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



 
                       MODERNIZATION OF THE NORTH

                 AMERICAN FREE TRADE AGREEMENT (NAFTA)

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

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

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 18, 2017

                               __________

                          Serial No. 115-TR01

                               __________

         Printed for the use of the Committee on Ways and Means
         
         
         
         
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

         
         
         
                U.S. GOVERNMENT PUBLISHING OFFICE
                   
33-481                  WASHINGTON : 2019               

 
 
 


                      COMMITTEE ON WAYS AND MEANS

                      KEVIN BRADY, Texas, Chairman

SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
DEVIN NUNES, California              SANDER M. LEVIN, Michigan
PATRICK J. TIBERI, Ohio              JOHN LEWIS, Georgia
DAVID G. REICHERT, Washington        LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
VERN BUCHANAN, Florida               JOHN B. LARSON, Connecticut
ADRIAN SMITH, Nebraska               EARL BLUMENAUER, Oregon
LYNN JENKINS, Kansas                 RON KIND, Wisconsin
ERIK PAULSEN, Minnesota              BILL PASCRELL, JR., New Jersey
KENNY MARCHANT, Texas                JOSEPH CROWLEY, New York
DIANE BLACK, Tennessee               DANNY DAVIS, Illinois
TOM REED, New York                   LINDA SANCHEZ, California
MIKE KELLY, Pennsylvania             BRIAN HIGGINS, New York
JIM RENACCI, Ohio                    TERRI SEWELL, Alabama
PAT MEEHAN, Pennsylvania             SUZAN DELBENE, Washington
KRISTI NOEM, South Dakota            JUDY CHU, California
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
TOM RICE, South Carolina
DAVID SCHWEIKERT, Arizona
JACKIE WALORSKI, Indiana
CARLOS CURBELO, Florida
MIKE BISHOP, Michigan

                     David Stewart, Staff Director

                 Brandon Casey, Minority Chief Counsel

                                 ______

                         SUBCOMMITTEE ON TRADE

                DAVID G. REICHERT, Washington, Chairman

DEVIN NUNES, California              BILL PASCRELL, JR., New Jersey
LYNN JENKINS, Kansas                 RON KIND, Wisconsin
ERIK PAULSEN, Minnesota              LLOYD DOGGETT, Texas
MIKE KELLY, Pennsylvania             SANDER M. LEVIN, Michigan
PAT MEEHAN, Pennsylvania             DANNY DAVIS, Illinois
TOM REED, New York                   BRIAN HIGGINS, New York
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
TOM RICE, South Carolina


                            C O N T E N T S

                               __________
                                                                   Page

Advisory of July 18, 2017 announcing the hearing.................     2

                               WITNESSES

Panel One

Tom Linebarger, Chairman and Chief Executive Officer, Cummins, 
  Incorporated...................................................     7
Patrick J. Ottensmeyer, Chief Executive Officer, Kansas City 
  Southern.......................................................    15
Dennis Arriola, Executive Vice President--Corporate Strategy and 
  External Affairs, Sempra Energy................................    37
Celeste Drake, Trade and Globalization Policy Specialist, AFL-CIO    43

Panel Two

Jason Perdue, President of the York County, Nebraska Farm Bureau, 
  Testifying on Behalf of: Steve Nelson, President, Nebraska Farm 
  Bureau.........................................................   117
Christine Bliss, President, Coalition of Services Industries.....   104
Stan Ryan, Chief Executive Officer and President, Darigold, 
  Incorporated...................................................    88
Althea Erickson, Senior Director--Global Advocacy and Policy, 
  Etsy, Incorporated.............................................   113
Susan Helper, Frank Tracy Carlton Professor of Economics, Case 
  Western Reserve University.....................................   122

                  QUESTIONS AND ANSWERS FOR THE RECORD

Questions from Representative Brian Higgins of New York to Ms. 
  Celeste Drake..................................................   147
Questions from Representative Lynn Jenkins of Kansas to Mr. 
  Patrick J. Ottensmeyer.........................................   150
Questions from Representative Lynn Jenkins of Kansas to Mr. Jason 
  Perdue.........................................................   152

                       SUBMISSIONS FOR THE RECORD

American Automobile Policy Council, statement....................   153
U.S.-Mexico Chamber of Commerce, statement.......................   155
San Diego Regional Chamber, statement............................   159
San Antonio Chamber of Commerce, statement.......................   161
QVC, Incorporated, statement.....................................   165
Pacific NorthWest Economic Region, statement.....................   169
National Foreign Trade Council, statement........................   175
MetLife, Incorporated, statement.................................   183
Motor & Equipment Manufacturers Association, statement...........   187
Kevin L. Faulconer, Mayor of San Diego, statement................   191
Chief Executives of American Companies, statement................   192
Florida Fruit & Vegetable Association, statement.................   196
Distilled Spirits Council, statement.............................   205
Consumer Technology Association, statement.......................   215
Citigroup, statement.............................................   223
Chubb Limited, statement.........................................   225
Auto Alliance, statement.........................................   230
The American Petroleum Institute, statement......................   235
American Phoenix Trade Advisory Services PLLC, statement.........   238
TechPolicyDaily, statement.......................................   248
USKI Washington Review, statement................................   250
AdvaMed, statement...............................................   251
Acuity Brands, statement.........................................   258
American Chemistry Council, statement............................   263
American Coatings Association, statement.........................   269


                       MODERNIZATION OF THE NORTH



                 AMERICAN FREE TRADE AGREEMENT (NAFTA)

                              ----------                              


                         TUESDAY, JULY 18, 2017

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

    The Subcommitteee met, pursuant to notice, at 10:02 a.m., 
in Room 1100, Longworth House Office Building, the Honorable 
Dave Reichert [Chairman of the Subcommittee] presiding.
    [The advisory announcing the hearing follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
   

    Chairman REICHERT. Well, good morning. The Subcommittee 
will come to order. Welcome to the Ways and Means Trade 
Subcommittee hearing on modernization of the North American 
Free Trade Agreement.
    Before hearing from our witnesses, I am going to take the 
time to make just a couple of points. Since its entry into 
force in 1994, the North American Free Trade Agreement, or 
NAFTA, has transformed the United States and North American 
economy. It has reduced barriers to our exports, and allowed 
American businesses to sell goods and services more freely and 
competitively to markets around the world. NAFTA has given us a 
huge advantage in creating an integrated production base and 
supply chain.
    For example, we have improved our competitive edge against 
China, because we can take advantage of our trading partners' 
role in the production process. We have done so while creating 
jobs here in the United States across all three economic 
sectors: agriculture, services, and manufacturing.
    NAFTA has benefitted my home state of Washington, in 
particular. Our businesses have exported more than $134 billion 
in goods to Canada and Mexico since 1994, supporting jobs in 
communities around Washington State.
    Because of the elimination of Mexico's 20 percent tariff on 
apples and pears through NAFTA, our exports of these products 
increased by 70 percent to Mexico. Now, each year, 15 percent 
of Washington State's apples and pears are destined for Canada 
and Mexico. Moreover, consumers across Washington and the 
country are able to save costs when they purchase goods from 
Canada and Mexico.
    Despite its success, NAFTA was negotiated more than two 
decades ago, when the economic landscape looked very different. 
In 1994, the digital economy was in its infancy. Mexico had yet 
to undertake significant legal and regulatory reforms. And the 
North American supply chain had not yet fully developed. 
Today's challenges require new rules, not only to reduce 
tariffs on our exports, but to remove non-tariff barriers, as 
well.
    And I am pleased that the Administration's NAFTA-
negotiating objectives, which were released yesterday, set a 
high and ambitious bar to address many of these challenges head 
on. Red tape and burdensome customs procedures, the expansion 
of forced localization requirements, and the restrictions on 
the flow of cross-border data, and inadequate rules governing 
e-commerce and--are just some of the problems Washington's 
businesses are facing in today's digital economy.
    Our farmers and ranchers are fighting against the adoption 
of arbitrary sanitary and pseudo-sanitary restrictions not 
based on science and the use of graphic indicators as a form of 
protectionism. For our dairy producers, we must address 
Canada's dairy policies, including the national ingredient 
strategy, which constrain our producers from exporting to 
Canada and around the world.
    The need for modern trade rules is clear, particularly in 
light of our withdrawal from TPP earlier this year. We must 
continue to lead in setting the high standards needed for 
today's economy.
    Today we will hear directly from U.S. companies across all 
sectors about the specific issues they face, how NAFTA has 
worked for them, and how NAFTA can be improved to grow American 
exports and create more jobs here at home. We will explore 
important questions like how NAFTA can better address 
distortions created by state-owned enterprises.
    How can we help our technology sector continue to thrive 
and lead the world in innovation?
    What challenges do small businesses face because of overly-
burdensome customs procedures or outdated de minimi thresholds?
    How do we ensure that Mexico applies the benefits of the 
information technology agreement to U.S. producers?
    And we must be sure to enforce new and current rules and 
provisions through effective dispute settlement provisions, 
including the proven tool of investor-state dispute settlement.
    It is important that we get this right. A modernized NAFTA 
agreement will serve as a template for future agreements with 
our trading partners, particularly in the Asia-Pacific region, 
where our withdrawal from TPP has left an urgent void.
    Finally, it is vital that any transition to an approved 
NAFTA be seamless. Canada and Mexico remain our number one and 
three trading partners, two of our oldest allies. We will break 
down the remaining barriers in Canada and Mexico, but we must 
also preserve the good that NAFTA has done in enhancing U.S. 
strength and increasing the competitiveness of the North 
American trading block, as a whole, against the rest of the 
world. When North America wins, America wins.
    Chairman REICHERT. I will now yield to Ranking Member Bill 
Pascrell for his opening statement.
    Mr. PASCRELL. Thank you, Mr. Chairman. It is an honor to 
work with you. We have worked on many other projects together, 
and they have all turned out pretty good. We will see about 
this one.
    [Laughter.]
    Mr. PASCRELL. Before I start, Mr. Chairman, I want to bring 
your attention to the fact that today is Jason Kearns's last 
hearing, and as chief trade counsel, 11 years of service to 
this Committee. I want to thank him. He has been appointed to 
the International Trade Commission. So he used us as a stepping 
stone for that.
    [Laughter.]
    Mr. PASCRELL. And we wish him the best of luck.
    Chairman REICHERT. I would like to add my congratulations, 
too----
    Mr. PASCRELL. Sure.
    Chairman REICHERT.--Mr. Pascrell. And did he get approval 
from you before he decided to leave?
    Mr. PASCRELL. Absolutely not.
    [Laughter.]
    Chairman REICHERT. Congratulations, Jason.
    Mr. PASCRELL. Mr. Chairman, I have a different way of 
looking at this than what I just heard from you, with all due 
respect.
    And on behalf of the Trade Subcommittee's Democrats, I want 
to thank our chairman for calling this important and much-
needed hearing on the renegotiation of NAFTA.
    I was--want to thank the witnesses for participating, 
sharing their thoughtful views on what the renegotiation of 
NAFTA should accomplish. I had a chance to talk to a few of you 
before, and you got some great witnesses here.
    It is especially helpful to hear these views, given, in my 
estimation, the lack of clarity and vision from the 
Administration thus far on what a new NAFTA should look like 
and should include.
    On June 27th, I testified during the USTR's public comment 
period on the Administration--was putting together their 
negotiating objectives at the time. In my testimony I laid out 
several key priorities to improve outcomes for American 
families--and I am sure that is what everybody in this room is 
all about--that I think are important for any NAFTA 
renegotiation to focus on.
    And to me, and to Donald Trump, we saw on the campaign 
trail in Wisconsin, Ohio, and Pennsylvania the number-one 
priority has to be jobs and wages here in the United States.
    Well, the Administration published a summary of its 
negotiating objectives through the USTR just yesterday, with 
little specificity, no evidence or indication that they will 
bring jobs or wage growth to the United States. After waffling 
and contradicting themselves throughout the process, we finally 
have some milquetoast objectives that look like a recycled 
version of the same old, same old.
    During the campaign, Mr. Trump declared NAFTA ``a 
disaster.'' He has pointed out that in his words, ``Our jobs 
are being sucked out of our economy'' in places like 
Pennsylvania, Ohio, Florida, upstate New York, because our jobs 
have fled to Mexico and other places. That is what he said. He 
pledged to bring those jobs back, and to renegotiate NAFTA to 
make it a great trade deal. And we are all hopeful about that.
    But the negotiating objectives released yesterday recycle 
many of the same policies he railed against in the TPP, an 
agreement the President made a big show out of pulling out of 
during his first week in office. When you go back to that first 
week in office and you see what he said and what occurred after 
that, well--anyway, credit word is due [sic].
    The Administration proposal would make strides on the 
issues of countervailing duties, which is a good thing, and the 
treatment of state-owned enterprises, which is a good thing. 
But those are on the margins. The biggest issues impacting jobs 
and wages in the United States are low wages in Mexico and lax 
labor laws. Currency manipulation abroad and the lack of 
meaningful enforcement are nowhere to be found in these 
objectives.
    So where are the jobs, and where are the higher wages this 
President promised? I see nothing to indicate that these 
objectives will improve the standard of living in Pittsburgh or 
Pueblo.
    So, I have introduced legislation, the Jobs and Trade 
Competitives Act of 2017, and I believe stand in sharp contrast 
to the Administration's weak attempt at trade reform. H.R. 2756 
would crack down on cheating in trade--it is going on; reward 
in-sourcing, instead of off-shoring American jobs--absolutely 
still going on; meaningfully combat currency manipulation and 
make it easier for small businesses and manufacturers to bring 
cases against countries that flout the laws and the rules.
    We need--we should talk about how NAFTA can be modernized 
and updated, since it is being renegotiated anyway. But let's 
not fool ourselves, Mr. Chairman. The real questions we need to 
be asking are the following.
    How do we change the terms of NAFTA to create a--new and 
good-paying jobs?
    How do we change--I am almost done--how do we change the 
terms of NAFTA to raise wages and standards of living in the 
United States?
    How do we change the terms of NAFTA to ensure the benefits 
of trade are shared with working people and middle-class 
families of America?
    And how do we change the terms of NAFTA to ensure the 
American economy is healthy, vibrant, and sustainable?
    So, I look forward to hearing every one of their testimony, 
and asking these questions about how we make NAFTA, in the 
President's word, ``great trade agreement.''
    And I thank you, Mr. Chairman.
    Chairman REICHERT. Thank you, Mr. Pascrell. And I want to 
thank the witnesses all for being here today. Your testimony 
will be invaluable, as we move this process forward. All good 
questions that Mr. Pascrell has posed, and some of those 
questions will be posed to you, as to how we might be able to 
accomplish those things.
    And today we have two panels of distinguished witnesses, 
and I will introduce the first panel of four witnesses.
    Now, the first witness is Mr. Tom Linebarger, chairman and 
chief executive officer of Cummins, Incorporated.
    Our second witness is Mr. Patrick Ottensmeyer, president 
and chief executive officer of Kansas City Southern.
    Our third witness is Mr. Dennis Arriola, executive vice 
president for corporate strategy and external affairs of Sempra 
Energy.
    Our fourth witness is Ms. Celeste Drake, trade 
globalization policy specialist of the AFL-CIO.
    We welcome all of you and look forward to your testimony 
today.
    Before recognizing our witnesses, let me note that our time 
is limited, so please limit your testimony to five minutes. And 
your written statement will be made a part of the record.
    Members should keep their questions to five minutes, 
please.
    And, Mr. Linebarger, you are recognized for your statement.

   STATEMENT OF TOM LINEBARGER, CHAIRMAN AND CHIEF EXECUTIVE 
                 OFFICER, CUMMINS, INCORPORATED

    Mr. LINEBARGER. It is a great honor to be before you today 
to discuss the importance of the North American Free Trade 
Agreement and the effort to modernize it.
    My name is Tom Linebarger, I am the chairman and CEO of 
Cummins, Incorporated, as well as the international engagement 
committee chair of the Business Roundtable.
    I believe trade expansion and NAFTA are good policy, and my 
support for both has grown even stronger over my career at 
Cummins. As CEO, I am charged with providing opportunities for 
the employees of Cummins, an Indiana-based company that employs 
25,000 people in the United States.
    For our employees and our communities, international trade 
has been the single most important contributor to growth and 
hiring for nearly two decades. Currently, 95 percent of the 
world's consumers reside outside of the United States. And for 
Cummins to continue to be successful and add new jobs, it is 
imperative that we are able to access these consumers with high 
quality and competitively-priced products.
    NAFTA and our other free trade agreements have allowed us 
to do just that. One example is the engines we manufacture in 
Columbus, Indiana for Chrysler's Dodge Ram truck. Once we 
manufacture the engine, it is then exported to Mexico, where 
Chrysler finishes assembly, and then it is imported back into 
the U.S. for sale. The Ram is cost-effective and successful 
because of NAFTA. Its robust sales have contributed to 
significant growth and job creation for Cummins. At the 
Columbus, Indiana plant where we build the Ram, we have added 
nearly 100 jobs in the last few years.
    The story of the Ram's journey is not unique to Cummins. 
For all goods imported from Mexico and the United States, 
approximately 40 percent of the content originated in the 
United States.
    Seymour, Indiana is another example of how trade supports 
American cities and towns. Seymour is our global high-
horsepower engine headquarters. It is also a small town of less 
than 20,000 people about an hour-and-a-half south of 
Indianapolis. And while many rural towns are struggling, 
Seymour is thriving. We have invested more than $300 million to 
renovate the plant, and we have added a cutting-edge technical 
center there. We now have more than 1,300 employees in this 
community, nearly doubling the number based there just 5 years 
ago.
    We were able to add jobs and make these investments almost 
exclusively because of our ability to access international 
markets. We directly export 65 percent of the products made in 
that plant, and another 20 percent are shipped to our plant in 
Fridley, Minnesota, where they are made into power generators 
and then exported. In total, 85 percent of the products made in 
Seymour are exported, 85 percent.
    To me, it is simple. When we can trade, we add jobs and 
invest in American communities. Since NAFTA's bipartisan 
passage and enactment in 1994, overall trade has increased 
between the United States, Canada, and Mexico. U.S.-
manufactured goods exported to Canada and Mexico have more than 
tripled over that period. And for Cummins, the two largest 
importers of our products are now Canada and Mexico.
    Prior to the agreement, Mexico was one of the most 
protectionist countries in the world, with automotive imports 
in New Mexico facing tariffs as high as 20 percent. Mexico also 
had non-tariff barriers like local content requirements of 80 
percent, which all but mandated that our production take place 
within the country's borders. NAFTA brought down these trade 
barriers and allowed us to avoid duplication of our 
manufacturing capacity and in our supply chain, allowing us to 
manufacture more in our high-volume U.S. plants and purchase 
more from our 2,500 suppliers based in the U.S.
    Today Cummins, Incorporated sells nearly $600 million worth 
of products in New Mexico's market each year, of which 80 
percent is manufactured in the United States. We are also the 
largest engine provider for the on-highway heavy-duty truck 
market in Mexico. All of these engines are manufactured in our 
plant in Jamestown, New York.
    It is clear that NAFTA has been a positive force, but we 
should embrace the opportunity to modernize this 23-year-old 
agreement. Improvements could be made by incorporating trade, 
investment, and related regulatory reforms, promoting digital 
commerce and cross-border data flows, ensuring fair competition 
with foreign, state-owned enterprises, and protecting U.S. 
intellectual property rights.
    We also believe that NAFTA's environmental labor standards 
must be strengthened.
    Mr. Chairman and Members of the Committee, my overwhelming 
support for trade and NAFTA comes from the difference that I 
have seen that it makes for Cummins, our suppliers, our 
employees, and their families. Thank you for the opportunity to 
speak with you today.
    Chairman REICHERT. Thank you.
    [The prepared statement of Mr. Linebarger follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
    
    Chairman REICHERT. Mr. Ottensmeyer, you are recognized for 
five minutes.

