[Senate Hearing 115-797]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 115-797
 
            THE ECONOMIC RELATIONSHIP BETWEEN THE UNITED STATES, 
                           CANADA, AND MEXICO

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

                                HEARING

                               BEFORE THE

                     COMMITTEE ON FOREIGN RELATIONS
                     
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION
                               __________

                           JANUARY 30, 2018

                               __________



       Printed for the use of the Committee on Foreign Relations
       
       
       
       
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]      




                 Available via the World Wide Web:
                    http://www.govinfo.gov                        
                         
                         
                         
                           ______
                          

                U.S. GOVERNMENT PUBLISHING OFFICE 
 40-384 PDF              WASHINGTON : 2020
 
 
                          


                 COMMITTEE ON FOREIGN RELATIONS        

                BOB CORKER, Tennessee, Chairman        
JAMES E. RISCH, Idaho                BENJAMIN L. CARDIN, Maryland
MARCO RUBIO, Florida                 ROBERT MENENDEZ, New Jersey
RON JOHNSON, Wisconsin               JEANNE SHAHEEN, New Hampshire
JEFF FLAKE, Arizona                  CHRISTOPHER A. COONS, Delaware
CORY GARDNER, Colorado               TOM UDALL, New Mexico
TODD YOUNG, Indiana                  CHRISTOPHER MURPHY, Connecticut
JOHN BARRASSO, Wyoming               TIM KAINE, Virginia
JOHNNY ISAKSON, Georgia              EDWARD J. MARKEY, Massachusetts
ROB PORTMAN, Ohio                    JEFF MERKLEY, Oregon
RAND PAUL, Kentucky                  CORY A. BOOKER, New Jersey


                  Todd Womack, Staff Director        
            Jessica Lewis, Democratic Staff Director        
                    John Dutton, Chief Clerk        



                              (ii)        

  


                            C O N T E N T S

                              ----------                              
                                                                   Page

Corker, Hon. Bob, U.S. Senator From Tennessee....................     1


Cardin, Hon. Benjamin L., U.S. Senator From Maryland.............     3


Mulroney, Hon. Brian, Former Prime Minister of Canada, Montreal, 
  QC.............................................................     3
    Prepared statement...........................................     6


Wayne, Hon. Earl Anthony, Career Ambassador of the USA, Retired, 
  Washington, DC.................................................     8
    Prepared statement...........................................    10


Puche, Hon. Jaime Serra, Former Secretary of Commerce and 
  Industry of Mexico, Mexico City, MX............................    18

              Additional Material Submitted for the Record

Response of Hon. Earl Anthony Wayne to Question Submitted by 
  Senator Benjamin L. Cardin.....................................    41




THE ECONOMIC RELATIONSHIP BETWEEN THE UNITED STATES, CANADA, AND MEXICO

                              ----------                              


                       TUESDAY, JANUARY 30, 2018

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:35 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Bob Corker, 
chairman of the committee, presiding.
    Present: Senators Corker [presiding], Risch, Flake, Young, 
Isakson, Cardin, Menendez, Coons, Udall, Murphy, Merkley, and 
Booker.

             OPENING STATEMENT OF HON. BOB CORKER, 
                  U.S. SENATOR FROM TENNESSEE

    The Chairman. Call the Foreign Relations meeting to order. 
I apologize for--we usually start exactly on time. We have got 
some complications today. Senator Cardin is held up in a 
meeting and will be here just in a few moments. Republicans had 
an off-campus meeting, and so they are late getting here, a 
rush to get here on time.
    But, I want to thank our distinguished witnesses for being 
here. We are honored that you would come to present to us on 
this topic. It is one of the most distinguished panels we have 
had in some time. So, we thank you very much for this.
    I am going to make an opening comment. Senator Cardin is 
not. He is going to be delayed. And then we will move right 
into testimony. But, again, I cannot thank you enough for being 
here.
    I do want to, in addition to the witnesses, in our audience 
today we do have David MacNaughton, Ambassador to Canada; 
Geronimo Guttierez, Ambassador to Mexico; and former 
Ambassador, who was very much involved with NAFTA in the early 
days, Derek Burney. So, we thank all three of you for being 
here.
    I will introduce the other witnesses when they begin their 
testimony.
    Today, we will discuss the regional and strategic 
significance of U.S. economic relationships with our friends to 
the north and south, Canada and Mexico. I am glad to have such 
esteemed witnesses before us today to talk about this important 
issue. Their presence speaks to the high value that Mexico and 
Canada place on their relations with our country, and 
highlights the collective understanding that the people of our 
three countries prosper because of the close economic ties we 
have developed over the last several decades.
    Since the North American Free Trade Agreement entered into 
force, our merchandise trade with Mexico and Canada has 
tripled. Canada is now our largest market for the exports of 
U.S. goods. Mexico is second. And Mexico and Canada now account 
for 34 percent of all of U.S. exports. The U.S. is the largest 
foreign investor in both Canada and Mexico. In fact, the U.S. 
represents nearly half of all the foreign investment in Canada 
today.
    Likewise, for both Mexico and Canada, the U.S. is the 
largest destination for foreign investment. We have deficits 
with Mexico and Canada in trade in goods, but we enjoy a 
surplus with both countries when it comes to services. We can 
and should periodically review our trade balance with Mexico 
and Canada to see if improvements can be made without losing 
sight of the importance of mutual trade for our citizens and 
businesses.
    At 5,500 miles, the United States border with Canada is the 
longest and most peaceful and international--peaceful 
international boundary in the world, a truly remarkable fact 
that we often take for granted. Canadian troops have stood 
shoulder to shoulder with U.S. troops in numerous conflicts. We 
cooperate closely, not only on a national level, but our 
respective states and provinces often have closer connections 
than most sovereign countries. Canada is truly among America's 
closest friends and allies.
    With Mexico, we are making the North American region the 
envy of the world in energy development. Canada and the United 
States deliberately reached out together to include Mexico in 
our bilateral economic partnership. We understood then that 
Mexico had its own challenges to address. And, working 
together, we were able to tackle very different--very difficult 
issues together, from migration, to trafficking in persons and 
drugs, to shared water resources, to security, because of the 
close ties that we have built together. That collaboration, 
developed in large part because of our pursuit of shared 
economic prosperity. Our businesses cooperating across borders 
have helped raise common concerns and cultivate common 
approaches to solving problems. The North American regional 
partnership is our most important relationship in the world. 
And we are here today to reflect on how much these relations 
affect our three countries.
    I want to thank our distinguished panel for sharing their 
insights, and recognize--well, not recognize--Senator Cardin--I 
will, when he gets here--for opening comments when--if he does 
want to make them then.
    So, let me just move to our panelists. Again, a very 
distinguished group.
    Our first witness is former Canadian Prime Minister Brian 
Mulroney. Mr. Mulroney had a long and notable career serving as 
Canada's Prime Minister from 1984 to 1993. Prime Minister 
Mulroney played a critical role in the development of the 
Canada/U.S. Free Trade Agreement and North American Free Trade 
Agreement. And we thank you for that. I know we talked 
extensively about that earlier today.
    Our second witness is Dr. Jaime--I am sorry--Mr. Jaime 
Serra Puche. Dr. Serra served as Mexico's Secretary of Finance 
and Public Credit, Secretary of Trade and Industry. Dr. Serra 
led Mexico's negotiation and implementation of NAFTA. An 
economist by training, Dr. Serra has taught a number of U.S. 
universities, including Stanford, Princeton, and New York 
University.
    Our third and final witness today is Ambassador Earl 
Anthony ``Tony'' Wayne. A career Ambassador, Tony Wayne served 
as our lead diplomat to Mexico and Argentina and has served as 
Assistant Secretary for Economics and Business Affairs at the 
Department of State.
    We welcome all three of you.
    Would you like to take a moment and give your opening 
comment before they start?

             STATEMENT OF HON. BENJAMIN L. CARDIN, 
                   U.S. SENATOR FROM MARYLAND

    Senator Cardin. Thank you, Mr. Chairman.
    I apologize for being a few minutes late.
    Why do we not go with the opening statements, and then, if 
you will tolerate an extra 2 minutes on my questioning round, I 
will make my comments at that point.
    The Chairman. Okay.
    So, if we could, if you could summarize your comments in 
about 5 minutes. I know that the Prime Minister has mentioned 
he may go a little over. And, obviously, we are more than glad 
for him to be able to do so.
    Mr. Prime Minister, if you would begin, we would appreciate 
it. And thanks for your leadership on this issue.

STATEMENT OF THE RIGHT HONOURABLE BRIAN MULRONEY, FORMER PRIME 
                MINISTER OF CANADA, MONTREAL, QC

    Prime Minister Mulroney. Thank you, Mr. Chairman, and thank 
you, Senators, for having us here to discuss, among other 
things, the North American Free Trade Agreement.
    This story, as far as Canada is concerned, begins----
    The Chairman. You might move the mic a little closer.
    Prime Minister Mulroney. Yes, sir. Does that do it?
    The Chairman. We want to make sure we hear every word you 
have to say.
    [Laughter.]
    Prime Minister Mulroney. Well, this story begins at the 
Shamrock Summit in Quebec City in March of 1985, when President 
Reagan and I agreed to consider negotiations of a comprehensive 
free trade agreement between our two countries. Growing 
protectionism in Congress then was leading to growing 
estrangement in Canada, vis-a-vis the U.S. The situation was 
not an encouraging one.
    After a highly successful subsequent state visit to Canada, 
President Reagan reported to the American people, in his 
weekend radio address from the Oval Office--and I quote him--
``We also discussed our current efforts to tear down barriers 
to commerce and establish free trade between our peoples and 
countries. The enthusiastic reception that I received from the 
Canadian Parliament suggests that a free trade agreement 
between Canada and the United States of America is an idea 
whose time has come. I pledge to Prime Minister Mulroney and 
the people of Canada that we are going all out to make this 
visionary proposal of the Prime Minister a reality. We will do 
it for the prosperity and jobs it will create in both of our 
countries, but, just as important, it will be an example to all 
the world that free and fair trade, and not protectionism, is 
the way to progress and economic advancement.''
    For my part, I had to call and win a general election in 
1988 on the Free Trade Agreement. With an economy one-tenth the 
size of yours, opposition was ferocious. Both opposition 
parties, interest groups, important media leadership, and so 
on, rode a wave of anti-Americanism, saying that, ``Prime 
Minister Mulroney loves America so much that he wants to make 
Canada the 51st State, with himself as Governor, of course.''
    Well, my response was that the campaign results would prove 
that there are not enough anti-Americans in Canada to elect a 
dogcatcher, let alone a Prime Minister. And the results? Well, 
my government was reelected with another overwhelming majority 
in Parliament, and the agreement was signed by President Reagan 
and myself on January 1st, 1989.
    Predictions were that Canada, because of its size, vis-a-
vis the United States, would get its clock cleaned and that 
this would be a lose-lose arrangement for both countries.
    So, what happened? Trade in goods and services between our 
two countries exploded by 300 percent. Millions of new jobs 
were created in both countries. And the relationship grew to be 
the largest such bilateral arrangement between any two nations 
in the history of the world: almost 2 billion dollars--U.S. 
dollars--a day, with trade approaching $635 billion a year.
    Canada quickly became the market of choice for U.S. 
producers, purchasing more goods than from China, Japan, and 
the U.K., combined. At one point, a few years ago, there was 
more two-way trade across the Ambassador Bridge from Windsor, 
Ontario, to Detroit, Michigan--there was more business going 
across that one bridge than America did with the nation of 
Japan. Moreover, our trade was always in rough balance. And, in 
fact, in 2016 the U.S. had a $7.7 billion surplus in its trade 
in goods and services with Canada. Moreover, Canada and the 
U.S. have developed during this period one of the world's 
largest investment relationships, totaling over 840 billion 
U.S. dollars.
    This was powerful confirmation of the prediction of Sir 
Winston Churchill in a magnificent speech that he made 80 years 
ago, when he talked about ``some chicken and some neck.'' In 
that same speech, Churchill described the Canada/U.S. 
relationship in all of its glory in the following golden words, 
``That long frontier from the Atlantic to the Pacific Oceans, 
guarded only by neighborly respect and honorable obligations, 
is an example to every country and a pattern for the future of 
the world.''
    When President George Herbert Walker Bush came in, we began 
with President Salinas and Jaime Serra, his Trade Minister, who 
is with us today--we began negotiations to include Mexico in 
our trade agreement, renaming it NAFTA. The foundational 
document remained the Canada/U.S. Free Trade Agreement, with 
essential changes to accommodate the specific nature of the 
Mexican economy and political climate at the time.
    It was also unique for another reason, Mr. Chairman. It 
marked the first time in history that a trade agreement would 
exist between two mature industrialized countries, the United 
States and Canada, both G7 nations, and a developing country, 
Mexico.
    So, what has happened since? Well, NAFTA now constitutes, 
with almost 500 million people, the largest, richest, and most 
dynamic free trade area in the world, with a combined GDP of 
almost $21 trillion a year. With less than 7 percent of the 
world's population, the NAFTA partners last year represented 28 
percent of the total wealth of the world.
    Tens of millions of new jobs have been created in the NAFTA 
countries since the signing of the treaty in 1994, most of them 
in the United States, obviously, but millions of those jobs 
coming from intercountry trade between Canada and Mexico and, 
of course, the U.S.
    With an unemployment rate of 4.1 percent, the lowest of any 
nation in the industrialized world, it is becoming increasing 
difficult to seriously argue that the U.S. has done poorly with 
its international trade agreements that create such vast 
employment opportunities at home and across North America.
    NAFTA did not happen by accident. In large measure, it was 
the result of the leadership and vision of three great American 
Presidents: Ronald Reagan, George Herbert Walker Bush, and Bill 
Clinton. I was privileged to know and work closely with all 
three. They knew that such instruments are much more than 
documents for accountants to appraise and determine which 
country gained a little in agriculture compared with another in 
automotive parts compared with another in energy exports. They 
understood that such trade arrangements are a vital constituent 
part of an enlightened foreign policy, not isolated variables 
to be picked apart and analyzed on a profit-and-loss basis. 
Such agreements succeed only when all parties benefit. And who 
can deny that that was the case here?
    Such farsighted and generous U.S. leadership gave the 
world, for example, the Marshall Plan, in which colossal U.S. 
investments were made to resurrect a Europe defeated and 
destroyed after World War II. Who today would argue that this 
was an improvident course for the U.S. inasmuch as it has 
ensured the creation of a United Europe, democratic and 
prosperous and free from national hostilities, certainly for 
the first time in modern history, thereby contributing greatly 
to the national security of the United States and her allies?
    Mr. Chairman, I have always believed, and said many times 
publicly, that the United States of America, in my judgment, is 
the greatest democratic republic that God has ever placed on 
the face of this Earth. Canada is privileged to have the United 
States as a neighbor and friend. And the United States should 
thank its lucky stars every day that they have Canada on their 
northern border. This is the most successful and peaceful 
bilateral relationship in world history, and one that must be 
cherished and enhanced by our leadership in a manner that is 
thoughtful, understanding, and wise. When fear and anger fuel 
public debate, history teaches us that protectionist impulses 
can easily become a convenient handmaiden.
    But, history, Mr. Chairman, also demonstrates, in Europe, 
North America, and throughout Asia, that the best antidote to 
protectionism is more, not less--more liberalized trade that 
stimulates both economic growth and stronger employment. As 
President Reagan said, memorably, ``We should always remember 
that protectionism is destructionism.''
    Another of your successful Presidents, Bill Clinton, said, 
``Leadership is the capacity to look around the corner of 
history just a little bit.''
    Well, that is the leadership challenge confronting the 
NAFTA negotiators today, to conduct themselves in such a way, 
in an atmosphere of robust discussions leavened by a spirit of 
reasonable compromise, that the product of their successful 
efforts will be viewed by history as a powerful enhancement of 
Churchill's glowing description of our great nations so many 
years ago. And Canadians and Americans have fought together, 
and Canadians and Americans have died together, for 100 years 
in the defense of freedom. If we summon the courage to defend 
those values that made our countries so successful, then we 
will have again contributed significantly to building a world 
that promotes peace and prosperity for all nations, both at 
home and around the world.
    Thank you, Mr. Chairman and Senators. Thank you very much.
    [The prepared statement of Prime Minister Mulroney 
follows:]

