[Senate Hearing 115-412]
[From the U.S. Government Publishing Office]
S. Hrg. 115-412
MODERNIZATION OF THE NORTH AMERICAN
FREE TRADE AGREEMENT (NAFTA)
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL TRADE, CUSTOMS, AND GLOBAL
COMPETITIVENESS
OF THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
(San Antonio, TX)
__________
NOVEMBER 20, 2017
__________
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__________
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COMMITTEE ON FINANCE
ORRIN G. HATCH, Utah, Chairman
CHUCK GRASSLEY, Iowa RON WYDEN, Oregon
MIKE CRAPO, Idaho DEBBIE STABENOW, Michigan
PAT ROBERTS, Kansas MARIA CANTWELL, Washington
MICHAEL B. ENZI, Wyoming BILL NELSON, Florida
JOHN CORNYN, Texas ROBERT MENENDEZ, New Jersey
JOHN THUNE, South Dakota THOMAS R. CARPER, Delaware
RICHARD BURR, North Carolina BENJAMIN L. CARDIN, Maryland
JOHNNY ISAKSON, Georgia SHERROD BROWN, Ohio
ROB PORTMAN, Ohio MICHAEL F. BENNET, Colorado
PATRICK J. TOOMEY, Pennsylvania ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada MARK R. WARNER, Virginia
TIM SCOTT, South Carolina CLAIRE McCASKILL, Missouri
BILL CASSIDY, Louisiana
A. Jay Khosla, Staff Director
Joshua Sheinkman, Democratic Staff Director
______
Subcommittee on International Trade,
Customs, and Global Competitiveness
JOHN CORNYN, Texas, Chairman
CHUCK GRASSLEY, Iowa ROBERT P. CASEY, Jr., Pennsylvania
PAT ROBERTS, Kansas DEBBIE STABENOW, Michigan
JOHNNY ISAKSON, Georgia BILL NELSON, Florida
JOHN THUNE, South Dakota CLAIRE McCASKILL, Missouri
DEAN HELLER, Nevada
(ii)
C O N T E N T S
----------
OPENING STATEMENTS
Page
Cornyn, Hon. John, a U.S. Senator from Texas, chairman,
Subcommittee on International Trade, Customs, and Global
Competitiveness, Committee on Finance.......................... 1
ADMINISTRATION WITNESS
Vaughn, Stephen P., General Counsel, United States Trade
Representative, Executive Office of the President, Washington,
DC............................................................. 2
WITNESSES
Bainwol, Mitch, CEO and president, Alliance of Automobile
Manufacturers, Washington, DC.................................. 8
Avila, Paola, chair, Border Trade Alliance, San Diego, CA........ 11
Perez, Richard, president and CEO, San Antonio Chamber of
Commerce, San Antonio, TX...................................... 13
Moseley, Jeff, chief executive officer, Texas Association of
Businesses, Austin, TX......................................... 15
Boening, Russell, president, Texas Farm Bureau, Waco, TX......... 18
Staples, Hon. Todd, president, Texas Oil and Gas Association,
Austin, TX..................................................... 19
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Avila, Paola:
Testimony.................................................... 11
Prepared statement........................................... 29
Bainwol, Mitch:
Testimony.................................................... 8
Prepared statement........................................... 34
Boening, Russell:
Testimony.................................................... 18
Prepared statement........................................... 37
Cornyn, Hon. John:
Opening statement............................................ 1
Moseley, Jeff:
Testimony.................................................... 15
Prepared statement........................................... 38
Perez, Richard:
Testimony.................................................... 13
Prepared statement........................................... 41
Staples, Hon. Todd:
Testimony.................................................... 19
Prepared statement........................................... 43
Vaughn, Stephen P.:
Testimony.................................................... 2
Prepared statement........................................... 44
Communications
Free Trade Alliance San Antonio.................................. 47
City of Laredo, TX............................................... 49
City of San Diego, CA............................................ 64
Texas Border Coalition........................................... 65
MODERNIZATION OF THE NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)
----------
MONDAY, NOVEMBER 20, 2017
U.S. Senate,
Subcommittee on International Trade,
Customs, and Global Competitiveness,
Committee on Finance,
San Antonio, TX.
The hearing was convened, pursuant to notice, at 9:33 a.m.,
at the San Antonio Marriott Plaza Hotel, Cavalier Meeting Room,
555 South Alamo Street, San Antonio, TX, Hon. John Cornyn
(chairman of the subcommittee) presiding.
Also present: Joshua LeVasseur, Chief Clerk and Historian;
and Athena Schritz, Hearing Clerk.
OPENING STATEMENT OF HON. JOHN CORNYN, A U.S. SENATOR FROM
TEXAS, CHAIRMAN, SUBCOMMITTEE ON INTERNATIONAL TRADE, CUSTOMS,
AND GLOBAL COMPETITIVENESS, COMMITTEE ON FINANCE
Senator Cornyn. We will call the field hearing to order.
This is, of course, a field hearing of the Senate Trade
Subcommittee of the Senate Finance Committee. I am grateful to
Chairman Hatch for allowing us to do this today, given the
importance of this topic to Texas and particularly to San
Antonio.
I am grateful to all the witnesses for sharing their views
on this topic. Of course, as the Mayor indicated, San Antonio
is near and dear to my heart for many reasons. I am thrilled to
be here today at the exact same location where, 24 years ago,
the original North American Free Trade Agreement was signed.
Our topic is the modernization of NAFTA, and today is a
very fitting time to hold this hearing, for the reason I
mentioned. International trade is an issue that is particularly
timely, as negotiations on updating NAFTA have been underway
since August of this year, and the fifth round of negotiations
is taking place in Mexico City as we speak.
It is my hope that Mr. Vaughn, our first witness, who is
the General Counsel to the U.S. Trade Representative, will be
able to provide us with an update on where things stand.
We will also later hear from a second panel of witnesses
who have a direct stake in the outcome of these negotiations,
people whose businesses and livelihoods depend on NAFTA and the
many benefits it provides.
But before we launch into a nuanced discussion about ways
to modernize the agreement, I must acknowledge the surge in our
Nation's economy since NAFTA's enactment. The positive economic
impact of the current agreement is no secret to the folks here
in this room or to the citizens of Texas. The numbers speak for
themselves.
For more than a decade, Texas has led the Nation in
exports, with farmers, ranchers, and manufacturers in our State
exporting more than $230 billion worth of goods around the
globe. More than 8 million U.S. jobs depend on trade with
Canada today. More than 5 million U.S. jobs depend on U.S.
trade with Mexico. U.S. food and agricultural exports to both
our northern and southern neighbors have grown from $9 billion
in 1993 to nearly $40 billion in 2015. Texas exports in
service-related industries have increased more than $55
million, an 80-percent increase, since 2006.
The data is staggering, and the verdict is clear. NAFTA, by
and large, has worked as intended. NAFTA's impact on the State
of Texas has been overwhelmingly positive for both our economy
and security.
Now, it is true, there are parts of the original agreement
that should be updated to reflect our new modern, digital
economy and certainly the change in our energy situation,
where, as many have pointed out, the Eagle Ford shale does not
stop at the Rio Grande. And with Mexico opening up that country
to foreign direct investment in the energy industry, we can
expect Mexico to become an energy supplier and exporter in the
future.
But my message to negotiators and the White House has been
consistent when it comes to the modernization of NAFTA, and
that is to first do no harm. So much is at stake, and I
recognize our negotiators can find common ground to strengthen
and improve this agreement for the benefit of Texas and all
three nations.
So let me just take a moment to introduce the lone witness
on the first panel we have today, who is Mr. Stephen P. Vaughn.
Mr. Vaughn currently serves as the General Counsel to the U.S.
Trade Representative. In this capacity, he advises the USTR on
all legal and enforcement matters.
Mr. Vaughn, thank you for being here today and agreeing to
provide testimony. I would ask that your verbal testimony be
limited to 5 minutes in length, and then we will have a few
questions for you.
So please proceed with your opening statement.
STATEMENT OF STEPHEN P. VAUGHN, GENERAL COUNSEL, UNITED STATES
TRADE REPRESENTATIVE, EXECUTIVE OFFICE OF THE PRESIDENT,
WASHINGTON, DC
Mr. Vaughn. Good morning. My name is Stephen Vaughn, and I
am the General Counsel of the Office of the U.S. Trade
Representative. It is great to be here in Texas and
specifically in San Antonio, where leaders from the United
States, Canada, and Mexico signed the original NAFTA 25 years
ago. Texas is our largest exporting State, and Mexico is
Texas's largest export market.
We are confident a new NAFTA will create new opportunities
for Texans. I am grateful for the opportunity to testify about
USTR's efforts to upgrade and improve NAFTA for all Americans.
Before taking questions, I would like to emphasize a few
key points.
It is important to understand that all of us at USTR, led
by Ambassador Lighthizer, are focused on getting a new
agreement. We are both aware of and have concern for those
Americans who benefit from NAFTA 1.0. We have heard from many
Americans, including many in the agriculture sector and from
border States like Texas, who are very concerned about the
future of NAFTA.
We share those concerns, which is why we have moved at
unprecedented speed to press for a new and improved agreement.
Since August, we have had five separate rounds of
negotiations, an unheard-of pace for major trade talks. At this
moment, there are hundreds of U.S. officials from agencies
throughout the government in Mexico City negotiating with their
counterparts from Mexico and Canada. And this is only part of
our ongoing effort.
We at USTR have reviewed more than 12,000 public comments
on NAFTA 2.0. Since August 16th, Ambassador Lighthizer and USTR
staff have met personally with dozens of members of Congress,
spending more than 700 hours discussing NAFTA with
congressional members and staff during that time.
Furthermore, throughout this process, we have held
extensive consultations with members of the private sector,
labor representatives, ranchers, farmers, and leaders of the
NGO community. There have been dozens of scheduled briefings to
advisory committees, hundreds of hours of stakeholder
consultations, and a continuing open-door policy.
All of this work was undertaken to comply with
congressional rules, build support for NAFTA 2.0, and ensure a
seamless transition to a new agreement.
As you know, it is very unusual to attempt a major trade
negotiation at this pace. But we are doing it, in large part
because we want to eliminate uncertainty and resolve concerns
about NAFTA as quickly as possible.
At the same time, I must emphasize that Ambassador
Lighthizer agrees strongly with the President's view that the
current version of NAFTA is a bad deal for America. Of course,
there are Americans who benefit from NAFTA, and we want to
avoid harming them. But USTR must look at trade deals from the
perspective of the country as a whole. And from that
perspective, there are serious problems with NAFTA. Let me just
mention two.
First, NAFTA is outdated. It went into effect on January 1,
1994, before most Americans had even heard of the Internet.
NAFTA lacks the type of provisions on labor standards, the
environment, intellectual property, State-owned enterprises, or
digital trade that Americans now expect in deals of this kind.
To address these problems, Ambassador Lighthizer has put
forward extensive proposals to upgrade and modernize NAFTA.
Second, NAFTA is unbalanced. We do enormous volumes of
trade with countries like Japan, the United Kingdom, Germany,
and China pursuant to WTO rules, even in the absence of a
specific free trade agreement with those countries. Against
this background, the purpose of an agreement like NAFTA is to
create special rules, to give certain countries unique access
to this market, access that other countries lack. In exchange,
of course, we expect those countries to give American workers,
farmers, ranchers, and businesses comparable access to their
home markets.
In the last 10 years, our trade deficit in goods and
services with Mexico has exceeded $500 billion. Our trade
deficit in goods and services with Canada over the same period
was more than $100 billion. Together, that is a difference of
more than $600 billion in the last decade. And if we looked at
trade in goods alone, that difference would be almost $1
trillion.
The President and Ambassador Lighthizer are both very
concerned that these enormous deficits do not represent the
type of fair and reciprocal relationship that should exist when
the United States gives special privileges to another country.
Accordingly, they believe that NAFTA must be changed to give
American workers a fairer chance to compete.
Again, we have put forward a number of proposals designed
to create a more level playing field.
We do not expect these negotiations to be easy. For a very
long time, our NAFTA partners have enjoyed an agreement that is
tilted in their favor. They do not want to give up that
advantage, and we can understand why they feel that way.
But our job at USTR is to represent the people of this
country, and they deserve a better deal. We intend to do
everything possible to get it for them.
I want to thank Chairman Cornyn for hosting this field
hearing and for giving me the opportunity to testify. I am
happy to answer any questions.
[The prepared statement of Mr. Vaughn appears in the
appendix.]
Senator Cornyn. Thank you, Mr. Vaughn.
I do have a few questions for you. I believe we have talked
a little bit about the role of trade deficits, and you, I
think, have explained to me that trade deficits are not
necessarily the target. You think they are really a symptom of
other problems, if I understood you correctly. But clearly, the
President has said the United States has trade deficits with
many countries, and we cannot allow that to continue.
Can you explain?
Mr. Vaughn. Thank you very much.
Yes, I think that one of the things that we look at, at
USTR, when we analyze the trade deficit is, a lot of times the
trade deficit is a symptom of underlying problems where markets
are being interfered with in ways that are not working
properly.
So when we see a trade deficit with another country or with
the world that goes on for years and years, our concern is that
that represents underlying market-distorting practices, maybe
subsidies, maybe restrictions on U.S. exports, maybe things
having to do with currency issues. That means that markets are
not working the way they should. And that is one of the reasons
I think you see the administration talking about trade
deficits.
Senator Cornyn. NAFTA was interesting, and I do not know if
unique, where you had two highly developed countries, Canada
and the United States, entering into a trade agreement with a
less developed country. Do you think that might be one reason
for the trade deficits? Or are you looking for other issues?
Mr. Vaughn. What we are thinking about is--one of the
things that we want to do, for example, is we want to make sure
that we have strong enforcement of our antidumping and
countervailing duty laws. That will give us more of an
opportunity to push back against examples of unfair trade.
Another thing that we are looking to do, as I think you
referenced in your opening statement, is we want to update the
NAFTA to cover things like international property, to have
fairer labor and environmental standards, to have more
opportunities for Americans to compete in the world of digital
trade. We have made a lot of progress on a new chapter on small
and medium enterprises that we think will give American small
businesses more of an opportunity to compete in Mexico.
So what we are looking for here is to rebalance this deal
in ways that will not hurt anybody but will simply lead to more
market-based competition.
Senator Cornyn. Let's talk a bit about the role of the
executive branch and the role of Congress. As you know,
Congress passed Trade Promotion Authority and delegated to the
executive branch the ability to negotiate, subject to certain
parameters. But then once NAFTA 2.0 is concluded, those
negotiations are concluded, under the Trade Promotion
Authority, that has to come back to Congress to be approved.
I will tell you that trade has gotten a bad name in some
quarters, and it has become politically controversial. As I
recall, when we passed Trade Promotion Authority, there were 13
Democrats who voted for it, and that is when President Obama
was President, and 47 Republicans voted for it. So it was an
interesting coalition, but one that I think reflects challenges
in both political parties with making the point that trade
actually is a positive.
So can you maybe talk us through a little bit of, once the
negotiations are concluded by the U.S. Trade Representative,
what is the process going to be for you in dealing with
Congress and getting NAFTA 2.0 approved by the Congress?
Mr. Vaughn. Well, as you know, Senator, to begin with, from
the beginning of the administration, we have been very
concerned about complying with provisions of Trade Promotion
Authority. Even before we began the negotiations, I know that
Ambassador Lighthizer testified before the Senate Finance
Committee as part of his confirmation hearing. After that, he
had consultations with your committee, with the Ways and Means
Committee, with the House advisory group on negotiations, with
the Senate advisory group on negotiations. And it was only
after that, in May, that we originally sent up the letter
advising Congress that, within 90 days, we would begin these
negotiations.
Since that time, we have continued to work very closely
with you and your staff and everyone up on the Hill to make
sure that we are doing everything we can to comply with the
provisions of TPA.
If agreement is reached, we will, of course, continue to
comply. We intend to continue to comply with TPA. We would work
with your committee and the other committees to make sure that
the final text was submitted to the Congress. And then, as you
know, of course, under the provisions of TPA, the two houses
would have a chance to do an up-or-down vote on the new treaty.
So we believe this is a hugely important part of the
process. It is something that Ambassador Lighthizer is
personally focused on a great deal, and it drives a lot of what
we are doing in these negotiations.
Senator Cornyn. Thank you.
I know we will hear more about this from Mr. Bainwol with
the Alliance of Automobile Manufacturers, but, as you know, the
United States and Mexico have kind of a unique relationship
when it comes to the supply chain for automobile manufacturers.
I would like for you to just touch on the rules-of-origin
discussion that is occurring.
The original NAFTA provision required a regional content
value of 62.5 percent in order to qualify for preferential
treatment, but there is some discussion in news reports about
whether that threshold might be increased and the reasons for
that. Could you please explain?
Mr. Vaughn. Yes. Obviously, as I indicated in my testimony,
what we are thinking about here in terms of the North American
Free Trade Agreement is a special set of rules that will act
outside the normal rules that the United States has with other
countries. In other words, if you have a free trade agreement,
you are not subject to the usual tariffs and other procedures
that other countries would be subject to. That allows for the
type of supply chains that you are talking about.
One of the concerns that we have had at USTR is this is an
area, first of all, where the trade is particularly unbalanced.
The trade deficit in autos and auto parts with Mexico is quite
significant.
So one of the things that we have been focused on with
respect to the rules of origin is, can we make sure that if a
car or a truck is a NAFTA car or a NAFTA truck and, therefore,
claims the special privileges of NAFTA--this would only come
into effect if you want to claim the special privileges of
NAFTA--are we making sure that the U.S. is getting enough
benefit out of that production to justify those special
privileges?
That is really what we are trying to do in the rules of
origin. Obviously, that is one of the issues that is under
negotiation, but that is our goal.
Senator Cornyn. I mentioned the transformation of the
energy sector both here in the United States and now also in
Mexico. When NAFTA went into effect, the energy sector in
Mexico was closed to foreign investment, but that has all
changed now for the first time in 100 years.
Texas's and the United States' strength in energy
production has positioned its companies to meet Mexico's
technical expertise and capital needs to modernize their energy
sector. In fact, the energy trade with Mexico supports 9.8
million jobs in the United States, equating to 8 percent of the
U.S. economy, and this has provided the United States and North
America as a whole with the tremendous opportunity to achieve
North American energy independence, something that I think
would be laudable.
Does the U.S. Trade Representative agree that codifying
Mexico's energy reform should be a priority in the updated
NAFTA agreement?
Mr. Vaughn. Senator, as you know, one of the things that we
are required to do under the Trade Promotion Authority is to
explain our objectives in the NAFTA negotiation. On Friday, we
issued updated negotiating objectives.
In that document, we have an objective on energy, and it
says, ``Preserve and strengthen investment, market access, and
state-owned enterprise disciplines, benefitting energy
production and transmission, and support North American energy
security and independence, while promoting continuing energy
market-opening reforms.''
So that is one of our priorities.
Senator Cornyn. Thank you very much.
One of the other things that has caused some questions is
some discussion about a sunset of the NAFTA agreement that
would see, for example, NAFTA expire 5 years after its
enactment unless the U.S., Mexico, and Canada agreed to extend
it. Can you elaborate on why the U.S. Trade Representative is
seeking a provision that would sunset the agreement?
Mr. Vaughn. I think one of the things that we want to avoid
going forward is another situation like what we are in now,
where we have an agreement that is somewhat out of date. It has
not been updated in the way it should. One of the things that I
think the process shows is that it takes a fair amount of
political pressure in order to get nations to come together and
work on these agreements.
What we would hope to do with this performance review
provision is to ensure that every so often we are analyzing the
provision and updating the provision to make sure that it is
working in the way that it was intended.
In fact, the way we described this in our negotiating
objectives, which we released on Friday, was, ``provide a
mechanism for ensuring that the parties assess the benefits of
the agreement on a periodic basis.'' That is really what we are
focused on here.
Senator Cornyn. It would seem to me that free trade
agreements like NAFTA have a protection in place, the same
protection you are trying to achieve by a sunset provision, and
that is, under current free trade agreements like NAFTA, any
one party can initiate a renegotiation at any time.
Are there other ways, other than a sunset provision, that
you think you might be able to use to achieve the same goal
without creating more uncertainty?
Mr. Vaughn. Well, obviously, I am not sure exactly what
counterproposals we might see from the other side, so I do not
want to get into too much of the details of this. But I would
say, from our perspective, we anticipate--we are hopeful that
the new agreement will be successful, and that it will be
popular, and that it will be approved. Then hopefully, when
people come to the time to review the agreement and see how it
has performed, there will be widespread understanding that the
agreement is working and maybe we need to update this or that
thing.
But that would be the hope and that would be the goal. I
think another benefit of this approach would be that it would
put pressure on all the countries to make sure that they were
in full compliance with the agreement and that the agreement
was working as intended.
So that is our goal here. It is really to make the
agreement work better and to give the American people more
confidence that the agreement is working as intended.
Senator Cornyn. Mr. Vaughn, thank you very much for being
here with us today. Give my thanks to Ambassador Lighthizer for
allowing you to come represent the U.S. Trade Representative.
That concludes our first panel. Now we will bring in the
second panel of witnesses.
Thank you once again.
Mr. Vaughn. Thank you. Let me just say, obviously on behalf
of Ambassador Lighthizer, we appreciate all the work that you
and the Senate Finance Committee are doing on this and on other
issues, and that I am very much looking forward to hearing the
next panel. Thank you.
Senator Cornyn. Good. Thank you.
The committee will come back to order. I think the audience
can see how exciting Senate committee hearings typically are,
but now we expect some fireworks from this next panel.
Let me take a few minutes to introduce the next panel of
witnesses.
The first witness is Mitch Bainwol. Mr. Bainwol is
president and chief executive officer of the Alliance of
Automobile Manufacturers.
Our second witness is Ms. Paola Avila. Ms. Avila is chair
of the Board of Trade Alliance and also serves as vice
president of the San Diego Chamber of Commerce.
Our third witness is Richard Perez. Mr. Perez is president
and chief executive officer for the San Antonio Chamber of
Commerce.
Our fourth witness is Mr. Jeff Moseley, who is chief
executive officer for the Texas Association of Business.
Mr. Russell Boening is our next witness. He is president of
the Texas Farm Bureau.
And our last witness on panel 2 is Mr. Todd Staples, who is
president of the Texas Oil and Gas Association.
I am grateful to each of you for being here today and
hoping to illuminate the concerns that you have and that we all
have about this very important negotiation.
