[Senate Hearing 106-751]
[From the U.S. Government Publishing Office]
S. Hrg. 106-751
LESSONS OF NAFTA FOR U.S. RELATIONS WITH THE AMERICAS
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HEARING
BEFORE THE
SUBCOMMITTEE ON WESTERN HEMISPHERE,
PEACE CORPS, NARCOTICS AND TERRORISM
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
APRIL 27, 2000
__________
Printed for the use of the Committee on Foreign Relations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
senate
__________
U.S. GOVERNMENT PRINTING OFFICE
67-811 WASHINGTON : 2000
COMMITTEE ON FOREIGN RELATIONS
JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska PAUL S. SARBANES, Maryland
GORDON H. SMITH, Oregon CHRISTOPHER J. DODD, Connecticut
ROD GRAMS, Minnesota JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas RUSSELL D. FEINGOLD, Wisconsin
CRAIG THOMAS, Wyoming PAUL D. WELLSTONE, Minnesota
JOHN ASHCROFT, Missouri BARBARA BOXER, California
BILL FRIST, Tennessee ROBERT G. TORRICELLI, New Jersey
LINCOLN D. CHAFEE, Rhode Island
Stephen E. Biegun, Staff Director
Edwin K. Hall, Minority Staff Director
------
SUBCOMMITTEE ON WESTERN HEMISPHERE,
PEACE CORPS, NARCOTICS AND TERRORISM
LINCOLN D. CHAFEE, Rhode Island, Chairman
JESSE HELMS, North Carolina CHRISTOPHER J. DODD, Connecticut
RICHARD G. LUGAR, Indiana BARBARA BOXER, California
JOHN ASHCROFT, Missouri ROBERT G. TORRICELLI, New Jersey
(ii)
C O N T E N T S
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Page
Baer, M. Delal, chair, Mexico Project, Center for Strategic and
International Studies, Washington, DC.......................... 27
Prepared statement........................................... 31
MacKay, Hon. Kenneth H. (Buddy) Jr., Special Envoy for the
Americas, The White House, Washington, DC...................... 2
Prepared statement........................................... 3
Responses to additional questions for the record by Senator
Helms...................................................... 6
McNamara, Hon. Thomas E. (Ted), president, The Council of the
Americas, New York, NY......................................... 19
Prepared statement........................................... 23
Samuel, Bryan, Acting Assistant Secretary of State for Economic
Affairs, Department of State, Washington, DC................... 8
Prepared statement........................................... 0
Responses to additional questions submitted for the record... 15
Woody, Michael M., vice president, Sales and Marketing, The Quill
Company, Cranston, RI.......................................... 33
Prepared statement........................................... 36
(iii)
LESSONS OF NAFTA FOR U.S. RELATIONS WITH THE AMERICAS
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THURSDAY, APRIL 27, 2000
U.S. Senate,
Subcommittee on Western Hemisphere,
Peace Corps, Narcotics and Terrorism,
Committee on Foreign Relations,
Washington, DC.
The subcommittee met at 9:33 a.m., in room SD-419, Dirksen
Senate Office Building, Hon. Lincoln D. Chafee (chairman of the
subcommittee) presiding.
Present: Senators Chafee and Dodd.
Senator Chafee. Good morning. I will open the hearing on
the Lessons of NAFTA for U.S. Relations With the Americas. I
would like to welcome everyone here this morning.
Today we are holding a subcommittee hearing to assess the
North American Free Trade Agreement [NAFTA] and its impact on
U.S. relations with the Americas. The NAFTA is one of the most
significant agreements of any kind, trade or otherwise, to
which the United States has become a party and is cause for a
number of policy considerations 7 years after its enactment.
Today's hearing represents an opportunity to explore how NAFTA
has impacted U.S. relations with not only Mexico and Canada,
but all of the Americas.
Seven years ago, after a lively and thorough debate, the
U.S. Congress approved NAFTA by a close margin. This landmark
agreement eliminates trade and investment restrictions between
the United States, Canada, and Mexico over a 15-year period,
with most of the restrictions eliminated in the early years of
the agreement. Today, NAFTA institutions are functioning,
including the commissions created by side agreements to address
labor and environmental concerns.
During the debate on its enactment, proponents of NAFTA
argued that it would spur economic growth in all three nations,
while opponents predicted it would cause a massive shift in
jobs from Canada and the United States to Mexico.
Seven years later, it is difficult to assess with precision
the exact number of jobs gained or lost due to NAFTA. However,
at a minimum, it is accurate to state that NAFTA has
accelerated trade related job trends that were ongoing before
NAFTA.
In addition, while there have been genuine NAFTA-related
dislocations in some sectors of the U.S. economy, others have
prospered. I note that according to the Congressional Research
Service, no workers in my home State of Rhode Island lost their
jobs because of increased imports from or plant relocations to
Mexico or Canada.
But there are many other important noneconomic factors to
consider and lessons to be learned as we assess the
consequences of NAFTA. These lessons will help this
subcommittee take on future policy considerations involving
trade, security, political, and other matters of U.S. relations
with our closest neighbors. In particular, it would serve this
subcommittee well to assess if and how NAFTA has helped bring
about reform and modernization in Mexico as that nation
approaches a critical Presidential election just 10 weeks from
now.
Overall, I believe a strong case can be made that NAFTA has
improved in many respects U.S. relations with Mexico and
Canada.
I appreciate the appearance today of two very impressive
panels of witnesses, and I look forward very much to their
valued testimony. I will welcome Governor MacKay. Welcome,
Governor.
STATEMENT OF HON. KENNETH H. (BUDDY) MAC KAY, JR., SPECIAL
ENVOY FOR THE AMERICAS, THE WHITE HOUSE, WASHINGTON, DC
Mr. MacKay. Thank you, Mr. Chairman, for this opportunity
to testify on the positive impact that free trade and economic
integration in the Western Hemisphere has on our national
interests. I will summarize my written testimony, if that is
acceptable, Mr. Chairman.
Senator Chafee. Yes, sir.
Mr. MacKay. I want to begin by thanking the members of this
committee and the subcommittee for supporting our continuing
efforts to win final passage of the Caribbean Basin Initiative
[CBI]. We are close to an agreement that is important to reach.
CBI and the North American Free Trade Agreement--and hopefully,
in the next few years the proposed Free Trade Area of the
Americas [FTAA]--exemplify what this hearing is about: the good
results that can come from free trade, open markets, and
economic development.
Your subcommittee today is focusing on NAFTA and how it
furthers the national interests of the United States.
The first part of the subcommittee's focus is very
straightforward and easy to discuss. Dozens of studies indicate
how NAFTA has helped create jobs in this country and how it has
caused trade between the three countries of North America to
soar. NAFTA has helped the U.S. economy and thus the United
States remains strong. Our longest economic expansion in
history has produced the lowest unemployment rate in nearly 30
years.
The studies that document the positive impact NAFTA has had
on the U.S. economy range from the President's authoritative 5-
year review, conducted by the administration in 1999, to the
exhaustive State-by-State analysis conducted by the Trade
Partnership in Washington, DC last summer. The study conducted
by the Trade Partnership is of particular interest. It
documents the positive impact that NAFTA has had on almost
every State of the Union. NAFTA has contributed significantly
to the economy of every State represented by the members of
this subcommittee and its full committee.
Since NAFTA's inception, U.S. goods exports to Canada and
Mexico increased by $111 billion, an increase of 78 percent.
These products were made by U.S. workers, many of them gaining
employment in factories that were adding, not losing, jobs.
Yet, greater attention must be paid to the issue of U.S.
job displacement. The administration believes we must assist
displaced workers. We support the trade adjustment assistance
and NAFTA transitional adjustment assistance programs.
The second part of what you are trying to do today, Mr.
Chairman, is not often attempted, and I am glad to be able to
help you and to discuss this issue. Your goal this morning is
to examine how our national interest is served by NAFTA, a
broader goal and really I believe the important question to be
asked. This is an important story and statistical indices alone
cannot measure the full positive impact of NAFTA. Our relations
with Mexico and Canada have seldom been closer. As a result of
NAFTA, we continually work to resolve problems that we as
neighbors cannot ignore.
The work NAFTA accomplishes goes beyond balance sheets and
trade figures. As U.S. trade increases with Canada and Mexico,
economic integration increases. In that process, fair and
standardized practices in both the private and public sectors
are strengthened.
NAFTA serves the national interest of our country because
it helps move our countries on to a common platform of
democratic principles and transparent business practices. Upon
this platform, we can engage in dialog and interaction that
empowers human ingenuity to move problems to eventual
resolution.
The underlying faith that motivated an earlier Congress to
enact NAFTA has been justified. The common denominator that is
the basis of the future of the Americas is NAFTA's purpose: the
creation of jobs and access to markets.
Jobs is another word for trade. Jobs is the most peaceful
diplomacy we can adopt. A person working is a person creating
value for his or her family. Employment elevates an
individual's self-worth and the individual's stake in society.
NAFTA has strengthened our system of commerce based, as it is,
on economic incentive.
Few things serve the interests of the United States more
than the spread of democratic government and open business
practices built on transparency. For the United States, NAFTA
was a good first step. CBI is another step and the Free Trade
Area of the Americas is the logical next step in the
progression.
While expanding trade and helping our own economy grow, we
are shaping values in the rest of the world and in the process,
promoting democracy itself. That, Mr. Chairman, I believe is
the definition of our national interest.
Thank you very much.
[The prepared statement of Mr. MacKay follows:]
Prepared Statement of Hon. Kenneth H. (Buddy) MacKay, Jr.
Thank you, Mr. Chairman, for this opportunity to testify on the
positive impact that free trade and economic integration in the Western
Hemisphere has on our national interests.
I want to begin by thanking the members of the committee and the
subcommittee for supporting our continuing efforts to win final passage
of the Caribbean Basin Initiative.
We are close to an agreement that is important to reach because CBI
enhancement, like the North American Free Trade Agreement, exemplifies
what this hearing this morning is most about: The good results that can
come from free trade, open markets and economic development.
Your subcommittee today is focusing on NAFTA and how it furthers
the national interest of the United States.
The first part of the subcommittee's focus is fairly easy to
accomplish. Dozens of studies from many sources indicate how NAFTA has
helped create jobs in this country and how it has caused trade between
the three countries of North America to soar. NAFTA has helped the U.S.
economy remain strong, and thus the United States, during the longest
economic expansion in our history.
The studies that document the positive impact NAFTA has had on the
U.S. economy range from the President's authoritative five-year review
conducted by the Administration in 1999 to the exhaustive state-by-
state analysis conducted by The Trade Partnership of Washington, D.C.
last summer.
The study conducted by The Trade Partnership is of particular
interest because it documents the positive impact that NAFTA has had on
almost every state of the Union. NAFTA has contributed significantly to
the economy of every state represented by the members of this
subcommittee and its full committee.
Since NAFTA's inception, U.S. goods exported to Canada and Mexico
increased by $111 billion, an increase of 78 percent. Those products
were produced mostly by U.S. workers, in factories that were adding,
not losing, jobs.
Research by the U.S. Chamber of Commerce lists company after
company that have been made more competitive in the global market place
and that have added or retained jobs in this country because of NAFTA.
While in some industries, displacements have occurred, other
sectors have gained significantly. The overall impact of the agreement
we made with our two neighbors has been good for the United States.
The current demand for workers has created the most pressing
skilled labor shortages in the United States since World War II, and,
due in part because of NAFTA, unemployment has reached 30-year record
lows.
And Mexico has gained almost one million new, needed jobs directly
from NAFTA since it went into effect. Jobs in Mexico that have been
created as a result of direct foreign investment pay 48 percent better
than the Mexican wage average. The number of employed workers in Canada
overall in the first five years of NAFTA also increased by more than
one million.
Not withstanding the U.S. employment numbers, greater attention
must be paid to U.S. job displacement. The Administration believes we
must continue to assist workers who are displaced and supports reform
and consolidation of the Trade Adjustment Assistance and NAFTA-
Transitional Adjustment Assistance programs.
The second part of what you are trying to do today, Mr. Chairman,
is not often attempted, and I am delighted to help you. Your goal this
morning is to examine how our national interest is served by NAFTA.
This is an important story, and statistical indices alone cannot
measure the full, positive impact of NAFTA.
Our relations with Mexico and Canada have seldom been closer. As a
result of NAFTA, we enjoy healthy relations that force us continually
to address aspects of our relationships that can be improved.
NAFTA's side agreements create mechanisms that oblige each country
to enter into discussions about environmental and labor issues. The
inclusion of these elements into the NAFTA framework guarantee that
attention will be given over the long term to these important aspects
of our relationships.
The work NAFTA accomplishes goes beyond balance sheets and trade
figures. As U.S. trade increases with Canada and Mexico, economic
integration increases and, in that process, fair and standardized
practices in both the private and public sectors are strengthened.
Trade depends on commercial and personal interactions. Standards
make it easier for these transactions to take place, and increased
trade forces these practices to be commonplace occurrences on a daily
basis.
NAFTA has struck down trade barriers, and its implementation has
encouraged the breaking down of other barriers in Mexico because modern
business practices depend on streamlining operations. Consumer banking,
which has not always been a common experience for many Mexicans, has
increased the flow of money in commerce and heightened overall economic
activity.
NAFTA serves the national interest of our country because it helps
move our countries onto a common platform of democratic principles and
transparent business practices. Upon this platform, we can engage in
dialogue and interaction that empowers human ingenuity to move problems
to eventual resolution.
The underlying faith that motivated an earlier Congress to enact
NAFTA has been justified. The common denominator that is the basis for
the future of the Americas is NAFTA's purpose: The creation of jobs and
access to markets.
Jobs is another word for trade, and jobs is the most peaceful
diplomacy we can engage in because a person working is a person
creating value for his or her family, elevating in the process the
worth of an individual's stake in society. NAFTA has strengthened the
value of economic incentive for the individual.
In this view of the future, people are free to let their creativity
take them as far as they want to go. It is not an accident that the
word ``free'' is part of NAFTA's title. The design of its creators was
to promote freedom as much as economic progress.
Mexico, driven by the increase of our trade produced by NAFTA, has
replaced Japan as this country's second largest trading partner, and
Canada remains our largest trading partner.
The impact of NAFTA is not limited to economics. Trade also
accelerates the progress that a nation can make if it opens its society
to new technology that can vastly improve the quality of the lives of
its citizens. It encourages common standards and promotes efficiencies
in other sectors of society. It allows us to move past historical
disputes, and mitigates cultural differences.
Since becoming the President's special envoy to the Americas, I
have been to 23 of the 34 democratic countries that comprise the
hemisphere, and I can tell you that a new spirit of what is possible
prevails.
The challenges that exist today in the hemisphere in regards to the
successful transition of the Latin and Caribbean nations to full,
stable democracies are many, but they are closely linked to the success
of their economic development and their role in a free, global
marketplace.
The stage is set for progress to be made: The Americas are already
the world's largest consumers of U.S. products and 98 percent of the
people of Central and South America live under democratic rule.
Latin America and NAFTA countries consume 44 percent of all U.S.
exports, creating jobs for workers in the United States and Latin
America. By 2010, our exports to the Americas will represent nearly 50
percent of our total exports to the world--more than to any other
region, and exports from the Americas will also increase, creating jobs
in those countries.
The success of NAFTA is also changing us. We all know that the
mechanisms and structures that have traditionally formulated foreign
policy for and in this country have only minimally included a north-
south perspective.
The east-west continuum that has traditionally dominated the
foreign policy of this nation remains immensely important in how we
perceive the world and its threats and opportunities. But it must
change to include a north-south perspective because this hemisphere is
the site of great economic opportunity.
It is also the site of an increasingly growing Latino population
within and without the borders of the United States that will matter
more in the formulation of policies that affect the hemisphere. In less
than three years, the Latino population in the United States will
become our largest minority population.
For the United States, NAFTA was a first step in building this new
world; CBI is another step; and the FTAA is the next logical
progression. The rest of the hemisphere is moving in the same
direction. Mercosur, Caricom and the Andean Pact are the south's
natural impulse to integrate and the FTAA is closer to reality as a
result.