                  Prepared Statement of Brian Mulroney

    This story begins at the Shamrock Summit in Quebec City in March of 
1985 when President Reagan and I agreed to consider the negotiation of 
a Comprehensive Free Trade Agreement between our two countries.
    Growing protectionism in Congress then was leading to growing 
estrangement in Canada vis-a-vis the U.S. The situation was not an 
encouraging one.
    After a highly successful subsequent state visit to Canada, 
President Regain reported to the American people in his weekend radio 
address: ``We also discussed our current efforts to tear down barriers 
to commerce and establish free trade between our peoples and countries. 
The enthusiastic reception I received from the Canadian Parliament 
suggests that a free trade agreement between Canada and the United 
States is an idea whose time has come. I pledged to Prime Minister 
Mulroney and the people in Canada that we're going all out to make this 
visionary proposal of the prime minister a reality. We'll do it for the 
prosperity and jobs it will create in both our countries; but, just as 
important, it will be an example to all the world that free and fair 
trade, and not protectionism, is the way to progress and economic 
advancement.''
    For my part, I had to call and win a general election in 1988 on 
the free trade agreement. With an economy one tenth the size of yours, 
opposition was ferocious--both opposition parties, interest groups, 
important media leadership, etc. rode a wave of anti-Americanism saying 
that Prime Minister Mulroney loves America so much that he wants to 
make Canada the 51st State--with himself as Governor, of course.
    My response was that the campaign results would prove that there 
are not enough antiAmericans in Canada to elect a dog catcher, let 
alone a Prime Minister.
                                results?
    My government was re-elected with another overwhelming majority in 
Parliament and the FTA agreement was signed by President Reagan and 
myself on January 1, 1989.
    Predictions were that Canada would get its clock cleaned and this 
would be a lose-lose arrangement for both countries.
                           so what happened?
    Trade in goods and services between our two countries exploded by 
300 percent, millions of new jobs were created in both countries and 
the relationship grew to be the largest such bilateral arrangement 
between any two nations in the history of the world--almost USD $2 
billion a day, with trade approaching USD $635 billion per year.
    Canada became the market of choice for U.S. producers, purchasing 
more American goods and services than China, Japan and the UK combined.
    At one point a few years ago, there was more two way trade across 
the Ambassador
    Bridge from Windsor, Ontario to Detroit, Michigan than America did 
with the nation of Japan. And all the while, our trade was in rough 
balance. In fact, in 2016 the U.S. had a USD $7.7 billion surplus in 
its goods and services trade with Canada.
    Moreover, Canada and the U.S. have developed one of the world's 
largest investment relationships totalling over USD $840 billion.
    This was powerful confirmation of the prediction of Sir Winston 
Churchill in a major speech 80 years ago who described the Canada-U.S. 
relationship in all its glory in the following golden words: ``That 
long frontier from the Atlantic to the Pacific oceans, guarded only by 
neighborly respect and honorable obligations, is an example to every 
country and a pattern for the future of the world.''
    When President George H. W. Bush came in, we began negotiations to 
include Mexico in our trade agreement, renaming it the North American 
Free Trade Agreement (NAFTA). The foundational document remained the 
Canada-U.S. FTA with essential changes to accommodate the specific 
nature of the Mexican economy and political climate at the time.
    It was also unique for another reason: it marked the first time in 
history that a trade agreement would exist between two mature 
industrialized countries, the U.S. and Canada--both G7 nations--and a 
developing country, Mexico.
                      so what has happened since?
    NAFTA now constitutes--with almost 500 million people--the largest, 
richest and most dynamic free trade area in the world with a combined 
GDP of almost $21 trillion a year. With less than 7 percent of the 
world's population, NAFTA partners last year represented 28 percent of 
the world's total GDP. Tens of millions of new jobs have been created 
in the NAFTA countries since the signing of the Treaty in 1994--most of 
them in the U.S. with some many millions of these jobs coming from 
trade and investment with your NAFTA partners, and vice versa.
    With an unemployment rate of 4,1 percent - the lowest of any 
industrialized country in the world--it is increasingly difficult to 
seriously argue that the U.S. has done poorly with its international 
trade agreements, that create such vast employment opportunities at 
home and across North America.
    NAFTA did not just happen by accident. It is the result of the 
leadership and vision of three great American presidents: Ronald 
Reagan, George Bush and Bill Clinton. I was privileged to know and work 
closely with all three.
    They knew that such instruments are much more than documents for 
accountants to appraise and determine which country gained a little in 
agriculture compared with another benefitting from automotive parts and 
another still from energy exports. They understood that such trade 
arrangements are a vital constituent part of enlightened foreign 
policy, not isolated variables to be picked apart and analyzed on a 
profit and loss basis. Such agreements succeed only when all parties 
benefit. And who can deny that was the case here.
    Such farsighted and generous U.S. leadership gave the world, for 
example, the Marshall Plan in which colossal U.S. investments were made 
to resurrect a Europe, defeated and destroyed after World War II. Who 
today would argue that this was an improvident course for the U.S. 
inasmuch as it has ensured the creation of a united Europe--democratic, 
prosperous and free from national hostilities--certainly for the first 
time in modern history, thereby contributing greatly to the national 
security of the United States and its allies.
    I have always believed that the United States of America is the 
greatest democratic republic that God has ever placed on the face of 
this earth. Canada is privileged to have the United States as a 
neighbor and friend and the U.S. should thank its lucky stars every day 
that it has Canada on its northern border. This is the most successful 
and peaceful bilateral relationship in world history and one that must 
be cherished and enhanced by our leadership in a manner that is 
thoughtful, understanding and wise.
    When fear and anger fuel public debate, history teaches us that 
protectionist impulses can easily become a convenient hand-maiden. But 
history also demonstrates in Europe, North America and throughout Asia 
that the best antidote to protectionism is more liberalized trade that 
stimulates both economic growth and stronger employment. As President 
Reagan said: ``We should always remember, protectionism is 
destructionism''.
    Another of your successful presidents, Bill Clinton, said: 
``Leadership is the capacity to look around the corner of history, just 
a little bit.''
    Well, that is the leadership challenge confronting the NAFTA 
negotiators today: to conduct themselves in such a way--in an 
atmosphere of robust discussions leavened by a spirit of reasonable 
compromise--that the product of their successful efforts will be viewed 
by history as a powerful enhancement of Churchill's glowing description 
of our great nations.
    If we summon the courage to defend those values that made our 
countries so successful, then we will have again contributed 
significantly to building a world that promotes peace and prosperity 
for all nations, both at home and around the world.

    The Chairman. Well, thank you very much for that 
outstanding testimony and giving us a sense of how all this 
occurred, and a sense of what we need to look to in the future. 
We thank you so much for being here.
    And, with that, Ambassador Wayne.

STATEMENT OF HON. EARL ANTHONY WAYNE, CAREER AMBASSADOR OF THE 
                  USA, RETIRED, WASHINGTON, DC

    Ambassador Wayne. Chairman Corker, Ranking Member Cardin, 
other distinguished members, it is a great pleasure to be here. 
Thank you for inviting me to participate.
    Economic relations and security cooperation across North 
America have prospered and deepened enormously since the United 
States, Canada, and Mexico negotiated the North American Free 
Trade Agreement Twenty-five years ago. Canada and Mexico are 
now America's top two export markets. A large majority of U.S. 
States have Canada and/or Mexico as their first and second 
trading partner.
    NAFTA has grown trade almost four times since 1993, to 
$1.24 trillion. And U.S./Mexico trade ties have grown six 
times. We trade more with our neighbors than we trade with the 
European Union, and 1.9 times more than we trade with China. 
NAFTA commerce supports up to 14 million U.S. jobs. Five 
million of those jobs are linked to trade with Mexico. And that 
is seven times as many jobs tied to that bilateral trade as we 
had in 1993.
    America's private sector has built a network of 
coproduction and trade which has enabled us to become much more 
efficient, more competitive against Asian exporters, and offer 
lower prices for American consumers. Manufactured products from 
Canada and Mexico have the highest content of U.S. goods of any 
of our trading partners. When one takes account of that 
American content in Mexican manufactured exports to the U.S., 
for example, the U.S. deficit is either significantly reduced 
or eliminated, depending upon the way you do the calculations.
    Energy trade and production has also flourished under 
NAFTA. Energy security is now within our grasp in North America 
if the three countries continue to develop cross-continental 
production, connectivity, and policy coordination. Experts say 
that ending NAFTA would endanger this trend.
    Collaboration with Mexico and Canada on homeland security 
issues, such as terrorism, transnational crime, and border 
security, have also expanded dramatically. Today, for example, 
the depth of U.S. cooperation with Mexico to strengthen border 
security, control migration, and dismantle transnational 
criminal networks is unprecedented. For example, Mexican 
officials have turned around hundreds of thousands of Central 
Americans headed to the United States in recent years. 
Mishandling NAFTA negotiations, however, could cause great 
harm. Pulling out of NAFTA could cost hundreds of thousands of 
U.S. jobs, raise consumer prices, harm economic growth, create 
stock market turbulence, and help our global trade competitors. 
And security cooperation with both neighbors could also be 
harmed, especially with Mexico. A U.S. withdrawal would 
undermine U.S./Mexico cooperation on drug trafficking, border 
security, and migration. It could also put a long-term chill 
into the relationship.
    Several studies forecast high costs for a U.S. withdrawal 
from NAFTA. Here are three examples:
    Potential U.S. employment losses could range from 180,000 
to 3.6 million in the first 3 to 5 years, affecting many U.S. 
States. The sectors hardest hit would be autos, agriculture and 
food, textiles, services, and other manufacturing. U.S. exports 
to the world could decline by 2.5 to 5 percent. China, Korea, 
Japan, and Germany would gain jobs and GDP growth, with China 
potentially gaining 1.7 to 2 million jobs, according to one 
study.
    Speaking of jobs, it is true that, as a result of NAFTA, 
some U.S. jobs were moved to Mexico. However, the vast majority 
of U.S. manufacturing jobs lost in this century seem to have 
been caused by improvements in productivity and competition 
with China. This does not help those who lost jobs, however. 
But, the big culprit is the absence of strong U.S. policies and 
programs focused on workforce development. And the need for 
such programs is only going to grow as technology continues to 
surge through our economy and the way we work.
    NAFTA has not been trouble-free. It should be improved and 
modernized to take care of all that has happened in commerce 
and in trade agreements since 1993. This is even more important 
because others, like the European Union, China, and the 
remaining members of the TPP, are moving ahead with new trade 
arrangements. A modernized NAFTA should be part of America's 
trade offense.
    The U.S. has threatened to pull out of NAFTA and has 
sparked criticism from Canada, Mexico, and U.S. business and 
farm groups, with positions on trade deficits, rules of origin, 
sunset clauses, dispute settlement, government procurement, and 
other issues. While the negotiations last week in Canada made 
some progress, major differences still remain.
    In Canada and Mexico, positive views of the United States 
already dropped significantly in 2017. A U.S. withdrawal from 
NAFTA would continue that trend. Mexico is holding its 
presidential and congressional elections in July. A U.S. 
decision to pull out of NAFTA, or additional moves viewed as 
unfair toward Mexico, could easily play negatively in that 
election and with the new president and congress of Mexico. 
Mexican officials are worried that they will have neither the 
political space nor the support of their teams to deepen 
cooperation with the United States if the U.S. ends NAFTA or is 
perceived as bullying Mexico.
    The world is also watching. If the United States is 
perceived to pursue a ``take it or leave it'' approach to 
negotiating with its neighbors, will other nations be eager to 
engage in bilateral trade negotiations?
    The United States has a great opportunity to conclude a 
state-of-the-art trade agreement with its neighbors. A 
modernized NAFTA treaty can increase jobs, trade, energy 
security, and prosperity while making the U.S. and its 
neighbors more competitive in the world and reinforcing 
important collaboration against terrorism and organized crime. 
The alternative path would be costly for the United States. The 
best outcome is to forge a modernized and improved trade 
agreement.
    Thank you very much.
    [The prepared statement of Ambassador Wayne follows:]