I would ask that your initial testimony please be limited
to 5 minutes, and then we will have plenty of time for more
questions and answers.
So, Mr. Bainwol, please proceed with your opening
statement.
STATEMENT OF MITCH BAINWOL, CEO AND PRESIDENT, ALLIANCE OF
AUTOMOBILE MANUFACTURERS, WASHINGTON, DC
Mr. Bainwol. Thank you, Senator Cornyn. I appreciate the
chance to come back to San Antonio. The last time I was here
was 1998 for the Final Four.
Senator Cornyn. It's about time. [Laughter.]
Mr. Bainwol. Things have changed.
But I was in Austin and Houston earlier this week. I am
delighted to be here. Thank you very much.
I am going to walk through a PowerPoint, and to those of
you in the audience, I apologize it is not on-screen, but I
will try to make it vivid.
So I do run the Alliance of Automobile Manufacturers. We
are 12 members, about 75 percent of the market. Nine of our 12
members have facilities in Texas. There are about a half-
million auto-related employment jobs in Texas, so it matters a
great deal. We have two plants in Texas, one of which,
obviously, resulted after NAFTA.
I am going to run through some historical data just to set
the context, because I think the fact pattern is important and
helps us understand what the right next steps should be.
We are coming on the heels of 7 straight years of growth.
If you look at 7 years of growth, 2010 through 2016, what you
see is, we are a cyclical industry. We go up, and we go down.
We have had 7 years in a row post-Lehman. So that is the good
news.
The bad news is, we seem to have hit the top of the peak.
The next slide shows, from January through September, the year-
over-year sales for the last 5 years. What you see is, from
2016 to 2017, cars are down 11 percent, trucks up 3. Net-net,
we are down 3. We are up 10 percent over the 5-year period. But
last year, year-over-year, we are down 3.
So we are beginning to soften, and this discussion takes
place at a time when we face some risk in the marketplace.
If you look at the next slide, the global marketplace, that
is from 1950 to 2015. What you see is, growth in the
marketplace is profound globally, but it has not happened in
the U.S. It is happening in China and other non-mature markets.
The next slide, global companies doing global business,
drives the point that there are essentially three significant
global hubs for production. You have the North American global
hub. You have the European global hub. And you have the Asian
global hub. All of them have low-cost drivers that enable them
to be more competitive.
The next slide, the way we were pre-NAFTA, shows that, in
the year before NAFTA, we produced 10.8 million vehicles in the
United States. And you can see on the slide the distribution of
plants, U.S. manufacturers, European manufacturers, Asian
manufacturers.
The slide afterward shows the way we are, and you see a
significant increase in the number of plants, particularly by
those who chose to invest in the U.S. since NAFTA. We are now
producing 12.2 million, so we are up more than a million units
post-NAFTA.
If you just look at the question of plant openings since
NAFTA, there have been 26 that have come online since NAFTA, 14
in the U.S., 11 in Mexico, one in Canada.
Parenthetically, I would say my first experience in this
industry was to go to the Toyota opening in Tupelo, MS of a
plant. And what that does to a community is just overwhelming.
This was in an economically challenged area of Mississippi, and
the folks were crying. It represented a multigenerational
opportunity for employment. So the plant openings are huge.
And in the NAFTA time period, we have done quite well.
Fourteen plants--significant. Two more are on the way. Volvo
has obviously broken ground in South Carolina, and Toyota and
Mazda both will be investing shortly.
We have more plants in the U.S., but we have less world
access. Mexico has free trade agreements with a number of
countries that give them access to 47 percent of the world, in
terms of auto purchasers. We have access to 9 percent. So I
would briefly suggest that the challenge we face is not one of
too much free trade but perhaps not enough.
The broad industry consensus indicates that the alliance,
the group that represents just the American manufacturers, the
group that represents primarily Asian manufacturers, dealers,
the suppliers, the Chamber, and NAM are all united with some
core points. And they are: (1) NAFTA has not been perfect, but
it has absolutely been a success; (2) it ought to be updated
and modernized; and (3) rules of origin strike an effective
balance, enough to induce the use of regional content but still
maintain competitiveness.
Adding costs will not increase U.S. manufacturing. Adding
costs will reduce U.S. manufacturing. If we want stronger U.S.
manufacturing, we need to reduce friction, reduce costs in a
global marketplace. And reform has market and behavioral
implications. The knee bone is connected to the ankle bone. You
cannot change one thing and not effect a marketplace reaction.
A few more points. The Chamber came out just a few days
ago, the U.S. Chamber, with a study of how different States
would be affected. I think Texas was number four in terms of
impact in a negative way. It would take a huge blow if the U.S.
withdraws from NAFTA. Texas has half of its exports destined
for the NAFTA market. Nearly a million jobs are at risk.
The Peterson Institute said that Mexican investments are
good for the U.S. When there is an investment in Mexico because
of the supply relationships, that produces employment and value
in the U.S.
The suppliers have been very, very active. I represent the
OEMs, but the suppliers themselves are adamant about the power
and value of NAFTA. They say that leaving NAFTA would result,
on the suppliers' side, in 25,000 to 50,000 fewer jobs.
There was an analysis not long ago by the Commerce
Department that talked about content and value added in
vehicles produced in Mexico. We found that analysis deeply
flawed. It provided the argument that you ought to go with
higher rules of content, but the analysis was through 2011, and
in the middle of the recovery. And we believe,
methodologically, it had some challenges.
So the content level, we believe, has been fairly steady in
the high 30s.
So to strengthen and update NAFTA, we would suggest
maintaining the current rules of origin and then modernizing.
There are lots of things you can do: definitely improve
regulatory cooperation; formally recognize the U.S. standards;
facilitate trade flow by modernizing Customs; enable cross-
border data flows; and improve the labor and environmental
standards, as was indicated. And more free trade means more
market access.
I will make two more points, and I will conclude.
The first is, this last week, 70 members, and I think 14
from Texas, in the House, the other chamber, sent a letter to
Ambassador Lighthizer making the point that NAFTA has led to
increased vehicle production, as it has, and that NAFTA should
be updated to help our companies better address the challenges
of the 21st century. The North American supply chain that NAFTA
helped create is essential to the success of American
companies, and the public agrees.
My last slide shows that, in a survey of adults, the
question was: should we renegotiate, modernize, revoke
entirely, or leave as is? A lot of folks did not have an
opinion, 34 percent. But of the 66 percent who did, 40 percent
said renegotiate, modernize; 15 percent said leave as is; 11,
revoke entirely.
So the public opinion is clearly consistent with that
expressed in the letter by the members of the House and by the
statement you made earlier to kick off the hearing.
So thank you, sir.
[The prepared statement of Mr. Bainwol appears in the
appendix.]
Senator Cornyn. Thank you, Mr. Bainwol.
Ms. Avila?
STATEMENT OF PAOLA AVILA, CHAIR, BORDER TRADE ALLIANCE, SAN
DIEGO, CA
Ms. Avila. Thank you, Chairman Cornyn.
I wanted to, first of all, start off by saying hello to
Ambassador Reyna Torres, the Ambassador representing the
Mexican consulate here in San Antonio. You did serve some time
in California, and being from California, I have to recognize
you. It is nice to see you today.
Chairman Cornyn, my name is Paola Avila. I am vice
president of the San Diego Regional Chamber of Commerce, but
today I am testifying in my role as chair of the Border Trade
Alliance, an organization that for the last 30 years has been a
leading advocate for policies that help support and promote
cross-border commerce and increased security, which is believed
to be essential to North America's competitive standing.
We appreciate the opportunity to testify here today and
provide our collective insight on the importance of the North
American Free Trade Agreement. I have submitted a more in-depth
written testimony for the record.
The importance of this meeting anniversary has been
mentioned a couple times today. At the ceremony that day,
President Bush marveled at the impact of trade on Texas. He
boasted Texas export strength that day, which at that time
totaled $47 billion. Today, that figure stands at over $230
billion, with $90 billion of that value destined for Mexico.
Even trade skeptics would acknowledge that this level of
trade growth is remarkable. For Texas and, indeed, the United
States, trade generally and NAFTA specifically mean jobs--for
Texas, more than 380,000 jobs that depend on Mexico alone.
In San Diego, I have seen the impact that trade has had on
the region's competitiveness, where trade supports more than
110,000 jobs.
This type of economic integration is not limited to just
the U.S.-Mexico border. Our northern border friends benefit as
well. Michigan's number one export market is Canada, followed
by Mexico. Their top import market? Mexico. Michigan's exports
account for 7.4 percent of its gross State product, which
leaves the State uniquely exposed if the agreement were
unwound.
So you see, for the constituency of the Border Trade
Alliance, NAFTA is not a ``nice to have.'' It is a ``must
have.'' It is the essential trade agreement that has enhanced
prosperity not only in the United States but throughout the
continent, making North America the world's most competitive
region.
This is why we have urged the administration to be guided
by the following principal in approaching renegotiation: do no
harm. Too much is at stake where the outcome could be a
renegotiation that delivers self-inflicted economic harm.
Let me give you a practical example of how NAFTA is
impacting everyday Americans. If you have not already done so,
many of you will soon be heading to the grocery store to shop
for ingredients for Thanksgiving celebration. Because of
trade's increasingly sophisticated cross-border supply chains,
when the winter chill hits the United States, Americans can
count on produce imports from Mexico to fill our store shelves
with a breadth of variety and freshness that could not have
been predicted just decades ago.
The nearly 25-year-old agreement's contribution to this
broader consumer choice is significant. Consumers win with the
variety and lower prices made possible by trade, resulting in
approximately $10,000 of savings per year for the average
American household of four.
And communities like Pharr in the Rio Grande Valley win as
well. The port there has seen the importation of produce
skyrocket, dramatically cutting shipping costs to the U.S.
Midwest and east coast, contributing to one in seven Texas jobs
that are connected to agriculture, and fueling growth in
warehouses, brokerages, and freight-related jobs.
While we are proponents of NAFTA, it does not mean we ought
to be satisfied with the status quo. An agreement that came
into force in the dial-up age ought to be updated to reflect
the broadband economy.
The BTA has taken particular interest in the cargo
inspection process at our Nation's borders. We believe that
inspections can be done more securely and efficiency than they
are today. A NAFTA renegotiation presents an opportunity to
modernize the inspection process between all three partner
countries.
We also believe that a modernized NAFTA presents an
opportunity for greater cooperation on infrastructure, ensuring
that shipping delays do not result from facilities that are not
outfitted to meet the demands of today's trade volumes.
We also believe that greater cooperation on environmental
infrastructure can be reflected in a new NAFTA.
In San Diego, we have been struggling with the impacts of
northward flow of sewage from Mexico, something we believe can
be avoided in the future through improved binational
collaboration.
I will conclude my remarks here, Mr. Chairman, and I
welcome any questions that you may have. And I appreciate,
again, the opportunity to testify today.
[The prepared statement of Ms. Avila appears in the
appendix.]
Senator Cornyn. Thank you, Ms. Avila.
Listening to your testimony reminded me of the fact that,
during the recent recovery from the Great Recession of 2008, if
you did not have the GDP, the growth generated by Texas alone,
the rest of the country would have been in a recession for much
longer.
So, while some people might say that the benefits of NAFTA
perhaps disproportionately benefit certain States and certain
regions, I think that bears further examination. But even if
that is true, why would you want to harm the economy of the
leading exporting State in the country by failing to
renegotiate and modernize NAFTA?
So I just think it is a point that is important to make,
because that certainly affects the entire national economy
mission.
Mr. Perez, please, let's hear from you on your opening
statement.
STATEMENT OF RICHARD PEREZ, PRESIDENT AND CEO,
SAN ANTONIO CHAMBER OF COMMERCE, SAN ANTONIO, TX
Mr. Perez. Thank you, Senator. We appreciate you being here
today and bringing this august group here.
I am Richard Perez, president and CEO of the San Antonio
Chamber of Commerce.
Since 1894, the San Antonio Chamber has advocated for the
interests of its more than 2,100 different businesses. San
Antonio has a rich history with NAFTA, beginning with the
initialing of the historic agreement here years ago. The impact
of NAFTA, however, is far more than ceremonial, and it affects
companies of all sizes in this community and this region.
As the seventh largest city in America, and with
projections of continued growth over the next 20 years, San
Antonio is a hub of growing industries like health care and
biosciences, information technology, cybersecurity, energy, and
advanced manufacturing. It is a thoroughfare of international
trade with four of six major rail gateways in this State.
Our community has benefitted greatly from NAFTA. As we look
to the future, the uncertainty surrounding the upcoming
renegotiation has had a chilling effect on growth and new
investment throughout the region, putting our existing record
of prosperity in doubt.
The Chamber would, therefore, like to offer several areas
where the vital agreement should be strengthened and
modernized.
I will begin with energy. The continued integration of the
U.S. and Mexican energy markets is beneficial to both nations
but requires regulatory certainty, both within and across
borders, to function effectively. With such certainty, we know
the economic growth and investment that follows.
For example, as a direct result of the 2013 Mexican energy
reform and the free flow of hydrocarbons allowed under NAFTA,
San Antonio-based Howard Energy will be investing in projects
totaling more than $1 billion over the next 5 years in northern
Mexico and South Texas. These projects will create more than
950 temporary construction jobs and 22 permanent jobs. They
will generate almost $1.5 million in local property taxes and
$230 million per year in direct economic value. None of this
includes NAFTA's indirect and implied effects on creating new
markets for American producers.
In the area of automotive, NAFTA contains the strictest
automotive rules of origin requirements of any U.S. free trade
agreement at 62.5 percent. Any changes to the rules of origin
could jeopardize our current production and lead to unintended
consequences.
The year before NAFTA became law, Toyota had two plants in
the United States. Since then, they have built eight more in
the U.S., including one in San Antonio, where they make the
Toyota Tacoma and Tundra trucks. NAFTA has enabled Toyota to be
cost-competitive in the world market when exporting vehicles
from the United States because of their integrated supply
chain.
A local company, Avanzar Interior Technologies, makes every
seat that goes into those trucks right here in San Antonio.
Because of the terms of NAFTA and the relationship that they
have built with Toyota Motor North America, Avanzar will be
supplying every seat that goes into every truck made 700 miles
south of us in Guanajuato, Mexico.
NAFTA supports the local economy here and allows us to
compete as a region in this global marketplace.
In the area of retail, ensuring that trade remains tariff-
free throughout North America is essential to keeping existing
retail supply chains moving and maintaining low prices on food
and other essential items for American families, thereby
preserving the millions of jobs that depend on trade.
A stronger, modernized NAFTA can help American retailers
and their suppliers in several critical ways. Number one,
reducing nontariff barriers such as processing fees and
sanitary and phytosanitary measures will make fresher,
healthier, and lower-priced produce and other products more
easily available to American families. Number two, in today's
digital economy, it is imperative that a modernized NAFTA
include digital and e-commerce provisions, like simplified
Customs requirements and processing for each shipment, which
would make it easier for companies to export goods across the
border. And number three, increased resources for Customs
modernization and improved infrastructure at the border will
reduce delays in border crossings, benefitting consumers by
minimizing food spoilage and transportation costs.
In the area of the environment, as you well know, the North
American Development Bank was established in 1994 and works to
enhance the quality of life for people who live along the U.S.-
Mexico border through clean water, air, and land. It helps
develop and finance infrastructure in communities on both sides
of the border.
With the initial $405 million in total capital
contributions from the U.S. and Mexico, the NAD Bank has
leveraged investments totaling $6.9 billion for the development
of sustainable infrastructure, totaling 231 projects in both
countries. In light of NAD Bank's proven track record of
significant infrastructure investment and environmental impact
along the border, the administration should include in the
agreement the bank's first capital increase in history since
NAFTA was negotiated.
Because of the importance of Mexico as a trading partner,
we would also like to see the bank participate in the
development and financing of natural gas pipelines and power
plants in Mexico for North American energy security, as well as
trade facilitation projects that will support strong border
security at international crossings.
In conclusion, the NAFTA negotiations must recognize the
interdependence of all three countries; guarantee access to the
U.S., Mexican, and Canadian markets; and be conducted in a
manner that avoids any prospect of retaliation against American
products.
On behalf of our chairman of the board, Rad Weaver, I thank
you for the opportunity to be here.
We believe in NAFTA. It makes sense. And we ask for your
help in continuing going forward.
Thank you.
[The prepared statement of Mr. Perez appears in the
appendix.]
Senator Cornyn. Thank you, Mr. Perez.
Mr. Moseley?
STATEMENT OF JEFF MOSELEY, CHIEF EXECUTIVE OFFICER, TEXAS
ASSOCIATION OF BUSINESSES, AUSTIN, TX
Mr. Moseley. Good morning, Senator. Thank you so much for
this kind invitation to be a part of this distinguished panel.
Thank you for your leadership on NAFTA.
As a side note, thank you for your leadership on Hurricane
Harvey relief for Texas. We appreciate what you are doing
there.
This is a wonderful opportunity to be here before the
committee on behalf of the Texas Association of Businesses and
our Texas business community as a whole. From large
multinational corporations to small businesses and startups,
the Texas Association of Businesses works to improve the
business climate, and really to help make our State's economy
what we are very proud of, the strongest in the world.
Given our broad membership base, we have a unique
perspective on the strength of the economy, as you mentioned
earlier, Senator, and the effects of public policy across
regulatory, legislative, and diplomatic levers of power.
As a neighbor to Mexico, Texas, the 10th biggest economy in
the world by gross domestic product, has a significant stake in
the health of free trade, particularly with the success of the
North American Free Trade Agreement.
Our Texas Association of Businesses has been a vocal
supporter of NAFTA dating back to its original negotiation and
implementation, and we remain a fervent supporter today.
With the parties to NAFTA currently embarking on
renegotiation, we offer these comments to the subcommittee to
highlight NAFTA's achievements for the Texas economy and
explain the importance of the NAD Bank to border communities,
and to identify the areas where we believe that the trade
agreement can better serve the people of Texas.
Across our great State, more than 1 million jobs are
reliant on trade, with 387,000 jobs directly tied to exchanges
with our southern neighbor. According to most estimations,
NAFTA has created 190,000 Texas jobs on its own and led to
double-digit growth in 24 of the 32 industries that export to
Mexico. These gains have been balanced in populations across
the State, as well as all 11 metro areas in Texas, which have
seen increased exports both to Mexico and Canada since NAFTA
was signed, including many areas where the export rate
increases have been as significant as 100 percent to 200
percent.
These statistical gains are borne out in individual
experiences as well, and you have heard some of them this
morning.
The Texas Cattle Feeders Association reports that the total
value of beef trade between the three NAFTA countries has grown
from less than $1 billion in 1995 to an average of more than $4
billion between 2014 and 2016. More than just providing an
additional market for Texas beef, imports of Mexican and
Canadian cattle play an integral role in our own cattle-feeding
industry, accounting for about 6 percent of U.S. slaughter.
In short, NAFTA has allowed North America to become a key
global supplier of beef, while allowing beef availability to
increase in North American markets themselves.
Another illustration: for cities just like San Antonio,
NAFTA, of course, has had a significant positive impact on
economic growth and development. And according to the Free
Trade Alliance of San Antonio, which is a 23-year-old
organization focused on developing the international business
capabilities of South Texas businesses, NAFTA is credited for
creating jobs in professional services, education, and health
sectors, creating an average of 12,000 jobs in each one of
these sectors. And it is particularly in the service industry
that NAFTA has created the most opportunities and benefits for
the city.
In 2015, San Antonio companies exported a total of $10.7
billion.
And then a third example--you heard my colleague describe
this--resides right here in San Antonio, and this is the Toyota
assembly facility. The Toyota Motor Manufacturing assembly
plant began production in late 2006. Of course, it boosted the
State's profile, but especially San Antonio's manufacturing
profile.
In addition to employing thousands of Texans, San Antonio's
Toyota Manufacturing Facility really is a key example of a
NAFTA win for the city. And border cities that have typically
ranked among the Nation's poorest are now home to prosperous
warehousing and logistics sectors serving this facility.
There is little doubt that Texas will be a major loser,
should the United States elect to pull out of NAFTA. Texas
enjoys an $11-
billion trade surplus with Mexico, which is almost entirely
dependent on the continued success of free trade. Since 2006,
Texas exports of goods to NAFTA signatories have grown 71
percent, while exports of services have risen 45 percent. An
undermining of the tariff policies that have allowed that
growth would have huge, detrimental effects in most sectors of
the Texas economy.
Given the pace of technological change and the changing
nature of developing economies, there is little doubt that free
trade agreements could use a facelift during the 21st century.
A stronger NAFTA would reflect the value of American
intellectual property and promote greater information-sharing
among NAFTA partners. Primarily, this involves protecting Texas
innovators with clear and enforceable rules on cross-border
data flows and intellectual property rights.
Additionally, with Texas's prominent role as a trade hub,
speeding Customs and transportation processes will lead to
increased trade volume and maximize the benefits that NAFTA's
other provisions can provide. So every minute, Senator, that a
truck-load is stopped at the border is clearly a wasted
opportunity to make additional deliveries on the trade arteries
that bind our 1,300-mile border with Mexico.
With smarter Customs regulations, we can ensure the safety
of products reaching Texas consumers while really opening up
the movement of goods to market on both sides of the borders.
One area that also deserves a fresh look is, as my
colleague mentioned, just some new opportunities for the North
American Development Bank. Following NAFTA, NAD Bank really
enjoyed having strong support for the United States and Mexico
to provide financial assistance to entities involved in
environmental infrastructure, and they have been very
successful in helping communities finance these critical
infrastructure projects related to water and solid waste and
street paving.
We think that there is also an opportunity to put money
into NAD Bank to focus on the border infrastructure, to open up
the system of bridges getting goods to market.
If the NAD Bank were expanded, these areas could receive
financing to help mature their energy infrastructure as well,
helping families and Texas businesses.
Mr. Chairman, I am pleased that you have proposed a real
solution as well. Your S. 1385 would expand NAD Bank's ability
to invest in natural gas projects and other areas, including
the pipeline and electrical generation facilities, cross-border
energy distribution, and energy security that could provide a
market for Texas excess natural gas. And further, additional
investments in NAD Bank proposed by the bill would spur
additional border infrastructure development across the State
and help Texas energy companies provide more jobs.
And we fully endorse these efforts and look forward to
working together on this important legislation.
Thank you very much, Senator.
[The prepared statement of Mr. Moseley appears in the
appendix.]
Senator Cornyn. Thank you, Mr. Moseley.