The efforts to develop democratic societies and to develop
competitive economies are part and parcel of an approach that serves
the needs and interests of the United States.
This approach contributes directly to the economic and political
security of the United States and the regional security of the
hemisphere.
Few things serve the interests of the United States more than the
spread of democratic government and open business practices built on
transparency. This hemisphere has had enough conflict and enough benign
neglect to last the next five generations. Ideological struggles in the
hemisphere have been replaced by the struggle to develop the region
economically.
Many people do not appreciate the extent to which trade agreements
such as CBI and NAFTA and, soon, the FTAA, export the best of our
values, including fair trading practices, the rule of law, workers'
rights and transparency.
While expanding trade and helping our economy grow, we are shaping
values in the rest of the world and, in the process, promoting
democracy itself.
That, Mr. Chairman, I believe, is the definition of our national
interest. Thank you.
[Additional questions submitted for the record follow:]
Responses of Hon. Kenneth H. (Buddy) MacKay, Jr. to Additional
Questions for the Record Submitted by Senator Jesse Helms
Question 1. How important were the U.S. policies on NAFTA and FTAA
in stimulating economic and democratic reform in Latin America and the
Caribbean?
Answer. Both the NAFTA and the ongoing negotiation of the FTAA have
succeeded beyond expectation in terms of encouraging open markets,
expanding trade, promoting greater transparency, and supporting
judicial reforms, while also enhancing cooperation and productive
dialogue on other important foreign policy issues.
In terms of the NAFTA, the great concern was about the treatment of
labor and environment issues. The NAFTA established side agreements on
labor and environmental matters that require each nation to enforce its
own laws and establishes mechanisms to resolve disputes. In practice,
the NAFTA has become a vehicle to address complaints by Canada, Mexico
and the United States and to press for progress on labor and
environment through the North American Agreement on Labor Cooperation
(NAALC) and the North American Agreement on Environmental Cooperation
(NAAEC). The NAFTA has also promoted partnerships and the creation of
networks among the business communities and segments of civil society.
This process has helped promote transparency and information sharing,
increased broad sector participation in policy issues, and improved
conditions for workers. The result has been stronger democratic
governance and closer cooperation among the NAFTA countries, and
increasing expectation and interest among other countries in the
hemisphere to enter into similar free trade agreements.
Since NAFTA, countries throughout the hemisphere have formed or
expanded regional trade regimes. MERCOSUR includes a democracy clause,
which it implemented to support a constitutional transition of
government in Paraguay, and Brazil has led efforts to build a greater
South America trade consensus. The interest in the Free Trade Area of
the Americas has only increased, as has the understanding that trade
and prosperity are interconnected with democracy and rule of law.
Question 2. How have the Central American and Caribbean countries
been affected by NAFTA?
Answer. As NAFTA's success becomes apparent, countries in Central
America and the Caribbean have sought to increase trade with the United
States. During the recent renewal of the Caribbean Basin Initiative
(CBI), the Caribbean and Central American countries (except Cuba)
negotiated an increase in U.S. trade benefits for apparel and other
industries to be eligible for duty free treatment, similar to terms
given to Mexico under NAFTA. The CBI countries pointed to Mexico's
large gain in market share for apparel exported to the U.S. under the
NAFTA and sought equal terms to develop the apparel industry in the CBI
region. The new terms, adopted in the Caribbean Basin Trade Partnership
Act of 2000, will help the CBI countries and the United States as it
develops this industry in the region. Throughout this process, the CBI
countries have engaged in closer cooperation and emerged as a more
cohesive voice on trade issues. This will have a positive impact as the
hemisphere moves to greater economic integration and the conclusion of
a Free Trade Area of the Americas.
Question 3. Would you summarize the agreements that have been
concluded by hemispheric leaders through the Summit of the Americas
process?
Answer. The Summit of the Americas process has launched several
hemispheric agreements, declarations and conventions that are at
various stages of completion or negotiation and that cover
anticorruption, counter-narcotics, education, energy, health, security,
human rights, indigenous populations, justice systems, labor,
telecommunications, terrorism, trade, transportation, and women. We
have completed an Inter-American Convention on Transparency in
Conventional Weapons Acquisitions, the Inter-American Convention
Against Corruption, and the Inter-American Convention on the
Prevention, Punishment and Eradication of Violence Against Women, among
others. In addition, the Summit process is responsible for convening
hemispheric ministerial meetings that encourage continued high-level
discussions on cross-border issues, such as justice system reform,
transportation, energy, the environment, education, and financial
systems. The negotiation of the Free Trade Area of the Americas is on
track and will include discussion of labor and environment issues. The
next Summit of the Americas will be an important opportunity for the
United States to signal its support for the hemisphere and summit
initiatives. The upcoming Summit will take place in April 2001 in
Quebec City, Canada, within the first ninety days of the inauguration
of the next U.S. President.
Question 4. What is the status of negotiations possibly leading to
a Free Trade Area of the Americas (FTAA)? Are the negotiations on track
to achieve an agreement that could go into force in 2005?
Answer. The negotiation for the Free Trade of the Americas is on
schedule. At the Toronto Ministerial meeting (November 1999), the
hemisphere's Trade Ministers instructed the FTAA negotiators to prepare
a draft agreement for review at the next hemispheric Trade Ministers
meeting prior to the Quebec City Summit of the Americas. The draft
agreement will then be submitted to the Heads of State at the Quebec
City Summit of the Americas in April 2001. President Lagos of Chile has
suggested that the FTAA be concluded by 2003, to focus on ratification
and implementation by 2005. Under this expedited timetable, the FTAA
could be negotiated and ratified in the United States during one term
of the presidency.
Question 5. Do you expect the agreement to be similar to NAFTA or
do you expect it to be different in many regards? What should be the
main goals of the United States in negotiating the agreement?
Answer. In many respects, NAFTA was a bold experiment. It was the
first major trade negotiation where environmental and labor issues
played a central role in terms of challenges and opportunities
throughout the negotiations. These important matters were dealt with
through separate side agreements concerning labor and environment.
The FTAA is an extraordinarily ambitious, complicated initiative
with enormous potential for the hemisphere. It brings together 34
democratic nations and addresses the most complex issues: the opening
of services markets, the development of electronic commerce, the
response to the growing interest in trade and trade policy by civil
society, and more. By 2005, we aim to create a single trade zone
consisting of nearly 700 million people and a combined GDP of $10
trillion. It will expand trade relationships that currently absorb more
than half of all the goods exported from Brazil and roughly 46% of
goods exported from the United States. It will strengthen our ability
to achieve shared goals in broader trading systems. And ultimately, it
will contribute to a lasting, prosperous, peaceful and democratic
hemispheric community, one that is better positioned and more inclined
to address our common responsibilities.
As with NAFTA, the main goals of the United States for the FTAA is
to develop a hemispheric trading system that encourages steady economic
growth, equitable policies, protection of the environments, fair labor
standards and stable financial systems. This will strengthen
hemispheric cooperation on the range of issues important to our
country.
Question 6. Do you believe that participation in an FTAA should be
limited to countries that have and maintain democratically-elected
governments? How might these conditions be taken into account in a
regional trade arrangement?
Answer. Those countries whose leaders are committed to promoting
full participation of their citizens in the democratic process and to
negotiating free and fair open markets are best able to contribute in a
manner consistent with the goals of the Summit. Participation in the
Summit of the Americas process is limited to the 34 democratically
elected governments in the hemisphere. The Plan of Action developed at
the Miami Summit states that ``the strengthening, effective exercise
and consolidation of democracy constitute the central political
priority of the Americas.'' The FTAA negotiation is an important
product of the Summit process, involving the democratically elected
leaders of the hemisphere. By instilling the principles of transparency
and the rule of law into commercial relations throughout the
hemisphere, the FTAA negotiation is helping to strengthen democracy.
Question 7. Do you believe that participation in an FTAA agreement
should be limited to countries that are taking substantial steps to
combat corruption? How might these conditions be taken into account
such a regional trade arrangement?
Answer. One of the fundamental goals of the Summit of the Americas
is the elimination of corruption. The Declaration of Principles of the
Summit of the Americas states that ``Effective democracy requires a
comprehensive attack on corruption as a factor of social disintegration
and distortion of the economic system that undermines the legitimacy of
the political institutions.'' At the 1994 Miami Summit, the Heads of
State agreed to strengthen their investigative and enforcement capacity
with respect to acts of corruption, to establish mechanisms of
cooperation in the judicial and banking areas, and to develop
hemispheric approach to corruption. Corruption is a severe and
debilitating reality in many countries, and the Administration has made
it a priority to address the issue.
The countries negotiating the FTAA are those participating in
Summit and other multilateral anti-corruption efforts. The Clinton
Administration is assisting countries to eliminate corruption by
providing judicial reform assistance, insisting on compliance with
integration obligations, and encouraging ratification of the Inter-
American Convention Against Corruption. To date 26 countries in this
hemisphere have signed the Inter-American Convention Against Corruption
and 18 have ratified it. In addition, several have signed the OECD
Bribery Convention, agreeing to make it a crime to bribe foreign public
officials for business advantage. Agreements such as the FTAA will help
drive out corruption by creating market oriented policies that promote
transparency, competition, and rules based behavior.
Senator Chafee. Thank you, sir.
Mr. Bryan Samuel, Acting Assistant Secretary of State for
Economic Affairs. Welcome.
STATEMENT OF BRYAN SAMUEL, ACTING ASSISTANT SECRETARY OF STATE
FOR ECONOMIC AFFAIRS, DEPARTMENT OF STATE, WASHINGTON, DC
Mr. Samuel. Thank you very much, Senator Chafee. I am
pleased to be here and have the opportunity today to discuss
lessons from NAFTA and prospects for further trade
liberalization in the Americas.
I will just, if I may, summarize the written statement that
we brought.
Senator Chafee. Please.
Mr. Samuel. The economic benefits of NAFTA are clear. It
has generated growth and economic momentum throughout North
America. This helps spur the creation of a North American
market with low and declining trade barriers, enhance
cooperation on labor and environmental issues and economic
innovation.
As the Governor mentioned, trade among the three NAFTA
countries has grown spectacularly since NAFTA entered into
force in 1994. NAFTA has helped us spur growth in some of the
most dynamic sectors of our economy such as information
technology. With disappearing trade barriers and greater
predictability, companies can better compete in this rapidly
growing market.
NAFTA has shown the American public and U.S. workers what
opening markets for our products can do. My prepared statement
presents several examples, but there are countless other
success stories from throughout our 50 States. I understand
that later in this hearing you will hear from a company in
Rhode Island that has benefited from NAFTA-driven trade
liberalization.
Thanks to NAFTA, we have also changed investment patterns,
leading companies from all three NAFTA partners to base their
investment decisions more fully on economic factors. Increased
investment in NAFTA partner countries has often led directly to
more jobs here at home, as manufacturing operations become
closely integrated across borders. Moreover, the opportunities
created by the rapid growth of the North American market has
pushed the total stock of foreign direct investment in the
NAFTA countries to record levels.
We have deepened relationships with our North American
neighbors. We are constantly working with our NAFTA partners to
resolve problems and address common challenges. NAFTA has been
instrumental in making economic reforms in Mexico permanent and
irreversible. And it is important to remember that while NAFTA
has done much to increase economic integration, the United
States, Mexico, and Canada remain in control of our own
destinies.
NAFTA has also provided mechanisms and institutions to
increase cooperation on labor and the environment. We work
closely with both countries to promote cooperation on boundary
waters and controlling transboundary pollution. As of March,
through the North American Development Bank, we have activated
over $200 million in loans and grants for 26 projects to reduce
water pollution and improve health conditions along our
Southwest border. Since 1994, the United States, Mexico, and
Canada have undertaken 36 projects through the Commission for
Environmental Cooperation. Some examples are in my prepared
statement.
The North American Agreement on Labor Cooperation, the
labor supplemental agreement to NAFTA, allows us to advance
labor issues and monitor enforcement of labor laws and creates
a forum for public concerns about labor law enforcement.
Submissions filed under the agreement prompted ministerial
consultations on freedom of association and safety and health
issues and have led to trilateral seminars on union
registration, certification of elections, recognition and union
democracy.
We are now in the process of building on the success of
NAFTA to create a hemisphere-wide Free Trade Area of the
Americas, encompassing all of the democracies of the Western
Hemisphere. When completed in 2005, the FTAA will be the
largest free trade zone in the world, establishing a $10
trillion market with more than 800 million people.
The abandonment of outdated economic models and the embrace
of open markets, democracy, and the rule of law have made such
an initiative possible. Trade groupings among Latin American
countries have already dramatically lowered barriers and led to
increased growth and political stability.
With an incomplete transition to free markets and
unforeseen events such as hurricanes, El Nino, and the Asian
economic crisis, however, vulnerabilities remain. Clearly, a
hemisphere-wide trade agreement would help to strengthen market
economies for the long term while providing U.S. companies with
better access to Latin American markets.
The FTAA negotiations have already made considerable
progress. Last November's ministerial meeting in Toronto saw
the approval of a package of business facilitation measures,
mostly in the critical customs area, that are already being
implemented. Nine FTAA negotiating groups are at work on issues
ranging from market access in agriculture to competition
policy. A completed FTAA should eliminate tariffs, establish
better protection of intellectual property, encourage
competition, transparency, and impartial regulation and create
an effective means of resolving trade disputes. The FTAA
process includes a Civil Society Committee, which I have the
honor to chair for the United States. This committee is
designed to advise governments on the views of business, labor,
and consumers, environmentalists, academics, and other citizens
groups, as the negotiations proceed.
Before I conclude, I would like to echo the Governor's
mention of the bill to enhance the Caribbean Basin Initiative
which, along with the companion Africa Growth and Opportunity
Act, is currently in conference. The CBI is the key component
of the administration's strategy to help the countries of the
region strengthen democratic governance through economic
development. Enhancing CBI will enable Caribbean nations to
compete more effectively, to provide better opportunities for
U.S. exports and help prepare these countries to undertake the
obligations of an FTAA agreement. I urge your favorable
consideration.
Mr. Chairman, in the 6 years NAFTA has been in effect, it
has helped increase economic growth and stability and
strengthened the bonds of friendship. In doing so, NAFTA has
served U.S. interests well.
An FTAA will provide similar benefits on a hemispheric
basis. We look for your support as we move vigorously to bring
the negotiation process to fruition.
Thank you for the opportunity to testify today.
[The prepared statement of Mr. Samuel follows:]
Prepared Statement of Bryan Samuel
Senator Chafee and Members of the Committee, I am pleased to have
the opportunity today to review what lessons we can take from NAFTA and
apply to our relations with the rest of the Americas.
I would like to review first the significant successes we have
experienced in expanding trade with our two NAFTA partners, Canada and
Mexico and in so doing, strengthening the relationships with our North
American neighbors. Then I would like to review prospects for extending
these successes to the rest of the Western Hemisphere.
NAFTA'S RECORD
The economic benefits of NAFTA are clear. It has generated growth
and economic momentum for many regions, communities and individual
citizens. NAFTA has helped spur the creation of a North American market
characterized by low and declining trade barriers, common standards,
enhanced cooperation on labor and environment issues and economic
innovation and dynamism. Trade among the three NAFTA countries has
grown by 96 percent since NAFTA entered into force in 1994. In dollar
figures, our trilateral trade increased from $289 billion in 1993 to
about $570 billion in 1999.
In expanding trade in North America, NAFTA has contributed to job
creation at home. Since NAFTA entered into force, U.S. employment has
risen by over 7 percent (12.8 million jobs) and unemployment has
dropped from 6.5% to 4.1%. Many of these jobs are tied directly to
increased trade, and according to Commerce Department data, export-
related jobs pay an average of 16 percent more than other jobs.