                Prepared Statement of Earl Anthony Wayne

    Economic relations across North America have prospered and deepened 
since the United States, Canada, and Mexico negotiated the North 
American Free Trade Agreement (NAFTA) twenty five years ago. North 
America has become a strategic foundation from which all three nations 
are building their prosperity and security.
    The U.S. is very fortunate to have two neighbors committed to 
market principles and democratic values, with which it can work to 
compete more effectively against global trading powers and to counter 
threats from terrorism and transnational organized crime.
    Since 9/11, and especially in the last decade, homeland security 
cooperation has greatly expanded in North America, while at the same 
time the private sector has expanded continental co-production and 
trading networks.
    North America's geopolitical landscape has changed for the better 
with NAFTA. In particular, Mexico's relationship with its northern 
neighbors has been transformed.\1\
    We have the opportunity to improve North America's economic 
relationships with the negotiations to update the NAFTA treaty, and the 
doors are open to deepen security cooperation with our neighbors. We 
could also harm the U.S. greatly, however, if we mishandle the NAFTA 
negotiations. Pulling out of NAFTA, as the administration has 
threatened, could cost hundreds of thousands of U.S. jobs, raise 
consumer prices, harm economic growth, create stock market 
turbulence,\2\ and help our major global trade competitors.
    Particularly with Mexico, such a U.S. blow to our economic 
relationship would also undermine vital cooperation in fighting 
transnational organized crime and joint efforts to improve border 
security and to inhibit third country immigration. We could well also 
put a long-term chill into our bilateral relationship.
                          nafta's value added
    Trade within NAFTA has grown almost four times since 1993. U.S.-
Mexico trade has grown by six times. NAFTA trade totals some $1.24 
trillion a year.\3\ That is about $2.4 million a minute. This is more 
than U.S. trade with the European Union (EU) \4\ and 1.9 times what the 
U.S. trades with China.\5\
    NAFTA's trade and investment supports up to 14 million U.S. 
jobs.\6\ Nine million of those jobs are linked to trade with Canada.\7\ 
4.9 million U.S. jobs are linked to trade with Mexico,\8\ which is 
seven times greater than the number of jobs (700,000) believed tied to 
U.S.-Mexico trade in 1993.\9\
    Canada and Mexico are America's top two export markets. A large 
majority of U.S. states have Canada or Mexico as a first or second 
trade partner. This trade is very important for U.S. farmers. In 1993, 
they exported $8.9 billion in products to our two neighbors. Those 
sales were $43 billion last year.\10\
    Essentially, America's private sector has taken the opportunity of 
NAFTA to build a complex network of co-production, investment, and 
trade in which many products cross the border multiple times during the 
process of production. Production has become more efficient and thus 
less costly for American consumers, and NAFTA has helped the U.S. 
compete successfully with Asian production centers.
    NAFTA also attracts investment from around the world. These 
investors do not just produce for the U.S. market, but they also 
produce for export outside of North America. It is important to 
recognize that just as the U.S. has built production networks with its 
neighbors, so have Germany, Japan and China.
    A study done for the 2Oth anniversary of NAFTA found that the NAFTA 
partners are richer each year because of ``extra'' trade growth. This 
extra trade growth was estimated to be $127 billion for the U.S., $170 
billion for Mexico, and $ 50 billion for Canada.\11\
                  where did the manufacturing jobs go?
    NAFTA has been criticized for shipping U.S. jobs to Mexico. 
Certainly, U.S. jobs have moved to Mexico. NAFTA critics argue that, at 
a minimum, steps should be taken to ensure better labor practices and 
higher wages in Mexico, and others argue for ending NAFTA.
    It is important to recognize, however, that, according to serious 
economic studies, the vast majority of manufacturing jobs lost in this 
U.S. this century have been due to improvements in productivity \12\ 
and competition from China.\13\ Many U.S. companies that moved jobs to 
Mexico also created jobs in the U.S., but those jobs often required 
higher skills than the ones eliminated.\14\ These economic studies did 
not find that NAFTA was a big contributor to the overall job losses, 
and NAFTA also seems to have produced new jobs as commerce expanded. 
But, that does not help those who lost jobs and could not find new ones 
during these years.
    A big culprit here, I believe, is the absence of effective U.S. 
public policies and workforce development programs to help workers who 
lose jobs because of productivity/technology changes or trade. The U.S. 
needed and still needs strong workforce development and related 
programs that facilitate training, retraining, placement and new 
investments, when economic disruption eliminates jobs. The need for 
such programs is only going to grow as technology continues to 
revolutionize the way we produce and work. Workforce development should 
become a priority action item in North America's agenda.\15\
                                 energy
    Energy trade and production has also flourished under NAFTA. 
Private sector trade, innovation and investment have created a North 
American market that is highly interdependent and multidirectional. 
Energy security is within our grasp, if the three countries continue to 
develop cross-continental production, connectivity and policy 
coordination.\16\ Since Mexico's 2014 energy reforms, U.S. investments 
there have boomed, and the U.S. now sells more energy products to 
Mexico than it imports. Experts say that North America's energy trade 
is taking us toward liquid fuels self-sufficiency as early as 2020. 
They argue that this trend would be endangered if NAFTA and its 
investment protections were to end.\17\ The December 2017 U.S. National 
Security Strategy talks about the importance of ``energy dominance.'' 
Working with our two energy rich neighbors is a good path toward 
achieving that goal.
                 modernizing nafta: a major opportunity
    NAFTA has not been trouble free. The countries have disagreed over 
a range of issues from sugar, meat, fresh fruit and dairy trade to 
trucking, temporary work permits, labor rights and tariffs on low value 
items. There is widespread agreement that NAFTA can be improved and 
modernized to take account of all that has evolved in the trade arena 
since 1993, when it was signed.
    With this modernization, we have the opportunity to forge a gold 
standard agreement. This is more important because the United States is 
participating in only two of the 30 plus trade negotiations underway in 
the world: the renegotiation of NAFTA and of the U.S.-South Korea 
FTA.\18\
    Others are moving ahead with trade accords. The eleven other 
members of the TPP negotiation plan to sign an agreement in March. The 
European Union reached an agreement with Japan in July. It is 
renegotiating its accord with Mexico, has a relatively new agreement 
with Canada, and is actively pursuing agreements with others.\19\ China 
is building new trade and investment relationships across Asia with its 
Belt and Road program and with regional and bilateral trade 
initiatives.
    U.S. goods and services may well be disadvantaged in these markets 
by higher tariffs and new norms, standards and rules negotiated without 
the U.S. at the table. This adds additional importance to forging a 
high-standard agreement with our neighbors, sending a clear signal 
about the rules and norms expected for trade and investment in the 
North American marketplace. More broadly, the U.S. needs a trade policy 
that deepens and expands markets, as well as acting boldly with 
defensive measures against unfair trade practices by others. NAFTA is 
part of the U.S.'s trade offense, allowing the U.S. to confirm and 
secure its two largest export markets and make all three economies more 
competitive by using continental supply and production chains.\20\
    While there are dozens of issues under active negotiation in the 
NAFTA talks, several important work-areas standout: \21\
    Technological advances: NAFTA needs to incorporate the 
technological advances in commerce since 1993. Cross-border data flows, 
e-commerce, and exports of digital products need to be incorporated 
into the agreement, for example.
    Customs processes, requirements and points of entry: Inefficient 
customs and border processes and facilities cost North American 
businesses billions of dollars. These should be modernized and 
simplified by taking advantage of online platforms, modern scanning and 
processing, and better risk-mitigation programs for ``trusted'' goods 
and persons that improve security and efficiency. The NAFTA 
modernization will not solve all these issues, but it can significantly 
improve current practices and facilitate further improvements. Advances 
here can also open the doors wider for more participation by small and 
medium sized companies.
    Rules of Origin: Building from industry data and feedback, 
negotiators should identify ways to increase North American content in 
manufactured goods and define more efficient ways to track that 
content.
    Labor and the Environment: These issues should be integrated into 
the new treaty and updated to include provisions from more recent FTAs, 
including the draft TPP accord. The goal in the labor area is better 
protection of worker's rights, with additional clout behind enforcement 
if rights are not respected. U.S. labor unions have targeted poor 
Mexican practices.\22\ Canada has called for improved U.S. labor 
protections.\23\
    Professional Services: The U.S. is a major exporter of services. It 
has surpluses with Mexico and Canada, but there is great potential for 
more U.S. exports. The agreement should include provisions to make it 
easier to provide services across borders, for example, with improved 
licensing and registration procedures.
    Anti-corruption and transparency: The agreement should embody 
stronger commitments to counter public corruption, promote ethical 
standards and have more transparency in government practices. The press 
reports progress on these topics during the latest round of NAFTA 
talks.
    Good regulatory practices: The agreement should deepen and expand 
the existing bilateral and trilateral dialogues among the three 
countries, establishing ``best in class'' practices for regulatory 
cooperation.
               controversial u.s. positions and proposals
    There are normally difficult issues to negotiate in every trade 
agreement process. But, the U.S. has taken some particularly aggressive 
stances regarding NAFTA. The U.S. has repeatedly threatened to pull out 
of the agreement and offered positions that have been sharply 
criticized not only by Canada and Mexico,\24\ but also by U.S. business 
\25\ and farm groups.\26\ The negotiators reported that they made some 
progress over the last week in Montreal, but there is still much work 
to do.
    Trade Deficits: Unlike with China, the U.S. is not accusing Canada 
and Mexico of wide-ranging unfair trade practices. Rather, U.S. 
statements indicate that the fact that Mexico has a trade surplus with 
the U.S. is a sign that the agreement is unfair.
    First, many economists argue that focusing on reducing deficits via 
trade agreements is not a path to success, as national deficits are 
much more closely linked to overall national savings and spending rates 
than to individual trade agreements.
    Second, in free trade agreements the basic concept is that the 
rules are fair and that buyers and sellers then freely choose: it is 
not about managing the trade to assure balanced trade.\27\ The U.S. had 
an overall trade surplus with the countries with which it has a Free 
Trade Agreement (FTO) in 2015, for example, but it had a deficit with 
some and a surplus with others.\28\ That did not of itself make some of 
the agreements fair and others unfair.
    Third, manufactured goods from Canada and Mexico have the highest 
content of U.S. goods of any U.S. trading partners--25 percent and 40 
percent respectively according to a 2010 study.\29\ A Honda CRV in 
assembled in Jalisco, Mexico has 70 percent Canadian and U.S. content, 
for example.\30\ Motor vehicles exported from Mexico to the U.S. in 
2014 had an estimated 38 percent in U.S. content.\31\ When one takes 
account of American content in Mexican manufactured exports to the 
U.S., analyses have found that the real U.S. deficit is significantly 
reduced \32\ or eliminated.\33\
    Rules of Origin: The U.S. put forward a proposal to increase the 
required amount of ``North American'' content in motor vehicles to 85 
percent from the current 62.5 percent and proposed a requirement that 
50 percent of that content be from the U.S.\34\ Secretary of Commerce 
Ross argued in an op-ed that the current situation is gutting U.S. 
manufacturing.\35\
    The North American auto industries and analysts counter argue that 
the U.S. proposal would endanger thousands of U.S. jobs and harm the 
auto industry.\36\ They assert that North American content in vehicles 
produced in Mexico and Canada has, in fact, generally increased since 
2011, that the U.S. auto sector is outperforming other U.S. industrial 
sectors, and that U.S. auto sector employment has increased nearly 6 
percent annually since 2008, more than the employment increase in 
overall manufacturing. These analysts argue that the U.S. proposal 
would impair the global competitiveness of the auto industry.\37\ There 
are, however no doubt, other ways to improve NAFTA rules of origin, as 
the negotiators are reportedly now exploring. In Montreal last week, 
according to press reports the Canadians offered some ideas in this 
area, which the U.S. did not find as helpful.
    Sunset clause: The U.S. has requested that a clause be included, 
which would automatically kill the treaty after five years unless all 
three governments agree to extend it.\38\ U.S. businesses say that 
would wreak havoc with planning and investment and aid foreign 
competition.\39\ Mexico and Canada are open to regular reviews of the 
treaty, but oppose an automatic opt-out.
    Government procurement: The U.S. proposes to limit the amount of 
U.S. government procurement Mexican or Canadian firms can win to be 
equivalent to what U.S. companies win in their markets. Canada, Mexico 
and some U.S. companies have expressed opposition to this proposal.
    Dispute settlement: The U.S. has proposed watering down NAFTA's 
provisions for settling disputes (Chapters 11 and 20) and eliminating 
chapter 19 in the current agreement. Mexico and Canada want to keep the 
mechanisms,\40\ but are open to improvements. Canada is particularly 
firm on keeping chapter 19, which addresses anti-dumping and 
countervailing duty cases.\41\ U.S. energy firms are outspoken in 
support of keeping strong investor protections.
    Agriculture: There are several contentious agriculture issues, 
including U.S. efforts to open Canada's dairy market and a U.S. 
proposal to protect some U.S. growers against Mexican fresh produce 
exports.\42\
                  the economic costs of leaving nafta
    Whether a negotiating tactic or not, the administration's threats 
to pull out of NAFTA are a bit like playing with fire: the costs of 
leaving NAFTA would be very high for all parties. A number of serious 
studies are now available estimating the economic costs of a U.S. 
withdrawal from NAFTA.\43\ One of the studies, by Trade Partnership 
Worldwide LLC, provides a state-by-state breakdown of potential losses 
for each U.S. state output, exports and employment.\44\ (Slides 
summarizing some of the findings are attached.)
    Job Losses: These studies foresee U.S. employment losses ranging 
from 180,000 to 3.6 million in the first 3-5 years, depending on 
various post-NAFTA scenarios. The Trade Partnership Worldwide study 
also forecasts 200,000 to 700,000 fewer U.S. jobs over the longer 
term.\45\ The most affected sectors would be autos and agriculture/
food, with textiles, services and other manufacturing also harmed. The 
impact in Canada is predicted as a loss of 125,000 to 1.2 million jobs. 
For Mexico, the job losses predicted range from 950,000 to 10.3 
million.
    GDP Impact: The studies all predict a decline in GDP. For the U.S. 
the decline could range from 0.09 percent or $16 billion up to a 
decline of 1.2 percent or $231 billion, depending on the scenario and 
assumptions made. One study estimates that U.S. consumers would face an 
added $7 billion a year in higher prices.\46\
    Trade: The studies predict a drop in trade across the region and 
fewer U.S. exports and imports. The Trade Partnership Worldwide study 
predicts a drop of U.S. exports to the world of 2.5 percent to 5 
percent and a drop of U.S. imports ranging between 3.6 percent and 7.5 
percent in the first five years. That study finds the negative trade 
effect continuing in the longer term.\47\
    Trade Deficit: A study by Oxford Economics predicts that the trade 
deficit would not be improved by withdrawing from NAFTA.\48\
    States hit hardest: The U.S. Chamber of Commerce argues that an end 
to NAFTA would severely harm: Michigan, Wisconsin, North Dakota, Texas, 
Missouri, Ohio, Iowa, Indiana, Arizona, Nebraska, Pennsylvania, and 
North Carolina.\49\
    China and other competitors aided: The Trade Partnership Worldwide 
study predicts that an end to NAFTA would add 1.7 to 2 million new jobs 
in China, about 150,000 new jobs in Korea, some 290,000-790,000 jobs in 
Japan, and 120,000 to 308,000 new jobs in Germany, plus GDP gains for 
each of those countries.\50\
            negative messages to our neighbors and the world
    In Canada and Mexico, positive views of the U.S. already plummeted 
in 2017.
    According to Pew polling, in Canada favorable views of the U.S. 
dropped 22 percent from 65 percent favorable during the last U.S. 
administration to only 43 percent favorable in the spring of 2017.\51\ 
This is reportedly the lowest score recorded at least since the early 
1980s.\52\
    The change for the worse is much greater in Mexico, reflecting the 
stream of critical U.S.
    remarks about Mexico, the border wall, and Mexico's NAFTA role. 
Favorable views of the U.S. fell 36 points from 66 percent favorable in 
the previous Pew poll. Only 30 percent of Mexicans polled in the spring 
of 2017 held a favorable view of the U.S. 65 percent of Mexicans polled 
held unfavorable views their northern neighbor.\53\ Subsequent, polling 
confirmed the negative Mexican public views of bilateral U.S.-Mexico 
relations. Pollsters report that these are the worst numbers in 
perception of the United States since at least 1991 and perhaps since 
the 1950s.\54\
    These opinions indicate the U.S. could face long-term damage in 
bilateral relations, especially with Mexico. Mexico and the U.S. were 
labeled ``Distant Neighbors'' in the 1980s because of their strained 
relationship.\55\ Mexico has a long history of mistrust of the United 
States, which gradually had been overcome since the creation of NAFTA 
and with growing bilateral cooperation over the last 25 years.
    Mexico is holding Presidential and Congressional elections in July. 
A U.S. decision to pull out of NAFTA or other moves viewed as 
humiliating and unfair toward Mexico could easily play into that 
election negatively for the U.S. and impact the policies and attitudes 
of the new Mexican President and Congress. The leading Mexican 
presidential candidate, Andres Manuel Lopez Obrador has already called 
for delaying the negotiations,\56\ and some fear that he would take a 
more nationalist stance on NAFTA if elected.\57\
    It is also important to remember that the world is watching how we 
treat our neighbors and closest trading partners in this negotiation. 
If the U.S. is perceived to continue with a ``take it or leave it'' 
approach and not to recognize the ``win-win-win'' nature that should be 
built into lasting commercial relationships, how many other nations 
will be eager to engage in trade negotiations with the U.S.?
                        vital security partners
    Mexico and Canada are vital partners for enhancing U.S. homeland 
security, as well as its prosperity. Both are willing partners to work 
against terrorism and transnational organized crime. Border, law 
enforcement, homeland security and intelligence cooperation have 
expanded dramatically. Both countries are working with the U.S. 
identify potentially dangerous travelers before they get to U.S. 
borders. This collaboration is in line with priorities of the new U.S. 
National Security Strategy,\58\ but could well be damaged if the U.S. 
withdraws from NAFTA.
    Defense and intelligence cooperation with Canada are rooted in 
common NATO membership, but cooperation related to homeland security 
issues has expanded dramatically in recent years. This is exemplified 
in the 2011 ``Beyond the Border initiative'',\59\ which has a broad 
agenda to enhance security against a range of threats while 
facilitating the legitimate flow of people goods and services. The 
basic idea is to extend homeland security work as far beyond the actual 
borders as possible.
    A U.S. withdrawal from NAFTA could negatively affect this 
cooperation. As former Canadian Ambassador to the U.S., Michael Kergin 
put it January 26 at the Wilson Center ``The real concern is if NAFTA 
goes badly and there is no interest in negotiating, would there be 
enough political backlash that would incline Canada to step back from 
security cooperation?'' \60\
    Regarding Mexico, security cooperation began to deepen with the 
launch of the Merida Initiative in 2008.\61\ The Merida program is 
aimed at supporting Mexico in the fight against transnational criminal 
organizations and associated violence, as well as helping to strengthen 
its justice and law enforcement institutions and practices. That effort 
was expanded to include the Twenty First Century Border Initiative in 
2010, which like the effort with Canada, is aimed at enhancing border 
security while supporting legitimate commerce.\62\
    Under Merida, the United States has spent some $1.6 billion to help 
strengthen Mexican law enforcement and justice institutions, to improve 
Mexican capacities at its borders and to help strengthen communities 
beset by criminal cartels and gangs. American assistance has produced 
good results. At present, the U.S. is working hard with Merida funds, 
for example, to strengthen the forensic skills of Mexican officials in 
order that more criminals can be convicted successfully under Mexico's 
new justice system.
    The Mexican government has spent at least ten times what the U.S. 
has provided to strengthen its own law enforcement, intelligence and 
justice agencies. Along with Merida assistance, U.S.
    and Mexican law enforcement and homeland security agencies have 
built more effective operational cooperation against criminal groups 
and activity. DHS and Mexican counterparts have, for example, signed a 
series of agreements, which, among other things, allow much better 
cooperation along the border on customs screening, provide for 
collaboration to assure the smooth repatriation of criminals, and 
facilitate the sharing information on criminal history and biometric 
information to help identify possible terrorists and criminals.
    Today, the depth of U.S. cooperation with Mexico to strengthen 
border security, control migration, and dismantle transnational 
criminal networks is unprecedented. Mexican officials have stepped up 
efforts to identify potentially dangerous third country travelers and 
immigrants in coordination with American counterparts.\63\ Mexican 
immigration officials have turned around hundreds of thousands of 
Central American immigrants headed to the U.S. in recent years, despite 
criticism inside Mexico.\64\
    Cooperation against drug trafficking by criminal organizations 
further deepened in 2017 with a strategic action plan agreed between 
government ministers to attack the entire chain of illegal drugs from 
production to sales to financing and illicit money flows. This deeper 
cooperation is spurred on and made more important by the opioid 
addiction crisis in the U.S. and increasing violence in Mexico.\65\ 
Unprecedented progress has also been achieved in military-to-military 
cooperation.\66\
    U.S.--Mexico bilateral cooperation against transnational organized 
crime and terrorism makes more sense than ever, but that cooperation is 
built on maintaining and deepening trust. Mexican officials worry in 
private that they will have neither the political space nor the support 
of their teams to deepen cooperation, if the United States ends NAFTA 
or is perceived as unfairly bullying Mexico. These officials say they 
want to deepen cooperation against criminal groups because it is good 
for Mexico, but with the Mexican presidential and congressional 
elections coming up in July 2018 and the sour Mexican public attitudes 
toward the United States, they are very concerned. As former Mexican 
Ambassador to the U.S. Arturo Sarukhan put it at the Wilson Center on 
January 26: ``If NAFTA collapses, all bets are off. It will have a 
profound, long standing effect . . . future generations will ask `who 
lost Mexico?''' \67\
                               conclusion
    The United States has a great opportunity to conclude a ``state of 
the art'' trade agreement with its neighbors and largest clients. A 
modernized NAFTA can improve the existing agreement and increase jobs, 
trade, energy security, and prosperity, while making the U.S. more 
competitive in the world. To succeed, however, each of the parties 
needs to be able to convince their publics that the new agreement is 
good for them: that it is ``win-win-win.'' This is a very big challenge 
given the breadth of subject areas under negotiation, the controversial 
proposals on the table, and the negative public atmosphere.
    A new agreement is achievable, however, and worth the hard work. A 
good agreement would help reinforce the collaboration with both Mexico 
and Canada on important security issues, and it would tell the world 
that the U.S. is indeed open for business and trade.
    The alternative path would cost the U.S. dearly in jobs, trade, 
competitiveness and security. It would harm our neighbors economically 
and further sour their views of the United States. It would make 
ensuring U.S. homeland security harder. Particularly with Mexico, we 
could see a return to the ``distant'' relationship that existed before 
NAFTA. Other potential international partners would become more 
hesitant about negotiating with the U.S., and our international 
competitors would benefit.
    A much better outcome for the United States and for North America 
is to forge a renewed North American trade agreement and to continue to 
deepen security cooperation.
    Earl Anthony Wayne is a Public Policy Fellow at the Woodrow Wilson 
Center and Career Ambassador (ret) from the U.S. Diplomatic Service 
where he served as U.S. Ambassador to Mexico as well as Assistant 
Secretary of State for Economic and Business Affairs, among other 
positions.
------------------
Notes

