[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
MODERNIZATION OF THE NORTH
AMERICAN FREE TRADE AGREEMENT (NAFTA)
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
JULY 18, 2017
__________
Serial No. 115-TR01
__________
Printed for the use of the Committee on Ways and Means
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
33-481 WASHINGTON : 2019
COMMITTEE ON WAYS AND MEANS
KEVIN BRADY, Texas, Chairman
SAM JOHNSON, Texas RICHARD E. NEAL, Massachusetts
DEVIN NUNES, California SANDER M. LEVIN, Michigan
PATRICK J. TIBERI, Ohio JOHN LEWIS, Georgia
DAVID G. REICHERT, Washington LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois MIKE THOMPSON, California
VERN BUCHANAN, Florida JOHN B. LARSON, Connecticut
ADRIAN SMITH, Nebraska EARL BLUMENAUER, Oregon
LYNN JENKINS, Kansas RON KIND, Wisconsin
ERIK PAULSEN, Minnesota BILL PASCRELL, JR., New Jersey
KENNY MARCHANT, Texas JOSEPH CROWLEY, New York
DIANE BLACK, Tennessee DANNY DAVIS, Illinois
TOM REED, New York LINDA SANCHEZ, California
MIKE KELLY, Pennsylvania BRIAN HIGGINS, New York
JIM RENACCI, Ohio TERRI SEWELL, Alabama
PAT MEEHAN, Pennsylvania SUZAN DELBENE, Washington
KRISTI NOEM, South Dakota JUDY CHU, California
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
TOM RICE, South Carolina
DAVID SCHWEIKERT, Arizona
JACKIE WALORSKI, Indiana
CARLOS CURBELO, Florida
MIKE BISHOP, Michigan
David Stewart, Staff Director
Brandon Casey, Minority Chief Counsel
______
SUBCOMMITTEE ON TRADE
DAVID G. REICHERT, Washington, Chairman
DEVIN NUNES, California BILL PASCRELL, JR., New Jersey
LYNN JENKINS, Kansas RON KIND, Wisconsin
ERIK PAULSEN, Minnesota LLOYD DOGGETT, Texas
MIKE KELLY, Pennsylvania SANDER M. LEVIN, Michigan
PAT MEEHAN, Pennsylvania DANNY DAVIS, Illinois
TOM REED, New York BRIAN HIGGINS, New York
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
TOM RICE, South Carolina
C O N T E N T S
__________
Page
Advisory of July 18, 2017 announcing the hearing................. 2
WITNESSES
Panel One
Tom Linebarger, Chairman and Chief Executive Officer, Cummins,
Incorporated................................................... 7
Patrick J. Ottensmeyer, Chief Executive Officer, Kansas City
Southern....................................................... 15
Dennis Arriola, Executive Vice President--Corporate Strategy and
External Affairs, Sempra Energy................................ 37
Celeste Drake, Trade and Globalization Policy Specialist, AFL-CIO 43
Panel Two
Jason Perdue, President of the York County, Nebraska Farm Bureau,
Testifying on Behalf of: Steve Nelson, President, Nebraska Farm
Bureau......................................................... 117
Christine Bliss, President, Coalition of Services Industries..... 104
Stan Ryan, Chief Executive Officer and President, Darigold,
Incorporated................................................... 88
Althea Erickson, Senior Director--Global Advocacy and Policy,
Etsy, Incorporated............................................. 113
Susan Helper, Frank Tracy Carlton Professor of Economics, Case
Western Reserve University..................................... 122
QUESTIONS AND ANSWERS FOR THE RECORD
Questions from Representative Brian Higgins of New York to Ms.
Celeste Drake.................................................. 147
Questions from Representative Lynn Jenkins of Kansas to Mr.
Patrick J. Ottensmeyer......................................... 150
Questions from Representative Lynn Jenkins of Kansas to Mr. Jason
Perdue......................................................... 152
SUBMISSIONS FOR THE RECORD
American Automobile Policy Council, statement.................... 153
U.S.-Mexico Chamber of Commerce, statement....................... 155
San Diego Regional Chamber, statement............................ 159
San Antonio Chamber of Commerce, statement....................... 161
QVC, Incorporated, statement..................................... 165
Pacific NorthWest Economic Region, statement..................... 169
National Foreign Trade Council, statement........................ 175
MetLife, Incorporated, statement................................. 183
Motor & Equipment Manufacturers Association, statement........... 187
Kevin L. Faulconer, Mayor of San Diego, statement................ 191
Chief Executives of American Companies, statement................ 192
Florida Fruit & Vegetable Association, statement................. 196
Distilled Spirits Council, statement............................. 205
Consumer Technology Association, statement....................... 215
Citigroup, statement............................................. 223
Chubb Limited, statement......................................... 225
Auto Alliance, statement......................................... 230
The American Petroleum Institute, statement...................... 235
American Phoenix Trade Advisory Services PLLC, statement......... 238
TechPolicyDaily, statement....................................... 248
USKI Washington Review, statement................................ 250
AdvaMed, statement............................................... 251
Acuity Brands, statement......................................... 258
American Chemistry Council, statement............................ 263
American Coatings Association, statement......................... 269
MODERNIZATION OF THE NORTH
AMERICAN FREE TRADE AGREEMENT (NAFTA)
----------
TUESDAY, JULY 18, 2017
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommitteee met, pursuant to notice, at 10:02 a.m.,
in Room 1100, Longworth House Office Building, the Honorable
Dave Reichert [Chairman of the Subcommittee] presiding.
[The advisory announcing the hearing follows:]
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Chairman REICHERT. Well, good morning. The Subcommittee
will come to order. Welcome to the Ways and Means Trade
Subcommittee hearing on modernization of the North American
Free Trade Agreement.
Before hearing from our witnesses, I am going to take the
time to make just a couple of points. Since its entry into
force in 1994, the North American Free Trade Agreement, or
NAFTA, has transformed the United States and North American
economy. It has reduced barriers to our exports, and allowed
American businesses to sell goods and services more freely and
competitively to markets around the world. NAFTA has given us a
huge advantage in creating an integrated production base and
supply chain.
For example, we have improved our competitive edge against
China, because we can take advantage of our trading partners'
role in the production process. We have done so while creating
jobs here in the United States across all three economic
sectors: agriculture, services, and manufacturing.
NAFTA has benefitted my home state of Washington, in
particular. Our businesses have exported more than $134 billion
in goods to Canada and Mexico since 1994, supporting jobs in
communities around Washington State.
Because of the elimination of Mexico's 20 percent tariff on
apples and pears through NAFTA, our exports of these products
increased by 70 percent to Mexico. Now, each year, 15 percent
of Washington State's apples and pears are destined for Canada
and Mexico. Moreover, consumers across Washington and the
country are able to save costs when they purchase goods from
Canada and Mexico.
Despite its success, NAFTA was negotiated more than two
decades ago, when the economic landscape looked very different.
In 1994, the digital economy was in its infancy. Mexico had yet
to undertake significant legal and regulatory reforms. And the
North American supply chain had not yet fully developed.
Today's challenges require new rules, not only to reduce
tariffs on our exports, but to remove non-tariff barriers, as
well.
And I am pleased that the Administration's NAFTA-
negotiating objectives, which were released yesterday, set a
high and ambitious bar to address many of these challenges head
on. Red tape and burdensome customs procedures, the expansion
of forced localization requirements, and the restrictions on
the flow of cross-border data, and inadequate rules governing
e-commerce and--are just some of the problems Washington's
businesses are facing in today's digital economy.
Our farmers and ranchers are fighting against the adoption
of arbitrary sanitary and pseudo-sanitary restrictions not
based on science and the use of graphic indicators as a form of
protectionism. For our dairy producers, we must address
Canada's dairy policies, including the national ingredient
strategy, which constrain our producers from exporting to
Canada and around the world.
The need for modern trade rules is clear, particularly in
light of our withdrawal from TPP earlier this year. We must
continue to lead in setting the high standards needed for
today's economy.
Today we will hear directly from U.S. companies across all
sectors about the specific issues they face, how NAFTA has
worked for them, and how NAFTA can be improved to grow American
exports and create more jobs here at home. We will explore
important questions like how NAFTA can better address
distortions created by state-owned enterprises.
How can we help our technology sector continue to thrive
and lead the world in innovation?
What challenges do small businesses face because of overly-
burdensome customs procedures or outdated de minimi thresholds?
How do we ensure that Mexico applies the benefits of the
information technology agreement to U.S. producers?
And we must be sure to enforce new and current rules and
provisions through effective dispute settlement provisions,
including the proven tool of investor-state dispute settlement.
It is important that we get this right. A modernized NAFTA
agreement will serve as a template for future agreements with
our trading partners, particularly in the Asia-Pacific region,
where our withdrawal from TPP has left an urgent void.
Finally, it is vital that any transition to an approved
NAFTA be seamless. Canada and Mexico remain our number one and
three trading partners, two of our oldest allies. We will break
down the remaining barriers in Canada and Mexico, but we must
also preserve the good that NAFTA has done in enhancing U.S.
strength and increasing the competitiveness of the North
American trading block, as a whole, against the rest of the
world. When North America wins, America wins.
Chairman REICHERT. I will now yield to Ranking Member Bill
Pascrell for his opening statement.
Mr. PASCRELL. Thank you, Mr. Chairman. It is an honor to
work with you. We have worked on many other projects together,
and they have all turned out pretty good. We will see about
this one.
[Laughter.]
Mr. PASCRELL. Before I start, Mr. Chairman, I want to bring
your attention to the fact that today is Jason Kearns's last
hearing, and as chief trade counsel, 11 years of service to
this Committee. I want to thank him. He has been appointed to
the International Trade Commission. So he used us as a stepping
stone for that.
[Laughter.]
Mr. PASCRELL. And we wish him the best of luck.
Chairman REICHERT. I would like to add my congratulations,
too----
Mr. PASCRELL. Sure.
Chairman REICHERT.--Mr. Pascrell. And did he get approval
from you before he decided to leave?
Mr. PASCRELL. Absolutely not.
[Laughter.]
Chairman REICHERT. Congratulations, Jason.
Mr. PASCRELL. Mr. Chairman, I have a different way of
looking at this than what I just heard from you, with all due
respect.
And on behalf of the Trade Subcommittee's Democrats, I want
to thank our chairman for calling this important and much-
needed hearing on the renegotiation of NAFTA.
I was--want to thank the witnesses for participating,
sharing their thoughtful views on what the renegotiation of
NAFTA should accomplish. I had a chance to talk to a few of you
before, and you got some great witnesses here.
It is especially helpful to hear these views, given, in my
estimation, the lack of clarity and vision from the
Administration thus far on what a new NAFTA should look like
and should include.
On June 27th, I testified during the USTR's public comment
period on the Administration--was putting together their
negotiating objectives at the time. In my testimony I laid out
several key priorities to improve outcomes for American
families--and I am sure that is what everybody in this room is
all about--that I think are important for any NAFTA
renegotiation to focus on.
And to me, and to Donald Trump, we saw on the campaign
trail in Wisconsin, Ohio, and Pennsylvania the number-one
priority has to be jobs and wages here in the United States.
Well, the Administration published a summary of its
negotiating objectives through the USTR just yesterday, with
little specificity, no evidence or indication that they will
bring jobs or wage growth to the United States. After waffling
and contradicting themselves throughout the process, we finally
have some milquetoast objectives that look like a recycled
version of the same old, same old.
During the campaign, Mr. Trump declared NAFTA ``a
disaster.'' He has pointed out that in his words, ``Our jobs
are being sucked out of our economy'' in places like
Pennsylvania, Ohio, Florida, upstate New York, because our jobs
have fled to Mexico and other places. That is what he said. He
pledged to bring those jobs back, and to renegotiate NAFTA to
make it a great trade deal. And we are all hopeful about that.
But the negotiating objectives released yesterday recycle
many of the same policies he railed against in the TPP, an
agreement the President made a big show out of pulling out of
during his first week in office. When you go back to that first
week in office and you see what he said and what occurred after
that, well--anyway, credit word is due [sic].
The Administration proposal would make strides on the
issues of countervailing duties, which is a good thing, and the
treatment of state-owned enterprises, which is a good thing.
But those are on the margins. The biggest issues impacting jobs
and wages in the United States are low wages in Mexico and lax
labor laws. Currency manipulation abroad and the lack of
meaningful enforcement are nowhere to be found in these
objectives.
So where are the jobs, and where are the higher wages this
President promised? I see nothing to indicate that these
objectives will improve the standard of living in Pittsburgh or
Pueblo.
So, I have introduced legislation, the Jobs and Trade
Competitives Act of 2017, and I believe stand in sharp contrast
to the Administration's weak attempt at trade reform. H.R. 2756
would crack down on cheating in trade--it is going on; reward
in-sourcing, instead of off-shoring American jobs--absolutely
still going on; meaningfully combat currency manipulation and
make it easier for small businesses and manufacturers to bring
cases against countries that flout the laws and the rules.
We need--we should talk about how NAFTA can be modernized
and updated, since it is being renegotiated anyway. But let's
not fool ourselves, Mr. Chairman. The real questions we need to
be asking are the following.
How do we change the terms of NAFTA to create a--new and
good-paying jobs?
How do we change--I am almost done--how do we change the
terms of NAFTA to raise wages and standards of living in the
United States?
How do we change the terms of NAFTA to ensure the benefits
of trade are shared with working people and middle-class
families of America?
And how do we change the terms of NAFTA to ensure the
American economy is healthy, vibrant, and sustainable?
So, I look forward to hearing every one of their testimony,
and asking these questions about how we make NAFTA, in the
President's word, ``great trade agreement.''
And I thank you, Mr. Chairman.
Chairman REICHERT. Thank you, Mr. Pascrell. And I want to
thank the witnesses all for being here today. Your testimony
will be invaluable, as we move this process forward. All good
questions that Mr. Pascrell has posed, and some of those
questions will be posed to you, as to how we might be able to
accomplish those things.
And today we have two panels of distinguished witnesses,
and I will introduce the first panel of four witnesses.
Now, the first witness is Mr. Tom Linebarger, chairman and
chief executive officer of Cummins, Incorporated.
Our second witness is Mr. Patrick Ottensmeyer, president
and chief executive officer of Kansas City Southern.
Our third witness is Mr. Dennis Arriola, executive vice
president for corporate strategy and external affairs of Sempra
Energy.
Our fourth witness is Ms. Celeste Drake, trade
globalization policy specialist of the AFL-CIO.
We welcome all of you and look forward to your testimony
today.
Before recognizing our witnesses, let me note that our time
is limited, so please limit your testimony to five minutes. And
your written statement will be made a part of the record.
Members should keep their questions to five minutes,
please.
And, Mr. Linebarger, you are recognized for your statement.
STATEMENT OF TOM LINEBARGER, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, CUMMINS, INCORPORATED
Mr. LINEBARGER. It is a great honor to be before you today
to discuss the importance of the North American Free Trade
Agreement and the effort to modernize it.
My name is Tom Linebarger, I am the chairman and CEO of
Cummins, Incorporated, as well as the international engagement
committee chair of the Business Roundtable.
I believe trade expansion and NAFTA are good policy, and my
support for both has grown even stronger over my career at
Cummins. As CEO, I am charged with providing opportunities for
the employees of Cummins, an Indiana-based company that employs
25,000 people in the United States.
For our employees and our communities, international trade
has been the single most important contributor to growth and
hiring for nearly two decades. Currently, 95 percent of the
world's consumers reside outside of the United States. And for
Cummins to continue to be successful and add new jobs, it is
imperative that we are able to access these consumers with high
quality and competitively-priced products.
NAFTA and our other free trade agreements have allowed us
to do just that. One example is the engines we manufacture in
Columbus, Indiana for Chrysler's Dodge Ram truck. Once we
manufacture the engine, it is then exported to Mexico, where
Chrysler finishes assembly, and then it is imported back into
the U.S. for sale. The Ram is cost-effective and successful
because of NAFTA. Its robust sales have contributed to
significant growth and job creation for Cummins. At the
Columbus, Indiana plant where we build the Ram, we have added
nearly 100 jobs in the last few years.
The story of the Ram's journey is not unique to Cummins.
For all goods imported from Mexico and the United States,
approximately 40 percent of the content originated in the
United States.
Seymour, Indiana is another example of how trade supports
American cities and towns. Seymour is our global high-
horsepower engine headquarters. It is also a small town of less
than 20,000 people about an hour-and-a-half south of
Indianapolis. And while many rural towns are struggling,
Seymour is thriving. We have invested more than $300 million to
renovate the plant, and we have added a cutting-edge technical
center there. We now have more than 1,300 employees in this
community, nearly doubling the number based there just 5 years
ago.
We were able to add jobs and make these investments almost
exclusively because of our ability to access international
markets. We directly export 65 percent of the products made in
that plant, and another 20 percent are shipped to our plant in
Fridley, Minnesota, where they are made into power generators
and then exported. In total, 85 percent of the products made in
Seymour are exported, 85 percent.
To me, it is simple. When we can trade, we add jobs and
invest in American communities. Since NAFTA's bipartisan
passage and enactment in 1994, overall trade has increased
between the United States, Canada, and Mexico. U.S.-
manufactured goods exported to Canada and Mexico have more than
tripled over that period. And for Cummins, the two largest
importers of our products are now Canada and Mexico.
Prior to the agreement, Mexico was one of the most
protectionist countries in the world, with automotive imports
in New Mexico facing tariffs as high as 20 percent. Mexico also
had non-tariff barriers like local content requirements of 80
percent, which all but mandated that our production take place
within the country's borders. NAFTA brought down these trade
barriers and allowed us to avoid duplication of our
manufacturing capacity and in our supply chain, allowing us to
manufacture more in our high-volume U.S. plants and purchase
more from our 2,500 suppliers based in the U.S.
Today Cummins, Incorporated sells nearly $600 million worth
of products in New Mexico's market each year, of which 80
percent is manufactured in the United States. We are also the
largest engine provider for the on-highway heavy-duty truck
market in Mexico. All of these engines are manufactured in our
plant in Jamestown, New York.
It is clear that NAFTA has been a positive force, but we
should embrace the opportunity to modernize this 23-year-old
agreement. Improvements could be made by incorporating trade,
investment, and related regulatory reforms, promoting digital
commerce and cross-border data flows, ensuring fair competition
with foreign, state-owned enterprises, and protecting U.S.
intellectual property rights.
