SPEAKERS CONTENTS INSERTS
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51–798 CC
1998
TRADE IN THE AMERICAS: BEYOND THE SANTIAGO SUMMIT
HEARING
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE
OF THE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
APRIL 29, 1998
Printed for the use of the Committee on International Relations
COMMITTEE ON INTERNATIONAL RELATIONS
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BENJAMIN A. GILMAN, New York, Chairman
WILLIAM GOODLING, Pennsylvania
JAMES A. LEACH, Iowa
HENRY J. HYDE, Illinois
DOUG BEREUTER, Nebraska
CHRISTOPHER SMITH, New Jersey
DAN BURTON, Indiana
ELTON GALLEGLY, California
ILEANA ROS-LEHTINEN, Florida
CASS BALLENGER, North Carolina
DANA ROHRABACHER, California
DONALD A. MANZULLO, Illinois
EDWARD R. ROYCE, California
PETER T. KING, New York
JAY KIM, California
STEVEN J. CHABOT, Ohio
MARSHALL ''MARK'' SANFORD, South Carolina
MATT SALMON, Arizona
AMO HOUGHTON, New York
TOM CAMPBELL, California
JON FOX, Pennsylvania
JOHN McHUGH, New York
LINDSEY GRAHAM, South Carolina
ROY BLUNT, Missouri
KEVIN BRADY, Texas
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RICHARD BURR, North Carolina
LEE HAMILTON, Indiana
SAM GEJDENSON, Connecticut
TOM LANTOS, California
HOWARD BERMAN, California
GARY ACKERMAN, New York
ENI F.H. FALEOMAVAEGA, American Samoa
MATTHEW G. MARTINEZ, California
DONALD M. PAYNE, New Jersey
ROBERT ANDREWS, New Jersey
ROBERT MENENDEZ, New Jersey
SHERROD BROWN, Ohio
CYNTHIA A. McKINNEY, Georgia
ALCEE L. HASTINGS, Florida
PAT DANNER, Missouri
EARL HILLIARD, Alabama
BRAD SHERMAN, California
ROBERT WEXLER, Florida
STEVE ROTHMAN, New Jersey
BOB CLEMENT, Tennessee
BILL LUTHER, Minnesota
JIM DAVIS, Florida
LOIS CAPPS, California
RICHARD J. GARON, Chief of Staff
MICHAEL H. VAN DUSEN, Democratic Chief of Staff
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Subcommittee on International Economic Policy and Trade
ILEANA ROS-LEHTINEN, Florida, Chairperson
DONALD A. MANZULLO, Illinois
STEVEN J. CHABOT, Ohio
TOM CAMPBELL, California
LINDSEY O. GRAHAM, South Carolina
ROY BLUNT, Missouri
KEVIN BRADY, Texas
DOUG BEREUTER, Nebraska
DANA ROHRABACHER, California
SAM GEJDENSON, Connecticut
PAT DANNER, Missouri
EARL F. HILLIARD, Alabama
BRAD SHERMAN, California
STEVEN R. ROTHMAN, New Jersey
BOB CLEMENT, Tennessee
TOM LANTOS, California
BILL LUTHER, Minnesota
MAURICIO TAMARGO, Chief of Staff
YLEEM D.S. POBLETE, Professional Staff Member
AMOS HOCHSTEIN, Democratic Professional Staff Member
JOSE A. FUENTES, Staff Associate
C O N T E N T S
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WITNESSES
Ambassador Richard C. Brown, Director of the Office of Economic Policy and Summit Coordination, Bureau of Inter-American Affairs, U.S. Department of State
Ms. Regina Vargo, Deputy Assistant Secretary for the Western Hemisphere, Department of Commerce
Dr. Robert Scott, Economist, Economic Policy Institute
Mr. Paul DiMare, President, The DiMare Companies
APPENDIX
Prepared statements:
Hon. Ileana Ros-Lehtinen, a Representative in Congress from Florida
Ambassador Richard C. Brown
Ms. Regina Vargo
Dr. Robert Scott
Mr. Paul DiMare
Hon. E. Clay Shaw, Jr., a Representative in Congress from Florida
TRADE IN THE AMERICAS: BEYOND THE SANTIAGO SUMMIT
WEDNESDAY, APRIL 29, 1998
House of Representatives,
Subcommittee on International Policy and Trade,
Committee on International Relations,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1:38 p.m., in room 2172, Rayburn House Office Building, Hon. Ileana Ros-Lehtinen (chairman of the Subcommittee) presiding.
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Ms. ROS-LEHTINEN. [presiding] The Subcommittee will come to order. Thank you so much for being with us, panelists as well as the Members.
In December 1994, the leaders of 34 of the hemisphere free nations provided us with a vision of a community of democracies united in the dream of economic integration and greater multilateral cooperation. The concept of the Free Trade Area of the Americas was built upon the idea of strength in unity and efficiency based on common goals.