The trade liberalization measures of NAFTA have played a
significant role in spurring growth in some of the most dynamic sectors
of our economy. For example, the information technology industry now
generates over one-third of growth in the U.S. GDP and has benefited
greatly from lower barriers in Canada and Mexico. With disappearing
trade barriers and greater predictability engendered by NAFTA,
companies can plan better and more effectively compete throughout this
dynamic market.
NAFTA has shown to the American public, and to U.S. workers, what
opening up markets for our products can do. The statistics cited
earlier are represented in countless success stories at the individual
company level:
Coded Communications, a small manufacturer of wireless
mobile data communications systems, has seen its employment
grow by 25% since NAFTA went into effect, with plans to expand
employment by an additional 20% in the next 18 months;
Taylor Dunn, another California firm which manufactures
electric vehicles, added fifty workers because of increased
sales after NAFTA reduced Mexico's tariff on its products from
25% to zero;
Farmland Industries of Kansas City, the largest farmer-owned
cooperative in North America, which sold $50 million in wheat,
corn and soybeans to Mexico pre-NAFTA, is now exporting $450
million of its products to Mexico, including beef and pork;
Goulston Technologies of Monroe, North Carolina, which
manufactures synthetic fiber lubricants, saw exports to Mexico
increase 250% since NAFTA began, and accordingly increased its
employee base. Tariffs for its product dropped from 15% to zero
thanks to NAFTA.
I understand that later in the hearing we will hear from a company
in Rhode Island that has benefited from NAFTA-driven trade
liberalization.
These successes have been replicated many times over throughout our
50 states. In many respects, NAFTA has created a true North American
market.
NAFTA has also changed investment patterns, leading companies from
all three NAFTA partners to base their investment decisions more fully
on commercial factors alone. NAFTA is eliminating requirements that
forced U.S. firms to invest in Mexico if they wanted to sell products
and services there. Companies can now more easily spread manufacturing
and distribution operations among all of the NAFTA partners. This is
leading to higher degree of economic integration across our borders,
spurring the economies of all three nations.
A U.S. company building a facility in Mexico, for example, will
often need to increase production from its U.S. base to supply it,
leading manufacturing operations to become closely integrated across
borders. When investment occurs further afield, such relationships are
often not as strong. Moreover, the dynamism of the North American
market and the greater attractiveness of a larger, more integrated
market has helped spur investment levels from all sources. The total
stock of foreign direct investment in the NAFTA countries has now
reached $864 billion.
NAFTA has also had the positive effect of mitigating the adverse
effects of regional economic downturns, such as what occurred in Asia
several years ago. Despite Asia's contraction of purchasing power,
NAFTA's reduced barriers permitted us to increase our exports to Mexico
and Canada by $13 billion in 1998. Moreover, the NAFTA agreement means
that even during times of economic difficulty such as Mexico's peso
crisis in 1994-95, North American markets must stay open to us.
The economic benefits of NAFTA have led to equally important
beneficial effects concerning our wider relationships with our North
American neighbors. As trade rises to unprecedented levels, we are
constantly being brought together to resolve problems and address
common challenges. The higher growth and greater employment resulting
from NAFTA have also helped to create increased confidence in NAFTA
countries.
With respect to Mexico in particular, NAFTA has been instrumental
in making necessary economic reforms permanent and irreversible and in
reinforcing the rule of law. And it is important to remember that while
NAFTA has done much to increase economic integration in North America,
the U.S., Mexico and Canada remain sovereign, each very much in control
of our own economic and political destinies.
LABOR AND ENVIRONMENT
NAFTA has also provided mechanisms and institutions to increase
cooperation on labor and the environment.
Environmental issues loom large in our NAFTA relationships, given
the shared North American continent and the long borders with both
Mexico and Canada. We work closely with both Canada and Mexico to
promote cooperation on resolving issues related to boundary waters and
controlling transboundary air and water pollution. For example, the
North American Development Bank (NADB) is working with the sponsors of
29 certified projects that are applying for financial assistance from
the Bank. As of March 2000, the NADBank has authorized $209 million in
loans and/or grant resources for 26 infrastructure projects. These
projects will represent a total investment of $764 million to reduce
water pollution and improve health conditions.
Since 1994, through the Commission for Environmental Cooperation
(CEC), the U.S., Mexico and Canada have undertaken 36 projects in
biological diversity, conservation, sound chemical management, marine
ecosystem protection, pollutant reporting, and trade-environment
issues. Examples include conservation of the Monarch butterfly,
developing the North American Bird Conservation Strategy, and the
initiation of a North American Biodiversity Information Network. Under
the CEC, the North American Fund for Environmental Cooperation (NAFEC)
has awarded 127 community-based grants totaling $4.8 million to
community-based initiatives contributing to the conservation,
protection and enhancement of the North American environment.
The North American Agreement on Labor Cooperation (NAALC), the
labor supplemental agreement to NAFTA, allows us to advance labor
issues and monitor enforcement of labor laws in our trading partners.
It also creates a forum for airing public concerns about labor law
enforcement directly with governments. Twenty-two submissions have been
filed under the NAALC, several leading to ministerial consultations and
adoption of work programs to address concerns raised in the
submissions. In 1997, for example, submissions prompted ministerial
consultations on freedom of association and safety and health issues.
Earlier consultations have led to a trilateral conference on the labor
rights of women in North America, and a work program of trilateral
seminars on union registration, certification, elections, recognition
and union democracy.
And of course, NAFTA has been instrumental in creating new higher-
paying jobs, not just in the United States, but also in Canada and
Mexico. This has led to increased demand for U.S. products and services
from consumers throughout North America.
extending nafta's success to the rest of the americas
We are now in the process of building on the success of NAFTA to
create a hemisphere-wide Free Trade Area of the Americas, encompassing
all of the democracies of the Western Hemisphere. When completed in
2005, the FTAA will be the largest free trade zone in the world,
establishing a market exceeding $10 trillion, with more than 800
million people. It will further enhance trade within our hemisphere,
which already accounts for 47% of our total trade.
The dramatic changes in Latin America over the past decade have
made such an initiative possible. Throughout the hemisphere, countries
have moved from outdated economic models emphasizing state control,
closed markets and import substitution to privatization and open
markets where foreign trade and investment are welcome. Just as
important, democracy and the rule of law are now very much the norm
rather than the exception.
In opening up their trade regimes, nearly all countries in the
Western Hemisphere have participated in establishing a wave of trade
groupings that have dramatically lowered barriers and contributed
significantly to economic growth and political stability.
Yet the transition to free markets is incomplete and there is
danger of drifting backwards. Unforeseen events have also taken a toll.
In recent years, many Latin countries have been severely affected by
hurricanes, El Nino, the fallout from the Asian economic crisis and the
subsequent decline in commodity prices. Clearly, a hemispheric-wide
trade agreement would help to strengthen market economies while
providing welcome new access to Latin American markets.
The leaders of the Americas have already made much progress in
building a more integrated and prosperous hemisphere. In two Summits of
the Americas, leaders have set out numerous far reaching goals,
including a program of universal education, access to modern
telecommunications and the Internet, cooperative programs of
environmental law enforcement, crime and narcotics control, and
anticorruption measures. At their December 1994 summit, they made the
historic decision to create the FTAA by 2005.
FTAA
In taking part in the FTAA negotiations, the administration is
applying the many lessons we learned in establishing the NAFTA. For
instance, prior to the launching of formal negotiations, the 34 FTAA
countries met regularly to discuss existing trade regulations and
practices in the hemisphere and began to identify issues for
negotiation. Nine negotiating groups and three committees were formed,
and actual negotiations began in September 1998. Since then,
negotiators have been meeting in Miami nearly every week.
The negotiators created annotated outlines for the proposed
chapters of an FTAA agreement in time for last November's Ministerial
meeting in Toronto and are now working on a draft text. The ministers
in Toronto also approved a package of meaningful and practical business
facilitation measures that is already being implemented. The measures
are mostly in the critical customs area, and should do much to promote
commerce throughout the hemisphere.
The nine FTAA negotiating groups, which range from market access
and agriculture to competition policy, have as broad goals reducing
trade barriers, facilitating trade and establishing clear rules. The
FTAA aims to eliminate tariffs, establish better protection of
intellectual property and encourage competition, transparency and
impartial regulation of the services industries. The FTAA will also
create an effective means of resolving trade disputes. All of these
measures will greatly expand consumer choice, lower prices and spur
innovation.
In addition to the nine negotiating committees, the FTAA has
established three other groups whose mandate is to take into account
the special challenges of negotiating a trade agreement in the 21st
century. An e-commerce committee is working to identify how trade rules
might best address the interests of consumers and business in this
rapidly growing sector. Another committee is specifically focused on
the needs of smaller economies while the third is designed to advise
governments on the views of business, labor, consumers,
environmentalists, academics and other citizens groups. The
establishment of this Civil Society committee, for which I am the U.S.
lead, is unprecedented in any major trade negotiation.
Through the reduction of trade barriers and the institution of
fixed and clear rules, the FTAA will strengthen the values of openness,
accountability, and democracy.
CBI
Before I conclude, I would like to take the opportunity to mention
a related issue, the bill to enhance the Caribbean Basin Initiative
(CBI), which along with the companion Africa Growth and Opportunity
Act, is currently in conference. Since its inception in 1983, CBI has
encouraged the countries in the Caribbean and Central American region
to diversify their industries by providing preferential access to the
U.S. market. It is a key component of the Administration's strategy to
help the countries of the region strengthen democratic governance
through economic development.
The existing program has been a great success for the both the U.S.
and the region, with annual two-way trade now topping $40 billion.
Enhancing the CBI will enable Caribbean nations to compete more
effectively while providing better opportunities for U.S. exports.
Passage of this measure would support favorable economic and political
trends in the region and also help enable these countries to undertake
the obligations of an FTAA agreement.
CONCLUSION
We have achieved much during the six years NAFTA has been in
effect. In increasing economic growth and stability in North America
and strengthening the bonds of friendship and cooperation across the
continent, NAFTA has served U.S. interests well.
An FTAA will provide similar benefits on a hemispheric basis. We
intend to continue to move vigorously to bring this process to fruition
by the 2005 target date. We look for your support.
Thank you for the opportunity to testify today. I would be pleased
to respond to any questions you or other members of the committee may
have.
Senator Chafee. Well, thank you very much.
As I mentioned in my opening statement, NAFTA passed by a
close vote, and now we are moving forward with the Caribbean
Basin Initiative and FTAA, as well as free trade agreements in
other parts of the world.
Do either of you have any advice on how we can push these
initiatives, especially considering all the positive testimony
we have had both not only on the economic parameters of NAFTA
but noneconomic, what has happened with environment, labor,
economic innovation, noneconomic progress we have made as a
result, you might argue, of NAFTA's implementation? So, any
advice as we go forward on some of these other initiatives to
make sure we can get passage?
Mr. MacKay. Mr. Chairman, I am not sure I would call this
advice, but my observation, as we look at this broad range of
efforts, is that it is important that there be a forum where
the civil society issues can be discussed. There is no denying
that this is an area of great concern, Seattle first and then
here in Washington, the demonstrations.
In some countries perhaps that kind of issue can be held
aside. In our system of government it simply cannot. I think
that the way the FTAA is set up so that there is a forum for
those concerns to be heard inside the building, instead of
outside in the street, is the right way to do it.
I believe that the FTAA process has been set up in a way
that reflects a great deal of wisdom in the sense that the
focus is not only on trade, but it is on democracy, on
strengthening democracy, on finding ways to help the benefits
of trade be spread broadly among society. The countries where
we see stresses today are countries where they have now
committed themselves to democracy and open markets, and yet the
ordinary working people, the middle class, who have been
prejudiced by the recessions and the other adverse events of
the past few years, have yet to see that this benefits them.
I believe that this idea that it be not just trade, but
that you negotiate other things and that the United States can
be in the role of a helping partner, as we are on environmental
issues, as we are in helping to strengthen justice and helping
with education, helping with health care. I believe this is the
right way for us to do it. And I think NAFTA in some ways was
the pilot project, and I believe the FTAA process now has, in
effect, applied a number of the lessons of NAFTA.
Mr. Chairman, I was very pleased that you are hosting this
meeting. What we need are forums where we can discuss this and
where people can understand the breadth of the effort that is
taking place. Our Government has a binational commission with
Mexico where Cabinet members are working with their
counterparts. Some of these very knotty issues are not going to
be resolved immediately, but they will be resolved in the
atmosphere of trust that is building between our countries.
So, my observation, not my advice, would be I think we are
on the right track. My hope would be that the Congress will
take a great interest in the depth and the breadth of the
effort that is being made here. I think it is an unprecedented
effort.
Senator Chafee. Well, thank you, Governor.
Mr. Samuel, anything to add?
Mr. Samuel. Yes. I agree very much with what Governor
MacKay has said certainly.
I think the administration needs to continue to work on
getting the message out of the benefits for the economy of
trade liberalizing agreements. I appreciate this opportunity to
do that. Again, trade is one aspect of our overall relationship
with countries in the foreign policy and should be seen, I
think, in that broader context.
Finally, I think we do need to address the concerns, as
Governor MacKay mentioned in his statement, that workers are
nervous about trade liberalization, and there are often
dislocations. Again, the administration and the Congress, as it
looks at various trade adjustment legislative measures, need to
keep in mind the role that those programs can have in preparing
workers for adjustments and continuing participation in a
changing economy.
Senator Chafee. Just to followup a little bit, do you think
we could improve, as we go forward, any aspects of NAFTA as we
look at other trade agreements throughout the world?
Mr. Samuel. I think that certainly NAFTA is, as we say, a
state-of-the-art agreement. It has certainly been proved right
in many of its provisions. As we continue ahead, there are
certainly areas that NAFTA did not address fully that we can
continue to look at. In areas of services, there are perhaps
other services that might be covered for liberalization.
Now that we have had some experience in the dispute
settlement procedures of NAFTA, we may, as we talk in perhaps a
new round, want to add greater measures of transparency and
openness in the dispute settlement procedures, as we move
forward and look at new agreements.
Similarly, I think we would like to continue to revisit
some of the agriculture interests, especially as regard Canada
which is in the NAFTA, as we look forward perhaps to
negotiations in the WTO.
Senator Chafee. Thank you very much.
Governor, anything to add on that? Any areas, job
dislocation or the criticism--we are here praising NAFTA. I do
not know, but I am sure there are critics out there--and how we
address their concerns?
Mr. MacKay. Of course, I think it is important that we do
as much as possible to continue to tell the story. In some
ways, things are moving on and people sometimes look at NAFTA
as yesterday's news. I mean, we are now working on something
else. The truth of the matter, as Secretary Samuel has said,
NAFTA continues to be a state-of-the-art agreement.
My own observation is that some of the issues that were
dealt with have proven to be much broader than could have been
anticipated. I think the efforts jointly working on
environmental issues is a very good example. There is a
cooperative effort to raise the standards, but it turns out
that is a very difficult issue and one that nobody can walk
away from. We have to just continue together.
The trade adjustment and dislocation issue continues to be
extremely important. The law needs to be continued. The
administration needs to continue its commitment to make sure
the law works. The benefits that are on the books have got to
be benefits that are, in fact, delivered to workers who have
found their lives disrupted because of trade dislocations.
Senator Chafee. I appreciate very much your time in coming
here. I suppose the message is we have to continue to
communicate the benefits of agreements such as this as we go
forward, not only in the Western Hemisphere but around the
world. Thank you very much. It is worthwhile.
We will take a 5 minute recess and convene the second
panel.
[Recess.]
[Additional questions submitted for the record follow:]
Responses of Bryan Samuel to Additional Questions Submitted for the
Record
Question 1. What are the major benefits for Mexico and for the
United States from NAFTA? What are the sources of dissatisfaction with
NAFTA in Mexico?
Answer. Clearly, NAFTA has been a major engine of trade-driven
growth for the United States, as well as for Mexico and Canada. During
NAFTA's first five years, U.S. goods exports to our NAFTA partners
(Mexico and Canada) rose $93 billion or 66 percent (to $235 billion),
including $37 billion in export growth (a 90 percent increase) to
Mexico and $56 billion in export growth to Canada. Jobs supported by
U.S. goods exports to Canada and Mexico total an estimated 2.6 million
in 1998, 31 percent (600,000 new jobs) more than in 1993. In the United
States, export-related jobs pay an average of 16% more than non-export
related jobs.