   STATEMENT OF PATRICK J. OTTENSMEYER, PRESIDENT AND CHIEF 
            EXECUTIVE OFFICER, KANSAS CITY SOUTHERN

    Mr. OTTENSMEYER. Good morning. My name is Pat Ottensmeyer. 
I am president and CEO of Kansas City Southern, a railroad 
holding company with operations in the U.S., Mexico, and 
Panama, and headquartered in Kansas City, Missouri since 1887. 
Thanks to the chair, the Ranking Member, and the Subcommittee 
for holding this hearing today.
    Today I also represent the U.S.-Mexico CEO Dialogue 
Strategic Trade Initiative Working Group, of which I am the 
U.S. chair, as well as the Association of American Railroads.
    The CEO Dialogue is a private-sector forum initiated by the 
U.S. Chamber of Commerce and CCE in Mexico to engage U.S. and 
Mexico CEOs on key economic and trade issues. U.S. Secretary of 
Commerce, Wilbur Ross, and Mexico Secretary of Economy, 
Ildefonso Guajardo, spoke to the 8th Semiannual Dialogue on 
June 6th, here in Washington. We welcomed their comments, which 
focused on the need to modernize NAFTA and to do no harm to the 
tremendous benefits that the current agreement provides 
American workers, farmers, and consumers.
    As Congress and the Trump Administration turn their 
attention to modernizing NAFTA, we support their efforts to 
update the agreement. NAFTA is critically important to the U.S. 
railroad industry, including KCS. According to a study 
conducted by the AAR in March of this year, at least 42 percent 
of rail carloads, and more than 35 percent of annual revenues 
are derived from international trade.
    International trade accounted for $26.4 billion of freight 
rail revenue and 511 million tons of rail traffic in 2014. 
During the same period, approximately 50,000 rail jobs, which 
contributed over $5 billion of annual wages and benefits to the 
U.S. economy, depended directly on international trade.
    Rail movements associated with international trade include 
virtually every type of commodity railroads haul, and involve 
every region of the United States. A major shift toward more 
protectionist policies would threaten rail jobs all over the 
country.
    Treasury Secretary Mnuchin recently stated that, ``We 
believe in free trade. We are in one of the largest markets in 
the world. We are one of the largest trading partners in the 
world. Trade has been good for us. It has been good for other 
people.'' We agree with that statement.
    In a letter to President Trump dated May 25th, I joined 31 
other CEOs of major U.S. companies, offering our support to 
modernize NAFTA without disrupting current trade flows and the 
livelihoods of millions of Americans who depend on them. We 
offered to work with the Administration to update NAFTA, expand 
and promote free and fair trade with Canada and Mexico, ensure 
a level playing field, and spur economic growth and job 
creation for American workers, farmers, and businesses.
    We all agree to the following. NAFTA has been good for the 
U.S. and for North Americans' competitiveness in the world. 
Notwithstanding, NAFTA was negotiated almost 25 years ago, so 
updating the agreement for today's economy is entirely 
appropriate. Fourteen million American jobs and the livelihoods 
of millions of American families depend on NAFTA, especially in 
rural America. The Administration should approach negotiations 
with an emphasis on updating the agreement and expanding the 
opportunities for U.S. exports, where there is substantial 
growth potential.
    There should be a U.S. focus on enhancing the flow of trade 
across our borders, avoiding the high tariff that existed prior 
to NAFTA, and eliminating other trade barriers that preceded 
NAFTA. The following procedures established--and following the 
procedures established in the bipartisan Congressional Trade 
Priorities and Accountability Act of 2015.
    Negotiations should proceed promptly and trilaterally to 
avoid uncertainty that disrupts supply chain and investment, 
and should use NAFTA's amended process under Article 2202.
    And again, U.S. negotiators should be careful to do no harm 
in areas beneficial to the U.S., especially to our U.S. 
agriculture and food products exporters.
    In addition, KCS believes the U.S. negotiation should work 
to achieve trilateral uniformity for customs and border control 
procedures to improve the fluidity and security of export 
freight movements, and preserve Chapter 11 and ISDS to protect 
investments by U.S. companies like KCS that have created the 
supply chain infrastructure required to support U.S. exports.
    In the 20 years our company has been doing business in 
Mexico, we have invested $4.5 billion. There are very 
significant and growing opportunities to increase U.S. 
agriculture, energy, petro-chemical, and plastics exports to 
Mexico. Our company is investing money today in Mexico to 
facilitate and expand liquid fuels exports from the U.S. Gulf 
Coast to Mexico.
    Without the past and future investment in Mexico 
facilitated by NAFTA, these opportunities could not be 
realized. Chapter 11 of NAFTA helps ensure this vital export 
infrastructure going forward, and is a critical element of 
NAFTA that must be retained. Again, thank you for the 
opportunity to testify and provide written comments.
    Chairman REICHERT. Thank you.
    [The prepared statement of Mr. Ottensmeyer follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
    
    Chairman REICHERT. Mr. Arriola, you are recognized for five 
minutes.

    STATEMENT OF DENNIS ARRIOLA, EXECUTIVE VICE PRESIDENT, 
     CORPORATE STRATEGY AND EXTERNAL AFFAIRS, SEMPRA ENERGY

    Mr. ARRIOLA. Chairman Reichert, Ranking Member Pascrell, 
and Members of the Subcommittee, thank you for this opportunity 
to testify. My name is Dennis Arriola, and I am the executive 
vice president of corporate strategy and external affairs for 
Sempra Energy.
    Sempra is a San Diego-based, Fortune 500 energy company 
with revenues of over $10 billion, and a market capitalization 
of approximately 28 billion. Our more than 16,000 employees 
serve approximately 32 million consumers, worldwide, and we do 
business in the U.S., Mexico, Chile, and Peru.
    In Mexico, our business includes IEnova, one of the largest 
private energy companies in the country. We own and operate 
natural gas and liquids infrastructure, as well as renewable 
generation. We are the largest private natural gas pipeline 
company in Mexico, delivering much of the U.S. gas in Mexico. 
And as of 2016, we have invested more than $7 billion in 
Mexico.
    On both sides of the border, these investments have 
generated hundreds of new jobs, good-paying jobs for engineers, 
operators, accountants, IT professionals, and others. And these 
investments have also improved the environment in both 
countries.
    NAFTA has been a big win for the U.S. energy sector. It has 
helped create a robust, integrated North American energy market 
that supports U.S. jobs and strengthens our energy security. 
U.S. trade with Canada and Mexico and energy commodities, 
including electricity, liquid fuels, and natural gas exceeds 
$140 billion annually. And last year, the U.S. enjoyed a trade 
surplus in energy with Mexico of more than $11 billion. The 
United States exported more than 20 billion in energy 
commodities to Mexico, and imported less than 9 billion. And of 
the 20 billion in U.S. exports, natural gas accounted for 
nearly 4 billion.
    Mexico accounts for nearly 60 percent of all U.S. natural 
gas exports, and we are just at the beginning to tap the 
potential of the U.S.-Mexico energy trade. Mexico's natural gas 
imports, for example, are expected to double in just the next 
five years. And per capita electricity consumption in Mexico is 
expected to double during the next 25 years.
    Energy investments in Mexico, like ours, support many U.S. 
jobs, both directly and through U.S. shale energy development. 
And by enabling cross-border transmission, these investments 
also support domestic electric grid reliability among both 
borders. They also reduce greenhouse gas emissions, and they 
meet other local pollution challenges in Mexico.
    And a growing energy trade partnership is a win-win outcome 
for both the U.S. and Mexico and Canada. It increases jobs and 
investments in all countries. And as you prepare to modernize 
NAFTA, we urge Congress and the Administration to follow this 
basic guiding principle: maintain the existing benefits of 
NAFTA while improving it in ways that expand trade and 
investment.
    My written testimony highlights four critical benefits that 
we believe must be maintained. But right now I want to focus on 
just one in particular: strong investment protection for cross-
border projects and investments, enforceable by investor-state 
dispute settlement, or ISDS.
    Now, why is this important to a U.S. company? Our projects 
require Sempra to invest hundreds of millions of dollars, often 
in countries where the legal regimes are not as developed as 
the U.S. We need confidence that our company and our 
investments will be treated fairly over the long term. The 
investment protections in NAFTA and other U.S. free trade 
agreements enable us to mitigate this risk, expand our 
business, and compete for global customers.
    ISDS provides a neutral forum to hear claims for the breach 
of the agreement. And even if ISDS is never used, it serves as 
an important insurance policy. The investment protections in 
NAFTA and other FTAs provide U.S. investors with the same 
substantive rights in foreign markets that foreign investors 
enjoy in the U.S. under federal law.
    In addition to maintaining existing benefits, we offer four 
recommendations to further strengthen NAFTA.
    First, we urge that the text of the NAFTA be amended to 
reflect the current level of market openness. As you will 
recall, the energy markets were not open to U.S. and foreign 
investors in 1994. So we need to make sure that we lock in this 
new and improved level of market access.
    Secondly, NAFTA's investment protection should be expanded 
to cover so-called investment agreements consistent with other 
U.S. free trade agreements.
    Thirdly, NAFTA should include a so-called tale of 
investment protection if the agreement were ever terminated.
    And fourthly, NAFTA should be modernized to increase 
regulatory coordination in the energy sector, particularly with 
respect to cross-border infrastructure investments.
    In conclusion, Mr. Chairman, NAFTA has been an enormous 
benefit to the U.S. energy industry. If negotiations can 
preserve these benefits while finding consensus to modernize 
and improve the agreement, North America will become an even 
more integrated and powerful energy market in the years to 
come, and this is going to benefit U.S. workers, our economy, 
the environment, and consumers.
    Thank you very much.
    Chairman REICHERT. Thank you.
    [The prepared statement of Mr. Arriola follows:]
    
    
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    Chairman REICHERT. Ms. Drake, you are recognized.

  STATEMENT OF CELESTE DRAKE, TRADE AND GLOBALIZATION POLICY 
                      SPECIALIST, AFL-CIO

    Ms. DRAKE. Thank you. Good morning, Chairman Reichert, 
Ranking Member Pascrell, Members of the Committee. I am pleased 
to testify about NAFTA on behalf of the American Federation of 
Labor and the Congress of Industrial Organizations, 
representing 12.5 million working people in every sector of our 
economy, from mining to retail, agriculture, manufacturing, 
transportation, and construction.
    While CEOs and global corporations have generally 
benefitted from NAFTA, it has failed the working people of 
North America. While it has increased the amount of trade 
between the U.S., Canada, and Mexico, it has also cost jobs, 
depressed wages, weakened worker negotiating power, and 
destabilized communities in all three countries.
    Trade deals will always be disruptive, both creating and 
destroying jobs. But NAFTA's rules have redistributed income 
upwards, providing rewards to the wealthiest and the most 
powerful, while making it tougher for the rest of us to 
succeed. Trade does not inevitably have to redistribute income 
in this manner. So if we change the rules, we can change the 
outcomes. And that is why today's hearing is so important.
    All working families in North America will benefit from a 
NAFTA that puts more jobs, higher wages, a clean environment, 
and a stronger democracy at its core. There is risk here. 
Renegotiating NAFTA in the wrong way could make the largest 
Wall Street firms, the biggest pharmaceutical companies, and 
those who profit from abusing immigrant labor even more 
powerful. The wrong rules could make it harder for working 
families to rise.
    But there is a great opportunity, as well. An open, 
democratic, and participatory negotiating process could create 
a continent-wide foundation for inclusive and sustainable 
growth that uplifts families through rewarding and secure jobs.
    The AFL-CIO submitted nearly 50 pages of comments on NAFTA 
renegotiations to USTR, and I will highlight some of the most 
critical recommendations here, and note that the objectives 
published yesterday lack both the ambition and the specificity 
that we had hoped for.
    First, eliminate the private justice system for foreign 
investors known as investor-to-state dispute settlement. ISDS 
allows foreign investors to challenge local state and federal 
laws before private panels of corporate lawyers. This private 
justice puts corporate rights ahead of our democracy, and 
amounts to little more than crony capitalism. It is a subsidy 
for companies that choose to offshore, paid for by North 
American families, whose taxes fund the lawyers, arbitrators, 
and winnings awarded. Scrapping ISDS will help level the 
playing field for small, domestic firms and their employees, 
while leaving those who want to invest abroad free to do so.
    Next, replace NAFTA's labor and environment side deals with 
effective, binding rules in the core text. NAFTA's side 
agreements were not designed to raise standards. They were 
hastily patched together to quiet critics. They do nothing to 
ensure monitoring or enforcement, and they have not raised 
wages, benefits, or standards for North American families.
    We learned last month just how ineffective these provisions 
are when even the CAFTA labor provisions--supposedly a step up 
from NAFTA--could not protect working people from anti-firings 
abuse and assassinations.
    Specifically, NAFTA should permit cross-border 
negotiations, establish floor wages, and allow border 
adjustments to prevent environmental degradation and human 
exploitation to be used for trade advantage. Enforcement must 
be automatic, and violators must be subject to trade sanctions 
when necessary, not to punish, but to raise standards and to 
trade fairly.
    Thirdly, NAFTA must address currency manipulation and 
misalignment by creating binding rules subject to enforcement 
and sanctions. Fair trade cannot exist in the absence of fair 
currency rules.
    Fourthly, we must upgrade NAFTA's rules of origin, 
particularly on auto and auto parts, to reinforce auto sector 
jobs in North America. NAFTA's rules allow nearly 40 percent of 
a car to be made in China, Thailand, or other countries that 
have no obligations to the U.S. under NAFTA. NAFTA must 
increase North American content requirements and eliminate 
loopholes in how the content is counted.
    Fifthly, NAFTA should delete procurement obligations that 
undermine Buy American rules and deter responsible bidding 
criteria. NAFTA should not be used to discourage procurement 
policies that create jobs, raise wages, and protect natural 
resources.
    Finally, NAFTA's negotiators should think bigger. Rules 
that facilitate trade and investment must also put in place 
safeguards against tax dodging and other abuses. The new NAFTA 
must include new rules to combat tax avoidance and promote 
infrastructure investments. Without such rules we will continue 
to disinvest in the U.S. economy in ways that undermine 
productivity and the middle class.
    There are many other important changes that should be made 
to improve NAFTA for working families, but I will stop here. I 
am happy to answer any questions you may have.
    [The prepared statement of Ms. Drake follows:]
    