I will come back to you with some more questions, but I
just want to highlight one thing you said. I think you said
that Texas has an $11-billion trade surplus with Mexico?
Mr. Moseley. Yes, sir.
Senator Cornyn. So if something happened which reduced the
ability of Texas to export, the trade deficit with Mexico would
actually be worse, not better, right?
Mr. Moseley. Yes, sir.
Senator Cornyn. I thought that was a noteworthy point.
Thank you.
Mr. Boening, I know, on behalf of the Texas Farm Bureau,
you are here to talk about the impact on Texas and U.S.
agriculture. Thank you for being here.
STATEMENT OF RUSSELL BOENING, PRESIDENT,
TEXAS FARM BUREAU, WACO, TX
Mr. Boening. Thank you, Chairman Cornyn. I appreciate the
opportunity to talk about the impact on agriculture.
And thank you for holding this in San Antonio. I think it
is very appropriate, the relationship San Antonio has. But it
was also very convenient. It was 45 minutes from my back door
to get here this morning, so that was really great.
My name is Russell Boening. I am president of the Texas
Farm Bureau, and I am here to share how important NAFTA is to
agriculture.
The Texas Farm Bureau is the largest farm organization in
the State. We represent over 500,000 member families. These
families and many others in this State work hard to provide
food and fiber across the world. They rely heavily on foreign
trade in order to do that.
Agriculture is one of the most important industries in
Texas. Food and fiber produced in Texas contribute over $135
billion to our State economy. The top agriculture goods
produced in Texas are beef, cotton, wheat, and feed grains.
These commodities account for about two-thirds of our State's
agriculture products, and they are at the top of the list when
it comes to exports to Mexico and Canada.
More than 25 percent of all U.S. ag production ultimately
goes into markets outside the United States. This is just one
reason trade agreements such as NAFTA are critically important
to farmers and ranchers.
Due to NAFTA, U.S. ag exports to Canada and Mexico have
quadrupled from $8.9 billion in 1993 to over $38 billion today.
This trade agreement has made these two countries, Canada and
Mexico, our second and third largest ag export markets.
In 2016, Texas agricultural exports to Mexico totaled
approximately $834 million. The top four ag exports to Mexico
were beef and veal, cotton, sweeteners, and corn.
The thousand-mile border between Texas and Mexico surely
gives us an obvious marketing advantage over other States, but
it is important to the entire country. And it is important that
we not only keep this market strong, but that we actually work
to expand it through this NAFTA renegotiation.
In Texas alone, agricultural exports to Canada totaled more
than $875 million in 2016. Again, the top four agricultural
goods exported to Canada were horticulture products at $230
million, beef and veal at $110 million, processed grains at $78
million, and food preparation at $77 million.
So as you can see, these two countries alone accounted for
$1.7 billion from Texas alone.
Additionally, as has been mentioned before by my colleagues
on the panel, it has strongly benefitted the U.S. and Texas
economies. U.S. agriculture exports to these two countries
accounted for over 509,000 jobs. Texas ag exports to these
countries employ over 19,000 people. There is no doubt to us in
agriculture that it has increased the demand for agricultural
goods, lowered input and production costs, and spurred our
economy.
We hope that leaders who are involved in NAFTA
renegotiations recognize the gains achieved by American
agriculture and ensure that trade with Canada and Mexico
remains strong.
While we recognize the many achievements of NAFTA, we
understand that this trade agreement is over 2 decades old. We
commend the administration for looking at ways to break down
existing trade barriers and produce a better deal for all of
America. We welcome any modernizations to NAFTA that will
further expand market opportunities for our farmers and
ranchers.
But at the same time, it is important to note that net farm
income in this country has dropped 50 percent from just 4 years
ago. This is the largest 4-year percentage decrease since the
Great Depression. Due to this current state of the farm
economy, we feel that a full withdrawal of the U.S. from NAFTA
would devastate the entire agriculture community and would
cause severe economic harm to our economy. We must make certain
that this does not happen.
The Texas Farm Bureau looks forward to our continued work
with congressional leaders and the administration to make NAFTA
the best it can be for our farmers and ranchers.
Again, I thank you for the opportunity to be here, and I
will be glad to try to answer any questions.
[The prepared statement of Mr. Boening appears in the
appendix.]
Senator Cornyn. Thank you, Mr. Boening. I am sure Mr.
Staples, a former Secretary of Agriculture, agrees with
everything you have just said.
Mr. Staples. Absolutely.
Senator Cornyn. But today, he is here representing the
Texas Oil and Gas Association.
Mr. Staples, please proceed with your opening statement.
STATEMENT OF HON. TODD STAPLES, PRESIDENT,
TEXAS OIL AND GAS ASSOCIATION, AUSTIN, TX
Mr. Staples. Thank you very much, Senator Cornyn. Thank you
for your leadership for Texas, and thank you for your
leadership for our Nation. It is an honor to be here with you
today as president of the Texas Oil and Gas Association.
The Texas Oil and Gas Association is a statewide trade
association representing the men and women who produce the
natural gas that heats your home and the fuel that runs your
vehicles. And our members include exploration and production
companies, midstream businesses, refiners, and service
companies. We represent the entirety of the oil and gas
industry here in Texas.
There have been many comments already today on the billions
of dollars of direct economic impact from the oil and gas
industry for our Nation and the millions of jobs that are
created, so I will not reiterate that.
What I will say is that, as renegotiation of NAFTA
continues, it is imperative that we maintain the current strong
provisions that enable our industry to remain competitive,
continue to provide domestic job growth, and to invest with
certainty and confidence, most importantly, the provisions
surrounding the investor-state dispute settlements.
Preserving ISDS means preserving the necessary legal
protections in place that defend our property rights, ensure
the absence of discrimination, and promise fair treatment from
governments while doing business both at home and abroad. ISDS
acts as the very backbone to our constitutional rights, and we
must keep that intact and strongly enforced.
Without these provisions, our industry will lose value, our
Nation's position as an energy superpower will be endangered,
and thousands of American jobs that fuel our economy will be
jeopardized.
Other important issues to consider include items like
tariffs and market access policies. The U.S. benefits from
providing energy resources to our neighbors in the form of
profits, job growth, and the stimulation of our own economic
activity, like manufacturing and construction. As the agreement
is being considered, we must not forget these important
benefits.
You mentioned in your comments earlier, Senator, that
according to the American Petroleum Institute, as early as
2020, and I want to emphasize this, the United States will have
the ability to meet its liquid fuel needs completely through
domestic energy production and trade with our North American
partners. Our agreement with Mexico and Canada has been
fundamental to our economy, keeping our fuel process fair and
our petroleum and natural gas products both competitive and
favorable.
Ultimately, NAFTA has served as the very foundation that
has allowed the oil and gas industry to see the growth and
prosperity it has today that has resulted in countless jobs for
Texans and all Americans. And it is imperative that we preserve
these policies that have allowed this industry to provide our
Nation's energy needs.
I urge you to consider these issues as you work to
strengthen NAFTA on behalf of the American people, and consider
the impact that any changes would have on this very important
sector of our Nation's economy.
I appreciate your leadership on this and your attention to
these issues, and I look forward to continuing our visit today.
Thank you.
[The prepared statement of Mr. Staples appears in the
appendix.]
Senator Cornyn. Thank you very much. I do have a few
questions for the panel. Let's make this a conversation--so we
can set aside too much formality. If you have a comment on
something somebody else has said, or want to add--we are trying
to get as much information as we can in a short time here.
But, Mr. Bainwol, the role of the supply chain in the auto
industry, to me, is just very intriguing. Of course, with the
rules of origin at 62.5 percent of U.S. content, the idea that
that might be changed somehow in a new NAFTA negotiation, can
you explain, for example, what the impact would be on, let's
take, for example, the San Antonio Toyota assembly plant, which
employs 3,000 workers here?
My understanding is auto components can cross the border
five times or more before final assembly. I am not sure most
Americans know that. Could you explain?
Mr. Bainwol. Sure. As Richard, I think, noted, the rules of
origin presently are the most restrictive anywhere, at 62.5
percent.
Senator Cornyn. Sixty-two and a half percent of U.S.
content.
Mr. Bainwol. Of NAFTA content.
Senator Cornyn. NAFTA content.
Mr. Bainwol. Correct.
So as I noted in my prepared presentation, there have been
14 new plants added here since NAFTA. And every plant, both
those that preceded NAFTA and those that came about as a result
of NAFTA, create a cluster of suppliers that support that
operation. I think that was expressed as well in the San
Antonio context.
So the challenge with rules of origin is, when you drive
them up, there is an impact on cost. So it sounds simple, but
they are challenging to execute, especially for small business.
It is very complex. It is very burdensome. And the smaller the
supplier you are, the more difficult it is to comply.
It also introduces new costs. So it may change the
calculation for plants in Mexico to not source from the U.S.,
so some of the San Antonio employment could suffer. So you are
rearranging the incentive structure in a broader market that is
globally super-
competitive, and you cannot do this without impacting cost.
So the bottom line is, it makes the U.S. product less
competitive. It changes the incentive structure in terms of
where you put new plants, like the plant in San Antonio, and
that can change over time. And it changes that impact on
suppliers who may no longer be able to supply in Mexico and
Canada because the costs have risen.
Senator Cornyn. So when you talk about increased costs,
would those be costs that would be ultimately passed on to
consumers in terms of increased costs for their trucks and
cars?
Mr. Bainwol. Absolutely. One of the things I am struck by
is--we are talking today in the NAFTA context, but a consumer
buys a car. They do not buy a piece of a car. And there is a
cost to government that goes with that car.
So you have safety regulations. You have environmental
regulations, and you have potentially trade-related costs that
go into the price of the vehicle. At a time when the
marketplace is softening, that is scary, especially as interest
rates rise.
The average cost of a vehicle is now about $35,000. Loans
have been stretched out to 7 years. Interest rates are at
historic lows but will not stay historically low. So the
challenge here is, as the cost to government rises, we are
going to imperil the demand for cars, the ability for people to
afford cars, and it has an impact all the way down.
So the people who work in plants producing those cars will
suffer, and it is a broader challenge.
Senator Cornyn. Could changes in the rules of origin have
the unintended effect of driving manufacturers abroad?
Mr. Bainwol. Absolutely. So it is a globally competitive
industry, and you are doing everything you possibly can to make
the product as affordable as possible. You change the rules of
origin and that absolutely has that risk.
Senator Cornyn. Ms. Avila, I believe you were alluding in
your testimony on behalf of the Border Trade Alliance that
people think of NAFTA and our border and our relationship with
Mexico as being a local or regional issue, but I believe you
alluded to winners and losers in other States, in other parts
of the U.S. that are far removed from the border. You talked a
little bit about Michigan, I believe.
Could you talk a little about other States that are
impacted by NAFTA that could be vulnerable, if changes were
made that had unintended consequences?
Ms. Avila. Absolutely. The States furthest from the border
actually have the most to lose.
You mentioned earlier about the huge dependence for Texas
on trade with Mexico. Obviously, because of its geographic
location, that makes sense. Everything is in relative terms.
No other State has the amount of export volume that Texas
does. But for their particular State, it would be devastating.
For the States in the Rust Belt, exports to Mexico and Canada
are half of their total exports. So that total amount of
exports may not be as great as Texas, but for them, it is half
of their exports, so it means everything.
I think it is important to point out that, relative to that
State, it is their economic sustainability.
Senator Cornyn. Thank you.
Mr. Perez, Mr. Bainwol talked a little bit about the supply
chains for the auto industry. But obviously, retailers depend
generally on complex supply chains that are heavily embedded in
all three countries.
How has NAFTA benefitted retailers, for example, here in
San Antonio and in Texas? And what would the impact be on
retailers throughout the United States, if unintended
consequences occurred?
Mr. Perez. As you know, Senator, H-E-B has their
headquarters here. They are one of the facts and figures that I
talked about on the additional dollars to infrastructure on the
border. It helps them and effects them directly.
That product goes into all of our houses. Those are the
eggs that we eat. Those are the avocados that we eat.
Tortillas, meat, everything affects us directly.
So if we are not able to keep NAFTA in place and modernize
it, then I think we suffer greatly. In spite of the fact that
we have a robust agriculture economy here, there is still a lot
of the trade that we talked about that actually comes from
Mexico in the winter, and it keeps us fed; it keeps us going;
it keeps the energy in our tank.
So if we are not careful, we really can upset that apple
cart, and it really will be devastating for our families in
Texas.
Senator Cornyn. Thank you.
Mr. Moseley, both you and Mr. Perez talked about NAD Bank,
the North American Development Bank. Representative Cuellar, as
I thank you alluded to, and I have sponsored a bill that would
expand NAD Bank's ability to invest in infrastructure along the
border region.
Could you expand on how you think NAD Bank has benefitted
the lives of Americans and Mexicans on the other side of the
border in a way that has been mutually beneficial?
Mr. Moseley. Thank you, Senator.
NAD Bank is incredibly cost-efficient for taxpayers.
Basically, NAD Bank has taken $400 million in capital
contributions from the United States and Mexico, and that has
been leveraged into $7.1 billion in actual infrastructure. As
Congress considers how to finance $1 trillion in new
infrastructure to spur economic development, the Texas
Association of Businesses really believes that NAD Bank can be
a fundamental key response to this and be a model for the
Nation.
Along this border, many communities still rely on old coal-
and biomass-fueled power plants. Many homes along this region
do not have gas lines, and they rely on more expensive means to
heat their homes and cook their food. If NAD bank is able to
expand, these areas could receive financing to help mature
their energy infrastructure and help these families and grow
Texas businesses.
So we really think there is a wonderful chance to take a
fresh look at the strengths NAD Bank offers today, but just
look at how to amplify and add to the mission.
Senator Cornyn. Talking about infrastructure, one of the
things we have been focused on a long time here in Texas is the
cross-border trade, obviously given its important impact on our
economy and on the Mexican economy, but also getting the
Federal Government to live up to its obligation to improve the
ports of entry, our aging infrastructure, as well as provide
additional staffing that allows the flow of trade to go more
quickly.
I think you know, Congressmen Hurd and Cuellar and I
sponsored a bill we call the Cross-Border Trade Enhancement
Act, working with the Border Trade Alliance and others, which
created a successful pilot program which allowed local
jurisdictions to partner with the Federal Government to provide
additional infrastructure, hours of operation, staffing, and
the like.
But it strikes me that this is a fragile situation, that if
you start pulling at one string or another, that it could have
detrimental consequences.
But if there is one thing that I think the Federal
Government could do that would enhance trade and make it less
expensive and make it faster, spend less time backed up at the
ports of entry entering the country, that would be to invest in
more infrastructure at our ports of entry. That is actually one
of the things that we are trying to do, working with the
administration on a border security bill which also would
include roughly $5 billion of additional Federal investment in
ports of entry and staffing.
Do you think that would be an important factor in improving
the flow of commerce, improving the environment and the cost of
doing business?
Mr. Moseley. Senator, we thank you for your leadership.
The bridge crossings from Texas to Mexico are really a
patchwork quilt. A lot of the bridges were built under the
Eisenhower administration.
So we would agree wholeheartedly that having a system of
getting goods to market by having a comprehensive set of
bridges for pedestrians, for automobiles, for trains, similar
to what Otay Mesa enjoys in southern California going into
Tijuana, if we had that same comprehensive level of border
crossings getting goods to market, we would not see 14,000
trucks stacking up in Laredo and having perishable commodities
not get to the marketplace.
At the same time, it could provide that enhanced border
security where you could use technology that would, again, move
goods to market more efficiently.
Senator Cornyn. Mr. Boening, thank you for being here
representing the Farm Bureau. I think one of the amazing things
to me about American agriculture is how many people the
agriculture sector feeds, and not only here in the United
States. And we are spoiled, I guess, I think, when it comes to
the cost of what consumers pay for the food they consume and
the fiber that is produced.
Talk to me a little bit more about the types of exports
that are specifically involved in Mexico and Canada that are
important to Texas agriculture.
Mr. Boening. Thank you, Senator. I mentioned several of
them earlier, and I think Mr. Moseley mentioned beef.
Beef and cotton are two of the biggest commodities in
Texas, the two biggest commodities grown and raised in Texas.
Beef is a very important product to both Mexico and Canada. But
it works both ways, as Mr. Moseley said.
We feed cattle over here that come out of Mexico. We feed
cattle and hogs in the Midwest that come out of Canada. So it
is a two-way street.
And cotton, in mentioning cotton, even though Mexico and
Canada are not huge importers of our cotton, they are a
regular, stable importer of cotton and cotton products. Cotton
is very important to the State of Texas, and 70 percent of raw
cotton raised in the country is exported somewhere. Ninety-five
percent of cotton and cotton products, when you go into
textiles, is exported.
So I think any time you would lose any market for those
products, even though it may not be, in the case of cotton, the
major one or the biggest one, it is going to have a serious
disruption on agriculture. We think it is so important to keep
those markets and strengthen them where they need to be
strengthened.
Senator Cornyn. As you talk about the net benefit to Texas
and U.S. agriculture of NAFTA, can you think of anything
specifically that you would recommend the U.S. Trade
Representative look at in terms of updating it or tweaking it
to make it even better?
Mr. Boening. There are several things, I am sure, when it
comes to biotechnology. There were some updates there. Twenty-
plus years ago, biotech was just getting started. It was really
a word that people did not understand. So there are things
there.
There are things in the sanitary and phytosanitary
measures, geographic indicators. Those are things that need to
be looked at.
I did not mention much about dairy. There are some issues
with some dairy barriers, mostly going into Canada, that we
think need to be looked at.
But those are things that need to be part of the updated
NAFTA, NAFTA 2.0, so to speak.
Senator Cornyn. Right.
Mr. Boening. So those are just some things that we think
can be looked at.
Senator Cornyn. That is very helpful.
Mr. Staples, I do not think most people appreciate the
extent to which our energy sector is so integrated with the
Mexican economy. We have refineries here in Texas, and the
U.S.-refined heavy crude is actually produced in Mexico, but
then Mexico buys a lot of our natural gas because they do not
yet produce enough there.
Can you further elaborate on the relationship of the U.S.
and Mexico when it comes to energy? And what do you expect to
come in the next 5 to 10 years in terms of foreign direct
investment in Mexico and their opened-up energy economy?
Mr. Staples. Texas's and the United States' partnership
with Mexico has really been a phenomenal benefit to all
Americans. We do rely heavily upon imported heavy crude oil,
different weights of crude oil, to use in our refineries.
While we spend a lot of time talking about the benefits to
Texas, this truly benefits people across the country. There are
plants in Illinois that employ 600 workers that rely upon
products imported from Mexico in order to refine that product
here. Then that refined product is distributed all across the
world, not only in Illinois but Indiana, Mississippi. Thousands
of workers truly benefit.
Because of the hydraulic fracturing and horizontal
drilling, we are at a unique opportunity for energy security
like never before. The fact that we are building new capacity
pipelines to go to Mexico to sell clean-burning natural gas to
our neighbors--there are environmental benefits, there are job
benefits. And the equipment sales to Mexico are phenomenal.
So it is very deep. It is very integrated. And it only has
the opportunity to expand and grow if the reforms in NAFTA are
conducted appropriately and we do not lose some important
elements that we think are so important to this three-way
treaty with all three countries.
Senator Cornyn. As I understand it, the fact that we import
heavy crude from Mexico is because our refineries are set up to
refine that type of product, as opposed to the lighter-weight
oil that comes from places like the Eagle Ford shale. But we
can export that elsewhere, can't we?
Mr. Staples. We can. In fact, we are, thanks to Congress
lifting the export ban. I appreciate your leadership on that
very much. We are now exporting crude oil. We are exporting
refined product at unprecedented rates, and LNG and natural
gas.
But our refineries are set up to use blends, and we do not
produce those blends here, but we do import that from Canada
and Mexico. These are the types of benefits that create jobs in
America when we have good trading policies.
Senator Cornyn. Finally, in your testimony, you alluded to
the ISDS, or the investor-state dispute settlement mechanisms
in NAFTA. Energy companies make a huge up-front investment with
the expectation of recovering that investment over time.
Can you talk a little bit more about the importance of the
investor-state dispute settlement provisions in NAFTA, and sort
of give us some indications of yellow or red lights that the
U.S. Trade Representative ought to be paying attention to as
they negotiate these provisions?
Mr. Staples. I was very encouraged to hear the U.S. Trade
Representative General Counsel mention that the objective that
they just announced was North American energy security and
energy independence. I took good notes on that. I think that
can be achieved when we recognize that the investor-state
dispute settlement process is very important to preserve.
Unfortunately, disagreements occur when companies enter
agreements and governments interpret their policies
differently. So ISDS allows for a neutral arbitration system
that is a protection of property rights, allows for due
process, nondiscrimination, and fair treatment by the
government in which you are located. I think to make certain
that ISDS is broad and encompasses all areas of trade would be
very beneficial to ensure that continued investment occurs.
Senator Cornyn. As we have seen in this area and in other
areas of life, things can have intended and unintended
consequences. But I want to ask you a little bit about, if the
U.S. Trade Representative believes that a sunset provision
should be included in the next round of NAFTA, does that raise
any concerns on the panel's behalf?
Mr. Bainwol?
Mr. Bainwol. It does. The nature of auto manufacturing is
very long product cycles. So certainty is essential to product
planning and to logistics of the whole enterprise. So a sunset
threatens that certainty.
Ms. Avila. I just wanted to mention that the uncertainty
that we are experiencing right now during this renegotiation
period has already had a negative impact with some businesses
delaying investment or expansion in their businesses. That
uncertainty would carry over for 5 years then during that
period.
That is something certainly to be conscious of.
Senator Cornyn. Does anybody else have anything they want
to add on that front?
Mr. Staples. Sunset is very appropriate for units of
government and legislatures. That works very well. But I think
for a trade agreement, it would be a chilling impact.
Senator Cornyn. As you know, Congress is in the midst of
tax reform discussions and debates. One of the things as we
look at tax policy, keeping in mind what Mr. Bainwol mentioned,
is the large investments in the business models that depend on
some certainty and stability, and certainly taxes is one of
those. We are looking at ways to make these provisions
permanent rather than temporary, recognizing that a temporary
provision could well have an unintended negative impact on
economic growth, because it would dissuade investors from
investing in long-term investments as well.
Mr. Boening?
Mr. Boening. Senator, if you do not mind, I do have a
little bit to add. It kind of goes along the same way with what
Mr. Bainwol said.