The vast bulk--over 85 percent--of our NAFTA trade is in
manufactured goods. The U.S. manufacturing sector grew over 66 percent
between 1993 and 1998. For instance, our exports of textiles and
apparel products to our NAFTA partners have more than doubled, topping
$8 billion in 1998.
The benefits of the NAFTA are by no means limited to the United
States. Our decision to open doors and break down barriers is producing
a thriving relationship among our three countries--one that has led to
strong economic growth in the region and that has helped to fuel global
economic growth in recent years. Since NAFTA was implemented, trade
within North America has increased around 75 percent. All three NAFTA
partners now enjoy a bigger piece of a much larger trade pie--and the
jobs and economic opportunities created are key to our continued well-
being. Merchandise trade among NAFTA's partners reached $507 billion in
1998, a leap of $218 billion in just five years.
During NAFTA's first five years, employment in Mexico grew by 22
percent, generating 2.2 million jobs; and employment in the United
States grew by more than 7 percent, generating 12.8 million jobs.
Although Mexico is very pleased overall with NAFTA's benefits,
cross border trucking has been a source of dissatisfaction for Mexico,
it is currently in the NAFTA dispute resolution system. In addition,
Mexico seeks greatly increased access to our sugar market. Some in
Mexico have, inappropriately, blamed NAFTA for weaknesses in their
agricultural markets.
Question 2. In your opinion, how much progress has Mexico made in
establishing democratic practices, and to what extent, if at all, could
the progress be attributed to NAFTA?
Answer. The huge upswing in trade, and contact with the rest of the
world that NAFTA has catalyzed, has done much to spur the development
of Mexico's political institutions. The legislative branch of
government, no longer under the sole control of the PRI, is more
independent and assertive of its constitutional prerogatives than ever.
The Executive no longer ``taps'' the new President. Mexico is today in
the midst of its most open electoral campaign ever--one that the
opposition could win. The Mexican media is likewise more free and
independent of government control than at any time in recent Mexican
history.
While it is difficult to quantify how much of this progress in
political institutions can be attributed to NAFTA, one can certainly
argue that closer ties with the world's strongest democracy and the
increased prosperity the NAFTA has engendered have improved social and
political mobility--in effect helping to empower a broader spectrum of
the Mexican people.
Question 3. How much progress has Mexico made in terms of opening
the economy to foreign trade and investment? In what areas do you
expect to see additional progress? In what areas do you see a lack of
progress?
Answer. NAFTA covers about 97 percent of Mexico's imports from its
NAFTA partners. Tariff rates on covered items have either been reduced
to zero or are on a schedule to reach zero by 2004. In most cases,
Mexico is on schedule or ahead of schedule in the phase out process.
Mexico has negotiated or is negotiating free trade agreements with a
number of other countries and the European Union. There is apparently
interest in negotiating such agreements with Japan and Singapore.
Some critics feared the NAFTA would create incentives for companies
to close up shop in the United States and move their plants to Mexico.
Instead, what has happened is an increase in integration and
competition to the benefit of the United States, Mexico, and Canada. If
you look at the best measure of where firms are putting their money--
foreign direct investment and direct investment abroad--the facts show
that investment has risen in all three countries.
U.S. direct investment in Mexico reached a total of about 25.9
billion dollars (historical cost basis) in 1998, about 7% more than in
1997. It is concentrated in manufacturing (maquilladoras) and financial
services. The rate of total foreign direct investment in Mexico during
the period 1995-2000 is roughly double that of the preceding five
years. In particular, Mexico is opening its financial services sector
(primarily banking) to foreign investment.
Mexico maintains a number of state monopolies, in such areas as
petroleum and petrochemicals, and certain businesses are limited to
minority foreign participation.
Question 4. What is the status of Mexican efforts to open the
electricity sector to foreign investment? Do you foresee a time when
the petroleum sector would be more open to foreign investment?
Answer. The Mexican administration made proposals (involving
constitutional changes) during 1999 to privatize or open to private
sector investment portions of the national electrical power system
(other than transmission). These were subjected to serious political
challenges and were not pressed. It is not possible to predict what
steps, if any, will be taken in this direction in the near future.
However, it should be noted that demand for electricity is generally
believed to be growing at six percent per year; some steps will be
needed to expand power supply.
As for petroleum, its status as a state-owned resource makes it
improbable that it will be opened to foreign investors. The sentiment
is deeply rooted in Mexico that this resource is and must remain the
patrimony of the Mexican ``nation.'' An attempt to privatize production
facilities for secondary petrochemicals was not successful.
Question 5. Will the outcome of the July 2000 presidential election
be important in terms of the speed or degree of openness to additional
trade and investment liberalization? What opinions regarding NAFTA have
the major Mexican presidential candidates expressed?
Answer. Increasing democratization in Mexico virtually guarantees
growing public policy debate on all issues, including trade and
investment liberalization. The two front runners in the presidential
campaign are both committed to NAFTA and to continued trade and
investment liberalization, but either would likely be more obliged than
previous presidents to develop support for their proposals in the
Mexican Congress and with the public.
Question 6. What is the status of labor rights and human rights in
Mexico? Do independent labor unions exist in Mexico?
Answer. The Labor Rights section of the 1999 Human Rights Report
(sent to Congress in February of 2000) provides an extensive profile of
the current situation in Mexico. In addition, the 1999 Annual Labor
Trends Report on Mexico (2000 edition in progress), provides a detailed
discussion of the current labor situation. Yes, there are independent
unions in Mexico, in fact their principal federation, the National
Union of Workers (UNT), claims 1.5 million members. The AFL-CIO
maintains an office of its American Center for International Labor
Solidarity (ACILS) in Mexico, and has signed cooperative agreements
with the UNT, as well as with the largest confederation of traditional
unions (CTM).
Mexico has a vigorous independent trade union sector. The Mexican
Constitution and Federal Labor Law guarantee the rights of freedom of
association and collective bargaining. Around 25 percent of the total
workforce and 50 percent of the formal sector is unionized. Mexico has
ratified most International Labor Organization conventions. Some
concerns have arisen in recent years over the application of labor
legislation in specific cases. Such concerns have been and are
continuing to be addressed through the submission process of the North
American Agreement on Labor Cooperation (NAALC).
Mexico is not among the major rights violators, and guarantees, in
theory and practice, its citizens many fundamental rights. However, as
the State Department's 1999 Country Report on Human Rights indicates,
serious human rights violations do occur in Mexico.
Question 7. How effective is the Commission for Labor Cooperation
(CLC) under NAFTA as a mechanism for channeling complaints, encouraging
dialogue and consultation, and promoting improvement in these areas?
Answer. The North American Agreement on Labor Cooperation (NAALC),
the labor supplemental agreement to NAFTA, allows us to advance labor
issues and monitor enforcement of labor laws in our trading partners.
It also creates a forum for airing public concerns about labor law
enforcement directly with governments. Twenty-two submissions have been
filed under the NAALC, several leading to ministerial consultations and
adoption of work programs to address concerns raised in the
submissions. In 1997, for example, submissions prompted ministerial
consultations on freedom of association and safety and health issues.
Earlier consultations have led to a trilateral conference on the labor
rights of women in North America, and a work program of trilateral
seminars on union registration, certification, elections, recognition
and union democracy.
And of course, NAFTA has been instrumental in creating new higher-
paying jobs, not just in the United States, but also in Canada and
Mexico. This has led to increased demand for U.S. products and services
from consumers throughout North America.
Question 8. Do you believe the existence of NAFTA contributes to a
reduction in illegal immigration from Mexico to the United States? What
do the data show?
Answer. We believe more liberal trading arrangements between the
United States and Mexico, i.e. NAFTA, have had a dampening effect on
migration flows from Mexico to the United States. But NAFTA is only one
of many factors influencing overall migrant flows. NAFTA's effect may
well be outweighed by other factors, such as the general state of the
Mexican economy. In fact, this seems to have been the case when Mexico
experienced the ``Peso Crisis.'' According to the INS, apprehensions of
Mexicans attempting to enter the United States without inspection
increased from 1.26 million in FY93 to 1.46 million in FY97 (the last
year for which we have complete data). These figures include some
individuals apprehended more than once. We hope that this figure
declined in 1999 as the Mexican economy strengthened.
Question 9. How would you assess U.S.-Mexico cooperation on border
and environmental issues?
Answer. The NAFTA side agreement on environmental protection has
been quite effective. The North American Agreement on Environmental
Cooperation (NAAEC) appropriately emphasizes cooperative efforts among
the Parties. It also promotes, and ensures, adequate enforcement of
environmental laws in the United States, Canada, and Mexico. We must
keep in mind that this is an unprecedented agreement and incorporates a
far reaching range of constructive efforts to maintain and improve
environmental protection. We did not expect to be in a position to
argue that this agreement would resolve every environmental concern at
the border or in North America, but we did expect to make progress--and
we have.
The growing success of the bilateral NAFTA side agreement which, is
addressing environmental infrastructure needs along the U.S.-Mexico
border is noteworthy. The institutions created by this agreement (BECC
and NADBank) are bringing a variety of resources to bear upon the
water, wastewater, and solidwaste needs of the rapidly-growing
population in the border region. There are now 36 approved projects in
various stages of development, more than have ever before been underway
in this region.
Question 10. What is your assessment of Mexico's performance on
environmental issues?
Answer. As indicated in the previous question, Mexico has been
working closely with us in a number of bilateral fora to advance our
mutual interest in ensuring adequate protection for our natural
resources. In this bilateral context--as well as by means of its own
domestic policies--Mexico has been making significant progress on
environmental issues. Naturally, a great deal still remains to be done,
but we expect that progress will continue, especially based on the
general link between the level of economic development and
environmental consciousness.
Question 11. In your opinion, how have the Central American and
Caribbean countries been affected by NAFTA?
Answer. Since the signing of the NAFTA, countries participating in
the Caribbean Basin Initiative (CBI), which includes all the Caribbean
and Central American countries except Cuba, have claimed that Mexico
gained a significant trade advantage. Mexico's access to the U.S.
market, for which they made significant concessions in the NAFTA, is
superior in certain sectors to that enjoyed by the CBI countries. The
CBI countries point to Mexico's large gain in market share for apparel
imported into the U.S. as proof that NAFTA altered the trade terms.
However, because exports from several of the CBI countries continued to
grow, albeit at a slower pace, and because the duty rate is only one of
many elements considered by apparel manufacturers, it is difficult to
estimate the impact NAFTA had on CBI exports.
Question 12. Do you believe that participation in an FTAA agreement
should be limited to countries that have and maintain democratically-
elected governments? How might these conditions be taken into account
in such a regional trade arrangement?
Answer. The strengthening of democracy is at the core of the Summit
of the Americas, and the FTAA is a fundamental product of the Summit
process. The Plan of Action developed at the Miami Summit in 1994
states that ``the strengthening, effective exercise and consolidation
of democracy constitute the central political priority of the
Americas.'' By instilling the principles of transparency and the rule
of law into commercial relations throughout the hemisphere, the FTAA is
helping to strengthen democracy. Participation in the Summit of the
Americas process is limited to the 34 democratically elected
governments in the hemisphere.
Question 13. Do you believe that participation in an FTAA agreement
should be limited to countries that are taking substantial steps to
combat corruption? How might these conditions be taken into account in
such a regional trade arrangement?
Answer. Corruption is a severe and debilitating reality in many
Latin American countries, and the Administration has been working
actively to address the issue. One of the fundamental goals of the
Summit of the Americas is the elimination of corruption. The
Declaration of Principles of the Summit of the Americas states that
``Effective democracy requires a comprehensive attack on corruption as
a factor of social disintegration and distortion of the economic system
that undermines the legitimacy of political institutions.'' The Plan of
Action developed at the 1994 Miami Summit requires that the governments
will, among other goals, strengthen investigative and enforcement
capacity with respect to acts of corruption, develop mechanisms of
cooperation in the judicial and banking areas, and develop a
hemispheric approach to corruption.
The countries participating in the FTAA have been actively involved
in many multilateral anti-corruption efforts, such as the Inter-
American Convention Against Corruption. To date 26 countries in this
hemisphere have signed that Convention and 18 have ratified it.
Argentina, Brazil and Chile have signed the OECD Bribery Convention,
agreeing to make it a crime to bribe foreign public officials for
business advantage.
Market oriented policies promote transparency, competition and
rules based behavior. The Administration is further assisting these
countries to eliminate corruption by providing judicial reform
assistance, insisting that the countries comply with their
international obligations, and encouraging them to become a party of
the Inter-American Convention Against Corruption. Agreements such as
the FTAA will help to drive out corruption by creating a trading system
based on transparency and the rule of law.
Senator Chafee. We are pleased to convene the second panel
of the Honorable Ted McNamara, Ms. Delal Baer, and Mr. Michael
Woody from the great State of Rhode Island. The Honorable Ted
McNamara, would you like to start off?
STATEMENT OF HON. THOMAS E. (TED) MC NAMARA, PRESIDENT, COUNCIL
OF THE AMERICAS, NEW YORK, NY
Ambassador McNamara Thank you, Senator. Good morning, Mr.
Chairman and members of the subcommittee. It is a great
pleasure for me as the president and CEO of the Council of the
Americas to appear before this committee and to have the
opportunity to testify today. I would like to summarize in
about 5 or so minutes my statement, but if I could have the
full statement printed in the record, I would appreciate that.
Senator Chafee. Please.
Ambassador McNamara. The Council of the Americas is the
leading business organization which is dedicated to promoting
hemispheric economic integration, free trade, investment, open
markets, and the rule of law throughout this hemisphere. The
membership includes major U.S. multinational companies, small,
medium, and large sized companies with interests and
investments in Latin America. We were founded 35 years ago in
the belief that the future of the hemisphere depends upon
promoting democracy and open market economic principles.
Mr. Chairman, you have aptly titled this hearing ``Lessons
of NAFTA for U.S. Relations with the Americas.'' NAFTA has been
a tremendous success for the United States and has had much
broader and more positive impact than most Americans realize.
We all remember the NAFTA debates of the early 1990's. There
were incredibly alarmist statements about how this agreement
would destroy the U.S. economy and ruin the job market. The
``great sucking sound'' was the cry, supposedly draining
investments and jobs from the high-wage United States to low-
wage Mexico.
By now it is obvious that that did not happen. The United
States has had the longest peacetime boom in history. Recent
GDP growth is strong. Unemployment is at its lowest level in 30
years, and inflation is under control. Since 1993, trade among
United States, Canada and Mexico is up more than 86 percent.
U.S. merchandise exports to these two NAFTA partners are up
more than 75 percent. And those exports to those two countries
have supported an estimated 2.6 million jobs in 1998. This is
600,000 more jobs than were supported by U.S. exports to Canada
and Mexico just before NAFTA.
I could go on with more statistics, but the point I think
is clear: There is no sucking sound here. NAFTA, despite some
problems, has indisputably benefited the United States. This is
the first of many lessons that I think NAFTA has taught us.
I want to stress, however, that NAFTA's benefits transcend
economics. In Mexico, NAFTA has given a new energy and a new
confidence to the entire country. This attitude spills over
into Mexican domestic affairs where a more confident Mexico is
addressing broader social issues and is moving toward modern
democracy, in part because of the underlying security and
stability that NAFTA is providing the country.
The traditional Mexican anti-gringo ideology is giving way
to a more friendly and cooperative attitude. The new Mexico
sees it in its national interest to cooperate with us, whereas
the old Mexico saw its role in world affairs as opposing the
United States to demonstrate Mexican nationalism. The new,
modern Mexico understands that its future depends on three
healthy nations in North America and that cooperation can
produce a win-win-win situation. And believe me, after many
years, more than 30 years visiting Mexico and working in
Mexico, this is revolutionary thinking in Mexico.