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    Chairman REICHERT. Thank you all for your testimony. And we 
will now enter into the question and answer session. And I will 
begin with Mr. Linebarger.
    In your written statement and testimony, you note that the 
Brookings Institute recently cited Columbus, Indiana as the 
single-most trade-dependent community in the United States. My 
home state of Washington is probably the most dependent state 
in the Union, as it relates to trade: 40 percent of our jobs 
are directly related to trade in Washington State. So I very 
much understand the point that you are making and the types of 
issues that you have raised in your comments.
    One concern that I continue to hear from my constituents 
has to do with the need to eliminate burdensome customs 
procedures and regulations. One of the examples I often hear 
about is the need for streamlined customs processes, including 
electronic forms, signatures, authentication, as well as the 
need to eliminate duplicative and unnecessary regulations 
throughout the NAFTA zone.
    So, what are your thoughts related to this red tape? And 
then, more specifically, what are the challenges that you faced 
with your company? And hopefully you have some thoughts on some 
provisions we might be able to include that would streamline 
this, and eliminate some of the regulation's red tape.
    Mr. LINEBARGER. Thank you for your question, Chairman 
Reichert. I would just say a couple things.
    First is that one of the reasons Columbus, Indiana I think 
has become such an important--that international trade has been 
so important to Columbus is because our growth and hiring has 
depended so much on being able to access customers outside the 
United States.
    The cost of participating in the commercial engine business 
is high, in terms of R&D. We have to spend a lot of money on 
R&D, typically around $700 million a year. And therefore, to be 
able to pay back that R&D, we need to be able to sell a lot of 
units. That is just--you need scale in our business to succeed. 
And it just turns out there are not enough customers in the 
United States, even if we occupy a reasonably strong market 
share, to afford to do all the investment we need to do to 
succeed.
    And much of that investment, by the way, has been what has 
helped us fulfill the requirements of the Clean Air Act, in 
terms of the emissions from trucks and construction equipment 
over the last 15 or 20 years, which has been quite beneficial, 
I think, to communities. So that need to be able to invest is 
one of the reasons we need to develop scale and, therefore, be 
able to access foreign markets. So trade agreements have been a 
very important part of that.
    With regard to your second question about duties and--or 
customs rules, there is no question that by streamlining 
regulations and customs and other what I would call sort of the 
small tactics on how NAFTA performs across our region we can 
improve our economic activity in all three countries.
    Often times, the big elements of a trade deal get all of 
the attention, and it is the small parts like lines at the 
borders, where trucks get stuck for hours and hours or days at 
a time, that actually stop the economy from moving. So that is 
one of the emphases we put at the business roundtable, where I 
participate, is how do we work out some of the smaller issues 
that--these things that seem smaller--that could actually add 
to our economy with no cost to either--to any of the sides, by 
just being more efficient.
    So there are significant opportunities there, using 
technology, as you mentioned, to reduce the burden on all sides 
and improve economic activity across the three regions. And I 
think that should be a clear follow-on from whatever NAFTA 
agreement is finally reached.
    Chairman REICHERT. Could you mention a couple of the 
thoughts that you might have on specific solutions to some of 
the small tactics that you talked about? I mean even taking a 
look at the long lines at the border, having trucks sit and 
wait----
    Mr. LINEBARGER. There is no question that using technology 
instead of older, manual process would be--one, standardizing 
agreements. I heard in your opening statement talking about 
health standards, and making sure we are using science-based 
standards. Science-based standards, standard agreements between 
the countries, and then using technology wherever possible, 
transparency in the rules, so everybody knows what the rules 
are and who is responsible for them, these are just a few of 
the areas that we have been emphasizing to try to make these 
regulations more efficient and effective.
    Chairman REICHERT. Okay, great. I yield. Mr. Pascrell.
    Mr. PASCRELL. Mr. Chairman, we are not going to be suckered 
into the whole of it's the traders versus the isolationists. I 
don't know anybody on this panel up here that is an 
isolationist. So we believe in trade, and we want it to be 
fair.
    So let me ask you this question, Ms. Drake. The President 
has promised to bring jobs to the United States by 
renegotiating this disaster trade agreement. You represent the 
workers, AFL-CIO. Would you say that the USTR's negotiating 
principles and objectives just released represents a radical 
transformation of our trade policy?
    And Part B of that question, do you see anything in their 
objectives that would create jobs here in the United States of 
America?
    Ms. DRAKE. Thank you for the question. The objectives are 
not a radical, retransformation of NAFTA. They essentially look 
like tweaking around the edges. And much of it seems wholly 
adopted from the trade negotiating objectives from the TPP, 
which is something that the President himself said was a failed 
agreement and withdrew from.
    I think the one sort of bright spot in the objectives is 
really the trade remedies section, but trade remedies can't 
create jobs. They can only defend jobs that are being attacked 
by unfair trade practices. So we would have liked to have seen 
more clarity, more specificity, and, frankly, a higher 
ambition, in terms of the objectives.
    Mr. PASCRELL. Now, you have identified raising wages in 
Mexico as one of the most important goals of NAFTA 
renegotiation. Now I want you to talk some more about why you 
think wages in Mexico are so critical, both for Mexico and the 
United States. Try that one first.
    Ms. DRAKE. It is really critical because the low wages in 
Mexico and the ease with which bad actor employers can exploit 
and abuse Mexican workers is one of the pull factors inducing 
investment in Mexico. And the side agreements in NAFTA for 
labor just haven't done the job to protect workers. And we 
don't----
    Mr. PASCRELL. And we have proof of that, don't we?
    Ms. DRAKE. We absolutely have proof of that. There have 
been 39 cases filed over the years under the NAFTA labor side 
agreement, and none of them resulted in new workers being 
organized or having their wages raised in Mexico. So we have 
got to try something radically different, not tweaking around 
the edges. And there has got to be an enforcement mechanism 
that is not just slow and cumbersome and wholly discretionary, 
but swift, automatic, and something that workers can depend on.
    And we have to tweak the other provisions--not tweak, 
change the other provisions of NAFTA, as well, so that we are 
providing different incentives. When--you mentioned earlier the 
President had said jobs are being sucked out of the United 
States. They are not being sucked out by Mexico's workers. They 
are being sucked out by decisions made by corporate CEOs to 
relocate production. And we have got to use NAFTA to change the 
incentives on those CEOs, so that they have more incentives to 
invest both in the U.S. and in Mexico. And when we raise wages 
in Mexico, we are going to have more exports to Mexico, because 
we are growing a middle class there, and really developing----
    Mr. PASCRELL. Yes, the guy that is working in Pueblo is not 
the enemy. And we have made him the enemy.
    But we have had some changes in law in Mexico since 2016. 
Could you really be specific about how that helps the cause of 
fairness here? Fairness. I mean it is a simple word.
    Ms. DRAKE. So, the labor boards in Mexico have been really 
corrupt and used to attack independent trade unions in Mexico, 
and really promote these--what are called protection unions, or 
yellow unions, that simply have the same interests as the 
employers, in many cases.
    So the changes from 2016 in Mexico are really important, 
but they are not enough. We still need to see laws and 
regulations enacting them and implementing them, and then we 
need to see enforcement, and see how they are being implemented 
in practice, because workers have a long experience of changes 
on paper not translating into reality.
    Mr. PASCRELL. Thank you, Ms. Drake.
    Mr. CHAIRMAN.
    Chairman REICHERT. Thank you, Mr. Pascrell.
    Ms. Jenkins, you are recognized for five minutes.
    Ms. JENKINS. Thank you, Mr. Chairman. And I thank the 
members on the panel this morning for being here.
    Foreign investment is a critical tool that allows American 
manufacturing services and agriculture industries to grow and 
to thrive, allowing producers in my district, such as those in 
and around Atchison and Topeka in the northeast, or Pittsburg 
in the southeast of my district, to reach the 95 percent of 
consumers that exist outside of the U.S. borders. And boosting 
income, they contribute to our economy.
    In fact, U.S. economy is--that invest overseas are 
responsible for the majority of U.S. exports, as well as the 
majority of the U.S.-based research and development, both of 
which support high-paying jobs. This investment is typically 
about reaching foreign consumers or participating in foreign 
infrastructure, energy, or resource, or--projects.
    While all investors in the U.S., domestic and foreign, 
benefit from protections based and baked into our Constitution 
and our strong legal system such as basic protections against 
discrimination, foreign seizure, or other forms of unfair 
action are not always available overseas. Investor-state 
dispute settlement mechanisms are one of the most important 
U.S. negotiating objectives under trade promotion authority, 
and the Administration has been very clear that it plans to 
follow TPA on modernizing NAFTA.
    Mr. Ottensmeyer, perhaps you could respond on behalf of my 
constituents in Kansas. How has the legal protection provided 
by ISDS been important in your investment decisions for the 
overall benefit of products grown or manufactured in Kansas?
    Mr. OTTENSMEYER. Thank you for the question. As I mentioned 
in my testimony, over the last 20 years, since we have been 
doing business in Mexico, we have invested $4.5 billion with 
the initial investment, as well as capacity enhancements to our 
rail network in Mexico.
    We operate roughly a 6,000-mile rail network in U.S. and 
Mexico, split pretty evenly: 3,000 miles in the U.S. and 3,000 
miles in Mexico. We are the only North American railroad that 
owns and controls rail networks on both sides of the border.
    And agriculture is, obviously, important to you. It is 
important to us. If you look at our cross-border trade flows, 
60 percent of our cross-border movement of freight is export, 
is south-bound. And the vast majority, the largest single 
commodity by a long margin, is grain.
    Mexico is the second largest importer of corn in the world. 
We move about 35 to 40 percent of all Mexican grain in--mostly 
yellow corn imports move on our railroad. And if you visualize 
a map of our rail network from St. Louis to Kansas City, down 
through Shreveport, Houston, across Laredo, into the heart of 
Mexico, we are a perfect pipeline for moving U.S. agriculture, 
food products, grain, corn, soybeans from the major producing 
regions down into Mexico.
    And I would say that, without the investment that we have 
made building the capacity on our cross-border network, those 
products couldn't move in the quantities that they move today. 
Truck and other means of transportation, large bulk 
commodities, rail is really the best and most efficient way to 
move, and I think we have been critical to open up those 
markets for your constituents and those in the Midwestern 
states into Mexico.
    I would like to add, as we look at the future, we see two 
of our largest cross-border opportunities are also export-
oriented. And they are in the form of refined petroleum 
products moving from the U.S. Gulf Coast into Mexico, which is 
happening today, and we are investing to support that movement, 
and petro-chemicals, petroleum derivatives, natural gas 
derivatives, plastic pellets that make everything from auto 
parts to water bottles to electronic casings. Those two 
opportunities, we think, are going to be very substantial 
export opportunities from the U.S. to Mexico.
    Ms. JENKINS. Thank you.
    Mr. Chairman, I yield back.
    Chairman REICHERT. Mr. Kind.
    Mr. KIND. Thank you, Mr. Chairman. I want to thank our 
panelists for your testimony here today. And, Mr. Chairman, I 
am glad we are moving forward with this hearing. I think it is 
desperate that this Congress leans in now to try to get trade 
back on the rails, in light of the dysfunction and the 
conversation that took place in last year's presidential 
campaign, and the start that we have so far this year. And 
hopefully, this will tee up some additional hearings, so we can 
continue to get feedback and also hold this discussion of how 
we can get back in the game.
    And I am all for NAFTA renegotiation, and try to 
modernizing--bringing it into the 21st century, in light of the 
deficiencies of the current agreement. But, you know, these 
renegotiations, these one-off bilaterals, only get you so far. 
You know, it is in the multi-lateral context, where you have 
certain synergies and tradeoffs that you normally don't get in 
bilateral negotiations.
    And that is why, at a previous hearing not so long ago in 
this Committee, I said that our rejection of trying to find a 
path forward with the Trans-Pacific Partnership trade agreement 
will go down as one of the great strategic mistakes that we 
made as a country in the 21st century. And how we get back in 
that tent, in the fastest-growing economic region of the global 
economy, the Pacific Rim, is going to be very, very important 
for our own economic well-being, but also diplomatically, and 
the national security interests that we have in that region, as 
well.
    Mr. Linebarger, I am glad to hear that, as a major 
corporation in this country, you too embrace the need for us to 
have enhanced labor and environmental standards and protections 
in any NAFTA renegotiation. I couldn't agree with you more. And 
I have had the opportunity to visit a Cummins plant in Mineral 
Point, Wisconsin, in the southern part of my district, with 
exhaust emission technology that is taking us to that next 
generation of where we need to go, environmentally, too, with 
the products that is being made, including a Black River Falls 
plant.
    And these are good-paying jobs with benefits in rural 
western Wisconsin that we are talking about. And Wisconsin, 
overall, we export 60 percent of our products to either Mexico 
or to Canada. So these two countries are vital to our economic 
well-being.
    And just a quarter of a mile down the road from your 
Cummins plant in Mineral Point is a 220-head dairy farm. In 
Mexico right now is the greatest dairy export market that we 
have.
    So, my advice to the new Trump trade team was, first, no 
trade wars. That is only going to hurt all of us here in the 
Western Hemisphere. And secondly, let's try to take what was 
accomplished in the TPP agreement and build upon that. And it 
seems as if they are starting to embrace that concept of not 
trying to recreate the wheel, seeing what these countries have 
already agreed to do in the context of TPP, which was also 
embracing core labor and environmental standards in the body of 
the agreement, fully enforceable, like anything else that is in 
the agreement, and go from there. And I think that would be a 
wise approach.
    But Mr. Linebarger, just to get your reaction to this, you 
might understand the skepticism that some of us have on this 
side of the dais with an Administration that appears very 
hostile to worker rights, very hostile to collective bargaining 
rights in this country, and yet they are trying to move forward 
on a NAFTA renegotiation that takes May 10th and builds upon 
that by including labor and environmental standards. Why do you 
think this is important in any NAFTA renegotiation?
    Mr. LINEBARGER. Thank you very much for your question, 
Congressman. I couldn't agree more with the disappointment with 
TPP, as you know. I spent a lot of effort on that.
    But I would just say that I think the labor and environment 
standards are important to keep strengthening over time. Many 
of these countries are starting from a place that the U.S. was 
many, many years ago. And just like we want with economic 
development, when we operate in other countries what we are 
trying to do is bring the communities in there up to a better 
standard of living, better benefits, better for their families, 
just as we are trying to do in the United States.
    So, as a company, we feel an obligation to all 
stakeholders. It is not just shareholders, it is employees, it 
is communities and families. That is the way Cummins was 
founded. That is the principles by which we operate. It is the 
values that we all share. So everywhere we go we want to do 
that.
    But we are starting from where we are starting from. And 
what we are trying to figure out is how to make sure that we 
move up through economic development and through raising 
standards.
    And I think just trying to establish those standards and 
then enforce them--I do agree with the panelists that I share 
the table with, that enforcement is important with whatever 
standard we put in there. I think we did miss some beats on all 
of our standards, where--our trade agreements----
    Mr. KIND. Well, and I----
    Mr. LINEBARGER. We didn't enforce enough of what we had----
    Mr. KIND. And I want to commend you, because you have been 
consistent on that message, with the visits that we have had, 
the conversations that took place on the Hill and off, and that 
is important.
    But--and I want any trade agreement, whether it is a 
renegotiation or a future one, to be elevating standards up to 
where we are so we start to level the playing field, you know, 
for our workers, for our businesses, for our farmers that is 
fully enforceable, that can expand the opportunities on a 
global basis. And hopefully, that will be a shared goal that we 
have with the Administration when it comes to NAFTA 
renegotiation.
    Thank you, Mr. Chairman.
    Chairman REICHERT. Thank you.
    Mr. Paulsen.
    Mr. PAULSEN. Thank you, Mr. Chairman, and thanks, everyone, 
for being here today.
    I do believe it is absolutely necessary and critical that 
strong digital trade provisions also be included in any NAFTA 
modernization to better reflect the realities of the economy 
today, including issues that are related to the digital 
economy.
    In fact, today--I co-chair the Digital Trade Caucus and, in 
fact, today my co-chair, Suzan DelBene, and I are going to be 
sending a letter to the Administration, outlining some of the 
areas of digital trade that we think should be prioritized in 
the negotiations. This includes everything from promoting 
cross-border data flows, eliminating data localization 
requirements to streamlining customs procedures, and, of 
course, prohibiting unnecessary regulation of digital services.
    Mr. Linebarger, you spoke a little bit about adding 
thousands of new high-quality jobs being added at Cummins 
exclusively because of access to international markets. And 
NAFTA and other trade agreements have been a big part of that.
    And last fall I remember visiting the facility of Cummins 
in Fridley, Minnesota, had a chance to visit with some of the 
1,200 employees that are there, seeing the power generators, 
seeing the exports that are going right out the door to other 
markets.
    From your perspective at Cummins, and the work you do with 
your supply chain and with other American business leaders, can 
you talk a little bit about how important it is for digital 
trade for the success of your business, for American 
businesses, and how important is it that we include digital 
trade provisions in a NAFTA modernization?
    Mr. LINEBARGER. Thank you for the question, Congressman. I 
would just say that in today's economy digital is a critical 
element in every business. All of us in business, in whatever 
field, are having more and more information and digital-related 
activities where--and so that is just part of the economy. To 
not have it in a trade agreement is just ignoring the--where 
the economy has gone. So we definitely have to have it there.
    Just in our case, in Cummins's specific case, we now have 
telematics on all of our engines that go in trucks, and also in 
other equipment, which allows us to gather information to give 
customers more proactivity with their equipment. This is now 
required by nearly every producer. And I think it will be the 
basis of competition in the future, even more than some of the 
sort of manufactured goods that we make today.
    So, as things move forward, this digital area is going to 
get more and more important. Our ability to compete freely, and 
to be able--and not be restricted by where we have to keep 
data, how we have to gather data, these kind of things will 
become more and more important. And every manufacturer--it is 
not just going to be computer companies or banks that are going 
to be worried about that. Every one of us is going to be 
concerned about this, and it is going to be a major source of 
income and competitiveness.
    So I would just say that, without having it, we are 
ignoring where the economy is. And, for Cummins, it will be a 
critical element of the value that we sell to customers.
    Mr. PAULSEN. You know, this is interesting, because a lot 
of people think of digital trade only involving IT companies or 
high-tech companies. And actually, it is about manufacturing, 
it is about e-commerce, it is about making sure you are selling 
your products throughout your supply chain. It--just all that 
integration.
    Mr. Ottensmeyer, maybe--any other thoughts or feedback on 
the same topic?
    Mr. OTTENSMEYER. I would agree that the digital economy has 
advanced, you know, just tremendously in the last few years, 
and the pace is picking up. It is important to us, in terms of 
safety, security, efficiency of border crossing. I would say, 
more importantly, it is important to our customers, in terms of 
being able to track and trace and have information that allows 
their supply chains to operate at an optimal level.
    But just going back--and again, the Chairman's question 
about efficiency of border crossing--we are working on some, I 
think, very important and potentially break-through initiatives 
at the border to improve the way trains cross.
    I mentioned earlier, if you look at the nature of our 
business, we handle large bulk commodities. Opportunities like 
refined products are going to require a more efficient border 
crossing process. And it is a lot easier to change processes 
and use technology to enhance capacity to allow for larger U.S. 
exports of products like gasoline and diesel than to build new 
bridges. Bridges are very, very expensive, and very hard to get 
permits and to build. So changing the processes that we 
currently use to move trains across the border is going to be 
necessary to take advantage of the export opportunities that we 
see in our business and we see for the country.
    Mr. PAULSEN. Thank you, Mr. Chairman.
    Chairman REICHERT. Mr. Doggett.
    Mr. DOGGETT. Thank you very much, Mr. Chairman, and thanks 
to each of our witnesses.
    We, of course, know that, regardless of the subject, 
President Trump has little interest in cooperating or 
collaborating with Democrats in trying to find solutions to the 
problems that our country faces.
    But listening to the comments this morning of my Republican 
colleagues about the many advantages of NAFTA and all that it 
has done that has been good for our country, I have some 
difficulty in reconciling that with what President Trump is 
saying about it being the worst trade deal in the history of 
the country, about it being a disaster. And I wonder if he is 
even collaborating with our Republican colleagues in designing 
new trade policy.
    I represent the City of San Antonio, in which NAFTA was 
signed. And for San Antonio and Central Texas, NAFTA has not 
been a disaster. It has, overall, been a benefit. It has been a 
disaster for the women who worked at the Levi plant in San 
Antonio, and it has been a disaster for some other parts of the 
country. But, on the whole, in our area there have been a 
number of economic benefits from NAFTA.
    Some people say that, given the total inconsistency between 
President Trump, not only--and our Republican colleagues here 
today--but they point to the inconsistency between him and his 
own advisors. Yesterday's announcement of the NAFTA objectives 
appears to demonstrate, again, that total inconsistency, 
because it sounds like the objectives are kind of a warmed-over 
TPP, which he has already rejected, that that is the place that 
he wants to begin.
    And others have speculated that he will discover that trade 
policy, not unlike health care policy, is complicated, 
something all of you knew, and that perhaps his response will 
be the same as we are hearing today: Let's just forget it and 
repeal it all.
    Mr. Linebarger, I found a lot of merit in your testimony, 
the emphasis on the integrated supply chains, which I see for 
some of our companies there in San Antonio and throughout 
Texas. What would be the effect of just saying we have had 
enough, it is too complicated, Republicans can't agree among 
themselves, as on health care, and just terminating NAFTA? 
Could it really be done, given 20 years of integrating the 
supply chains? And what would the impact be on American 
business and American workers?
    Mr. LINEBARGER. I think the impact would be significant and 
very detrimental, and not only to large companies, by the way. 
There is no question that large companies like ours would have 
not only higher costs and less competitiveness, but we would 
have lower sales and, therefore, we would have to reduce our 
workforce. That is my true belief.
    I also think, though, for small companies. Cummins has more 
than 2,500 U.S. suppliers. Many of them are small and medium-
sized companies. These companies are now very sophisticated in 
how they participate with Cummins in international trade. Many 
of them started off as just a few hundred people in one small 
town in the Midwest or some other part of the country, and 
then, because they have started to supply Cummins, they have 
grown. And many of them have even opened overseas offices, 
things they couldn't have imagined years ago, and have added 
employees at home now to sustain business they have outside of 
the U.S.
    So small, medium-sized, and large companies all benefit as 
part of this regional supply chain that NAFTA has created. So I 
am very convinced that terminating NAFTA would have a very, 
very detrimental effect on the U.S. economy----
    Mr. DOGGETT. Thank you. I appreciate the fact that you also 
advocate enforcing environmental and labor conditions, and find 
it, again, totally inconsistent with what President Trump has 
said, that he is proposing to cut not just by a little, but by 
80 percent, a bureau in the Labor Department that is focused on 
monitoring the treatment of foreign workers, and that that has 
been condemned by a number of American businesses, along with 
the AFL-CIO, and that the White House has no explanation of why 
it would reduce the enforcement by 80 percent.
    Ms. Drake, you have focused on the investor-state 
protection, which is something that has concerned me, along 
with the failure to enforce environmental and labor 
regulations. Is there any reason, particularly with Canada, why 
we can't rely on a mature court system to adjust any 
differences that we might have? Don't American businesses deal 
in the Canadian courts all the time?
    Ms. DRAKE. I have seen no evidence that we can't trust 
Canadian courts. And I have been having this debate with folks 
who support ISDS for quite a long time. And it is really when 
businesses ask for certainty upon investment, there shouldn't 
be any guarantee of profits or certainty of profits. And it is 
workers who often don't have any certainty under trade 
agreements.
    Mr. DOGGETT. Thank you. Thank you all.
    Chairman REICHERT. Thank you.
    Mr. Kelly, we are going to go two to one now. So Mr. Meehan 
will follow Mr. Kelly, and then we will go to Mr. Levin. Mr. 
Kelly.
    Mr. KELLY. Thank you, Chairman. Thank you all for being 
here.
    Just to kind of look at what we are talking about so far, I 
think it is pretty hard to look at six months of the Trump 
Administration and come up with some kind of a definitive idea 
that they haven't gotten things done yet. That is kind of 
amazing to me, after sitting here for 8 years and watching the 
erosion of jobs across the board, 5 million jobs, 70,000 plant 
closures, and saying, ``You know what? This Trump needs to 
really get on the ball, he just hasn't acted fast enough.'' So 
I appreciate my colleagues weighing in, and we are getting 
ready for the 2018 elections, so I guess we start the campaign 
now.
    Let me just say this, though. I am really concerned with 
you all being here today because a lot of the things that we 
have talked about, a lot of the jobs we have lost, have not 
been because of trade agreements. A lot of them have been 
because of tax policy and regulation policy. People aren't 
leaving the country because they don't like America. They are 
leaving the country because they find it is too hard to stay 
profitable in the global economy.
    But one thing I will say about NAFTA. NAFTA has been very 
good in a lot of cases, has it not? Some of us would look at 
that. I know in Pennsylvania it has been important, especially 
to the ag people.
    So, for the record, Mr. Chairman, I would like to submit a 
letter by Mr. Smucker and also Mr. Kind and myself, and co-
signed by 45 other Members, kind of a do no harm. We talked to 
Ambassador Lighthizer to make sure that we are doing the right 
things when it comes to NAFTA.
    Chairman REICHERT. Without objection.
    
