something the U.S. 
administration has made a very high priority, and it is 
something that we have to watch very carefully.
    Mr. Mast. Yes, Ambassador? By all means.
    Mr. Negroponte. I think that, in part, what Mr. Farnsworth 
is referring to is the fact that our negotiators are asking for 
an explicit U.S. content of--I believe they are asking for 50 
percent with respect to automobiles, as opposed to a North 
America-wide content of the 62.5 percent that you referred to.
    And I think there is real concern amongst people who look 
at this that, if we were to insist on that, it would damage the 
competitiveness of vehicles made in North America. And it 
wouldn't have the effect, necessarily, of driving production 
back to the United States. I think it might be taken offshore 
to places like Asia and Europe.
    Mr. Mast. And that is what we are looking for, is 
production here, jobs here. This is something that we want to 
see. I heard a little jab over there on taxes. I think one of 
the most important points we can make, even--it came from a 
Democrat President. John F. Kennedy talked about how 
paradoxical it is, the relationship between lowering taxes and 
increasing revenue. One of my favorite quotes that exists out 
there.
    But in the aim of talking a little bit more about jobs, I 
have one more question, and that is, do you see anything within 
NAFTA that we could be renegotiating specifically to actually 
put Asia a little bit more on its heels and not have to worry 
about, necessarily, the loss there but actually put them on 
their heels and put them on the defensive?
    Ms. Drake. I would say one of the recommendations that the 
AFL-CIO made was this commitment to work together as a three-
party bloc to make sure that we are addressing tax avoidance so 
the taxes that are due are collected and able to be invested in 
infrastructure; commitments to invest by all three countries in 
infrastructure so that we can build that back up and make this 
an attractive place.
    And, finally, something that is very important is to have 
all three countries work together to cooperate on enforcement 
when there are non-NAFTA parties doing trade cheating, dumping, 
subsidizing, whatever it is, to work together to cooperate on 
enforcement. And that would make the U.S. enforcement a lot 
stronger.
    Mr. Mast. Very fair. Thank you.
    Thank you for your time. Thank you for your answers.
    Mr. Poe. I thank the gentleman from Florida.
    The Chair recognizes the gentlelady from Nevada, Ms. Titus.
    Ms. Titus. Well, thank you, Mr. Chairman.
    Mr. Negroponte, you and Mr. Farnsworth both referenced in 
your comments concern that if this negotiation goes awry or if 
the U.S. pulls out of NAFTA that we will return to being 
distant neighbors with Mexico. I think you said the 
relationship in the past wasn't quite as copacetic as it is 
today.
    I wonder what you both think the President's anti-Mexico 
rhetoric and call to build a wall and have them pay for it is 
doing for our relationship with Mexico and the potential 
negotiations. And if this fails, do you think a wall will be 
able to stop the millions who will suffer as a result of the 
economic consequences?
    Mr. Negroponte. Well, I think in atmospheric terms, I don't 
think that kind of rhetoric goes down particularly well in 
Mexico, and I think it contributes to a sense that the 
President may not regard Mexico and the Mexican people as 
highly as they would like.
    But if you go to the core of it and talk to them about it 
in depth, what they really care about is the NAFTA and the 
trading relationship, and they want to see that renewed. And I 
think they are prepared to tolerate a certain amount of 
rhetoric provided the practical results are beneficial to them.
    Ms. Titus. And what about in this election that is coming 
up? You mentioned that perhaps someone less favorable to the 
U.S. would get elected because of some of this rhetoric.
    Would you weigh in, Mr. Farnsworth?
    Mr. Farnsworth. Yes, ma'am. And thank you for the question. 
And I agree with Ambassador Negroponte. It is not particularly 
helpful, and it stigmatizes, in some way, the relationship. And 
people don't necessarily appreciate that.
    The one thing about--in reference to your question about 
the border wall, Ms. Drake referenced infrastructure within the 
United States, which I think is absolutely correct. I am 
actually from Chicago, and I can verify that traffic there is 
complicated. But to the extent that we are also building 
additional obstructions or obstacles with our border with 
Mexico, that is only going to make the commercial relationship 
that much more complicated, particularly in sectors that final 
production is not in one country or the other but that 
production actually crosses the border multiple times--for 
example, in the auto sector. And each time, if the border is 
congested or complicated, that reduces the efficiency of 
production, raises the cost of production, and ultimately make 
U.S. manufacturing less competitive.
    And we have to remember that final goods that are exported 
from Mexico, according to the National Bureau of Economic 
Research, actually include some 40 percent of U.S. content.
    So, as we are making that border more complicated to cross, 
we are actually impacting the commercial relationship in a way 
that I think is very, very compelling, and something we need to 
think hard before we do it.
    Ms. Titus. Thank you.