You know, in agriculture, not only is the investment large,
but the investment is long-term, both on the production side
and in infrastructure. If you go out to West Texas where it is
cotton and cotton and more cotton, if you lose markets, or you
have even the potential to lose markets, and you lose some of
that infrastructure, you may never get it back.
That is scary, for lack of a better term. So I think
anything that creates uncertainty would have a very negative
impact on our industry. Thank you.
Senator Cornyn. Let me, again, thank the panel for
participating in today's hearing to highlight the interest of
the various stakeholders who will be so directly impacted by
NAFTA modernization. I know you have talked specifically about
how it would affect your sector of the economy, but clearly,
when you start talking about increasing costs to consumers,
when you talk about jobs, when you talk about losing market
access, those are all things that we should care about as
Texans and as Americans.
So I am very grateful to each of you for being with us
today, for sharing this information. I am sure the Senate
Finance Committee staff will dutifully report this back to the
rest of the Finance Committee. Really, Texas has benefitted
from NAFTA, and I think some might argue that it is
disproportionate. But I think to the extent that the whole of
Texas benefits, I think the rest of the Nation benefits. But
you have also described how it has tentacles that reach
throughout the country in creating jobs when it comes to small
refineries in places far removed from the border.
I would just, finally, note I have had conversations with
both Canadian and Mexican officials who have also cautioned me
and cautioned U.S. representatives about some of the rhetoric
surrounding trade, and perhaps some backlash that could occur
in upcoming elections in both of those countries. So this is a
very sensitive and fragile discussion of the trade agreement,
and one that we want to make sure we improve, but also, in the
process, do not create other unintended consequences, political
consequences, because our relationship with both Canada and the
United States is so important to the well-being and welfare of
all Americans. That is just something I think we should note.
I want to thank the Mayor for being here today, and the
city of San Antonio, and certainly the Marriott Hotel, for
hosting us.
We will have an opportunity for additional questions or
statements for the hearing record for a full 2 weeks. We want
to make sure that if there is anything else that you or anyone
else wants to provide us by way of input, that we have 2 weeks
to do that. We will then consider that as the complete record
for today's hearing.
So with my thanks, the Senate Committee on Finance stands
adjourned.
[Whereupon, at 11:03 a.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Paola Avila, Chair,
Border Trade Alliance
The Border Trade Alliance thanks the committee for the opportunity
to provide this written testimony for the record and to provide oral
testimony at the field hearing in San Antonio, TX on November 20, 2017.
The BTA is committed to working with the administration, Congress,
and stakeholders in the public and private sectors across North America
in order to craft a modernized North America Free Trade Agreement. For
reasons we will discuss, we believe exiting the agreement would be
terribly damaging to the U.S. economy and the economies of our trade
partners.
the border trade alliance
For over 30 years, the BTA has provided a forum for analysis and
advocacy on issues pertaining to the U.S.-Canada and U.S.-Mexico border
regions. A network of public and private sector representatives from
all three NAFTA nations, our organization has been involved in a number
of important border issues, ranging from the implementation of the
North American Free Trade Agreement, to the original organization of
the Department of Homeland Security to the perennial issues of
staffing, infrastructure and trade processes.
nafta renegotiation: do no harm
The BTA approaches a renegotiation of NAFTA through the lens of an
organization that was a vocal supporter of NAFTA at the time of its
original negotiation and implementation. We remain a supporter today
and we view a revisiting of the agreement as an opportunity to
modernize the agreement to align with the realities of today's economy,
not as a step toward dismantling the agreement. First and foremost,
renegotiation should do no harm.
Nearly 9 million U.S. jobs depend on trade with Canada. Five
million U.S. jobs can be attributed to trade with Mexico. Our three
nations' supply chains are deeply integrated, which has created a
highly efficient, just-in-time manufacturing environment that has
resulted in an enhanced quality of life throughout the region. Just
moving goods across the continent was responsible for nearly 50,000
jobs in the trucking industry alone in 2016.\1\
---------------------------------------------------------------------------
\1\ American Trucking Associations' Economics Department.
There are several other trade pacts globally in addition to NAFTA,
however, offering manufacturers, importers, and exporters, other
---------------------------------------------------------------------------
options for investment.
While the BTA was initially encouraged that U.S. Trade
Representative Robert Lighthizer used the word ``modernization'' in a
letter to congressional leaders that opened the congressional
consultation period over NAFTA's renegotiation, and that he stressed
that the administration is focused on economic growth as it
contemplates renegotiation, we are growing increasingly concerned about
rhetoric from the administration that would indicate it believes a
dismantling of the agreement would be a wise course of action.
the risks of exiting nafta
We believe dismantling NAFTA would be terribly damaging to the U.S.
economy, and would make the administration's stated goal of achieving 3
percent annual economic growth a near impossibility.
Our opinion is not an outlier. A recent Wall Street Journal survey
found that over 80 percent of economists the paper polled believe that
a NAFTA withdrawal would result in lower economic growth for the United
States. Seven percent of those polled believe an exit would result in a
recession.\2\
---------------------------------------------------------------------------
\2\ ``Forecasters Predict NAFTA Withdrawal Would Slow U.S.
growth,'' https://www.wsj.com/articles/forecasters-predict-nafta-
withdrawal-would-slow-u-s-growth-1510239602.
---------------------------------------------------------------------------
The risks for border States are acute.
In a post for Texas Monthly, Justin Yancy, president of the Texas
Business Leadership Council, wrote:\3\
---------------------------------------------------------------------------
\3\ ``Texas Has Most to Win or Lose With NAFTA Renegotiation,''
https://www.texasmonthly.
com/burka-blog/texas-win-lose-nafta-renegotiation/.
But whether you are a banker in Dallas or a farmer in Lubbock,
make no mistake--withdrawing from NAFTA would be devastating
---------------------------------------------------------------------------
for Texas.
Not only is Mexico the Lone Star State's largest trading
partner, but more than 380,000 jobs in Texas directly depend on
trade with Mexico.
Yancy goes on to write that leaving NAFTA will immediately make
Texas exports less competitive and make the cost of living more
expensive, as businesses likely eye shifting entire supply chains to
new countries and the higher tariffs get passed along to consumers in
the form of higher prices.
The integration of the NAFTA partners Mexico and Canada into U.S.
supply chains is significant. In my State of California, Mexico is our
leading export destination by a long shot. Number 2 is Canada. The same
can be said of fellow border State Arizona.
We observe a similar phenomenon on the northern border. For
example, Michigan's number 1 export market is Canada, followed by
Mexico. Michigan's top import partner? Mexico. In fact, an analysis by
the credit ratings agency Fitch finds that Michigan is especially at
risk if NAFTA is dismantled. Michigan's exports account for 7.4 percent
of its gross State product, which Fitch says leaves the State
``uniquely exposed'' if the agreement were unwound.\4\
---------------------------------------------------------------------------
\4\ Fitch Ratings analysis: https://www.fitchratings.com/site/uspf/
trade-in-time-of-trump.
A modernized NAFTA will help all of North America remain
competitive against other trade blocs, preserving U.S. jobs and
discouraging the outflow of capital. And the modernized agreement will
also ensure that products made in the United States can compete on
store shelves abroad, while lowering prices and expanding consumer
---------------------------------------------------------------------------
choice here at home.
Furthermore, exiting NAFTA will weaken the trilateral diplomatic
relationship North America currently enjoys. In fact, strengthening the
relationship was a primary reason NAFTA was created in the first place.
We are also concerned that binational collaboration on national
security, environmental issues will be weakened, and that siting,
designing and management of future ports of entry may become more
difficult.
We share Ambassador Lighthizer's desire that an updated NAFTA
reflect the dramatic changes that have occurred in our economy since
the agreement's implementation nearly 25 years ago. For example, cross-
border electronic commerce scantly existed at the time the agreement
came into force, while some industries that sought specific treatment
under NAFTA are mere shells of their former selves. We encourage all
three nations to approach renegotiation as an opportunity to shape a
21st-century trade agreement and to do so in the spirit of friendship
that has defined these cross-border relationships for generations.
Recommendations for the U.S. Negotiating Position
The BTA believes the U.S. negotiating position should be
characterized thusly:
It should be future-focused, seeking to ensure that the next
NAFTA is aligned with today's economy;
That it recognizes that tariff-free trade enhances the
competitiveness of all of North America, including and
especially U.S. manufacturers;
That the agreement enhances the quality of life of U.S.
consumers through greater choice, increased competition, and
lower prices;
That the renegotiation should be conducted trilaterally;
That negotiations should be conducted with urgency, so as to
minimize the uncertainty injected into the North American
economy;
That a new NAFTA should continue to seek to remove non-
tariff barriers to trade, which add needless costs and delays
to the conduct of cross-border business;
That the agreement should develop a mechanism for
facilitating the movement of workers needed to fill the labor
gaps that exist today; and
That renegotiation offers the opportunity for the three
nations to memorialize security protocols toward promoting
consensus over a shared definition of what constitutes adequate
border security.
Recommendations for a Modernized NAFTA
The BTA, which is comprised of business representation from both
the U.S. northern and southern border, including customs brokers,
private bridge owners and operators, manufacturers, third party
logistics providers, trucking companies, the banking industry, chambers
of commerce, as well as and local governments, was a vocal supporter of
NAFTA dating back to its original negotiation and implementation. We
remain a strong supporter today.
It is with the insight of years of experience in cross-border
commerce and a firm belief that free trade is a catalyst for economic
growth that we submit the following recommendations.
A Robust Stakeholder Process
As the three NAFTA nations set about a reopening of the terms of
the agreement that unites our economies, we would encourage the
establishment of a robust stakeholder process that solicits a wide
diversity of viewpoints and unique insights about NAFTA's role in
particular industries and/or communities.
To that end, we would recommend another public comment period after
the three nations arrive at an agreement in principle so that
stakeholders can react to it and provide recommendations where they
might prove necessary. NAFTA is one of the most consequential trade
agreements in global commerce. The U.S. Government's stakeholder
outreach should reflect that fact.
Amending Rules of Origin, Averting the Tariff Shift
The current contours of NAFTA allow for a sort of international
free riding, which the next NAFTA should seek to eliminate.
Under the current tariff shift rules, components originating in
other countries can be imported to Mexico duty-free under Mexico's
``Rule 8'' program, then assembled with other components to form a new,
NAFTA-eligible product that is then imported into the U.S. duty-free.
The new NAFTA should eliminate these types of loopholes by a thorough
review of the tariff shift rules. If another qualification method is
required, in addition to the minimum regional value content, the new
agreement should reduce the special tariff shift exclusions and
standardize the rules. We also recommend considering qualification by
changes to subheading or heading level for all tariff classifications.
Improve Customs Processing
The revised NAFTA should implement the North American Single Window
proposal, which would allow one set of data to be used for all import
and export transactions within the region.
The informal entry and export value limits for both Canada and
Mexico should be raised to match U.S. limits.
Strengthen Regional Customs Administration
We recommend that a modernized NAFTA feature an improved dispute
settlement tool so that governments can work to resolve differences in
classifications.
We would also recommend the adoption of a regional tariff numbering
system (similar to the European Union Integrated Tariff of the European
Communities or TARIC code) to allow the use of a single Harmonized
System classification to identify the same goods throughout the region.
Facilitating Cross-Border Movement for Business Purposes
The agreement should be forward-thinking and allow for
professionals to move back and forth across NAFTA borders with little
bureaucratic delay. For example, a skilled U.S. technician should be
able to repair and service sophisticated equipment in Canada or Mexico,
which not only reflects today's business environment, but also ensures
the highly skilled position remains in the United States. Such an
approach should apply to professionals involved in the administration
of the supply chain, as well, such as customs brokers and freight
forwarders.
We also recommend using this period as an opportunity to negotiate
with Mexico to extend the duration of that country's FMM permit, which
is currently valid for only 6 months and is required to visit
manufacturing facilities in Mexico.
Finally, we urge the preservation of the TN Visa in any forthcoming
agreement.
Trucking From Point of Origin to Destination
The BTA has supported and continues to support a cross-border
trucking regime between the North American trade partners that permits
commercial trucks to convey freight from the point of origin to the
point of destination.
Our position recognizes the paramount importance of traffic and
truck safety, which should define a cross-border trucking system.
We also encourage a modernized NAFTA to allow and encourage cross-
border investment by the trucking industry to develop a more
competitive North American transportation market.
Furthermore, access to trusted traveler programs like SENTRI and
NEXUS, or trusted trader programs like FAST lane access, should be open
to drivers regardless of whether they are citizens or permanent
residents of the NAFTA nations.
Streamlined Sales to Mexico
The modernized NAFTA should develop a more coherent import-export
system for products leaving Mexican maquiladoras.
Under the current system, a finished product manufactured in a
Mexican maquiladora, but destined for the Mexican market, must be
exported out of Mexico, imported into the United States or Canada, and
then exported back to Mexico.
This is needlessly bureaucratic and time-consuming. Products
manufactured in Mexican maquilas should be able to remain in Mexico
without first being exported out of the country.
A Single Company Identifier
A modernized NAFTA should develop a single identifier for firms
conducting cross-border trade.
Under today's NAFTA, U.S. companies are identified by their Federal
tax ID, Canadian firms are identified by their business number, while
Mexican firms are identified by their RFC, or registro federal de
causantes.
These multiple identifiers promote confusion for companies
attempting to monitor their supply chains throughout the three partner
countries. A renegotiated NAFTA presents an opportunity to develop a
single NAFTA identifier.
A Liberalized Services Market
The BTA encourages the United States to advocate for a liberalized
market for professional services, including in the financial,
accounting, and insurance sectors.
U.S. providers of such services should be able to reach customers
with little red tape in Canada and Mexico.
Improved Cross-Border, Inter-Agency Coordination
The next NAFTA should establish a formalized inter-agency body
between all three countries comprised of all governmental agencies with
cargo hold authorization.
Such an organization could focus on promoting better coordination
between North American governmental agencies with responsibility for
the movement of trade, continually seeking greater efficiencies and
establishing a coherent process for addressing conflicts.
A Three-Nation COAC
In the United States, the Commercial Operations Advisory Committee,
or COAC, has been an effective mechanism for members of industry to
communicate their unique needs directly to Customs and Border
Protection leadership and to develop lasting policies and procedures to
make cross-border trade more efficient and more secure. Legislation in
the United States has codified COAC in U.S. statute.
COAC provides a model that ought to be adopted across all three
nations and be reflected in the next iteration of NAFTA. Private sector
entities in all three countries should have a central forum for
discussing emerging challenges in NAFTA trade and present their
recommendations to customs authorities in Canada, the United States,
and Mexico.
A three-nation COAC could provide a forum for identifying
industries that have left North America, industries whose businesses
models are radically changing, and emerging industries that North
American leaders should work together to attract and retain through
regulatory reforms.
A Unified Approach to Infrastructure That Reflects Today's Trade
Volumes
The condition and capacity of trade-facilitating infrastructure
throughout the North American marketplace should be a major priority of
a modernized NAFTA.
The BTA recommends that the three partner countries commit to a
framework for jointly developing border infrastructure like port
campuses and access roads that reflects not only rising trade volumes,
but that acknowledges that all three countries' economic
competitiveness is affected by one another's infrastructure.
A unified approach to infrastructure development, which includes
greater availability of broadband Internet access and advanced non-
intrusive inspection technology, should be focused on eliminating
congestion and bottlenecks. Joint facilities will reduce redundant,
time-consuming inspections and reflect a cooperative spirit consistent
with NAFTA.
Finally, we recommend that the administration approach the
renegotiation with the posture that revenues generated at each border
from trade be reinvested to support the infrastructure and staffing
needs of the borders before remitting dollars to each country's
treasury.
Unified Cargo Processing
The BTA is very encouraged by the concept of unified cargo
processing (UCP) that has been deployed at ports of entry along the
Mexico border.
Under UCP, U.S. and Mexican customs personnel work side by side on
U.S. soil to conduct outbound and inbound inspections. Each country's
officer can make the determination as to whether to send a shipment to
secondary inspection. Even in the case where a more invasive inspection
is required, UCP ensures that a shipment is only unloaded once, if at
all, rather than what exists today, whereby a truck could be unloaded
in its country of origin and its country of destination.
UCP represents an example of making our ports of entry more
efficient through better regulations, while ensuring security and
increasing capacity. Coupled with new technology that increases non-
intrusive cargo searches, the port of the future will deliver real
improvements in security and freight mobility, which will expand job-
creating commerce and trade.
In the case of the international bridge in Rio Grande City, TX, for
example, 70 percent of cargo there will be eligible for UCP,
essentially doubling the bridge's importing infrastructure capacity.
The port still maintains the ability to electronically scan 100 percent
of cargo and share inspection images with Mexico.
UCP represents an approach to inspections that should be the norm
in a 21st-century economy in the world's most consequential trade pact.
It also reflects the incremental progress achieved in previous pilot
programs conducted between the United States and Canada and the United
States and Mexico to inspect cargo before it leaves its country of
origin.
Improved Cross-Border Financial Transactions
We have been concerned by increased challenges faced by the U.S.
banking industry in its ability to conduct cross-border transactions
between the United States and Mexico. The Bank Secrecy Act and Anti-
Money Laundering law (BSA/AML) have proven a major factor in banks not
only de-risking by closing account relationships for entire industry
segments, but also in closing branches throughout the U.S.-
Mexico border region.
The large number of closures has resulted in fewer banking options
for border region businesses and their customers, which harms the
economic climate of the region. Many institutions are refusing to
process international wires and transactions, and in some cases, are
even actively encouraging their customers to seek new banking partners.
Due to new capital requirements under Dodd-Frank, forming de novo banks
has become almost an impossibility.
A new NAFTA should anticipate that frequent, small-value banking
transactions are part of cross-border commerce and a trilateral
regulatory regime should be designed accordingly to accommodate such
transactions.
A Modernized North American Development Bank
The North American Development Bank has benefitted 15 million
residents on both sides of the U.S.-Mexico border through sustainable
infrastructure since its formation in 1994.
With an initial $405 million in total paid-in capital contributions
from the United States and Mexico, NADB has leveraged investments
totaling $7.1 billion in the development of sustainable infrastructure.
NADB is the only development bank that finances projects in the United
States and has financed 107 projects in economically-distressed areas.
In Mexico, NADB has financed an additional 124 projects for a total of
231 projects in both the United States and Mexico.
We would encourage the United States to seek the first capital
increase in NADB's history in the NAFTA renegotiation talks. As an
acknowledgement of Mexico as a trading partner, we would also recommend
expanding the Bank's ability to participate in the development and
financing of natural gas pipelines, power plants in Mexico for North
American energy security, as well as trade facilitation projects at our
international land crossings while supporting border security.
Furthermore, public-private partnerships should remain eligible for
NADB financing.
Once again, we appreciate the opportunity to provide these comments
on NAFTA. Please count on our organization's over 30 years of
experience in cross-border commerce and our board of directors, which
is comprised of trade professionals throughout North America, as a
resource as you and your colleagues consider the future of the
agreement.
______
Prepared Statement of Mitch Bainwol, CEO and President,
Alliance of Automobile Manufacturers
Thank you, Chairman Hatch, Chairman Cornyn, and members of the
subcommittee. The Alliance of Automobile Manufacturers (Alliance) is a
trade association of 12 car and light truck manufacturers comprised of
BMW Group, FCA US LLC, Ford Motor Company, General Motors Company,
Jaguar Land Rover, Mazda, Mercedes-Benz USA, Mitsubishi Motors, Porsche
Cars, Toyota, Volkswagen Group and Volvo Cars. Together, Alliance
members account for roughly three out of every four new vehicles sold
in the U.S. each year.
On behalf of the Alliance, I appreciate the opportunity to offer
our views on the modernization and re-negotiation of the North American
Free Trade Agreement (NAFTA). The ongoing re-negotiations are at a
critical juncture. The fifth round is currently taking place in Mexico
City and this is the first time the three partners are re-grouping
since the U.S. tabled a number of contentious proposals during the last
round in early October. It is also very fitting that we are here in San
Antonio, TX to discuss this important issue, as this is where the
existing agreement was signed 25 years ago by President George H.W.
Bush, Mexican President Carlos Salinas, and Canadian Prime Minister
Brian Mulroney. And I remain hopeful that we will return here in 2018
to mark the signing of NAFTA 2.0--a modernized NAFTA that builds on the
agreement's existing benefits to further enhance this Nation's global
competitiveness and grow U.S. manufacturing and jobs.
Much has changed since 1992 and when NAFTA went into effect in
1994. Today, trilateral trade between the U.S., Canada, and Mexico
exceeds $1 trillion--growing 370 percent since NAFTA went into
effect.\1\ Canada and Mexico are our largest export markets, and 14
million U.S. jobs depend on trade with these two countries. In the auto
sector, NAFTA has played a key role in our manufacturing renaissance.
In 2016, 13 automakers manufactured 12.2 million vehicles in the U.S.--
over 1 million more vehicles that were manufactured in the U.S. in the
year before NAFTA took effect. The auto sector is the leading exporter
of manufactured goods in the Nation--shipping $137 billion in vehicles
and parts to Mexico, Canada, and the rest of the world in 2016. Last
year, the industry invested $8 billion in U.S. plants and equipment and
nearly $20 billion in R&D. In total, the U.S. auto industry currently
supports more than 7 million American jobs--generating $500 billion in
annual compensation and $205 billion annually in tax revenue. Thus,
America's automotive industry has a significant economic stake in the
outcome of the renegotiations of NAFTA--perhaps more than any U.S.
industrial sector.
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\1\ Americas Society/Council of the Americas. Accessed at http://
infogram.com/nafta-by-the-numbers-1g9vp13ed6elm4y.
The significant growth of auto production in Mexico is often cited
within the contentious debate surrounding the future of NAFTA. While it
is true that Mexico has experienced an increase in auto production
since the implementation of NAFTA, the U.S. has seen major growth as
well. According to the Organisation Internationale des Constructeurs
d'Automobiles (OICA), in 2016, the United States ranked 2nd in total
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global vehicle production, Mexico 7th, and Canada 10th.
Since NAFTA took effect, 15 new manufacturing plants have been
launched in the United States (more than Mexico and Canada, combined)
and there has been substantial, multi-billion-dollar reinvestment in
existing plants. These 15 new manufacturing plants have resulted in the
creation of more than 50,000 direct and 350,000 indirect auto jobs
throughout the United States. In total, 13 automakers currently operate
44 assembly plants across 14 States and more are on the way--Volvo is
currently constructing a $1.1 billion facility in South Carolina and
Toyota-Mazda announced plans to build a new $1.6 billion facility in
the United States as part of a new joint venture. Clearly, NAFTA has
succeeded in attracting significant U.S. investment from within the
global auto industry.