    \1\ Earl Anthony Wayne (2017), ``It's in America's National 
Interest to Stay in NAFTA'', The National Interest, http://
www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=
0ahUKEiihrbdtP3YAhUQct8KHY5ZA--
AQFggnMAA&url=http%3A%2F%2Fnationalinterest.org
%2Ffeature%2Fits-americas-national-interest-stay-
nafta23866&usg=AOvVaw3QgDG45m4RoMX
igef1HuAy
    \2\ Trade Leadership Coalition (2017), ``Investors Say NAFTA 
Withdrawal Would Hurt Stock Market and U.S. Economy'', http://
tradeleadershipcoalition.org/wp-content/uploads/2017/10
/TLC-FTI-Investor-Survey-Results-NAFTA.pdf
    \3\ USTR (2016), Countries and Regions: Canada and Mexico, https://
ustr.gov/countries-regions;
    Secretaria de Economia (2016), Exportaciones, https://www.gob.mx/
cms/uploads/attachment/file/244415/AnualExporta.pdf;
    Secretaria de Economia (2016), Importaciones,https://www.gob.mx/
cms/uploads/attachment/file/244416/AnualImporta.pdf
    \4\ USTR (2016), https://ustr.gov/countries-regions/europe-middle-
east/europe/european-union
    \5\ USTR (2016), https://ustr.gov/countries-regions/china-mongolia-
taiwan/peoples-republic-china
    \6\ U.S. Chamber of Commerce (2016), ``NAFTA Works for Amerca'', 
https://www.uschamber.com/nafta-works
    \7\ Colin Robertson (2018), ``NAFTA: A Primer for the Montreal 
Round'', Canadian Global Affairs Institute, http://www.cgai.ca/nafta--
a--primer--for--the--montreal--round
    \8\ Christopher Wilson /Duncan Wood (2016), Growing Together: U.S. 
Jobs that Depend on Trade with Mexico, The Wilson Center, https://
www.wilsoncenter.org/article/growing-together-economic-ties-between-
the-united-statesand-mexico
    \9\ Michael Wilson (1993), The North American Free Trade Agreement: 
Gauging Its Impact on the U.S. Economy, The Heritage Foundation, 
https://www.heritage.org/trade/report/the-north-american-free-trade-
agreement-gaugingits-impact-the-us-economy
    \10\ Farmers for Free Trade (2018), The NAFTA Withdrawal Tax, 
https://www.farmersforfreetrade.com/
    \11\ Adam Posen, et. al. (2014), ``NAFTA 20 Years Later'', PIIE, 
https://piie.com/publications/briefings/piieb14-3.pdf
    \12\ Michael Hicks & Srikant Devaraj (2017), The Myth and the 
Reality of Manufacturing in America, Ball State University, https://
conexus.cberdata.org/files/MfgReality.pdf
    \13\ Robbie Whelan (2017), Gloom Descends on Mexico's Free Trade 
Capital, The Washington Post, https://www.wsj.com/articles/gloom-
descends-on-mexicos-free-trade-capital-1485449547
    \14\ David Autor, et. al. (2014), ``Import Competition and the 
Great U.S. Employment Sag of the 2000s'', The National Bureau of 
Economic Research, http://www.nber.org/papers/w20395
    \15\ Earl Anthony Wayne (2017), ``Tackling North America's 
Workforce Challenges'', The Wilson Center, https://
www.wilsoncenter.org/article/tackling-north-americas-workforce-
challenges-ambassador-earl-anthonywaynes-presentation-to
    \16\ Earl Anthony Wayne (2016), ``Toward A Cleaner And Leaner 
Energy Future For North America'', Forbes, http://bit.ly/2DIIN6J
    \17\ Claudia Cattaneo (2018), ``'Shooting themselves in the foot': 
How NAFTA's collapse could disrupt U.S.-Canada energy trade'', 
Financial Post, http://business.financialpost.com/commodities/energy/
shooting-themselves-in-thefoot-how-naftas-collapse-could-disrupt-u-s-
canada-energy-trade;
    The Heritage Foundation (2018), ``Energy dominance needs NAFTA'', 
Events, https://www.heritage.org/trade/event/energy-dominance-needs-
nafta
    \18\ Ana Swanson & Jim Tankersley (2018), ``As U.S. Trumpets 
`America First,' Rest of the World Is Moving On'', New York Times, 
https://www.nytimes.com/2018/01/24/us/politics/trump-trade-america-
first-davos.html
    \19\ European Council (2017), ``EU trade agreements'', http://
www.consilium.europa.eu/en/policies/tradepolicy/trade-agreements/
    \20\ Earl Anthony Wayne (2018), ``Defense--and offense--win trade 
championships'', The Hill, http://thehill.com/opinion/finance/370007-
defense-and-offense-win-trade-championships
    \21\ Colin Robertson (2018), ``NAFTA: A Primer for the Montreal 
Round'', Canadian Global Affairs Institute, http://www.cgai.ca/nafta--
a--primer--for--the--montreal--round
    \22\ Telesur (2018), ``Mexican, U.S. Unions File Complaint of NAFTA 
Labor Violations'', https://www.telesurtv.net/english/news/Mexican-
U.S.-Unions-File-Complaint-of-NAFTA-Labor-Violations20180125-0026.html
    \23\ The Canadian Press (2017), ``Worker protections paramount in 
NAFTA talks, Canada's labour minister says'', Automotive News Canada, 
http://canada.autonews.com/article/20171210/CANADA/171219936/
workerprotections-paramount-in-nafta-talks-canadas-labour-minister
    \24\ Luis de la Calle (2017), ``Secretary Ross and the Commerce 
Department Wrongly Conclude NAFTA Rules are Bad for the United 
States'', The Wilson Center, https://www.wilsoncenter.org/article/
secretary-ross-and-thecommerce-department-wrongly-conclude-nafta-rules-
are-bad-for-the
    \25\ U.S. Chamber of Commerce (2017), ``Coalition Chamber 
Federation Letter on NAFTA to the President and Congress'', https://
www.uschamber.com/letter/coalition-chamber-federation-letter-nafta-the-
president-andcongress
    \26\ IDFA (2017), ``Food, Ag Groups Warn Secretary Ross of Harm 
NAFTA Withdrawal Would Cause'', http://www.idfa.org/news-views/
headline-news/article/2017/10/27/food-ag-groups-warn-secretary-ross-
ofharm-nafta-withdrawal-would-cause;
    Alan Bjerga (2017), ``Top U.S. Farm Group Warns Against Upending 
Nafta'', https://www.bloomberg.com/news/articles/2017-10-10/farm-group-
warns-against-scuttling-trade-as-nafta-talksresume
    \27\ Earl Anthony Wayne (2018), ``Defense--and offense--win trade 
championships'', The Hill, http://thehill.com/opinion/finance/370007-
defense-and-offense-win-trade-championships;
    Douglas Irwin (2017), ``Mr. Trump's Trade War``, The Wall Street 
Journal, https://www.wsj.com/articles/donaldtrumps-trade-war-
1513356667;
    \28\ James Jackson (2016), ``U.S. Trade with Free Trade Agreement 
(FTA) Partners``, Congressional Research Service, https://fas.org/sgp/
crs/misc/R44044.pdf
    \29\ Robert Koopman, et. al. (2010), ``Give Credit Where Credit Is 
Due: Tracing Value Added in Global Production Chains'', National Bureau 
of Economic Research, http://www.nber.org/papers/w16426
    \30\ Eduardo Porter (2016), ``NAFTA May Have Saved Many 
Autoworkers' Jobs'', The New York Times, https://www.nytimes.com/2016/
03/30/business/economy/nafta-may-have-saved-many-
autoworkersjobs.html?--r=0
    \31\ Alonso de Gortari (2017), ``Disentangling Global Value 
Chains'', https://scholar.harvard.edu/files/alonsodegortari/files/
degortari--JMP.pdf
    \32\ Chris Wilson, et. al. (2017), ``Charting a New Course: Policy 
Options for the Next Stage in U.S.-Mexico Relations'', The Wilson 
Center,
    \33\ Banco de Mexico (2017), ``Informe Trimestral'', p. 20-24, 
http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/
informes-periodicos/trimestral-inflacion/%7BC7B6E2A2-72B3-139F-
8042326D60CD06B7%7D.pdf
    \34\ Josh Wingrove & Eric Martin (2018), ``From cars to cows, 
here's where NAFTA talks stand on big issues'', Bloomberg, https://
www.bloomberg.com/news/articles/2018-01-25/from-cars-to-cows-here-s-
where-nafta-talksstand-on-big-issues
    \35\ Wilbur Ross (2017), ``These NAFTA rules are killing our jobs, 
The Washington Post, https://www.washingtonpost.com/opinions/wilbur-
ross-these-nafta-rules-are-killing-ourjobs/2017/09/21/657bee58-9ee6-
11e7-9083-fbfddf6804c2--story.html?utm--term=.67863cdb1967
    \36\ MEMA/BCG (2017), ``A world without NAFTA'', https://
www.mema.org/resource/world-without-nafta; Scotiabank (2017), ``NAFTA: 
Data at Odds with Proposed Changes to Auto Rules of Origin'', http://
www.gbm.scotiabank.com/scpt/gbm/scotiaeconomics63/2017-12-19--I&V.pdf
    Luis de la Calle (2017), ``Secretary Ross and the Commerce 
Department Wrongly Conclude NAFTA Rules are Bad for the United 
States'', The Wilson Center, https://www.wilsoncenter.org/article/
secretary-ross-and-the-commercedepartment-wrongly-conclude-nafta-rules-
are-bad-for-the
    \37\ Scotiabank (2017), ``NAFTA: Data at Odds with Proposed Changes 
to Auto Rules of Origin'', http://www.gbm.scotiabank.com/scpt/gbm/
scotiaeconomics63/2017-12-19--I&V.pdf
    \38\ Josh Wingrove & Eric Martin (2018), ``From cars to cows, 
here's where NAFTA talks stand on big issues'', Bloomberg, https://
www.bloomberg.com/news/articles/2018-01-25/from-cars-to-cows-here-s-
where-nafta-talksstand-on-big-issues
    \39\ Colin Robertson (2018), ``NAFTA: A Primer for the Montreal 
Round'', Canadian Global Affairs Institute, http://www.cgai.ca/nafta--
a--primer--for--the--montreal--round
    \40\ Arbitration System'', The Wall Street Journal, https://
www.wsj.com/articles/canada-mexico-reject-proposal-torework-nafta-
corporate-arbitration-system-1517179473
    \41\ GYH International (2017), ``The Significance of NAFTA's 
Chapter 19'', http://www.ghy.com/trade-compliance/the-significance-of-
naftas-chapter-19/
    \42\ David Alire Garcia (2017), ``Mexico mulls pork as response to 
U.S. NAFTA produce proposal: sources'', Reuters, https://
www.reuters.com/article/us-trade-nafta-agriculture/mexico-mulls-pork-
as-response-to-u-s-nafta-produceproposal-sources-idUSKCN1BQ24A
    \43\ C.D. Howe Institute (2017), ``The NAFTA Renegotiation: What if 
the U.S. Walks Away'', https://www.cdhowe.org/sites/default/files/
attachments/research--papers/mixed/Working Paper 1128 web.pdf; 
ImpactECON (2017) ''Reversing NAFTA: A Supply Chain Perspective'', 
https://impactecon.com/resources/reversingnafta/;
    PIIE (2017), Withdrawing from NAFTA Would Hit 187,000 U.S. 
Exporting Jobs, Mostly in Heartland'', https://piie.com/blogs/trade-
investment-policy-watch/withdrawing-nafta-would-hit-187000-us-
exporting-jobsmostly#.WiHUZG4-0yA.email;
    The Atlantic Council (2017), ``What if NAFTA Ended? The Imperative 
of a Successful Renegotiations'',
    http://www.atlanticcouncil.org/images/AC--NAFTA--100517--web.pdf
    \44\ Trade Partnership Worldwide, LLC (2018), ``Terminating NAFTA: 
The National and State-by-State Impacts on Jobs, Exports and Output'', 
https://businessroundtable.org/sites/default/files/
NAFTA%20Termination%20Impact%20FINAL--0.PDF
    \45\ Ibid
    \46\ American Action Forum (2018), ``How a NAFTA Withdrawal Would 
Hurt the U.S. Economy'', https://www.americanactionforum.org/research/
nafta-withdrawal-hurt-u-s-economy/#ixzz514CrtXDI
    \47\ Trade Partnership Worldwide, LLC (2018), ``Terminating NAFTA: 
The National and State-by-State Impacts on Jobs, Exports and Output'', 
https://businessroundtable.org/sites/default/files/
NAFTA%20Termination%20Impact%20FINAL--0.PDF
    \48\ Inside Trade (2018), ``https://insidetrade.com/trade/report-
us-economy-would-lose-300000-jobs-without-nafta-rebounding'', https://
insidetrade.com/trade/report-us-ecoomy-would=lose-300000-jobs-without-
naftarebounding
    \49\ John G. Murphy (2017), ``What states would be hit hardest by 
withdrawing from NAFTA? ``, U.S. Chamber of Commerce, https://
www.uschamber.com/series/modernizing-nafta/which-states-would-be-hit-
hardestwithdrawing-nafta
    \50\ Trade Partnership Worldwide, LLC (2018), ``Terminating NAFTA: 
The National and State-by-State Impacts on Jobs, Exports and Output'', 
https://businessroundtable.org/sites/default/files/
NAFTA%20Termination%20Impact%20FINAL--0.PDF
    \51\ Bruce Stokes (2017), ``Views of NAFTA less positive--and more 
partisan--in U.S. than in Canada and Mexico'', Pew Research Center, 
http://www.pewresearch.org/fact-tank/2017/05/09/views-of-nafta-less-
positive-and-morepartisan-in-u-s-than-in-canada-and-mexico/
    \52\ Daniel Dale (2017), ``Under Trump, a majority of Canadians 
dislike the U.S. for the first time in 35 years, likely much longer'', 
The Star, https://www.thestar.com/news/world/2017/06/26/a-majority-of-
canadians-dislike-theus-for-the-first-time-in-35-years-likely-much-
longer.html
    \53\ Pew Research Center (2017), ``The tarnished American brand'', 
http://www.pewglobal.org/2017/06/26/tarnished-american-brand/
    \54\ Craig Kafura, et. al. (2018), ``For the First Time Majority of 
Mexicans Hold Unfavorable View of the U.S.'', Chicago Council on Global 
Affairs, https://www.thechicagocouncil.org/publication/first-time-
majority-mexicans-holdunfavorable-view-united-states;
    The Chicago Council on Global Affairs, ``A Critical Juncture: 
Public Opinion and U.S.-Mexico Relations'', Events, https://
www.thechicagocouncil.org/event/critical-juncture-public-opinion-and-
us-mexico-relations
    \55\ Alan Riding (1985), ``Distant Neighbors: A Portrait of the 
Mexicans'', Vintage Books Edition
    \56\ Reuters (2018), ``NAFTA Revamp Should Wait Until After Mexico 
Vote: Frontrunner'', The New York Times, https://www.nytimes.com/
reuters/2018/01/26/business/26reuters-mexico-election-nafta.html
    \57\ Dawn Kissi (2018), ``Populist Mexican presidential candidate 
Lopez Obrador spooking investors as NAFTA talks heat up'', CNBC, 
https://www.cnbc.com/2018/01/26/mexican-populist-lopez-obrador-
spooking-investors-as-naftatalks-heat-up.html
    \58\ A New National Security Strategy for a New Era (2017), https:/
/www.whitehouse.gov/articles/new-national-security-strategy-new-era/
    \59\ Public Safety Canada (2011), ``Beyond the Border: A Shared 
Vision for Perimeter Security and Economic
    Competitiveness'', https://www.publicsafety.gc.ca/cnt/brdr-strtgs/
bynd-th-brdr/index-en.aspx
    \60\ The Wilson Center, ``A World Without NAFTA'', Events, https://
www.wilsoncenter.org/event/world-without-nafta
    \61\ State Department (2008), ``Merida Initiative'', https://
www.state.gov/j/inl/merida/
    \62\ International Trade Administration (2010), ``U.S.-Mexico 21st 
Century Border Management'', https://www.trade.gov/nacp/21border.asp
    \63\ Department of Homeland Security (2018), Combating 
transnational Gangs through information sharing'', https://
homeland.house.gov/hearing/combating-transnational-gangs-information-
sharing/
    \64\ Politica Migratoria (2017), ``Extranjeros presentados y 
devueltos'', http://www.politicamigratoria.gob.mx/es--mx/SEGOB/
Extranjeros--presentados--y--devueltos
    \65\ Earl Anthony Wayne (2017), ``The War on Drugs: The Narco 
States of North America'', The National Interest, http://
nationalinterest.org/feature/the-war-drugs-the-narco-states-north-
america-22967;
    Earl Anthony Wayne (2017), ``America and Mexico to Tackle 
Increasing Drug Violence'', The National Interest, http://
nationalinterest.org/feature/america-mexico-tackle-increasing-drug-
violence-20717
    \66\ Craig Deare (2017), `` Don't throw away the U.S.-Mexico 
defense relationship'', The Washington Post, https://
www.washingtonpost.com/news/global-opinions/wp/2017/03/29/dont-throw-
away-the-u-s-mexicodefense-relationship/?utm--term=.48a6faa87e56
    \67\ The Wilson Center, ``A World Without NAFTA'', Events, https://
www.wilsoncenter.org/event/world-without-nafta

    The Chairman. Thank you. Great testimony.
    Dr. Serra.

