[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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            Printed for the use of the Committee on Finance


                               __________
                               

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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.
---------------------------------------------------------------------------
    \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 
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
    \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. 
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
    \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, 
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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

                                  
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