NAFTA has also incentivized investment in the North American
region, as a whole, and strengthened the U.S. auto industry's global
competitiveness. Global companies have shifted production from other
automotive regions, like Asia and Eastern Europe, to North America to
utilize the benefits of NAFTA and increasingly rely on North American
supply chains. And it's important to note that facilities in Canada and
Mexico support U.S. jobs as well. On average, a 10 percent increase in
employment at a Mexican affiliate operation leads to a 1.3 percent
increase in U.S. employment, a 1.7 percent increase in U.S. exports,
and a 4.1 percent increase in U.S. R&D.\2\ Auto manufacturing
throughout the NAFTA region has helped anchor automaker and supplier
engineering and R&D operations largely within the United States. In
doing so, it creates and supports thousands of high-wage auto sector
jobs.\3\
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\2\ Moran, T.H., and Oldenski, L., Peterson Institute for
International Economics, ``How U.S. Investments in Mexico Have
Increased Investment and Jobs at Home.'' In NAFTA, 20 Years Later, July
2014.
\3\ Center for Automotive Research, ``NAFTA Briefing: Trade
benefits to the automotive industry and the potential consequences of
withdrawal from the agreement,'' January 2017.
While NAFTA has provided numerous benefits to the automotive
sector, automakers recognize that much has changed in the global
economy since NAFTA went into effect in 1994. As such, we support the
administration's aim of modernizing this trilateral trade agreement and
offer recommendations to further enhance the benefits of NAFTA. If
implemented, these recommendations will significantly advance the
guiding principles underlying the administration's trade policy agenda
by encouraging fair and free trade, increasing economic growth,
promoting job creation in the United States, and strengthening the U.S.
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manufacturing base:
Maintain strong and effective market access provisions within
NAFTA: Many of the aforementioned benefits created by NAFTA are due in
part by the effective market access provisions granted for autos and
auto parts. Specifically, duty-free access granted under the existing
rules of origin generates the free flow of autos and auto parts
throughout the North American region. It is important to note that the
62.5 percent regional vehicle content (RVC) requirement is the highest
rule of origin of any trade agreement. A recent study by the Peterson
Institute for International Economics concluded that making rules of
origin stricter ``would be bad for producers and lead to higher prices
for consumers, without guaranteeing more U.S. content will end up in
final products.'' \4\
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\4\ Freund, C., Peterson Institute for International Economics,
``Streamlining the Rules of Origin in NAFTA,'' June 2017.
Improve Regional Regulatory Cooperation: A modernized NAFTA
should encourage more effective regulatory cooperation on future
standards to avoid unnecessary divergence. Regulatory streamlining
across the region will further facilitate trade and reduce unnecessary
costs and administrative burdens. Regulatory cooperation among the
three NAFTA partners will help spur cooperation on the global stage,
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within the United Nations Working Party 29.
Formal recognition of U.S. motor vehicle safety standards
(FMVSS) throughout the NAFTA region: We recommend the United States
utilize this opportunity to formally enshrine existing practice and
include commitments in the agreement requiring Canada and Mexico to
recognize FMVSS. This need not come at the expense or exclusion of
other global standards.
Streamline customs procedures to facilitate cross-border trade
flow: As indicated above, in many cases automotive parts and components
may cross the border as many as eight times before reaching final
assembly. A modernized NAFTA should expressly allow true electronic
signatures, (i.e., those that do not require the integration of a
reproduced hand-written signature), requiring all three party-countries
to accept them on NAFTA certificates. Reducing existing inefficiencies
and burdensome border delays will help facilitate the free flow of
these goods.
Update NAFTA's labor and environmental provisions: The Alliance
supports efforts to strengthen NAFTA's labor and environmental
provisions to reflect a strong commitment to maintain a level playing
field with parties to the agreement.
Promote cross-border data flows: Since NAFTA is more than 20
years old, it lacks language on cross-border data flows. A modernized
NAFTA should ensure that automakers are able to move data freely across
borders to enable them to compete fairly to serve customers in North
America and around the world.
While we support the administration's goal to modernize NAFTA to
bring the agreement into the 21st century, we remain concerned by the
current trajectory of the renegotiations. As previously noted, a number
of contentious proposals were tabled by the United States during the
last round of renegotiations. I'd like to briefly discuss our industry
concerns with two of the proposals: the auto rules of origin proposal
and the proposed sunset provision.
With regards to rules of origin, it warrants emphasizing that the
existing rule (62.5 percent regional vehicle content requirement) is
the highest of any free trade agreement in the world. It has been
effective in striking the right balance to ensure there are no free
riders and that to take advantage of the NAFTA tariff preferences,
manufacturers must source significantly from the North American region.
During the previous round, it is our understanding that this
administration proposed the following changes to the auto rules of
origin:
(1) Increasing the RVC requirement from the existing 62.5 percent
to 85 percent.
(2) Establish a U.S. content requirement of 50 percent.
(3) Expanding the ``tracing list'' to include all parts and
materials using in the production of a vehicle or part.
Each element alone would have a negative impact on the auto sector.
But, taken in its entirety, this proposal is unprecedented and would
have significant ramifications on our industry and the U.S. economy, as
a whole. No vehicle produced today could meet such an onerous standard.
It is unlikely that any vehicle ever could, even if sourcing changes
were made in an attempt to do so. Adding to the compliance challenge is
the insufficient 2-year phase-in of the requirements. Auto
manufacturing is a very capital-intensive process with long lead-time
requirements for production changes. Sourcing new components and
implementing the necessary changes would certainly be a lengthy, multi-
year process.
Rather than attempt to comply with such stringent rule of origin
requirements, it may make more economic sense for manufacturers to pay
the 2.5 percent vehicle tariff when exporting within NAFTA and/or shift
production to other low-cost regions. This will increase an automaker's
vehicle costs, but that increase is less than the cost of complying
with the proposed U.S. rule of origin.
While we wholeheartedly support this administration's goal of
growing U.S. manufacturing and jobs, making NAFTA's auto rules of
origin more stringent will have the opposite effect. By increasing
vehicle costs and/or causing production to shift, the proposed rules of
origin would reduce demand for U.S. built vehicles. This shift will
have a cascading effect--leading to reductions in U.S. production,
component sourcing, investment, exports, and auto jobs, and ultimately
increase vehicle costs for American consumers.
The Alliance wishes to echo the concerns of the broader business
community regarding the administration's proposal for a so-called
sunset clause, which would cause NAFTA to expire every 5 years unless
the three partners agree it should continue. If adopted, the resulting
uncertainty would render any revised NAFTA agreement, meaningless--
chilling investment in the United States, Canada, and Mexico and
further weakening the region's competiveness globally.
Such contentious proposals like those related to auto rules of
origin and the proposed ``sunset clause'' beg the question, is an
agreement amongst the three negotiating partners on a modernized NAFTA
possible? Both Mexico and Canada have announced that they are strongly
opposed to these provisions. At this point, it appears the
renegotiations are headed towards either an unworkable NAFTA or no
NAFTA. Both outcomes would make the industry less competitive globally
and raise vehicle costs.
Adding unnecessary costs to new vehicles is problematic in any
circumstances. The average price of a passenger vehicle today is
$35,000 and that figure is expected to continue to increase due to
various safety and environmental requirements. Reduced U.S. sales
volumes, increasing interest rates combined with extended loan terms
and increasing lease rates are threatening vehicle affordability for
consumers. Additional costs associated with an unworkable NAFTA rule of
origin or no NAFTA would only add to this burden.
It should be noted that Mexico has free trade agreements (FTAs)
with 45 countries, giving automakers access to nearly half the global
auto market tariff-free. The United States, on the other hand, has FTAs
with 20 countries, representing about 9 percent of the global market.
To grow U.S. jobs and reduce the trade deficit, the United States
should be seeking to secure additional market access and new trade
agreements with its key trading partners. The bottom line is, the
problem isn't free trade, but rather it is that we don't have enough
free trade agreements.
The Alliance stands ready to be a constructive stakeholder as the
administration moves forward with the modernization of NAFTA. In his
remarks at the signing of NAFTA, 25 years ago, President George H.W.
Bush declared ``this agreement will remove barriers to trade and
investment across the two largest undefended borders of the globe and
link the United States in a permanent partnership of growth with our
first and third largest trading partners.'' NAFTA has succeeded in
creating a strong regional bloc and enhancing American competitiveness
in this global economy. Modernizing this trade agreement provides a
unique opportunity to expand the benefits that this North American
partnership has provided to our Nation's economy and further expand job
creation within the United States.
Thank you for the consideration of our views.
______
Prepared Statement of Russell Boening, President,
Texas Farm Bureau
Chairman Cornyn, I am Russell Boening, president of the Texas Farm
Bureau. Thank you for the opportunity to testify and share how
important the North American Free Trade Agreement is to agriculture.
The Texas Farm Bureau is the largest general farm organization in
the State and represents over 500,000 member families. These families
and many others work hard daily to provide food and fiber across the
world. They rely heavily on foreign trade in order to meet this
important goal.
Agriculture is one of the most important industries to Texas. Food
and fiber products produced in Texas contribute over $135 billion
dollars annually to our State economy. The top agricultural goods
produced in Texas are beef, cotton, wheat, and feed grains. These
commodities account for about two-thirds of our States' agricultural
products.
More than 25 percent of all U.S. agricultural production ultimately
goes to markets outside of the United States. This is one reason trade
agreements, such as NAFTA, are critically important to farmers and
ranchers.
Due to NAFTA, U.S. agricultural exports to Canada and Mexico have
quadrupled from $8.9 billion dollars in 1993 to over $38 billion
dollars today. This trade agreement has made these two countries our
second and third largest agricultural export markets.
In 2016, Texas agricultural exports to Mexico totaled approximately
$834 million dollars. The top four agricultural exports to Mexico were
beef and veal valued at $142 million dollars, cotton at $125 million
dollars, sweeteners at $65 million dollars, and corn at $63 million
dollars.
The thousand-mile border between Texas and Mexico gives us an
obvious marketing advantage over other States. It is important that we
keep this market strong and work to expand it through the NAFTA
renegotiation.
In Texas alone, agricultural exports to Canada totaled more than
$875 million dollars in 2016. The top four agricultural goods exported
to Canada were horticultural products at $230 million dollars, beef and
veal valued at $110 million dollars, processed grains at $78 million
dollars, and food preparations at $77 million dollars.
Additionally, NAFTA has strongly benefited the U.S. and Texas
economies. U.S. agricultural exports to Canada and Mexico account for
over 509,000 jobs according to the Center for North American Studies.
Texas agricultural exports to these countries employ approximately
19,000 people.
There is no doubt that NAFTA has increased demand for U.S.
agricultural goods, lowered input and production costs, and spurred our
economy. Leaders involved in NAFTA renegotiations must recognize the
gains achieved by American agriculture and assure that trade with
Canada and Mexico remains strong.
While Texas Farm Bureau recognizes the many achievements of NAFTA,
the trade agreement is over 2 decades old. We commend the
administration for looking at ways to break down existing trade
barriers and produce a better deal for America. We welcome any
modernizations to NAFTA that will further expand market opportunities
for farmers and ranchers.
It is important to note that net farm income has dropped 50 percent
from just 4 years ago. This is the largest 4-year percentage decrease
since The Great Depression. Due to the current State of the farm
economy, a full withdrawal of the United States from NAFTA would
devastate the entire agricultural community and our Nation. We must
make certain this does not happen.
The Texas Farm Bureau looks forward to our continued work with
congressional leaders and the administration to make NAFTA the best it
can be for our hardworking farmers and ranchers. Thank you again for
this opportunity to testify.
______
Prepared Statement of Jeff Moseley, Chief Executive Officer,
Texas Association of Businesses
Thank you for the opportunity to submit comments before this
committee on behalf of the Texas Association of Businesses (TAB) and
the Texas business community as a whole. From large multi-national
corporations to small businesses and start-ups, TAB works to improve
the Texas business climate and help make our State's economy the
strongest in the world. Given our broad membership base, we have a
unique perspective on the strength of the Texas economy and the effects
of public policy across the regulatory, legislative, and diplomatic
levers of power.
As a neighbor to Mexico and the 10th biggest economy in the world
by gross domestic product (GDP), Texas has a significant stake in the
health of free trade and particularly in the success of the North
American Free Trade Agreement (NAFTA). TAB has been a vocal supporter
of NAFTA dating back to its original negotiation and implementation. We
remain a fervent supporter today.
With the parties to NAFTA currently embarking on a renegotiation of
the agreement, we are offering these comments to the subcommittee to
highlight NAFTA's achievements for the Texas economy, explain the
importance of the North American Development (NAD) Bank to border
communities, and identify the areas where we believe that the trade
agreement can better serve the people of Texas.
how nafta has impacted the texas economy
NAFTA has had a significant impact across the gamut of economic
sectors in Texas, from energy to beef production to education. Most of
those effects come from our close proximity and partnership with
Mexico, which serves as the number one export and import market for our
State. As a State, Texas' trade partnership with Mexico has become
integral to our economic engine over the past 2 decades, with about
$173 billion worth of goods exchanged between our two economies every
year. That figure is a result of the whopping 540 percent growth in
Mexico-Texas trade since NAFTA was signed in 1994.
Across the State, more than 1 million jobs are reliant on trade,
with 387,000 jobs directly tied to exchanges with our southern
neighbor. According to most estimations, NAFTA has created 190,000
Texas jobs on its own and led to double-digit growth in 24 of the 32
industries that export to Mexico. And those gains have been balanced in
populations across the State as all 11 metro areas in Texas have seen
increased exports to Canada and Mexico since NAFTA was signed--
including many areas with export rate increases of 100-200 percent or
more.
These statistical gains are borne out in individual experiences as
well. For example, the Texas Cattle Feeders Association reports that
total value of beef trade between the three NAFTA countries has grown
from less than $1 billion in 1995 to average more than $4 billion
between 2014-2016. More than just providing an additional market for
Texas beef, imports of Mexican and Canadian cattle play an integral
role in our own cattle feeding industry, accounting for about 6 percent
of U.S. slaughter. In short, NAFTA has allowed North America to become
a key global supplier of beef while allowing beef availability to
increase in North American markets themselves.
For Texas cities like San Antonio, NAFTA has had a significant
positive impact on economic growth and development. According to Free
Trade Alliance San Antonio, a 23 year old not for profit focused on
developing the international business capabilities of South Texas
businesses, the Agreement is credited for creating jobs in professional
services, education and health sectors creating on average, 12,000 jobs
in each sector. It is particularly in the service industry that NAFTA
has created the most opportunities and benefits for the city. In 2015,
San Antonio companies exported a total of $10.7 billion. A 2013
Brookings Institution study noted that the U.S. economic downturn that
began in 2008 did not affect San Antonio as badly as other parts of the
country, in part due to the diversified markets that served to minimize
job loss and facilitate business stability. San Antonio businesses
continue to thrive due to increase exporting activity in the NAFTA
region.
Another example also resides here in San Antonio, which is home to
a large Toyota manufacturing facility. The Toyota Motor Manufacturing
assembly plant began production in late 2006, which significantly
boosted San Antonio's manufacturing profile. In addition to employing
thousands of Texans, San Antonio's Toyota manufacturing plant is an
example of a NAFTA win for the city, and border cities that have
typically ranked among the Nation's poorest are now home to prosperous
warehousing and logistics sectors.
texas will lose if the u.s. pulls out of nafta
There is little doubt that Texas will be a major loser should the
United States elect to pull out of NAFTA. Texas enjoys an $11 billion
trade surplus with Mexico, which is almost entirely dependent on the
continued success of free trade. Since 2006, Texas exports of goods to
NAFTA signatories has grown 71 percent, while exports of services has
risen 45 percent. An undermining of the tariff policies that have
allowed that growth would have hugely detrimental effects in most
sectors of the Texas economy.
As an example of a non-traditional industry that would be impacted
by NAFTA withdrawal, the Texas A&M International University (TAMIU) has
offered a perspective on how education would be harmed, not only in
terms of higher education as an export, but in the value of creating
more high-skilled jobs in the United States that require education. In
comments to the United States Trade Representative (USTR), TAMIU notes
that the role of U.S. services, such as higher education, is generally
unheralded in NAFTA consideration and warns that drastic changes to the
agreement could ``be undermined by undue focus on the deficit in U.S.-
Mexico trade in goods.'' Finally, education plays a vital role in the
``emerging pattern of specialization'' driven by trade and
technological progress, making access to educational services essential
for American workers.
Perhaps the most significant economic sector that would be
negatively impacted by NAFTA withdrawal is the natural gas industry.
Texan pipelines carry more than 4 billion cubic feet of natural gas a
day to Mexico, and American partnership with the Mexican energy sector
has been critical to fueling that nation's electricity demands. For the
United States, Mexico provides a critical market to help mitigate the
effects of a glut in American natural gas production, allowing for that
sector to continue its tremendous growth despite stalling American
demand. Undermining NAFTA could jeopardize that development and force
the Mexican Government to look to Peru and other South American
countries to satisfy its energy demands.
The simple act of trade also provides a critical economic boon for
Texas. Approximately 14,000 tractor-trailer rigs cross a single port of
entry--the Gateway to the Americans International Bridge in Laredo,
TX--every day, each paying a toll that contributes to local tax coffers
and carrying everything from dishwashers to car batteries. The mayor of
Laredo has described his town as ``NAFTA on wheels,'' and local
officials have estimated that 1 in every 3 jobs are positively impacted
by international trade.
building a stronger nafta
Given the pace of technological change and the changing nature of
developed economies, there is little doubt that free trade agreements
could use a facelift for the 21st century. A stronger NAFTA would
reflect the value of American intellectual property and promote greater
information sharing among NAFTA partners. Primarily, this involves
protecting Texas innovators with clear and enforceable rules on cross-
border data flows and intellectual property rights.
Additionally, given Texas's prominent role as a trade hub, speeding
customs and transportation processes will lead to increased trade
volume and maximize the benefits that NAFTA's other provisions can
provide. Every minute that a truckload is stopped at the border is a
wasted opportunity to make additional deliveries on the trade arteries
that bind our 1,300 mile border with Mexico. With smarter customs
regulations, we can ensure the safety of products reaching Texan
consumers while bolstering the economic benefits of the trade that
creates jobs on both sides of the border.
the north american development (nad) bank
Following on NAFTA and the North American Agreement on
Environmental Cooperation in 1993, the United States and Mexico
established the North American Development Bank (NAD Bank) to provide
financial assistance to entities involved in developing environmental
infrastructure projects that support NAFTA. The NAD Bank has been
successful in helping communities finance critical infrastructure
relating to water, solid waste, street paving, and other quality of
life improvements in border communities.
The Bank does all this while being incredibly cost-efficient for
taxpayers. They've taken $400 million in capital contributions from the
United States and Mexico and leveraged that into $7.1 billion in actual
infrastructure. In fact, as Congress considers how to finance as much
as $1 trillion in new infrastructure funding to spur economic growth,
TAB believes that the NAD Bank could be a model across the Nation and
could help Texas energy companies provide more jobs.
Along the border, many communities are still reliant on old coal
and biomass-fueled power plants. Many homes in the region do not have
access to gas lines, instead relying on less efficient, more expensive
means to heat their homes and cook their food. If the NAD Bank was
expanded, those areas could receive financing to help mature their
energy infrastructure, helping families and Texas businesses.
Recognizing these problems, Senator John Cornyn has proposed a
solution (S. 1385) that would expand the NAD Bank's ability to invest
in natural gas projects and other areas. This includes important
pipeline and electric generation facilities, cross-border energy
distribution, and energy security that could provide a market for
Texas's excess natural gas. Further, additional investments in the NAD
Bank proposed by the bill could spur additional border infrastructure
development across the State and the Nation, and could help Texas
energy companies provide more jobs. We fully endorse these efforts and
look forward to working together on this important legislation.
What happens along our border impacts the Nation, and the NAD Bank
represents one of the most important tools in our toolbox to increase
the flow of goods across the border. With that in mind, I would
encourage members of the subcommittee to join Senator Cornyn in
supporting the NAD Bank Improvement Act of 2017.
conclusion
NAFTA and the NAD Bank have proven to be economic engines for the
State of Texas, creating high skill jobs and providing renewed economic
mobility for Texas workers. With billions of dollars in goods and
services flowing through the State's borders every year, NAFTA has
positively reshaped the Texas economy over the past 2 decades and made
it a key port in both regional and global trade dynamics.
While we appreciate the administration's effort to ``Put America
First'' and strengthen any and all trade agreements, any renegotiation
of NAFTA should reflect that critical role that free trade will play in
the economic future of the Texas. Broadening the promise of the NAD
Bank as proposed by Senator Cornyn would provide critical investment
for a burgeoning natural gas sector that has sparked significant growth
in both Texas and Mexico energy markets. We would also urge the Trump
administration to resist withdrawing from the agreement and endangering
all of the gains that have been made since 1994.
Thank you for the opportunity to speak on this critical issue for
Texas businesses. We look forward to working with you to foster
economic growth for Texas businesses and secure the benefits of a
booming economy for all Americans.
______
Prepared Statement of Richard Perez, President and CEO,
San Antonio Chamber of Commerce
Since 1894, the San Antonio Chamber of Commerce has advocated for
the interests of its more than 2,100 members. It works to build and
sustain a vibrant business community by engaging business owners,
policymakers and influencers to address the issues and opportunities
vital to the success and prosperity of San Antonio.
San Antonio has a rich history with the North American Free Trade
Agreement (NAFTA), beginning with the initialing of the historic
agreement in this very same location in San Antonio in 1992. The impact
of NAFTA, however, is far more than ceremonial and affects companies of
all sizes in our community--many of whom are members of the Chamber.
As the seventh largest city in America and with projections of
continued growth over the next 20 years, San Antonio is a hub of
growing industries like health care, biosciences, information
technology, cybersecurity, energy and advanced manufacturing. It is a
thoroughfare of international trade, with four of the six major rail
gateways in Texas.
This community, like many across Texas, has benefited greatly from
NAFTA. Texas leads the Nation in worldwide exports by a wide margin. In
2016, Texas's exports to other countries totaled $232 billion,
including more than $90 billion to Mexico alone. Mexico is Texas's most
important market--accounting for 40 percent of the State's exports in
2016, the most of any State.