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    Mr. KELLY. Is there any of you that would disagree with the 
fact that a 23-year-old trade agreement shouldn't probably be 
looked at to see is it operating under the current world that 
we live in? Is there anybody that disagrees that we should not 
take a look at that?
    [No response.]
    Mr. KELLY. You have all offered suggestions of what should 
be in that new trade agreement, right? Okay. I just wanted to 
make sure we are on the same page with this, because I really 
sometimes get baffled as to where we are going with these 
questions.
    But for all of you to come in here--I am an automobile 
dealer. I sell Chevrolets, I sell Cadillacs, I sell Hyundais, 
and I sell Kias. Of all of those products, there is not one 
that is just made solely in the United States. It is impossible 
to do. So, as we have changed and gone to a global supply 
chain, how would we now change back, and how quickly could that 
be done?
    Mr. Linebarger, I know what you are talking about, and I 
know that if I were to bring out Monroney labels right now--
and, by the way, the Monroney labels are the stickers that are 
on the windows of cars and trucks that are produced--and if you 
go to the far right-hand corner, and down in the left-hand 
side, it says ``supply content.'' It would be very hard for 
somebody to differentiate between which car was made in 
America, the Hyundai Elantra or the Chevrolet Silverado, 
because the Hyundai Elantra is actually built in Montgomery, 
Alabama, and the Chevrolet Silverado is built in Mexico, has 
about 38 percent U.S./Canadian--by the way--parts supplied. The 
rest of it comes from Mexico.
    So how do you re-engineer that? How do you, in a--in six 
months, re-engineer that, and how do you get 70,000 plants to 
reopen, and 5 million jobs to come back? And, from your 
perspective, from your perspective looking at NAFTA, if you all 
go right down the line, please tell me, if you can--and I know 
it is hard to do, it is hard to articulate--what you would like 
to see in that new agreement, or what should we be 
concentrating on that grow American jobs and make it safer for 
workers all around the world.
    But more importantly, with the clout that we have, with the 
clout that we have, we should be able to drive bargains that 
come far more favorable to us.
    So, Mr. Linebarger, if you would start, and if you would 
all right go down the line, I would appreciate just hearing 
from you.
    Mr. LINEBARGER. Yes, again, my strong recommendation for 
modernizing the agreement is add more parts of the economy to 
it. The U.S. is incredibly competitive in services, in IT, in 
technical areas, and there just are not enough protections in 
the old agreement for those areas.
    We talked about IP protection, we talked about making sure 
there is fair trade and where you need to keep your technology 
and your IT. I think having more of those modernizing things is 
really important.
    As I mentioned, I also think it is important to have 
enforceable labor and environment standards, because we are all 
trying to move the standards up.
    Mr. KELLY. Absolutely.
    Mr. LINEBARGER. That is an important thing to do. That is 
where I would focus my attention, is on the parts that 
modernize the agreement, and the parts that make sure we add in 
standards that keep us all raising them up.
    Mr. KELLY. Yes. Mr. Ottensmeyer, there is nothing like a 
steel wheel and a steel rail. That creates an awful lot of 
jobs, and really supports Social Security. We need to get more 
people in the workforce.
    Mr. OTTENSMEYER. I would agree with what my colleague just 
said, expand it, look at--and again, I think that there are 
opportunities in front of us today in the form of energy 
markets--Mr. Arriola can talk more about those--that I think 
could be substantially opportunities to improve exports, 
increase exports.
    Infrastructure is going to be needed, so we will do our 
part and invest in infrastructure on both sides of the border. 
But I also think some of the regulatory relief that is taking 
place, particularly in energy markets, is going to make it 
easier for U.S. producers to tape those markets.
    Mr. ARRIOLA. Congressman, as you said, a lot has changed in 
the last nearly 25 years. The energy markets were not open 25 
years ago.
    Mr. KELLY. Absolutely.
    Mr. ARRIOLA. Today Mexico is one of our best trading 
partners. And, as I mentioned, we have a trade surplus because 
of the natural gas and liquid fuels that we send to Mexico. So 
making sure that the new, modernized NAFTA agreement recognizes 
those new open markets so that it is codified in the agreement 
we think is very important.
    Secondly, ISDS is not theoretical. It is not academic. It 
is for real. For companies like ours and industries like ours, 
that invest and put infrastructure in the ground that is there 
for 20, 30, 40 years, it is for real.
    We had an experience in Argentina where, overnight, the 
government changed the rules and regulations. American 
companies need to be treated fairly, and need to have access to 
a tribunal that can think fairly.
    Chairman REICHERT. Thank you, Mr. Arriola.
    Mr. Meehan.
    Mr. MEEHAN. Thank you, Mr. Chairman. And I thank the panel 
for your insights into the broad spectrum of issues that are 
impacted by the purported agreement, and the opportunity for us 
to go back and revisit some areas.
    But significantly--and I think Mr. Linebarger put his hand 
on it the most--we are growing in certain areas that were never 
part of the original agreements. And my colleague, Mr. Paulsen 
from Canada--from Minnesota----
    [Laughter.]
    Mr. MEEHAN. Hey, he is a pretty good hockey player, so I 
always think that he is from--focused on intellectual property 
protection, the cross-border data flow, and other important 
protections.
    I think one of the things that is often misunderstood when 
we talk about e-commerce is the tremendous growth that is 
taking place in this, and services that are provided. In 
addition to the mechanics, so to speak, that are part of the 
materials that you send over, the digital information that is 
in the actual engines and things which need to be able to 
operate across borders, the United States has actually had a 
surplus of $159 billion in terms of services that are provided, 
but it requires that we have got protections in three critical 
areas.
    One is cross-border data flow to enable, as you have 
identified, Mr. Linebarger. The second is that we can't then 
inhibit that by virtue of creating responsibilities for you to 
localize data in a particular nation. And then, third is when 
you do have information that is being traded, and that you have 
got certain kinds of intellectual property, that we have got 
appropriate protections that recognize and protect against the 
inappropriate use of that.
    Can you speak, Mr. Linebarger, to how significant it is 
that we not only look at this in terms of assuring that both 
Canada and Mexico--that we visit areas, some of which--Canada, 
for example--does look at localization in some areas, 
intellectual property protection is not quite what it has right 
here--how it is important that--not only that we work through 
those areas so that we modernize an agreement, but, as 
significantly, that we look at this as a paradigm that, if we 
can work through these issues to actually enhance some of the 
discussion that took place during TPP, that we may be able to 
create the kind of a model that we can replicate, globally.
    Mr. LINEBARGER. Thanks for the question. And I really agree 
with that. I think it is important. Congressman Kind mentioned 
it, too, that what we--when there are--when there is access to 
customers and there are a set of rules that are reasonably 
standardized, American companies can win. We have an incredibly 
capable workforce, we have talented people here, and we can win 
in other markets when the playing field is even close to level, 
is my opinion.
    So, some rules to live by. And the ones that you are 
mentioning are the ones that we want to begin to standardize 
and codify and get more countries to adopt, because those are 
the rules of the modern economy. And when the rules are there, 
we can win. So I would strongly agree that trying to push into 
areas, the new areas of the economy, make sure there is a 
standard set of rules that we can adopt in other trade 
agreements, bilateral or multilateral, is a really important 
thing that we need to do.
    I was hoping we would get it with the TPP, but now--we 
didn't, but now we have more opportunities, I think, to do that 
with NAFTA.
    Same was true with labor and environment, by the way. All 
these standards are areas where, if we get them in, we have 
them codified, and we can then move on from there and continue 
to raise our standards and improve the way that the 
international trade works, and so there are not so many 
violators, and it is not so easy to violate. That is, I think, 
what is going to help good, responsible companies to do well.
    The other two areas you didn't mention I would highlight 
would be state-owned enterprises. There are still many 
operations where state-owned enterprises are in. Sometimes that 
is an okay thing to do. But if they are not operating in an 
economic way, in a fair competition way, that can essentially 
exclude U.S. companies from participating anywhere near that 
industry.
    And the last is national preference rules, which seem 
advantageous, as long as you are the nation putting them in. 
But the problem is when the other nation puts them in, it 
essentially excludes you from those industries. And I would 
just mention that some of the most competitive industries we 
have--banking, insurance, other IT-related industries--are 
areas that other countries like to put national preference 
standards. So if we have them, they are going to put those in, 
and----
    Mr. MEEHAN. Because that stifles not only innovation, but 
when we have products that are innovations that can have an 
impact on their markets, it prevents the access to those 
markets----
    Mr. LINEBARGER. Right, correct.
    Mr. MEEHAN [continuing]. And prevents that kind of growth 
of what we are talking about has actually been a surplus, when 
we have been able to deliver those kinds of services and 
innovation to foreign markets.
    Boy, I have got a lot of other questions, but the time has 
run out, and I appreciate your answers.
    And, Mr. Chairman, I yield back.
    Chairman REICHERT. Thank you.
    Mr. Levin.
    Mr. LEVIN. Thank you, Mr. Chairman. And I think this 
panel--perhaps it hasn't been planned that way--has really 
helped us get to the nub of the issue. If you look at the--all 
of you except for Ms. Drake and the others on behalf of 
business are testifying that NAFTA has been a plus. Well, the 
President has said the opposite.
    If you look at the surplus and deficit figures, they tell 
the story. There is, with Mexico, a substantial surplus in 
services. In goods there is a deficit of over $55 billion last 
year. And that has happened--it is no surprise.
    The big issue in NAFTA, what we fought over, were labor and 
environmental standards. We had already seen considerable parts 
of American industry move to Mexico. The maquila dynamic, it 
was already there. And what was done in NAFTA was not only to 
have a side agreement, so called, over our objection, but it 
was totally unenforceable.
    So, what happened is what we predicted, and that was that 
more industry would move to Mexico. And that happened in a 
number of industries, including the automotive industry: a 
dramatic shift of production from the United States to Mexico. 
And the differential was not automation, it was labor costs, 
predominantly.
    So, today the Mexican auto worker receives 14 percent of 
what is paid in Michigan and other places, about $2.40 an hour. 
And Mexican manufacturing productivity has increased 80 
percent, while compensation for workers there has slid 20 
percent.
    So, we are going to have to address that problem, or else 
there is going to be more and more slippage of production to 
Mexico and more jobs lost. One can argue whether it is two 
million, a million. You can also argue how much the impact has 
been on lowering wages in the U.S. I think undoubtedly the two-
tier structure in the UAW plants resulted from the shift to 
production to Mexico.
    And so, while I don't agree with the super-populism of this 
President for one second, I do think there is a real issue 
here.
    Mr. Linebarger, you said--and that is why I think this is a 
useful hearing--you said, ``We believe that NAFTA's 
environmental and labor standards should be strengthened and 
incorporated into the updated agreement itself.'' The only way 
that is going to happen is if Mexico dramatically changes its 
laws and practices. And if they don't do that before we vote, 
there is never going to be an assurance that it will ever 
happen.
    And so, I think we need to ask you in the business 
community who say that, as well as those in the labor 
community. And those of us who care about worker wages in the 
U.S. and the impact competing with Mexico workers who are 
getting a fifth or a sixth in the auto parts industry--it is 
even a smaller percentage in the auto parts industry; they are 
making a buck an hour in some cases--and more and more 
companies have moved their parts production to Mexico.
    So this Administration, all of us, need to get serious. And 
the only way that we are not going to continue to lose 
production to Mexico in autos and beyond, and continue to lose 
jobs, is if steps are taken that auto workers in Mexico who 
today have zero rights will be able to have their international 
basic rights. That is the nub of this issue, in terms of the 
deficit in goods.
    Chairman REICHERT. Mr. Reed.
    Mr. REED. Thank you, Mr. Chairman, and thank you to our 
panel here today. I wanted to focus in a little bit--and I 
appreciate the efforts the Administration is doing in 
modernizing NAFTA and bringing it up to current standards.
    I mean over 22 years this agreement--for example, take the 
energy sector. I want to focus there a little bit and then 
touch upon how that impacts U.S. manufacturing, because I am a 
firm believer in U.S. manufacturing. On the--when they started 
on NAFTA, the Mexican energy market was essentially off limits. 
And as you noted in your testimony, that has been opened up a 
little bit.
    But I was wondering, Mr. Arriola, from an energy 
perspective, what provision should we be focusing on? How can 
we strengthen access to that marketplace? And what will that do 
to the overall cost for manufacturers, in your opinion?
    And then I will go to Mr. Linebarger as a manufacturer--
proudly, in my district--with 1,500 folks working there in 
Jamestown, New York, and we appreciate his efforts.
    So maybe expand a little bit on the energy sector and what 
we need to focus on there.
    Mr. ARRIOLA. Sure. Thank you for the question, Congressman, 
and thank you for your letter to Ambassador Lighthizer, talking 
about the importance of free-flowing energy across all borders.
    One of the things I would touch on is the importance of 
cross-border infrastructure processes. And when you look at 
what has been happening in the energy world, the developments, 
especially on the electric side, have been very beneficial, 
both to the United States, as well as Mexico and Canada, from a 
grid reliability standpoint.
    So, as you know, these projects take a lot of time. And 
certainty is important to know what the schedule is, what the 
approvals are required. So what we would like to see in a 
modernized NAFTA is to have additional rules set in place, how 
the coordination is going to take place, not taking away the 
sovereignty of approvals from each country, but laying out a 
process so that companies like ours and sectors like ours know 
what to expect and how to manage the process, and how each 
country is going to be dealing with it.
    We think that that helps a lot with getting the investment 
done in a timely basis, which actually helps to produce 
additional jobs here in the United States, as well.
    Mr. REED. I appreciate it. And in regards to U.S. 
manufacturing, Cummins being a great example of a great U.S. 
manufacturer, how would that energy policy equate to your 
position in the world marketplace?
    Mr. LINEBARGER. Yes, it is a great point. I mean, 
obviously, lower energy costs will benefit us significantly, 
especially if they can be done in a sustainable way. And so, 
being able to operate energy markets more efficiently and have 
more scale there will benefit--even--especially as technology 
changes occur. It is definitely beneficial.
    The other thing is that, you know, that Mexico began to 
restructure its own energy industry, because it has the 
enterprise there. They were very restrictive to buying from 
U.S. companies. Now they buy equipment from U.S. companies. 
They have just started restructuring that, though. So I would 
just encourage those participating in the NAFTA renegotiating 
process to continue to push them to continue restructuring, 
don't go backwards. Because it is politically challenging for 
them to restructure that sector of their economy. So we want to 
encourage them to do so.
    And I think that is one of the real benefits of a thing 
like NAFTA. If we want to restructure Mexico's economy, be it 
labor standards or energy restrictions, the economic activity 
represented by NAFTA is the way to drive them to do it. We 
can't just decree that they raise labor standards or that they 
open their energy sector. It is only the benefits they receive 
from economic activity with the U.S. that drives them to do it.
    So we should continue to push Mexico to raise standards, 
open markets. And I think, through renegotiating NAFTA, and 
through the benefits from NAFTA, we can do it.
    Mr. REED. I appreciate that. With that, Mr. Chairman, I 
will yield back.
    Chairman REICHERT. Thank you.
    Mrs. Noem.
    Mr. Holding.
    Mr. HOLDING. Thank you, Mr. Chairman. The--as the very 
happy owner of a pair of Cummins engines, I am always watching 
the innovation and new technologies that come out of Cummins, 
with their new engines. So I would ask Mr. Linebarger how 
important is being able to access customers outside of the 
United States in Mexico, Canada, and elsewhere for Cummins's 
ability to keep innovating and coming up with new technologies 
and more sophisticated engines.
    Mr. LINEBARGER. Thank you for that, Congressman. And in 
your segment that you mention is a perfect example. We are in 
the marine engine segment. It is a relatively small segment. 
So, in order to produce the technologies relevant for the 
marine segment, we have to invest a lot of money, because that 
segment has changed a lot in technology, both in 
electrification and cleaner energies--cleaner technologies to 
clean up air and, of course, not pollute in the water.
    So there has been a lot of technology spent--again, we 
spent $700 million in a year in R&D. And in order to 
participate in sectors of that size, you need economies of 
scale. It is really important that we can access consumers 
around the world.
    And, by the way, there are companies who compete with us 
based in all those countries who have decided that they need to 
compete with us and beat us in the United States. So, in order 
to compete, we need to continually invest, and continue to 
build economies of scale through sales.
    So accessing those customers is important. And again, 
through my examples like Seymour, Indiana, Rocky Mountain, 
North Carolina, and Columbus, Indiana, we can compete. Our 
plants can compete.
    I heard some stories about how, after NAFTA went in, plants 
closed and moved to Mexico. But, in fact, what we did was we 
closed our engine assembly plant in Mexico and moved it to 
Jamestown, New York. And the reason we did that is we had very 
large scale in Jamestown, New York. And, despite labor 
differences, we are more competitive producing engines in 
Jamestown than we were in producing a very small number in 
Mexico.
    We make other products in Mexico that we produce at high 
volume, and they are quite competitive there. So, while labor 
cost is a factor, it is a relatively small factor of our total 
cost relative to R&D, capital investment, and other flows. So 
we feel like we can compete very well from the U.S. when we 
have access to customers abroad.
    Mr. HOLDING. Well, let's use a specific example. So, of 
course, your favorite facility--my favorite facility is in 
Rocky Mount, the----
    Mr. LINEBARGER. That is a good one.
    Mr. HOLDING. And so, if you could think about Rocky Mount, 
and tell me how market access helps create and retain jobs in 
your Rocky Mount facility.
    Mr. LINEBARGER. So Rocky Mount, North Carolina, produces 
our mid-range engines for the entire North and South America 
region. It produces engines for nearly every sector. It is one 
of the only plants where we export to China. We export natural 
gas engines for buses to China from Rocky Mount, North 
Carolina.
    That plant, in the downturn in the U.S., our production 
dropped by nearly 40 percent. And at the lowest point we were 
down almost two-thirds of our production, because the economy 
was so weak in the U.S. right after the financial crisis. And 
it was our growth and business outside the U.S. that allowed us 
to continue to maintain reasonable levels of employment in that 
plant, and then hire back from that very devastating downturn.
    So we find that the international business not only allows 
us to grow our business, to reach economies of scale, but also 