We also believe that NAFTA's environmental labor standards
must be strengthened.
Mr. Chairman and Members of the Committee, my overwhelming
support for trade and NAFTA comes from the difference that I
have seen that it makes for Cummins, our suppliers, our
employees, and their families. Thank you for the opportunity to
speak with you today.
Chairman REICHERT. Thank you.
[The prepared statement of Mr. Linebarger follows:]
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Chairman REICHERT. Mr. Ottensmeyer, you are recognized for
five minutes.
STATEMENT OF PATRICK J. OTTENSMEYER, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, KANSAS CITY SOUTHERN
Mr. OTTENSMEYER. Good morning. My name is Pat Ottensmeyer.
I am president and CEO of Kansas City Southern, a railroad
holding company with operations in the U.S., Mexico, and
Panama, and headquartered in Kansas City, Missouri since 1887.
Thanks to the chair, the Ranking Member, and the Subcommittee
for holding this hearing today.
Today I also represent the U.S.-Mexico CEO Dialogue
Strategic Trade Initiative Working Group, of which I am the
U.S. chair, as well as the Association of American Railroads.
The CEO Dialogue is a private-sector forum initiated by the
U.S. Chamber of Commerce and CCE in Mexico to engage U.S. and
Mexico CEOs on key economic and trade issues. U.S. Secretary of
Commerce, Wilbur Ross, and Mexico Secretary of Economy,
Ildefonso Guajardo, spoke to the 8th Semiannual Dialogue on
June 6th, here in Washington. We welcomed their comments, which
focused on the need to modernize NAFTA and to do no harm to the
tremendous benefits that the current agreement provides
American workers, farmers, and consumers.
As Congress and the Trump Administration turn their
attention to modernizing NAFTA, we support their efforts to
update the agreement. NAFTA is critically important to the U.S.
railroad industry, including KCS. According to a study
conducted by the AAR in March of this year, at least 42 percent
of rail carloads, and more than 35 percent of annual revenues
are derived from international trade.
International trade accounted for $26.4 billion of freight
rail revenue and 511 million tons of rail traffic in 2014.
During the same period, approximately 50,000 rail jobs, which
contributed over $5 billion of annual wages and benefits to the
U.S. economy, depended directly on international trade.
Rail movements associated with international trade include
virtually every type of commodity railroads haul, and involve
every region of the United States. A major shift toward more
protectionist policies would threaten rail jobs all over the
country.
Treasury Secretary Mnuchin recently stated that, ``We
believe in free trade. We are in one of the largest markets in
the world. We are one of the largest trading partners in the
world. Trade has been good for us. It has been good for other
people.'' We agree with that statement.
In a letter to President Trump dated May 25th, I joined 31
other CEOs of major U.S. companies, offering our support to
modernize NAFTA without disrupting current trade flows and the
livelihoods of millions of Americans who depend on them. We
offered to work with the Administration to update NAFTA, expand
and promote free and fair trade with Canada and Mexico, ensure
a level playing field, and spur economic growth and job
creation for American workers, farmers, and businesses.
We all agree to the following. NAFTA has been good for the
U.S. and for North Americans' competitiveness in the world.
Notwithstanding, NAFTA was negotiated almost 25 years ago, so
updating the agreement for today's economy is entirely
appropriate. Fourteen million American jobs and the livelihoods
of millions of American families depend on NAFTA, especially in
rural America. The Administration should approach negotiations
with an emphasis on updating the agreement and expanding the
opportunities for U.S. exports, where there is substantial
growth potential.
There should be a U.S. focus on enhancing the flow of trade
across our borders, avoiding the high tariff that existed prior
to NAFTA, and eliminating other trade barriers that preceded
NAFTA. The following procedures established--and following the
procedures established in the bipartisan Congressional Trade
Priorities and Accountability Act of 2015.
Negotiations should proceed promptly and trilaterally to
avoid uncertainty that disrupts supply chain and investment,
and should use NAFTA's amended process under Article 2202.
And again, U.S. negotiators should be careful to do no harm
in areas beneficial to the U.S., especially to our U.S.
agriculture and food products exporters.
In addition, KCS believes the U.S. negotiation should work
to achieve trilateral uniformity for customs and border control
procedures to improve the fluidity and security of export
freight movements, and preserve Chapter 11 and ISDS to protect
investments by U.S. companies like KCS that have created the
supply chain infrastructure required to support U.S. exports.
In the 20 years our company has been doing business in
Mexico, we have invested $4.5 billion. There are very
significant and growing opportunities to increase U.S.
agriculture, energy, petro-chemical, and plastics exports to
Mexico. Our company is investing money today in Mexico to
facilitate and expand liquid fuels exports from the U.S. Gulf
Coast to Mexico.
Without the past and future investment in Mexico
facilitated by NAFTA, these opportunities could not be
realized. Chapter 11 of NAFTA helps ensure this vital export
infrastructure going forward, and is a critical element of
NAFTA that must be retained. Again, thank you for the
opportunity to testify and provide written comments.
Chairman REICHERT. Thank you.
[The prepared statement of Mr. Ottensmeyer follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman REICHERT. Mr. Arriola, you are recognized for five
minutes.
STATEMENT OF DENNIS ARRIOLA, EXECUTIVE VICE PRESIDENT,
CORPORATE STRATEGY AND EXTERNAL AFFAIRS, SEMPRA ENERGY
Mr. ARRIOLA. Chairman Reichert, Ranking Member Pascrell,
and Members of the Subcommittee, thank you for this opportunity
to testify. My name is Dennis Arriola, and I am the executive
vice president of corporate strategy and external affairs for
Sempra Energy.
Sempra is a San Diego-based, Fortune 500 energy company
with revenues of over $10 billion, and a market capitalization
of approximately 28 billion. Our more than 16,000 employees
serve approximately 32 million consumers, worldwide, and we do
business in the U.S., Mexico, Chile, and Peru.
In Mexico, our business includes IEnova, one of the largest
private energy companies in the country. We own and operate
natural gas and liquids infrastructure, as well as renewable
generation. We are the largest private natural gas pipeline
company in Mexico, delivering much of the U.S. gas in Mexico.
And as of 2016, we have invested more than $7 billion in
Mexico.
On both sides of the border, these investments have
generated hundreds of new jobs, good-paying jobs for engineers,
operators, accountants, IT professionals, and others. And these
investments have also improved the environment in both
countries.
NAFTA has been a big win for the U.S. energy sector. It has
helped create a robust, integrated North American energy market
that supports U.S. jobs and strengthens our energy security.
U.S. trade with Canada and Mexico and energy commodities,
including electricity, liquid fuels, and natural gas exceeds
$140 billion annually. And last year, the U.S. enjoyed a trade
surplus in energy with Mexico of more than $11 billion. The
United States exported more than 20 billion in energy
commodities to Mexico, and imported less than 9 billion. And of
the 20 billion in U.S. exports, natural gas accounted for
nearly 4 billion.
Mexico accounts for nearly 60 percent of all U.S. natural
gas exports, and we are just at the beginning to tap the
potential of the U.S.-Mexico energy trade. Mexico's natural gas
imports, for example, are expected to double in just the next
five years. And per capita electricity consumption in Mexico is
expected to double during the next 25 years.
Energy investments in Mexico, like ours, support many U.S.
jobs, both directly and through U.S. shale energy development.
And by enabling cross-border transmission, these investments
also support domestic electric grid reliability among both
borders. They also reduce greenhouse gas emissions, and they
meet other local pollution challenges in Mexico.
And a growing energy trade partnership is a win-win outcome
for both the U.S. and Mexico and Canada. It increases jobs and
investments in all countries. And as you prepare to modernize
NAFTA, we urge Congress and the Administration to follow this
basic guiding principle: maintain the existing benefits of
NAFTA while improving it in ways that expand trade and
investment.
My written testimony highlights four critical benefits that
we believe must be maintained. But right now I want to focus on
just one in particular: strong investment protection for cross-
border projects and investments, enforceable by investor-state
dispute settlement, or ISDS.
Now, why is this important to a U.S. company? Our projects
require Sempra to invest hundreds of millions of dollars, often
in countries where the legal regimes are not as developed as
the U.S. We need confidence that our company and our
investments will be treated fairly over the long term. The
investment protections in NAFTA and other U.S. free trade
agreements enable us to mitigate this risk, expand our
business, and compete for global customers.
ISDS provides a neutral forum to hear claims for the breach
of the agreement. And even if ISDS is never used, it serves as
an important insurance policy. The investment protections in
NAFTA and other FTAs provide U.S. investors with the same
substantive rights in foreign markets that foreign investors
enjoy in the U.S. under federal law.
In addition to maintaining existing benefits, we offer four
recommendations to further strengthen NAFTA.
First, we urge that the text of the NAFTA be amended to
reflect the current level of market openness. As you will
recall, the energy markets were not open to U.S. and foreign
investors in 1994. So we need to make sure that we lock in this
new and improved level of market access.
Secondly, NAFTA's investment protection should be expanded
to cover so-called investment agreements consistent with other
U.S. free trade agreements.
Thirdly, NAFTA should include a so-called tale of
investment protection if the agreement were ever terminated.
And fourthly, NAFTA should be modernized to increase
regulatory coordination in the energy sector, particularly with
respect to cross-border infrastructure investments.
In conclusion, Mr. Chairman, NAFTA has been an enormous
benefit to the U.S. energy industry. If negotiations can
preserve these benefits while finding consensus to modernize
and improve the agreement, North America will become an even
more integrated and powerful energy market in the years to
come, and this is going to benefit U.S. workers, our economy,
the environment, and consumers.
Thank you very much.
Chairman REICHERT. Thank you.
[The prepared statement of Mr. Arriola follows:]
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Chairman REICHERT. Ms. Drake, you are recognized.
STATEMENT OF CELESTE DRAKE, TRADE AND GLOBALIZATION POLICY
SPECIALIST, AFL-CIO
Ms. DRAKE. Thank you. Good morning, Chairman Reichert,
Ranking Member Pascrell, Members of the Committee. I am pleased
to testify about NAFTA on behalf of the American Federation of
Labor and the Congress of Industrial Organizations,
representing 12.5 million working people in every sector of our
economy, from mining to retail, agriculture, manufacturing,
transportation, and construction.
While CEOs and global corporations have generally
benefitted from NAFTA, it has failed the working people of
North America. While it has increased the amount of trade
between the U.S., Canada, and Mexico, it has also cost jobs,
depressed wages, weakened worker negotiating power, and
destabilized communities in all three countries.
Trade deals will always be disruptive, both creating and
destroying jobs. But NAFTA's rules have redistributed income
upwards, providing rewards to the wealthiest and the most
powerful, while making it tougher for the rest of us to
succeed. Trade does not inevitably have to redistribute income
in this manner. So if we change the rules, we can change the
outcomes. And that is why today's hearing is so important.
All working families in North America will benefit from a
NAFTA that puts more jobs, higher wages, a clean environment,
and a stronger democracy at its core. There is risk here.
Renegotiating NAFTA in the wrong way could make the largest
Wall Street firms, the biggest pharmaceutical companies, and
those who profit from abusing immigrant labor even more
powerful. The wrong rules could make it harder for working
families to rise.
But there is a great opportunity, as well. An open,
democratic, and participatory negotiating process could create
a continent-wide foundation for inclusive and sustainable
growth that uplifts families through rewarding and secure jobs.
The AFL-CIO submitted nearly 50 pages of comments on NAFTA
renegotiations to USTR, and I will highlight some of the most
critical recommendations here, and note that the objectives
published yesterday lack both the ambition and the specificity
that we had hoped for.
First, eliminate the private justice system for foreign
investors known as investor-to-state dispute settlement. ISDS
allows foreign investors to challenge local state and federal
laws before private panels of corporate lawyers. This private
justice puts corporate rights ahead of our democracy, and
amounts to little more than crony capitalism. It is a subsidy
for companies that choose to offshore, paid for by North
American families, whose taxes fund the lawyers, arbitrators,
and winnings awarded. Scrapping ISDS will help level the
playing field for small, domestic firms and their employees,
while leaving those who want to invest abroad free to do so.
Next, replace NAFTA's labor and environment side deals with
effective, binding rules in the core text. NAFTA's side
agreements were not designed to raise standards. They were
hastily patched together to quiet critics. They do nothing to
ensure monitoring or enforcement, and they have not raised
wages, benefits, or standards for North American families.
We learned last month just how ineffective these provisions
are when even the CAFTA labor provisions--supposedly a step up
from NAFTA--could not protect working people from anti-firings
abuse and assassinations.
Specifically, NAFTA should permit cross-border
negotiations, establish floor wages, and allow border
adjustments to prevent environmental degradation and human
exploitation to be used for trade advantage. Enforcement must
be automatic, and violators must be subject to trade sanctions
when necessary, not to punish, but to raise standards and to
trade fairly.
Thirdly, NAFTA must address currency manipulation and
misalignment by creating binding rules subject to enforcement
and sanctions. Fair trade cannot exist in the absence of fair
currency rules.
Fourthly, we must upgrade NAFTA's rules of origin,
particularly on auto and auto parts, to reinforce auto sector
jobs in North America. NAFTA's rules allow nearly 40 percent of
a car to be made in China, Thailand, or other countries that
have no obligations to the U.S. under NAFTA. NAFTA must
increase North American content requirements and eliminate
loopholes in how the content is counted.
Fifthly, NAFTA should delete procurement obligations that
undermine Buy American rules and deter responsible bidding
criteria. NAFTA should not be used to discourage procurement
policies that create jobs, raise wages, and protect natural
resources.
Finally, NAFTA's negotiators should think bigger. Rules
that facilitate trade and investment must also put in place
safeguards against tax dodging and other abuses. The new NAFTA
must include new rules to combat tax avoidance and promote
infrastructure investments. Without such rules we will continue
to disinvest in the U.S. economy in ways that undermine
productivity and the middle class.
There are many other important changes that should be made
to improve NAFTA for working families, but I will stop here. I
am happy to answer any questions you may have.
[The prepared statement of Ms. Drake follows:]
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Chairman REICHERT. Thank you all for your testimony. And we
will now enter into the question and answer session. And I will
begin with Mr. Linebarger.
In your written statement and testimony, you note that the
Brookings Institute recently cited Columbus, Indiana as the
single-most trade-dependent community in the United States. My
home state of Washington is probably the most dependent state
in the Union, as it relates to trade: 40 percent of our jobs
are directly related to trade in Washington State. So I very
much understand the point that you are making and the types of
issues that you have raised in your comments.
One concern that I continue to hear from my constituents
has to do with the need to eliminate burdensome customs
procedures and regulations. One of the examples I often hear
about is the need for streamlined customs processes, including
electronic forms, signatures, authentication, as well as the
need to eliminate duplicative and unnecessary regulations
throughout the NAFTA zone.
So, what are your thoughts related to this red tape? And
then, more specifically, what are the challenges that you faced
with your company? And hopefully you have some thoughts on some
provisions we might be able to include that would streamline
this, and eliminate some of the regulation's red tape.
Mr. LINEBARGER. Thank you for your question, Chairman
Reichert. I would just say a couple things.
First is that one of the reasons Columbus, Indiana I think
has become such an important--that international trade has been
so important to Columbus is because our growth and hiring has
depended so much on being able to access customers outside the
United States.
The cost of participating in the commercial engine business
is high, in terms of R&D. We have to spend a lot of money on
R&D, typically around $700 million a year. And therefore, to be
able to pay back that R&D, we need to be able to sell a lot of
units. That is just--you need scale in our business to succeed.
And it just turns out there are not enough customers in the
United States, even if we occupy a reasonably strong market
share, to afford to do all the investment we need to do to
succeed.
And much of that investment, by the way, has been what has
helped us fulfill the requirements of the Clean Air Act, in
terms of the emissions from trucks and construction equipment
over the last 15 or 20 years, which has been quite beneficial,
I think, to communities. So that need to be able to invest is
one of the reasons we need to develop scale and, therefore, be
able to access foreign markets. So trade agreements have been a
very important part of that.
With regard to your second question about duties and--or
customs rules, there is no question that by streamlining
regulations and customs and other what I would call sort of the
small tactics on how NAFTA performs across our region we can
improve our economic activity in all three countries.
Often times, the big elements of a trade deal get all of
the attention, and it is the small parts like lines at the
borders, where trucks get stuck for hours and hours or days at
a time, that actually stop the economy from moving. So that is
one of the emphases we put at the business roundtable, where I
participate, is how do we work out some of the smaller issues
that--these things that seem smaller--that could actually add
to our economy with no cost to either--to any of the sides, by
just being more efficient.
So there are significant opportunities there, using
technology, as you mentioned, to reduce the burden on all sides
and improve economic activity across the three regions. And I
think that should be a clear follow-on from whatever NAFTA
agreement is finally reached.
Chairman REICHERT. Could you mention a couple of the
thoughts that you might have on specific solutions to some of
the small tactics that you talked about? I mean even taking a
look at the long lines at the border, having trucks sit and
wait----
Mr. LINEBARGER. There is no question that using technology
instead of older, manual process would be--one, standardizing
agreements. I heard in your opening statement talking about
health standards, and making sure we are using science-based
standards. Science-based standards, standard agreements between
the countries, and then using technology wherever possible,
transparency in the rules, so everybody knows what the rules
are and who is responsible for them, these are just a few of
the areas that we have been emphasizing to try to make these
regulations more efficient and effective.
Chairman REICHERT. Okay, great. I yield. Mr. Pascrell.
Mr. PASCRELL. Mr. Chairman, we are not going to be suckered
into the whole of it's the traders versus the isolationists. I
don't know anybody on this panel up here that is an
isolationist. So we believe in trade, and we want it to be
fair.
So let me ask you this question, Ms. Drake. The President
has promised to bring jobs to the United States by
renegotiating this disaster trade agreement. You represent the
workers, AFL-CIO. Would you say that the USTR's negotiating
principles and objectives just released represents a radical
transformation of our trade policy?
And Part B of that question, do you see anything in their
objectives that would create jobs here in the United States of
America?
Ms. DRAKE. Thank you for the question. The objectives are
not a radical, retransformation of NAFTA. They essentially look
like tweaking around the edges. And much of it seems wholly
adopted from the trade negotiating objectives from the TPP,
which is something that the President himself said was a failed
agreement and withdrew from.