It is clear that without NAFTA, Mexico would not have
advanced as it has. President Zedillo has opened up economic
and political systems to competition. We have political
pluralism, true political pluralism, in Mexico for the first
time. The ruling party has lost control of the Mexican Chamber
of Deputies for the first time in 70 years. The opposition
parties now govern in many states and municipalities, including
the capital state and capital city of Mexico, and an opposition
candidate could win the election to the Presidency in July.
This pluralism is a very positive development.
Without NAFTA, Mexico's traditional social and political
elites would have little reason to change, and these
modernizing developments would not have been what they are
today. They are the unforeseen benefits of the economic
modernization. Clearly Mexico still has a long way to go, but
NAFTA has been a good stimulus for moving it in the right
direction.
Of course, there are tensions and distortions that
accompany any change, and these are not missing in the NAFTA
phenomenon. Mexico still suffers from the old problems of
grossly inequitable distribution of wealth. Northern Mexico has
benefited more than southern Mexico from the NAFTA agreement,
and the gap between rich and poor has widened in Mexico, as it
has elsewhere in the hemisphere, including the United States.
Education and health reforms have not kept up with some of the
other reforms, and corruption and lack of transparency are
still a plague.
Obviously, a free trade agreement is not panacea for
Mexican or Latin American ills, but it is an essential part of
any program whose goals are democracy, open economic systems,
and social justice.
So, I offer a second lesson to be learned from NAFTA,
namely, that a dramatically new economic approach to our
neighbors may produce unexpected benefits for us in the
political and social areas. This can happen because economic
modernization does not take place in a vacuum. We should be
alert to this, and we ought to foster it.
The Free Trade Area of the Americas, the FTAA, Mr.
Chairman, is important to us and we need to negotiate that. If
we cannot negotiate with our neighbors in this hemisphere,
neighbors who are asking us to lead them to a new level of
economic performance, then how can we hope to be a leader of
world trade and economic development elsewhere in the world?
Free Trade Area of the Americas is a unique opportunity. It
represents a potential market of 800 million people. The FTAA
promises more than just economic gains. The Council of the
Americas believes that the FTAA represents a great opportunity
for growth and development in the region. Trade leads to
prosperity and improves the ability to address broader social
and political agendas, as I have just mentioned in the case of
the NAFTA.
Mr. Chairman, I believe that the FTAA is an opportunity
that should not be missed. But we are missing it. Through
inattention, misinformation, and fear, we are not doing all we
can to advance that agreement. The leadership that we need in
the executive branch and in the Congress is lacking. Our
leaders have not told the American people of the importance of
continued free trade to our economic well-being. Let me cite
some of the activity that we are missing out on by our mistaken
policies of neglect and indifference.
There are currently over 20 major trade agreements in place
in the Americas. The United States is a party to one of these,
NAFTA. Almost all of these agreements have been entered into
force in the 1990's and they are establishing a web of
preferential trade arrangements without the participation of
the United States. This is putting the U.S. economy, U.S.
workers, and U.S. industry at a disadvantage.
Because the U.S. has failed to negotiate, for example,
Chile's inclusion into NAFTA, our NAFTA partners, Mexico and
Canada, have gone ahead and signed bilateral free trade
agreements with Chile. So, that is great for Canada and Mexico,
for their workers, and for their industries, but it is bad news
for U.S. industries and U.S. workers.
This brings me to the third lesson of NAFTA. Once the
enormous advantages of free trade are demonstrated to our
neighbors, they will continue to move down that road with or
without us. If we sit on our hands, we are sitting on our hands
at our own risk. Our neighbors and NAFTA partners are not idle.
They are improving their economic prospects by forging
preferential trade agreements that exclude us. While we are
foolishly distracted by the strident shouts of the neo-
protectionists, our economic interests and our advantages are
suffering. Our workers are suffering and our industries are
suffering.
This situation highlights yet another lesson, albeit not a
NAFTA lesson; namely, that our neighbors are moving in
different directions. Consider the example of Mercosur made up
of Brazil, Argentina, Uruguay, Paraguay, and now as an
associate member, Chile. Its strength, reach, and importance in
South America is growing. But Mercosur is not a free trade
zone. Its goals are not the same as NAFTA and the FTAA,
although they are not inimicable to that. Mercosur is a customs
union, aiming at free trade inside the union and a common
tariff for those outside. Its objective is to move to a common
market with a free movement of labor, coordinated macroeconomic
policies and possibly even a common currency within that union.
Only secondarily and only after the union is established can we
expect Brazil and its partners to move to the negotiating table
with the United States to negotiate free trade.
I know I do not need to detail to this committee the
history of the disputes and tensions in Europe in the 1950's
and 1960's when the European Free Trade Area competed with the
European Common Market for the support of European states. The
situation is not identical. History does not repeat itself.
There are, however, similarities that deserve our attention,
but as I have noted above, we are not paying attention. We are
not involved.
Mercosur has made Chile and Bolivia associate members and
it is now consulting with the Andean community about a trade
agreement that could cover most of South America. South
American heads of state will meet in Brazil in August, at
Brazil's initiative, at a summit that could lay the groundwork
for a unified South American trade bloc led by Brazil and
Mercosur.
Our inaction on the FTAA encourages these regional
arrangements and keeps the United States on the outside. Lack
of progress on FTAA will impact the United States most of all
because our trade barriers are much, much lower than those of
our neighbors, and it is to our advantage to get the others'
down. These regional customs blocs tend to be exclusive, not
inclusive, such as the free trade zone we are talking about
which is inclusive. And as such, these regional blocs will
hinder hemispheric-wide integration.
So, my last point is not to cite another lesson of NAFTA.
Rather, it is to point out that no one else will teach us the
lessons of NAFTA. They are there for us to see if we are
disposed to see them. We displayed nonpartisan leadership in
negotiating, ratifying, and implementing NAFTA. And now we need
to show that same leadership to shape the future trade agenda
of this hemisphere. If we do not do so, that agenda will be
shaped by others. And without us, it will not be shaped to our
advantage. The United States needs to get working on this
because, in fact, that agenda is already being shaped. This is
already happening.
The FTAA can reinforce many of the positive trends and
democratize various parts of the hemisphere that need
strengthening of democracy, open economic systems that need
opening, and lead to greater social justice, just as NAFTA has
done with respect to Mexico. We are counting on the FTAA
negotiations to start a movement in the direction very similar
to what has happened in the case of NAFTA. Fast track is needed
to get that negotiation under way, and the major issues on the
table need to be addressed now. I propose that we seize the
moment and move forward.
Thank you very much, Mr. Chairman.
[The prepared statement of Ambassador McNamara follows:]
Prepared Statement of Ambassador Thomas E. McNamara
Good morning, Mr. Chairman and Members of the Subcommittee. I am
Ted McNamara, President and CEO of the Council of the Americas, and I
appreciate the opportunity to testify before you today.
The Council is the leading business organization dedicated to
promoting hemispheric economic integration, free trade and investment,
open markets, and the rule of law throughout the Western Hemisphere.
The Council's membership includes major U.S. multinational companies
with interests in Latin America. Members represent a variety of
sectors: manufacturing, energy, transportation, technology,
communications, banking, financial services, and natural resources,
among others.
The Council was founded thirty-five years ago on the belief that
the future of the hemisphere depends on promoting democracy and open
market economic principles. Expanding hemispheric cooperation through
increased trade and investment benefits all nations of the hemisphere,
including the United States, where these are central to our growth and
economic health.
Mr. Chairman, you have aptly titled this hearing, ``Lessons of
NAFTA for U.S. Relations with the Americas.'' NAFTA has been a
tremendous success for the United States and has had a much broader,
positive impact than most Americans realize. We all remember the NAFTA
debate of the early 1990s. There were incredibly alarmist statements
about how this agreement would destroy the U.S. economy and ruin the
job market. The ``great sucking sound'' was the cry, supposedly
draining investments and jobs from the high-wage United States to low-
wage Mexico.
By now it is obvious that this did not happen. The United States
has had the longest peacetime boom in history; real GDP growth is
strong; unemployment is at it lowest level in 30 years; and inflation
is under control. Since 1993, trade among the U.S., Canada and Mexico
is up more than 85%. U.S. merchandise exports to our NAFTA partners are
up more than 75%. And those exports to Canada and Mexico supported an
estimated 2.6 million jobs in 1998. This is 600,000 more jobs than were
supported by U.S. exports to Canada and Mexico in 1993. I could go on
with more statistics, but the point is clear. There is no sucking sound
here; NAFTA, despite some problems, has indisputably benefited the
United States. This is the first of the many ``lessons'' NAFTA has
taught us.
I want to stress, however, that NAFTA's benefits transcend
economics. The agreement has also enhanced our relationships with our
neighbors in many other ways and on many levels. In Mexico, NAFTA has
given new energy and confidence to the entire country. This attitude
spills over into Mexican domestic affairs where a more confident Mexico
is addressing broader social issues and is moving towards modern
democracy, in part because of the underlying stability NAFTA provides.
The traditional, Mexican, anti-gringo ideology is giving way to a
more friendly and cooperative attitude. The new Mexico sees it in its
national interests to cooperate with us, whereas the old Mexico saw its
role in world affairs as opposing the U.S. to demonstrate Mexican
nationalism. The new, modern Mexico understands that its future depends
on three healthy nations in North America, and that cooperation can
produce a win-win-win situation. This is revolutionary new thinking for
Mexico.
Since 1994, President Ernesto Zedillo has opened the economic and
political system to competition, fostered respect for the rule of law,
and decentralized power. Political pluralism is growing. The
Institutional Revolutionary Party (PRI), lost control of the Mexican
Chamber of Deputies in 1997 for the first time in almost 70 years.
Moreover, the opposition National Action Party (PAN) and Party of the
Democratic Revolution (PRD) now govern a number of states and
municipalities, including Mexico City, and an opposition candidate
could win the presidency next July. This emergence of political
pluralism after 70 years of one-party rule is a very positive
development.
It is clear that, without NAFTA, Mexico's traditional social and
political elites would have had little reason for change, and that
these modernizing developments would not have been what they are today.
They are the unforeseen benefits of the economic modernization.
Clearly, Mexico still has a long way to go, but the process has
started, and NAFTA has been an important stimulus for it.
There are, of course, tensions and distortions that accompany any
change, and these are not missing in the NAFTA phenomenon. Mexico still
suffers from the old problem of grossly inequitable distribution of the
wealth recently generated. Geographically, northern Mexico has
benefited more than southern Mexico. The gap between rich and poor has
widened in Mexico, as it has throughout the hemisphere (including in
the United States). Broad based educational and health-care reforms
have not kept up with other reforms. Old style, pervasive corruption
and lack of transparency are still a plague on Mexico.
Obviously, free trade is not a panacea for Mexico's or Latin
America's ills, but it is an essential part of any program whose goals
are democracy, open economic systems, and social justice.
So I offer a second lesson to be learned from NAFTA, namely, that a
dramatically new economic approach to our neighbors may produce
unexpected benefits for us in political and social areas. This can
happen because economic modernization does not take place in a vacuum
and repercussions can favor increased democracy, open economic systems,
and social justice. We should be alert to this, and foster it.
It is important that we understand how critical NAFTA has been to
the three signatory states, so that the United States can commit to
pursuing what should be our broader objective in the hemisphere, a Free
Trade Area of the Americas (FTAA). For in the end, Mr. Chairman, if we
cannot negotiate with our neighbors in the hemisphere, neighbors who
are asking us to lead this hemisphere to a new level of economic
performance, how can we hope to be a world leader of trade and economic
development?
The Free Trade Area of the Americas is a unique opportunity for the
United States and the hemisphere. The FTAA represents a potential
market of 800 million people to whom U.S. producers can sell goods and
services. And, similar to the broad benefits of NAFTA, the FTAA
promises more than just economic gains. The Council believes that the
FTAA represents a great opportunity for growth and development in the
region. Trade leads to prosperity and improves the ability to address
broader social and political agendas.
Mr. Chairman, I believe that the FTAA is an opportunity that should
not be missed. But we are missing it. Through inattention,
misinformation, and fear, we are not doing all we can to advance the
agreement. The leadership that we need in the executive branch and the
Congress is lacking. Our leaders have not convinced the American people
of the importance of continued free trade to our economic well-being.
Let me cite some of the activity that we are missing out on by our
mistaken policies of neglect and indifference.
There are currently over 20 major trade agreements in place in the
Americas. The United States is a party to only one of these, NAFTA.
Almost all of these agreements have entered into force in the 1990s,
establishing a web of preferential trade arrangements without the
participation of the United States. This is putting the U.S. economy,
U.S. workers, and U.S. companies at a disadvantage. Let me cite just
one example, that of Chile. Because the U.S. has failed to negotiate
Chile's inclusion into NAFTA, Canada and Mexico have each signed
bilateral trade agreements with Chile. As a result, Canadian and
Mexican products enter Chile duty-free while U.S. products pay duties.
This is great news for Canadian and Mexican companies and workers, but
it is bad news for U.S. companies and workers.
This brings me to the third lesson of NAFTA. Once the enormous
advantages of free trade are demonstrated to our neighbors, they will
continue to move down that road, with or without us. We sit on our
hands at our own risk. Our neighbors and NAFTA partners are not idle;
they are improving their economic prospects by forging preferential
trade agreements that exclude us. While we are foolishly distracted by
the strident shouts of the neo-protectionists, our economic interests
and advantages are suffering. Our workers are loosing jobs. And our
industry is disadvantaged.
This situation highlights yet another lesson, albeit not a NAFTA
lesson. Namely, not all our neighbors are moving in the same direction.
Consider Mercosur, the largest trade grouping in Latin America. Made up
of Brazil, Argentina, Uruguay and Paraguay, its strength, reach and
importance in South America is growing. Mercosur is not a free trade
zone. Its goals are not the same as NAFTA and the FTAA. Mercosur is a
customs union, aiming at free trade inside the union and a common
tariff for those outside. Its objective is to move to a common market
with free movement of labor and coordinated macroeconomic policies,
possibly even a common currency, within that union. Only secondarily
and only after the union is secure can we expect Brazil to lead its
partners to the trade negotiation table with the United States.
I know I need not detail to this committee the history of the
disputes and tensions between European states in the 1950s and 1960s
when the EFTA free trade zone and the European common market competed
for the support of European states. The situation is not identical;
history does not repeat itself. There are, however, similarities that
deserve our attention. But, as I have noted above, we are not paying
attention. We are not involved.
Mercosur has made Chile and Bolivia associate members and is
consulting with the Andean Community, Latin America's second largest
trade group. What they are talking about is a trade agreement that
could cover most of South America. As part of this strategy and at
Brazil's initiative, South American heads of state will meet in Brazil
this August in a summit that could lay the groundwork for a unified
South American trade bloc, led by Brazil and Mercosur.
Our inaction on the FTAA encourages these regional arrangements and
keeps the United States on the outside. Lack of progress on the FTAA
will impact the United States most of all, because our trade barriers
are much, much lower than those of our neighbors. But our continued
economic strength depends greatly on our ability to bargain for reduced
trade barriers that now protect other markets.
There is a school of thought that regional trading blocks serve as
stepping-stones to broader free trade agreements. However, the history
of the ``inner six,'' and the ``outer seven'' in Europe suggests that
once nations go down the road to regional economic unions, they are
reluctant to abolish them and to enter free trade associations. The
regional blocs tend to be exclusive, not inclusive, and as such they
will hinder hemispheric-wide integration.
As I said, Mercosur's first priority is not to foster free trade
beyond the borders of its members. For example, as Brazilian and
Argentine private enterprises try to compete internationally, some
sectors are calling for government support through subsidies (a la
Europe). Such actions warrant concern because they threaten
negotiations seeking to open borders. Also, considering Mercosur's
unified economic rules and regulations and common external tariff, a
customs union with a combined barrier will certainly be harder for
outsiders to penetrate. Mercosur countries can be sure of open access
to the U.S. markets, while they negotiate separate arrangements with
others. They are doing so with the European Union and with our
neighbors.