    I would also like to ask you about tourism. I represent Las 
Vegas, and I co-chair the Travel and Tourism Caucus. And our 
greatest source of tourists are Mexico and Canada. I think half 
of all international visits came from those two countries--18.7 
million last year from Mexico, 19.3 million from Canada. But we 
have seen a decrease, according to the Department of Commerce's 
National Travel and Tourism Office, from Mexico this past year, 
and some of that is tied to that same rhetoric that I 
mentioned.
    Could you discuss how a poor renegotiation or withdrawing 
from NAFTA would address tourism as part of our economic 
interaction with these two countries? Anybody.
    Mr. Negroponte. Well, I think maybe in the broader sense. 
If the NAFTA fails and then it has negative, adverse economic 
consequences on Canada and Mexico--I could see a devaluation of 
their currency, for example, and then there would be all sorts 
of knock-on effects which might, over time, affect the ability 
of Mexicans to travel to the United States.
    But visiting the U.S. is near and dear to their hearts. You 
know, a lot of visa applicants in those visa lines in Mexico 
are wanting to take their children to Disneyland, right? I 
mean, that is what they want to do, or go to Las Vegas or visit 
the other tourist highlights in the country.
    Ms. Titus. Mr. Farnsworth?
    Mr. Farnsworth. Well, again, I think that, in the broadest 
sense, things that would indicate that the United States is a 
less welcoming environment to anybody coming to visit would, I 
think, depress the interest from Mexicans and others, frankly, 
in visiting the United States as tourists.
    Ms. Titus. Big difference in a wall and a welcome mat.
    Thank you. I yield back.
    Mr. Poe. The Chair recognizes the gentlelady from 
California, Mrs. Torres.
    Mrs. Torres. Thank you, Mr. Chairman. And thank you for 
bringing us together to talk about such an important issue 
between North American countries.
    I was recently in Mexico. I travel as part of the U.S.-
Mexico Interparliamentary Group. It is heartbreaking to hear 
how offended--or how much our administration, our current 
President has offended our Mexican nationals and how he has 
negatively impacted our relationship with our closest neighbors 
to the south, neighbors who we depend on for our national 
security and great partner on this issue.
    Ms. Drake, I agree with you on the labor and environmental 
issues. I think it is unfortunate that it was a second thought, 
it wasn't negotiated. And I think that this is an opportunity 
for us to really bring about labor issues, wages, and climate 
change issues, although we don't want to call it ``climate 
change issues'' anymore. I get that. ``Weather pattern 
changes,'' as I refer to them.
    Friday night, I had some gifts for my little grandbaby, and 
I was wrapping them. The toy was made here, the wrapping was 
made in China, but the ribbon--and I took a picture of it. It 
is on my social media. And I am happy for you if you follow me. 
The ribbon says it is made in Mexico from materials 
manufactured in the USA, Rancho Cucamonga, California, 91730. 
That is my neighboring city. And I was so proud of that that I 
had to tweet out that photo, because that is NAFTA.
    I traveled through my district and visited 17 manufacturers 
that say they are dependent on NAFTA to trade with--you know, 
within businesses across. That means that those California 
workers, those California companies that are a part of the 
Paris Agreement, that are committed to ensuring that we have 
air quality that we can all be proud of for our future 
generations, will be denied those jobs. So, rather than 
abandoning, you know, an agreement that might have not 
benefited all of our communities in all of our States in the 
U.S.--as a matter of fact, some parts of Mexico are just as 
angry as some parts of the U.S. Southern Mexico, for example, 
has not benefited a single job, you know, from the NAFTA 
agreement. And they would say, just like some of our States 
would say in rural counties, it has negatively impacted them.
    So how do we focus on those areas and ensure that, whether 
it is infrastructure--what are some of the ways that we can 
bring about this dialogue to an administration that is so much 
opposed to it?
    Ms. Drake?
    Ms. Drake. I would start by abandoning the us-versus-them 
rhetoric. It really isn't the United States versus Mexico 
versus China. And, in fact, the firms that are competing, the 
firms are global; the profits are global; the places where 
profits are booked and taxes are avoided are global. The only 
thing that is not global are the workers themselves and the 
worker rights.
    So it really takes a change of our frame of how are we 
looking at this and how do we give businesses the right 
incentives to create jobs, not just in the U.S. but--of course 
in the U.S., but also in Mexico and in Canada, and to make sure 
that those are good jobs, family-wage jobs.
    You know, there are millions more living in poverty in 
Mexico now than before NAFTA. It is not all attributable to 
NAFTA, but there are certain things that all three countries 
can do to try to make a more progressive economy and to create 
not just any job, not just a job that has no security, but 
really say, ``We are going to work on this together.''
    And then what we are doing, if we are able to do that, in 
the context of NAFTA, to say we are going to also continue to 
trade and continue to grow the trade relationship, as Chairman 
Poe referenced earlier, it is good for the U.S. not just 
because you are raising wages there so we get a better labor 
market here, but you are creating new customers for U.S. 
exports. There are so many in Mexico right now that aren't 
really participating in the global economy and can't afford to 
buy American goods.