   STATEMENT OF HON. JAIME SERRA PUCHE, FORMER SECRETARY OF 
        COMMERCE AND INDUSTRY OF MEXICO, MEXICO CITY, MX

    Dr. Serra. Thank you, Mr. Chairman. Thanks for the 
invitation. It is wonderful to have this opportunity and to be 
in the company of wonderful people, like Prime Minister 
Mulroney, who has--I have not seen in 25 years. It is wonderful 
to see that you are exactly the same.
    Prime Minister Mulroney. I wish.
    [Laughter.]
    Dr. Serra. Mr. Chairman----
    The Chairman. He told me you looked exactly the same, too.
    [Laughter.]
    Dr. Serra. Mr. Chairman, I just realized how quickly 5 
minutes go by, so I am going to make five points.
    The Chairman. Okay.
    Dr. Serra. Five points.
    The first one is that world trade is changing by creating 
regions. When NAFTA was registered on the--Article 24 in the--
WTO. They had--of something like 40-plus regional agreements. 
Today, there are more than 270 agreements. And out of total 
world trade, more than half takes place under regional rules, 
not global rules. So, what has happened in the last 20 years or 
so is that the competition in trade is more and more among 
regions, and less and less among countries. So, I think that 
premise is very important to understand, because it tells you a 
little bit about what is the cost of breaking down a region 
that we have created in North America. Point number one.
    Point number two is the integration that has taken place 
under the NAFTA rules in North America. This integration has 
been market-driven and has resulted in increasing trade and 
investment flows, converging economic cycles and macroeconomic 
stability in the North American . All of these things have 
happened mostly from market-driven mechanisms, not from 
regulators. This integration only experienced a decline on two 
occasions. Otherwise, in the last 24 years, it has been growing 
systematically and very consistently. The two occasions when we 
experienced a temporary decline were when China joined the WTO 
and at the time of the Lehman Brother crisis. Very specific 
moments on very specific issues. But, if you look at the curve 
of integration, even taking into account these two moments, 
growth has been exponential.
    So, the integration has already happened. Actually, people 
that discuss this refer to the ``scrambled-egg phenomenon,'' 
that once you scramble an egg, it is impossible to unscramble 
it. Some of the things that have happened in Mexico, the U.S., 
and Canada as a result of NAFTA is going to be very difficult 
to undo. And it would be very costly to undo them, it would 
create a very large social cost for the three countries.
    And the third point is that this relationship has moved 
into a new paradigm. We are not only selling and buying 
products from each other, but we are also producing them 
jointly. And this is quite important, because these are very 
different mechanisms from the ones we have in the traditional 
trade agreement. And I will give you an example of how that has 
happened. For every dollar that--there are several stories, but 
this is a very serious story from the NBR--for every dollar 
that Mexico exports to the U.S., we incorporate 40 cents of 
American inputs. For every dollar that the Chinese export to 
the U.S., they incorporate 4 cents of American inputs. So, it 
is a completely different scheme. There are some concerns--and 
I think there are legitimate concerns--about the competition 
with China; let me make it clear that our relationship with the 
U.S. and Canada under the NAFTA rules is completely different. 
It is a completely different paradigm. And I think it is very 
important to understand this high percentage of content, 
because it will give you a sense of the kind of losses that we 
could have if NAFTA was to be on the trouble.
    The fourth point, quickly, is how competitive the region 
is. The region has become very competitive over the last years. 
We are competitive because we have complementarity in 
demographic terms, because we have complementarity in capital 
endowment terms. Not only that, but we have liberalized energy 
sectors in Mexico, which gives us an opportunity, as Ambassador 
Wayne was saying, to ensure energy security in the region. Also 
because, as you look at the region, the connectivity in the 
region has increased dramatically as a result of all this 
growth and convergence. Any protectionist measure introduced 
into the NAFTA agreement will attempt against the 
competitiveness of the North America region vis-a-vis all the 
other regions of the world. I think that the objective of any 
agreement modernization should be to make our region more, not 
less, competitive.
    And I would just like to finish, Mr. Chairman, with one 
final comment. NAFTA, that is a rules-based agreement, has 
enabled this increasing integration. Which means, basically, 
that, by increasing the competitiveness of the region through 
measures that are market-driven, we will actually find that 
NAFTA is part of the solution, and not part of the problem, of 
the sort of relationship that we have with Asia and with non-
market economies. And NAFTA will be a very important tool, and 
is a very important tool, to compete even with non-market 
economies.
    Actually, Mr. Chairman, I think that what NAFTA has done 
over the last 20-plus years is to make us realize that, for 
trade issues and many other issues, Canada, Mexico, and the 
U.S. are in the same side of the table. They are not on 
different sides of the table. And I think that is very good 
news for us, because, at the end of the day, all we know that 
we will stay being partners and neighbors forever.
    The Chairman. Thank you, all three, for outstanding 
testimony. And I am going to turn--out of respect, I am going 
to turn to Senator Cardin, who missed his opening comments, and 
certainly ask him, if he needs extra time, to please take it. 
But, thank you----
    Senator Cardin. Well, thank you very much, Mr. Chairman.
    I want to thank Chairman Corker for convening this hearing. 
This--we always have distinguished witnesses, but I think this 
panel is just an extraordinary group of people who have done so 
much.
    The former Prime Minister, Mr. Mulroney, I remember very 
well your leadership in Canada, and I agree with your statement 
that we are fortunate, in America, to have you as our northern 
neighbor. And, Ambassador Wayne, you have a distinguished 
career as a career diplomat, and, Dr. Serra, as your leadership 
in Mexico on the commerce issue.
    So, we have a--really, an extraordinary panel, and I thank 
you very much.
    The U.S./Canada/Mexico relationship is critically important 
for the United States. It is important for our economic 
security. And you all gave a lot of numbers, but it translates 
into economic prosperity for all three countries. For our 
national security, there is no question about that. We share a 
common vision about the global security issues. Canada and 
Mexico represent the second- and third-largest trading partners 
for the United States. From my State of Maryland, we export $2 
billion--2 billion--to Canada and Mexico. Canada is our number-
one export partner.
    So, Canada, critical for our security, NATO partner, NORAD, 
the work that you are doing with us in fighting terrorism in 
Afghanistan, Iraq, in Syria, the list goes on and on and on. 
And on governance issues, I very much recently respect the 
leadership of the Canadian Parliament, government, on Global 
Magnitsky, on helping us on extractive industries transparency. 
We have been together on all these issues. So, it is true, we 
have been a partner country that has made America a stronger 
nation.
    And Mexico is the same thing. Mexico, we share so much 
together. I think about one of our key issues today, the opioid 
crisis. Our partnership with Mexico on counternarcotics is 
critically important to dealing with this issue. And that 
cooperation is very, very important. So, the relationships 
between Canada and Mexico and the United States is very 
important to our country.
    I have had serious concerns about how President Trump has 
managed that relationship. Because I think it has caused 
damage. And I--the first thing I can point to is public 
opinion. The public opinion in Mexico, the public opinion in 
Canada about the confidence of the United States has 
diminished. And that should be a matter of concern for all of 
us.
    I was in Mexico not too long ago and had a chance to talk 
to my counterparts from the Mexican Senate. And they were not 
very diplomatic in the manner in which they talked about the 
way President Trump has talked about immigration and the wall, 
and how offensive that is to the people of Mexico. So, I think 
we have to recognize there has been damage done in that 
relationship, and we need to figure out how we can strengthen 
it.
    In regards to the economics between the three countries, 
NAFTA is an important part. It needs to be continued. But, I 
think we all agree, it needs to be modernized. So, I do not 
think we should be concerned about modernization, but we have 
to make sure that it continues.
    And I have put on that list, recognizing that, when NAFTA 
was passed, we thought that we were being very forward when we 
took labor and environment and put them in side-bar agreements. 
Well, modern trade agreements recognize that needs to be in the 
core of a trade agreement, and that needs to be modernized. On 
behalf of America, we need a level playing field for the 
competitiveness of our labor force, and that needs to be in the 
negotiations. We need to expand environmental commitments. And 
again, these should be core parts.
    And we need to modernize our trade agreements, as we were 
doing in the TPP, on anticorruption provisions. And I think the 
work that was done in the TPP needs to be incorporated into a 
modern NAFTA agreement.
    Which leads me to my last point, which will be the question 
that I will ask. And that is, the damage that has been done--we 
are talking about NAFTA, primarily today, but the United 
States, under President Trump, announced that it would withdraw 
from TPP, the Trans-Pacific Partnership. Yet, Canada and Mexico 
are part of the 11 member states that are negotiating a TPP. 
And, without the United States part of that, I would like to 
get your observations as to what that means for the United 
States, in being left behind in TPP, recognizing that China is 
actively engaged in United States, Canada, Mexico, in every one 
of these TPP countries. If you could just share with us your 
observations of what the absence of the United States in the 
TPP negotiations--how you see that playing out for our region.
    Prime Minister Mulroney. Well, thank you, Senator.
    Not being a member of the current government in Canada, I 
have to be somewhat reserved in my opinions, but I can tell you 
that Canada, of course, has signed up with the new agreement, 
with the 11. And I think that was a wise decision. Although, in 
the back of my mind, I always realize that, if the United 
States in world affairs is not playing a leadership role in an 
organization, or trying to solve a problem, the consequences 
sometimes are less than impressive. In these circumstances, I 
think the hope is that the illustration of embryonic success by 
the 11 will encourage America to take another look at this and, 
at some point, sign on to what is clearly going to be--it 
already represents 40 percent of the world's GDP, and it is 
clearly going to be, I think, a successful initiative. But, 
without America, it is not as great as it could be. So, my hope 
is that, eventually, America will sign on.
    I have no doubt whatsoever that the Government of Canada 
made the right decision by signing on to TPP, as they 
negotiated a free trade agreement with Europe and as they are 
going to negotiate a free trade agreement with--hopefully, with 
Japan, India, and, ultimately, China. This is the wave of the 
future.
    Senator Cardin. Ambassador Wayne, what does it mean for the 
United States that successful TPP, with 11 rather than with the 
U.S.?
    Ambassador Wayne. Well, there are two aspects of this, 
economically. One is that the U.S. products could face higher 
tariffs when they are being sold into these member countries. 
And secondly is that the norms, standards, and rules that have 
been negotiated do not really reflect U.S. input. There is some 
U.S. input, because they were building off of the draft when 
the U.S. participated. But, my understanding is that a number 
of the areas that the U.S. was working to have included or 
strengthened are not included as the U.S. would have liked it 
in this new agreement. So, the U.S. will just have another set 
of rules and norms that are out there. And that is the general 
problem with all of the trade arrangements that are being 
negotiated when the U.S. is not out there helping to set those 
best practices, to help set those norms. It disadvantages our 
exports.
    Senator Cardin. Do we lose market share to China as a 
result of this?
    Ambassador Wayne. I do not think we lose market share to 
China as a result of this TPP agreement, but we do have to 
recognize that China is active around the world, negotiating 
its own trade agreements, and also, with its Belt and Road 
Initiative, which involves investment and other types of 
economic relationships, they are out there, they have lower 
standards for the agreements, as we would say, from our 
perspective. And, to the degree that we are not helping set 
models that are in--that fit our objectives, that is harmful. 
And this even stands for friends, like the European Union, 
because they have a different set of standards and norms that 
they favor. And if they are expanding agreements to those 
around the world, it will eventually harm U.S. exports or make 
U.S. businesses adapt those norms when they are selling 
overseas.
    Senator Cardin. Just quickly, Dr. Serra, is Mexico, in--to 
a certain degree, covering its bet in the event that NAFTA does 
not come out the way that it wants it to, that it has other 
options through the TPP 11?
    Dr. Serra. No, I do not think so. TPP is a very important 
initiative. TPP with the U.S. is one thing. TPP without the 
U.S. is a different animal. And I am afraid that part of the 
attraction of this decision goes with the scale of trade and 
the access to the markets. Mexico is part of these 11--this new 
definition of TPP with 11 countries. But, we have to be clear, 
that is important, it is part of the diversification of our 
exports, but, let us be clear, it is not a substitute for 
NAFTA, because our natural market is North America.
    Senator Cardin. Thank you.
    Prime Minister Mulroney. Mr. Cardin, may I just throw in 
one word, please?
    Senator Cardin. Sure.
    Prime Minister Mulroney. In a general response to your 
inquiry. There is an expression in French which says it all: 
[French expression]. Rough translation: If you take yourself 
out of a game, you are going to lose. And, as I have said, I 
think that, without American leadership, very few things come 
to the fruition that they might deserve. And I think this is a 
backgrounder for some of the things that are going on.
    Senator Cardin. Thank you.
    The Chairman. Senator Isakson.
    Senator Isakson. Thank you, Mr. Chairman.
    You know, if I had had my wish list 20 years ago, when I 
got elected to the Congress of the United States, as to who I 
would like most to meet and hear from in a hearing or in my 
capacity as a Senator or Representative, Brian Mulroney 
probably would have been at the top of that list. So, it is a 
big treat for me to have you here today. You are a great 
leader, and--a great leader for Canada, and we appreciate your 
being here today. I do not say that because I am going to ask a 
load of questions. I just said that----
    [Laughter.]
    Senator Isakson. But, I appreciate what you said about 
being in the game. I am so worried--I am very much a pro-trade 
person, and have voted that way throughout my career. I think, 
if we disengage from the marketplace, or if we go from the 
sidelines to the bleachers, that we are going to watch things 
happen to us rather than be a part of making things happen for 
the world and be a positive catalyst.
    When PNTR was before the United States Congress in 1999, I 
voted for it, Permanent Normal Trade Relations with China. And 
I did, because China then ascended to the WTO. And, for the 
first time, we were in an organization that had a governing 
body and a judicial element to it, the WTO, where we could go 
after our trading partners for abuse of trade agreements or 
treatment of one another. The Chinese had been robbing the 
southern United States of the textile industry for years. And 
the very first thing we did after we went in--after they went 
in the World Trade Organization, is, we sued China on four 
different textile products, won three of them, reestablished 
our place in the market, and gained a level of respect in the 
trade world, where we were not taken advantage of before, where 
we had been before because of our absence and nonengagement.
    So, I appreciate your testimony. My belief is, very 
strongly, that we should stay in NAFTA and we should do 
everything we can to make it work and make it strong. And I am 
going to continue to vote that way.
    But, you said something--all three of you addressed it, one 
way or another, and I would like for you, all three, to answer. 
How do you--as you work on the re-ratification or extension or 
renewal of NAFTA, how do you create an agreement that can be 
more modernized on its own movement as it goes through? I mean, 
I tell you we have done--there are things in NAFTA we did not 
do 25 years ago, we should have done. Now there are things that 
need to be modernized. Is there something we can do in 
negotiating the new agreement that can put in an element that 
will require modernization as the time goes by?
    Prime Minister Mulroney. Well, you know, Senator, thank 
you. And when I negotiated, for example, the original free 
trade agreement with President Reagan--and I am getting a 
little long in the tooth, but there were no cell phones, there 
was no Internet. And so, things have changed enormously. So, 
NAFTA can be modernized very seriously, and improved. It has to 
be updated, and so on. But, the fundamentals are absolutely 
strong. How can it be otherwise with the--what Jaime mentioned, 
which you are alluding to? This is not an isolated variable, 
the United States, anymore. You are--we are--everybody is 
competing with the European Union, with big trade blocks in 
China and in Southeast Asia. And we have merged, fortunately, 
into a major trading power, ourselves, here in North America.
    So, when we take on the competition, we are--we come from a 
rules-based organization that is prosperous and powerful--the 
most prosperous in the world, and we should take advantage of 
that cohesion to bring about greater stability, greater respect 
for rules-based organizations around the world, and the 
economic clout that comes when the United States is involved 
with its partners in making good things happen elsewhere. So, I 
think that we have got a terrific future ahead of us if we can 
consolidate now.
    My fear in what is happening, Senator, is that some people 
are interested in making perfection the enemy of the good. We 
have got a great trade agreement now that benefits the three 
countries enormously. And if you want to improve it, fine. 
Everybody is open to that. But, if you want to make it perfect 
and say, ``Perfection is the way I see the world, and it has to 
be the way I want it,'' then I do not think we are going to get 
there.
    And--but, I think that the process is unfolding. And this 
is a very helpful event here today.
    Senator Isakson. Any other comment?
    Ambassador Wayne. Well, thanks very much, Senator.
    I think, as the Prime Minister said, one of the key things 
to do is to take account of the technology that has advanced, 
and the kind of trade that we have today--e-commerce, big data 
flows, digital flows in trade across the borders. We have 
improved IPR practices during the years. We also need to look 
at customs processes and requirements and points of entry, 
because billions of dollars are lost every year by slowdowns at 
the border.
    We do need to look at the rules of origin--a complicated 
task, but they can be made--they can be made more efficient. 
And there is a lot of data out there, from the industries, that 
we should work with to see what can be fixed.
    Labor and environment do need to be incorporated, and best 
practices from all of the FTAs since then, including the TPP 
negotiations, and made best practices in this treaty. The same 
thing is true with regulatory cooperation. We have regulatory 
dialogues with both neighbors. We can turn this into a really 
state-of-the-art example of how we can work together on 
regulation.
    Professional services is an area where the United States is 
really strong. Services. We already, as was mentioned, we 
already have a surplus, but there is a lot more trade that can 
be going on if we can make some progress in that area.
    And then, finally, the anticorruption and transparency is 
part of those best practices from other agreements that should 
be in there. And I hear they reached agreement on the 
anticorruption chapter over this last week, which is good news.
    Senator Isakson. Thank you very much.
    Dr. Serra. Probably the best example that NAFTA needs to 
modernize is the fact that the technological innovation that 
was the top innovation when we were negotiating NAFTA was the 
mechanism to communicate was through the fax. So, that gives 
you an idea of how much room we need to modernize. But, I think 
that we have to modernize the agreement without protectionism.
    Senator Isakson. Yeah.
    Dr. Serra. Non-protectionist modernization should be the 
word for the negotiating, in my opinion, Mr. Senator.
    Senator Isakson. Thank you very much.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Thank you both.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman. And thank you 
for a very distinguished panel to provide your insights.
    I think this hearing comes at a precipitous time for both 
economic partnerships and partnerships with the United States, 
in general. And the President remains obsessed with a campaign 
slogan that implies the United States is happy to go it alone, 
questioning longstanding treaties and positions of 
international leadership. So, ultimately, I fear that puts the 
United States at a strong disadvantage when it comes to 
building productive partnerships that benefit all Americans.
    It does not seem in the interests of the United States, for 
example, for our leader to routinely denigrate entire countries 
and their citizens, countries like Mexico, for example, which 
the United States has a nearly 600-billion-dollar-per-year 
trading relationship, and on which about 5 million American 
jobs depend. So, with that concern as the framework, let me ask 
a couple of questions.
    Secretary Serra, as you know, the President has been 
adamant that Mexico would need to pay for a new border wall 
between the United States and Mexico. And his latest estimates 
to Congress are around $25 billion. Earlier this month, in 
fact, the President said he would use NAFTA negotiations to get 
Mexico to pay for his wall. As a former Mexican Ministry of 