So, my last point is not to cite another lesson of NAFTA. Rather,
it is to point out that no one else will teach us the lessons of NAFTA.
They are there for us to see, if we are disposed to see them. We
displayed non-partisan leadership in negotiating, ratifying, and
implementing NAFTA. We must now show that same leadership to shape the
future trade agenda of the hemisphere. If we do not do so, that agenda
will be shaped by others without us, and it will not be our agenda.
Indeed, that is already happening.
Mr. Chairman, our efforts to reduce trade barriers with Canada and
Mexico through NAFTA have greatly benefited North America. The U.S.
economy has boomed and we have witnessed supplementary benefits in all
three countries. The FTAA presents an opportunity to link the 34
democracies of the Western Hemisphere by broadening and deepening
relations in ways that benefit the U.S. economy and its citizens. The
FTAA can reinforce many of the positive trends of democratization, open
economic systems, and greater social justice, which are occurring
throughout the hemisphere. We are approaching a critical time in the
FTAA negotiations. Fast track will be needed to negotiate the major
issues that are now on the table. Let us seize the moment.
Thank you very much.
Senator Chafee. Thank you. We hear your call to action and
appreciate it.
I would like to welcome Senator Dodd.
Senator Dodd. Thank you, Mr. Chairman. I know we have got
the other two witnesses here and I will be brief with some
opening comments. I apologize for missing the first panel.
Buddy MacKay I have a high regard and respect for, and I am
sorry I missed his testimony. I am anxious to hear our other
two witnesses.
But let me just begin by, first of all, commending you, Mr.
Chairman. This is a good hearing to hold. There are a lot of
other issues going on that sort of grab headlines when it comes
to the Americas in recent days that have a certain amount of
appeal for obvious reasons. This hearing ought to be packed.
You do not get a television camera here, but this is the kind
of issue that has a far greater impact on our relations in the
world than these other issues we are hearing about from day to
day. But it is hard to get people to pay attention to something
as important as this, unfortunately.
So, I am very grateful to you for doing this. This is a
good leadership to focus on this issue and to invite competent
people who are knowledgeable, as Buddy MacKay is and obviously
our panelists here. Ted, I appreciate your testimony already. I
think you have said some very important things, and I could see
Buddy MacKay's head nodding in agreement in the back of you
here, so you have no disagreement from us on these points.
Let me just make a couple of comments, if I could, Mr.
Chairman, about this. I happen to be one who strongly supported
NAFTA. I thought it was a very good idea. I have always said I
do not think President Clinton probably could have signed NAFTA
and I do not think President Bush probably could have passed
it. It really was a combination of the Bush administration
negotiating the agreement and the arrival of the Clinton
administration which made it possible to pass it in the
Congress. So, you had a confluence of forces that produced the
results that we saw.
It really did raise high hopes that we might start looking
at the Americas as a way of really expanding trading
opportunities for this country and raising the economic well-
being of people in this hemisphere. It has been pointed out
over and over again we have for the first time virtually in
every country with the exception of one, democratic
governments. Now, some are a little shakier than others, and
problems in Ecuador recently have highlighted some of the
problems, but nonetheless, democratic governments by and large.
But they do not last forever, and they only last because you
have got economic underpinnings that can produce the results
that people will see that will cause them to be more supportive
of democratic institutions.
So, I think it is critically important that we try to move
on some of these issues. But you have already indicated, Mr.
McNamara, how difficult it is. We are making a huge mistake in
my view because we are going to get left out. This is
potentially a billion people in this hemisphere. Very shortly
there will be a billion consumers from the Yukon to Tierra del
Fuego. So, from an enlightened self-interest standpoint, it
makes sense for us. We are talking about normal trade relations
with China. I think that has value, but in this hemisphere,
there are some real opportunities.
We are seeing in just a few short years some of the results
in terms of what has occurred here, just how levels have gone
up to $197 billion last year in trade with Mexico. That is a 50
percent increase in 3 years. A 50 percent increase in 3 years.
Now, I know the good economy has had something to do with
that, but it is not only that. It has been because of
eliminating tariffs. What were they? Forty percent in the past
or 45 percent, and that was what we paid as a tax on our goods
to be sold in Mexico. That is gone today, and so we are seeing
jobs increased.
In my State alone, in Connecticut, Connecticut's exports to
Mexico have increased 62 percent to some $544 million. I
suppose in terms of billions, that may not sound like much. But
that $544 million are jobs in my State. That means people are
producing products and selling in a market that they could not
sell in or had a very difficult time selling in before. I know
the same is true in Rhode Island. This is not about Texas and
New Mexico and Arizona. All across the country people are
benefiting from this.
So, the evidence is clear. It seems to me we ought to be
more aggressive in pursuing these agreements. I am saddened
that we are not. It is mortifying what we have done to Chile in
my view. With all the promises we have made, we still cannot
seem to get that.
We are now going to have a Caribbean Basin Initiative which
I hope we get done here on the textile stuff, which I think can
be tremendously helpful. In my view we ought to make Colombia,
Venezuela, and Ecuador a part of that right away as well. Do
you want to talk about making a difference in Colombia? I
support the Colombia Plan, but provide some real economic
opportunities for these people. If we are going to try and stop
them from producing coca leaves and heroin and give them a job
in the textile area, for instance, that is a real long-term
economic advantage in terms of our battling the
narcotraffickers in Colombia. So, I am hopeful still that on
those agreements we might be able to get some support to
include those three countries as part of the CBI, which I am
hopeful we are going to pass this year.
But again, Mr. Chairman, I am grateful to you for hosting
this hearing. It is a very important subject matter.
Mr. McNamara, Ted, I want to thank you for your testimony.
It is excellent testimony, and we will probably put it in the
record or something, not only here but maybe on the floor as
well and try and raise the level of awareness of what is going
on.
Ambassador McNamara. Thank you, Senator.
Senator Chafee. Thank you, Senator, very much also for your
interest in this subject for many years.
I now would like to welcome Ms. Delal Baer, the chair of
the Mexico Project, Center for Strategic and International
Studies. A warm welcome.
STATEMENT OF M. DELAL BAER, CHAIR, MEXICO PROJECT, CENTER FOR
STRATEGIC AND INTERNATIONAL STUDIES, WASHINGTON, DC
Ms. Baer. Thank you, Mr. Chairman. Thank you, members of
the subcommittee. I thank you for asking me to testify before
you here today and for your creativity in choosing to focus on
the intangibles of NAFTA. You have asked me to focus on the
impact of NAFTA on bilateral relations with Mexico. It is an
angle of NAFTA that is not often looked at, and I thank you for
your creative take on this issue.
Before I comment on the noneconomic aspects of NAFTA, let
me also chime in and make a few comments on the economic
benefits of NAFTA.
Two-way trade has almost doubled since NAFTA has gone into
effect in 1994 when two-way trade was only $100 billion. Today
it is close to $200 billion. Of course, that touches every
State, including Rhode Island. I took the time to look up the
figures on the State of Rhode Island, and I found that in fact
Rhode Island's exports to Mexico have jumped from roughly $15
million a year to around $90 million a year in the period from
1993 to 1999. And the most dramatic growth was being led by the
primary metal industry, and this is extremely dramatic where
exports jumped from $6.4 million in 1993 to $67.7 million in
1999. So, I think there are stories like this. I am sure we
will hear some more along these lines in just a moment, and
these stories are replicated across the United States.
I too would congratulate your superb testimony and add only
one point before I move on to the noneconomic issues, and that
is in order for us to be able to take advantage of these new
opportunities in the hemisphere and move forward with the
vision that we all have described here, I believe that it is
essential at some point for the United States to take up once
again the question of fast track authority for the President to
negotiate free trade agreements in this hemisphere. Without it,
it is extremely difficult to move forward on this agenda. We
have all spoken about the urgent need to move forward on this
agenda, but no one has yet mentioned the magic words ``fast
track.'' I thought I would just throw that in at the beginning
of my testimony.
It is not often that we see national cultures break out of
the mold formed by centuries of history, but the passage of
NAFTA has brought truly paradigmatic change in U.S.-Mexican
relations. When the assumptions underlying a relationship shift
away from mistrust and hostility to a focus on shared goals and
values, a higher spirit animates and permeates that
relationship.
Let me briefly summarize where we have been in our
relations with Mexico so you can appreciate how far we have
come because often we focus on our frustrations in the
bilateral relationship and forget that a short time ago that
relationship was much more complex and conflictual than it is
today.
For many decades, the United States had a stunted and
quasi-adversarial relationship with our nearest neighbor,
Mexico. Five hundred years of history had convinced Mexico that
little good would come outside its borders. This reticence,
vis-a-vis the outside world, springs from a sense of
vulnerability dating from the Spanish Conquest, reinforced by
19th century French installation of a Hapsburg emperor in
Mexico, and then later U.S. conquest of a large portion of what
was then Mexican territory. It is not surprising then that for
many years Mexico viewed the United States as its greatest
potential threat, its greatest potential enemy, an attitude
that was summed up in the famous saying, ``Poor Mexico, so far
from God and so close to the United States.'' Of course, the
United States from its lofty perch of superpower status, did
not always do a great deal to alleviate the concerns of our
Mexican neighbors, and our attitudes at times ranged from
benign neglect to arrogant unilateralism.
This could not fail to affect every aspect of bilateral
relations. The principal goal of Mexican diplomacy for much of
the 20th century was to keep the United States at arm's length
and to demonstrate its independence by opposing U.S.
objectives. For example, Mexico spent much of the cold war
period making speeches denouncing American intervention and
defending Soviet-sponsored guerrilla movements in the name of
defending national sovereignty. What cooperation took place
between our two countries was hidden as if it were something
shameful. Common problems were not tackled in an open, joint
spirit of friendly cooperation. Rather, meetings with our
Mexican friends were ladened with a thousand reasons why our
two countries could not cooperate, spiced with history lessons
reminding the United States of its perfidy. Mexico's anti-
American dogma defined virtually all cooperation as a form of
capitulation.
As a scholar, not as a government official, I also spent my
share of hours listening to history lessons delivered to me by
my friends across the border. Only recently with NAFTA has
Mexico begun to look toward the future and bury the historical
axe and seek historic reconciliation with the United States.
Only with NAFTA has Mexico begun to revamp its formerly insular
and defensive stance vis-a-vis the outside world. Only recently
with NAFTA has the United States begun to view Mexico with
newfound interest and with respect. And these implications
extend far beyond the immediacy of commerce.
NAFTA changed the fundamental cost-benefit calculations of
bilateral relations. For the first time, Mexico began to see
its location next to the largest market in the world as more of
an opportunity than as a problem. And the United States began
to see Mexico as a commercial and investment opportunity rather
than the sole source of immigration and drug problems. The
dynamic, the fundamental motor of U.S.-Mexican relations
shifted from a zero sum outlook to a win-win outlook. And that
is of fundamental importance.
NAFTA also I believe has contributed to a healthy
convergence of basic values between the United States and
Mexico regarding free markets and democracy, and I believe that
this convergence of values is a driving force in the betterment
of bilateral relations.
NAFTA consolidated Mexico's commitment to free markets, a
precondition to democracy. This is not an insignificant point.
We tend to forget that Mexico was home to the first social
revolution of the 20th century in 1910 and that the
Institutional Revolutionary Party, the PRI, was a product of
that revolution. For much of the 20th century, Mexico had a
closed economy, had a mixed economy with a marked tendency
toward excesses of economic and political statism. NAFTA
anchored Mexico more firmly in the free market camp, and that
is of historic importance.
NAFTA has also been a force for democracy in Mexico. NAFTA
reinforced the dismantling of Mexico's statist economy, which
was essential to undermining the economic basis of Mexican
authoritarianism. If the state owns fewer industries, the state
has fewer patronage resources to use to control its electorate
and its potential political allies. This frees up civil society
in a way that we could hardly have anticipated before NAFTA's
implementation.
NAFTA also has contributed to greater decentralization of
economic and political power, as Mexican states attempt to
capture NAFTA-related investment. Mexican political and human
rights practices came under greater scrutiny as a result of the
political battle to pass NAFTA in the United States, and I
believe that scrutiny was healthy. The signs of greater
pluralism are everywhere to see. In 1991, the ruling PRI
controlled 320 seats in Congress compared to 239 seats in 1997,
losing its congressional majority for the first time in
decades. Opposition candidates have a greater chance to win
Mexico's year 2000 Presidential elections than perhaps ever
before. I think there are very few who would argue today that
Mexico is less democratic after NAFTA than it was before NAFTA.
Yet, during the NAFTA debate, there were many voices who argued
that the passage of NAFTA would reinforce the control of the
PRI and would reinforce authoritarianism in Mexico. We have
seen that that is simply not the case.
As our values converge, so do our foreign policy
objectives. A lot of folk in this town remember the days when
Mexico's United Nations voting record coincided around 98
percent of the time with the then Soviet Union. Mexico would
vote to defend Cuba's abysmal human rights record from scrutiny
in the United Nations, for example. Today, Mexico abstains from
supporting the Cuban position and accompanies that abstention
with a call for free elections in Cuba. After years of
championing the cause of guerrilla movements in Central
America, Mexico played a key role in brokering the peace in
Central America during the 1990's. These changes may have
occurred because Mexico reasoned that it was not worth
sacrificing the economic benefits of U.S. goodwill by
deliberately alienating the United States in international
diplomatic venues. But I would prefer to believe that some of
this harmonization of our foreign policy goals is a result of
newly shared values motivating our foreign policy.
Once the historic inhibitions to cooperation were removed
in trade, it became harder to justify restricting cooperation
in other areas. Law enforcement is one of those areas. Mexico's
interest in law enforcement cooperation with the United States
has intensified in order to create a secure investment
environment and to guarantee trade flows within NAFTA. NAFTA
underscores the point that traditional concepts of sovereignty
and anti-American nationalism are as outmoded in the face of
global organized crime as they are in the economic arena.
Although the results of bilateral anti-drug cooperation at
times leave much to be desired, the taboos that once blocked
cooperation are giving way to a more regular and normal
relationship.
Mexico now speaks of our cooperative anti-drug effort as an
alliance. The word is loaded with symbolic value.
The creation of a high level contact group in 1995 may not
have occurred without the fundamental shift in values and
attitudes that accompanied NAFTA.
It would have been taboo to openly seek and acknowledge the
training of Mexican police and armed forces by U.S.
counterparts in the pre-NAFTA years. Today, that training is a
cooperative program that is openly acknowledged and viewed very
positively on both sides of the border.
Since NAFTA's passage, bilateral relations have deepened on
every imaginable level. The North American Development Bank
[NADB] and the over 20 projects that are coming out on line
along the border has already been mentioned in a previous
testimony today.
The precursor of the High Level Contact Group was the
reinvigoration of the Binational Commission meetings, which
bring together the heads of our Federal agencies every year. At
the Federal level, there is probably a closer working
relationship between agency heads than at any other time in the
20th century. Our counterparts pick up the telephone and speak
regularly and freely and openly with their counterparts. That
is a fundamental advance in bilateral relations. And even in
conflictual areas like migration, high level immigration
officials meet regularly as a result of something called the
Puebla Process initiative.
And then there is the spawning of a greater network of ties
at the grassroots level between our people, from city to city,
state to state, and university to university. And I believe
that these contacts are beneficial for both countries.
In sum, NAFTA has set the tone and the example for better
bilateral relations, but I agree that it is not a panacea. It
cannot substitute for strong political leadership and strategic
vision. In some quarters, the United States has regressed to a
Mexico-bashing mode, reminiscent of an earlier century. Since
the passage of NAFTA, U.S. leadership has at times run away
from explicit NAFTA commitments for the sake of political
expediency, and I believe that that sets very dangerous
precedents for the future functioning of NAFTA. Of course, some
in Mexico continue to yearn for the day when national dignity
required chilly relations with the United States. But my final
conclusion is that the close to $200 billion in trade that
currently flows between our two countries and the ties of
friendship that inevitably accompany that flow is a permanent
foundation on which to build a better bilateral future.
Thank you very much.