As we look to the future, the uncertainty surrounding the upcoming
renegotiation has had a chilling effect on growth and new investment
throughout the region, putting our existing record of prosperity in
doubt. The Chamber would, therefore, like to offer several areas where
this vital agreement should be strengthened and modernized.
energy
The continued integration of the U.S. and Mexican energy markets is
beneficial to both nations, but requires regulatory certainty--both
within and across borders--to function effectively.
With such certainty, we know the economic growth and investment
that follows. For example, as a direct result of the 2013 Mexican
Energy Reform and the free flow of hydrocarbons allowed under NAFTA,
San Antonio-based Howard Energy will be investing in projects totaling
more than $1 billion over the next 5 years in northern Mexico and south
Texas. These projects will create more than 950 temporary construction
jobs and 22 permanent jobs, generate almost $1.5 million per year in
local property taxes and $230 million per year in direct economic
value, and move approximately $2.1 billion of hydrocarbons per year
between the two countries. None of this includes NAFTA's indirect and
implied effects of creating new markets for American producers.
automotive
NAFTA contains the strictest automotive rules of origin
requirements of any U.S. Free Trade Agreement, at 62.5%. Any changes to
the rules of origin could jeopardize our current production and lead to
the unintended consequences of limiting consumer choice, raising costs,
reducing U.S. jobs, and increasing competition from other countries.
San Antonio specifically has benefitted from NAFTA. The year before
NAFTA became law, Toyota had two plants in the United States. Since
then, they have built eight more U.S. plants, including one in San
Antonio, where they make the Takoma and Tundra trucks. NAFTA has
enabled Toyota to be cost competitive in the world market when
exporting vehicles from the United States because of their integrated
supply chain. A local company, Avanzar Interior Technologies, makes
every seat that goes into each of the trucks coming off the line here
in San Antonio. Because of the terms of NAFTA and the relationship that
they have built with Toyota Motor North America, Avanzar will be
supplying every seat that goes into every truck made 700 miles to the
south of us in Guanajuato, Mexico. NAFTA supports the local economy
here, and allows us to compete as a region in this global marketplace.
retail
Ensuring that trade remains tariff-free throughout North America is
essential to keeping existing retail supply chains moving and
maintaining low prices on food and other essential items for American
families, thereby preserving the millions of jobs that depend on trade.
A stronger, modernized NAFTA can bring greater benefits to U.S.
consumers, protect American jobs, and help American retailers and their
suppliers in several critical ways:
A stronger NAFTA will maintain and expand current access for
U.S. food and other products to Mexican and Canadian markets
while protecting American workers, growers, and manufacturers.
Reducing non-tariff barriers, such as processing fees and
sanitary and phytosanitary measures, will make fresher,
healthier, and lower-priced produce and other products more
easily available to American families.
In today's digital economy, it is imperative that a
modernized NAFTA include digital and e-commerce provisions like
simplified customs requirements and processing for e-shipments,
which would make it easier for companies to export goods across
the border.
An improved NAFTA will ensure consistent food and other
product labeling requirements across countries, eliminating the
need for costly and duplicative efforts to comply with
divergent standards.
Increased resources for customs modernization and improved
infrastructure at the border will reduce delays in border
crossings, benefitting consumers by minimizing food spoilage
and transportation costs.
environment
Established in 1994, the North American Development Bank (NADB)
works to enhance the quality of life for people who live along the
U.S.-Mexico border through cleaner water, air, and land. Owned entirely
by the United States and Mexican Governments in equal shares, NADB
helps develop and finance infrastructure in communities on both sides
of the border through a variety of services and programs that encourage
sustainable development.
To date, 15 million residents on both sides of the border have
benefitted from sustainable infrastructure supported by the NADB.
With an initial $405 million in total paid-in capital contributions
from the United States and Mexico, the NADB has leveraged investments
totaling $6.9 billion for the development of sustainable
infrastructure. NADB is the only development bank that finances
projects in the United States and has financed 107 projects in
economically-distressed areas. In Mexico, NADB has financed an
additional 124 projects for a total of 231 projects in both countries.
In light of the NADB's proven track record of significant
infrastructure investment and environmental impact along the border,
the administration should include the Bank's first capital increase in
its history in the NAFTA renegotiation talks. Because of the importance
of Mexico as a trading partner, we would also like to see the Bank
participate in the development and financing of natural gas pipelines
and power plants in Mexico for North American energy security, as well
as trade facilitation projects that still support strong border
security at international land crossings.
conclusion
The NAFTA negotiations must recognize the interdependence of all
three economies, guarantee continued access to the U.S., Mexican and
Canadian markets, and be conducted in a manner that avoids any prospect
of retaliation against American products.
On behalf of the more than 2,100 San Antonio Chamber of Commerce
members, I thank you for the opportunity to testify on how we can
continue to use and strengthen NAFTA to help our businesses and
communities thrive and remain globally competitive.
______
Prepared Statement of Hon. Todd Staples, President,
Texas Oil and Gas Association
Chairman Cornyn and committee members, thank you for the
opportunity to testify on this important topic. The Texas Oil and Gas
Association is a statewide trade association representing the men and
women who produce the natural gas that heats your home, and the
gasoline for your cars. The mission of the Texas Oil and Gas
Association is to promote a robust oil and natural gas industry and to
advocate for sound, science-based policies and free-market principles.
Our members include exploration and production companies, midstream
businesses, refiners, and service companies. We represent all sectors
of the energy industry in Texas.
As the renegotiation of the North American Free Trade Agreement
continues, it is imperative that we urge President Trump and his
administration to maintain the current strong provisions that enables
our industry to remain competitive, continue to provide domestic job
growth and the ability to invest with certainty and confidence; most
importantly, the provisions surrounding the investor-state dispute
settlements (ISDS). Preserving ISDS means preserving the necessary
legal protections in place that defend our property rights, ensure the
absence of discrimination, and promise fair treatment from governments
while doing business both at home, and abroad. ISDS act as the very
backbone to our Constitutional rights, and we must keep them intact,
and strongly enforced. Without these provisions, our industry will lose
value, our position as an energy superpower will be endangered, and the
thousands of American jobs that fuel our economy will be jeopardized.
Other important issues to consider include items like tariffs and
market access policies. The U.S. benefits from providing energy
resources to our neighbors in the form of profits, job growth and the
stimulation of our own economic activity like manufacturing and
construction. As the agreement is being considered, we must not forget
these important benefits.
According to the American Petroleum Institute, as early as 2020 the
United States will have the ability to meet its liquid fuel needs,
completely, through domestic energy production and trade with our North
American partners. Our agreement with Mexico and Canada has been
fundamental to our economy, keeping our fuel prices fair, and our
petroleum and natural gas products both competitive, and favorable.
Ultimately, NAFTA has served as the very foundation that has allowed
the oil and natural gas industry to see the growth and prosperity it
has today, and this has resulted in countless jobs for Texans and
Americans, jobs right here at home. Now, it is imperative that we
conserve the polices that have allowed this industry to provide for our
Nation's energy needs.
I encourage you today to consider these issues, and as you work to
strengthen NAFTA on behalf of the American people. Please consider the
impact that any changes could have on the oil and natural gas industry,
that not only fuels our Texas economy, but promotes American national
security.
I know I can speak for all of us when I say we appreciate you
coming to Texas, home to two-thirds of our southern border, to hear
about this important topic. Please do not hesitate to contact me if you
have any questions.
______
Prepared Statement of Stephen P. Vaughn, General Counsel, United States
Trade Representative, Executive Office of the President
Good morning. My name is Stephen Vaughn, and I am the General
Counsel of the Office of the U.S. Trade Representative. It's great to
be here in Texas and specifically in San Antonio, where leaders from
the United States, Canada, and Mexico signed the original NAFTA 25
years ago. It is important to note Texas is our largest exporting State
and Mexico is Texas' largest export market. We are confident a new
NAFTA will create new opportunities for Texans. I am grateful for the
opportunity to testify about USTR's efforts to upgrade and improve
NAFTA for all Americans. Before taking questions, I would like to
emphasize a few key points.
It is important to understand that all of us at USTR--led by
Ambassador Lighthizer--are focused on getting a new agreement. We are
both aware of--and have concern for--those Americans who benefit from
NAFTA 1.0. We have heard from many Americans--including many in the
agriculture sector and from border States like Texas--who are very
concerned about the future of NAFTA. We share those concerns, which is
why we have moved at unprecedented speed to press for a new and
improved agreement. Since August, we have had five separate rounds of
negotiations--an unheard of pace for major trade talks. At this moment,
there are hundreds of U.S. officials, from agencies throughout the
government, in Mexico City negotiating with their counterparts from
Mexico and Canada. And this is only part of our ongoing effort.
We at USTR have reviewed more than 12,000 public comments on NAFTA
2.0. Since August 16th, Ambassador Lighthizer and USTR staff have met
personally with dozens of members of Congress, spending more than 700
hours discussing NAFTA with congressional members and staff during that
time. Furthermore, throughout this process, we have held extensive
consultations with members of the private sector, labor
representatives, ranchers, farmers, and leaders of the NGO community.
There have been dozens of scheduled briefings to advisory committees,
hundreds of hours of stakeholder consultations, and a continuing open
door policy. All of this work was undertaken to comply with
congressional rules, build support for NAFTA 2.0, and ensure a seamless
transition to a new agreement. As you know, it is very unusual to
attempt such a major trade negotiation at this pace. But we are doing
it, in large part, because we want to eliminate uncertainty and resolve
concerns about NAFTA as quickly as possible.
At the same time, I must emphasize that Ambassador Lighthizer
agrees strongly with the President's view that the current version of
NAFTA is a bad deal for America. Of course, there are Americans who
benefit from NAFTA. And we want to avoid harming them. But USTR must
look at trade deals from the perspective of the country as a whole--and
from that perspective, there are serious problems with NAFTA. Let me
just mention two.
First, NAFTA is outdated. It went into effect on January 1, 1994--
before most Americans had even heard of the Internet. NAFTA lacks the
type of provisions on labor standards, the environment, intellectual
property, State-owned enterprises, or digital trade that Americans now
expect in deals of this kind. To address this problem, Ambassador
Lighthizer has put forward extensive proposals to upgrade and modernize
NAFTA.
Second, NAFTA is unbalanced. We do enormous volumes of trade with
countries like Japan, the United Kingdom, Germany, and China pursuant
to WTO rules, even in the absence of a specific free trade agreement
with those countries. Against this background, the purpose of an
agreement like NAFTA is to create special rules--to give certain
countries unique access to this market, access that other countries
lack. In exchange, of course, we expect those countries to give
American workers, farmers, ranchers, and businesses comparable access
to their home markets.
Meanwhile, in the last 10 years, our trade deficit in goods and
services with Mexico has exceeded $500 billion. Our trade deficit in
goods and services with Canada over the same period was more than $100
billion. Together, that's a difference of over $600 billion in the last
decade. And if we looked at trade in goods alone, that difference would
be almost $1 trillion. The President and Ambassador Lighthizer are both
very concerned that these enormous deficits do not represent the type
of fair and reciprocal relationship that should exist when the United
States gives special privileges to another country. Accordingly, they
believe that NAFTA must be changed to give American workers a fairer
chance to compete. Again, we have put forward a number of proposals
designed to create a more level playing field.
We do not expect these negotiations to be easy. For a very long
time, our NAFTA partners have enjoyed an agreement that is tilted in
their favor. They do not want to give up that advantage, and we can
understand why they feel that way. But our job at USTR is to represent
the people of this country--and they deserve a better deal. We intend
to do everything possible to get it for them.
I want to thank Chairman Cornyn for hosting this field hearing, and
for giving me the opportunity to testify. I am happy to answer any
questions.
______
Communications
----------
Free Trade Alliance San Antonio
203 S. St. Mary's Street, Suite 130
San Antonio, Texas 78205
Free Trade Alliance San Antonio was formed in 1994 after the passage of
the North American Free Trade Agreement (NAFTA) for the purpose of
developing the export capabilities of the San Antonio business
community. The Alliance is a member organization focused on providing
export assistance, attracting foreign direct investment and advocating
laws and policies that support and facilitate international trade. We
have over 100 small, medium and large private and public sector member
companies.
Benefits of NAFTA and the Risks of U.S. Withdrawal From NAFTA
Over the more than 20 years since the passage of the North American
Free Trade Agreement (NAFTA), the flow of goods and services between
the U.S., Canada and Mexico has increased. In the case of trade with
Mexico, it has more than quintupled. Regional trade has increased
sharply from roughly $290 billion in 1993 (before the Agreement) to
more than $1.1 trillion in 2016. Cross-border investment has also
surged, with U.S. foreign direct investment stock in Mexico increasing
in that period from $15 billion to more than $100 billion. The NAFTA
began a long process of business integration which has allowed cross-
border sales as well as shared production processes, for example with
the Toyota Motor production facilities in San Antonio and the suppliers
in Mexico. San Antonio, like many across Texas, has benefitted greatly
from NAFTA. Texas leads the nation in worldwide exports by a wide
margin. In 2016, Texas's exports to other countries totaled $232
billion, including more than $90 billion to Mexico alone. Mexico is
Texas's most important market--accounting for 40 percent of the state's
exports in 2016, the most of any state.
Experts say that it is difficult to tease out NAFTA's direct effects
from other factors, including rapid technological advancement, expanded
trade with other countries such as China, and unrelated domestic
developments in each of the three countries. Debate persists regarding
NAFTA's legacy on employment and wages, with some workers and
industries facing painful disruptions as they lose market share due to
increased competition, and others gaining from the new market
opportunities that were created.
For San Antonio and South Texas businesses, it is undeniable that the
increased ability to trade with Mexico and Canada because of reduced
trade barriers has been a significant factor in maintaining consistent
business growth, even in times of economic downturn. This has been
particularly true for small and medium sized businesses but has been
equally true for San Antonio's larger companies such as H-E-B and
Toyota Manufacturing. Combined, these two large companies have created
over 100,000 direct jobs and thousands of indirect ones. The business
stability that diversified markets have facilitated has served to
minimize job loss and has played a significant role in the economic
growth of the city and the region.
NAFTA has benefitted San Antonio and South Texas businesses in many
ways:
(1) NAFTA has provided San Antonio and South Texas companies with
the opportunity to be price competitive and efficient by increasing the
import of competitively priced goods and the export of services. This
has led to growth in local businesses and the local economy.
(2) NAFTA has helped San Antonio and South Texas manufacturers to
source inputs (not readily available in the U.S.) they need to produce
competitive products.
(3) NAFTA has made San Antonio and South Texas an attractive
destination for foreign investment. Companies from Mexico have
increasingly expanded their business operations into San Antonio and
the South Texas region and this has served as an important source of
economic development and job creation in the region.
(4) NAFTA and the geographical proximity to Central and South
American markets have made San Antonio and South Texas attractive to
U.S. and non-U.S. companies interested in exporting. For example:
Portenntum de Mexico in a Joint Venture with
Provision ISR Israel, manufacturer of CCTV equipment,
strategically established its first U.S. office in San Antonio
with operations in Mexico. Its main consumer base is in the
U.S., and with NAFTA they can provide easier access to
inventory and benefit from low cost production.
Cerealto, a Spanish company, has a manufacturing
facility in Mexico City and has enjoyed the NAFTA benefits of
importing raw materials and work in process products as well as
final goods without extra duties or tariffs. Cerealto can now
satisfy both U.S. and Mexican markets by producing ``Made in
Mexico'' and ``Made in U.S.'' products.
Friedrich produces residential and commercial/
industrial air conditioning units. The company is headquartered
in San Antonio with 150 employees and another 100 employees in
its manufacturing facility in Monterrey, Mexico. About 30% of
the company's annual export sales are in Mexico and constantly
growing year by year as the company creates brand awareness and
develops a distributor network. The company also does several
million dollars of annual sales in the Canadian market.
Concord Supply Inc. is a research and development
company, producing innovative packaging and construction
materials. Concord is based in San Antonio and employs 38
employees. The company also has distribution and manufacturing
facilities in Monterrey Nuevo Leon, Mexico employing 100
workers. The company exports 80% of its products to Mexico
since the benefits under NAFTA have enabled the company to
remain price competitive.
Recommendations
Cross-border Trade and Movement of Labor
Considering that U.S. companies, especially small businesses, rely on
affordable labor costs and a readily available labor supply in order to
remain competitive in the domestic and global market, it would be
beneficial to continue to have access to sources of affordable labor.
U.S. business would greatly benefit from more flexible labor
provisions. Free flow of labor must be allowed.
Reducing barriers to U.S. companies, particularly small and medium
sized companies, to enter the Canadian and Mexican markets to bid for
government contracts would create greater demand for U.S. professional
services, skilled and specialized labor and related goods and services.
Small and medium sized companies should not be restricted from bringing
their equipment and experienced personnel in order to execute
contracts. Only reasonable registration requirements and reporting
should be included.
Customs Administration
Increased resources for customs modernization and improved
infrastructure at the border will reduce delays in border crossings.
Delays at the border currently cost U.S. consumers every year due to
damage to agricultural and other perishable goods, and higher
transportation costs.
Sanitary and Phytosanitary Measures
Reducing non-tariff barriers, such as processing fees and sanitary and
phytosanitary measures, will make more fresh, healthy, and lower-priced
produce available to U.S. consumers.
An improved NAFTA can ensure consistent food and product labeling
requirements across countries, eliminating the need for costly and
duplicative efforts to comply with divergent standards.
Cross-border Trucking
NAFTA negotiations should not slow down but should seek to enhance and
codify the great work that is being done on the border and customs.
Smart borders and better use of the infrastructure is needed.
The busiest land port on the Southern Border is Laredo, Texas with
2,083,864 trucks processed last year just in Laredo. That is 39,963
trucks per week, and with only 90 hours a week to cross, that is 444
trucks per hour. If the border were open 24 hours, 7 days per week,
approximately 237 trucks could be cleared per hour thus allowing
fresher and less expensive products to get to the U.S. consumer.
Environment
NADB was established in 1994 by the U.S. and Mexican Governments for
the purpose of developing and financing infrastructure projects along
the U.S.-Mexico border in order to improve the quality of life for
people living in the region. After more than 20 years of operation,
NADB is having a transformative impact on the border region.
To date, NADB has contracted U.S.$2.76 billion in loans and grants for
228 infrastructure projects aimed at supplying safe drinking water,
adequately treating wastewater, properly disposing of solid waste or
improving air quality through street paving or clean energy generation.
The total investment represented by these projects exceeds U.S.$8.24
billion--evidence that the NADB development model is succeeding in its
intended goal of complementing and leveraging other sources of funding,
including private capital and other public resources.
Inclusion of capital increase for the North American Development Bank
in the NAFTA renegotiation talks to ensure the continuation of
infrastructure projects that improve the quality of air, water and land
along the U.S./Mexico border as a mechanism to fulfill the environment
objectives proposed in the U.S. NAFTA renegotiating objectives.
Conclusion
We fully support a strengthened and updated NAFTA which takes into
account innovations and factors that did not exist when the Agreement
was signed over 20 years ago. This is an opportunity to optimize North
American's competitiveness on the global stage. Now is the time to
IMPROVE NAFTA and remove the remaining red tape and protectionism that
slows trade or raises the cost of trade.
We do not support a U.S. withdrawal from NAFTA as this would cause
significant economic upheaval to San Antonio and Texas businesses
overall. Disrupting the $1.3 trillion in annual trade across the North
American borders or reverting to higher tariffs and trade barriers that
preceded NAFTA could put at risk the millions of jobs that depend on
North American trade.
There are still untapped opportunities in Mexico and Canada. The
Mexican economy has been on an upward trajectory and its markets are
evolving and beginning to offer new opportunities. Over the past few
years San Antonio businesses have increased their interest and
exporting activity in Canada. Similarly, Canadian companies have an
increased interest in expanding into the U.S. through exporting
activity and investment. San Antonio's longstanding relationships and
contacts make us well positioned to take advantage of opportunities as
they arise.
______
City of Laredo, TX
1110 Houston Street
P.O. Box 579
Laredo, TX 78042-0579
Tel. (956) 791-7302
Fax (956) 791-7498
November 29, 2017
U.S. Senate
Committee on Finance
Dirksen Senate Office Building
Washington, DC 20510-6200
Dear Sirs:
With the renegotiation of the North American Free Trade Agreement well
underway and in light of recent threats by President Donald Trump to
withdraw from NAFTA, the City of Laredo seeks your assistance in
working to ensure that the spirit of NAFTA to promote free trade among
the United States and its neighboring countries of Mexico and Canada be
strengthened and solidified.
NAFTA was founded on core values that included the removal of
trade obstacles; trilateral circulation of goods and services;
promotion of fair competition; increase in investment opportunities;
protection and enforcement of intellectual property rights; and the
creation and implementation of procedures to further the cooperation
among partner countries. While we recognize that the Trade Agreement
after 23 in force requires modernization to incorporate industry
changes and address commonalities that hinder trade growth as well as
environmental and labor protections, NAFTA's core values should
continue to be protected.
NAFTA has supported the economic transformation of the United
States, Canada, and Mexico and ultimately improved the welfare indexes
of the partners' respective populations. Specifically, NAFTA has
generated a significant flow of investments among the partner nations,
effectively tripling the value of trade. Laredo, as the largest inland
port and the third largest customs district reporting a total trade
value of over $283 billion in 2016, has witnessed firsthand this
explosion of trade and trade related economic opportunities as driven
by NAFTA.
The City of Laredo commissioned the preparation of a study
regarding the Impact of the Renegotiation of the North American Free
Trade Agreement (NAFTA) on the local economy. Included is a copy for
your review and consideration. The Study was based on published reports
and feedback from business trade professionals. Points of consensus
include:
NAFTA Partners enjoy a strong and mutually
beneficial economic relationship. These business relationships
should be supported and new opportunities for collaboration
within the service and trade sector discussed.
In order for the renegotiation of NAFTA to be
successful, concessions must be made that benefit all three
partner nations.
The issue of trade deficit reduction should not
merit consideration as an issue of contention in NAFTA
renegotiation. Sixty-three percent (63%) of the U.S. trade
deficit ($505 billion) is attributed to China, Japan, and
Germany, while only 8% is attributed to Mexico and 2% to
Canada. Negotiation should focus on how to improve the
expansion of trade and investment, and not on regulations that
reduce the same.
The opening of energy in Mexico can greatly
increase the loading operations through Laredo.
An important aspect of NAFTA renegotiation is to
ensure that federal budgetary allocations and/or systems be put
in place that provide the necessary funding in support of
critical infrastructure and services that facilitate trade and
the movement of commerce. Current day infrastructure capacities
are strained and require renewal and/or enhancement to better
meet existing and future needs.