The emphasis the leaders placed on respect for human rights, on democracy, transparency, and social justice served to underscore the reality that trade and economic prosperity can only come once the political and social foundation has been established that could create, sustain, and promote an environment conducive to greater investment and expanded commercial relations.
Last week, the leaders met once again to address many issues that constitute the hemispheric agenda and multilateral cooperation. The leaders restated their commitment to strengthening democracy and actively promoting the necessary action for governments to become more participatory. On this issue, I would like to note that such a declaration does not coincide with bringing Cuba into the Organization of American States, nor with including the dictator, Fidel Castro, in future hemispheric summits.
The 34 democratically elected leaders declared that: ''Since our meeting in Miami, we have seen real economic benefits in the Americas resulting from more open trade, transparency in economic regulations, and sound market economic policies, as well as efforts by the private sector to increase its competitiveness.
They also acknowledged the need for deeper reforms that will lead to stability and growth for the individual economies in the hemisphere. They highlighted that: ''education is the determining factor for the political, social, cultural, and economic development of our peoples.''
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From there, they assumed the role of cartographers, drawing a more specific map to guide them and their countries into negotiations over the Free Trade Area of the Americas. The focus was now to move beyond the drawing board and convert ideas into actions and realities.
They cemented their creation of nine working groups for trade negotiations, including market access; investment; government procurement; subsidies, antidumping, and countervailing duties; as well as agriculture. They consolidated the agreement reached by the trade ministers in March creating the structure for the negotiations; establishing the Consultative Group on Smaller Economies; creating a special post for the negotiations; and establishing committees for those negotiations.
This Trade Negotiations Committee will have the responsibility of guiding the work of the negotiating groups and of deciding of the overall architecture of the agreement and institutional issues. It would take the overall responsibility of ensuring the full participation of all countries. In particular, it would ensure that the concerns of the smaller economies and concerns related to countries with different levels of development are addressed within each negotiating group.
Further, a committee to expand involvement of environmental, labor, and academic groups was formed. Some would argue, including witnesses for today's hearing, that this is insufficient to address problems such as wage disparities, working conditions, and flight of labor, which are expected to emerge from a consolidation of countries that may share a common ultimate goal, but who are very different because they are in different stages of development and do not necessarily share the view of the United States on these critical issues.
The content of the lessons learned from NAFTA demonstrates that agreements with low-wage countries, without strong labor and environmental provisions that are fully enforceable, lead to a loss of U.S. jobs and our investment capital.
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Supporters of the Free Trade Area of the Americas focus on what the hemispheric trading bloc would accomplish. It would demand demolition of the tariff walls still encircling most Latin American countries. This would open the market to American products. Exports to Latin America, they argue, support an estimated 11.3 million U.S. jobs, with over 1.4 million of these having been generated by increased exports over the last 4 years. They further contend that export-related jobs are jobs paying 13 percent to 15 percent more than non trade-related jobs.
The road that lies ahead of us is a difficult one. Tariffs in many of these nations in Latin America, though significantly lower than a decade ago, still average around 15 percent. Many of those competitive products still face special duties or non-tariff barriers. Some countries, such as Brazil, are resistant to early tariff cuts unless the U.S. reciprocates in such areas as anti-dumping, dispute settlement, and subsidies. This is just one of the many areas that will present challenges. Ultimately, this raises the question of how to consolidate or converge individual trading blocs, working independently, into the world's largest free-trade area functioning as one entity from a common script.
This decade has seen a significant rise of sub-regional groups and of growing links between them. Last year, trade between MERCOSUR countries grew by 25 percent, to about $20 billion, from $4 billion in just 1990. The Andean community recorded a double-digit rise in intra-group trade. So did the Central American Common Market. The different trading blocs have entered into bilateral—bloc to bloc; bloc to individual country—agreements. The web of accords complicates the FTAA negotiations. However, informed observers have stated that, thus far, most of these deals have opened doors rather than closed them. Some would disagree.
One thing seems clear: The pace of regional trade and integration in Latin America will continue at record speed. The question is how to channel, and some would say harness, these developments to ensure optimum benefits.
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Is the FTAA the best method? Our witnesses today will try to shed some light on these matters and share their views on the Santiago summit; provide insight on the agenda of the negotiating groups, the benefits and the problems with FTAA; and other recommendations for a future course of action.
And we welcome them all with us today in the different panels.
And I'm pleased to recognize the Members who are present with us. As always, I don't even need to look.
Congressman Brad Sherman.
Mr. SHERMAN. Thank you, Madam Chairman. Thanks for convening these hearings. Thank you for your opening remarks.
These hearings take place under a shadow, and that shadow is the fact that fast-track authority has not been granted to President Clinton. And there are those who say that fast-track was defeated by its opponents. That is not true. Fast-track was defeated by its supporters.