protects us against economic cycles that we have in the U.S.
    Mr. HOLDING. Staying on the topic of innovation and new 
technologies, you know, I do have some concern that both Canada 
and Mexico have too often fallen a bit short in respect to 
intellectual property enforcement. And, of course, this was 
reflected in the special 301 report the USTR issued just 
earlier this year.
    So, Mr. Linebarger, you are nodding your head. Do you have 
any comment on that, any experience that you would like to 
share with us?
    Mr. LINEBARGER. I do think that--like we were talking 
before, we haven't had enough focus on IP in our agreements, 
nor have we been as quick to enforce rules that we should be 
enforcing. And yes, we have had situations--more in Mexico than 
in Canada--where intellectual property has been--where people 
have essentially copied products or taken brand names and used 
them on other products. So we do feel like it is important.
    We also think it is in the interest of both those 
countries. Both of their--the companies that operate there 
would like to see IP enforcement for their own benefit. So I 
think both countries would also benefit from having strong IP 
rules and having enforcement. So I think it is an area, again, 
where everybody wins if we have strong standards and then 
continue to enforce them.
    Mr. HOLDING. Thank you.
    Mr. Chairman, I yield back.
    Chairman REICHERT. Mr. Davis, you are recognized.
    Mr. DAVIS. Thank you very much, Mr. Chairman. And I thank 
you for calling the hearing. I also thank all of our witnesses 
for being here.
    It is indeed a very interesting discussion, and I think of 
the title, which talks about the need to modernize NAFTA. And 
so I think that it is often much easier to talk about what than 
it is to talk about how. Just as I often hear a great deal, 
after all is said and done--somebody said, well, more is often 
said than done.
    And so the whole question of how do we change situations--
Ms. Drake, let me ask you. You indicate that we have lost, oh, 
850,000 jobs under NAFTA. Could you tell us what kind of jobs 
those are? And is there any way to reclaim, recoup, or get any 
of them back?
    Ms. DRAKE. Thank you. So the job losses are in many 
sectors, but you can find concentrations in the auto sector and 
electronics, in textiles, and other manufactured goods.
    The goal of the American labor movement is not to turn back 
the clock or go back to the past, but it is to set up different 
and more balanced incentives, so that the U.S. can capture a 
larger share of new investment. And that is why we talk about 
it is really important to raise wages in Mexico, so we can 
level the playing field of competition, so that, as companies 
say, ``We are growing, we are going to invest in new plants,'' 
that they might make that decision to invest in the U.S. or 
Canada as much as they might make the decision to invest in 
Mexico.
    They have to think about all things, including labor costs, 
but it is really important not just to get wages up in Mexico, 
but to look at other structures that take away worker 
negotiating power and give additional power to, you know, the 
employer class. So we want to really get those incentives 
right.
    Mr. DAVIS. When we talk about influencing the behavior of 
other countries, are we talking reality, or are we talking 
something that is so far fetched until people cannot even 
imagine it?
    There used to be a Zenith plant, oh, I guess about a mile 
from where I lived. And, of course, all of that shifted from 
Austin Boulevard in Chicago to Mexico. What do we have to do if 
we are going to influence other countries' behavior as we 
negotiate with them for trade relations?
    Ms. DRAKE. Well, it is about influencing the behavior of 
other countries, but it is also about influencing the behavior 
of global corporations, which are powerful actors in the trade 
space.
    So, to influence the behavior of Mexico, we need to offer 
them something that they want, that they are willing to say, 
``We are going to raise our labor standards towards 
international levels and enforce them.'' In exchange, what are 
they going to get? Additional access to the U.S. market, 
additional assurances about how trade is done, trade 
facilitation--we have to look at what they are interested in.
    And certainly, then the U.S. has to say, ``Before we give 
you these additional things that you want, we are going to make 
sure that you have changed your laws and your practices, and 
you are implementing those promises.'' And when you are looking 
at the global corporations, we need to make sure that the 
incentives to invest offshore, whether it is tax advantages, 
trade advantages, ease of exploitation of people and the 
environment, are really balanced by other incentives.
    So we change our rules to minimize tax avoidance. We change 
our rules to say we are going to invest more in infrastructure 
so we are a more desirable place to invest. And we can do that, 
we just really need to think big.
    Mr. DAVIS. Thank you very much.
    And, Mr. Chairman, I yield back.
    Chairman REICHERT. Thank you, Mr. Davis.
    Mr. Rice.
    Mr. RICE. As we said at the inception of this meeting, 95 
percent of the world's population lives outside of this 
country. And that fact alone makes it patently clear that our 
companies need to have access to other countries if they are 
going to compete.
    We have a very open market here, in the United States. And 
because of that, companies in other countries don't necessarily 
need trade agreements to compete on our soil. But other 
countries are not so open, so our companies have to have trade 
agreements to compete on their soil. And I understand that very 
clearly.
    I will--I do believe that NAFTA has been a net plus for our 
country, because it has lowered barriers that existed in Canada 
and Mexico. I also believe NAFTA has been bad for my district, 
because we were overly invested, maybe, in low-tech industries 
like textiles. We also had tobacco. And so we were hit very 
hard. Some of the rural areas in my district were hit very hard 
with NAFTA and what has happened with tobacco, and we still 
haven't recovered.
    So, on the one hand, we need to protect your access. You 
know, in the train business, in the energy production and 
provision business, we need to make sure your access is 
protected. On the other hand, I don't want to do anything to 
incentivize more American jobs, Ms. Drake, to go overseas. So 
this is a delicate balancing act.
    And in--you know, we hear--I hear your concerns about labor 
standards in Mexico, regulatory structures in other countries, 
intellectual property protection, and currency manipulation. I 
understand all those things. And giving you--those are things 
that are important to give you access. But my primary concern 
is what we can do here to make it so competitive in this 
country that other companies don't want to move overseas.
    I think that, you know, we have divorced tax reform from 
this discussion, but I think perhaps that is the most important 
thing we can do for trade, and making our companies more 
competitive.
    Ambassador Lighthizer was here a couple of weeks ago, and I 
asked him, in renegotiating NAFTA, Mexico has a 16 percent 
border adjustment through a VAT. So how, in renegotiating NAFTA 
with Mexico, are you going to account for that? How can Cummins 
engine, when they are making a decision about where to locate 
their new plant, if we have free trade with Mexico--which I 
certainly want--how are you going to offset that 16 percent 
border adjustment tax?
    And he answered me by saying, you know, that is a real 
problem. That is not a very satisfactory answer.
    So, I think that certainly renegotiating NAFTA is 
important. I think my district has suffered because of it. I 
want to see NAFTA renegotiated to make it fair for American 
companies. But I also want to see us working other areas to 
make our country competitive, so that we are not moving jobs 
overseas.
    Mr. Linebarger, do you--first of all, I appreciate your 
factory in Charleston, South Carolina. My wife was a line 
manager for Cummins Engine Company when I met her in 1982. So I 
very much appreciate Cummins.
    You said you closed a facility in--well, 2010, I guess. It 
was a low-volume facility. What facilities do you maintain in 
Mexico now?
    Mr. LINEBARGER. We have three facilities now in Mexico, two 
in San Luis Potosi, and one in Juarez. Our primary 
manufacturing operations in Mexico now are related to re-
manufactured goods. These are goods where we have a product in 
service. It comes back after its life, and we basically repair 
and try to rehabilitate the product, and then we add some new 
parts to it, and then we sell it as, essentially, a replacement 
part with a warranty. And that is the primary business we do 
there.
    We have a couple of other businesses. We make some filters 
there, and some other products, but the biggest----
    Mr. RICE. Okay, so--I got 17 seconds left. This is my 
question.
    Mr. LINEBARGER. Okay.
    Mr. RICE. Between tax policy, regulatory policy--I mean I 
know we are not going to compete with Mexico on wages, and I 
don't even want to try. But I want to know what we can do, so 
that we make it impossible for you to decide to move these 
divisions to Mexico, where you want to be in the United States 
to be competitive in the world. What can we do?
    Mr. LINEBARGER. Right. I--well, I would just like to 
emphasize a couple of things that you mentioned, and other 
panelists have mentioned. I do think tax reform is a big one, 
making the incentives that--keeping business and investment 
outside the U.S. is the wrong incentive.
    So something that creates a more--a better tax policy that 
we are not taxing overseas profits and nobody else is, that is 
a really important part. And it lets people bring cash back to 
the U.S. And reducing the rate, that would be very important.
    The second thing would be infrastructure, which was already 
mentioned. Infrastructure investment in the U.S. would also 
help make it more competitive. So those are the two--if--direct 
answers to your question that I would emphasize.
    Chairman REICHERT. Thank you.
    Mr. RICE. Thank you, sir.
    Chairman REICHERT. Mrs. Noem.
    Mrs. NOEM. Thank you, Mr. Chairman. Mr. Ottensmeyer, I 
wanted to ask you a question, because you talked about--
specifically about efforts to do no harm as we go into this 
modernization effort. And I know that we often talk about this 
deal and how good it has been for American farmers. Sometimes 
we fail to mention exactly how important it is to industries 
that depend on farmers for business, such as your business.
    Our Nation's best farm ground is in the heart of this 
country, and we rely on businesses like yours to get our 
commodities to market, and to get them so that they could be 
exported to foreign countries. And you have some details about 
how heavily reliant you are on agriculture commodities, which I 
think is not unique to just your rail business. We have got 
many rail industries that are heavily dependent on agriculture 
commodities.
    But tell me a little bit about the significant impact that 
that has on your business, and what would happen if we had 
disruption in the kind of opportunities that we have.
    Specifically, I will just speak to my state of South 
Dakota. We export to Canada and Mexico, since we have had 
NAFTA, over--it has increased over $1.2 billion worth of 
exports, 969 percent increase since NAFTA has gone into place 
in 1994. So it is significant for my state. But as your 
business is impacted, tell me what would happen if we saw a 
slowdown in what was able to be exported to other countries, 
just from agriculture alone.
    Mr. OTTENSMEYER. I think it could potentially be 
devastating to a lot of communities in rural America, 
particularly in the Heartland. And I--we have used a graphic, a 
map, and actually are--my written testimony to the U.S. Trade 
Representative, I would be happy to provide, showing, by 
county, in the middle of the country, the percentage of the 
local economy that is based on international trade of 
agricultural products to two other countries.
    And, you know, it puts a different light on the issue, 
because when you talk about just the shear number of jobs in 
rural Kansas, or South Dakota, or Iowa, Nebraska, the numbers 
aren't overwhelming, compared to Texas or Illinois or the East 
Coast or West Coast. But if you look at it as a percentage of 
the local economy, the percentage of local GDP in those 
counties that is related to international trade of agricultural 
products, it could potentially be devastating if those markets 
didn't remain open to those farmers.
    And as I mentioned, you know, our largest cross-border 
commodity--in our case, our international trade is much more 
tied to Mexico. But the U.S. rail industry is very dependent on 
trade. And agriculture, I don't have the number off the top of 
my head as far as the percentage of U.S. railroad--North 
American railroad volumes and revenues that are tied to 
agriculture, but it is a very large number.
    Mrs. NOEM. I think you have in your testimony that, 
according to a study done by AAR in March of this year, at 
least 42 percent of rail carloads in intermodal units and more 
than 35 percent of annual rail revenue is derived from 
international trade, which isn't specific to agriculture, but 
it highly impacts your industry and your business.
    And what happens in agriculture so much--that maybe hasn't 
been discussed very much--is once we lose market share in 
another country, it is very difficult to get it back. We are 
already seeing that in some of the Asia-Pacific region 
countries, where we have lost market share because of different 
policies and changes and negotiations, and another country 
stepped in and filled that market share. And it is going to be 
even more difficult for us to get that back.
    So, any disruption, we can't necessarily go back six 
months, a year later, and fix it and put it back to what it 
originally was, or helpful to make it grow. So thank you for 
being here today.
    Mr. Chairman, I yield back.
    Chairman REICHERT. Mr. Higgins.
    Mr. HIGGINS. Thank you, Mr. Chairman. Obviously, the North 
American Free Trade Agreement is over two decades old. The 
United States is the richest country in the history of the 
world. We have 5 percent of the world's population and 23 
percent of the world's economy.
    After World War II we had about 45 percent of the world's 
economy. All the things that America used to make and sell to 
the rest of the world, now they make and sell to us. In the 
last two decades, we have lost six million manufacturing jobs. 
Over 60,000 factories, manufacturing plants in the United 
States have closed.
    Obviously, the world wants to trade with the United States 
because not only are we the richest economy in the history of 
the world, but we are also 70 percent consumption. So we become 
the most attractive market in all the world.
    I often hear that, you know, these trade agreements are 
negotiated, but there is not much enforcement going on. And 
while the enforcement is talked about with great exuberance, 
there is really no mechanism to do that.
    We are told that the Trans-Pacific Partnership was a trade 
agreement that had to be negotiated in secret, and when it 
comes to Congress, you can vote on it but you just can't talk 
about it, or you can't change it. To me, that says watch out. 
You are probably going to lose a lot of jobs. You are probably 
going to lose your livelihood. And, for the American worker, 
you are probably going to lose your dignity.
    And then we add language called the trade adjustment 
assistance, which basically says you are definitely going to 
lose your job, we are going to provide you with a little bit of 
money in the short term to get you by, and then, essentially, 
we are going to forget about you.
    So, I think the United States--it is totally appropriate, 
after two decades, to review all trade agreements, including 
the North American Free Trade Agreement. But it has to focus on 
worker protection for two reasons.
    One is the United States can compete with anybody on a fair 
playing field. We have embraced worker rights and environmental 
regulations because there is a societal benefit that comes with 
that. Others don't value those things as much as we do. So, 
while it is written in language, it is not enforceable in fact. 
So we need to do those kinds of things.
    Ms. Drake, you had talked about in your testimony item 
number two, which I think is very important and speaks to this 
issue, and that is strong labor rules with swift and certain 
enforcement. Do you want to elaborate a little bit?
    Ms. DRAKE. Absolutely. So no prior U.S. trade agreement, 
whether it was NAFTA, CAFTA, or something later, had 
enforcement that said, ``Here is the timeline that must be 
adhered to. Let's consult for this amount of time, and if we 
haven't seen--if we have seen meaningful progress, great, let's 
keep doing it. If we haven't, let's move to the next step.'' 
Nor is there any sort of automatic enforcement, so that 
citizens could go and say, ``Look, you have promised to 
enforce, you are not doing it, we want to make sure that you do 
so.''
    And so, one of the things that we recommended is how about 
an independent enforcement mechanism in a secretariate that 
isn't going to say, wow, I am subject to pressures from 
producers who don't want us to act on labor rights. It is going 
to be solely focused on what is good for workers and what is 
going to raise wages and standards. So that is one way to get 
at it.
    Mr. HIGGINS. Yes.
    Ms. DRAKE. I think there are a lot of ways to fix it, but 
we don't have the right answer yet.
    Mr. HIGGINS. Yes. Can I just--a final thought on this. I 
mean the corporate representation here is very, very 
impressive. You have created a lot of jobs, you have embraced 
innovation into your technology to make your companies 
competitive. And it is admirable, and that is the American way.
    And, you know, I hear a lot of people here whining about 
China, that they cheat on their currency, that they don't 
respect their people, that they don't respect their 
environment, and that is all true. But what you really need to 
do with China is stand up and compete with them. You know, 
China just invested $1 trillion in infrastructure to open up 
China to 27 brand new Asian markets to sell whatever they make 
to those new markets--$1 trillion in investment, 
infrastructure, roads and bridges to most efficiently do that.
    And our response, in terms of a transportation bill, is 
seeking $1.6 billion to build a wall that we were told that we 
would never have to pay for. That is pathetic. That is pathetic 
and indicative of a country that seems to be capitulating, 
economically, to China, when we should be standing up and 
competing with them in a highly effective way.
    Chairman REICHERT. Thank you, Mr. Higgins.
    Well, thank you to the witnesses who have just testified 
and answered our questions. As you can see, there are a variety 
of opinions, thoughts, and ideas on the panel here.
    But you can walk away with two things to feel good about. 
One, your testimony was excellent, and your answers to the 
questions, along with your testimony, very valuable to us. You 
heard that. And two, you created a moment of bipartisanship, as 
they all agreed the panel was excellent.
    [Laughter.]
    Chairman REICHERT. So thank you all, and I will welcome the 
next panel. And as they are walking up, please be advised that 
Members will have two weeks to submit written questions to the 
answers, and those answers--in writing. Those questions and 
your answers will be made a part of the formal hearing record. 
Your record--our record will remain open until August 1st, and 
I urge interested parties to submit statements to inform the 
Committee's consideration of the issues discussed today.
    So our second panel is getting seated.
    [Pause.]
    Chairman REICHERT. I would like to welcome our second panel 
and ask them to step forward, which you have got--you have 
already done.
    Our first witness is Mr. Stan Ryan, chief executive officer 
and president of Darigold, Incorporated. I am proud to welcome 
Mr. Ryan here today from Seattle, where Darigold is 
headquartered. Farmer-owned since 1918, Darigold produces 
products that are staples around the Pacific Northwest and the 
globe.
    And thanks for joining us today.
    Our second witness is Christine Bliss, president of the 
Coalition of Services Industries.
    Our third witness is Ms. Althea Erickson, senior director 
of Global Advocacy and Policy of Etsy, Incorporated.
    Our fourth witness is Mr. Jason Perdue, president of the 
York County, Nebraska Farm Bureau, and he is testifying on 
behalf of Mr. Steve Nelson, president of the Nebraska Farm 
Bureau.
    Mr. Smith, did you have any comments on your fellow state 
resident?
    Mr. SMITH OF NEBRASKA. Well, I am glad to have a 
constituent here today, and I appreciate the accommodation, and 
I wish him well. Thank you.
    Chairman REICHERT. Finally, our fifth witness is Professor 
Susan Helper, Frank Tracy Carlton Professor of Economics from 
Case Western Reserve University.
    Before recognizing our first witnesses, let me note again 
that our time is limited. So you should please limit your 
testimony to five minutes, and your written testimony will be 
made a part of the record. Members should keep their question 
to five minutes.
    Mr. Ryan, you are recognized for five minutes.