Commerce and Industry, do you believe that the Mexican 
government will renegotiate NAFTA in a way that would pay for 
the wall?
    Dr. Serra. I am very happy that the Mexican Ambassador is 
here so that he can respond to that question, because I am not 
a specialist----
    [Laughter.]
    Dr. Serra. --on the issue. But, no, I am not sure I could 
be very precise in my answer, but what I can tell you, Senator, 
is that----
    Senator Menendez. Well, if you were back in your role as 
the Secretary of Commerce, do you envision yourself, on behalf 
of your country, negotiating NAFTA in a way that would pay for 
the wall?
    Dr. Serra. No. But, I can add one thing--may I--in one 
second?
    Senator Menendez. Surely.
    Dr. Serra. When you hear these numbers over the trade flows 
between our--among our three countries, it is obvious that the 
connectivity of the region has increased dramatically. Mexico 
used to export $100 million a day. Today, Mexico exports a 
billion dollars today. So, if you want to stop that driven 
market force with a wall, you will not be able to stop it. And 
it actually will create some social costs, because people 
benefit from all this trade. So, I think that the approach 
should be different. I understand that we have to have an 
intelligent border, an efficient border, but not a 
protectionist border.
    Senator Menendez. Ambassador Wayne, let me ask you. In your 
years of diplomatic service, and as a former Ambassador to 
Mexico, does this threat make any sense to you, in terms of 
diplomatic relations or a negotiation posture?
    Ambassador Wayne. What I can say is that the favorable 
views of the United States have dropped from over 60 percent to 
30 percent in Mexico. And it is, I am sure, because of the 
strain of critical remarks being made by the United States. And 
that is just not a good state of affairs.
    We worked, from NAFTA forward, to really change the 
relationship with Mexico, to build trust and to build 
cooperation. And this has been quite successful. And you can 
track that growing cooperation and growing trust. And, in the 
last 10 years, in the security and--border security and working 
against organized crime, in those areas, there has been 
tremendous progress between the two countries in building that 
trust, and the trust that is needed because both countries need 
to work against these----
    Senator Menendez. And let me----
    Ambassador Wayne. --these threats.
    Senator Menendez. --get to that question of trust, because, 
in a recent Gallup poll from 2016 to 2017, Canadians' approval 
of U.S. leadership went from 60 percent to 20 percent. Mexican 
approval of the U.S. fell to 16 percent, the lowest it has been 
in a quarter century. So, our policy is obviously not driven by 
international polls. Obviously not. But, I think it affects our 
soft-power abilities to enter into agreements and negotiations 
with countries that have such a low view of the United States, 
because it makes it more difficult for the leaders of those 
countries, at this time, to engage in some of the review that 
we want to see of NAFTA. On intellectual property rights, we 
certainly need to be brought up to date. On a more vigorous 
enforcement, some of us would believe, on labor and 
environment. But, the essence of the agreement, when you try to 
change it, you have--part of it is public support within your 
countries--I think the Prime Minister spoke about that--even 
facing, when there was not necessarily maybe support, and then 
building that support and seeing the result.
    So, I get concerned that our ability to negotiate, whether 
it be here in this all-important question of NAFTA, or beyond, 
is affected by how we are viewed in the world, in terms of a 
populace that is going to have to have--be supporting their 
leaders to engage the United States in a way that is in the 
national interests of the United States as well as their own 
national interests. And I appreciate your insights in that 
regard.
    Prime Minister Mulroney. Senator, let me step back just for 
a second and give you a little anecdote that occurred in the 
Oval Office with President George Herbert Walker Bush. NAFTA 
was in the process of concluding its negotiations, but we were 
not there yet. And I am alone with the President, who, in my 
judgment, had a remarkable knowledge of international affairs, 
and a nuanced understanding of the world and where it all came 
down. And President Bush said to me, ``You know, Brian, if this 
thing works out the way the Canada/United States free trade 
agreement has gone so far, 25 years from now the ideal result 
might be the following: There will be prosperity in--added 
prosperity in Canada, in the United States, and in Mexico. But, 
in Mexico, if, in the northern tier of Mexico, NAFTA generates 
such employment opportunities and new wealth for Mexico as a 
developing country--that is what we want for it--if that 
happens, perhaps we will see the day when more young Mexicans 
return to Mexico than come to the United States.'' And I 
believe--I may be wrong on the numbers--I think that happened 
last year.
    Now, there is an entirely different way--I mean, you are 
dealing with two problems with--at once, the prosperity of a 
great trading country like Mexico, the immigration challenge in 
the United States, and all done in a highly civilized and 
productive manner.
    I was talking to a very prominent business guy the other 
day in America. He said, ``One of our major problems is, we do 
not have enough immigrants. We are going to have to do 
something about our immigration policy.'' And I know that, in 
Canada, we have a problem, too. Our problem in Canada is, we do 
not have enough immigrants. We need more. And I have always 
contended that. And I believe that you do not have a growing 
dynamic economy without the creative abilities and devotion and 
loyalty that immigrants bring to their country.
    Senator Menendez. Thank you for that insight.
    Thank you.
    The Chairman. Thank you.
    Senator Young.
    Senator Young. Thank you, Chairman.
    And thank you, gentlemen, for being here today.
    I think I have heard each of you acknowledge that all trade 
agreements ought to, from time to time, be reviewed and, where 
possible, modernized. Counterparties to contracts in a 
nongovernmental setting oftentimes open up the books and see if 
they can find ways that might be advantageous to optimize the 
agreement for all involved. And it would be my hope that that 
is the direction we will take here.
    With that spirit in mind, I want to remind some of those 
who may be watching the proceedings today about some of the 
overall benefits to Americans of the NAFTA agreement. Starting 
with merchandise trade, the Congressional Research Service 
indicates that, since NAFTA's entry into force, U.S. 
merchandise trade with its NAFTA partners has more than 
tripled. Any disagreement, gentlemen?
    Prime Minister Mulroney. No.
    Senator Young. Likewise, Canada is the leading destination 
for U.S. good exports, and Mexico is the second-largest. Any 
disagreement?
    Prime Minister Mulroney. That is right.
    Senator Young. Okay. That is reflected in my home State of 
Indiana, as well, where Canada is the number-one destination 
for Hoosier merchandise exports, and Mexico is number two.
    Let us look next at trade in services. Between our three 
countries, the Congressional Research Service tells us that, 
between the years 1993 and 2016, U.S. private service exports 
to both Canada and Mexico more than tripled. Do you agree with 
this?
    Prime Minister Mulroney. Yes.
    Senator Young. Pretty powerful.
    Let us look at foreign direct investment. From '93 to 2016, 
foreign direct investment of both Canada and Mexico into the 
United States dramatically increased. Do you agree with that 
assessment?
    Prime Minister Mulroney. Yes.
    Senator Young. Okay. So, in summary, since NAFTA's entry 
into force, we have seen a dramatic increase in American 
merchandise and service exports to Canada and Mexico, and a 
dramatic increase in Canadian and Mexican investment in the 
United States that equates directly to more and better-paying 
jobs for Americans.
    So, my constituents, most of them know this, and it is 
important that they continue to be vocal about the benefits of 
NAFTA. And, on their behalf, I look forward to working with our 
partners in Canada and in Mexico, as well as this 
administration, to make sure that we do not lose sight of the 
forest from the trees, as it were.
    Secretary Serra, you played an integral role in NAFTA 
negotiation. Now, you mentioned the ``scrambled-egg 
phenomenon,'' where, once the egg is scrambled, it is pretty 
hard to unscramble it. We have seen the emergence of advanced 
emergency--excuse me--advanced manufacturing supply chains. And 
I do not want to trigger an emergency by trying to unscramble 
the egg. So, what would happen if NAFTA were to go away, when 
we have these advanced supply chains, particularly in the 
automotive sector, which is really big in my home State of 
Indiana?
    Dr. Serra. It is an excellent question. I did not mention 
it at the beginning, because I did not have time, but one of 
the most important developments over the last 24 years of NAFTA 
has been the development of regional value chains. Regional. 
Which is important. Everybody speaks about global. And it is 
true. But, in--the regional is stronger and more clear. So, 
if--then that has been developed, basically, as I was saying, 
driven by the market, because, when we eliminated many 
restrictions to trade between our--among the three countries, 
the companies were making the decisions of where to invest, how 
to contact with the other one, where to produce what, and so 
on. And this development of regional value chains has been so 
strong that it is the equivalent of the scrambled egg.
    If, for some reason--whatever reason the U.S. decides to 
get out of NAFTA, or to break NAFTA--the NAFTA agreement--most 
of these very efficient chains will lose money, because they 
cross--to produce a car, for instance, in North America, I 
think, is--they have to cross four times, six times, the 
borders.
    Senator Young. So, less dramatically----
    Dr. Serra. No, the----
    Senator Young. Oh, I am sorry.
    Dr. Serra. No, no. The borders: if you charge every 
crossing with small tariffs, even if this tariff is very small, 
the cost of production is going to go up dramatically, and we 
are going to lose competitiveness, shooting our own foot as a 
region, vis-a-vis all the regions in the world.
    Senator Young. So, less dramatically, let us assume that 
there were a change in the rules-of-origin requirements 
associated with this agreement. What--could that also result in 
some negative outcomes to both the United States and Mexico?
    Dr. Serra. Yes.
    Senator Young. And Canada, as well.
    Dr. Serra. Yes. I will tell you very quickly. The rule of 
origin was created in the NAFTA, for use in the NAFTA, because 
the three countries are in a free trade agreement and not in a 
customs union. For example, the Europeans do not have rules of 
origin, because all the countries in Europe have the same 
tariff towards the rest of the world. In NAFTA, the Americans, 
the Canadians, and the Mexicans have different tariffs vis-a-
vis the rest of the world. For somebody that does not belong to 
the block to enter into the NAFTA block, it could choose the 
country with the lowest tariff and export to the other two 
countries from there. So, to ensure that that does not happen, 
what we say is: ``If you want to enter into the regional 
market, you have to have some regional content to make sure 
that you are creating value within the region.'' So, I think we 
have room to increase regional rules of origin, I think we have 
flexibility for that.
    But, the concept of having national rules of origin, that 
is a complication, because that is not exactly what the rule of 
origin is. The domestic requirement really go against the sheer 
definition of the rule of origin.
    But, the concept of having national rules of origin, that 
is a complication, because that is not exactly what the rule of 
origin is. The domestic requirement goes--really go against the 
sheer definition of the rule of origin.
    I do not know if I am clear, Mr. Senator.
    Senator Young. Well, thank you, Mr. Secretary.
    I am out of time. I will just say, there are 150,000 jobs--
150,000 Hoosier jobs tied to a vibrant automobile sector. And 
we certainly have to be careful about disrupting that.
    Thank you.
    Prime Minister Mulroney. Senator, if I may just say, in 
response to Senator Young, 35 American States have Canada as 
their principal market and investor. In other words, the jobs 
that are created in those 35 states, for foreign investment and 
so on, come principally from Canada, a large part of the 
southern tier come from Mexico. I mean, there are 9 million 
jobs that are floating around, including 100-and-I-think-90-
thousand, or thereabouts, in Indiana, directly from NAFTA.
    Senator Young. I am impressed you know that number.
    Prime Minister Mulroney. Yeah.
    Senator Young. Thank you.
    Prime Minister Mulroney. Who--but, Senator----
    Senator Young. Yes.
    Prime Minister Mulroney. --who, in his right mind, would 
want to place this in--if I were the Senator from Indiana, and 
somebody wanted to place this in jeopardy in my state--and I am 
sure it would be your attitude--there would be one hell of a 
ruckus, because, you know, ``If it ain't broke, don't fix it.'' 
We can modernize NAFTA, we can improve it, we can do all kinds 
of things, but we should not throw it away, because it is 
worth--well, look at your own state. It is so valuable. Senator 
Flake's state, which is so indispensable to the well-being of 
his people. And this is all a people-to-people deal. It is--you 
know, it sounds highfalutin with NAFTA and so on, and these 
rules of origin and so on, but it is really about getting jobs 
and prosperity into the hands of our people.
    Senator Young. Thank you.
    The Chairman. Thank you very much.
    Senator Merkley.
    Deferring to Senator Udall.
    Senator Udall. Oh, thank you. Thank you very much.
    I want to thank the panelists here. I have listened to all 
your testimony, and I think you bring a real wealth of 
experience to these issues. And so, really appreciate that, 
that lifetime effort and bringing it here to us.
    You know, before he was confirmed, Secretary Ross told me 
that the NAFTA negotiations would begin shortly after the 
inauguration and be finalized within months. I mean, I think 
the term he used with me is, ``It is all going to be over in 90 
days.'' And then I met with--Ambassador Lighthizer pledged to 
me that he would oppose unilateral withdrawal by the United 
States. And here we are, a year later, and uncertainty still 
reigns. And the business community, I think all of you know, 
does not like that uncertainty. They speak out about that quite 
a lot. And the negotiations drag on. I think some of you said 
we are in the sixth round, or whatever it is. And the 
administration continues to threaten unilateral withdrawal. So, 
this is an uncertain time. And I think it really impacts a 
state like New Mexico, which has a very good relationship with 
Mexico, and has a good export situation there, and--both ways. 
In general, free trade agreements have been negotiated to the 
benefit of the world's largest corporations and their 
shareholders. I have consistently argued that they should do 
much more to guarantee labor protections and secure commitments 
to environmental stewardship. Now, NAFTA did some of that. 
NAFTA is no exception. It went into force nearly 25 years ago, 
and I support the effort to improve the standing agreement.
    But, a quarter-century of implementation means that NAFTA 
is deeply integrated into the economies of each of our three 
countries--and you all have really hit on that here today--and 
that, since 2006, it has had an ever-increasing benefit to jobs 
and small business in my State of New Mexico. And I will let 
our entrepreneurs speak for themself. A gentlemen--and, Dr. 
Serra, you probably know him--Jerry Pacheco, is the president 
and CEO of my state's Border Industrial Association, which 
represents more than 100 members. And he says--and I am quoting 
here--and he says it very well, and that is why I quote him--
``Since 1994, NAFTA has been crucial in New Mexico's ability to 
create thousands of jobs and recruit billions of dollars in 
investment. Trade with Mexico and Canada offers New Mexico its 
best opportunity to diversify its economy. With a 350-percent 
growth rate, New Mexico leads all border states in export 
growth within the last 10 years. Thousands of New Mexico jobs 
depend on stable and thriving trade with our two North American 
neighbors. And this has been made possible by NAFTA,'' end 
quote. That is Jerry Pacheco.
    The Constitution gives Congress the power to regulate trade 
with other nations. And this committee has a key role in that 
power. NAFTA was implemented with laws enacted into Congress. 
The President cannot unilaterally repeal these laws, even if he 
can issue unilateral statements about his participation in 
NAFTA. I think Congress needs to step up and take the reins 
here and send a clear signal to the administration that we all 
welcome updating NAFTA with better terms for workers, but this 
whole thing that is being thrown around, unilateral withdrawal 
without consent of Congress, is a tactic that is doomed to 
fail. And if the President tries it out, our economy, 
especially in border states, will suffer great damage.
    My first question to--probably more targeted, but happy to 
hear, Prime Minister, from you also on this--to Ambassador 
Wayne and Dr. Serra. Over 25 years, what impact has NAFTA had 
on the economy along the U.S./Mexico border? What has the 
agreement done to create jobs and new investments?
    And let me just add into there an additional question. In a 
post-NAFTA world, where would these jobs go? So, you are kind 
of talking about what has happened and then what would happen 
if you, in this hypothetical situation, the President says, 
``We are withdrawing from NAFTA.'' I mean, what happens?
    Ambassador Wayne. Well, first, just to note--so, today 
there about a million border crossings--legal border crossings 
every day tied up with both local commerce and then the 
commerce that is feeding the rest of both countries, going in 
both directions. There are production hubs that have developed 
in different places all along the border, from California down 
to southern Texas--and, on both sides of the border, also--
creating many, many--tens of thousands of jobs in those areas, 
and generating billions of dollars in business on a regular 
basis.
    If NAFTA went away, some of that would certainly continue, 
but it would be much more difficult, much less profitable and 
productive. I do not know what would take the place for those 
border communities or those border regions if NAFTA were ended.
    Dr. Serra. Yes, I would add that--not only the border 
states both in the U.S. and Mexico have benefited dramatically 
from this liberalization, but in Mexico you are seeing--and I 
think this is important for the debate on labor--you are seeing 
how this effect is coming down in the territory. You go to 
central Mexico, you see prosperity that we did not have in the 
center of Mexico. It has been happening.
    With one very important feature, Senator, and it is that 
the wages paid by firms involved in trade and by firms involved 
with foreign direct investment, that receive foreign direct 
investment, are something like 37 percent higher than the 
average in the country. So, the gap has not closed as much as 
we should have closed, but the gap is closing because of this 
prosperity that is being created and this--you know, freedom 
and circulation of products and services.
    So, the American using the unilateral exit or withdrawal 
would create a problem not only on the border states, but also 
in other states that are much more involved with exports and 
foreign direct investment, which are creating better jobs--
better-paid jobs than the average.
    So, I think it has consequences not only for the border, 
but for the whole--in Mexico, for the whole territory, down to 
the center.
    Senator Udall. Yeah.
    Prime Minister Mulroney. Senator, just a quick word on 
that.
    You may remember, in 1994 a very distinguished voice in 
America saying that, if we signed NAFTA, there was going to be 
a giant sucking sound. All----
    Senator Udall. I remember that guy.
    Prime Minister Mulroney. --that all the jobs in Canada and 
the United States were going to Mexico. All the hockey players 
in Canada and the dancing girls from Vegas were going to 
Mexico.
    Well, if that were the case, how do you explain today a 4.1 
percent unemployment rate in the United States and a similar 
rate in Canada, and growing prosperity in Mexico? What 
happened, of course, is that we got together and we built a $21 
trillion market with millions and millions of new jobs in North 
America, in all places. So, I think that--I cannot speak for 
the southern border, but I can tell you that, on the northern 
border, the--it is the same phenomenon--that NAFTA has been a 
great driver of new wealth, and we are learning to share it 
better, with everybody, in Canada and in America.
    Senator Udall. Mr. Chairman, thank you very much.
    I hope Senator Flake introduced his wife, who is out in the 
audience. Cheryl is out there. I see her.
    But, thank you. And sorry for running over.
    The Chairman. No, no problem.
    Senator Udall. Thank you for the courtesy.
    The Chairman. Thank you so much. It is a good question.
    Senator Risch.
    Senator Risch. I will not step on your toes, Senator Flake. 
That is a job that has got to be done. So, I will give you the 
floor in a minute, here.
    First of all, let me say, Mr. Mulroney, I--your statement 
about ``America should be thankful every day, Canada is on the 
northern border.'' We are. When I was Governor, I was part of 
the Border Caucus Governors. And I can tell you that the 
feeling is good. It is not average; it is good. And so, the 
only thing I would say to that, though, is, that door swings 
both ways. The--Canada also ought to be--thank----
    Prime Minister Mulroney. Absolutely.
    Senator Risch. --every day, be thankful that the United 
States is on its southern border.
    The--you know, the interesting thing about this hearing 
that we are having today is that--the amount of agreement that 
there is. The hearings we have around here, usually we are at 
each other's throats or the people that are sitting there are 
from countries that--where we have great difficulties with. We 
do not have the kind of great difficulties between these three 
countries. We are friends, we are partners. As has been 
mentioned, that is not going to change. Geography is always 
going to be what it is, and our cultures are very much alike.
    What we do disagree on, of course, is--the loyal opposition 
has a level of vitriol against the chief executive, the head of 
the second branch of government, that I have--I have done this 
all my life. I have been in public service all my life. I have 
never seen a level like it is. And so, as a result of that, 
it--that persona permeates everything. And the result of that 
is, we wind up butting heads on just about everything.