[The prepared statement of Ms. Baer follows:]
Prepared Statement of M. Delal Baer
Mr. Chairman and Members of the Subcommittee:
I would like to thank you for the kind invitation to testify before
you. I am grateful that you have offered this opportunity to look at
the role of NAFTA in transforming U.S.-Mexico bilateral relations. It
is not often that we see national cultures break out of the mold formed
by centuries of history, but the passage of NAFTA has brought truly
paradigmatic change in U.S.-Mexican relations. When the assumptions
underlying a relationship shift away from mistrust and hostility to a
focus on shared goals and values, a higher spirit animates the entire
bilateral relationship.
Let me briefly summarize where we have been so that you can
appreciate how far we have come. For many decades, the U.S. had a
stunted and quasi-adversarial relationship with Mexico. Five hundred
years of history had convinced Mexico that little good would come from
outside its borders. This reticence vis a vis the outside world springs
from a sense of vulnerability dating from the Spanish Conquest,
reinforced by the 19th century French installation of a Hapsburg
emperor and U.S. conquest of Mexican territory. Mexico viewed the U.S.
as its greatest natural enemy, an attitude summed up in the famous
saying, ``Poor Mexico, so far from God and so close to the United
States.'' The U.S., from its lofty perch of superpower status, did not
do a great deal to alleviate Mexico's concerns. U.S. attitudes ranged
from benign neglect to arrogant unilateralism.
This could not fail to affect every aspect of bilateral relations.
The principal goal of Mexican diplomacy for much of the 20th century
was to keep the U.S. at arm's length and to demonstrate its
independence by opposing U.S. objectives. For example, Mexico spent
most of the Cold War period making speeches denouncing American
intervention and defending Soviet-sponsored guerrilla movements in the
name of national sovereignty. What cooperation took place was hidden as
if it were something shameful. Common problems were not tackled in an
open, joint spirit of friendly cooperation. Rather, meetings with
Mexican officials were laden with a thousand reasons why our two
countries could not cooperate, spiced with history lessons reminding
the U.S. of its perfidy. Mexico's anti-American dogma defined virtually
all cooperation as a form of capitulation.
Only recently, with NAFTA, has Mexico begun to revamp its formerly
insular and defensive stance vis a vis the outside world. Only
recently, with NAFTA, has the U.S. begun to view Mexico with new-found
respect and interest. The implications extend far beyond the realm of
commerce.
NAFTA changed the fundamental cost-benefit calculations of
bilateral relations. For the first time, Mexico began to see its
location next to the largest market in the world as more of an
opportunity than a problem. The U.S. began to see Mexico as a
commercial and investment opportunity rather than solely as a source of
immigration and drug problems. The dynamic of U.S.-Mexican relations
shifted from a zero sum outlook to a win-win outlook.
NAFTA has contributed to a healthy convergence of values
between the U.S. and Mexico regarding free markets and democracy. I
believe that this convergence is a driving force in the betterment of
bilateral relations.
NAFTA consolidated Mexico's commitment to free markets, a
precondition for democracy. This is not an insignificant point.
We tend to forget that Mexico was home to the first social
revolution of the twentieth century in 1910, and that the
Institutional Revolutionary Party (PRI) was a product of that
revolution. For much of the twentieth century, Mexico had a
mixed economy with a marked tendency toward excesses of
economic and political statism. NAFTA anchored Mexico more
firmly in the free market camp.
NAFTA has been a force for democracy in Mexico. NAFTA
reinforced the dismantling of Mexico's statist economy, which
was essential to undermining the economic basis of Mexican
authoritarianism. NAFTA also has contributed to greater
decentralization of economic and political power, as Mexican
states attempt to capture NAFTA-related investment. Mexican
political and human rights practices came under greater
international scrutiny as a result of the political battle to
pass NAFTA in the U.S. The signs of greater pluralism are
everywhere to see. In 1991, the ruling PRI controlled 320 seats
in Congress compared to 239 seats in 1997, losing its
congressional majority for the first time. Opposition
candidates have a greater chance to win Mexico's year 2000
presidential elections than ever before.
As our values converge, so do our foreign policy
objectives. A lot of folk in this town remember the days when Mexico's
United Nations voting record coincided around 98 percent of the time
with the Soviet Union. Mexico would vote to defend Cuba's abysmal human
rights record from scrutiny in the United Nations. Today, Mexico
abstains and accompanies that abstention with a call for free elections
in Cuba. After years of championing the cause of guerrilla movements in
Central America, Mexico played an important role in brokering the peace
in the 1990s. These changes may have occurred because Mexico reasoned
that it was not worth sacrificing the economic benefits of U.S.
goodwill by deliberately alienating the U.S. in international
diplomatic venues. But I would like to think that some of this
harmonization is a result of the newly shared values motivating our
foreign policy.
Once the historic inhibitions to cooperation were removed
in trade, it became harder to justify restricting cooperation in other
areas. Law enforcement is one of those areas. Mexico's interest in law
enforcement cooperation has intensified in order to create a secure
investment environment and to guarantee trade flows created by NAFTA.
NAFTA underscores the point that traditional concepts of sovereignty
and anti-American nationalism are as outmoded in the face of global
organized crime as they are in the economic arena. Although the results
of bilateral anti-drug cooperation leave much to be desired, the taboos
that once blocked cooperation are giving way.
Mexico, which refused to align itself with the U.S. on any
issue for years, now openly describes our cooperative anti-drug
program as an ``alliance.''
The creation of the High Level Contact Group in 1995 may not
have occurred without the fundamental shift in attitudes that
accompanied NAFTA.
It would have been taboo to openly seek and acknowledge the
training of Mexican police and armed forces by U.S.
counterparts in the pre-NAFTA years. Progress has been made in
areas such as extradition, performance measures, training
programs, etc. This process has been slow, but I am hopeful
that the next two administrations that are elected in
Washington and Mexico City will renew bilateral impetus.
Since NAFTA's passage, bilateral relations have deepened
on every imaginable level.
The North American Development Bank (Nadbank), a direct
creation of NAFTA, today has close to 20 projects in the
pipeline or near completion in the area of strengthening water
treatment infrastructure along the border.
The precursor of the High Level Contact Group was the
invigoration of the Binational Commission meetings, which bring
together the heads of our agencies every year. At the federal
level, there is probably a closer working relationship between
agency heads than at any time in the twentieth century.
Even in areas of conflict, like migration, high-level
immigration officials meet regularly as a part of the Puebla
Process initiative.
NAFTA naturally has intensified the contact between our
people at the grassroots level, from city to city, state to
state and university to university. NAFTA has spawned more
contact between non-governmental organizations on both sides of
the border, from unions and environmental groups to business
associations. I believe that these contacts are beneficial for
both countries.
NAFTA has set the tone and example for better bilateral relations,
but it is not a panacea. It cannot substitute for strong political
leadership and strategic vision. In some quarters, the U.S. has
regressed to a ``Mexico bashing'' mode reminiscent of an earlier
century. Since the passage of NAFTA, U.S. leadership has at times run
away from NAFTA commitments for the sake of political expediency. And
some in Mexico yearn for a return to the day when national dignity
required chilly relations with the United States. But the close to $200
billion in trade that currently flows across the U.S.-Mexico border,
and the ties of friendship that inevitably accompany that flow, is a
permanent foundation on which to build a better bilateral future.
Senator Chafee. Thank you very much. You are echoing
certainly Mr. McNamara's comments that it is not only providing
confidence in Mexico, but reducing the anti-gringo philosophy
that permeated Mexico prior to NAFTA. So, in our best interest,
both of those elements, confidence in Mexico and a reduction of
the anti-Americanism that might have been prevalent prior to
NAFTA's inception.
I would like to welcome Mr. Woody from the Quill Company in
Rhode Island. Mr. Woody has been in Hong Kong in the last week
and from there to Santa Fe and now in our Nation's capital.
Welcome.
STATEMENT OF MICHAEL M. WOODY, VICE PRESIDENT, SALES AND
MARKETING, THE QUILL COMPANY, CRANSTON, RI
Mr. Woody. Thank you, Mr. Chairman and members of the
committee, for inviting me to testify this morning.
The Quill Company is a manufacturer of pen and pencil sets
for the promotional products market. We are a medium sized
manufacturer, employing 95 people at our factory in Cranston,
Rhode Island. Our company began as a mechanism manufacturer in
1945 and moved into finished goods by purchasing Quill in 1972.
Currently 82 percent of our sales are domestic, 18 percent are
international. Our two major non-domestic markets are Europe
and Canada. One of our strategic goals is to increase our
export business to 33 percent of total sales.
We customize our products with the buyer's corporate logo,
and the pens are subsequently used for customer gifts, sales
incentives, employee service awards, and a wide variety of
other motivational purposes. We market through a network of
20,000 promotional products distributors who sell to the
approximately 10 million U.S. businesses that are potential
buyers for our products. I have been involved in marketing our
products internationally for 15 years. Although I am here today
to represent Quill and my own views on NAFTA, I also represent
Alison, Wendy, Gabe, and 12 other co-workers whose livelihood
depends on our access to international markets.
My point of view on international trade in general, and
NAFTA in particular, was shaped by listening to my American
competitors complain that overseas manufacturers were
aggressively pursuing market share here in the States. Their
typical reaction to this threat was to wring their hands and
complain that government was not doing enough to prevent it. It
seemed to me a feeble response to a competitive situation. I
came to the conclusion that if our company was to effectively
compete against foreign manufacturers, we needed to both defend
our own market and pursue market share outside the U.S.
The global pen market is fiercely competitive and writing
instruments are, to the say the least, in the mature stage of
the product life cycle. We face competition from countries all
over the world, including China, Spain, Japan, Italy, and
Germany. But we have unique product and service advantages that
we believe are exportable, so we joined the global fray,
targeting Europe, Canada, and Mexico as our first priorities.
In NAFTA's first year, our sales into Canada increased 20
percent. This was largely due to the 5 percent price decrease
we were able to pass on to our customers. A change in
distribution strategy led to a temporary decrease in sales in
1995. By 1997, we had surpassed our 1995 sales and were on our
way to our goal of Canadian sales representing 10 percent of
total domestic sales. Unfortunately, the relative strength of
the U.S. dollar has contributed greatly to flattening our sales
in Canada, but that situation will not be a permanent one.
Indeed, one of the reasons we export is to diversify risk as
currencies fluctuate.
Our major problem with NAFTA vis-a-vis the Canadian market
is that it has not gone far enough. In the promotional products
business, most orders are time sensitive, requiring that our
product be in a specific place at a specific time for a
specific event. However, documentation complications routinely
delay our shipments into Canada. Our export documentation
specialist tells me that shipping to any major European city is
actually easier and often quicker than shipping into Toronto.
She targets the NAFTA certificate of origin as the main
problem. Great pains are taken at the border to insure that the
form is completed thoroughly and accurately. If not, the
shipment will likely be delayed. Thus, a 2-day delivery to
Frankfurt, London, or Madrid proceeds smoothly and painlessly,
whereas promising a 2-day delivery to a Canadian customer is
risky.
Another reason, aside from the strong dollar, that our
Canadian business has become more challenging is the increase
in competition from some of our U.S. based competitors. In
1996, The Counselor magazine, one of our industry trade
publications, surveyed 113 U.S. supplier companies doing
business internationally. Eighty-seven percent said that they
were doing business in Canada. When I first focused on Canada
in 1988, almost none of them had a presence in Canada. Of those
suppliers polled, 38 percent increased their export sales in
1996. Canada and Mexico were mentioned as the two places in
which international sales were most frequently made. The second
most attended trade show by these same U.S. suppliers, after
our own flagship PPAI Expo in Dallas, was the show sponsored by
the Promotional Products Association of Canada.
Although more recent evidence is anecdotal, my experience
tells me that U.S. companies are competing more aggressively
with Quill in Canada, and that U.S. firms in our industry are
doing significantly more business in Canada since the inception
of NAFTA.
Now, for Mexico. The Mexican market for our product has
always been highly price sensitive, and although NAFTA lowered
our prices into Mexico, that decrease was easily overshadowed
by the late 1994-1995 peso devaluation. My Mexican partner
tells me that immediately preceding the devaluation, the peso
was 3.6 to the dollar. It plunged to 7, and even now 6 years
later, it stands at 9.25. Yesterday it closed at 9.4. As a
result, our business into Mexico evaporated.
However, last year we identified a Mexican partner
dedicated to overcoming our marketing challenges, and 1999 was
the first year since the 1994 devaluation that we have done
significant business in Mexico. We expect to double that figure
in 2000.
We also experience occasional red tape with documentation
on shipments into Mexico. But, in general, the exchange rate is
a more daunting issue. Given a slightly stronger peso and a
continuing commitment to our partner's success, the Mexican
market could eventually approach 3 percent of our domestic
business, or 10 percent of our total export sales.
Now, I am keenly aware of the human rights issues
surrounding NAFTA and Mexican labor, and I sympathize with
those concerns. However, the condition of the worker in Mexico
will improve with improving economic conditions and a tighter
labor market. To bolster that argument, I could cite an article
that appeared in the April 14 issue of the Wall Street Journal
illustrating that job growth in Mexico is expected to surpass
labor force growth by 2006. But I am more convinced by our
partner in Guadalajara, Alexis Bellon of Cklass Industries.
When I asked him his opinion on NAFTA and its effect on Mexican
workers and companies, he said, ``Competition--at first it
makes you sick, then it makes you stronger.''
The international business landscape has changed
dramatically since the inception of NAFTA. Two key factors that
increasingly influence virtually every business today are
technology and globalization. The synergy between these two
forces creates a vortex that spins faster each year.
Technology facilitates globalization, leading global
companies to seek better and faster technology, which leads to
increasing globalization. From century to century, decade to
decade, year to year, this vortex spins faster: from the
printing press to radio to television, from telegraph to
telephone to fax to e-mail, from carriages to railroads to
automobiles to airplanes. Technological innovation spurs
economic globalization. Then global companies demand still
better, faster technology in order to compete.
In a recent interview with the Wall Street Journal, the
musician Quincy Jones noted that ``it took 40 years to build a
50 million consumer base for radio. It took 13 years to build a
50 million consumer base for television. For the Internet, it
took 4 years.'' The growth of communication technology
facilitated the growth of international marketing. The
development of faster, cheaper transportation spurred the
globalization of distribution channels. Technology and
globalization each spurring the other to the next level, and
that next level is developed with ever increasing speed.
My business reality at the Quill Company in Rhode Island is
increasingly global. That process is inexorable. If our company
and our industry is to be successful long term, it will
undoubtedly be in a global marketplace. If we pull back from
NAFTA, if we pull back from trade agreements generally, the
target governments will retaliate and my overseas competitors
will gain the advantage. This will damage our ability to grow
the business, to compete globally, to be the engine for job
growth that small to medium sized businesses traditionally have
been. We are not looking to export jobs; we are looking to
export our products.
I urge you to stay the course on NAFTA and continue your
efforts to open markets worldwide. Thank you.
[The prepared statement of Mr. Woody follows:]
Prepared Statement of Michael M. Woody
BACKGROUND
The Quill Company is a manufacturer of pen and pencil sets for the
promotional products market. We are a medium-size manufacturer
employing 95 people at our factory in Cranston, RI. Our company began
as a mechanism manufacturer in 1945, and moved into finished goods by
purchasing Quill in 1972. Currently, 82% of our sales are domestic, 18%
are international. Our two major non-domestic markets are Europe and
Canada. One of our strategic goals is to increase our export business
to 33% of total sales.
We customize our products with the buyer's corporate logo, and the
pens are subsequently used for customer gifts, sales incentives,
employee service awards, and a wide variety of other motivational
purposes. We market through a network of 20,000 promotional products
distributors who sell to the approximately 10 million U.S. businesses
that are potential buyers for our products. I have been involved in
marketing our products internationally for 15 years. Although I am here
today to represent Quill, and my own views on NAFTA, I also represent
Alison, Wendy, Gabe, and 12 other co-workers whose livelihood depends
on our access to international markets.