STATEMENT OF STAN RYAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT, 
                     DARIGOLD, INCORPORATED

    Mr. RYAN. Thank you, Chairman Reichert. I appreciate the 
opportunity to address all of you today. I am Stan Ryan, 
president and CEO of Darigold, based out of Seattle, 
Washington. Prior to Darigold, I spent 25 years with Cargill, 
living in six different countries around the world, and working 
in agribusiness and global trade my entire career.
    Darigold is a subsidiary of the Northwest Dairy 
Association, which is a cooperative spanning 486 dairy farms 
across the Pacific Northwest. It has annual sales ranging 
between 2 to $3 billion a year, depending on prevailing milk 
prices and the year. We produce over 800 high-quality dairy 
products, and sell over 40 percent of those internationally, or 
about $1 billion.
    Just like the rest of U.S. agriculture, consistent market 
access and a level playing field is vital to our prosperity. 
Withdrawing from NAFTA would unwind significant progress. Even 
a status quo posture risks a setback, as our global competitors 
are emboldened and aggressively advancing their own trade 
agendas today, as recently seen by the alarming EU-Japan free 
trade agreement. We must lean forward into trade.
    Over 95 percent of the world's consumers live outside the 
U.S., often where it does not make sense to grow many crops. 
The U.S., on the other hand, is one of the most competitive and 
sustainable agricultural systems in the world. Trade links 
these two together. Global consumers get quality products at 
better prices, which supports improved global food security. 
The U.S., in turn, gets economic prosperity and good jobs. 
Trade and U.S. agriculture are a perfect fit.
    Our most natural trading partners, of course, in 
agriculture are our neighbors. In over 20 years, U.S. 
agricultural exports to Mexico and Canada have more than 
quadrupled, from 8.9 to $38.6 billion. Roughly 1 out of every 
10 planted acres in the U.S. goes to Canada and Mexico.
    Looking at dairy, we globally export 15 percent of the U.S. 
milk production today, or approximately $5 billion for a nearly 
a $4 billion trade surplus. And it is estimated to support 
100,000 American jobs. It is a jobs multiplier.
    The U.S. dairy industry is a global, low-cost producer with 
sustainable resources and practices. We have incredibly 
efficient dairy farms, immensely capable dairy farmers, and an 
overall agriculture ecosystem in the United States that 
sustains our competitiveness.
    Mexico, in specific, is a $1.2 billion export market for 
U.S. dairy. And it is working quite well, frankly. We have a 73 
percent share of Mexican imports. For Darigold, it is our 
single largest export destination out of about 20 countries we 
export to.
    Mexico is also the largest skim milk powder importer in the 
world, and export competitors like New Zealand or Europe would 
love to grow there. We need to remove any ambiguity or 
uncertainty of our commitment to Mexico, reinforce our 
relationship, and cement our trade flows.
    Canada, on the other hand, is more complex and challenging 
for dairy. NAFTA did not open up Canada the way it did Mexico, 
and today they maintain tariff rate quotas of up to 200 to 300 
percent. Of primary importance today is Canada's new class 
seven pricing strategy that just came into effect. It 
essentially matches the lowest prices in the world for milk 
protein finished products, despite Canada having one of the 
world's highest raw milk farm gate prices, all operating under 
a state-controlled and state-protected system.
    Common sense economics would tell you if it looks and feels 
like subsidized dumping, it probably is. This just started, and 
it will damage U.S. dairy export shares around the globe. We 
request that Congress work with the Administration to repeal 
that.
    Of longer-term importance with Canada, we urge you to 
ensure that the Administration seek dairy access that is duty 
free, just like in Mexico, and pursue the same types of 
benefits.
    In summary, our number-one priority should be to preserve 
NAFTA, at a minimum, while fixing the Canadian dairy situation. 
Furthermore, we also believe it is imperative to have a strong, 
overall agricultural trade policy agenda. We see every day that 
our competitors are expanding their markets, while we stand 
still at home. Besides NAFTA, we encourage you to engage 
countries such as Japan and Vietnam, and establish free trade 
agreements there, as well. Thank you.
    Chairman REICHERT. Thank you.
    [The prepared statement of Mr. Ryan follows:]
    
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    Chairman REICHERT. Ms. Bliss.

STATEMENT OF CHRISTINE BLISS, PRESIDENT, COALITION OF SERVICES 
                           INDUSTRIES

    Ms. BLISS. Chairman Reichert, Ranking Member Pascrell, 
Members of the Subcommittee, I thank you for the opportunity to 
present the views of the Coalition of Services Industries. I 
appreciate the opportunity to appear before this Committee and 
to present the views of the Coalition of Services Industries on 
how best to modernize NAFTA to maximize the gains for American 
companies and workers.
    I would also like to thank you, Mr. Chairman Reichert, as 
well as Congressman Marchant and Congressman Meeks, for your 
leadership of the Congressional Services Caucus, and for 
kicking off the caucus in the 115th Congress with your letter 
to USTR, highlighting the importance of services.
    Turning to NAFTA benefits to U.S. services, NAFTA provides 
U.S. services companies guaranteed, non-discriminatory market 
access to Mexico and Canada, including the ability to provide 
services on a cross-border basis; investment opportunities; and 
strong investment protections; and the opportunity to compete 
for major foreign procurement--government procurement 
contracts. NAFTA is responsible for our tremendous services 
trade surplus with Mexico and Canada.
    NAFTA has also provided substantial government procurement 
opportunities for U.S. services firms, which would not 
otherwise exist. Almost two-thirds of all Mexican Government 
employees are insured by a U.S. services supplier. U.S. firms 
also supply pensions, as well as property and casualty 
insurance directly to the Mexican Government. By contrast, 
Mexican and Canadian participation in the U.S. federal 
procurement market is negligible.
    On digital trade, an area that I know has been highlighted 
this morning in the previous panel, it is important to remember 
that it is not just a priority solely for U.S. tech companies, 
but for companies across the spectrum of services, from 
financial services, media and entertainment, to retail and 
logistics. And also to manufacturing--and I would believe in 
agriculture, as well--you heard this morning, as well. I 
describe this in greater detail in my longer remarks for the 
record.
    To ensure that these benefits to U.S. services continue, 
CSI recommends four overarching principles to govern NAFTA 
modernization: first, we must do no harm to NAFTA's existing 
benefits, including jobs supported by NAFTA; second, we must 
ensure NAFTA modernization is consistent with TPA; third, NAFTA 
should remain a trilateral agreement with common North American 
rules; and fourth, the process must be transparent and 
efficient, to minimize commercial uncertainty and facilitate 
trade and investment flows.
    I would now like to highlight a number of CSI's proposed 
negotiating objectives.
    With respect to services and investment market access, 
NAFTA modernization should ensure continued use of a negative 
list and a ratchet that binds new liberalization and non-
conforming measures. These elements already exist in NAFTA, and 
must be preserved.
    To ensure that the agreement accommodates market evolution 
and technology advances, NAFTA should also continue to cover 
any new services, and the U.S. should also reject any effort to 
exclude new services.
    The U.S. should also oppose any effort to maintain Canada's 
cultural carve-out.
    On e-commerce, we recommend modernizing NAFTA by including 
a comprehensive chapter on e-commerce and digital trade. CSI 
supports language in the--that the U.S. proposed in the TSA 
negotiations on data flows and forced data localization as a 
building block in the e-commerce and financial services chapter 
in a NAFTA modernization.
    We also recommend provisions to address intermediary 
liability, safe harbors relating to third-party content in 
certain discreet contexts. Further, modernizing of customs 
procedures such as the use of electronic customs forms, 
electronic signature and authentication, and secure online 
payment are also recommended.
    Regarding communications services, the NAFTA 
telecommunications chapter should be updated to ensure non-
discriminatory market access, technology choice, and a level 
playing field. On financial services, we believe that there 
should be parity for investor-state coverage with respect to 
breaches of national treatment, MFN, for financial services. 
And electronic payment services commitments should also be 
covered. We also believe that express delivery services are a 
critical area to cover in the agreement.
    On trade facilitation, we think there should be ambitious, 
high-standard custom policies, and they should be harmonized 
across Canada and Mexico, including a raising of the de minimi 
threshold for express and postal shipments. We also think 
customs procedures should be streamlined and expedited. We also 
think current reciprocal access under government procurement 
should be preserved.
    And finally, on investment, we believe that it is critical 
to preserve and build on the existing NAFTA framework, and to 
provide the same scope of enforceable investor protections to 
all sectors, including financial services.
    In conclusion, we thank you for your willingness to engage, 
and your knowledge on the issues. And I am happy to answer any 
questions from the panel.
    Chairman REICHERT. Thank you.
    [The prepared statement of Ms. Bliss follows:]
    
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    Chairman REICHERT. Ms. Erickson.

STATEMENT OF ALTHEA ERICKSON, SENIOR DIRECTOR, GLOBAL ADVOCACY 
                 AND POLICY, ETSY, INCORPORATED

    Ms. ERICKSON. Thank you, Chairman Reichert, Ranking Member 
Pascrell, and Members of the Committee, for inviting me to 
speak to you today about opportunities to modernize NAFTA for 
the 21st century economy. My name is Althea Erickson, and I 
lead global policy at Etsy, an online marketplace where you can 
buy handmade and vintage goods from creative entrepreneurs 
around the world. Today we host 1.8 million active sellers who, 
together, sold $2.8 billion worth of goods, globally, in 2016.
    Etsy's creative entrepreneurs aren't the stereotypical 
businesses you might imagine, when considering the exporters 
who would benefit from global trade agreements. The vast 
majority of Etsy sellers are businesses of one, working out of 
their homes. Fully 87 percent of our sellers are women, and 28 
percent live in rural areas. In many ways, Etsy functions as an 
on-ramp to entrepreneurship. For 53 percent of our sellers, 
Etsy was the first place they sold their goods online. Nearly a 
third of our sellers operate their creative businesses as their 
sole occupation. And for the rest, it is an important source of 
supplemental income.
    Etsy was founded in 2005, 9 years after NAFTA took effect. 
Since that time, the Internet has enabled creative 
entrepreneurs to use platforms like Etsy to connect with buyers 
around the world. Unfortunately, existing trade laws have not 
kept up with the growth of global e-commerce and the 
opportunities it provides to micro-businesses.
    Many Etsy sellers began exporting goods from the moment 
they opened their shops. As of March 31, 2017, 32.1 percent of 
Etsy sales involved a buyer or a seller outside of the U.S. 
Forty-four percent of U.S. Etsy sellers export their goods. 
Unfortunately, the U.S. is the only Etsy key market where the 
majority of Etsy sellers do not ship internationally. For 
example, 88 percent of our Canadian sellers export their goods.
    Most independent, creative businesses lack the 
infrastructure and information to navigate complicated 
international trade rules. Customs and duties vary by country, 
and credible information about each country's requirements can 
be difficult to find. Packages are often delayed at the border, 
or subject to unforseen import taxes that the buyer must pay 
before receiving their package. In the face of these 
challenges, buyers may reverse transactions or request refunds, 
the cost of which the seller often bears.
    Historically, trade rules and regulations have enabled 
larger--or trade agreements have enabled larger, more 
established companies to bring their products to new markets. 
However, innovative programs like the Trusted Trader Program or 
the Single Window simply aren't relevant to a single person 
selling one item to another person in another country. We see 
an enormous opportunity to modernize NAFTA to foster digitally-
enabled micro-business exports. By focusing on the needs of our 
smallest exporters, we could set new global standards for peer-
to-peer trade around the world.
    The single greatest opportunity to support micro-businesses 
would be to negotiate a higher de minimi customs exemption with 
our trading partners. Thanks to the Trade Facilitation and 
Trade Enforcement Act, the U.S. de minimi threshold is now 
$800, which eases burdens for U.S. micro-businesses processing 
returns and purchasing supplies. However, Canada and Mexico 
have some of the lowest de minimi thresholds in the world of 
$20 for Canada and, for Mexico, $50 for express and $300 for 
postal shipments.
    As a result, low-value goods from U.S. exporters often end 
up subject to unexpected fees or delays at the border. The 
upcoming NAFTA negotiations provided an opportunity to 
alleviate this burden that disproportionately impacts U.S. 
micro exporters.
    Additionally, e-commerce regulations vary widely between 
countries. Discrepancies in the categorization of goods, as 
well as consumer protection and privacy laws pose a challenge 
for individual sellers who must find relevant information on 
requirements for each country before shipping an item.
    Unlike a traditional retailer who can research rules before 
deciding to enter a market, the typical e-commerce seller makes 
her product available to buyers worldwide, and begins 
researching the rules after the product is sold, when she is 
under considerable pressure to mail the goods quickly. 
Navigating the various Web sites and interfaces to find 
credible information is an administrative struggle for an Etsy 
seller who is hungry to comply with the rules. Currently, 
customs brokers have large exporters navigate these 
complexities, but a business of one exporting a $30 item simply 
doesn't have the means to engage those services.
    We urge negotiators to create a far smaller, simpler set of 
harmonized tariff codes for low-value goods, and make 
information about all important export rules easy for third-
party services to access, for example, through an open API.
    We believe a modernized NAFTA agreement should include a 
small and micro-business chapter. Although TPP included such a 
chapter, the contents focused on opportunities to educate small 
business, rather than address the substantial barriers these 
exporters face to trade, such as an increased universal de 
minimi customs exemption.
    Such a chapter might also enable negotiators to align 
around a shared definition of micro-business, paving the way 
for future programs that specifically address this 
constituency's needs.
    Finally, enabling digital trade requires preserving the 
fundamental protections that enable intermediaries such as Etsy 
to operate in a global marketplace. In particular, we hope any 
new NAFTA agreement will preserve the intermediary liability 
protections and balanced approach to copyright that underpin 
online innovation in the U.S.
    The changes we seek for our sellers may seem small, but 
they would have a huge impact on e-commerce and micro-
businesses. We are confident that a modernized NAFTA can help 
Etsy sellers succeed in a global marketplace, and set the 
standard for future trade agreements.
    Thank you for the opportunity to address you today.
    Chairman REICHERT. Thank you.
    [The prepared statement of Ms. Erickson follows:]
    
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    Chairman REICHERT. Mr. Perdue.

   STATEMENT OF JASON PERDUE, PRESIDENT OF THE YORK COUNTY, 
  NEBRASKA FARM BUREAU, TESTIFYING ON BEHALF OF STEVE NELSON, 
                PRESIDENT, NEBRASKA FARM BUREAU

    Mr. PERDUE. Chairman Reichert, Ranking Member Pascrell, and 
Committee, thank you for the opportunity to be here today. My 
name is Jason Perdue, and I am a row crop farmer, cattle and 
poultry producer from York, Nebraska. I am testifying today in 
place of Steve Nelson, who had an unexpected family emergency 
yesterday morning.
    I am currently the president of the York County Farm 
Bureau, and a member of the Nebraska Farm Bureau Young Farmers 
and Ranchers Committee, and I am testifying today on behalf of 
the American Farm Bureau Federation.
    NAFTA has been beneficial for farmers, ranchers, and 
associated businesses all across the United States, Canada, and 
Mexico. For more than two decades, U.S. farmers and ranchers 
have benefitted from an increase in annual exports to Mexico 
and Canada from 8.9 billion in 1993 to 38.1 billion in 2016.
    Nebraska alone exported more than 2.4 billion worth of 
products to Mexico and Canada in 2016, with agricultural 
products making up 1.5 billion, more than half of that total.
    There are reasons to modernize NAFTA from agriculture's 
perspective. While the sector as a whole has been--has had a 
substantial benefit, there are individual commodities that have 
faced challenges. With Mexico, tomatoes and other fruits, 
vegetables, and sugar all have experienced issues. There are 
also challenges for dairy, specialty and row crops, wheat, 
lumber, and wine with Canada.
    We believe negotiations should eliminate or reduce long-
standing Canadian tariff barriers to dairy, poultry and eggs, 
as well as the relatively recent barriers to ultra-filtered 
milk exports. U.S. agricultural exports to Canada would grow if 
greater competition were allowed.
    Remedies for our produce growers need to be strengthened. A 
timely trade dispute resolution process should be added that 
takes into account the perishability, seasonality, and regional 
production of fruit, vegetable, and horticultural products.
    There are several areas where the NAFTA agreements could be 
modernized to improve trade in agricultural goods. It is 
critical that the modernization effort should recognize and 
build upon the strong gains achieved by the U.S. agriculture 
through tariff eliminations, regulatory improvements, and the 
development of integrated supply chains that have arisen due to 
the NAFTA agreement.
    Trade agreements also provide the highest standard of trade 
rules, allowing the United States and its partner to be global 
leaders. We support science-based terms of trade and dispute 
resolution that will benefit the U.S. food and agriculture 
industry. We also recommend some additional and significant 
provisions on geographical indicators in biotechnology that 
would ensure that the revised NAFTA agreement could be used as 
a model for future trade agreements the United States may 
enter.
    NAFTA must preserve U.S. market access opportunities for 
common-name products. The misuse of GI's is a constant and 
significant threat to maintaining and growing sales of high-
value U.S. products in the United States within the markets of 
our NAFTA partners and in markets, worldwide.
    We support adding in a new chapter on biotechnology to the 
NAFTA. The U.S. Government should, one, enter a mutual 
recognition agreement on the safety determination of biotech 
crops intended for food and feed; and two, develop a consistent 
approach to managing low-level presence of products that have 
undergone a complete safety assessment and are approved for use 
in third countries, but not yet approved by a NAFTA member.
    We also oppose erecting new barriers to agriculture trade 
in NAFTA, including adding mandatory country of origin labeling 
for beef and pork products.
    U.S. agriculture depends upon a growing, international 
economy that provides opportunities for farmers and ranchers to 
sell their products. Modernization of NAFTA will help expand 
market opportunities through the U.S. and Nebraska agriculture.
    Thank you for the opportunity to testify today.
    Chairman REICHERT. Thank you.
    [The prepared statement of Mr. Perdue testifying on behalf 
of Steve Nelson follows:]

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    Chairman REICHERT. Ms. Helper.