It is further critical that the United States reconsider its
protectionist demands in regard to the U.S. content of vehicles
manufactured in Canada and Mexico and the placement of limits on the
level of U.S. public procurement that Canada and Mexico can bid on.
These actions are counterproductive in that they will drive up
manufacturing costs and ultimately costs for U.S. consumers.
Beyond promoting trade and economic opportunities among its
partner countries, NAFTA symbolizes the collaboration, respect, and
friendship of neighboring countries. In this age of conflict and
disharmony, it is so very important that the bonds that unite the
United States with Mexico and Canada be safeguarded.
Again, I ask for your continued support of NAFTA and your assistance in
helping to ensure the renegotiation and modernization of NAFTA results
in increased trade opportunities that further bind us and not divide us
as neighboring countries but further optimize North America's
competitiveness.
Sincerely,
Pete Saenz Horacio A. De Leon, Jr.
Mayor City Manager
______
ANALYSIS
THE RENEGOTIATION OF NAFTA
IMPACT ON THE ECONOMIC ACTIVITY OF
THE CITY OF LAREDO
Prepared for
The City of Laredo
September 1, 2017
This document was prepared by the World Organization of Cities and
Logistics Platforms (WOCLP), its content and rights belong to the City
of Laredo, TX.
Research team of the World Organization of Cities and Logistics
Platforms (WOCLP):
Hector Vargas, MBA
General Director
Natalia Arce, MAE
Economist
Laura Ulloa, MBA
Logistic and Foreign Trade
Executive Summary
During the conference given by Mr. Dennis E. Nixon, CEO of the
International Bank of Commerce on September 27, 2016 in the 23rd Annual
Logistics and Manufacturing Symposium with the theme of International
Trade and Border ``Own the Message,'' he reflects on the role of having
a responsible attitude towards all of the economic and political
sectors of the City of Laredo, in order to promote international trade,
maintain leadership in the border region, and make NAFTA a tool of
economic development.
This important message makes us reflect on the fact that the fringe of
comfort that most of the business sector and policymakers have, comes
from the continuity of their activities in which they are commonly
found and that in many occasions lose the objectivity to create
differentiation and maintain the levels of regional competitiveness of
a city like Laredo.
The outsourcing of a vision different from that of a city can be a very
positive economic tool. As part of this economic analysis, proposed is
a new generation of ideas, outside of the common regional interests
that allow the adjustment of specific work programs that are required
to promote the economy and the positioning of the city.
The World Organization of Cities and Logistics Platforms (WOCLP),
proposes the implementation of regional and border development
objectives, trade corridors and logistics platforms that allow Laredo
to focus on intra-regional common benefits and international trading
blocks.
The decision of the authorities of the City of Laredo to commission an
analysis of NAFTA Negotiations and its local economic impact is an
important step in maintaining Laredo's leadership role in international
trade.
During the last 23 years, the North American Free Trade Agreement has
in a general sense, supported the economic transformation of the three
partner countries and ultimately improved the welfare indexes of the
respective populations.
This global trade of 23 years has generated a significant flow of
investments among the partner nations, effectively tripling the value
of trade to over $1 trillion in 2016.
The competitiveness of the trade treaty has been strengthened by the
great capacity of the development of strategic infrastructure in ports,
roads, and railroad accesses, as well as in the modernization of the
border system and in the security of the systems related to the
protection of merchandise handling.
Misplaced emphasis has been given to the extent of the United States
trade deficit with Mexico and Canada as a result of NAFTA; together
both nations represent only 10% of the total trade deficit of the
United States. This is not a problem for the U.S. economy, compared to
China's total trade deficit of 46%.
The main topics of United States agenda for renegotiating NAFTA are the
following:
b Trade in Goods. The objective is improving the U.S. trade
balance and reducing the trade deficit with the NAFTA countries.
b Customs, Trade Facilitation, and Rules of Origin. The objective
is increasing transparency regarding all customs laws, regulations, and
procedures.
b Trade in Services. The objective is securing commitments from
NAFTA countries to provide fair and open conditions for services trade,
including telecommunications and financial services.
b Investment. The objective is establishing rules that reduce or
eliminate barriers to U.S. investment in all sectors in the NAFTA
countries.
b Intellectual Property. The objective is promoting adequate and
effective protection of intellectual property rights.
b Currency. The objective is ensuring that the NAFTA countries
avoid manipulating exchange rates in order to prevent effective balance
of payments adjustment or to gain an unfair competitive advantage.
b Energy. The objective is preserving and strengthening
investment, market access, and state-owned enterprise disciplines
benefitting energy production and transmission and supporting North
American energy security and independence, while promoting continuing
energy market-opening reforms.
b Anti-Corruption. The objective is securing provisions committing
each NAFTA party to prosecute government corruption.
b Trade Remedies. The objective is eliminating the Chapter 19
dispute settlement mechanism and preserving the ability of the United
States to enforce rigorously its trade laws, including antidumping,
countervailing duty, and safeguarding norms.
b Environment. The objective is bringing the environmental
provisions into the core of the Agreement rather than as a side
agreement.
b Labor. The objective is integrating labor provisions into the
core of the Agreement rather than as a side agreement and requiring
NAFTA countries to adopt and maintain in addition to their laws and
practices the internationally recognized core labor standards as
recognized in the International Labor Organization (ILO) declaration.
This analysis further considers the impact of NAFTA in terms of who has
won or lost. Although the trade agreement has increased trade between
the three nations in a positive way, there are sectors of the
respective economies that were negatively affected.
Within free trade agreements, the countries know that there will always
be productive sectors that can benefit and others that cannot.
NAFTA for the United States has allowed the increase of supply chains
of raw materials that are necessary for the production sectors of
Canada and Mexico. The technology and capital goods that the United
States produces have also benefited. This shows that in Mexico, for
example, in certain industrialized products the U.S material component
is of $0.40 cents for every dollar produced.
In general, there are no losers in this 23-year agreement. Actually,
all three countries have won, fundamentally reflected more so in Mexico
because in 1994 it had an economy with a different economic asymmetry
to that of the United States and Canada, both industrialized nations of
greater world power.
Also, to achieve a better understanding of how the renegotiation of
NAFTA would impact Laredo's economy, we developed a series of
conversations with various local trade professionals to obtain their
perspective.
Trade professionals in Laredo commented that Laredo is known as the
best logistic city and therefore, it must continue to specialize in
this.
As the largest inland port and the third largest customs district of
the United States with $283 billion in trade in 2016, we recognize
Laredo's importance as a trade corridor since it is geographically
situated within the entire NAFTA market.
Laredo is a city that cannot go unnoticed before the world, a city that
must continue to position itself commercially at an international
level, and a city strategically located on the U.S. Mexico border that
must continue to take advantage of being a principle international
trade corridor in order to grow its economy.
Every single person that was interviewed agrees that this renegotiation
of NAFTA will provide new opportunities for the entire service and
trade sector of the City of Laredo.
It should also be mentioned that in the Industrial Trends Report of
Laredo \1\ for the second quarter of 2017, only 1.05% of the industrial
inventory market is available. Today Laredo has about 1 million square
feet of warehousing under construction, which indicates that there is
confidence in the continued investment in Laredo's real estate market.
---------------------------------------------------------------------------
\1\ Industrial Trends Report, Laredo Q2 2017, Forum Commercial Real
Estate.
The opening of energy in Mexico is also mentioned, as it can greatly
increase the loading operations through Laredo; the business sector has
---------------------------------------------------------------------------
to take advantage when this occurs.
The IBC Bank document, ``Reasons Why Laredo and Its Infrastructure Are
Critical,''\2\ notes that jobs in Texas and the rest of the United
States depend heavily on trade with Mexico.
---------------------------------------------------------------------------
\2\ ``Reasons Why Laredo and Its Infrastructure Are Critical,''
Gerald Schwebel, IBC Bank.
An important aspect of NAFTA renegotiation is to ensure that federal
budgetary allocations and/or systems be put in place that provide the
necessary funding in support of critical infrastructure and services
that facilitate trade and the movement of commerce, including but not
limited to international bridge improvements, highway/roadway
construction and expansion, railway and railway crossing enhancements,
border station improvements and environmental protections and
safeguards. Current day infrastructure capacities are strained and
require renewal and/or enhancement to better meet existing and future
---------------------------------------------------------------------------
needs.
Conversely, cities, such as Laredo, that are located along the NAFTA
trade corridor, have long borne the responsibility of funding trade
related infrastructure improvements that not only impact the local
economy but also that of the state and nation. Changing the status quo
is integral to not only ensuring the expansion of NAFTA trade
opportunities but also the economic vitality of trade corridors and
logistic centers of trade.
Finally, included as a recommendation are those areas in which the City
of Laredo may choose to focus its economic efforts centered on the idea
that:
TRADE CORRIDORS SHOULD NOT BE ONLY LOAD CORRIDORS
Our recommendation is that the City of Laredo as an important center of
international trade services, generate greater integration,
sustainability, and social inclusion of trade operations, and be able
to develop more concepts on fair trade and fair logistics.
It is recommended that during the process of renegotiation of NAFTA,
the City of Laredo, in conjunction with the business sector, direct
efforts in the preparation of development of programs in:
b Reverse Logistics.
b Logistic HUB (opening of energy sector in Mexico).
b Trading Companies (small and medium-size enterprises).
b Environmental Sustainability of the NAFTA Corridor.
b Fair Trade and Fair Logistics.
b Improvement of the Strategic Logistics Infrastructure.
Through these programs, jobs will increase in the City of Laredo, new
businesses will be created, and regional and international trade
activities will be strengthened.
NAFTA's Perspective 23 Years Later
When we speak of free trade, we cannot dismiss the classic school of
Adam Smith, who thought that all countries could profit from trade
through the international division of labor, in which each country had
to specialize in the production and export of those products they
produced relatively more efficiently. In this way, countries would
specialize in what was best produced and import those goods that were
the most inefficient and costly to produce. In this manner, trade would
be beneficial for both countries.\3\
---------------------------------------------------------------------------
\3\ Adam Smith, Research on the Nature and Causes of the Wealth of
Nations, 1776.
Likewise, this trend of trade liberalization is mentioned by Robert
Gilpin, stating that, ``free trade increases competition in domestic
markets, and consequently limits monopoly practices, lowers prices,
increases consumer buying options, and the efficiency of markets.'' \4\
---------------------------------------------------------------------------
\4\ Gilpin, R., ``Global Political Economy: understanding the
international economic order,'' Chapt. 8. Ed., Princeton University
Press, 2001.
In short, the North American Free Trade Agreement (NAFTA) signed by the
United States, Canada, and Mexico has been an important instrument of
economic and commercial development of these three nations since its
---------------------------------------------------------------------------
implementation on January 1, 1994.
Here it is worth recalling the core values of the spirit that motivated
the interest of these nations and that carries the essence of the
treaty.
The objectives outlined were as follows:
(1) Remove trade obstacles to commerce and facilitate the trilateral
circulation of goods and services between the territories of the
countries.
(2) Promote conditions of fair competition in the free trade zone.
(3) Substantially increase investment activities in the territories of
the countries.
(4) Protect and enforce, adequately and effectively, the intellectual
property rights in the territory of each of the countries.
(5) Create effective procedures for the application and enforcement of
this treaty, for their joint administration and for the settlement of
disputes.
(6) Establish guidelines for further trilateral, regional and
multilateral cooperation aimed at expanding and improving the benefits
of this treaty.
Despite the lack of balance that Mexico's economy showed regarding the
other powers of the treaty, NAFTA set out very clearly the objectives
in the harmonization of rules and economic integration that in this
case gave Mexico an important boost to its export sector and
investments in the development of strategic logistics infrastructure
for transportation.
What we are interested in showing in this document, without having to
delve into controversies of different sectors, is that since 1994, the
global trade of these nations has tripled the value of trade to reach
$1 trillion dollars by the end of 2016.
This important triparty trade relationship has been growing very
positively, where at the end of 2016, Canada is in second place and
Mexico in third, as the main trading partners of the United States,
only surpassed by China. It should be noted in the specific case of
Mexico that trade with its main partner, the United States, has grown
in the last 23 years by an average of 9.5% annually from $100 billion
in 1994 to $525 billion in 2016.\5\
---------------------------------------------------------------------------
\5\ ``NAFTA Facts and Figures,'' Secretary of Economy, Government
of Mexico.
Mexico, too, is one of the main buyers of U.S. goods: since the
beginning of NAFTA until 2016, Mexican imports had an annual average
---------------------------------------------------------------------------
growth of 7.7%.
The following table reflects how trade with Mexico has evolved since
NAFTA's inception.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
As you can see, there is a significant commercial exchange that denotes
a balance very close in the trade gap between the United States and
Mexico from 1994 until 2016.
The important thing to note is that both countries have taken advantage
of the juncture of the Treaty of Free Trade to be more competitive in
the international market by integrating a greater value added to their
final goods and improving supply chains.
For certain industrial and manufacturing sectors, it is estimated that
for every dollar that Mexico exports to the world, $0.40 cents
represent raw materials that come from the United States and $0.25 from
Canada, reflecting NAFTA's trade integration of the goods produced.\6\
---------------------------------------------------------------------------
\6\ ``NAFTA Facts and Figures,'' Secretary of Economy, Government
of Mexico.
By 2016, the largest exports of Mexican products to the United States
are concentrated in manufactured goods, most notably transportation
equipment, electronic products and computers, electrical equipment,
---------------------------------------------------------------------------
household goods and spare parts and non-electrical machinery.
Another of the main export products is related to the agricultural
sector, which, at the end of 2016, reached $9 billion dollars, mainly
in fruits and vegetables. These exports far exceeded sales of crude
oil, which reached $6 billion in the same year.
Consider the following table of the U.S.-Mexico trade balance in the
last 3 years.
United States of America
Trade Balance With Mexico
2014-2016
U.S.$ billions
------------------------------------------------------------------------
Subject 2014 2015 2016
------------------------------------------------------------------------
Exports $240 $236 $231
Imports $297 $299 $294
Global Trade $537 $535 $525
------------------------------------------------------------------------
Trade Balance $(57) $(63) $(63)
------------------------------------------------------------------------
Source: Own with ITC TRADEMAP DATA.
Although it is true that there is a deficit in the trade balance of the
United States with Mexico, this should not be a factor affecting the
new renegotiation of NAFTA. There are many economic factors that affect
the global economy of the United States and these factors make it have
a negative economic balance. But these are not factors that can be
attributed to a free trade agreement like NAFTA.
Let's look at the trade balances of United States with Canada and
Canada with Mexico.
United States of America
Trade Balance with Canada
2014-2016
U.S.$ billions
------------------------------------------------------------------------
Subject 2014 2015 2016
------------------------------------------------------------------------
Exports $312 $281 $266
Imports $354 $302 $283
Global Trade $666 $583 $549
------------------------------------------------------------------------
Trade Balance $(42) $(21) $(17)
------------------------------------------------------------------------
Source: Own with ITC TRADEMARK DATA.
Canada
Trade Balance with Mexico
2014-2016
U.S.$ billions
------------------------------------------------------------------------
Subject 2014 2015 2016
------------------------------------------------------------------------
Exports $5 $5 $6
Imports $26 $24 $25
Global Trade $31 $29 $31
------------------------------------------------------------------------
Trade Balance $(21) $(19) $(19)
------------------------------------------------------------------------
Source: Own with ITC TRADEMARK DATA.
As noted in the previous tables, the U.S. trade balance with both NAFTA
countries is negative; Mexico shows a surplus.
As mentioned above, the issue of deficit is something that MUST NOT be
seen in a linear way, clearly, when economies trade with each other,
always one will have at a given time a deficit or a surplus; this is
the product of market forces.
Therefore, renegotiation of NAFTA on the part of the United States to
include reduction of the trade deficit, is perceived to be very
political and illusory since having a trade deficit does not
necessarily imply a detriment to the economy.
The deficit as such reflects the natural trade relationship between
nations. China, for example, without having a Trade Agreement with the
United States was able to increase its trade surplus with the United
States six times more than Mexico.
This fact demonstrates that there are factors, other than trade
agreements, that account for most of the trade balances.
Let's take a look at the following table on the composition of the
trade balance of the United States for the year 2016.
United States of America
Global Trade Balance
2016
U.S.$ billions
------------------------------------------------------------------------
Subject 2016
------------------------------------------------------------------------
Exports $1,453
Imports $2,250
------------------------------------------------------------------------
Trade Balance $(797)
------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Canada % Mexico % China % Japan % Germany % Other Countries %
----------------------------------------------------------------------------------------------------------------
$(19) 2% $(63) 8% $(366) 46% $(72) 9% $(67) 8% $(212) 27%
----------------------------------------------------------------------------------------------------------------
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
This pie chart assists in better understanding, how the United States
trade deficit is distributed for 2016, where 63% of it ($505 billion)
is represented by China, Japan, and Germany, while Mexico represents 8%
and Canada 2%.
One of the reasons for this deficit is largely due to the consumption
levels of its economy. This pace has forced more money to circulate as
further stimulated by the reduction of global interest rates.
In summary, the trade policies that the United States can implement to
reduce the cost of doing business including, reducing non-tariff
barriers and taxes can increase the economy's growth rate.
Here we must note that the decline in the unemployment of the
manufacturing sector in the United States, is not due to international
trade, but more so due to changes in productivity and increases in
technological innovation which have contributed to lower employment.\7\
---------------------------------------------------------------------------
\7\ ``Recent U.S. Labor Force Dynamics: Reversible or Not?'',
International Monetary Fund, 2015.
We are at the start of a renegotiation process that will take a long
time. It is anticipated that we will not see concrete results of the
---------------------------------------------------------------------------
negotiations at least in the coming 6 months.
The United States agenda to renegotiate NAFTA includes consideration of
the following points:
b Trade Deficit. This is the first time that the Office of the
U.S. Trade Representative has included the trade deficit as a specific
objective of the NAFTA negotiations. As previously mentioned, we see
this as a mercantilist theme, that is not in the spirit of the NAFTA;
renegotiation should focus on how to improve the expansion of trade and
investment, and not any regulation or reduction of the same.
b Exchange Rates. NAFTA can monitor the risks in the handling of
the exchange rate of each signatory because this cash adjustment
affects the balance of payments.
b Chapter 19, Trade Dispute Settlement. The proposal for the
elimination of Chapter 19, the trade dispute settlement mechanism which
Canada had driven within NAFTA, is not something that Canada wants to
give up at this point.
b Rights of Local Investors. Ensuring that investors from NAFTA
partner countries have the same rights as local investors in each
country is very acceptable and puts regulations and clear rules of the
game within the Treaty. This point is reflected in the opening of
Mexico's energy.
b Environmental and Labor Disputes. After the departure of the
United States from the agreements of the United Nations Climate Change
Conference or COP 21 in Paris, the issue of environmental and labor
disputes for arbitration panels became a more complicated subject
because it requires improving labor and environmental conditions. This
can lead to tariffs and other technical barriers which can prevent the
logical flow of the treaty and restrict trade as such.
b Telecommunications, Financial Services and Agriculture. These
topics are being included: Canada is pushing to lift protections and
liberalize them.
b Rules of Origin. The updating of the rules of origin of trade
between the countries of NAFTA will come to shield the market against
foreign investments that do not generate the added values of regional
integration.
b Other Issues. Other sensitive issues are electronic commerce and
intellectual property which should be included in the main document and
not as parallel agreements. Aspects such as freedom of association,
minimum wage, child labor and many others will be reviewed in the
renegotiation. Finally, it is requested to include provisions to
prosecute government corruption. It will be very interesting to see the
progress on these topics when discussed.
The United States has defined the objectives of the negotiation and
that is positive for the parties. The scope of proposals during the
first round of negotiations held August 16, 2017 reflects a commitment
from all three countries to work towards a positive outcome and
reaffirms the importance of updating the rules governing free trade.
It is important to follow up on the second round of talks to be held on
September 1-5, 2017 in Mexico.
A Modern NAFTA: Who Gains and Who Loses?
The important role the City of Laredo plays in trade and services and
its success on the international stage is not a product of chance.
Through the years and through various international economic events,
Laredo has become an international reference not only because of its
great increase in international trade flow due to NAFTA but also
because of its logistic capabilities and integration of cultures.
The significant growth and economic development of the city is
attributed to NAFTA. Through the years in which NAFTA has been active,
there have been many questions and approaches that are still worth
analyzing for its renegotiation.
After 23 years, who won and lost with the North American Free Trade
Agreement (NAFTA) is a question that many have asked.
According to specialists, the economy of the three countries is very
different from the one that existed before 1994, because there are some
sectors that have benefited greatly from the agreement and others that
have experienced severe problems.
In various meetings held with representatives of various business
sectors, university and public administration, as well as various
chambers and organizations in various cities in northeastern Mexico in
regard to the flow of trade with the United States across the border of
Laredo, Texas, it was possible to capture some peace of mind as to what
will happen in this renegotiation.
Most people have commented that commercial development, jobs,
infrastructure, and economic interests have created great opportunities
throughout the three signatory countries.
Regardless of that noted above, being positioned within the great NAFTA
trade corridor has allowed the City of Laredo to benefit from the
exchange of different productive sectors, more so than any other region
of the United States or Mexico.
There are those who think that the great winner of NAFTA has been the
consumer, since the consumer can freely choose goods according to
quality and price.
The idea of a NAFTA update is not new. Since mid-2010 legislators from
Mexico and the United States have pointed out that the commercial
partnership between these countries and Canada is exhausted, and a
relaunch is necessary.
Trade between the United States and Mexico has quadrupled since the
signing of the Free Trade Agreement; each day there are more than $1
billion in commerce traded between both countries.\8\
---------------------------------------------------------------------------
\8\ United States International Trade Commission, https://
www.usitc.gov/.
For the Confederation of Employers of the Mexican Republic (COPARMEX),
the Coahuila Delegation, through its Logistics Commission,
renegotiation of the North American Free Trade Agreement represents not
only the opportunity to fulfill the internal agenda of President Donald
Trump but also the opportunity to strengthen those sectors in which
foreign investment in Mexico and Canada are still in the process of
---------------------------------------------------------------------------
consolidation.
NAFTA is the largest free trade zone in the world, with about 474
million inhabitants forming part of a commercial region compared to the
European Union alone.
The three partner countries must ensure that businesses on both borders
prosper and improve the lives of people in their respective
communities.