My point of view on international trade in general, and NAFTA in
particular, was shaped by listening to my American competitors complain
that overseas manufacturers were aggressively pursuing market share
here in the States. Their typical reaction to this threat was to wring
their hands and complain that government was not doing enough to
prevent it. It seemed to me a feeble response to a competitive
situation. I came to the conclusion that if our company was to
effectively compete against foreign manufacturers we needed to both
defend our own market and pursue market share outside the U.S.
The global pen market is fiercely competitive, and writing
instruments are, to say the least, in the mature stage of the product
life cycle. We face competition from countries all over the world,
including China, Spain, Japan, Italy, and Germany. But we have unique
product and service advantages that we believe are exportable, so we
joined the global fray, targeting Europe, Canada, and Mexico as our
first priorities.
CANADA
In NAFTA's first year our sales into Canada increased 20%. This was
largely due to the 5% price decrease we were able to pass on to our
customers. A change in distribution strategy led to a temporary
decrease in sales in 1995. By 1997, we had surpassed our 1995 sales,
and were on our way to our goal of Canadian sales representing 10% of
total domestic sales. Unfortunately, the relative strength of the U.S.
dollar has contributed greatly to flattening our sales in Canada, but
that situation will not be a permanent one. Indeed, one of the reasons
we export is to diversify risk as currencies fluctuate.
Our major problem with NAFTA vis-a-vis the Canadian market is that
it has not gone far enough. In the promotional products business most
orders are time-sensitive, requiring that our product be in a specific
place at a specific time for a particular event. However, documentation
complications routinely delay our shipments into Canada. Our export
documentation specialist tells me that shipping to any major European
city is actually easier and often quicker than shipping to Toronto.
She targets the NAFTA certificate of origin as the main problem.
Great pains are taken at the border to insure that the form is
completed thoroughly and accurately. If not, the shipment will likely
be delayed. Thus, a 2-day delivery to Frankfurt, London, or Madrid
proceeds smoothly and painlessly, whereas promising a 2-day shipping
time to a Canadian customer is risky.
Another reason, aside from the strong dollar, that our Canadian
business has become more challenging is the increase in competition
from some of our U.S. based competitors. In 1996, The Counselor
Magazine, one of our industry trade publications, surveyed 113 U.S.
supplier companies doing business internationally. 87% said that they
were doing business in Canada. When I first focused on Canada in 1988,
almost none of them had a presence in Canada. Of those suppliers
polled, 38% increased their export sales in 1996. Canada and Mexico
were mentioned as the two places in which international sales were most
frequently made. The second most attended trade show by these same U.S.
suppliers, after our own flagship PPAI Expo in Dallas, was the show
sponsored by the Promotional Products Association of Canada.
Although more recent evidence is anecdotal, my experience tells me
that U.S. companies are competing more aggressively with Quill in
Canada, and that U.S. firms in our industry are doing significantly
more business in Canada, since the inception of NAFTA.
MEXICO
The Mexican market for our product has always been highly price
sensitive, and although NAFTA lowered our prices into Mexico, that
decrease was easily overshadowed by the 1994 peso devaluation. My
Mexican partner tells me that immediately preceding the devaluation,
the peso was 3.6 to the dollar. It plunged to 7.0 and even now, six
years later, it stands at 9.25. As a result, our business into Mexico
evaporated.
However, last year we identified a Mexican partner dedicated to
overcoming our marketing challenges, and 1999 was the first year since
the 1994 devaluation that we have done significant business in Mexico.
We expect to double that figure in 2000.
We also experience occasional red tape with documentation on
shipments into Mexico. But, in general, the exchange rate is a more
daunting issue. Given a slightly stronger peso and a continuing
commitment to our partner's success, the Mexican market could
eventually approach 3% of our domestic business, or 10% of our total
export sales.
I am keenly aware of the human rights issue surrounding NAFTA and
Mexican labor, and I sympathize with those concerns. However, the
condition of the worker in Mexico will improve with improving economic
conditions and a tighter labor market. To bolster that argument, I
could cite an article that appeared in the April 14th issue of The Wall
Street Journal, illustrating that job growth in Mexico is expected to
surpass labor force growth by 2006. But I am more convinced by our
partner in Guadalajara, Alexis Bellon of Cklass Industries. When I
asked him his opinion on NAFTA and its effect on Mexican workers and
companies, he simply said, ``Competition--at first it makes you sick,
then it makes you stronger.''
FUTURE TRENDS
The international business landscape has changed dramatically since
the inception of NAFTA. Two key factors that increasingly influence
virtually every business today are technology and globalization. The
synergy between these two forces creates a vortex that spins faster
each year.
Technology facilitates globalization, leading global companies to
seek better and faster technology, which leads to increasing
globalization. From century to century, decade to decade, and year to
year, this vortex spins faster: from the printing press to radio to
television, from telegraph to telephone to fax to e-mail, from
carriages to railroads to automobiles to airplanes. Technological
innovation spurs economic globalization, then global companies demand
still better, faster technology to compete.
In a recent interview with The Wall Street Journal, the musician
Quincy Jones noted that ``it took 40 years to build a 50 million
consumer base for radio. It took 13 years to build a 50 million
consumer base for television. For the Internet, it took 4 years.'' The
growth of communication technology facilitated the growth of
international marketing. The development of faster, cheaper
transportation spurred the globalization of distribution channels.
Technology and globalization each spurring the other to the next
level--and that next level is developed with ever increasing speed.
My business reality is increasingly global. That process is
inexorable. If our company, and our industry, is to be successful long-
term it will undoubtedly be in a global marketplace. If we pull back
from NAFTA, if we pull back from trade agreements generally, the target
governments will retaliate and my overseas competitors will gain the
advantage. This will damage our ability to grow the business, to
compete globally, to be the engine for job growth that small to medium
size businesses have traditionally been. We're not looking to export
jobs; we're looking to export our products.
I urge you to stay the course on NAFTA, and continue your efforts
to open markets worldwide.
Senator Dodd. That is great testimony.
Senator Chafee. Thank you, Mr. Woody.
Earlier, Ms. Baer, you mentioned lack of fast track. Maybe
I could ask the question, do you think that the lack of fast
track negotiating authority has slowed down our progress and
hampered our efforts to achieve certain goals? Maybe, Mr.
McNamara, you might want to comment also since you were
critical of our progress on other trade issues throughout the
hemisphere. Ms. Baer.
Ms. Baer. I do not think there is any doubt but that the
absence of fast track has put a halt to expanding our trade
relations with the rest of the hemisphere. We have not signed a
single major free trade agreement with another Latin America
since NAFTA, and we essentially left Chile like the bride
standing at the altar with, as Senator Dodd mentioned, lots of
commitments and promises and absolutely no follow-through.
The reason why fast track is so essential to negotiating a
trade agreement is because trade agreements are very complex
things. They require compromise across a wide variety of issues
and tradeoffs between issues. And unless you can vote on those
issues as a package, which they are in fact a package, it is
impossible to negotiate trade agreements. No country will want
to negotiate a trade agreement with the United States if they
face the prospect in the future of a U.S. Congress that would
say, well, perhaps we like this part of the agreement, but we
do not like that one. These deals are negotiated with a great
deal of delicate balance, and if you unravel one thread, you
can unravel the entire fabric. So, I think it has had
definitely a chilling effect on our ability to be effective and
exert leadership in the hemisphere.
Ambassador McNamara. I would second that. It certainly has.
Without fast track, the United States has not in over a
generation, made a major trade agreement without having fast
track or an equivalent in place for the negotiating period. The
reason why we need it is as just stated, that these packages
are negotiated, and if you pull them apart in the process of
ratifying them back here, they then have to go back to the
table and other countries, which have processes for the most
part which do not allow for that--the executive branches in
most countries, many countries are able to simply approve it.
The other reason is because if a small country decides to
pull back from an agreement, the larger country simply takes
advantage of that. A small country, which is what we are
talking about in the case of most Latin American economies,
does not have the strength, the power, and the force to pull
away from an agreement like that. They either accept it or do
not accept it. The United States, with the enormous power and
economic leverage that we have, can pull an agreement apart
unless we have fast track. And a vote up or down on the total
agreement is necessary or they will not come to the table. And
that does not mean just Latin America. The Europeans and the
Asians have made that point also.
Senator Chafee. Thank you very much. We will try and make
progress on those areas.
Senator Dodd.
Senator Dodd. Well, thank you.
Let me just pick up on that point. I take a back seat to no
one on my support of trade. I think it is tremendously valuable
for us, for all the reasons you have identified.
But I think we have got to be a little careful. I think
with multilateral agreements, fast track is important obviously
because there it really is too complex. With bilateral
agreements, one of the dangers you run here is we have a
Congress, and it is the only area we think of, with exception
of some other unique pieces, that we do not allow for a normal,
healthy, full debate and discussion allowing the majority to
express their views on things. And when you try and so narrow
these things, you run the risk that you prohibit people from
expressing themselves. You may disagree with their ideas, but
you need to build a base of public support for these agreements
that will sustain them and support them over the years. And if
we jump to fast track too often and too quickly, when it is not
really necessary, then we undermine the basis by which all of
these laws ultimately have to depend, and that is, public
support and a free-wheeling, free-flowing debate. I grant you
they are dangerous. There are risks involved in that. But that
is a democracy.
So, I have always been for fast track on multilateral
agreements because once you have many nations involved in these
things and if we undo one piece of it, then you just never get
anything done. With bilateral agreements, I am less inclined. I
know it takes time and it is painful to watch, but democracy is
and we should not be afraid of that. I think a good healthy
debate in the country and arguing these points out that people
feel strongly about is not done unwise.
So, I understand your point you are making and I have made
it myself on many occasions. But I want to be careful that too
often we do not lunge to that as the quick fix on this and, in
the meantime, do a lot of damage, unnecessarily so. We need to
energize people, educate people about it, how important these
issues are. Not enough Members in my view go back to their
States and talk about what it means to their jobs and their
people to be able to have these markets. I would like to take
you, Mr. Woody. In fact, if Rhode Island is ever unkind to you,
you could just move down the road a little bit to Connecticut.
We would love to have you.
Mr. Woody. Thank you for the offer, but I love Rhode
Island.
Senator Dodd. But my point is I would like to take you and
have you come and address the Chamber of Commerce or come and
talk to some people in our State about what it has meant to
your business in job growth, the enlightened self-interest that
trade agreements ought to have. We do not do enough of that, so
we end up with sort of a two-dimensional view on trade rather
than appreciating multilateral aspects, the beneficial aspects
of trade agreements for our society and for the nations with
whom we strike these agreements.
Let me just ask you one question that is related. It is one
thing that has bothered me, and it goes to the heart of what I
think you are talking about. It goes to this notion of sort of
doing this country by country by country where we set the
standard. So, we end up having in the Senate 51 to 49 Chile is
in, and then 51 to 49 Bolivia is out. You know, depending on
the whims of a Congress on any given day, we accept one trading
partner and reject another. The unevenness of that is
dangerous, it seems to me, for political purposes here.
I have always argued with the notion that you take
something like the Organization of American States, which
originally was conceived as a trading organization. At least,
that was one of the main ideas behind the OAS. Not the only
one, but one of the main ones. And we set up some standards for
it, rules by which nations agree to trade with one another so
that democratic institutions, free markets, human rights,
standards that all of us would agree with, and if you meet
those, then you can be a member of the family. But it is not
the United States alone establishing those rules. It is sort of
a regional agreement as to what it means to be able to trade
freely one with the other.
This way you get away from the idea somehow that we
determine free trade on our own. We do not. It is an illusion.
That is one of the arguments we get on the WTO, that if somehow
if we do not vote to have normal trade relations with China,
China will never be a member of the World Trade Organization.
That is ridiculous. They are going to be a member of the World
Trade Organization whether or not we support it or not.
In the case of Latin America, here as you point out, you
are getting a lot of these multilateral agreements in the
region that exclude us. So, it is not as if nothing happens and
they wait to see whether or not we are going to do something.
So, it needs more thought, obviously, but the idea of
having some neutral determination of what constitutes proper
behavior, if you will, by countries so that we can open up a
process that does not leave it up to the whims of a particular
Congress from year to year to accept or reject certain
countries. I think it is dangerous for us from a foreign policy
perspective, and we could end up suffering the consequences.
So, I do not know if you have any thoughts on that, but I
would raise it as an issue for you.
Ambassador McNamara. Well, I would say with respect to the
OAS and the IDB also, these multilateral organizations do need
to step up and take a more active role. I do recognize and
congratulate the OAS for having moved in on the trade issue in
the last few years, and it has assumed a role supporting
working groups of officials and private sector individuals who
are trying to work out, if you will, the basis and the
technical issues that would go into whatever an FTAA agreement
might encompass. They are feeding into a regular series of
meetings by ministers of trade in the hemisphere. The last one
was held last November in Toronto. So, the OAS has been playing
a role in this and an important one. And the IDB has also.
The fact is, though, that they represent sort of the
accumulated position or the assembled positions of the member
states. Therefore, it is difficult for them to go beyond where
the member states wish them to go. They do not have an
independent position or an independent attitude about a
particular trade issue, whether it is a technical issue or a
more policy level issue. So, there are limitations as to how
far the OAS can push the process without having the active
support of the member nations. And when you talk about the OAS
and the IDB, the active support of the member nations means the
United States has to be in the lead in that active support or
they are not going to be able to move forward. We are so
powerful in this hemisphere that we are the leader. We cannot
not lead in this hemisphere.
Senator Dodd. Before you answer this question, again I am
thinking back to the days, I remember, when the business
community just was furious with the Congress when we passed
legislation that prohibited the Foreign Corrupt Practices Act.
And this was going to kill American business overseas because
everyone else did it. Of course, today most American businesses
will tell you, thank God Congress did it because it insulates
us from what other people have to put up with all the time. But
I remember testimony, overwhelming testimony, about it. So,
some of these issues that we incorporate here actually in the
long term prove out to be very beneficial for business in some
of these aspects. And I wanted to just raise that.
Go ahead.
Ms. Baer. Senator, with regard to your point about how we
should proceed in any kind of future negotiation, should it
occur, the whole notion of Chile first reflects a historical
moment, at which time most of the rest of the hemisphere was
still at the early phases of their economic reform process,
whereas Chile was really quite far advanced, and it was one of
the few countries in the hemisphere, at the time when we were
talking about this, that would have been capable, whose trade
barriers were low enough already and whose economy had been
sufficiently privatized that they would be able to enter into a
free trade negotiation. I think that situation has changed
substantially over the course of years.
The other alternative that people looked at at the time and
I think would probably continue to be something worth
considering is negotiating with countries en bloc, that is to
say, Mercosur is erecting protectionist measures, but it would
perhaps make sense to negotiate with Mercosur as a bloc and it
would limitate some of the political wear and tear of taking
countries one at a time. So, I think the regional approach may
still be an option worth considering.
With regard to being able to negotiate a bilateral
agreement with fast track as opposed to a multilateral
agreement, goodness, my copy of NAFTA occupies an entire shelf
in my library, obviously an extraordinarily complex agreement.
Perhaps an agreement with a country like Chile would not be
quite as complex, although I wonder. I just have to question
whether or not there is any bilateral trade negotiation that is
so unsensitive that we would be able to negotiate it sector by
sector in the U.S. Congress. I think you might end up creating
even more political wear and tear for the U.S. Congress. This
is not to say that extensive consultation and democratic debate
should not take place, but you may end up with more conflict
trying to do it the way you were suggesting without a fast
track procedure.
Senator Dodd. Mr. Woody, any comments?
Mr. Woody. No, sir.
Senator Chafee. That is very illuminating testimony this
morning. I appreciate it. Singing the praises of NAFTA and all
the pain that went into its enactment, now 7 years later,
seeing the benefits worth the pain, and look forward to moving
in the future with other productive agreements throughout the
hemisphere and indeed the world.
We will leave the record open for 3 days for members who
wish to submit questions for the record.
Again, thank you. Much appreciation.
[Whereupon, at 10:55 a.m., the subcommittee was adjourned.]