    So how can we do all of that? And there are lots of ways, 
and it starts with labor rights, but there are many other 
investments we can make.
    Mrs. Torres. Thank you.
    And I yield back.
    Mr. Poe. I thank the gentlelady.
    The Chair recognizes Ms. Frankel from Florida.
    Ms. Frankel. Thank you, Mr. Poe.
    Thank you to our witnesses.
    So I want to pick up where my colleague Mrs. Torres left 
off and just say I agree that we have to--when we rework this 
agreement, we have to improve the labor standards and also 
environmental standards.
    I want to look at this from a little different angle, maybe 
more from the aspect of this committee on terrorism. That is, I 
have very mixed emotions when I think about this, because I 
want to do everything possible to improve America's economy; we 
also have to be concerned about our security.
    And so I think when--Ms. Drake, I like your approach. It is 
not us against them. Because my big concern is, if we allow 
Mexico to go downhill, to have more economic losses, well, 
things are going to start to happen that we don't want to 
happen, which will be probably more illegal immigration, more 
violent drug trading, more border issues.
    And so I would like to hear some comment on that from 
whoever would like to.
    Mr. Negroponte. If I could, Mr. Chairman, I would just like 
to say I think the cooperation on the security front with 
Mexico has been at an unprecedented level. I mean, some 
examples would of course be the fact that we have been 
cooperating on immigration issues, not only on our common 
border but also down on Mexico's border with Central America. 
So I think that is important. We have been, lately, doing a lot 
of good work on transnational crime and that kind of activity.
    And perhaps one that is really politically very significant 
for Mexico, when I was Ambassador down there 25 years ago, 
Mexico wouldn't extradite criminals to the United States, and 
now they do it, and they do it without any difficulty 
whatsoever. And, to my mind, that really represents a major 
shift in their approach toward cooperation with our country.
    Ms. Frankel. And I assume, from what you are saying, that 
if we just really walked away from NAFTA, that the border 
cooperation and the other cooperation might fail.
    Mr. Negroponte. Well, I certainly wouldn't want to wish 
that, nor would anybody, I don't suppose. But it might make it 
a little harder for them and give them a little less room for 
maneuver, politically, if they were working in the context of a 
failed NAFTA.
    Ms. Frankel. Mr. Farnsworth, I see you--and Mr. Allford, 
you have both been shaking your head--and Ms. Drake. Who wants 
to----
    Mr. Farnsworth. I have nothing in particular to add, other 
than to associate myself with Ambassador Negroponte's comments. 
I think that is exactly right.
    And we also have to remember Mexico is not doing this 
cooperation necessarily to please the United States. It is 
doing it because it is in its own interests. And those 
interests will continue no matter what happens on the north 
side of the border.
    So there will be, in my view, some continued level of 
cooperation. The question will be how easy it will be, how 
politically possible it will be, and what extent it will be. 
And you could paint a scenario, I think, quite easily that the 
next President of Mexico, whoever he or she may be, could not 
have the same level of political room to maneuver to cooperate 
with the United States. So I think that is a real risk. I 
wouldn't think that the cooperation would end, but I think 
perhaps it would become much more fraught.
    Ms. Frankel. Ms. Drake, did you want to add to that?
    Ms. Drake. Yes. Thank you.
    I would just add that NAFTA has not been a magic bullet on 
this front. The noted economist and author Jeff Faux has done 
some really good work about how some of the campesinos who were 
pushed off the land after NAFTA ended up in the 
narcotrafficking regime.
    And we also must note that rule of law continues to be a 
problem. A couple of years ago, 43 student teachers were 
kidnapped in Mexico. We still don't have a resolution of that. 
And just within the past couple of weeks, we had two labor 
activists who were assassinated in a worker strike in a mine.
    So we have lots of work to do. And the U.S. could do a much 
better job of pushing Mexico to make sure that it protects 
workers and women as part of its rule-of-law issues.
    Ms. Frankel. Thank you.
    Mr. Allford?
    Mr. Allford. As you can tell, I believe that trade creates 
jobs. I ship machines overseas that allow people to build high-
value-added products, not just wrapping ribbons. If everybody 
has a job, they are able to feed their family, the world is a 
more tranquil place.
    Ms. Frankel. Thank you.
    Thank you all for your response.
    I yield back.
    Mr. Poe. I thank the gentlelady.
    I want to thank all of you all, or all y'all, as we say as 
a plural to ``y'all'' in Texas, for being here today. The 
testimony has been excellent, and we appreciate your time and 
your information.
    There may be questions that members of the panel may have. 
They will submit that through the Chair to you in writing. And 
then we would like a timely response, preferably before the 
NAFTA agreement is reached.
    And, with that, the committee is adjourned.
    [Whereupon, at 3:07 p.m., the subcommittee was adjourned.]

                                     
                                   

                            A P P E N D I X

                              ---------- 
                              
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                                 [all]