NAFTA members today enjoy a strong and mutually beneficial economic
relationship. These business relationships should be strengthened and
new opportunities for collaboration discussed.
Discussions have been held about the challenges and how the three
governments can propose a more constructive dialogue, join efforts with
United States and Canadian entrepreneurs, find solutions to deepen free
trade and address the great need the United States has for the creation
and protection of jobs; and understand that Mexico and Canada are in
the same circumstances.
We believe that in this process of opening NAFTA for its revision and
updating, there are three basic principles that must be established:
b Propose that there be a shared consensus that as a result of
NAFTA, there have been deep gains in all three partners' economies: to
say only one or two of the three parties have excelled is incorrect.
b The second principle will be to recognize that an agreement that
has existed for 23 years has room for updating and modernization.
b The third principle is that successful renegotiation requires
that there must be benefits for all.
It is inconceivable that the renegotiated agreement only benefits one
nation or two and not all three partner nations.
According to the Confederation of Associations of Customs Agents of the
Mexican Republic (CAAAREM), at its 78th annual Congress in the ``NAFTA
and Other North American Challenges'' panel, and in accordance with the
opinion of the Nuevo Laredo Customs Agents in Tamaulipas, the NAFTA
revision does not end the activity of customs and logistics services.
Professionals in the field interviewed indicate that commerce will not
stop and the suppliers of services and logistic products, as well as
the development of infrastructure and new businesses in the City of
Laredo and its Mexican counterpart will continue.
For example, if there was no NAFTA, 36% of the $300 billion dollars in
goods that the United States imports from Mexico would enter without
zero customs duties. This is because the United States has zero customs
duties as per the harmonized tariff.
However, another 43% would pay a duty of 5 percent or less, which
brings us to about 80% of Mexican exports that would enter with a duty
of 5 percent or less.
There is only one group of exports that are above the 20% payment,
which have specific duties and equate to 16% of exports, which surely
would have to pay higher duties.
The U.S. trade deficit is by no means tied to imports from Mexico, but
rather to the fact that Mexico's spending is greater than its income,
mainly tax-related.
As we mentioned in our previous chapter, the U.S. trade deficit will
not be solved with the modernization of NAFTA or in an extreme case,
with its annulment.
The United States faces the risk of losing employment to Asian nations
if trade with Mexico deteriorates. The relationship with Mexico is
important in order for the United States to maintain its leadership in
the world.
It is agreed that the commercial relationship with Mexico, which since
1994 is based on the opening and liberalization set in NAFTA,
definitively improves the competitiveness of the United States and
generates jobs for the United States; a stronger region benefits the
United States.
As an example, 40 percent of Mexican products have components
manufactured in U.S. territory; 70% of U.S. imports of manufactured
goods in Mexico cross the common border several times before becoming a
finished item.
The City of Laredo has witnessed firsthand the increase in percentages
and volumes of trade merchandise represented, and recognizes the
importance of this international relationship. The exchange with Mexico
and Canada utilizing land ports has benefited the economy of the United
States but especially the City of Laredo.
It is clear that there is a strong relationship to the north with
Canada and to the south with Mexico. This definitely benefits many in
the United States and it helps make it more competitive.
Based on the opinions of the transportation sector of Mexico, the
Asociacion Nacional del Transporte Privado (ANTP) and the Camara
Nacional del Autotransporte de Mexico (CANACAR), there is no winner or
loser within the new negotiation of the treaty because for them
everything would remain the same. During the course of the
implementation of NAFTA, the United States did not comply with the
opening of cross-border transportation. This affected the City of
Laredo since this stopped the arrival and opening of greater
investments in the transport sector.
If North American exports increase and Mexican exports decline because
of NAFTA negotiation, Mexican transporters would eventually benefit as
they would move exports from the north to Mexico's final destination.
Similarly, this transport association does not consider its activities
in danger due to the renegotiation of NAFTA and, on the contrary,
considers that this process of modernization will bring benefits to all
parties.
NAFTA in the Economic Activity of the City of Laredo
Before referring to the aspects related to the renegotiation of NAFTA
and whether this will affect the economic development of the City of
Laredo, it is very important that we have an understanding of the
importance of this trade corridor.
We must also recognize, in a very elementary way, the various Macro
Zones in which the Continental territory is segmented.
It is important to distinguish that all these regions have logistic
freight corridors adapted to their geographies and needs. However, in
most nations there are no corridors developed as such. Others are
internal corridors with many limitations of having to share them with
other activities, which, usually not being designed for this purpose,
cause a lot of traffic chaos in their cities. Few are binational and
even trinational and not thought of as such. Few are also Bioceanic
(those that connect the Atlantic with the Pacific).
We believe that much more investment is needed to further develop the
rail system inside the NAFTA Corridor, as Europe or Asia has. China now
with the New Silk Route comes to manage a geostrategic and geopolitical
change in the positioning of world merchandise trade and logistics,
using extensively the new generation high-speed railway system with
less impact on the environment.
Latin America, for its part, was totally behind on railroad
interconnections, and roads, among other infrastructure. The
consequence of all these factors is that exporters and importers lose
competitiveness, and logistic costs are much higher.
Trade corridors over time and before the advances in world trade, are
now very relevant for the development of cities, regions and countries
that comprise it.
With the NAFTA experience, the Latin American countries realized that
integration in commercial blocks was the basis of foreign trade, at
least for 90% of companies in Latin America (which included Mexico)
that sought to progress and thought that export could be the solution.
But they saw it very far away! Thus, through the GENERATION OF FREE
TRADE AGREEMENTS, an important increase of trade blocks is generated
between the regions in pursuit of greater economic development. These
mega trade blocks such as the Trans-Pacific Partnership (TPP), have
allowed the globalization of international trade and a significant
increase in logistics activities.
Trade corridors have been transforming for the better to make logistics
more integral and non-conventional, using multimodal routes that are
favoring transit times and operating costs.
It is through the trade corridors that business relations, investments,
technological exchange, and social, cultural, and educational aspects
with neighboring countries have been able to integrate and increase
social inclusion and sustainable development.
Because of its geographic location, the City of Laredo has historically
been one of the most important natural border crossings between the
United States and Mexico along the 1,980-mile border. Its strategic
position is due to its important network of interconnection of roads
leading to the main productive centers of Mexico.
Within global trade, the City of Laredo is today the third most
important customs district of the United States generating at the end
of 2016, $283 billion dollars in commerce, after Los Angeles with $398
billion dollars and New York with $357 billion dollars.\9\
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\9\ U.S. Trade Numbers Magazine, https://www.ustradenumbers.com/
customs-districts/.
Significantly, the Laredo customs district handled 51.5% of U.S.-Mexico
trade,\10\ totaling $270 billion in commerce in 2016. A very important
figure of trade between both nations.
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\10\ Laredo Development Foundation, http://ldfonline.org/site-
selection/economic-indicators/.
Because of the importance this inland port has in the trade of both
nations, interviews were conducted with different trade professionals
from Laredo that are linked to different economic activities that have
a close relationship with NAFTA.\11\
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\11\ Interviews with logistics operators, Customs brokers,
transporters, commerce, and services.
---------------------------------------------------------------------------
In summary, the following comments were presented:
b They do not perceive that the renegotiation of NAFTA will affect
the economic activities of Laredo because trade as such, whether with
NAFTA or not, will always continue to flow through this region.
b They feel more relaxed about the existence of a United States
agenda with an interest in modernizing NAFTA, since previously there
existed uncertainty as to what was going to happen.
b They do not know how the United States Government can reduce the
gap that exists in the trade deficit with Mexico, understanding that
there is much production shared between both nations and a lot of added
value.
b They consider that, within the renegotiation, the rules of
origin will affect those operations in Mexico that are not integrated
with high added values.
b They indicate that the load movement through Laredo of the
automotive industry sector that has a high component of operations of
value added between both nations, will not be affected.
b There are some logistic companies that handle sensitive raw
materials such as iron and steel from Mexico to the United States. They
fear the possible reduction of these imports if the United States opts
to declare these products to be strategic materials This situation can
affect the raw material load movements between both countries.
b The companies believe that renegotiation of NAFTA, far from
bringing problems, brings more confidence, more business, and new rules
that will strengthen the market.
b The opening of the energy sector of Mexico will bring more
business for the Laredo companies, because this is the best logistic
site for gas and petroleum companies.
b At the commercial level, what concerns this sector is the
fluctuation of the Mexican Peso against the dollar, even though the
Mexican currency has been revalued the first half of this year. The
arrival of buyers from northern Mexico to the City of Laredo is largely
due to fluctuations of the Mexican Peso relative to the global economic
environment and of course any instability arising from the commercial
or economic policy of the United States.
b According to the Industrial Trends Report of Laredo \12\ for the
second quarter of 2017, only 1.05% of the industrial inventory market
is available. Today Laredo has about 1 million square feet of
warehousing under construction, which indicates that there is
confidence in the real state market investment for this City.
---------------------------------------------------------------------------
\12\ Industrial Trends Report, Laredo Q2 2017, Forum Commercial
Real Estate.
b IBC Bank has developed economic and commercial analysis
documents \13\ for focusing efforts on improving the capacity of
Laredo's strategic logistics infrastructure and improving efficiency
and facilitation in cross-border trade.
---------------------------------------------------------------------------
\13\ ``Reasons Why Laredo and Its Infrastructure Are Critical,''
Gerald Schwebel, IBC Bank.
Finally, these trade professionals consider that the strengthening of
the new NAFTA will benefit the commercial relationship of the three
countries.
Where to Direct the Efforts?
The World Organization of Cities and Logistics Platforms (WOCLP), was
tasked to develop an executive analysis regarding NAFTA, its
renegotiation and its impact on the local economy.
We understand very well that this process of renegotiation will take at
least one year, in addition to the subsequent process of obtaining
governmental administrative approval in all three countries that will
follow.
Given these aspects, it is important to consider initiatives that can
strengthen the border trade relationship between the United States and
Mexico during this period of renegotiation.
TRADE CORRIDORS SHOULD NOT BE ONLY LOAD CORRIDORS
b It is time for cities that comprise the NAFTA trade corridor to
take a more active role in the development of innovative trade related
opportunities.
b Our proposal is not only to maintain the ever-harmonious
development of the Trade Corridor support, but also to generate greater
modern attributes regarding integration--sustainability--and social
inclusion.
b Being the City of Laredo, a large logistics platform with all
the attributes of commercial facilitation and having an important
border with two states in Mexico (Tamaulipas and Nuevo Leon), it is
important that the city carry out a regional strategy based on Reverse
Logistics.
b Today, Reverse Logistics occupies the attention in the business
world as an important strategic competitiveness tool based on improving
compliance with environmental standards, reducing production costs in
the supply chain complying with norms and policies of aftermarket, and
generating new varied business opportunities.
b Through Reverse Logistics, it is possible to reactivate the
engine to attract new investments in remanufacturing, recycling,
stockpiling, reintegration of supplies into the supply chain,
management of obsolete inventories, and doubling the logistical
capacity, manufacturing and above all, the workforce that our border
may have.
b We want to become the Border Capital of the development of
Reverse Logistics and join our border programs to give shape and common
drive to achieve this goal.
b One of the important factors in this process is that we can
encourage the creation of small and medium-sized enterprises (SMEs)
within this Reverse Logistics value chain, so that it can improve the
economy of border cities and generate new sources of employment.
b An important aspect that should be part of the renegotiation of
NAFTA, which is important for the three countries, is a commitment to
invest in strategic infrastructure that facilitates trade and trade
related services and the movement of commerce. Moreover, amid strained
and limited local budgets, it should not be the responsibility of the
cities along the trade corridors of NAFTA to bear the financial burden
of funding necessary trade related infrastructure improvements that not
only impact the local economy but also that of the state and nation.
For the City of Laredo this issue is critical.
Instead, the governments of the three nations at the federal
level, should focus their efforts on generating budgetary
allocations that will be invested in planned and proposed
infrastructure projects including but not limited to
international bridge improvements, highway/roadway construction
and expansion, railway and railway crossing enhancements,
border station improvements, and environmental protections and
safeguards.
b It is fundamental to brand Laredo as one of the important
centers and logistics platforms for all business activity between the
United States with Mexico.
b There is an important business correlation in the energy sector
that will be developed on the Mexican side that will require a base of
operations on the American side; the City of Laredo is an ideal
logistic service cluster site for all the gas and petroleum companies.
b It is very common to see companies that are coming to Laredo
looking to open new businesses to sell new products and reach new
markets. The strength of this great strategic logistics platform of
Laredo is that it has a high-quality business climate to benefit
foreign trade between both nations. It is important to promote the
creation of Trading Companies.
b It is important that within this corridor green policies be
integrated to improve the conditions of the ``carbon footprint'' that
this zone has. Therefore, it is fundamental to support efforts of
different groups that have been organized in order to minimize and/or
eliminate the environmental impact along the trade corridor.
This effort will allow the integration of new commercial
activities and new jobs along the corridor that are working
towards the region's environmental sustainability.
b Finally, it is fundamental to promote Fair Trade and Fair
Logistics programs to bring new businesses to Laredo.
The City of Laredo does not want to be absent from the advances that
will come from the renegotiation of NAFTA; this analysis supports the
need of maintaining current information regarding the progress of NAFTA
negotiations.
Bibliography
1. Adam Smith, An Inquiry Into the Nature and Causes of the
Wealth of Nations, 1776.
2. Gilpin, R., ``Global Political Economy: understanding the
international economic order,'' Chapt. 8. Ed., Princeton University
Press, 2001.
3. U.S. Trade Numbers Magazine, https://www.ustradenumbers.com/
customs-districts/.
4. Laredo Development Foundation, http://ldfonline.org/site-
selection/economic-indicators/.
5. The Office of the U.S. Trade Representative (USTR), https://
ustr.gov/.
6. Secretaria de Economia de Mexico, https://www.gob.mx/se/.
7. ``NAFTA Facts and Figures,'' Secretary of Economy, Government
of Mexico, https://www.gob.mx/se/.
8. ``Recent U.S. Labor Force Dynamics: Reversible or Not?'',
International Monetary Fund, 2015, https://www.imf.org/external/pubs/
ft/wp/2015/wp1576.
pdf.
9. Expansion Mexico, 17 julio, 2017, ``Los 22 Deseos de Donald
Trump Para Renegociar el TLCAN,'' http://expansion.mx/economia/2017/07/
17/trump-priorizara-deficit-comercial-y-subsidios-en-renegociacion-del-
tlcan.
10. Excelsior, Mexico, ``Elevar comercio, reto de Mexico en
renegociacion del TLCAN: Guajardo,'' http://www.excelsior.com.mx/
nacional/2017/07/18/1176298.
11. International Trade Center, http://www.intracen.org/itc/
about/.
12. United States International Trade Commission, https://
www.usitc.gov/.
13. International Trade and Border ``Own the Message,'' Dennis E.
Nixon, IBC Bank, September 27, 2016.
14. Industrial Trends Report, Laredo, Texas Q2, 2017. Forum
Commercial Real Estate.
15. ``Reasons Why Laredo and Its Infrastructure Are Critical,''
Gerald Schwebel, IBC Bank.
Collaboration
We thank all those who collaborated with their comments and information
for the development of this document.
1. Gerry Schwebel, IBC Bank
2. Henry Sauvignet, IBC Bank
3. Jesus Marina, ALFA
4. Juan Barajas, ALFA
5. Miguel Conchas, Laredo Chamber of Commerce
6. Carlo Molano, Forum Commercial Real Estate
7. Vicky Pineda, Exit Real Estate
8. David Davila, Sustech of America
9. Carlos Alonso, Expeditors
10. Luis Hinojosa, Uni-Trade
11. Carlos Cantu, Comextaa
12. Eduardo Sanchez, Exim Forwarding
13. Luis Gonzalez, CODEX
14. Vicente Cardenas, CODEX
15. Marco Cruz, Braniff Group
16. Javier Muniz, Laredo Consulting Group
17. Alfredo Blanquet, Six Stars Logistics
18. Gonzalo Sanchez, Samsung SDS Mexico
19. Enrique Sanchez, Comision de Logistica COPARMEX Coahuila
20. Rodolfo Hernandez, Asociacion Nacional del Transporte Privado
(ANTP)
21. Rodolfo Portillo, Profesor Adjunto Escuela de Negocios, TAMIU
22. Andres Rivas, ex profesor asociado Escuela de Negocios, TAMIU
23. Enrique Martinez y Morales, Financiera Regional de Desarrollo,
Mexico
24. Ricardo Garcia, Instituto Internacional de Estudios Superiores,
Nuevo Laredo
25. Andres Tovar, Confederacion Patronal de la Republica Mexicana,
Coahuila
26. Oscar Najera, Facultad de Jurisprudencia de la Universidad
Autonoma de Coahuila
______
City of San Diego, CA
202 C Street, 11th Floor
San Diego, CA 92101
Kevin L. Faulconer
Mayor
November 30, 2017
The Honorable John Cornyn The Honorable Robert P. Casey, Jr.
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
Subcommittee on International
Trade, Customs, and Global
Competiveness Subcommittee on International
Trade, Customs, and Global
Competiveness
517 Hart Senate Office Building 393 Russell Senate Office Building
Washington, DC 20510-4305 Washington, DC 20510-3805
RE: Modernization of the North American Free Trade Agreement (NAFTA)
Dear Chairman Cornyn and Ranking Member Casey:
On behalf of the City of San Diego, I am writing to provide the
following comments for the record following the subcommittee's November
20, 2017, field hearing titled ``Modernization of the North American
Free Trade Agreement (NAFTA).''
For the last 23 years, NAFTA has bolstered the economy of the San Diego
region. NAFTA has created a highly efficient manufacturing environment
that has resulted in an enhanced quality of life throughout the region.
San Diego's top export market is Mexico, with $5.5 billion in exported
goods in 2016. San Diego and Baja California have leveraged NAFTA to
create a $2.5 billion manufacturing supply chain that supports co-
production between the two cities. Concurrently, Canada is San Diego's
sixth largest source of foreign direct investment and sixth largest
employer, with 3,500 jobs directly tied to trade with Canada.
A modernized NAFTA will help all of North America remain competitive
against other trade blocs, preserving U.S. jobs and discouraging the
outflow of capital. A modernized agreement will also ensure that
products made in the U.S. can compete abroad, while lowering prices and
expanding consumer choice here at home. We welcome the opportunity to
modernize the trilateral agreement to meet the needs of the 21st
century economy, and commend your efforts and those of your colleagues
in Congress to ensure the United States continues to benefit from
NAFTA.
Debate over trade policy unfolds for the largest part at the national
and international levels, between federal governments, multinational
businesses and other major stakeholders. However, the effects of trade
are most acutely felt at the local level. Municipal governments play a
key role in developing and expanding trade, promoting job creation, and
attracting foreign investment. I encourage the Committee to continue
robust consultations with local and state level stakeholders on NAFTA
and the development of trade policy.
Canada, Mexico, and the United States should continue to approach
renegotiation as an opportunity to shape a 21st-century trade agreement
and should do so in the spirit of friendship that has defined cross
border relations for generations. As private sector witnesses
highlighted during your recent hearing, the United States' withdrawal
from NAFTA would have serious, and perhaps irreversible, consequences
for American business owners, farmers, ranchers, and local communities.
Thank you for the opportunity to comment on the modernization of NAFTA.
I would welcome the opportunity to further discuss with you and other
members of the Senate Finance Committee how local communities can best
contribute to NAFTA modernization and the development of trade policy
more broadly.
Sincerely,
Kevin L. Faulconer
Mayor
______
Texas Border Coalition
327 Congress Avenue, Suite 450
Austin, TX 78701
Phone: 512-744-0044
RESOLUTION
reaffirming support for
the north american free trade agreement
WHEREAS the mission of the Texas Border Coalition is to provide vision
and leadership to develop, encourage, promote, and protect the
business, tourism, industry, and community interests of the Texas-
Mexico border region;
WHEREAS the Texas Border Coalition works to provide a better quality of
life for the residents of the border region by providing economic
development opportunities and sustainable incomes in a healthy and safe
environment;
WHEREAS the Texas Border Coalition is attentive to issues regarding an
increase in population, border health, and environment, the management
of shared resources, limited water supply, and conservation;
WHEREAS the implementation of the North American Free Trade Agreement
(NAFTA) in 1994 brought together and created economic prosperity for
the United States of America (U.S.), the United Mexican States (Mexico)
and Canada with tri-national trade up 250 percent since its inception;
WHEREAS NAFTA has been successful in its purpose to increase trade and
investment in North America by creating the world's largest trade
region, with more than 480 million people, and in particular U.S. trade
with Canada and Mexico has nearly quadrupled to $1.3 trillion;
WHEREAS fourteen (14) million U.S. jobs depend on trade with Canada and
Mexico, and 43 of 50 U.S. states list Canada or Mexico as their 1st or
2nd largest export market;
WHEREAS the United States, Mexico, and Canada are robust democracies,
significant trading partners, and strategic allies and share the belief
in free market principles;
WHEREAS the Texas Border Coalition advocates for and works to make the
flow of goods between Texas and Mexico as efficient as possible;
WHEREAS after 24 years, NAFTA should be renegotiated and modernized to
assure the U.S. remains competitive against other trade blocs, to
preserve U.S. jobs and to discourage the outflow of capital; and
WHEREAS, the purpose of this resolution is to provide a unified voice
for the border region and to advocate for a clear economic and business
case in support of fair competition;
NOW, THEREFORE BE IT RESOLVED, that the Texas Border Coalition
reaffirms its support for the North American Free Trade Agreement,
understanding that it:
1. Urges the President and the Congress of the United States to
recognize the importance of trade between the U.S., Mexico, and Canada
as an opportunity to renegotiate, modernize, and optimize North
America's competitiveness;
2. Supports that the first rule of renegotiation should be ``do no
harm'';
3. Provides for clear, straight-forward rules of trade to insure
that all business, in particular small to medium-sized businesses, have
the opportunity to participate;
4. Provides for modernization, by adopting advances in technology
not in existence in 1994, and improving cross-border coordination and
efficiency;
5. Recognizes that a one-size-fits-all barrier approach to border
security is not the solution. In addition to utilizing state of the art
technology, it is vital to work with the border terrain and topography
to create an effective barrier which would include a virtual barrier
instead of a physical barrier; and
6. Supports that renegotiation should be conducted with urgency,
so as to minimize economic uncertainty, currently present in the U.S.
economy.
Signed this 20th day of November 2017
Pete Saenz
Mayor, City of Laredo
Chairman, Texas Border Coalition
[all]