    But, when it comes to trading with these countries, the 
President campaigned on an issue that he thought we could do 
better. And I suspect that people of Canada think they--we can 
make NAFTA better. And I suspect the people of Mexico think we 
can make NAFTA better.
    We can. We should. And I really think, eventually, that we 
will. And it will make it better for all parties involved. In 
my state, softwood lumber is always an issue, Mr. Mulroney, and 
we spar back and forth, but we get through it. And we are 
looking forward to that in the future.
    You know, when it comes to this relationship, and when it 
comes to trade in these three countries, failure is not an 
option, is not a platitude here. This is something that has to 
be done. The egg cannot be unscrambled. We cannot unintegrate 
what has happened since NAFTA started. This is a genie that 
does not go back in the bottle. So, it has to be done. And you 
are not hearing from Members of Congress, anyone that I know 
of, saying, ``We ought to be out of NAFTA.'' Can we do better? 
I think we can do better. And, as you pointed out--well, all of 
you pointed out--that people of--acting in good faith and in 
good spirit can reach a conclusion, and must reach a 
conclusion. And there is no reason that cannot be done.
    So, thank you all for your service. Thank you for your 
input. And it is good to be involved in the hearing, where we 
have so much in agreement as to--instead of so much that we are 
arguing about.
    Thank you for holding the----
    The Chairman. Thank you.
    And Senator Flake, I know, has to preside. And so, what I 
am going to do is let him have the remainder of time, Senator 
Risch.
    Senator Flake. Thank you. Very kind.
    I appreciate being here. And I do have to preside, in a 
minute, but--appreciate what you said, Prime Minister Mulroney, 
about Mexico and the benefits to Arizona, to my state.
    Every day, Mexican shoppers come across the border and 
spend about $8 million in Arizona. Every year, Arizona has $16 
billion in cross-border trade with Mexico, alone. The 
statistics from the U.S. prior to NAFTA, about $80 billion 
total, now approaching $600 billion. What is not to like? I 
think we can all agree that this has been a tremendous success 
to all of us.
    But, I wanted to talk, for a minute, Secretary Serra, and 
ask about whether these kinds of negotiations on an agreement 
like this, this important, operate in a vacuum, or are there 
political ramifications in Mexico, for example, with a 
presidential election coming up? And how does that play?
    Dr. Serra. Excellent question. They do not operate in a 
vacuum, that we know. But, one word of care there, because 
these sort of negotiations have impact in the long term. 
Variables that come to fruition in the long term. So, to let 
time drive substance is a mistake. I think substance should be 
driving timing. And--but, of course, I am not being naive about 
the political elements in our three countries in the months to 
come, but if we are able to come up with a modernized NAFTA, 
non-protectionist NAFTA, non-managed-trade NAFTA within the 
next weeks or months, perfect. But, I would not like to see the 
scenario in which, in order to deal with this time limit, we 
end up having a text that is not what we, the three countries, 
need and want.
    Senator Flake. All right. Thank you.
    If I could just mention one other thing. With regard to 
NAFTA, it has been said that the President was thinking of 
maybe withdrawing, and that somehow in the next 6 months, 
negotiate a new--or a better agreement, a 2.0. In the meantime, 
our countries, like Mexico and Canada, prone to maybe move on 
if we are not seen as a reliable trade partner. Is there that 
fear or that concern? Should we be concerned about that?
    Dr. Serra. Yes. I serve on a few boards on--in Mexican 
firms, and the degree of uncertainty that they are facing is 
resulting in the postponement of capital expenditure. We are 
already seeing--without any change yet, you are seeing the fact 
that the expectation that it might not work out in the years to 
come, people are postponing investments, which hurts everybody 
here. You hurt the whole region. So, I think that we need to 
understand that clarity becomes--actually NAFTA--one of the 
biggest contributions of NAFTA for the region, in my opinion, 
to give certainty to investors, to give certainty to economic 
agents. And we are losing that in this period.
    Senator Flake. Thank you.
    The Chairman. Thank you so much. You want to introduce your 
spouse?
    Senator Flake. Yes, my wife, Cheryl, is in the audience 
here, so--and it is nice to have her here.
    Prime Minister Mulroney. Go quickly, Senator.
    Senator Flake. All right. Will do.
    [Laughter.]
    The Chairman. Thank you.
    Senator Flake. You are welcome.
    The Chairman. Thank you so much.
    Senator Merkley.
    Senator Merkley. Thank you, Mr. Chairman.
    I wanted to ask Mr.--former Secretary Puche, if you and I 
both have a factory that produces the same thing, and I am in 
Portland, Oregon, and--well, let us say, for example, I am 
baking Oreos, and I am paying middle-class American wages, 
American labor standards and environmental standards. And if 
there--your factory is in Mexico and you are paying Mexican 
wages, Mexican environmental standards, Mexican labor 
standards--who is going to make the Oreos more cheaply?
    Dr. Serra. The--well, let me just bring two things----
    Senator Merkley. Well, do not give me too long of an 
explanation, because we--I have only got--I only have 4 and a 
half minutes left.
    Dr. Serra. Excuse me?
    Senator Merkley. Do not take up too much time, please. It 
is a pretty straightforward question.
    Dr. Serra. No, no, I was going to say that--I have no 
problem with having labor standards improved at all. I mean, in 
Mexico, everybody wants to earn more.
    Senator Merkley. Yes. But, that is not my question. Who is 
going to be able to make the product more cheaply?
    Dr. Serra. More cheaply?
    Senator Merkley. Yes. Who is going to--the--is it going to 
be cheaper----
    Dr. Serra. The one that has the lower cost of production.
    Senator Merkley. Well, okay. So, let me help you answer the 
question. It is such a simple, straightforward question.
    If I have to pay higher wages and higher environmental 
standards with higher enforcement and higher OSHA standards, 
safety standards, it is going to be much more expensive for me 
in Oregon than it is for you, making the same thing in Mexico. 
And therefore, production, for a company that owns both 
factories, is going to shift to Mexico, as it has. And, in 
fact, I brought up Oreos because they are still being baked in 
Portland, Oregon, but just barely, only because it is the last 
holdout for the company--the mother company that is moving all 
of the production to Mexico because the wages they are paying 
are such a tiny fraction of what they are paying in the United 
States.
    We have seen this with our trucking industry, our--making 
trucks, manufacturing trucks. We have seen it with so many 
things.
    So, if we look over the last period since World War II--
from World War II through 1975, we had a big increase in the 
standard of American workers. As productivity increased, their 
wages increased. But, then as we started to do trade deals, not 
with companies that had similar standards, but countries that 
had dissimilar standards--and Japan played a role, and China 
played a role, and then, with NAFTA, Mexico played a role--we 
have seen that, for now over four decades, the wages of 
American workers have been flat. In fact, flat and declining. 
And so, this is not a win-win if you have an unlevel playing 
field of this nature and complete access to each other's 
markets.
    You know, I had a chance to work in Mexico in 1979 and 
1980, and I was in northern Mexico, and many of the village 
areas that I was in were profoundly later affected by NAFTA, 
because the low cost of American chickens and corn drove a lot 
of people to the cities. And there has been a massing, in the 
last two decades, growth of the cities in Mexico--and, in fact, 
the number of those living in poverty, the percent, has stayed 
at least the same, but it is a lot more people--so a lot more 
people living in poverty today. The area of the country that I 
lived in, in northern Mexico, was not controlled by drug 
cartels then, when I was there. A big change there.
    We have--so, I just wanted to draw up a counterpoint to 
much of the conversation we have heard today, because American 
workers have not participated in the vast increase in wealth in 
America in the last four decades, and trade policy has a lot to 
do with that. And, for those who are painting only a 
particularly rosy picture of what happens south across the 
border, the picture is much more complicated. But, I just want 
to give you a chance to share any thoughts you might have about 
that.
    Dr. Serra. Thank you, Senator. Let me quickly react to 
that.
    First, every Mexican wants a better income. We are a 
country of 120 million people, and it is not easy to increase 
incomes in real terms for 120 million people. Some progress has 
been made, not that was crucial for that, as I was saying, 
because people that are involved in trade and investment 
companies and activities are earning more than the average.
    Now, it is true that labor in Mexico is cheaper. No doubt. 
And that should be an advantage for the region. But, it is also 
true that the capital is much more expensive in Mexico. So, you 
have a combination of complementarity, which can be win-win, 
which is what I have been trying to say. You have a country 
like Mexico, that is a very young population compared to the 
U.S. and Canada, where they have a dependency ratio of half of 
what the Canadians and the Americans have. And that gives you a 
huge future for growth of labor forces. And, at the same time, 
Mexico lacks capital compared to the U.S. and Canada. So, those 
advantages are quite natural. So----
    Senator Merkley. My time is up. So, I will--I would look 
forward to continuing the conversation.
    But, I think it is important for us to have a complete 
picture of the view. And it is a situation where, across 
America, workers' wages have been flat. That has been a big 
mobilizing political force, on the right and the left in 
America, the fact that our vast increase of wealth in our 
country, but workers have not participated in it. And, quite 
frankly, in Mexico, you have also had a very large increase in 
the disparity between the top wages and the bottom wages, with 
the same percent living in poverty now as when NAFTA was 
passed. So, it is a more complicated picture and puzzle than 
the very rosy depictions I was hearing here in the room.
    Thanks.
    Dr. Serra. May I, Senator, very quickly, just bring one 
point, quickly, Senator?
    You think that that situation would be better off without 
NAFTA?
    Senator Merkley. I do think that there are pieces of this 
that were profoundly affected, villages that were profoundly 
affected by American corn and chickens. It is--as I say, it is 
a complicated picture, and I would be happy to take that up 
with you.
    Dr. Serra. Sure. Just remind you that your exports of 
grains and corn sold to Mexico are gigantic, and that we export 
vegetables and fruits in a very successful manner. There is a 
natural complementarity on agricultural activity between the 
two countries. But, we can talk about it later.
    Thank you, Chairman.
    The Chairman. Thank you. Thank you very much.
    Senator Coons.
    Senator Coons. Thank you, Mr. Chairman.
    I would like to thank the panel. It is a very distinguished 
panel. I am grateful for the time you have dedicated today.
    Let me ask a couple of questions that are just in the 
matter of cleanup, things that occurred to me in the course of 
the hearing that are of interest to me, perhaps.
    First, if the United States were to withdraw from NAFTA, if 
there were some abrupt effort by our President to withdraw and 
then try and force a renegotiation, how would that impact our 
Nation's cooperation on other issues, whether it is 
international affairs, border security, continental defense? I 
would be interested in hearing that, certainly from you, Mr. 
Prime Minister, and Minister Serra.
    Prime Minister Mulroney. Well, thank you, Senator. It 
would--in that hypothesis, which I am very reluctant to 
contemplate----
    Senator Coons. Me, too.
    Prime Minister Mulroney. --but if it--just for the sake of 
the question, this would have an extremely deleterious impact 
on our relationship. Canada and the United States cooperate in 
ways that few other countries in the world, if any----
    Senator Coons. Right.
    Prime Minister Mulroney. --do. We have security 
considerations. We have got border considerations. We, for 
example, fought together in all the wars of the past. We have 
come together. We are democratic countries. The same 
traditions. And so, you know, we work together on ISIS. We have 
an exchange of security and intelligence that is remarkable. 
The United States has, in Canada, a loyal and devoted friend 
and ally in every way. And it has been that way for 200 years. 
There is no relationship like this in the history of the world. 
There has not been a shot fired in anger across that border in 
about 220-odd years. And even then, it was a couple of 
Irishmen, you know, got out of line and made a little invasion, 
a little skirmish. And that is about it. In that skirmish, we 
captured Detroit, and we gave it back.
    So, there is--we have a marvelous relationship--bilateral 
relationship, the cooperation and the trust that is required 
between us. And it is like any sovereign nation, your 
sovereignty--the great strength and power of the United States 
of America in foreign policy and in the military is based on 
your economy. You have an 18- or 19-trillion-dollar economy. 
That is what generates the capacity to provide world 
leadership.
    Well, trade contributes to that in Canada a great deal. And 
if we are--if that is amputated from our relationship, our 
cooperation and security, in ISIS and in the military and NATO 
and NORAD, all of these things, is lessened, because it 
diminishes our wealth and our capacity to contribute to joint 
or trilateral endeavors when they involve Mexico.
    So, I would say, Senator, that this would be an extremely 
unfortunate and regrettable event.
    Senator Coons. Let me follow up on that, if I might, before 
I invite you to follow up as well. There was an earlier 
exchange about the regard--the opinion of most Mexicans of the 
United States. And we--I do not think there was a follow-on 
discussion about the Canadian opinion of the United States. I 
would argue that our global leadership, of course, is rooted in 
a very strong, robust, diverse economy, but also in our values, 
in values that we deeply share----
    Prime Minister Mulroney. Yes.
    Senator Coons. --in a commitment to liberty and to human 
rights and to democracy and to free press. What has the trend 
recently been in the Canadian opinion of the United States? To 
what do you attribute it? And what do you think we could or 
should be doing to strengthen our joint leadership globally 
that is values-driven in addition to those that are based in 
our economic----
    Prime Minister Mulroney. Well, Senator, my opinion of the 
United States is unchanged. I--it has been like that since I 
was a kid. I view the United States in an extremely favorable 
way. And it is a matter of values that we have defended 
together and fought together and died together, as I said 
earlier, in the defense of our freedoms. So, this, to me, is 
very personal, and it is very important.
    As in Canada, we realize that elections come and elections 
go, and new people are brought in, swept in by the voters, and 
swept out again. That is the way it is. Sometimes we--I 
suppose, in Canada, because we see so much of the United 
States, we develop friendships or respect, you know, for one, 
as opposed to the other, but we realize that decisions of this 
type are exclusively reserved for the people of the United 
States of America. You choose whomever you wish, and we work 
with him or her and their administrations. And we do the same 
thing in Canada. There are no perfect governments, with the 
possible exception of my own.
    [Laughter.]
    Prime Minister Mulroney. But, you know, this is a fact of 
political life.
    We are just--as the Senator was saying a moment ago, and as 
I have said, we are honored and privileged to have the United 
States as our best friend and neighbor, and America should get 
up every morning and thank God that they have got Canada on 
their northern border. That is the way it has been for all 
these years. And, you know, you choose your government, we 
choose ours. And we manage to get along very well.
    Senator Coons. Thank you for a very respectful and 
diplomatic answer.
    [Laughter.]
    Senator Coons. Secretary Serra, if you might, and then I 
have one more quick question.
    Dr. Serra. I am going to be less diplomatic, because I am 
not a good diplomat.
    But, I think that all of--somebody mentioned it, but I 
think that what you have seen over the last 24 years is a 
sense, in Mexico, that we belong to North America, and that we 
are neighbors with the U.S. Anti-Americanism in Mexico has gone 
down over the last 24 years. Over the recent mid times, this is 
going up. The easiest thing for a Mexican politician to 
organize is a 3-million-people demonstration against the U.S. 
That is the easiest thing. So, we really need to work out on 
mechanisms, timing, and a review of things soon, because if 
this anti-Americanism goes up and we have elections soon, it is 
going to be reflected there. That is the reality.
    Senator Coons. And are those demonstrations--to put a point 
on it----
    Dr. Serra. No, I am not saying----
    Senator Coons. --are they anti-American or that are opposed 
to some of the policies of the current administration?
    Dr. Serra. Three million people----
    Senator Coons. Is there a distinction?
    Dr. Serra. Yeah, 3 million people do not distinguish----
    Senator Coons. Do not make a big distinction. Okay.
    Well, I am very concerned by reports of ongoing Russian 
interference, attempts to influence the upcoming Mexican 
election.
    Let me ask a closing question of the three of you. One of 
the ways in which I would hope you would agree that NAFTA 
should be modernized is with regards to cybersecurity and to 
digital privacy. When it was initially negotiated, the U.S. had 
not, itself, enacted domestic laws to address digital piracy. 
The DMCA--the Digital Millennium Copyright Act was not law 
here. I hope you would agree it is important that a 
renegotiated NAFTA come up to a standard for IP protection that 
is at least comparable to current U.S. law. And I would be 
interested in what you think we should be doing jointly, both 
for IP protection and to protect against, I think, a shared 
threat to our democracies from Russia.
    Dr. Serra. In the case of Mexico, I can tell you that it 
would make a lot of sense to negotiate this. We have a lot to 
learn, but also we have a lot to contribute in this process. 
And I am sure that Mexico would be more than happy to negotiate 
on this front of cybersecurity and data management, as well. It 
is only natural for us to do it.
    And I would add, as well, the agreement that was achieved 
yesterday in Montreal about anticorruption, which is also very 
important for the NAFTA area, because the U.S. has the FCPA 
mechanism that could put--in an economy that also have the 
clear anticorruption rules, could put--I mean, American players 
in different playing level. And the fact that now we have an 
agreement--a potential agreement on anticorruption is 
fundamental and is very important.
    Prime Minister Mulroney. I second that motion, Senator. It 
is obvious that this is the kind of intimate cooperation that 
only comes from the trust generated through our wonderful 
trading relationship. People see the relationship not only as 
something esoteric and to be read about in the newspapers, but 
as something that provides for them and their families and 
their children every morning. You know, Senator, the--our 
friend, the Senator from Indiana, Senator Young, there are 
190,000 jobs in his state that depends directly on Canada. We 
take that seriously. This is serious. I think there are 28,000 
or so in your state, Senator. We take that seriously. Because 
it affects the families, the kids and so on. And we are aware 
of our responsibility in that regard. And we are also aware of 
the necessary action that we have got to take in the area you 
mentioned to keep those safe.
    Senator Coons. Thank you.
    Ambassador, a closing comment?
    Ambassador Wayne. Just add that I fully agree that we 
should update this agreement in protection of intellectual 
property. In fact, it should be a gold-standard agreement. This 
is--we have two negotiations going on now, a relook at the 
U.S./Korea negotiation and this one. They are the only two the 
United States is participating in. We need to establish as high 
and as forward-looking standards as we can in this 
modernization of this treaty, because it can become a model for 
others in the future. That is very important.
    I am not sure exactly how cybersecurity should be 
incorporated, but we should look at that--should be looked at 
very carefully. And even not only in the treaty, there should 
be trilateral cooperation to tackle these cybersecurity 
threats, because people are going to go around and through in 
any way they can get into North America. I think that is true. 
And you are correct that there is a danger of Russian 
interference, and they are using their media outlets to target 
messages--there is no question about that--everywhere that they 
can, including in Mexico.
    Senator Coons. Thank you very much, Mr. Chairman.
    The Chairman. Thank you.
    Senator Coons. Thank you very much, to the panel.
    The Chairman. I want to thank our three outstanding 
witnesses for being here today. And I do not think we could 
have had a better panel, nor a better session, to discuss the 
benefits of NAFTA, but also those things that should be 
modernized.
    It is my sense that modernization is where the 
administration is heading. I think that the three of you have 
laid out aspirational goals to cause this agreement not only to 
improve, but to be a gold standard, as you just mentioned. And 
I hope, with the input of Senators and House members on both 
sides of the aisle that are pushing for that, and just because 
of their own concerns about trade and the relationship that we 
have between our three countries, that that is where we are 
going.
    So, I thank you so much. We have, typically, written 
questions that come in. I know that each of you have plenty to 
do. But, we are going to leave the record open until the close 
of business on Friday. And, to the extent you might answer 
those questions for us, we would greatly appreciate it.
    Again, I cannot imagine a better panel, nor a better 
hearing. And that is only because of the outstanding witnesses 
we have. We thank you.
    And, with that, the meeting is adjourned.
    [Whereupon, at 4:15 p.m., the hearing was adjourned.]
                              ----------                              