I think the one sort of bright spot in the objectives is
really the trade remedies section, but trade remedies can't
create jobs. They can only defend jobs that are being attacked
by unfair trade practices. So we would have liked to have seen
more clarity, more specificity, and, frankly, a higher
ambition, in terms of the objectives.
Mr. PASCRELL. Now, you have identified raising wages in
Mexico as one of the most important goals of NAFTA
renegotiation. Now I want you to talk some more about why you
think wages in Mexico are so critical, both for Mexico and the
United States. Try that one first.
Ms. DRAKE. It is really critical because the low wages in
Mexico and the ease with which bad actor employers can exploit
and abuse Mexican workers is one of the pull factors inducing
investment in Mexico. And the side agreements in NAFTA for
labor just haven't done the job to protect workers. And we
don't----
Mr. PASCRELL. And we have proof of that, don't we?
Ms. DRAKE. We absolutely have proof of that. There have
been 39 cases filed over the years under the NAFTA labor side
agreement, and none of them resulted in new workers being
organized or having their wages raised in Mexico. So we have
got to try something radically different, not tweaking around
the edges. And there has got to be an enforcement mechanism
that is not just slow and cumbersome and wholly discretionary,
but swift, automatic, and something that workers can depend on.
And we have to tweak the other provisions--not tweak,
change the other provisions of NAFTA, as well, so that we are
providing different incentives. When--you mentioned earlier the
President had said jobs are being sucked out of the United
States. They are not being sucked out by Mexico's workers. They
are being sucked out by decisions made by corporate CEOs to
relocate production. And we have got to use NAFTA to change the
incentives on those CEOs, so that they have more incentives to
invest both in the U.S. and in Mexico. And when we raise wages
in Mexico, we are going to have more exports to Mexico, because
we are growing a middle class there, and really developing----
Mr. PASCRELL. Yes, the guy that is working in Pueblo is not
the enemy. And we have made him the enemy.
But we have had some changes in law in Mexico since 2016.
Could you really be specific about how that helps the cause of
fairness here? Fairness. I mean it is a simple word.
Ms. DRAKE. So, the labor boards in Mexico have been really
corrupt and used to attack independent trade unions in Mexico,
and really promote these--what are called protection unions, or
yellow unions, that simply have the same interests as the
employers, in many cases.
So the changes from 2016 in Mexico are really important,
but they are not enough. We still need to see laws and
regulations enacting them and implementing them, and then we
need to see enforcement, and see how they are being implemented
in practice, because workers have a long experience of changes
on paper not translating into reality.
Mr. PASCRELL. Thank you, Ms. Drake.
Mr. CHAIRMAN.
Chairman REICHERT. Thank you, Mr. Pascrell.
Ms. Jenkins, you are recognized for five minutes.
Ms. JENKINS. Thank you, Mr. Chairman. And I thank the
members on the panel this morning for being here.
Foreign investment is a critical tool that allows American
manufacturing services and agriculture industries to grow and
to thrive, allowing producers in my district, such as those in
and around Atchison and Topeka in the northeast, or Pittsburg
in the southeast of my district, to reach the 95 percent of
consumers that exist outside of the U.S. borders. And boosting
income, they contribute to our economy.
In fact, U.S. economy is--that invest overseas are
responsible for the majority of U.S. exports, as well as the
majority of the U.S.-based research and development, both of
which support high-paying jobs. This investment is typically
about reaching foreign consumers or participating in foreign
infrastructure, energy, or resource, or--projects.
While all investors in the U.S., domestic and foreign,
benefit from protections based and baked into our Constitution
and our strong legal system such as basic protections against
discrimination, foreign seizure, or other forms of unfair
action are not always available overseas. Investor-state
dispute settlement mechanisms are one of the most important
U.S. negotiating objectives under trade promotion authority,
and the Administration has been very clear that it plans to
follow TPA on modernizing NAFTA.
Mr. Ottensmeyer, perhaps you could respond on behalf of my
constituents in Kansas. How has the legal protection provided
by ISDS been important in your investment decisions for the
overall benefit of products grown or manufactured in Kansas?
Mr. OTTENSMEYER. Thank you for the question. As I mentioned
in my testimony, over the last 20 years, since we have been
doing business in Mexico, we have invested $4.5 billion with
the initial investment, as well as capacity enhancements to our
rail network in Mexico.
We operate roughly a 6,000-mile rail network in U.S. and
Mexico, split pretty evenly: 3,000 miles in the U.S. and 3,000
miles in Mexico. We are the only North American railroad that
owns and controls rail networks on both sides of the border.
And agriculture is, obviously, important to you. It is
important to us. If you look at our cross-border trade flows,
60 percent of our cross-border movement of freight is export,
is south-bound. And the vast majority, the largest single
commodity by a long margin, is grain.
Mexico is the second largest importer of corn in the world.
We move about 35 to 40 percent of all Mexican grain in--mostly
yellow corn imports move on our railroad. And if you visualize
a map of our rail network from St. Louis to Kansas City, down
through Shreveport, Houston, across Laredo, into the heart of
Mexico, we are a perfect pipeline for moving U.S. agriculture,
food products, grain, corn, soybeans from the major producing
regions down into Mexico.
And I would say that, without the investment that we have
made building the capacity on our cross-border network, those
products couldn't move in the quantities that they move today.
Truck and other means of transportation, large bulk
commodities, rail is really the best and most efficient way to
move, and I think we have been critical to open up those
markets for your constituents and those in the Midwestern
states into Mexico.
I would like to add, as we look at the future, we see two
of our largest cross-border opportunities are also export-
oriented. And they are in the form of refined petroleum
products moving from the U.S. Gulf Coast into Mexico, which is
happening today, and we are investing to support that movement,
and petro-chemicals, petroleum derivatives, natural gas
derivatives, plastic pellets that make everything from auto
parts to water bottles to electronic casings. Those two
opportunities, we think, are going to be very substantial
export opportunities from the U.S. to Mexico.
Ms. JENKINS. Thank you.
Mr. Chairman, I yield back.
Chairman REICHERT. Mr. Kind.
Mr. KIND. Thank you, Mr. Chairman. I want to thank our
panelists for your testimony here today. And, Mr. Chairman, I
am glad we are moving forward with this hearing. I think it is
desperate that this Congress leans in now to try to get trade
back on the rails, in light of the dysfunction and the
conversation that took place in last year's presidential
campaign, and the start that we have so far this year. And
hopefully, this will tee up some additional hearings, so we can
continue to get feedback and also hold this discussion of how
we can get back in the game.
And I am all for NAFTA renegotiation, and try to
modernizing--bringing it into the 21st century, in light of the
deficiencies of the current agreement. But, you know, these
renegotiations, these one-off bilaterals, only get you so far.
You know, it is in the multi-lateral context, where you have
certain synergies and tradeoffs that you normally don't get in
bilateral negotiations.
And that is why, at a previous hearing not so long ago in
this Committee, I said that our rejection of trying to find a
path forward with the Trans-Pacific Partnership trade agreement
will go down as one of the great strategic mistakes that we
made as a country in the 21st century. And how we get back in
that tent, in the fastest-growing economic region of the global
economy, the Pacific Rim, is going to be very, very important
for our own economic well-being, but also diplomatically, and
the national security interests that we have in that region, as
well.
Mr. Linebarger, I am glad to hear that, as a major
corporation in this country, you too embrace the need for us to
have enhanced labor and environmental standards and protections
in any NAFTA renegotiation. I couldn't agree with you more. And
I have had the opportunity to visit a Cummins plant in Mineral
Point, Wisconsin, in the southern part of my district, with
exhaust emission technology that is taking us to that next
generation of where we need to go, environmentally, too, with
the products that is being made, including a Black River Falls
plant.
And these are good-paying jobs with benefits in rural
western Wisconsin that we are talking about. And Wisconsin,
overall, we export 60 percent of our products to either Mexico
or to Canada. So these two countries are vital to our economic
well-being.
And just a quarter of a mile down the road from your
Cummins plant in Mineral Point is a 220-head dairy farm. In
Mexico right now is the greatest dairy export market that we
have.
So, my advice to the new Trump trade team was, first, no
trade wars. That is only going to hurt all of us here in the
Western Hemisphere. And secondly, let's try to take what was
accomplished in the TPP agreement and build upon that. And it
seems as if they are starting to embrace that concept of not
trying to recreate the wheel, seeing what these countries have
already agreed to do in the context of TPP, which was also
embracing core labor and environmental standards in the body of
the agreement, fully enforceable, like anything else that is in
the agreement, and go from there. And I think that would be a
wise approach.
But Mr. Linebarger, just to get your reaction to this, you
might understand the skepticism that some of us have on this
side of the dais with an Administration that appears very
hostile to worker rights, very hostile to collective bargaining
rights in this country, and yet they are trying to move forward
on a NAFTA renegotiation that takes May 10th and builds upon
that by including labor and environmental standards. Why do you
think this is important in any NAFTA renegotiation?
Mr. LINEBARGER. Thank you very much for your question,
Congressman. I couldn't agree more with the disappointment with
TPP, as you know. I spent a lot of effort on that.
But I would just say that I think the labor and environment
standards are important to keep strengthening over time. Many
of these countries are starting from a place that the U.S. was
many, many years ago. And just like we want with economic
development, when we operate in other countries what we are
trying to do is bring the communities in there up to a better
standard of living, better benefits, better for their families,
just as we are trying to do in the United States.
So, as a company, we feel an obligation to all
stakeholders. It is not just shareholders, it is employees, it
is communities and families. That is the way Cummins was
founded. That is the principles by which we operate. It is the
values that we all share. So everywhere we go we want to do
that.
But we are starting from where we are starting from. And
what we are trying to figure out is how to make sure that we
move up through economic development and through raising
standards.
And I think just trying to establish those standards and
then enforce them--I do agree with the panelists that I share
the table with, that enforcement is important with whatever
standard we put in there. I think we did miss some beats on all
of our standards, where--our trade agreements----
Mr. KIND. Well, and I----
Mr. LINEBARGER. We didn't enforce enough of what we had----
Mr. KIND. And I want to commend you, because you have been
consistent on that message, with the visits that we have had,
the conversations that took place on the Hill and off, and that
is important.
But--and I want any trade agreement, whether it is a
renegotiation or a future one, to be elevating standards up to
where we are so we start to level the playing field, you know,
for our workers, for our businesses, for our farmers that is
fully enforceable, that can expand the opportunities on a
global basis. And hopefully, that will be a shared goal that we
have with the Administration when it comes to NAFTA
renegotiation.
Thank you, Mr. Chairman.
Chairman REICHERT. Thank you.
Mr. Paulsen.
Mr. PAULSEN. Thank you, Mr. Chairman, and thanks, everyone,
for being here today.
I do believe it is absolutely necessary and critical that
strong digital trade provisions also be included in any NAFTA
modernization to better reflect the realities of the economy
today, including issues that are related to the digital
economy.
In fact, today--I co-chair the Digital Trade Caucus and, in
fact, today my co-chair, Suzan DelBene, and I are going to be
sending a letter to the Administration, outlining some of the
areas of digital trade that we think should be prioritized in
the negotiations. This includes everything from promoting
cross-border data flows, eliminating data localization
requirements to streamlining customs procedures, and, of
course, prohibiting unnecessary regulation of digital services.
Mr. Linebarger, you spoke a little bit about adding
thousands of new high-quality jobs being added at Cummins
exclusively because of access to international markets. And
NAFTA and other trade agreements have been a big part of that.
And last fall I remember visiting the facility of Cummins
in Fridley, Minnesota, had a chance to visit with some of the
1,200 employees that are there, seeing the power generators,
seeing the exports that are going right out the door to other
markets.
From your perspective at Cummins, and the work you do with
your supply chain and with other American business leaders, can
you talk a little bit about how important it is for digital
trade for the success of your business, for American
businesses, and how important is it that we include digital
trade provisions in a NAFTA modernization?
Mr. LINEBARGER. Thank you for the question, Congressman. I
would just say that in today's economy digital is a critical
element in every business. All of us in business, in whatever
field, are having more and more information and digital-related
activities where--and so that is just part of the economy. To
not have it in a trade agreement is just ignoring the--where
the economy has gone. So we definitely have to have it there.
Just in our case, in Cummins's specific case, we now have
telematics on all of our engines that go in trucks, and also in
other equipment, which allows us to gather information to give
customers more proactivity with their equipment. This is now
required by nearly every producer. And I think it will be the
basis of competition in the future, even more than some of the
sort of manufactured goods that we make today.
So, as things move forward, this digital area is going to
get more and more important. Our ability to compete freely, and
to be able--and not be restricted by where we have to keep
data, how we have to gather data, these kind of things will
become more and more important. And every manufacturer--it is
not just going to be computer companies or banks that are going
to be worried about that. Every one of us is going to be
concerned about this, and it is going to be a major source of
income and competitiveness.
So I would just say that, without having it, we are
ignoring where the economy is. And, for Cummins, it will be a
critical element of the value that we sell to customers.
Mr. PAULSEN. You know, this is interesting, because a lot
of people think of digital trade only involving IT companies or
high-tech companies. And actually, it is about manufacturing,
it is about e-commerce, it is about making sure you are selling
your products throughout your supply chain. It--just all that
integration.
Mr. Ottensmeyer, maybe--any other thoughts or feedback on
the same topic?
Mr. OTTENSMEYER. I would agree that the digital economy has
advanced, you know, just tremendously in the last few years,
and the pace is picking up. It is important to us, in terms of
safety, security, efficiency of border crossing. I would say,
more importantly, it is important to our customers, in terms of
being able to track and trace and have information that allows
their supply chains to operate at an optimal level.
But just going back--and again, the Chairman's question
about efficiency of border crossing--we are working on some, I
think, very important and potentially break-through initiatives
at the border to improve the way trains cross.
I mentioned earlier, if you look at the nature of our
business, we handle large bulk commodities. Opportunities like
refined products are going to require a more efficient border
crossing process. And it is a lot easier to change processes
and use technology to enhance capacity to allow for larger U.S.
exports of products like gasoline and diesel than to build new
bridges. Bridges are very, very expensive, and very hard to get
permits and to build. So changing the processes that we
currently use to move trains across the border is going to be
necessary to take advantage of the export opportunities that we
see in our business and we see for the country.
Mr. PAULSEN. Thank you, Mr. Chairman.
Chairman REICHERT. Mr. Doggett.
Mr. DOGGETT. Thank you very much, Mr. Chairman, and thanks
to each of our witnesses.
We, of course, know that, regardless of the subject,
President Trump has little interest in cooperating or
collaborating with Democrats in trying to find solutions to the
problems that our country faces.
But listening to the comments this morning of my Republican
colleagues about the many advantages of NAFTA and all that it
has done that has been good for our country, I have some
difficulty in reconciling that with what President Trump is
saying about it being the worst trade deal in the history of
the country, about it being a disaster. And I wonder if he is
even collaborating with our Republican colleagues in designing
new trade policy.
I represent the City of San Antonio, in which NAFTA was
signed. And for San Antonio and Central Texas, NAFTA has not
been a disaster. It has, overall, been a benefit. It has been a
disaster for the women who worked at the Levi plant in San
Antonio, and it has been a disaster for some other parts of the
country. But, on the whole, in our area there have been a
number of economic benefits from NAFTA.
Some people say that, given the total inconsistency between
President Trump, not only--and our Republican colleagues here
today--but they point to the inconsistency between him and his
own advisors. Yesterday's announcement of the NAFTA objectives
appears to demonstrate, again, that total inconsistency,
because it sounds like the objectives are kind of a warmed-over
TPP, which he has already rejected, that that is the place that
he wants to begin.
And others have speculated that he will discover that trade
policy, not unlike health care policy, is complicated,
something all of you knew, and that perhaps his response will
be the same as we are hearing today: Let's just forget it and
repeal it all.
Mr. Linebarger, I found a lot of merit in your testimony,
the emphasis on the integrated supply chains, which I see for
some of our companies there in San Antonio and throughout
Texas. What would be the effect of just saying we have had
enough, it is too complicated, Republicans can't agree among
themselves, as on health care, and just terminating NAFTA?
Could it really be done, given 20 years of integrating the
supply chains? And what would the impact be on American
business and American workers?
Mr. LINEBARGER. I think the impact would be significant and
very detrimental, and not only to large companies, by the way.
There is no question that large companies like ours would have
not only higher costs and less competitiveness, but we would
have lower sales and, therefore, we would have to reduce our
workforce. That is my true belief.
I also think, though, for small companies. Cummins has more
than 2,500 U.S. suppliers. Many of them are small and medium-
sized companies. These companies are now very sophisticated in
how they participate with Cummins in international trade. Many
of them started off as just a few hundred people in one small
town in the Midwest or some other part of the country, and
then, because they have started to supply Cummins, they have
grown. And many of them have even opened overseas offices,
things they couldn't have imagined years ago, and have added
employees at home now to sustain business they have outside of
the U.S.
So small, medium-sized, and large companies all benefit as
part of this regional supply chain that NAFTA has created. So I
am very convinced that terminating NAFTA would have a very,
very detrimental effect on the U.S. economy----
Mr. DOGGETT. Thank you. I appreciate the fact that you also
advocate enforcing environmental and labor conditions, and find
it, again, totally inconsistent with what President Trump has
said, that he is proposing to cut not just by a little, but by
80 percent, a bureau in the Labor Department that is focused on
monitoring the treatment of foreign workers, and that that has
been condemned by a number of American businesses, along with
the AFL-CIO, and that the White House has no explanation of why
it would reduce the enforcement by 80 percent.
Ms. Drake, you have focused on the investor-state
protection, which is something that has concerned me, along
with the failure to enforce environmental and labor
regulations. Is there any reason, particularly with Canada, why
we can't rely on a mature court system to adjust any
differences that we might have? Don't American businesses deal
in the Canadian courts all the time?
Ms. DRAKE. I have seen no evidence that we can't trust
Canadian courts. And I have been having this debate with folks
who support ISDS for quite a long time. And it is really when
businesses ask for certainty upon investment, there shouldn't
be any guarantee of profits or certainty of profits. And it is
workers who often don't have any certainty under trade
agreements.
Mr. DOGGETT. Thank you. Thank you all.
Chairman REICHERT. Thank you.