  STATEMENT OF SUSAN HELPER, FRANK TRACY CARLTON PROFESSOR OF 
           ECONOMICS, CASE WESTERN RESERVE UNIVERSITY

    Ms. HELPER. Chairman Reichert, Ranking Member Pascrell, 
Members of the Committee, thank you for the opportunity to 
testify about NAFTA today.
    As an economist focusing on supply chains, I have long 
followed this issue. Twenty years ago I visited plants making 
automotive wiring harnesses in Warren, Ohio. At that time, 
senior production workers earned middle-class union wages, 
owning houses and cars. I also visited their counterparts in 
Mexico, eager young women who lived in tarpaper shacks, using 
the plant's bathrooms to apply their makeup because their own 
homes lacked running water.
    I am inspired by the hard-working people I met in both 
places, people who coax machines into producing tiny, perfect, 
plastic connectors, people who made sure that these connectors 
were so flawlessly joined to wiring that our cars rarely suffer 
electrical issues.
    Today the plants in Warren are bulldozed or vacant, and 
middle-class jobs are largely gone. Mexican workers still have 
jobs, but their pay has not risen since NAFTA was signed in 
1994. Is this the best we can do? Can't the power of global 
trade be leveraged to benefit everyone?
    Appropriately designed, trade deals can set rules so that 
everyone shares in the gains. Trade deals should ensure that 
competition is based on technology and innovation, and not on 
other nations' willingness to exploit workers or the 
environment.
    As other witnesses have discussed, key ways that NAFTA 
could move toward this goal include stronger protections for 
workers and the environment, and an end to special courts for 
investors. I would like to discuss an additional way: 
strengthening supply chains.
    Some arguments against changing NAFTA are based on fear 
that changes would weaken U.S. supply chains. However, these 
arguments assume that supply chains are ideal as they are. They 
also assume that Mexican and Canadian supply chains complement 
U.S. supply chains, and do not substitute for them.
    But in some cases, we have actually seen that foreign 
supply chains do substitute for U.S. suppliers. For example, in 
electronics, U.S. personal computer manufacturers started by 
off-shoring the assembly of printed circuit boards. Then they 
moved complete product assembly overseas. Then they moved 
supply chain management. And finally, design and innovation.
    To prevent this atrophy of capabilities, it is important to 
identify clusters of industries that are at a tipping point, 
and bolster these ecosystems.
    For example, it may be that North American auto parts 
cluster is approaching such a tipping point. Since NAFTA came 
into force in 1994, Canada has lost 4 auto assembly plants, the 
U.S. has lost 10, even as Mexico has gained 8 plants.
    As more auto assembly occurs in Mexico, more suppliers will 
find that costs of shipping and of coordinating engineering 
changes fall as critical mass is reached. These firms may thus 
find it profitable to relocate to Mexico from the U.S. As each 
of these firms moves, it creates additional reasons for other 
firms in the network to leave, as well.
    The North American industry could benefit from careful 
examination and management of these trends, assurances that 
changes are based on fair competition and promotion of 
investment and fuel efficient, innovative vehicles.
    Thus, a concern for U.S. supply chains should not preclude 
renegotiation of NAFTA. Instead, U.S. supply chains would 
greatly benefit from actions such as, first, better data and 
analysis; second, convening stakeholders, including business, 
unions, consumers, and environmental groups, across the U.S., 
Mexico, and Canada to develop industry-specific strategies; 
third, it is important to adopt non-trade policies to 
strengthen supply chains within the U.S.
    U.S. manufacturing supply chains are characterized by a 
heavy presence of small, isolated firms. Forty percent of 
manufacturing workers are in firms of fewer than 500 employees. 
And these firms struggle to do the innovation on which most 
U.S. comparative advantage is based. We could strengthen U.S. 
supply chains by making more robust efforts to train workers 
and managers; by including in sourcing decisions the benefits 
of supplier innovation, not just of cheap labor; by promoting 
collaboration within supply chains; and by continuing to fund 
the manufacturing extension partnership.
    The fourth issue, I think, is to review NAFTA rules of 
origin. But I would note that, to the extent that the 
production moves from low-wage nations, production may well go 
to Mexico, not the U.S. And thus, the impact of this policy on 
U.S. employment and wages depends critically on having policies 
that--suggested above on labor and environmental rights.
    A thoughtful renegotiation of NAFTA could make good on the 
promise of a prosperous, innovative, sustainable North America, 
in particular by strengthening its supply chains.
    [The prepared statement of Ms. Helper follows:]
    