              Additional Material Submitted for the Record


     Response of Hon. Earl Anthony Wayne to Question Submitted by 
                       Senator Benjamin L. Cardin

    Viewpoints on exactly how NAFTA renegotiations should proceed 
differ widely. But, as was discussed in the hearing, there is general 
agreement that NAFTA must be modernized to reflect changes in the 
global economy and updated thinking on trade obligations. I think it is 
critically important to create a very high standard in the NAFTA 
negotiations that preserves and improves on the gains made on labor 
rights, environmental commitments, and anti-corruption standards since 
NAFTA was first negotiated. It's these provisions that help create a 
level economic playing field.

    Question. Speaking from the U.S. perspective, do you agree? What 
advice would you have for negotiators with respect to these issues, 
especially on an updated labor chapter?

    Answer. I am far from an expert on the three areas you mention: 
labor rights, environmental commitments and anti-corruption standards. 
I agree fully, however, that a modernized NAFTA agreement should 
incorporate state of the art provisions in new chapters on labor 
rights, the environment and anti-corruption efforts.
    Strong provisions should be incorporated in the final agreement to 
help assure that all three parties respect principles and standards 
agreed in the three relevant chapters, but I am not optimistic that the 
parties will be able to agree to make the chapters as enforceable as 
some in the U.S. are seeking, especially for the labor provisions. 
Therefore, I think the U.S. should also strive to increase the 
transparency of the work done in these areas as a means of encouraging 
measurable implementation by all three parties.
    It will be a challenge to transform the laudable objectives that 
will no doubt be in the new chapters on labor, the environment and 
anti-corruption into an agreement that strongly encourages better 
practices by all three parties, while respecting the sovereignty of 
each of them. One could easily imagine situations where each of the 
three countries would bridle at being criticized by one of the other 
countries for a domestic law or regulation that is seen to violate 
objectives in the treaty on labor, environment and anti-corruption, or 
for not implementing well existing laws or accepted norms as they apply 
to labor, the environment and anti-corruption. For example, I doubt it 
would be constructive or well received in the Unites States, if Canada 
or Mexico were to file NAFTA cases against the U.S. for failure to 
repeal or otherwise invalidate state ``right-to-work'' laws or for 
failing to sign and ratify six of the eight ``fundamental'' ILO 
conventions, including those that endorse freedom of association and 
collective bargaining. Similarly, both substantively and politically it 
would be problematic for the U.S. to file NAFTA dispute settlement 
cases regarding the fairness of Mexico's minimum wage rules. In 
addition, since all three of the governments are federal systems, one 
faces the division of federal vs state/provincial authority for 
implementing various treaty commitments.
    As I understand it, the most up-to-date treaty texts in all three 
areas were what the U.S. was negotiating in the TPP, much of which may 
still be in the draft to be signed by the eleven remaining countries in 
March. (I note that the three NAFTA governments reportedly reached 
agreement on a new anti-corruption chapter in the last NAFTA 
negotiating round.) That said, the TPP labor text was not strong enough 
to win over most of U.S. organized labor. My understanding is that the 
EU, Japan and other major western trading powers have lagged behind the 
U.S. in terms negotiating constructive labor chapters in their trade 
agreements.
    In the TPP talks when the U.S. was still participating, Mexico 
would not agree to a Mexico specific plan committing to certain 
implementation steps in the labor area as part of the TPP agreement. 
However, while the TPP talks were proceeding, Mexico introduced 
significant constitutional reforms on labor and union rights, which 
were approved by Mexico's Congress and states. If implemented well, 
these reforms would significantly advance labor rights in Mexico.
    If we have an interest in improving labor practices in Mexico, the 
short-term task is to work to assure that Mexico's valuable 
constitutional changes are fully and effectively implemented. The AFL-
CIO and a Mexican union recently jointly filed a complaint with the 
U.S. Department of Labor alleging that the bill introduced in the 
Mexican Senate to implement the constitutional reforms would, in fact, 
undermine those very reforms. The short-term priority would thus seem 
to be to assure that whatever Mexican legislation emerges fully and 
well implements the intent of the constitutional reforms relating to 
labor and union rights. Based on my experience, this work would best be 
pursued via non-public demarches to authorities and legislators in 
Mexico.
    Regarding the current negotiations, I understand that USTR is 
preparing to table a draft proposal on labor at the next round of talks 
later in February. Canada has also talked about offering a forward 
leaning labor proposal that might challenge some U.S. ``right to work'' 
practices, according to press reports.
    I understand that U.S. unions will be focused on how labor 
commitments will be implemented, monitored and enforced in Mexico to 
encourage a situation where wages rise with labor productivity. 
Moreover, U.S. unions are asking for steps to allow genuine, not 
company, unions in Mexico that can freely organize and bargain 
collectively on behalf of their members.
    The U.S. can monitor implementation by having a robust labor 
section in the Embassy that travels and gathers information on 
prevailing labor practices and by periodic visits by officials from 
Washington. The enforcement part of any draft text will likely be 
contentious. I am not sure what might be possible or acceptable in this 
area.
    One set of improvements in the labor chapter, however, might 
revolve around increasing the transparency of labor practices on the 
ground. This might be done through requiring more public filings by 
governments, the private sector and unions related to the practical 
application of the treaty commitments. The chapter might also 
incorporate a tripartite (government, employers, and unions) mechanism 
whereby any of the parties could publicly raise problems and complaints 
regarding implementation of commitments and/or objectives embodied in 
the treaty. This would follow the tripartite consultation model used by 
the International Labor Organization (ILO), albeit without ILO 
participation. Such a tripartite mechanism could enhance transparency 
of labor practices on the ground by way of public discussions.
    The three countries could hold annual meetings where the 
governments, private sector organizations and unions would be able to 
raise publically concerns they have about implementation in any of the 
countries. Similar exchanges already take place annually in Geneva led 
by outside experts under the auspices of the ILO. All three NAFTA 
countries have ratified ILO Convention 144 on Tripartite Consultation 
for the Promotion of International Labor Standards, which would 
underpin the notion of tripartite review under such a NAFTA 
consultative body, giving both employer groups and labor unions more 
standing relative to their governments than they enjoy currently in 
NAFTA deliberations. The negotiators might also explore using 
independent investigators to prepare reports on complaints, as happens 
in the ILO.