[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.