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    Chairman REICHERT. Thank you. Thank you all for your 
testimony. Now we will ask you a few questions, if you don't 
mind.
    Mr. Ryan, thanks for being here today. As you said, 
Darigold, located in the State of Washington, and especially 
important, located in Issaquah, Washington, which happens to be 
in the eighth district of Washington, which is the district 
that I represent. So whatever you said is absolutely correct.
    [Laughter.]
    Chairman REICHERT. One of the things that I listened to in 
your testimony, and agree with and am concerned about, is 
Canada's national ingredients pricing strategy. So that 
includes the class six and now the class even pricing scheme, 
With the importance of trade to our state and in your industry, 
I completely agree this practice that effectively blocks our 
exports to Canada and negatively impacts your sales in other 
markets has to end.
    So we will continue to work with the Administration to seek 
additional commitments from Canada with respect to the market 
access for dairy products. As Mr. Perdue also testified to in 
his comments, we want to end these discriminatory practices.
    I also agree with your concern about the growing use of 
geographical indications as a form of protectionism, and the 
need for strong rules to prevent this. We also need additional 
rules to ensure that our trading partners' sanitary and 
phytosanitary determinations are based on sound science.
    So, I hope that you could please speak to the opportunities 
that you see for your industry in an upgraded NAFTA, and 
explain how these changes would impact Darigold's sales with 
NAFTA and other markets.
    Mr. RYAN. Well, first of all, I think it all stems from the 
competitiveness of the U.S. You know, with more market access--
you know, to Canada, for example--you will just simply have a 
growing U.S. industry.
    I think, secondarily, repealing the class seven pricing 
strategy will essentially reverse what is going to amount to 
be--as a market share move from the United States to Canada, by 
virtue of the policy they have, and stemming that. The U.S. 
dairy industry will be larger. The economy will be bigger. Jobs 
will be bigger, you know, without the class seven than with it, 
which I believe is strongly in conflict with the WTO.
    From a Mexico point of view, Mexico is a giant dairy import 
country in the world [sic]. And there is a lot of ambiguity out 
there. Europe--New Zealand, specific--would love to develop a 
greater share of the Mexican market. So reinforcing our 
situation is critical to just stay where we are, and where we 
are is a very good, good situation. But it is at risk, given 
the current environment.
    Chairman REICHERT. I want to give you the opportunity to 
comment on any other of the issues or concerns that you heard 
expressed today that might have struck a note with you as far 
as border crossings, technology, anything there that you see 
that could help or benefit?
    And anything specifically, other than the dairy issue with 
Canada, that you would like to mention that maybe--that you see 
as a benefit that we could add to and change and update NAFTA?
    Mr. RYAN. Yes. Chairman Reichert, I think in your opening 
comments you said that NAFTA can serve as a template for things 
we can use in other places in the world. And I think in dairy, 
that is completely appropriate. At the end of the day, the 
world has--people and productive land are not all in the same 
spot. Global trade brings that together. It is good for global 
security and, because we are in one of the most competitive 
farming, land-rich, sustainable-resource, rainfed parts of the 
world, we can be a giant supplier to that, and grow the U.S. 
economy and jobs quite a bit.
    Dairy, in specific, is tremendously affordable protein and 
nutritious, and on trend from all aspects of the nutrition 
spectrum. And so, the global opportunity to grow the U.S. dairy 
business is extremely large, not only for Darigold, but for the 
entire U.S. dairy industry. Other bilaterals, going back to 
multilateral platforms, different ways--a lot of the things 
that were done in TPP would be essential for all of the U.S. 
agriculture, I believe, as well as dairy.
    And other countries are on the move. I mentioned in my 
comments the recent EU-Japan free trade agreement, which is--
essentially did about what we were going to do in--for U.S. in 
our own TPP, and sort of one-upped us, if you will. This is a 
big setback. Japan is a very natural trading partner, and it 
sets a precedent for what takes place in other places.
    We have an environment where there is a--sort of a window 
of opportunity created for our export competitors around the 
world to go forward. And I would urge everybody to jump into 
that void and advance U.S. interests.
    Chairman REICHERT. Great, thank you.
    Mr. Pascrell.
    Mr. PASCRELL. Mr. Chairman, thank you. And I want to thank 
the panelists today. All excellent.
    Ms. Erickson, I paid very close attention to your 
testimony. And as senior director of global policy for Etsy, I 
want to ask you this question about empowering women 
entrepreneurs.
    I am impressed with the way that Etsy--is that correct--has 
empowered women to start their own businesses and sell products 
over the Internet. And you said in your testimony that almost a 
third of the sales on Etsy come from outside the United States. 
Am I correct?
    Ms. ERICKSON. It is about a third of sales involve either a 
seller or a buyer outside of the United States.
    Mr. PASCRELL. Now, you mentioned that our trade laws 
haven't kept up with the changes in technology. So how can 
trade agreements help facilitate exports on behalf of small 
businesses like those that you use on your site?
    Ms. ERICKSON. Absolutely. So I think a lot of it is focused 
on the basic trade facilitation components of trade agreements. 
So, as I said in my testimony, de minimi customs exemptions 
would solve most of these challenges for Etsy sellers. The 
average good people are sending is not very expensive. And so 
that would eliminate much of the friction.
    I think, secondarily, just simplifying the rules. These are 
businesses of one, and they are hungry to comply with the 
rules, but it rapidly becomes too difficult for a business of 
one to figure out what the rules are that apply to their 
product in a particular country.
    I think we also can take advantage of technology to make 
this easier. So a lot of trade facilitation focuses on, for 
example, putting rules online on individual Web sites. We would 
encourage countries to go even further in making those 
standards available in an open, common format that technology 
companies like Etsy could easily access to make that 
information available in the moment of the transaction, so our 
sellers don't have to go digging through different countries' 
Web sites to find them.
    So, for us, it is really about simplification.
    Mr. PASCRELL. Thank you.
    Professor Helper, thank you so much for your testimony. 
Democrats have consistently been vocal, particularly over the 
last 20 years, about the severe erosion of manufacturing 
operations and jobs in our own country. People who don't quite 
agree with that debate, and point out advancements in 
technology, in automation, as policy-neutral explanations for 
what is going on.
    Many of us have seen entire factories and entire factory 
towns leave, shut down. So is there any doubt in your mind, as 
an economist and an expert in manufacturing policy, that the 
incentives created by our trade policies have played a 
significant role in that demise of manufacturing jobs?
    Ms. HELPER. No, there is no doubt in my mind. There has 
been a significant change in the economics profession's view on 
this question.
    Mr. PASCRELL. Could you explain that?
    Ms. HELPER. There is a very important paper by David Autor, 
chair of the MIT economics department, looking at the impact of 
free trade and the China entry into WTO, and finding that this 
change alone accounted for about a quarter of manufacturing job 
loss.
    There is a recent paper by Hackobyan and McLaren that use 
this same methodology, apply it to NAFTA, and find a slower 
wage growth, significantly slower wage growth, across the 
country in industries that were primarily affected by the 
tariff changes in NAFTA. And these changes affect not just, you 
know, a small number of workers in tariff-affected industries.
    Mr. PASCRELL. Right.
    Ms. HELPER. They spill over to affect the service workers--
--
    Mr. PASCRELL. So not only are we losing the jobs, but those 
remaining are affected in a negative way, in terms of dollar 
growth, wage growth, as----
    Ms. HELPER. It comes back to bargaining power----
    Mr. PASCRELL. Right.
    Ms. HELPER [continuing]. That when you are competing with 
dollar-an-hour labor, and also when you are competing with the 
lack of demand that people earning a dollar-an-hour can bring 
to the marketplace, what happens is that businesses move toward 
strategies that involve lower wages and less innovation, 
because that is the way they compete.
    Mr. PASCRELL. Thank you very much. I yield, Mr. Chairman.
    Chairman REICHERT. Thank you.
    Ms. Jenkins.
    Ms. JENKINS. Thank you, Mr. Chairman, and thank you all for 
being here.
    Mr. Perdue, as you are a producer from York County, 
Nebraska, an area very similar to and not terribly far across 
the border from my eastern Kansas district, I imagine you are, 
no doubt, familiar with the challenges that the agriculture 
community in rural America is currently facing. Part of that is 
due, in part, to low commodity prices, seasonal national 
disasters, and countless other pressures.
    Throughout this year and last, producers throughout Kansas 
in my district have visited with me about these challenges, and 
they have really stressed the incredible importance our trade 
deals are to their bottom lines.
    In light of the current slump in which the ag sector 
currently finds itself, how important is NAFTA to your own 
operation and to your neighbor's farms? And what would be the 
effect that a withdrawal from NAFTA would have on farmers' 
livelihoods, whether they be in Nebraska or an hour south, in 
Kansas?
    Mr. PERDUE. Well, thank you. The first answer I will go 
with is for the second question, and it would obviously mean 
lower prices to the producers. If we had any impediments to the 
trade we are currently doing in the export market, we would 
obviously have a build-up of supply, and it would result in a 
reduced price. And then you would quickly feel that ripple 
effect through the communities that are based so much on 
agriculture.
    So, I wish I had the exact numbers. I know there are 
studies out there. And I would be happy to get those to you in 
writing later. But there have been analyses to show what the 
export markets bring to every bushel of corn, every bushel of 
soybeans that a producer receives, and then take that into the 
livestock market, as well. And it is a very significant amount 
of income coming back to the communities from these exports.
    Ms. JENKINS. Thank you, Mr. Perdue.
    Mr. Chairman, I yield back.
    Chairman REICHERT. Mr. Paulsen.
    Mr. PAULSEN. Thank you, Mr. Chairman. And also, thanks for 
the other panel for sticking around. I will start with Ms. 
Bliss.
    You mentioned earlier that we have had a consistent trade 
surplus in the area of services, both with Mexico and with 
Canada. And there is widespread agreement, I think from folks 
here, that we do need to modernize NAFTA, or have a chapter now 
on e-commerce and digital trade, and have that be added.
    Can you just talk a little bit more about what the 
consequences would be for your members, or for service 
providers, if digital trade provisions were not included in a 
modernized NAFTA?
    Ms. BLISS. Thank you, Congressman. I think they would be 
adverse. And for one thing, let me just say that I think my 
members--and I know a large part of the business community, not 
just the tech center, believe that NAFTA really presents an 
opportunity to create a real template and a very high standard 
set of disciplines with respect to e-commerce and digital 
trade.
    So, if that opportunity is missed, I think the consequences 
are beyond just NAFTA, but more broadly, because certainly the 
topic of digital trade and e-commerce is being discussed in a 
number of forums, in a number of trade agreements with respect 
to the EU and Japan. There was a decision to kick the can down 
the road, and so there won't be any disciplines in that 
agreement. There is a lot of discussion in the WTO among 
developing countries and others, some who are strongly 
resisting a strong standard in that area.
    So, I think--just point one I would make is it would be a 
tremendous missed opportunity to not set high standards. Two, I 
think has previously discussed, the extent of restrictions on 
data flows, and data localization in particular, are, 
unfortunately, increasing globally. And they are--have not been 
as significant a problem with respect to Canada and Mexico--
more so for Canada than in Mexico.
    So I think that if, again, the agreement did not set a high 
standard, it would be a missed opportunity, and it could send 
the wrong signal, in terms of encouraging those kinds of 
policies.
    And then, lastly, just let me say I think if you look at 
the trade surplus that has been generated broadly for the 
United States of about 262 billion, about 159 billion of that 
is accounted for by digitally-enabled services. So it is a huge 
area in which we are competitive, in which we are generating a 
big advantage for the United States. So if we don't have those 
kinds of rules to undergird and to protect that advantage, we 
stand to lose a great deal.
    But I think it is--I would emphasize that it is really the 
last point, that we want to set an example, and we want to 
discourage kinds of policies that discourage data flows and 
mandate-forced data localized.
    Mr. PAULSEN. Can you also maybe mention what the 
implications would be for, you know, service providers or some 
of your members if a foreign government decided to levy customs 
duties on data?
    Ms. BLISS. Again, it would certainly--the immediate effect 
would be to increase the cost of business----
    Mr. PAULSEN. Sure.
    Ms. BLISS [continuing]. Which is always adverse, and 
makes--would make the U.S. less competitive.
    Two, I think it would also set a very bad precedent, 
because I know there are developing countries that are looking 
very actively at doing precisely that, and seeing it as a 
potential source of revenue. So I think it would set a very bad 
precedent, globally.
    Mr. PAULSEN. Thank you, Mr. Chairman, yield back.
    Chairman REICHERT. Mr. Levin.
    Mr. LEVIN. Well, thank you. I mean this panel, again, I 
think, illustrates the challenge. Why we find it so difficult 
for us to listen to all of you, and instead just listen to some 
of you.
    Ms. Bliss, you have outlined the need to have high 
standards in services, and I have been active in this, 
including the WTO, as well as data flows and others.
    Ms. Helper essentially outlines the need for us to have 
high standards in terms of worker rights and the environment. 
But we pick and choose. And the challenge for any renegotiation 
of NAFTA is to pay attention to the need for standards across 
the board.
    And, Ms. Helper, you outline, I think so clearly, the need 
for us to do that in terms of labor standards, and you focus on 
suppliers. It is interesting how little work has been done, 
including by economists, because, without naming names, I know, 
for example, of one very large supplier--it is an American 
supplier--that I think has about 80,000 jobs; 70,000 of them 
are in Mexico.
    And so, when there is a reaction by the public to NAFTA, I 
think we need to understand the impact of loss of jobs in 
critical areas like industry, while acknowledging there has 
been an increase in jobs in other areas, including the service 
industries.
    And Ms. Helper, you mentioned the recent study. And I just 
saw the abstract. You have to pay to get the whole thing. So I 
guess I will pay to get the whole thing. But its conclusion is 
we find evidence of both effects, dramatically lowering wage 
growth for blue-collar workers in the most effective industries 
and localities, and it goes on to say even for service-sector 
workers in affected localities whose jobs do not compete with 
imports.
    And so, everybody has a stake in addressing this issue of 
the attraction of jobs from the United States, in this case to 
Mexico, by the policy of Mexico essentially to be a very low-
cost economy, when it comes to industry, and to make sure that 
wages are suppressed, including because workers have no ability 
to be represented in the workplace.
    In industry, in all cases except mining--maybe one or two 
others--the contracts are totally sham agreements, often 
reached by a union, so-called, that is attached to the 
government and the employer, before a single employee has been 
employed.
    So, Ms. Helper, you want to just close with some fervent 
expression why we need to address this? You are an economist, 
but you can get fervent.
    Ms. HELPER. Yes. And I am also a business school professor.
    Mr. LEVIN. Are you? Good.
    Ms. HELPER. So I would be remiss to not say that these high 
standards in the labor area can actually help business, as 
well.
    And I think Mr. Linebarger's testimony about Cummins really 
shows this, that if he's--innovation in his plants in the U.S. 
is actually helped when there are higher wages in Mexico, both 
because there are more demand for his products in Mexico, and 
also because competitors of his that don't use the high 
standards that he uses can't get away with the poor practices.
    So I think that this is a practice that doesn't benefit 
just workers, but also innovative businesses, and also 
consumers.
    Mr. LEVIN. Thank you.
    Thank you, Mr. Chairman.
    Chairman REICHERT. Thank you.
    Mr. Kelly.
    Mr. KELLY. Thank you, Chairman, and thank you all for being 
here. I know you are very busy in your lives, and to take time 
out to come here is really critical to us.
    But all of you, we are here for the same reason today, and 
that is to talk about--specific about NAFTA and where we are 
with NAFTA today, as opposed to when the NAFTA was initiated, 
and what you see the improvements could be. Is there anybody at 
all on the panel that says we just shouldn't do anything?
    I know do no harm, I get that part. But is there anything 
else that you see? Because you are all pretty articulate in 
what it is that you think the opportunities are, and where 
maybe we aren't looking that we should be looking in today's 
market, as opposed to 23 years ago.
    Mr. Ryan, and good to have another Domer in the room--by 
the way, that is Notre Dame, for you folks who don't understand 
where we are coming from, the Golden Dome.
    Mr. RYAN. Go Irish.
    Mr. KELLY. Yes, Go Irish is right.
    Mr. RYAN. You know, I am struck in that we are talking 
about NAFTA, but there is dozens and dozens and dozens of 
countries around the world, and trade is an issue of 
everywhere. Food and agriculture, again, it is a--there is 
dozens and dozens of countries who are net importers of food 
and structurally always will be, and they are growing. And we 
can be a large net exporter. So it is a boom industry.
    I believe that the way we treat this NAFTA negotiation is 
an opportunity for us to establish ourselves as an extremely 
reliable trade partner who will always be there and always work 
to improve. And some of the environment brings that into 
question, which is simply arming the trade negotiators from our 
competitor countries to open doors against us.
    So I think there is the substance of what you get out of 
NAFTA, do no harm--clearly, improve a number of things, clearly 
open some more doors with Canada, specific, a number of 
industries--dairy and a few others that you mentioned--but in 
the eyes of Vietnam, in the eyes of the Philippines, in the 
eyes of China, everywhere else, lay the groundwork to open up 
the next doors.
    I believe, Mr. Smith, you said there was over 95 percent of 
the consumers are outside of the United States. And billions of 
them are graduating up into the lower levels of middle class, 
if you will, by an income definition and are ripe consumers for 
U.S. products.
    So I think the reliability of a trade partner, which has 
been brought into question, is also at stake right now.
    Mr. KELLY. Okay. Ms. Bliss.
    Ms. BLISS. Thank you, Congressman. Just elaborating on a 
couple of points, one is that I think it is worth clarifying 
that when we talk about promoting growth in the American 
economy, we are very focused on the 40 percent of services that 
are tradeable. And those jobs tend to be primarily in 
professional services, where wages tend to be considerably 
higher.
    And so, we are talking about promotion of the creation of 
good, high-skilled, high-paying jobs, and I think that is a 
very important point to make.
    And two, in promoting that, we do not ignore the fact that 
there is a need for significant worker education and training, 
which--many of our member companies have their own programs 
that are dedicated to that. So just by point of clarification, 
in terms of benefits that we see coming forward, we think NAFTA 
is in that regard.
    And the second thing I would say is that the investment 
protections that have been talked about today are very 
important across the board, certainly to services companies, 
because when services companies invest abroad, they generally 
do so because otherwise they couldn't capture market share. 
They have to be on the ground and have a local commercial 
presence to supply their service.
    So it is not off-shoring jobs from the United States, it is 
not that there are jobs that would otherwise exist in the 
United States. If anything, it is a job creator, and a creator 
of revenues that then come back to the United States.
    Mr. KELLY. Ms. Erickson.
    Ms. ERICKSON. Yes, I mean, for us it really is about the 
opportunity for NAFTA to be the model trade agreement of the 
future that really drives us into the 21st century.
    And at its base it is about three things. Certainly, 
simplifying the process for micro-businesses to ship their 
goods across borders.
    Secondarily, I think the digital trade components are 
extremely important to enable the platforms that enable those 
micro-businesses to grow and expand. And we are seeing many 
protectionist efforts to push back against those digital 
platforms like Etsy.
    And then, you know, we are very supportive of strong labor 
and environmental protections, as well. And so, for us, NAFTA 
represents an opportunity to modernize on all of those fronts.
    Mr. KELLY. Thank you.
    Mr. Perdue.
    Mr. PERDUE. I would just say that NAFTA has been good to 
agriculture, and we see NAFTA modernization as a template for 
market access and rules for future negotiations, and to improve 
agriculture trade with Japan and other Asia-Pacific countries 
in the future.
    Ms. HELPER. It falls to me, as the data wonk to talk about 
data. We have a data system that is set up for a very 
different, older world in which finished goods are largely what 
is exported. In fact, we have a lot of supply chains, we have a 
lot of related-party trade. In my written testimony I have some 
ideas about how we can use customs data. I think there can also 
be cooperation across the three countries to improve our 
understanding of how supply chains actually work to make supply 
chains less substitutes for each other and more complements.
    So I think the--in the agreement there can be cooperation, 
and then I think it would be helpful to have a little bit more 
budget for these very important data issues.
    Mr. KELLY. Okay. Thank you all for being here, and thanks 
for your contributions. We appreciate it. Thank you, I yield 
back.
    Chairman REICHERT. Mr. Meehan.
    Mr. MEEHAN. Thank you, Mr. Chairman. I thank the panel for 
their insights. And I have been educated in a number of the 
elements of the testimony.
    But Ms. Erickson, one that I am intrigued by was something 
that I don't think you have had a good-enough opportunity to 
explain. And I know under Etsy there is--there are some 
standards that have been changed, de minimi standards, which 
the United States seems to have moved towards a more modern 
approach to that issue. Also mindful of the opportunities that 
have been created by global access to the Internet.
    And as you have identified, small business people--often 
times, women entrepreneurs that manufacture something or create 
some kind of a good that is very, very unique. And the kind 
of--while it may be a niche market, it is able to be accessed 
anywhere. And therefore, everybody has a chance to shop at that 
store.
    And yet there seems to be barriers that have been put in 
place. Can you explain what de minimi means, how it influences 
the ability for small businesses like those you are talking 
about? And give me the example. I mean Canada and Mexico have 
taken different standards, but you identified a statistic, if I 
recollect correctly, that Canada's exports globally from 
similarly-situated small businesses are significantly higher 
than those from the United States. Why is that, and what do we 
need to do to get that right?
    Ms. ERICKSON. Absolutely. So the de minimi issue for us is 
huge, and it is basically the de minimi customs exemption is 
the value under which goods imported into a country are not 
subject to customs and duties and those processes.
    And so, if a good falls below that threshold, then it 
basically sails through, and you can ship it from your home to 
somebody else's home without friction. In the U.S., we recently 
increased our de minimi customs exemption to $800, meaning any 
item sent into the U.S., is it subject to those fees? That 
means it is very--most Etsy--goods from Etsy sellers, it is 
pretty easy to import into the U.S.
    However, in Canada in particular, the de minimi customs 
exemption is just 20 Canadian dollars, which is actually less 
than 20 U.S. dollars. And so that means that most goods that 
U.S. Etsy sellers are shipping into Canada do get stuck in 
customs. It takes longer for the item to get there. The buyer 
may have to pay import fees that they don't expect. So that 
creates friction, that transaction. It means that often a buyer 
will just send the item back, not pick it up, what have you.
    So, for us, increasing those thresholds really eliminates 
the challenge of having to figure out what the rules are, 
because the item just goes through.
    The statistics I gave you were about Etsy sellers in 
particular. And so, yes, Canadian Etsy sellers do ship quite a 
bit more internationally than U.S. Etsy sellers. That is, in 
part, probably due to the de minimi customs exemptions, and 
part due to the fact that our market in the U.S. is quite a bit 
larger with buyers and sellers.
    Mr. MEEHAN. What justification would Mexico or Canada give 
for having a lower number? How do they defend it?
    Ms. ERICKSON. I mean, I--you know, I can't speak for the 
Canadian or Mexican Government, but often it is a desire to 
protect local industries.
    Mr. MEEHAN. Well, I thank you, and I am hoping we can 
develop the kinds of policies that continue to encourage those 
global access.
    Ms. Bliss, you have also talked a lot about trade and 
services and how services themselves are entities that we 
export and create jobs here at home, but not exclusively. Those 
trade and services also end up supporting other kinds of 
things, like manufacturing and agriculture, some of the issues 
that we are dealing with on--across the border.
    I have an awful lot of--Michael and I both have dairy in 
our districts, and we face issues with export there. How do the 
trade services actually enhance the ability for manufactured 
goods or dairy goods or other kinds of farm goods to also have 
enhanced access to markets?
    Ms. BLISS. Thank you, Congressman. And I certainly 
appreciate your earlier remarks in this regard, because it is 
an area that CSI has really been focused on, because we 
understand that this Administration is very concerned, in 
particular, about the manufacturing sector.
    So one of the things that we have been doing is doing some 
work and research about the role of services in enhancing the 
competitiveness of manufacturing. And it is actually quite 
considerable. Anywhere from 25 to 49 percent of the value of 
the input in manufacturing is actually services. And if you 
look at the auto sector, it is roughly about 50 percent.
    And also, in terms of jobs, the--it is, again, a range of 
anywhere from 25 to 60 percent, depending on the particular 
product that is being manufactured.
    But to your point about how does it promote 
competitiveness, there are various ways along the chain, 
starting from the initiation of the production process. And it 
may be that it is an element of technology that has enhanced 
the production process itself. It may be that there is a 
technician, a service supplier that is there, that is 
implanting a sensor in the product.
    I think that might have been an example that you used, or a 
previous witness might have even used, when they are ultimately 
telematics. I think the Cummins witness referred to that. So 
there is a sensor implanted, and then there is a service 
supplier that is then reading the big data that is then 
generated, once that sensor is employed. And one perfect 
example of that are Boeing engines that have sensors to monitor 
their safety and operation.
    Mr. MEEHAN. I will look forward to your research in that 
space.
    Thank you, Mr. Chairman, I yield back.
    Chairman REICHERT. Thank you. And thank you for your 
answer.
    Mr. Holding.
    Mr. HOLDING. Thank you, Mr. Chairman. I am going to ask 
kind of a detailed question, Mr. Perdue, having to do with 
sanitary and phytosanitary measures.
    So I believe one of the most important negotiating 
objectives in TPA is--we put in there is to obtain enforceable 
WTO plus SPS obligations to hold other countries accountable 
for using biased and discriminatory standards to justify 
locking out U.S. agricultural products.
    And this can be valuable in the Canadian and Mexican 
markets, but these negotiations also are important to set high 
standards that we can use in future trade agreements with other 
countries.
    So, Mr. Perdue, I would like to know if you have some 
thoughts about would enforceable, high-standard, SPS 
commitments be valuable to the farmers and ranchers that you 
represent? And accordingly, other farmers and ranchers 
throughout the United States?
    Mr. PERDUE. In regards to that, the SPS would be a benefit 
to have the science-based regulations, as well as enforcement 
with Mexico, especially in the fruits and veggies. That is not 
my expert matter, but if we could have, you know, the 
enforcement of the regulations, I think we have heard that that 
is the important piece throughout today's testimony.
    Mr. HOLDING. Good. Thank you very much.
    Mr. Chairman, I yield back.
    Chairman REICHERT. Mr. Davis.
    Mr. DAVIS. Thank you, Mr. Chairman. And I also want to 
thank our witnesses for their indulgence and for being here 
with us.
    I certainly agree that globalization is a fact of life. And 
we must be strategically prepared to market successfully 
whatever products, whatever businesses that we have to other 
countries. And I also agree that our taxing policies have to be 
such that they are helpful and facilitative.
    I agree that NAFTA has been good to agriculture. And, of 
course, I come from a large, urban area. And people often ask 
me why I have so much concern about agriculture. One is that 
the U.S. agriculture sector, including food manufacturers, is 
deeply concerned about the potential erosion of benefits under 
NAFTA for an obvious reason: our farm and food sector exports 
more products to the world than we import from the world. And, 
of course, agriculture continues to produce and generate 
surplus with the rest of the world.
    Unfortunately, there are many food processors and candy 
makers in the area that I come from who cannot purchase sugar 
on the global market, and they have to purchase this domestic 
sugar. And we are allowing more sugar imports from Mexico and 
Canada and other places, which drives the cost of sugar up for 
our candy makers and food processors, which make them less 
competitive with others, other candy makers, for example.
    We have had several candy companies to actually move 
outside, or move away from Chicago, move away from the area 
because they just could not successfully compete. And so that 
is a concern that they have that is also a concern that I have.
    I know that NAFTA has produced winners and losers, any way 
we cut it, no matter what it is that we might say, no matter 
how we rationalize it. We know that there have been losers--
that is, industries, products. I can walk down the street and 
see vacant lots where there used to be garment makers that no 
longer exist in the area.
    Dr. Helper, I wanted to ask you. How do you think we can 
try and assure that we can balance the scales a little bit 
more, in terms of winners-winners, as opposed to winners-
losers?
    Ms. HELPER. Yes. I think the debate around NAFTA is often--
as Chairman--Ranking Member Pascrell said, between sort of pro-
free-trade people and isolationists. And I would challenge 
that.
    I mean I think if it was really free trade, NAFTA wouldn't 
need to be 2,000 pages long. And most of those 2,000 pages are 
actually protections for people who are--already have quite a 
lot of bargaining power. So we have the special courts for 
investors, we have a great deal of intellectual property 
rights, and very little protections for workers and 
environment. So, I think changing that, as has been discussed, 
would be really helpful.
    I think a second point, your sugar example, is also a 
supply chain example in the sense of if you protect part of a 
supply chain and not others--so you protect--or there is high 
tariffs on sugar, but not on the candy, you can run into 
trouble. And you can also see this, you know, where tariffs are 
very different on an upstream producer, versus a downstream 
producer. And so I think it is another reason why it is very 
important to think about supply chains, as a whole, so that, in 
our efforts to help one industry, we don't hurt other 
industries.
    I guess one last point. I think I would say that, you know, 
often we think about high-tech industries and low-tech 
industries. And we often think, oh, textiles, we can't possibly 
compete in textiles. Well, there is research going on at MIT, 
for example, saying textiles could be the new software. We 
could actually have embedded sensors in our clothing. If we 
have no clothing industry, it is going to be hard for us to 
take advantage of that market.
    So, I think thinking about how do we compete in these 
innovative, high-road ways, and how do we build that into our 
trade agreements is a really important agenda, and there is 
some great opportunity for us, going forward.
    Mr. DAVIS. Thank you for your indulgence, Mr. Chairman.
    Chairman REICHERT. You are welcome, Mr. Davis.
    Mr. Kind.
    Mr. KIND. Thank you, Mr. Chairman. I apologize for having 
to step out a little bit, but I really do appreciate the 
panel's testimony here today, your written and verbal. And I 
think it is important that we continue to have these 
conversations of where trade 2.0 should look like, and where we 
go from here.
    I know it has been a frustrating topic of conversation of 
late because all too often we sometimes let the perfect be the 
enemy of the good. And trade policy is complicated. There are a 
lot of different moving parts to it and that, and we are trying 
to strike the right balance to, again, try to level the playing 
field for our workers, businesses, farmers, ranchers, right 
here in this country, so that we can be more effective 
competing in the global marketplace. That is crucial.
    But sometimes trade and trade agreements get conflated. And 
the fact is we only have 20 trade agreements right now 
throughout the world. And of those 20 nations, we are actually 
running a trade surplus in manufacturing, in agriculture, in 
services. I believe it is the countries we don't have a trade 
agreement with that get us into trouble, because that is just a 
race to the bottom with no rules, no laws, no standards to 
enforce. And it is important for us to be at the table, 
establishing those rules with our values leading the way.
    And I want to get a little bit technical on--Mr. Ryan, I am 
looking at you, because I know you have been leaning in on this 
issue, as those of us from dairy country have been. But in the 
context of NAFTA renegotiation, of course we have got the 
ultra-filtered class pricing system up in Canada that is giving 
us some fits lately.
    And being from one of the dairy co-ops from the chairman's 
home state, I just wanted to get your perspective, since I have 
been trying to wrap my head around it, any possibilities of 
breakthrough with Canada when it comes to some of our dairy 
export opportunities there, just want leverage we ultimately 
have. Of course, they got a supply management system up there 
that they are trying to protect. They have been very protective 
with high tariffs when it comes to dairy exports. We are trying 
to address this ultra-filtered milk issue now that wasn't even 
around or addressed adequately during NAFTA.
    I mean, well, really, what is the path forward here? Is--do 
we have any leverage at all that we can use effectively in 
this?
    Mr. RYAN. Yes. Been looking for that leverage. Been looking 
for that path forward. I think, one, of making it a big issue, 
the bully pulpit that all of us can share in is one way.
    I think, two, it looks pretty clearly that it will be in 
violation of all their WTO commitments. The problem with that 
is that can take years to come through, and this is a real-life 
issue right now.
    So I believe there is--well, a whole number of other 
countries have stood up, saying it is in violation of WTO, 
agricultural ministers around the world. And so there is a 
collective body there, too. Getting change is another matter.
    I believe the leverage of the United States is ultimately 
one of the things, in a broader NAFTA negotiation, that the 
United States needs to stand up and say we are standing on this 
issue. You know it is going to be unwound eventually, through 
WTO. Do it right now, because it is right, and it is what good 
trading partners should do.
    It is the best I can think of. As far as other leverage, I 
am open ears.
    Mr. KIND. You know, I am sure Washington State is the same 
as Wisconsin. Canada is a very crucial and important trading 
partner. In fact, 60 percent of our exports are either going 
into the Canadian or Mexican market right now. So we don't want 
to jeopardize that. But then again, we need to be able to feel 
assured that whatever system we have is a fair and balanced 
one, one that does level the playing field. And right now we 
don't feel that that is happening, as it relates to Canada.
    And I have been one of those, you know, voices, being from 
agriculture country, trying to bring that perspective in our 
farm bill deliberations, that we got to be sensitive to our own 
WTO obligations, as well. And the title one subsidy programs 
sometimes puts us in that box, that counts against us. And we 
are trying to tee up another reauthorization of the farm bill, 
and I think it would be wise for us to be sensitive to our own 
trade obligations, globally. Otherwise, this can boomerang 
against us.
    I mean we are still frustrated with the problem we have 
with cotton subsidy and Brazil right now, who can level 
economic sanctions against us but for a $500 million bribe 
going to Brazilian cotton producers every year in order to keep 
them at bay. I mean this is how crazy our own farm policy has 
become in this country.
    So, you know, we look forward to working with you and 
others when it comes in the context of the next farm bill, that 
we are doing this in light of what this means for trade and our 
WTO obligations in that area, as well.
    Mr. RYAN. I fully agree.
    Mr. KIND. Yes. Thank you. Thank you all again. Thank you, 
Mr. Chairman.
    Chairman REICHERT. Thank you.
    Mr. Smith.
    Mr. SMITH OF NEBRASKA. Thank you, Mr. Chairman, for 
allowing me to participate here with the Trade Subcommittee, 
and certainly thank you to our entire panel, and especially our 
Nebraskan here today.
    As you have shared your insight and expertise, obviously, 
U.S. agriculture and NAFTA--I am repeating a lot of what has 
already been said, but U.S. agriculture has benefitted 
tremendously under NAFTA.
    And I was wondering, Mr. Perdue, if you could perhaps tell 
us what you think makes American agriculture so competitive 
that, you know, that we would want to--and have a product that 
is generally affordable and high quality that the rest of the 
world would want to buy. Can you tell us maybe what goes into 
that, from your perspective as a producer?
    Mr. PERDUE. I would say that we have some of the most 
passionate people about what they are doing in producing our 
food and fiber in this country. And not only are they 
passionate, they are efficient and take advantage of technology 
to grow and be more efficient all along that line.
    And you know, it is just that passion for high quality food 
that makes us want to be a trade partner, as we have seen in 
some recent trade deals, especially in Nebraska.
    Mr. SMITH OF NEBRASKA. Right, very good, thank you.
    I yield back, and thanks again, Mr. Chairman.
    Chairman REICHERT. Thank you, Mr. Smith.
    Well, thank you for your testimony, and I think this panel 
can walk away with the same good feelings that the first panel 
had in accomplishing, first of all, sharing your message and 
getting your information to all of us. And I can assure you 
that there were probably some people just down the street from 
us in USTR listening to your testimony and our comments, too.
    Secondly, another moment of bipartisanship in recognizing 
the expertise at the panel brought today. So I really want to 
thank you and assure you that what you have shared with us is 
important and will be considered as we move forward.
    As I have advised the previous panel, please note that the 
Members will have two weeks to submit written questions to be 
answered later, in writing. Those questions and your answers 
will be made a part of the formal hearing record. Our record 
will remain open until August 1st, and I urge interested 
parties to submit statements to inform the Committee's 
consideration of the issues that we have discussed today.
    The Committee stands adjourned.
    [Whereupon, at 1:14 p.m., the Subcommittee was adjourned.]
    [Member Questions for the Record follow:]
    
    
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