Mr. Kelly, we are going to go two to one now. So Mr. Meehan
will follow Mr. Kelly, and then we will go to Mr. Levin. Mr.
Kelly.
Mr. KELLY. Thank you, Chairman. Thank you all for being
here.
Just to kind of look at what we are talking about so far, I
think it is pretty hard to look at six months of the Trump
Administration and come up with some kind of a definitive idea
that they haven't gotten things done yet. That is kind of
amazing to me, after sitting here for 8 years and watching the
erosion of jobs across the board, 5 million jobs, 70,000 plant
closures, and saying, ``You know what? This Trump needs to
really get on the ball, he just hasn't acted fast enough.'' So
I appreciate my colleagues weighing in, and we are getting
ready for the 2018 elections, so I guess we start the campaign
now.
Let me just say this, though. I am really concerned with
you all being here today because a lot of the things that we
have talked about, a lot of the jobs we have lost, have not
been because of trade agreements. A lot of them have been
because of tax policy and regulation policy. People aren't
leaving the country because they don't like America. They are
leaving the country because they find it is too hard to stay
profitable in the global economy.
But one thing I will say about NAFTA. NAFTA has been very
good in a lot of cases, has it not? Some of us would look at
that. I know in Pennsylvania it has been important, especially
to the ag people.
So, for the record, Mr. Chairman, I would like to submit a
letter by Mr. Smucker and also Mr. Kind and myself, and co-
signed by 45 other Members, kind of a do no harm. We talked to
Ambassador Lighthizer to make sure that we are doing the right
things when it comes to NAFTA.
Chairman REICHERT. Without objection.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. KELLY. Is there any of you that would disagree with the
fact that a 23-year-old trade agreement shouldn't probably be
looked at to see is it operating under the current world that
we live in? Is there anybody that disagrees that we should not
take a look at that?
[No response.]
Mr. KELLY. You have all offered suggestions of what should
be in that new trade agreement, right? Okay. I just wanted to
make sure we are on the same page with this, because I really
sometimes get baffled as to where we are going with these
questions.
But for all of you to come in here--I am an automobile
dealer. I sell Chevrolets, I sell Cadillacs, I sell Hyundais,
and I sell Kias. Of all of those products, there is not one
that is just made solely in the United States. It is impossible
to do. So, as we have changed and gone to a global supply
chain, how would we now change back, and how quickly could that
be done?
Mr. Linebarger, I know what you are talking about, and I
know that if I were to bring out Monroney labels right now--
and, by the way, the Monroney labels are the stickers that are
on the windows of cars and trucks that are produced--and if you
go to the far right-hand corner, and down in the left-hand
side, it says ``supply content.'' It would be very hard for
somebody to differentiate between which car was made in
America, the Hyundai Elantra or the Chevrolet Silverado,
because the Hyundai Elantra is actually built in Montgomery,
Alabama, and the Chevrolet Silverado is built in Mexico, has
about 38 percent U.S./Canadian--by the way--parts supplied. The
rest of it comes from Mexico.
So how do you re-engineer that? How do you, in a--in six
months, re-engineer that, and how do you get 70,000 plants to
reopen, and 5 million jobs to come back? And, from your
perspective, from your perspective looking at NAFTA, if you all
go right down the line, please tell me, if you can--and I know
it is hard to do, it is hard to articulate--what you would like
to see in that new agreement, or what should we be
concentrating on that grow American jobs and make it safer for
workers all around the world.
But more importantly, with the clout that we have, with the
clout that we have, we should be able to drive bargains that
come far more favorable to us.
So, Mr. Linebarger, if you would start, and if you would
all right go down the line, I would appreciate just hearing
from you.
Mr. LINEBARGER. Yes, again, my strong recommendation for
modernizing the agreement is add more parts of the economy to
it. The U.S. is incredibly competitive in services, in IT, in
technical areas, and there just are not enough protections in
the old agreement for those areas.
We talked about IP protection, we talked about making sure
there is fair trade and where you need to keep your technology
and your IT. I think having more of those modernizing things is
really important.
As I mentioned, I also think it is important to have
enforceable labor and environment standards, because we are all
trying to move the standards up.
Mr. KELLY. Absolutely.
Mr. LINEBARGER. That is an important thing to do. That is
where I would focus my attention, is on the parts that
modernize the agreement, and the parts that make sure we add in
standards that keep us all raising them up.
Mr. KELLY. Yes. Mr. Ottensmeyer, there is nothing like a
steel wheel and a steel rail. That creates an awful lot of
jobs, and really supports Social Security. We need to get more
people in the workforce.
Mr. OTTENSMEYER. I would agree with what my colleague just
said, expand it, look at--and again, I think that there are
opportunities in front of us today in the form of energy
markets--Mr. Arriola can talk more about those--that I think
could be substantially opportunities to improve exports,
increase exports.
Infrastructure is going to be needed, so we will do our
part and invest in infrastructure on both sides of the border.
But I also think some of the regulatory relief that is taking
place, particularly in energy markets, is going to make it
easier for U.S. producers to tape those markets.
Mr. ARRIOLA. Congressman, as you said, a lot has changed in
the last nearly 25 years. The energy markets were not open 25
years ago.
Mr. KELLY. Absolutely.
Mr. ARRIOLA. Today Mexico is one of our best trading
partners. And, as I mentioned, we have a trade surplus because
of the natural gas and liquid fuels that we send to Mexico. So
making sure that the new, modernized NAFTA agreement recognizes
those new open markets so that it is codified in the agreement
we think is very important.
Secondly, ISDS is not theoretical. It is not academic. It
is for real. For companies like ours and industries like ours,
that invest and put infrastructure in the ground that is there
for 20, 30, 40 years, it is for real.
We had an experience in Argentina where, overnight, the
government changed the rules and regulations. American
companies need to be treated fairly, and need to have access to
a tribunal that can think fairly.
Chairman REICHERT. Thank you, Mr. Arriola.
Mr. Meehan.
Mr. MEEHAN. Thank you, Mr. Chairman. And I thank the panel
for your insights into the broad spectrum of issues that are
impacted by the purported agreement, and the opportunity for us
to go back and revisit some areas.
But significantly--and I think Mr. Linebarger put his hand
on it the most--we are growing in certain areas that were never
part of the original agreements. And my colleague, Mr. Paulsen
from Canada--from Minnesota----
[Laughter.]
Mr. MEEHAN. Hey, he is a pretty good hockey player, so I
always think that he is from--focused on intellectual property
protection, the cross-border data flow, and other important
protections.
I think one of the things that is often misunderstood when
we talk about e-commerce is the tremendous growth that is
taking place in this, and services that are provided. In
addition to the mechanics, so to speak, that are part of the
materials that you send over, the digital information that is
in the actual engines and things which need to be able to
operate across borders, the United States has actually had a
surplus of $159 billion in terms of services that are provided,
but it requires that we have got protections in three critical
areas.
One is cross-border data flow to enable, as you have
identified, Mr. Linebarger. The second is that we can't then
inhibit that by virtue of creating responsibilities for you to
localize data in a particular nation. And then, third is when
you do have information that is being traded, and that you have
got certain kinds of intellectual property, that we have got
appropriate protections that recognize and protect against the
inappropriate use of that.
Can you speak, Mr. Linebarger, to how significant it is
that we not only look at this in terms of assuring that both
Canada and Mexico--that we visit areas, some of which--Canada,
for example--does look at localization in some areas,
intellectual property protection is not quite what it has right
here--how it is important that--not only that we work through
those areas so that we modernize an agreement, but, as
significantly, that we look at this as a paradigm that, if we
can work through these issues to actually enhance some of the
discussion that took place during TPP, that we may be able to
create the kind of a model that we can replicate, globally.
Mr. LINEBARGER. Thanks for the question. And I really agree
with that. I think it is important. Congressman Kind mentioned
it, too, that what we--when there are--when there is access to
customers and there are a set of rules that are reasonably
standardized, American companies can win. We have an incredibly
capable workforce, we have talented people here, and we can win
in other markets when the playing field is even close to level,
is my opinion.
So, some rules to live by. And the ones that you are
mentioning are the ones that we want to begin to standardize
and codify and get more countries to adopt, because those are
the rules of the modern economy. And when the rules are there,
we can win. So I would strongly agree that trying to push into
areas, the new areas of the economy, make sure there is a
standard set of rules that we can adopt in other trade
agreements, bilateral or multilateral, is a really important
thing that we need to do.
I was hoping we would get it with the TPP, but now--we
didn't, but now we have more opportunities, I think, to do that
with NAFTA.
Same was true with labor and environment, by the way. All
these standards are areas where, if we get them in, we have
them codified, and we can then move on from there and continue
to raise our standards and improve the way that the
international trade works, and so there are not so many
violators, and it is not so easy to violate. That is, I think,
what is going to help good, responsible companies to do well.
The other two areas you didn't mention I would highlight
would be state-owned enterprises. There are still many
operations where state-owned enterprises are in. Sometimes that
is an okay thing to do. But if they are not operating in an
economic way, in a fair competition way, that can essentially
exclude U.S. companies from participating anywhere near that
industry.
And the last is national preference rules, which seem
advantageous, as long as you are the nation putting them in.
But the problem is when the other nation puts them in, it
essentially excludes you from those industries. And I would
just mention that some of the most competitive industries we
have--banking, insurance, other IT-related industries--are
areas that other countries like to put national preference
standards. So if we have them, they are going to put those in,
and----
Mr. MEEHAN. Because that stifles not only innovation, but
when we have products that are innovations that can have an
impact on their markets, it prevents the access to those
markets----
Mr. LINEBARGER. Right, correct.
Mr. MEEHAN [continuing]. And prevents that kind of growth
of what we are talking about has actually been a surplus, when
we have been able to deliver those kinds of services and
innovation to foreign markets.
Boy, I have got a lot of other questions, but the time has
run out, and I appreciate your answers.
And, Mr. Chairman, I yield back.
Chairman REICHERT. Thank you.
Mr. Levin.
Mr. LEVIN. Thank you, Mr. Chairman. And I think this
panel--perhaps it hasn't been planned that way--has really
helped us get to the nub of the issue. If you look at the--all
of you except for Ms. Drake and the others on behalf of
business are testifying that NAFTA has been a plus. Well, the
President has said the opposite.
If you look at the surplus and deficit figures, they tell
the story. There is, with Mexico, a substantial surplus in
services. In goods there is a deficit of over $55 billion last
year. And that has happened--it is no surprise.
The big issue in NAFTA, what we fought over, were labor and
environmental standards. We had already seen considerable parts
of American industry move to Mexico. The maquila dynamic, it
was already there. And what was done in NAFTA was not only to
have a side agreement, so called, over our objection, but it
was totally unenforceable.
So, what happened is what we predicted, and that was that
more industry would move to Mexico. And that happened in a
number of industries, including the automotive industry: a
dramatic shift of production from the United States to Mexico.
And the differential was not automation, it was labor costs,
predominantly.
So, today the Mexican auto worker receives 14 percent of
what is paid in Michigan and other places, about $2.40 an hour.
And Mexican manufacturing productivity has increased 80
percent, while compensation for workers there has slid 20
percent.
So, we are going to have to address that problem, or else
there is going to be more and more slippage of production to
Mexico and more jobs lost. One can argue whether it is two
million, a million. You can also argue how much the impact has
been on lowering wages in the U.S. I think undoubtedly the two-
tier structure in the UAW plants resulted from the shift to
production to Mexico.
And so, while I don't agree with the super-populism of this
President for one second, I do think there is a real issue
here.
Mr. Linebarger, you said--and that is why I think this is a
useful hearing--you said, ``We believe that NAFTA's
environmental and labor standards should be strengthened and
incorporated into the updated agreement itself.'' The only way
that is going to happen is if Mexico dramatically changes its
laws and practices. And if they don't do that before we vote,
there is never going to be an assurance that it will ever
happen.
And so, I think we need to ask you in the business
community who say that, as well as those in the labor
community. And those of us who care about worker wages in the
U.S. and the impact competing with Mexico workers who are
getting a fifth or a sixth in the auto parts industry--it is
even a smaller percentage in the auto parts industry; they are
making a buck an hour in some cases--and more and more
companies have moved their parts production to Mexico.
So this Administration, all of us, need to get serious. And
the only way that we are not going to continue to lose
production to Mexico in autos and beyond, and continue to lose
jobs, is if steps are taken that auto workers in Mexico who
today have zero rights will be able to have their international
basic rights. That is the nub of this issue, in terms of the
deficit in goods.
Chairman REICHERT. Mr. Reed.
Mr. REED. Thank you, Mr. Chairman, and thank you to our
panel here today. I wanted to focus in a little bit--and I
appreciate the efforts the Administration is doing in
modernizing NAFTA and bringing it up to current standards.
I mean over 22 years this agreement--for example, take the
energy sector. I want to focus there a little bit and then
touch upon how that impacts U.S. manufacturing, because I am a
firm believer in U.S. manufacturing. On the--when they started
on NAFTA, the Mexican energy market was essentially off limits.
And as you noted in your testimony, that has been opened up a
little bit.
But I was wondering, Mr. Arriola, from an energy
perspective, what provision should we be focusing on? How can
we strengthen access to that marketplace? And what will that do
to the overall cost for manufacturers, in your opinion?
And then I will go to Mr. Linebarger as a manufacturer--
proudly, in my district--with 1,500 folks working there in
Jamestown, New York, and we appreciate his efforts.
So maybe expand a little bit on the energy sector and what
we need to focus on there.
Mr. ARRIOLA. Sure. Thank you for the question, Congressman,
and thank you for your letter to Ambassador Lighthizer, talking
about the importance of free-flowing energy across all borders.
One of the things I would touch on is the importance of
cross-border infrastructure processes. And when you look at
what has been happening in the energy world, the developments,
especially on the electric side, have been very beneficial,
both to the United States, as well as Mexico and Canada, from a
grid reliability standpoint.
So, as you know, these projects take a lot of time. And
certainty is important to know what the schedule is, what the
approvals are required. So what we would like to see in a
modernized NAFTA is to have additional rules set in place, how
the coordination is going to take place, not taking away the
sovereignty of approvals from each country, but laying out a
process so that companies like ours and sectors like ours know
what to expect and how to manage the process, and how each
country is going to be dealing with it.
We think that that helps a lot with getting the investment
done in a timely basis, which actually helps to produce
additional jobs here in the United States, as well.
Mr. REED. I appreciate it. And in regards to U.S.
manufacturing, Cummins being a great example of a great U.S.
manufacturer, how would that energy policy equate to your
position in the world marketplace?
Mr. LINEBARGER. Yes, it is a great point. I mean,
obviously, lower energy costs will benefit us significantly,
especially if they can be done in a sustainable way. And so,
being able to operate energy markets more efficiently and have
more scale there will benefit--even--especially as technology
changes occur. It is definitely beneficial.
The other thing is that, you know, that Mexico began to
restructure its own energy industry, because it has the
enterprise there. They were very restrictive to buying from
U.S. companies. Now they buy equipment from U.S. companies.
They have just started restructuring that, though. So I would
just encourage those participating in the NAFTA renegotiating
process to continue to push them to continue restructuring,
don't go backwards. Because it is politically challenging for
them to restructure that sector of their economy. So we want to
encourage them to do so.
And I think that is one of the real benefits of a thing
like NAFTA. If we want to restructure Mexico's economy, be it
labor standards or energy restrictions, the economic activity
represented by NAFTA is the way to drive them to do it. We
can't just decree that they raise labor standards or that they
open their energy sector. It is only the benefits they receive
from economic activity with the U.S. that drives them to do it.
So we should continue to push Mexico to raise standards,
open markets. And I think, through renegotiating NAFTA, and
through the benefits from NAFTA, we can do it.
Mr. REED. I appreciate that. With that, Mr. Chairman, I
will yield back.
Chairman REICHERT. Thank you.
Mrs. Noem.
Mr. Holding.
Mr. HOLDING. Thank you, Mr. Chairman. The--as the very
happy owner of a pair of Cummins engines, I am always watching
the innovation and new technologies that come out of Cummins,
with their new engines. So I would ask Mr. Linebarger how
important is being able to access customers outside of the
United States in Mexico, Canada, and elsewhere for Cummins's
ability to keep innovating and coming up with new technologies
and more sophisticated engines.
Mr. LINEBARGER. Thank you for that, Congressman. And in
your segment that you mention is a perfect example. We are in
the marine engine segment. It is a relatively small segment.
So, in order to produce the technologies relevant for the
marine segment, we have to invest a lot of money, because that
segment has changed a lot in technology, both in
electrification and cleaner energies--cleaner technologies to
clean up air and, of course, not pollute in the water.
So there has been a lot of technology spent--again, we
spent $700 million in a year in R&D. And in order to
participate in sectors of that size, you need economies of
scale. It is really important that we can access consumers
around the world.
And, by the way, there are companies who compete with us
based in all those countries who have decided that they need to
compete with us and beat us in the United States. So, in order
to compete, we need to continually invest, and continue to
build economies of scale through sales.
So accessing those customers is important. And again,
through my examples like Seymour, Indiana, Rocky Mountain,
North Carolina, and Columbus, Indiana, we can compete. Our
plants can compete.
I heard some stories about how, after NAFTA went in, plants
closed and moved to Mexico. But, in fact, what we did was we
closed our engine assembly plant in Mexico and moved it to
Jamestown, New York. And the reason we did that is we had very
large scale in Jamestown, New York. And, despite labor
differences, we are more competitive producing engines in
Jamestown than we were in producing a very small number in
Mexico.
We make other products in Mexico that we produce at high
volume, and they are quite competitive there. So, while labor
cost is a factor, it is a relatively small factor of our total
cost relative to R&D, capital investment, and other flows. So
we feel like we can compete very well from the U.S. when we
have access to customers abroad.
Mr. HOLDING. Well, let's use a specific example. So, of
course, your favorite facility--my favorite facility is in
Rocky Mount, the----
Mr. LINEBARGER. That is a good one.
Mr. HOLDING. And so, if you could think about Rocky Mount,
and tell me how market access helps create and retain jobs in
your Rocky Mount facility.
Mr. LINEBARGER. So Rocky Mount, North Carolina, produces
our mid-range engines for the entire North and South America
region. It produces engines for nearly every sector. It is one
of the only plants where we export to China. We export natural
gas engines for buses to China from Rocky Mount, North
Carolina.
That plant, in the downturn in the U.S., our production
dropped by nearly 40 percent. And at the lowest point we were
down almost two-thirds of our production, because the economy
was so weak in the U.S. right after the financial crisis. And
it was our growth and business outside the U.S. that allowed us
to continue to maintain reasonable levels of employment in that
plant, and then hire back from that very devastating downturn.
So we find that the international business not only allows
us to grow our business, to reach economies of scale, but also
protects us against economic cycles that we have in the U.S.
Mr. HOLDING. Staying on the topic of innovation and new
technologies, you know, I do have some concern that both Canada
and Mexico have too often fallen a bit short in respect to
intellectual property enforcement. And, of course, this was
reflected in the special 301 report the USTR issued just
earlier this year.
So, Mr. Linebarger, you are nodding your head. Do you have
any comment on that, any experience that you would like to
share with us?
Mr. LINEBARGER. I do think that--like we were talking
before, we haven't had enough focus on IP in our agreements,
nor have we been as quick to enforce rules that we should be
enforcing. And yes, we have had situations--more in Mexico than
in Canada--where intellectual property has been--where people
have essentially copied products or taken brand names and used
them on other products. So we do feel like it is important.
We also think it is in the interest of both those
countries. Both of their--the companies that operate there
would like to see IP enforcement for their own benefit. So I
think both countries would also benefit from having strong IP
rules and having enforcement. So I think it is an area, again,
where everybody wins if we have strong standards and then
continue to enforce them.
Mr. HOLDING. Thank you.
Mr. Chairman, I yield back.
Chairman REICHERT. Mr. Davis, you are recognized.
Mr. DAVIS. Thank you very much, Mr. Chairman. And I thank
you for calling the hearing. I also thank all of our witnesses
for being here.
It is indeed a very interesting discussion, and I think of
the title, which talks about the need to modernize NAFTA. And
so I think that it is often much easier to talk about what than
it is to talk about how. Just as I often hear a great deal,
after all is said and done--somebody said, well, more is often
said than done.
And so the whole question of how do we change situations--
Ms. Drake, let me ask you. You indicate that we have lost, oh,
850,000 jobs under NAFTA. Could you tell us what kind of jobs
those are? And is there any way to reclaim, recoup, or get any
of them back?
Ms. DRAKE. Thank you. So the job losses are in many
sectors, but you can find concentrations in the auto sector and
electronics, in textiles, and other manufactured goods.
The goal of the American labor movement is not to turn back
the clock or go back to the past, but it is to set up different
and more balanced incentives, so that the U.S. can capture a
larger share of new investment. And that is why we talk about
it is really important to raise wages in Mexico, so we can
level the playing field of competition, so that, as companies
say, ``We are growing, we are going to invest in new plants,''
that they might make that decision to invest in the U.S. or
Canada as much as they might make the decision to invest in
Mexico.
They have to think about all things, including labor costs,
but it is really important not just to get wages up in Mexico,
but to look at other structures that take away worker
negotiating power and give additional power to, you know, the
employer class. So we want to really get those incentives
right.
Mr. DAVIS. When we talk about influencing the behavior of
other countries, are we talking reality, or are we talking
something that is so far fetched until people cannot even
imagine it?
There used to be a Zenith plant, oh, I guess about a mile
from where I lived. And, of course, all of that shifted from
Austin Boulevard in Chicago to Mexico. What do we have to do if
we are going to influence other countries' behavior as we
negotiate with them for trade relations?
Ms. DRAKE. Well, it is about influencing the behavior of
other countries, but it is also about influencing the behavior
of global corporations, which are powerful actors in the trade
space.
So, to influence the behavior of Mexico, we need to offer
them something that they want, that they are willing to say,
``We are going to raise our labor standards towards
international levels and enforce them.'' In exchange, what are
they going to get? Additional access to the U.S. market,
additional assurances about how trade is done, trade
facilitation--we have to look at what they are interested in.
And certainly, then the U.S. has to say, ``Before we give
you these additional things that you want, we are going to make
sure that you have changed your laws and your practices, and
you are implementing those promises.'' And when you are looking
at the global corporations, we need to make sure that the
incentives to invest offshore, whether it is tax advantages,
trade advantages, ease of exploitation of people and the
environment, are really balanced by other incentives.
So we change our rules to minimize tax avoidance. We change
our rules to say we are going to invest more in infrastructure
so we are a more desirable place to invest. And we can do that,
we just really need to think big.
Mr. DAVIS. Thank you very much.
And, Mr. Chairman, I yield back.
Chairman REICHERT. Thank you, Mr. Davis.
Mr. Rice.
Mr. RICE. As we said at the inception of this meeting, 95
percent of the world's population lives outside of this
country. And that fact alone makes it patently clear that our
companies need to have access to other countries if they are
going to compete.
We have a very open market here, in the United States. And
because of that, companies in other countries don't necessarily
need trade agreements to compete on our soil. But other
countries are not so open, so our companies have to have trade
agreements to compete on their soil. And I understand that very
clearly.
I will--I do believe that NAFTA has been a net plus for our
country, because it has lowered barriers that existed in Canada
and Mexico. I also believe NAFTA has been bad for my district,
because we were overly invested, maybe, in low-tech industries
like textiles. We also had tobacco. And so we were hit very
hard. Some of the rural areas in my district were hit very hard
with NAFTA and what has happened with tobacco, and we still
haven't recovered.
So, on the one hand, we need to protect your access. You
know, in the train business, in the energy production and
provision business, we need to make sure your access is
protected. On the other hand, I don't want to do anything to
incentivize more American jobs, Ms. Drake, to go overseas. So
this is a delicate balancing act.
And in--you know, we hear--I hear your concerns about labor
standards in Mexico, regulatory structures in other countries,
intellectual property protection, and currency manipulation. I
understand all those things. And giving you--those are things
that are important to give you access. But my primary concern
is what we can do here to make it so competitive in this
country that other companies don't want to move overseas.
I think that, you know, we have divorced tax reform from
this discussion, but I think perhaps that is the most important
thing we can do for trade, and making our companies more
competitive.
Ambassador Lighthizer was here a couple of weeks ago, and I
asked him, in renegotiating NAFTA, Mexico has a 16 percent
border adjustment through a VAT. So how, in renegotiating NAFTA
with Mexico, are you going to account for that? How can Cummins
engine, when they are making a decision about where to locate
their new plant, if we have free trade with Mexico--which I
certainly want--how are you going to offset that 16 percent
border adjustment tax?
And he answered me by saying, you know, that is a real
problem. That is not a very satisfactory answer.
So, I think that certainly renegotiating NAFTA is
important. I think my district has suffered because of it. I
want to see NAFTA renegotiated to make it fair for American
companies. But I also want to see us working other areas to
make our country competitive, so that we are not moving jobs
overseas.
Mr. Linebarger, do you--first of all, I appreciate your
factory in Charleston, South Carolina. My wife was a line
manager for Cummins Engine Company when I met her in 1982. So I
very much appreciate Cummins.
You said you closed a facility in--well, 2010, I guess. It
was a low-volume facility. What facilities do you maintain in
Mexico now?
Mr. LINEBARGER. We have three facilities now in Mexico, two
in San Luis Potosi, and one in Juarez. Our primary
manufacturing operations in Mexico now are related to re-
manufactured goods. These are goods where we have a product in
service. It comes back after its life, and we basically repair
and try to rehabilitate the product, and then we add some new
parts to it, and then we sell it as, essentially, a replacement
part with a warranty. And that is the primary business we do
there.
We have a couple of other businesses. We make some filters
there, and some other products, but the biggest----
Mr. RICE. Okay, so--I got 17 seconds left. This is my
question.
Mr. LINEBARGER. Okay.
Mr. RICE. Between tax policy, regulatory policy--I mean I
know we are not going to compete with Mexico on wages, and I
don't even want to try. But I want to know what we can do, so
that we make it impossible for you to decide to move these
divisions to Mexico, where you want to be in the United States
to be competitive in the world. What can we do?
Mr. LINEBARGER. Right. I--well, I would just like to
emphasize a couple of things that you mentioned, and other
panelists have mentioned. I do think tax reform is a big one,
making the incentives that--keeping business and investment
outside the U.S. is the wrong incentive.
So something that creates a more--a better tax policy that
we are not taxing overseas profits and nobody else is, that is
a really important part. And it lets people bring cash back to
the U.S. And reducing the rate, that would be very important.
The second thing would be infrastructure, which was already
mentioned. Infrastructure investment in the U.S. would also
help make it more competitive. So those are the two--if--direct
answers to your question that I would emphasize.
Chairman REICHERT. Thank you.
Mr. RICE. Thank you, sir.
Chairman REICHERT. Mrs. Noem.
Mrs. NOEM. Thank you, Mr. Chairman. Mr. Ottensmeyer, I
wanted to ask you a question, because you talked about--
specifically about efforts to do no harm as we go into this
modernization effort. And I know that we often talk about this
deal and how good it has been for American farmers. Sometimes
we fail to mention exactly how important it is to industries
that depend on farmers for business, such as your business.
Our Nation's best farm ground is in the heart of this
country, and we rely on businesses like yours to get our
commodities to market, and to get them so that they could be
exported to foreign countries. And you have some details about
how heavily reliant you are on agriculture commodities, which I
think is not unique to just your rail business. We have got
many rail industries that are heavily dependent on agriculture
commodities.
But tell me a little bit about the significant impact that
that has on your business, and what would happen if we had
disruption in the kind of opportunities that we have.
Specifically, I will just speak to my state of South
Dakota. We export to Canada and Mexico, since we have had
NAFTA, over--it has increased over $1.2 billion worth of
exports, 969 percent increase since NAFTA has gone into place
in 1994. So it is significant for my state. But as your
business is impacted, tell me what would happen if we saw a
slowdown in what was able to be exported to other countries,
just from agriculture alone.
Mr. OTTENSMEYER. I think it could potentially be
devastating to a lot of communities in rural America,
particularly in the Heartland. And I--we have used a graphic, a
map, and actually are--my written testimony to the U.S. Trade
Representative, I would be happy to provide, showing, by
county, in the middle of the country, the percentage of the
local economy that is based on international trade of
agricultural products to two other countries.
And, you know, it puts a different light on the issue,
because when you talk about just the shear number of jobs in
rural Kansas, or South Dakota, or Iowa, Nebraska, the numbers
aren't overwhelming, compared to Texas or Illinois or the East
Coast or West Coast. But if you look at it as a percentage of
the local economy, the percentage of local GDP in those
counties that is related to international trade of agricultural
products, it could potentially be devastating if those markets
didn't remain open to those farmers.
And as I mentioned, you know, our largest cross-border
commodity--in our case, our international trade is much more
tied to Mexico. But the U.S. rail industry is very dependent on
trade. And agriculture, I don't have the number off the top of
my head as far as the percentage of U.S. railroad--North
American railroad volumes and revenues that are tied to
agriculture, but it is a very large number.
Mrs. NOEM. I think you have in your testimony that,
according to a study done by AAR in March of this year, at
least 42 percent of rail carloads in intermodal units and more
than 35 percent of annual rail revenue is derived from
international trade, which isn't specific to agriculture, but
it highly impacts your industry and your business.
And what happens in agriculture so much--that maybe hasn't
been discussed very much--is once we lose market share in
another country, it is very difficult to get it back. We are
already seeing that in some of the Asia-Pacific region
countries, where we have lost market share because of different
policies and changes and negotiations, and another country
stepped in and filled that market share. And it is going to be
even more difficult for us to get that back.
So, any disruption, we can't necessarily go back six
months, a year later, and fix it and put it back to what it
originally was, or helpful to make it grow. So thank you for
being here today.
Mr. Chairman, I yield back.
Chairman REICHERT. Mr. Higgins.
Mr. HIGGINS. Thank you, Mr. Chairman. Obviously, the North
American Free Trade Agreement is over two decades old. The
United States is the richest country in the history of the
world. We have 5 percent of the world's population and 23
percent of the world's economy.
After World War II we had about 45 percent of the world's
economy. All the things that America used to make and sell to
the rest of the world, now they make and sell to us. In the
last two decades, we have lost six million manufacturing jobs.
Over 60,000 factories, manufacturing plants in the United
States have closed.
Obviously, the world wants to trade with the United States
because not only are we the richest economy in the history of
the world, but we are also 70 percent consumption. So we become
the most attractive market in all the world.
I often hear that, you know, these trade agreements are
negotiated, but there is not much enforcement going on. And
while the enforcement is talked about with great exuberance,
there is really no mechanism to do that.
We are told that the Trans-Pacific Partnership was a trade
agreement that had to be negotiated in secret, and when it
comes to Congress, you can vote on it but you just can't talk
about it, or you can't change it. To me, that says watch out.
You are probably going to lose a lot of jobs. You are probably
going to lose your livelihood. And, for the American worker,
you are probably going to lose your dignity.
And then we add language called the trade adjustment
assistance, which basically says you are definitely going to
lose your job, we are going to provide you with a little bit of
money in the short term to get you by, and then, essentially,
we are going to forget about you.
So, I think the United States--it is totally appropriate,
after two decades, to review all trade agreements, including
the North American Free Trade Agreement. But it has to focus on
worker protection for two reasons.
One is the United States can compete with anybody on a fair
playing field. We have embraced worker rights and environmental
regulations because there is a societal benefit that comes with
that. Others don't value those things as much as we do. So,
while it is written in language, it is not enforceable in fact.
So we need to do those kinds of things.
Ms. Drake, you had talked about in your testimony item
number two, which I think is very important and speaks to this
issue, and that is strong labor rules with swift and certain
enforcement. Do you want to elaborate a little bit?
Ms. DRAKE. Absolutely. So no prior U.S. trade agreement,
whether it was NAFTA, CAFTA, or something later, had
enforcement that said, ``Here is the timeline that must be
adhered to. Let's consult for this amount of time, and if we
haven't seen--if we have seen meaningful progress, great, let's
keep doing it. If we haven't, let's move to the next step.''
Nor is there any sort of automatic enforcement, so that
citizens could go and say, ``Look, you have promised to
enforce, you are not doing it, we want to make sure that you do
so.''
And so, one of the things that we recommended is how about
an independent enforcement mechanism in a secretariate that
isn't going to say, wow, I am subject to pressures from
producers who don't want us to act on labor rights. It is going
to be solely focused on what is good for workers and what is
going to raise wages and standards. So that is one way to get
at it.
Mr. HIGGINS. Yes.
Ms. DRAKE. I think there are a lot of ways to fix it, but
we don't have the right answer yet.
Mr. HIGGINS. Yes. Can I just--a final thought on this. I
mean the corporate representation here is very, very
impressive. You have created a lot of jobs, you have embraced
innovation into your technology to make your companies
competitive. And it is admirable, and that is the American way.
And, you know, I hear a lot of people here whining about
China, that they cheat on their currency, that they don't
respect their people, that they don't respect their
environment, and that is all true. But what you really need to
do with China is stand up and compete with them. You know,
China just invested $1 trillion in infrastructure to open up
China to 27 brand new Asian markets to sell whatever they make
to those new markets--$1 trillion in investment,
infrastructure, roads and bridges to most efficiently do that.
And our response, in terms of a transportation bill, is
seeking $1.6 billion to build a wall that we were told that we
would never have to pay for. That is pathetic. That is pathetic
and indicative of a country that seems to be capitulating,
economically, to China, when we should be standing up and
competing with them in a highly effective way.
Chairman REICHERT. Thank you, Mr. Higgins.
Well, thank you to the witnesses who have just testified
and answered our questions. As you can see, there are a variety
of opinions, thoughts, and ideas on the panel here.
But you can walk away with two things to feel good about.
One, your testimony was excellent, and your answers to the
questions, along with your testimony, very valuable to us. You
heard that. And two, you created a moment of bipartisanship, as
they all agreed the panel was excellent.
[Laughter.]
Chairman REICHERT. So thank you all, and I will welcome the
next panel. And as they are walking up, please be advised that
Members will have two weeks to submit written questions to the
answers, and those answers--in writing. Those questions and
your answers will be made a part of the formal hearing record.
Your record--our record will remain open until August 1st, and
I urge interested parties to submit statements to inform the
Committee's consideration of the issues discussed today.
So our second panel is getting seated.
[Pause.]
Chairman REICHERT. I would like to welcome our second panel
and ask them to step forward, which you have got--you have
already done.
Our first witness is Mr. Stan Ryan, chief executive officer
and president of Darigold, Incorporated. I am proud to welcome
Mr. Ryan here today from Seattle, where Darigold is
headquartered. Farmer-owned since 1918, Darigold produces
products that are staples around the Pacific Northwest and the
globe.
And thanks for joining us today.
Our second witness is Christine Bliss, president of the
Coalition of Services Industries.
Our third witness is Ms. Althea Erickson, senior director
of Global Advocacy and Policy of Etsy, Incorporated.
Our fourth witness is Mr. Jason Perdue, president of the
York County, Nebraska Farm Bureau, and he is testifying on
behalf of Mr. Steve Nelson, president of the Nebraska Farm
Bureau.
Mr. Smith, did you have any comments on your fellow state
resident?
Mr. SMITH OF NEBRASKA. Well, I am glad to have a
constituent here today, and I appreciate the accommodation, and
I wish him well. Thank you.
Chairman REICHERT. Finally, our fifth witness is Professor
Susan Helper, Frank Tracy Carlton Professor of Economics from
Case Western Reserve University.
Before recognizing our first witnesses, let me note again
that our time is limited. So you should please limit your
testimony to five minutes, and your written testimony will be
made a part of the record. Members should keep their question
to five minutes.
Mr. Ryan, you are recognized for five minutes.
STATEMENT OF STAN RYAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT,
DARIGOLD, INCORPORATED
Mr. RYAN. Thank you, Chairman Reichert. I appreciate the
opportunity to address all of you today. I am Stan Ryan,
president and CEO of Darigold, based out of Seattle,
Washington. Prior to Darigold, I spent 25 years with Cargill,
living in six different countries around the world, and working
in agribusiness and global trade my entire career.
Darigold is a subsidiary of the Northwest Dairy
Association, which is a cooperative spanning 486 dairy farms
across the Pacific Northwest. It has annual sales ranging
between 2 to $3 billion a year, depending on prevailing milk
prices and the year. We produce over 800 high-quality dairy
products, and sell over 40 percent of those internationally, or
about $1 billion.
Just like the rest of U.S. agriculture, consistent market
access and a level playing field is vital to our prosperity.
Withdrawing from NAFTA would unwind significant progress. Even
a status quo posture risks a setback, as our global competitors
are emboldened and aggressively advancing their own trade
agendas today, as recently seen by the alarming EU-Japan free
trade agreement. We must lean forward into trade.
Over 95 percent of the world's consumers live outside the
U.S., often where it does not make sense to grow many crops.
The U.S., on the other hand, is one of the most competitive and
sustainable agricultural systems in the world. Trade links
these two together. Global consumers get quality products at
better prices, which supports improved global food security.
The U.S., in turn, gets economic prosperity and good jobs.
Trade and U.S. agriculture are a perfect fit.
Our most natural trading partners, of course, in
agriculture are our neighbors. In over 20 years, U.S.
agricultural exports to Mexico and Canada have more than
quadrupled, from 8.9 to $38.6 billion. Roughly 1 out of every
10 planted acres in the U.S. goes to Canada and Mexico.
Looking at dairy, we globally export 15 percent of the U.S.
milk production today, or approximately $5 billion for a nearly
a $4 billion trade surplus. And it is estimated to support
100,000 American jobs. It is a jobs multiplier.
The U.S. dairy industry is a global, low-cost producer with
sustainable resources and practices. We have incredibly
efficient dairy farms, immensely capable dairy farmers, and an
overall agriculture ecosystem in the United States that
sustains our competitiveness.
Mexico, in specific, is a $1.2 billion export market for
U.S. dairy. And it is working quite well, frankly. We have a 73
percent share of Mexican imports. For Darigold, it is our
single largest export destination out of about 20 countries we
export to.
Mexico is also the largest skim milk powder importer in the
world, and export competitors like New Zealand or Europe would
love to grow there. We need to remove any ambiguity or
uncertainty of our commitment to Mexico, reinforce our
relationship, and cement our trade flows.
Canada, on the other hand, is more complex and challenging
for dairy. NAFTA did not open up Canada the way it did Mexico,
and today they maintain tariff rate quotas of up to 200 to 300
percent. Of primary importance today is Canada's new class
seven pricing strategy that just came into effect. It
essentially matches the lowest prices in the world for milk
protein finished products, despite Canada having one of the
world's highest raw milk farm gate prices, all operating under
a state-controlled and state-protected system.
Common sense economics would tell you if it looks and feels
like subsidized dumping, it probably is. This just started, and
it will damage U.S. dairy export shares around the globe. We
request that Congress work with the Administration to repeal
that.
Of longer-term importance with Canada, we urge you to
ensure that the Administration seek dairy access that is duty
free, just like in Mexico, and pursue the same types of
benefits.
In summary, our number-one priority should be to preserve
NAFTA, at a minimum, while fixing the Canadian dairy situation.
Furthermore, we also believe it is imperative to have a strong,
overall agricultural trade policy agenda. We see every day that
our competitors are expanding their markets, while we stand
still at home. Besides NAFTA, we encourage you to engage
countries such as Japan and Vietnam, and establish free trade
agreements there, as well. Thank you.
Chairman REICHERT. Thank you.
[The prepared statement of Mr. Ryan follows:]
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Chairman REICHERT. Ms. Bliss.
STATEMENT OF CHRISTINE BLISS, PRESIDENT, COALITION OF SERVICES
INDUSTRIES
Ms. BLISS. Chairman Reichert, Ranking Member Pascrell,
Members of the Subcommittee, I thank you for the opportunity to
present the views of the Coalition of Services Industries. I
appreciate the opportunity to appear before this Committee and
to present the views of the Coalition of Services Industries on
how best to modernize NAFTA to maximize the gains for American
companies and workers.
I would also like to thank you, Mr. Chairman Reichert, as
well as Congressman Marchant and Congressman Meeks, for your
leadership of the Congressional Services Caucus, and for
kicking off the caucus in the 115th Congress with your letter
to USTR, highlighting the importance of services.
Turning to NAFTA benefits to U.S. services, NAFTA provides
U.S. services companies guaranteed, non-discriminatory market
access to Mexico and Canada, including the ability to provide
services on a cross-border basis; investment opportunities; and
strong investment protections; and the opportunity to compete
for major foreign procurement--government procurement
contracts. NAFTA is responsible for our tremendous services
trade surplus with Mexico and Canada.
NAFTA has also provided substantial government procurement
opportunities for U.S. services firms, which would not
otherwise exist. Almost two-thirds of all Mexican Government
employees are insured by a U.S. services supplier. U.S. firms
also supply pensions, as well as property and casualty
insurance directly to the Mexican Government. By contrast,
Mexican and Canadian participation in the U.S. federal
procurement market is negligible.
On digital trade, an area that I know has been highlighted
this morning in the previous panel, it is important to remember
that it is not just a priority solely for U.S. tech companies,
but for companies across the spectrum of services, from
financial services, media and entertainment, to retail and
logistics. And also to manufacturing--and I would believe in
agriculture, as well--you heard this morning, as well. I
describe this in greater detail in my longer remarks for the
record.
To ensure that these benefits to U.S. services continue,
CSI recommends four overarching principles to govern NAFTA
modernization: first, we must do no harm to NAFTA's existing
benefits, including jobs supported by NAFTA; second, we must
ensure NAFTA modernization is consistent with TPA; third, NAFTA
should remain a trilateral agreement with common North American
rules; and fourth, the process must be transparent and
efficient, to minimize commercial uncertainty and facilitate
trade and investment flows.
I would now like to highlight a number of CSI's proposed
negotiating objectives.
With respect to services and investment market access,
NAFTA modernization should ensure continued use of a negative
list and a ratchet that binds new liberalization and non-
conforming measures. These elements already exist in NAFTA, and
must be preserved.
To ensure that the agreement accommodates market evolution
and technology advances, NAFTA should also continue to cover
any new services, and the U.S. should also reject any effort to
exclude new services.
The U.S. should also oppose any effort to maintain Canada's
cultural carve-out.
On e-commerce, we recommend modernizing NAFTA by including
a comprehensive chapter on e-commerce and digital trade. CSI
supports language in the--that the U.S. proposed in the TSA
negotiations on data flows and forced data localization as a
building block in the e-commerce and financial services chapter
in a NAFTA modernization.
We also recommend provisions to address intermediary
liability, safe harbors relating to third-party content in
certain discreet contexts. Further, modernizing of customs
procedures such as the use of electronic customs forms,
electronic signature and authentication, and secure online
payment are also recommended.
Regarding communications services, the NAFTA
telecommunications chapter should be updated to ensure non-
discriminatory market access, technology choice, and a level
playing field. On financial services, we believe that there
should be parity for investor-state coverage with respect to
breaches of national treatment, MFN, for financial services.
And electronic payment services commitments should also be
covered. We also believe that express delivery services are a
critical area to cover in the agreement.
On trade facilitation, we think there should be ambitious,
high-standard custom policies, and they should be harmonized
across Canada and Mexico, including a raising of the de minimi
threshold for express and postal shipments. We also think
customs procedures should be streamlined and expedited. We also
think current reciprocal access under government procurement
should be preserved.
And finally, on investment, we believe that it is critical
to preserve and build on the existing NAFTA framework, and to
provide the same scope of enforceable investor protections to
all sectors, including financial services.
In conclusion, we thank you for your willingness to engage,
and your knowledge on the issues. And I am happy to answer any
questions from the panel.
Chairman REICHERT. Thank you.
[The prepared statement of Ms. Bliss follows:]
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Chairman REICHERT. Ms. Erickson.
STATEMENT OF ALTHEA ERICKSON, SENIOR DIRECTOR, GLOBAL ADVOCACY
AND POLICY, ETSY, INCORPORATED
Ms. ERICKSON. Thank you, Chairman Reichert, Ranking Member
Pascrell, and Members of the Committee, for inviting me to
speak to you today about opportunities to modernize NAFTA for
the 21st century economy. My name is Althea Erickson, and I
lead global policy at Etsy, an online marketplace where you can
buy handmade and vintage goods from creative entrepreneurs
around the world. Today we host 1.8 million active sellers who,
together, sold $2.8 billion worth of goods, globally, in 2016.
Etsy's creative entrepreneurs aren't the stereotypical
businesses you might imagine, when considering the exporters
who would benefit from global trade agreements. The vast
majority of Etsy sellers are businesses of one, working out of
their homes. Fully 87 percent of our sellers are women, and 28
percent live in rural areas. In many ways, Etsy functions as an
on-ramp to entrepreneurship. For 53 percent of our sellers,
Etsy was the first place they sold their goods online. Nearly a
third of our sellers operate their creative businesses as their
sole occupation. And for the rest, it is an important source of
supplemental income.
Etsy was founded in 2005, 9 years after NAFTA took effect.
Since that time, the Internet has enabled creative
entrepreneurs to use platforms like Etsy to connect with buyers
around the world. Unfortunately, existing trade laws have not
kept up with the growth of global e-commerce and the
opportunities it provides to micro-businesses.
Many Etsy sellers began exporting goods from the moment
they opened their shops. As of March 31, 2017, 32.1 percent of
Etsy sales involved a buyer or a seller outside of the U.S.
Forty-four percent of U.S. Etsy sellers export their goods.
Unfortunately, the U.S. is the only Etsy key market where the
majority of Etsy sellers do not ship internationally. For
example, 88 percent of our Canadian sellers export their goods.
Most independent, creative businesses lack the
infrastructure and information to navigate complicated
international trade rules. Customs and duties vary by country,
and credible information about each country's requirements can
be difficult to find. Packages are often delayed at the border,
or subject to unforseen import taxes that the buyer must pay
before receiving their package. In the face of these
challenges, buyers may reverse transactions or request refunds,
the cost of which the seller often bears.
Historically, trade rules and regulations have enabled
larger--or trade agreements have enabled larger, more
established companies to bring their products to new markets.
However, innovative programs like the Trusted Trader Program or
the Single Window simply aren't relevant to a single person
selling one item to another person in another country. We see
an enormous opportunity to modernize NAFTA to foster digitally-
enabled micro-business exports. By focusing on the needs of our
smallest exporters, we could set new global standards for peer-
to-peer trade around the world.
The single greatest opportunity to support micro-businesses
would be to negotiate a higher de minimi customs exemption with
our trading partners. Thanks to the Trade Facilitation and
Trade Enforcement Act, the U.S. de minimi threshold is now
$800, which eases burdens for U.S. micro-businesses processing
returns and purchasing supplies. However, Canada and Mexico
have some of the lowest de minimi thresholds in the world of
$20 for Canada and, for Mexico, $50 for express and $300 for
postal shipments.
As a result, low-value goods from U.S. exporters often end
up subject to unexpected fees or delays at the border. The
upcoming NAFTA negotiations provided an opportunity to
alleviate this burden that disproportionately impacts U.S.
micro exporters.
Additionally, e-commerce regulations vary widely between
countries. Discrepancies in the categorization of goods, as
well as consumer protection and privacy laws pose a challenge
for individual sellers who must find relevant information on
requirements for each country before shipping an item.
Unlike a traditional retailer who can research rules before
deciding to enter a market, the typical e-commerce seller makes
her product available to buyers worldwide, and begins
researching the rules after the product is sold, when she is
under considerable pressure to mail the goods quickly.
Navigating the various Web sites and interfaces to find
credible information is an administrative struggle for an Etsy
seller who is hungry to comply with the rules. Currently,
customs brokers have large exporters navigate these
complexities, but a business of one exporting a $30 item simply
doesn't have the means to engage those services.
We urge negotiators to create a far smaller, simpler set of
harmonized tariff codes for low-value goods, and make
information about all important export rules easy for third-
party services to access, for example, through an open API.
We believe a modernized NAFTA agreement should include a
small and micro-business chapter. Although TPP included such a
chapter, the contents focused on opportunities to educate small
business, rather than address the substantial barriers these
exporters face to trade, such as an increased universal de
minimi customs exemption.
Such a chapter might also enable negotiators to align
around a shared definition of micro-business, paving the way
for future programs that specifically address this
constituency's needs.
Finally, enabling digital trade requires preserving the
fundamental protections that enable intermediaries such as Etsy
to operate in a global marketplace. In particular, we hope any
new NAFTA agreement will preserve the intermediary liability
protections and balanced approach to copyright that underpin
online innovation in the U.S.
The changes we seek for our sellers may seem small, but
they would have a huge impact on e-commerce and micro-
businesses. We are confident that a modernized NAFTA can help
Etsy sellers succeed in a global marketplace, and set the
standard for future trade agreements.
Thank you for the opportunity to address you today.
Chairman REICHERT. Thank you.
[The prepared statement of Ms. Erickson follows:]
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Chairman REICHERT. Mr. Perdue.
STATEMENT OF JASON PERDUE, PRESIDENT OF THE YORK COUNTY,
NEBRASKA FARM BUREAU, TESTIFYING ON BEHALF OF STEVE NELSON,
PRESIDENT, NEBRASKA FARM BUREAU
Mr. PERDUE. Chairman Reichert, Ranking Member Pascrell, and
Committee, thank you for the opportunity to be here today. My
name is Jason Perdue, and I am a row crop farmer, cattle and
poultry producer from York, Nebraska. I am testifying today in
place of Steve Nelson, who had an unexpected family emergency
yesterday morning.
I am currently the president of the York County Farm
Bureau, and a member of the Nebraska Farm Bureau Young Farmers
and Ranchers Committee, and I am testifying today on behalf of
the American Farm Bureau Federation.
NAFTA has been beneficial for farmers, ranchers, and
associated businesses all across the United States, Canada, and
Mexico. For more than two decades, U.S. farmers and ranchers
have benefitted from an increase in annual exports to Mexico
and Canada from 8.9 billion in 1993 to 38.1 billion in 2016.
Nebraska alone exported more than 2.4 billion worth of
products to Mexico and Canada in 2016, with agricultural
products making up 1.5 billion, more than half of that total.
There are reasons to modernize NAFTA from agriculture's
perspective. While the sector as a whole has been--has had a
substantial benefit, there are individual commodities that have
faced challenges. With Mexico, tomatoes and other fruits,
vegetables, and sugar all have experienced issues. There are
also challenges for dairy, specialty and row crops, wheat,
lumber, and wine with Canada.
We believe negotiations should eliminate or reduce long-
standing Canadian tariff barriers to dairy, poultry and eggs,
as well as the relatively recent barriers to ultra-filtered
milk exports. U.S. agricultural exports to Canada would grow if
greater competition were allowed.
Remedies for our produce growers need to be strengthened. A
timely trade dispute resolution process should be added that
takes into account the perishability, seasonality, and regional
production of fruit, vegetable, and horticultural products.
There are several areas where the NAFTA agreements could be
modernized to improve trade in agricultural goods. It is
critical that the modernization effort should recognize and
build upon the strong gains achieved by the U.S. agriculture
through tariff eliminations, regulatory improvements, and the
development of integrated supply chains that have arisen due to
the NAFTA agreement.
Trade agreements also provide the highest standard of trade
rules, allowing the United States and its partner to be global
leaders. We support science-based terms of trade and dispute
resolution that will benefit the U.S. food and agriculture
industry. We also recommend some additional and significant
provisions on geographical indicators in biotechnology that
would ensure that the revised NAFTA agreement could be used as
a model for future trade agreements the United States may
enter.
NAFTA must preserve U.S. market access opportunities for
common-name products. The misuse of GI's is a constant and
significant threat to maintaining and growing sales of high-
value U.S. products in the United States within the markets of
our NAFTA partners and in markets, worldwide.
We support adding in a new chapter on biotechnology to the
NAFTA. The U.S. Government should, one, enter a mutual
recognition agreement on the safety determination of biotech
crops intended for food and feed; and two, develop a consistent
approach to managing low-level presence of products that have
undergone a complete safety assessment and are approved for use
in third countries, but not yet approved by a NAFTA member.
We also oppose erecting new barriers to agriculture trade
in NAFTA, including adding mandatory country of origin labeling
for beef and pork products.
U.S. agriculture depends upon a growing, international
economy that provides opportunities for farmers and ranchers to
sell their products. Modernization of NAFTA will help expand
market opportunities through the U.S. and Nebraska agriculture.
Thank you for the opportunity to testify today.
Chairman REICHERT. Thank you.
[The prepared statement of Mr. Perdue testifying on behalf
of Steve Nelson follows:]
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Chairman REICHERT. Ms. Helper.
STATEMENT OF SUSAN HELPER, FRANK TRACY CARLTON PROFESSOR OF
ECONOMICS, CASE WESTERN RESERVE UNIVERSITY
Ms. HELPER. Chairman Reichert, Ranking Member Pascrell,
Members of the Committee, thank you for the opportunity to
testify about NAFTA today.
As an economist focusing on supply chains, I have long
followed this issue. Twenty years ago I visited plants making
automotive wiring harnesses in Warren, Ohio. At that time,
senior production workers earned middle-class union wages,
owning houses and cars. I also visited their counterparts in
Mexico, eager young women who lived in tarpaper shacks, using
the plant's bathrooms to apply their makeup because their own
homes lacked running water.
I am inspired by the hard-working people I met in both
places, people who coax machines into producing tiny, perfect,
plastic connectors, people who made sure that these connectors
were so flawlessly joined to wiring that our cars rarely suffer
electrical issues.
Today the plants in Warren are bulldozed or vacant, and
middle-class jobs are largely gone. Mexican workers still have
jobs, but their pay has not risen since NAFTA was signed in
1994. Is this the best we can do? Can't the power of global
trade be leveraged to benefit everyone?
Appropriately designed, trade deals can set rules so that
everyone shares in the gains. Trade deals should ensure that
competition is based on technology and innovation, and not on
other nations' willingness to exploit workers or the
environment.
As other witnesses have discussed, key ways that NAFTA
could move toward this goal include stronger protections for
workers and the environment, and an end to special courts for
investors. I would like to discuss an additional way:
strengthening supply chains.
Some arguments against changing NAFTA are based on fear
that changes would weaken U.S. supply chains. However, these
arguments assume that supply chains are ideal as they are. They
also assume that Mexican and Canadian supply chains complement
U.S. supply chains, and do not substitute for them.
But in some cases, we have actually seen that foreign
supply chains do substitute for U.S. suppliers. For example, in
electronics, U.S. personal computer manufacturers started by
off-shoring the assembly of printed circuit boards. Then they
moved complete product assembly overseas. Then they moved
supply chain management. And finally, design and innovation.
To prevent this atrophy of capabilities, it is important to
identify clusters of industries that are at a tipping point,
and bolster these ecosystems.
For example, it may be that North American auto parts
cluster is approaching such a tipping point. Since NAFTA came
into force in 1994, Canada has lost 4 auto assembly plants, the
U.S. has lost 10, even as Mexico has gained 8 plants.
As more auto assembly occurs in Mexico, more suppliers will
find that costs of shipping and of coordinating engineering
changes fall as critical mass is reached. These firms may thus
find it profitable to relocate to Mexico from the U.S. As each
of these firms moves, it creates additional reasons for other
firms in the network to leave, as well.
The North American industry could benefit from careful
examination and management of these trends, assurances that
changes are based on fair competition and promotion of
investment and fuel efficient, innovative vehicles.
Thus, a concern for U.S. supply chains should not preclude
renegotiation of NAFTA. Instead, U.S. supply chains would
greatly benefit from actions such as, first, better data and
analysis; second, convening stakeholders, including business,
unions, consumers, and environmental groups, across the U.S.,
Mexico, and Canada to develop industry-specific strategies;
third, it is important to adopt non-trade policies to
strengthen supply chains within the U.S.
U.S. manufacturing supply chains are characterized by a
heavy presence of small, isolated firms. Forty percent of
manufacturing workers are in firms of fewer than 500 employees.
And these firms struggle to do the innovation on which most
U.S. comparative advantage is based. We could strengthen U.S.
supply chains by making more robust efforts to train workers
and managers; by including in sourcing decisions the benefits
of supplier innovation, not just of cheap labor; by promoting
collaboration within supply chains; and by continuing to fund
the manufacturing extension partnership.
The fourth issue, I think, is to review NAFTA rules of
origin. But I would note that, to the extent that the
production moves from low-wage nations, production may well go
to Mexico, not the U.S. And thus, the impact of this policy on
U.S. employment and wages depends critically on having policies
that--suggested above on labor and environmental rights.
A thoughtful renegotiation of NAFTA could make good on the
promise of a prosperous, innovative, sustainable North America,
in particular by strengthening its supply chains.
[The prepared statement of Ms. Helper follows:]
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Chairman REICHERT. Thank you. Thank you all for your
testimony. Now we will ask you a few questions, if you don't
mind.
Mr. Ryan, thanks for being here today. As you said,
Darigold, located in the State of Washington, and especially
important, located in Issaquah, Washington, which happens to be
in the eighth district of Washington, which is the district
that I represent. So whatever you said is absolutely correct.
[Laughter.]
Chairman REICHERT. One of the things that I listened to in
your testimony, and agree with and am concerned about, is
Canada's national ingredients pricing strategy. So that
includes the class six and now the class even pricing scheme,
With the importance of trade to our state and in your industry,
I completely agree this practice that effectively blocks our
exports to Canada and negatively impacts your sales in other
markets has to end.
So we will continue to work with the Administration to seek
additional commitments from Canada with respect to the market
access for dairy products. As Mr. Perdue also testified to in
his comments, we want to end these discriminatory practices.
I also agree with your concern about the growing use of
geographical indications as a form of protectionism, and the
need for strong rules to prevent this. We also need additional
rules to ensure that our trading partners' sanitary and
phytosanitary determinations are based on sound science.
So, I hope that you could please speak to the opportunities
that you see for your industry in an upgraded NAFTA, and
explain how these changes would impact Darigold's sales with
NAFTA and other markets.
Mr. RYAN. Well, first of all, I think it all stems from the
competitiveness of the U.S. You know, with more market access--
you know, to Canada, for example--you will just simply have a
growing U.S. industry.
I think, secondarily, repealing the class seven pricing
strategy will essentially reverse what is going to amount to
be--as a market share move from the United States to Canada, by
virtue of the policy they have, and stemming that. The U.S.
dairy industry will be larger. The economy will be bigger. Jobs
will be bigger, you know, without the class seven than with it,
which I believe is strongly in conflict with the WTO.
From a Mexico point of view, Mexico is a giant dairy import
country in the world [sic]. And there is a lot of ambiguity out
there. Europe--New Zealand, specific--would love to develop a
greater share of the Mexican market. So reinforcing our
situation is critical to just stay where we are, and where we
are is a very good, good situation. But it is at risk, given
the current environment.
Chairman REICHERT. I want to give you the opportunity to
comment on any other of the issues or concerns that you heard
expressed today that might have struck a note with you as far
as border crossings, technology, anything there that you see
that could help or benefit?
And anything specifically, other than the dairy issue with
Canada, that you would like to mention that maybe--that you see
as a benefit that we could add to and change and update NAFTA?
Mr. RYAN. Yes. Chairman Reichert, I think in your opening
comments you said that NAFTA can serve as a template for things
we can use in other places in the world. And I think in dairy,
that is completely appropriate. At the end of the day, the
world has--people and productive land are not all in the same
spot. Global trade brings that together. It is good for global
security and, because we are in one of the most competitive
farming, land-rich, sustainable-resource, rainfed parts of the
world, we can be a giant supplier to that, and grow the U.S.
economy and jobs quite a bit.
Dairy, in specific, is tremendously affordable protein and
nutritious, and on trend from all aspects of the nutrition
spectrum. And so, the global opportunity to grow the U.S. dairy
business is extremely large, not only for Darigold, but for the
entire U.S. dairy industry. Other bilaterals, going back to
multilateral platforms, different ways--a lot of the things
that were done in TPP would be essential for all of the U.S.
agriculture, I believe, as well as dairy.
And other countries are on the move. I mentioned in my
comments the recent EU-Japan free trade agreement, which is--
essentially did about what we were going to do in--for U.S. in
our own TPP, and sort of one-upped us, if you will. This is a
big setback. Japan is a very natural trading partner, and it
sets a precedent for what takes place in other places.
We have an environment where there is a--sort of a window
of opportunity created for our export competitors around the
world to go forward. And I would urge everybody to jump into
that void and advance U.S. interests.
Chairman REICHERT. Great, thank you.
Mr. Pascrell.
Mr. PASCRELL. Mr. Chairman, thank you. And I want to thank
the panelists today. All excellent.
Ms. Erickson, I paid very close attention to your
testimony. And as senior director of global policy for Etsy, I
want to ask you this question about empowering women
entrepreneurs.
I am impressed with the way that Etsy--is that correct--has
empowered women to start their own businesses and sell products
over the Internet. And you said in your testimony that almost a
third of the sales on Etsy come from outside the United States.
Am I correct?
Ms. ERICKSON. It is about a third of sales involve either a
seller or a buyer outside of the United States.
Mr. PASCRELL. Now, you mentioned that our trade laws
haven't kept up with the changes in technology. So how can
trade agreements help facilitate exports on behalf of small
businesses like those that you use on your site?
Ms. ERICKSON. Absolutely. So I think a lot of it is focused
on the basic trade facilitation components of trade agreements.
So, as I said in my testimony, de minimi customs exemptions
would solve most of these challenges for Etsy sellers. The
average good people are sending is not very expensive. And so
that would eliminate much of the friction.
I think, secondarily, just simplifying the rules. These are
businesses of one, and they are hungry to comply with the
rules, but it rapidly becomes too difficult for a business of
one to figure out what the rules are that apply to their
product in a particular country.
I think we also can take advantage of technology to make
this easier. So a lot of trade facilitation focuses on, for
example, putting rules online on individual Web sites. We would
encourage countries to go even further in making those
standards available in an open, common format that technology
companies like Etsy could easily access to make that
information available in the moment of the transaction, so our
sellers don't have to go digging through different countries'
Web sites to find them.
So, for us, it is really about simplification.
Mr. PASCRELL. Thank you.
Professor Helper, thank you so much for your testimony.
Democrats have consistently been vocal, particularly over the
last 20 years, about the severe erosion of manufacturing
operations and jobs in our own country. People who don't quite
agree with that debate, and point out advancements in
technology, in automation, as policy-neutral explanations for
what is going on.
Many of us have seen entire factories and entire factory
towns leave, shut down. So is there any doubt in your mind, as
an economist and an expert in manufacturing policy, that the
incentives created by our trade policies have played a
significant role in that demise of manufacturing jobs?
Ms. HELPER. No, there is no doubt in my mind. There has
been a significant change in the economics profession's view on
this question.
Mr. PASCRELL. Could you explain that?
Ms. HELPER. There is a very important paper by David Autor,
chair of the MIT economics department, looking at the impact of
free trade and the China entry into WTO, and finding that this
change alone accounted for about a quarter of manufacturing job
loss.
There is a recent paper by Hackobyan and McLaren that use
this same methodology, apply it to NAFTA, and find a slower
wage growth, significantly slower wage growth, across the
country in industries that were primarily affected by the
tariff changes in NAFTA. And these changes affect not just, you
know, a small number of workers in tariff-affected industries.
Mr. PASCRELL. Right.
Ms. HELPER. They spill over to affect the service workers--
--
Mr. PASCRELL. So not only are we losing the jobs, but those
remaining are affected in a negative way, in terms of dollar
growth, wage growth, as----
Ms. HELPER. It comes back to bargaining power----
Mr. PASCRELL. Right.
Ms. HELPER [continuing]. That when you are competing with
dollar-an-hour labor, and also when you are competing with the
lack of demand that people earning a dollar-an-hour can bring
to the marketplace, what happens is that businesses move toward
strategies that involve lower wages and less innovation,
because that is the way they compete.
Mr. PASCRELL. Thank you very much. I yield, Mr. Chairman.
Chairman REICHERT. Thank you.
Ms. Jenkins.
Ms. JENKINS. Thank you, Mr. Chairman, and thank you all for
being here.
Mr. Perdue, as you are a producer from York County,
Nebraska, an area very similar to and not terribly far across
the border from my eastern Kansas district, I imagine you are,
no doubt, familiar with the challenges that the agriculture
community in rural America is currently facing. Part of that is
due, in part, to low commodity prices, seasonal national
disasters, and countless other pressures.
Throughout this year and last, producers throughout Kansas
in my district have visited with me about these challenges, and
they have really stressed the incredible importance our trade
deals are to their bottom lines.
In light of the current slump in which the ag sector
currently finds itself, how important is NAFTA to your own
operation and to your neighbor's farms? And what would be the
effect that a withdrawal from NAFTA would have on farmers'
livelihoods, whether they be in Nebraska or an hour south, in
Kansas?
Mr. PERDUE. Well, thank you. The first answer I will go
with is for the second question, and it would obviously mean
lower prices to the producers. If we had any impediments to the
trade we are currently doing in the export market, we would
obviously have a build-up of supply, and it would result in a
reduced price. And then you would quickly feel that ripple
effect through the communities that are based so much on
agriculture.
So, I wish I had the exact numbers. I know there are
studies out there. And I would be happy to get those to you in
writing later. But there have been analyses to show what the
export markets bring to every bushel of corn, every bushel of
soybeans that a producer receives, and then take that into the
livestock market, as well. And it is a very significant amount
of income coming back to the communities from these exports.
Ms. JENKINS. Thank you, Mr. Perdue.
Mr. Chairman, I yield back.
Chairman REICHERT. Mr. Paulsen.
Mr. PAULSEN. Thank you, Mr. Chairman. And also, thanks for
the other panel for sticking around. I will start with Ms.
Bliss.
You mentioned earlier that we have had a consistent trade
surplus in the area of services, both with Mexico and with
Canada. And there is widespread agreement, I think from folks
here, that we do need to modernize NAFTA, or have a chapter now
on e-commerce and digital trade, and have that be added.
Can you just talk a little bit more about what the
consequences would be for your members, or for service
providers, if digital trade provisions were not included in a
modernized NAFTA?
Ms. BLISS. Thank you, Congressman. I think they would be
adverse. And for one thing, let me just say that I think my
members--and I know a large part of the business community, not
just the tech center, believe that NAFTA really presents an
opportunity to create a real template and a very high standard
set of disciplines with respect to e-commerce and digital
trade.
So, if that opportunity is missed, I think the consequences
are beyond just NAFTA, but more broadly, because certainly the
topic of digital trade and e-commerce is being discussed in a
number of forums, in a number of trade agreements with respect
to the EU and Japan. There was a decision to kick the can down
the road, and so there won't be any disciplines in that
agreement. There is a lot of discussion in the WTO among
developing countries and others, some who are strongly
resisting a strong standard in that area.
So, I think--just point one I would make is it would be a
tremendous missed opportunity to not set high standards. Two, I
think has previously discussed, the extent of restrictions on
data flows, and data localization in particular, are,
unfortunately, increasing globally. And they are--have not been
as significant a problem with respect to Canada and Mexico--
more so for Canada than in Mexico.
So I think that if, again, the agreement did not set a high
standard, it would be a missed opportunity, and it could send
the wrong signal, in terms of encouraging those kinds of
policies.
And then, lastly, just let me say I think if you look at
the trade surplus that has been generated broadly for the
United States of about 262 billion, about 159 billion of that
is accounted for by digitally-enabled services. So it is a huge
area in which we are competitive, in which we are generating a
big advantage for the United States. So if we don't have those
kinds of rules to undergird and to protect that advantage, we
stand to lose a great deal.
But I think it is--I would emphasize that it is really the
last point, that we want to set an example, and we want to
discourage kinds of policies that discourage data flows and
mandate-forced data localized.
Mr. PAULSEN. Can you also maybe mention what the
implications would be for, you know, service providers or some
of your members if a foreign government decided to levy customs
duties on data?
Ms. BLISS. Again, it would certainly--the immediate effect
would be to increase the cost of business----
Mr. PAULSEN. Sure.
Ms. BLISS [continuing]. Which is always adverse, and
makes--would make the U.S. less competitive.
Two, I think it would also set a very bad precedent,
because I know there are developing countries that are looking
very actively at doing precisely that, and seeing it as a
potential source of revenue. So I think it would set a very bad
precedent, globally.
Mr. PAULSEN. Thank you, Mr. Chairman, yield back.
Chairman REICHERT. Mr. Levin.
Mr. LEVIN. Well, thank you. I mean this panel, again, I
think, illustrates the challenge. Why we find it so difficult
for us to listen to all of you, and instead just listen to some
of you.
Ms. Bliss, you have outlined the need to have high
standards in services, and I have been active in this,
including the WTO, as well as data flows and others.
Ms. Helper essentially outlines the need for us to have
high standards in terms of worker rights and the environment.
But we pick and choose. And the challenge for any renegotiation
of NAFTA is to pay attention to the need for standards across
the board.
And, Ms. Helper, you outline, I think so clearly, the need
for us to do that in terms of labor standards, and you focus on
suppliers. It is interesting how little work has been done,
including by economists, because, without naming names, I know,
for example, of one very large supplier--it is an American
supplier--that I think has about 80,000 jobs; 70,000 of them
are in Mexico.
And so, when there is a reaction by the public to NAFTA, I
think we need to understand the impact of loss of jobs in
critical areas like industry, while acknowledging there has
been an increase in jobs in other areas, including the service
industries.
And Ms. Helper, you mentioned the recent study. And I just
saw the abstract. You have to pay to get the whole thing. So I
guess I will pay to get the whole thing. But its conclusion is
we find evidence of both effects, dramatically lowering wage
growth for blue-collar workers in the most effective industries
and localities, and it goes on to say even for service-sector
workers in affected localities whose jobs do not compete with
imports.
And so, everybody has a stake in addressing this issue of
the attraction of jobs from the United States, in this case to
Mexico, by the policy of Mexico essentially to be a very low-
cost economy, when it comes to industry, and to make sure that
wages are suppressed, including because workers have no ability
to be represented in the workplace.
In industry, in all cases except mining--maybe one or two
others--the contracts are totally sham agreements, often
reached by a union, so-called, that is attached to the
government and the employer, before a single employee has been
employed.
So, Ms. Helper, you want to just close with some fervent
expression why we need to address this? You are an economist,
but you can get fervent.
Ms. HELPER. Yes. And I am also a business school professor.
Mr. LEVIN. Are you? Good.
Ms. HELPER. So I would be remiss to not say that these high
standards in the labor area can actually help business, as
well.
And I think Mr. Linebarger's testimony about Cummins really
shows this, that if he's--innovation in his plants in the U.S.
is actually helped when there are higher wages in Mexico, both
because there are more demand for his products in Mexico, and
also because competitors of his that don't use the high
standards that he uses can't get away with the poor practices.
So I think that this is a practice that doesn't benefit
just workers, but also innovative businesses, and also
consumers.
Mr. LEVIN. Thank you.
Thank you, Mr. Chairman.
Chairman REICHERT. Thank you.
Mr. Kelly.
Mr. KELLY. Thank you, Chairman, and thank you all for being
here. I know you are very busy in your lives, and to take time
out to come here is really critical to us.
But all of you, we are here for the same reason today, and
that is to talk about--specific about NAFTA and where we are
with NAFTA today, as opposed to when the NAFTA was initiated,
and what you see the improvements could be. Is there anybody at
all on the panel that says we just shouldn't do anything?
I know do no harm, I get that part. But is there anything
else that you see? Because you are all pretty articulate in
what it is that you think the opportunities are, and where
maybe we aren't looking that we should be looking in today's
market, as opposed to 23 years ago.
Mr. Ryan, and good to have another Domer in the room--by
the way, that is Notre Dame, for you folks who don't understand
where we are coming from, the Golden Dome.
Mr. RYAN. Go Irish.
Mr. KELLY. Yes, Go Irish is right.
Mr. RYAN. You know, I am struck in that we are talking
about NAFTA, but there is dozens and dozens and dozens of
countries around the world, and trade is an issue of
everywhere. Food and agriculture, again, it is a--there is
dozens and dozens of countries who are net importers of food
and structurally always will be, and they are growing. And we
can be a large net exporter. So it is a boom industry.
I believe that the way we treat this NAFTA negotiation is
an opportunity for us to establish ourselves as an extremely
reliable trade partner who will always be there and always work
to improve. And some of the environment brings that into
question, which is simply arming the trade negotiators from our
competitor countries to open doors against us.
So I think there is the substance of what you get out of
NAFTA, do no harm--clearly, improve a number of things, clearly
open some more doors with Canada, specific, a number of
industries--dairy and a few others that you mentioned--but in
the eyes of Vietnam, in the eyes of the Philippines, in the
eyes of China, everywhere else, lay the groundwork to open up
the next doors.
I believe, Mr. Smith, you said there was over 95 percent of
the consumers are outside of the United States. And billions of
them are graduating up into the lower levels of middle class,
if you will, by an income definition and are ripe consumers for
U.S. products.
So I think the reliability of a trade partner, which has
been brought into question, is also at stake right now.
Mr. KELLY. Okay. Ms. Bliss.
Ms. BLISS. Thank you, Congressman. Just elaborating on a
couple of points, one is that I think it is worth clarifying
that when we talk about promoting growth in the American
economy, we are very focused on the 40 percent of services that
are tradeable. And those jobs tend to be primarily in
professional services, where wages tend to be considerably
higher.
And so, we are talking about promotion of the creation of
good, high-skilled, high-paying jobs, and I think that is a
very important point to make.
And two, in promoting that, we do not ignore the fact that
there is a need for significant worker education and training,
which--many of our member companies have their own programs
that are dedicated to that. So just by point of clarification,
in terms of benefits that we see coming forward, we think NAFTA
is in that regard.
And the second thing I would say is that the investment
protections that have been talked about today are very
important across the board, certainly to services companies,
because when services companies invest abroad, they generally
do so because otherwise they couldn't capture market share.
They have to be on the ground and have a local commercial
presence to supply their service.
So it is not off-shoring jobs from the United States, it is
not that there are jobs that would otherwise exist in the
United States. If anything, it is a job creator, and a creator
of revenues that then come back to the United States.
Mr. KELLY. Ms. Erickson.
Ms. ERICKSON. Yes, I mean, for us it really is about the
opportunity for NAFTA to be the model trade agreement of the
future that really drives us into the 21st century.
And at its base it is about three things. Certainly,
simplifying the process for micro-businesses to ship their
goods across borders.
Secondarily, I think the digital trade components are
extremely important to enable the platforms that enable those
micro-businesses to grow and expand. And we are seeing many
protectionist efforts to push back against those digital
platforms like Etsy.
And then, you know, we are very supportive of strong labor
and environmental protections, as well. And so, for us, NAFTA
represents an opportunity to modernize on all of those fronts.
Mr. KELLY. Thank you.
Mr. Perdue.
Mr. PERDUE. I would just say that NAFTA has been good to
agriculture, and we see NAFTA modernization as a template for
market access and rules for future negotiations, and to improve
agriculture trade with Japan and other Asia-Pacific countries
in the future.
Ms. HELPER. It falls to me, as the data wonk to talk about
data. We have a data system that is set up for a very
different, older world in which finished goods are largely what
is exported. In fact, we have a lot of supply chains, we have a
lot of related-party trade. In my written testimony I have some
ideas about how we can use customs data. I think there can also
be cooperation across the three countries to improve our
understanding of how supply chains actually work to make supply
chains less substitutes for each other and more complements.
So I think the--in the agreement there can be cooperation,
and then I think it would be helpful to have a little bit more
budget for these very important data issues.
Mr. KELLY. Okay. Thank you all for being here, and thanks
for your contributions. We appreciate it. Thank you, I yield
back.
Chairman REICHERT. Mr. Meehan.
Mr. MEEHAN. Thank you, Mr. Chairman. I thank the panel for
their insights. And I have been educated in a number of the
elements of the testimony.
But Ms. Erickson, one that I am intrigued by was something
that I don't think you have had a good-enough opportunity to
explain. And I know under Etsy there is--there are some
standards that have been changed, de minimi standards, which
the United States seems to have moved towards a more modern
approach to that issue. Also mindful of the opportunities that
have been created by global access to the Internet.
And as you have identified, small business people--often
times, women entrepreneurs that manufacture something or create
some kind of a good that is very, very unique. And the kind
of--while it may be a niche market, it is able to be accessed
anywhere. And therefore, everybody has a chance to shop at that
store.
And yet there seems to be barriers that have been put in
place. Can you explain what de minimi means, how it influences
the ability for small businesses like those you are talking
about? And give me the example. I mean Canada and Mexico have
taken different standards, but you identified a statistic, if I
recollect correctly, that Canada's exports globally from
similarly-situated small businesses are significantly higher
than those from the United States. Why is that, and what do we
need to do to get that right?
Ms. ERICKSON. Absolutely. So the de minimi issue for us is
huge, and it is basically the de minimi customs exemption is
the value under which goods imported into a country are not
subject to customs and duties and those processes.
And so, if a good falls below that threshold, then it
basically sails through, and you can ship it from your home to
somebody else's home without friction. In the U.S., we recently
increased our de minimi customs exemption to $800, meaning any
item sent into the U.S., is it subject to those fees? That
means it is very--most Etsy--goods from Etsy sellers, it is
pretty easy to import into the U.S.
However, in Canada in particular, the de minimi customs
exemption is just 20 Canadian dollars, which is actually less
than 20 U.S. dollars. And so that means that most goods that
U.S. Etsy sellers are shipping into Canada do get stuck in
customs. It takes longer for the item to get there. The buyer
may have to pay import fees that they don't expect. So that
creates friction, that transaction. It means that often a buyer
will just send the item back, not pick it up, what have you.
So, for us, increasing those thresholds really eliminates
the challenge of having to figure out what the rules are,
because the item just goes through.
The statistics I gave you were about Etsy sellers in
particular. And so, yes, Canadian Etsy sellers do ship quite a
bit more internationally than U.S. Etsy sellers. That is, in
part, probably due to the de minimi customs exemptions, and
part due to the fact that our market in the U.S. is quite a bit
larger with buyers and sellers.
Mr. MEEHAN. What justification would Mexico or Canada give
for having a lower number? How do they defend it?
Ms. ERICKSON. I mean, I--you know, I can't speak for the
Canadian or Mexican Government, but often it is a desire to
protect local industries.
Mr. MEEHAN. Well, I thank you, and I am hoping we can
develop the kinds of policies that continue to encourage those
global access.
Ms. Bliss, you have also talked a lot about trade and
services and how services themselves are entities that we
export and create jobs here at home, but not exclusively. Those
trade and services also end up supporting other kinds of
things, like manufacturing and agriculture, some of the issues
that we are dealing with on--across the border.
I have an awful lot of--Michael and I both have dairy in
our districts, and we face issues with export there. How do the
trade services actually enhance the ability for manufactured
goods or dairy goods or other kinds of farm goods to also have
enhanced access to markets?
Ms. BLISS. Thank you, Congressman. And I certainly
appreciate your earlier remarks in this regard, because it is
an area that CSI has really been focused on, because we
understand that this Administration is very concerned, in
particular, about the manufacturing sector.
So one of the things that we have been doing is doing some
work and research about the role of services in enhancing the
competitiveness of manufacturing. And it is actually quite
considerable. Anywhere from 25 to 49 percent of the value of
the input in manufacturing is actually services. And if you
look at the auto sector, it is roughly about 50 percent.
And also, in terms of jobs, the--it is, again, a range of
anywhere from 25 to 60 percent, depending on the particular
product that is being manufactured.
But to your point about how does it promote
competitiveness, there are various ways along the chain,
starting from the initiation of the production process. And it
may be that it is an element of technology that has enhanced
the production process itself. It may be that there is a
technician, a service supplier that is there, that is
implanting a sensor in the product.
I think that might have been an example that you used, or a
previous witness might have even used, when they are ultimately
telematics. I think the Cummins witness referred to that. So
there is a sensor implanted, and then there is a service
supplier that is then reading the big data that is then
generated, once that sensor is employed. And one perfect
example of that are Boeing engines that have sensors to monitor
their safety and operation.
Mr. MEEHAN. I will look forward to your research in that
space.
Thank you, Mr. Chairman, I yield back.
Chairman REICHERT. Thank you. And thank you for your
answer.
Mr. Holding.
Mr. HOLDING. Thank you, Mr. Chairman. I am going to ask
kind of a detailed question, Mr. Perdue, having to do with
sanitary and phytosanitary measures.
So I believe one of the most important negotiating
objectives in TPA is--we put in there is to obtain enforceable
WTO plus SPS obligations to hold other countries accountable
for using biased and discriminatory standards to justify
locking out U.S. agricultural products.
And this can be valuable in the Canadian and Mexican
markets, but these negotiations also are important to set high
standards that we can use in future trade agreements with other
countries.
So, Mr. Perdue, I would like to know if you have some
thoughts about would enforceable, high-standard, SPS
commitments be valuable to the farmers and ranchers that you
represent? And accordingly, other farmers and ranchers
throughout the United States?
Mr. PERDUE. In regards to that, the SPS would be a benefit
to have the science-based regulations, as well as enforcement
with Mexico, especially in the fruits and veggies. That is not
my expert matter, but if we could have, you know, the
enforcement of the regulations, I think we have heard that that
is the important piece throughout today's testimony.
Mr. HOLDING. Good. Thank you very much.
Mr. Chairman, I yield back.
Chairman REICHERT. Mr. Davis.
Mr. DAVIS. Thank you, Mr. Chairman. And I also want to
thank our witnesses for their indulgence and for being here
with us.
I certainly agree that globalization is a fact of life. And
we must be strategically prepared to market successfully
whatever products, whatever businesses that we have to other
countries. And I also agree that our taxing policies have to be
such that they are helpful and facilitative.
I agree that NAFTA has been good to agriculture. And, of
course, I come from a large, urban area. And people often ask
me why I have so much concern about agriculture. One is that
the U.S. agriculture sector, including food manufacturers, is
deeply concerned about the potential erosion of benefits under
NAFTA for an obvious reason: our farm and food sector exports
more products to the world than we import from the world. And,
of course, agriculture continues to produce and generate
surplus with the rest of the world.
Unfortunately, there are many food processors and candy
makers in the area that I come from who cannot purchase sugar
on the global market, and they have to purchase this domestic
sugar. And we are allowing more sugar imports from Mexico and
Canada and other places, which drives the cost of sugar up for
our candy makers and food processors, which make them less
competitive with others, other candy makers, for example.
We have had several candy companies to actually move
outside, or move away from Chicago, move away from the area
because they just could not successfully compete. And so that
is a concern that they have that is also a concern that I have.
I know that NAFTA has produced winners and losers, any way
we cut it, no matter what it is that we might say, no matter
how we rationalize it. We know that there have been losers--
that is, industries, products. I can walk down the street and
see vacant lots where there used to be garment makers that no
longer exist in the area.
Dr. Helper, I wanted to ask you. How do you think we can
try and assure that we can balance the scales a little bit
more, in terms of winners-winners, as opposed to winners-
losers?
Ms. HELPER. Yes. I think the debate around NAFTA is often--
as Chairman--Ranking Member Pascrell said, between sort of pro-
free-trade people and isolationists. And I would challenge
that.
I mean I think if it was really free trade, NAFTA wouldn't
need to be 2,000 pages long. And most of those 2,000 pages are
actually protections for people who are--already have quite a
lot of bargaining power. So we have the special courts for
investors, we have a great deal of intellectual property
rights, and very little protections for workers and
environment. So, I think changing that, as has been discussed,
would be really helpful.
I think a second point, your sugar example, is also a
supply chain example in the sense of if you protect part of a
supply chain and not others--so you protect--or there is high
tariffs on sugar, but not on the candy, you can run into
trouble. And you can also see this, you know, where tariffs are
very different on an upstream producer, versus a downstream
producer. And so I think it is another reason why it is very
important to think about supply chains, as a whole, so that, in
our efforts to help one industry, we don't hurt other
industries.
I guess one last point. I think I would say that, you know,
often we think about high-tech industries and low-tech
industries. And we often think, oh, textiles, we can't possibly
compete in textiles. Well, there is research going on at MIT,
for example, saying textiles could be the new software. We
could actually have embedded sensors in our clothing. If we
have no clothing industry, it is going to be hard for us to
take advantage of that market.
So, I think thinking about how do we compete in these
innovative, high-road ways, and how do we build that into our
trade agreements is a really important agenda, and there is
some great opportunity for us, going forward.
Mr. DAVIS. Thank you for your indulgence, Mr. Chairman.
Chairman REICHERT. You are welcome, Mr. Davis.
Mr. Kind.
Mr. KIND. Thank you, Mr. Chairman. I apologize for having
to step out a little bit, but I really do appreciate the
panel's testimony here today, your written and verbal. And I
think it is important that we continue to have these
conversations of where trade 2.0 should look like, and where we
go from here.
I know it has been a frustrating topic of conversation of
late because all too often we sometimes let the perfect be the
enemy of the good. And trade policy is complicated. There are a
lot of different moving parts to it and that, and we are trying
to strike the right balance to, again, try to level the playing
field for our workers, businesses, farmers, ranchers, right
here in this country, so that we can be more effective
competing in the global marketplace. That is crucial.
But sometimes trade and trade agreements get conflated. And
the fact is we only have 20 trade agreements right now
throughout the world. And of those 20 nations, we are actually
running a trade surplus in manufacturing, in agriculture, in
services. I believe it is the countries we don't have a trade
agreement with that get us into trouble, because that is just a
race to the bottom with no rules, no laws, no standards to
enforce. And it is important for us to be at the table,
establishing those rules with our values leading the way.
And I want to get a little bit technical on--Mr. Ryan, I am
looking at you, because I know you have been leaning in on this
issue, as those of us from dairy country have been. But in the
context of NAFTA renegotiation, of course we have got the
ultra-filtered class pricing system up in Canada that is giving
us some fits lately.
And being from one of the dairy co-ops from the chairman's
home state, I just wanted to get your perspective, since I have
been trying to wrap my head around it, any possibilities of
breakthrough with Canada when it comes to some of our dairy
export opportunities there, just want leverage we ultimately
have. Of course, they got a supply management system up there
that they are trying to protect. They have been very protective
with high tariffs when it comes to dairy exports. We are trying
to address this ultra-filtered milk issue now that wasn't even
around or addressed adequately during NAFTA.
I mean, well, really, what is the path forward here? Is--do
we have any leverage at all that we can use effectively in
this?
Mr. RYAN. Yes. Been looking for that leverage. Been looking
for that path forward. I think, one, of making it a big issue,
the bully pulpit that all of us can share in is one way.
I think, two, it looks pretty clearly that it will be in
violation of all their WTO commitments. The problem with that
is that can take years to come through, and this is a real-life
issue right now.
So I believe there is--well, a whole number of other
countries have stood up, saying it is in violation of WTO,
agricultural ministers around the world. And so there is a
collective body there, too. Getting change is another matter.
I believe the leverage of the United States is ultimately
one of the things, in a broader NAFTA negotiation, that the
United States needs to stand up and say we are standing on this
issue. You know it is going to be unwound eventually, through
WTO. Do it right now, because it is right, and it is what good
trading partners should do.
It is the best I can think of. As far as other leverage, I
am open ears.
Mr. KIND. You know, I am sure Washington State is the same
as Wisconsin. Canada is a very crucial and important trading
partner. In fact, 60 percent of our exports are either going
into the Canadian or Mexican market right now. So we don't want
to jeopardize that. But then again, we need to be able to feel
assured that whatever system we have is a fair and balanced
one, one that does level the playing field. And right now we
don't feel that that is happening, as it relates to Canada.
And I have been one of those, you know, voices, being from
agriculture country, trying to bring that perspective in our
farm bill deliberations, that we got to be sensitive to our own
WTO obligations, as well. And the title one subsidy programs
sometimes puts us in that box, that counts against us. And we
are trying to tee up another reauthorization of the farm bill,
and I think it would be wise for us to be sensitive to our own
trade obligations, globally. Otherwise, this can boomerang
against us.
I mean we are still frustrated with the problem we have
with cotton subsidy and Brazil right now, who can level
economic sanctions against us but for a $500 million bribe
going to Brazilian cotton producers every year in order to keep
them at bay. I mean this is how crazy our own farm policy has
become in this country.
So, you know, we look forward to working with you and
others when it comes in the context of the next farm bill, that
we are doing this in light of what this means for trade and our
WTO obligations in that area, as well.
Mr. RYAN. I fully agree.
Mr. KIND. Yes. Thank you. Thank you all again. Thank you,
Mr. Chairman.
Chairman REICHERT. Thank you.
Mr. Smith.
Mr. SMITH OF NEBRASKA. Thank you, Mr. Chairman, for
allowing me to participate here with the Trade Subcommittee,
and certainly thank you to our entire panel, and especially our
Nebraskan here today.
As you have shared your insight and expertise, obviously,
U.S. agriculture and NAFTA--I am repeating a lot of what has
already been said, but U.S. agriculture has benefitted
tremendously under NAFTA.
And I was wondering, Mr. Perdue, if you could perhaps tell
us what you think makes American agriculture so competitive
that, you know, that we would want to--and have a product that
is generally affordable and high quality that the rest of the
world would want to buy. Can you tell us maybe what goes into
that, from your perspective as a producer?
Mr. PERDUE. I would say that we have some of the most
passionate people about what they are doing in producing our
food and fiber in this country. And not only are they
passionate, they are efficient and take advantage of technology
to grow and be more efficient all along that line.
And you know, it is just that passion for high quality food
that makes us want to be a trade partner, as we have seen in
some recent trade deals, especially in Nebraska.
Mr. SMITH OF NEBRASKA. Right, very good, thank you.
I yield back, and thanks again, Mr. Chairman.
Chairman REICHERT. Thank you, Mr. Smith.
Well, thank you for your testimony, and I think this panel
can walk away with the same good feelings that the first panel
had in accomplishing, first of all, sharing your message and
getting your information to all of us. And I can assure you
that there were probably some people just down the street from
us in USTR listening to your testimony and our comments, too.
Secondly, another moment of bipartisanship in recognizing
the expertise at the panel brought today. So I really want to
thank you and assure you that what you have shared with us is
important and will be considered as we move forward.
As I have advised the previous panel, please note that the
Members will have two weeks to submit written questions to be
answered later, in writing. Those questions and your answers
will be made a part of the formal hearing record. Our record
will remain open until August 1st, and I urge interested
parties to submit statements to inform the Committee's
consideration of the issues that we have discussed today.
The Committee stands adjourned.
[Whereupon, at 1:14 p.m., the Subcommittee was adjourned.]
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