We had numerous hearings—some before this Subcommittee, some before the Full Committee—in which the chief opponents of fast track, or at least of the fast track bill, came forward. Perhaps of their inherent reasonableness or because they were in search of moderate votes, the representatives of organized labor presented the most moderate possible requests or demands. They simply said that there must be a page in each trade agreement or a paragraph in it dealing with labor standards. The content of that page was subject to negotiations. And by no means would organized labor insist that the fast track bill require any particular content and that we would all expect that any labor provision in any fast track trade agreement would not require the other country to live by standards as high as those of the United States.
Likewise the environmental movement requested only that there be some mention of the environment in any agreement put before the U.S. Congress on a fast track.
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Surprisingly, labor and environmental groups were able to take such moderate positions without facing dissension within their own ranks. You know, there are not just politics among us who are elected to office. There's politics inside each of the interest groups that come before us. And yet, the AFL–CIO was able to come here on the record and ask for just one inch.
The business groups also have internal politics. Obviously over-confident of victory—perhaps due to their own internal politics, a number of business groups said not one inch, not one word can be in the fast track bill about labor standards or about environmental standards being covered under a trade agreement. The supporters of fast track killed the proposal by a not-one-inch approach. There are very few areas of controversy before this Congress where you should try or can try successfully to win an absolute and total victory.
And so not surprisingly, we are under this shadow. We are under a shadow of having our President go to Latin America without the authority he feels he needs to negotiate trade agreements.
I'm sure we've all had the representatives of business groups come to our office. They certainly came before our committee, and told us of the cornucopia of benefits that would occur if fast track authority was granted to the President. And yet, in return for such a cornucopia, these business groups were not willing to give one inch.
I'm confident that whether it's this year or next year, that a compromise on fast track will be arranged. But I would hope that those who claimed that fast track was the fast route for continued prosperity for America would lessen to their own rhetoric and realize that if it's really that good, then 99 percent of it ain't bad either.
I know that our witnesses have some very interesting comments, but I hope that if we're holding hearings on this subject next year, it is after a compromise has been reached on fast track, a compromise that, at least, gives credence to the interests of working men and women and those of us who care about the environment.
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Ms. ROS-LEHTINEN. Thank you so much, Mr. Sherman.
Mr. Chabot.
Mr. CHABOT. Thank you, Madam Chair, I'll be very brief.
Just following up on Mr. Sherman's comments about fast track and its defeat, some months ago, I think it was defeated by the opponents of fast track, in particular the labor unions. It was really an incredible campaign that they engaged in, and in essence what they did is they blackmailed a lot of Democrats and a few Republicans. And essentially what they said in one form or another is if you support fast track, we're not going to give you any money in your political campaign. And since more and more Democrats rely to a greater and greater extent on union money to support their campaigns, they were afraid. In fact, they were terrified to support——
Mr. SHERMAN. Will the gentleman yield?
Mr. CHABOT. I'd be happy to yield.
Ms. ROS-LEHTINEN. Mr. Sherman.
Mr. SHERMAN. I would just point out that no part of organized labor ever said that to me, but quite a number of business groups did try such hardball, financially tied tactics. And frankly, my political advisors told me that fast track would be ''good politics.''
Ms. ROS-LEHTINEN. Mr. Chabot.
Mr. CHABOT. Reclaiming my time, are you saying that business groups did tell you that they would give you money if you supported fast track?
Ms. ROS-LEHTINEN. Mr. Sherman.
Mr. SHERMAN. I would say that they evidenced it in a way consistent with the laws of this country and made it also even more clear that if I opposed fast track, I could save money on postage should I ever have an event.
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Ms. ROS-LEHTINEN. Mr. Chabot.
Mr. CHABOT. Well, reclaiming my time, and if I could——
Mr. SHERMAN. Well, all of this, all of this was conveyed——
Ms. ROS-LEHTINEN. Mr. Sherman. Mr. Sherman. Mr. Sherman. Mr. Sherman. Mr. Chabot.
Mr. CHABOT. Right, and so—reclaiming my time and posing another question with respect to that. So you're saying the business folks complied with the law and made it clear. Is that what the labor unions did as well, though? They made clear that they weren't going to support many Democrats' campaigns if they supported fast track?
Ms. ROS-LEHTINEN. We'll have one more round of this, and then we'll get on with our opening statements. Go ahead, Mr. Sherman.
Mr. SHERMAN. I received no threats from organized labor, and some statements which some individuals might have regarded as threatening from the supporters of fast track.
Ms. ROS-LEHTINEN. Thank you, Mr. Chabot, to continue with your opening statement.
Mr. CHABOT. I thank the gentleman. I'll quit posing questions here, but the gentleman did ask and so, therefore, we engaged in that interesting discussion. But it is a shame because, despite the fact that I'm not a big supporter politically of this President—I do agree with him sometimes on some issues—I do, in general, agree with his view on trade. And I think that it's imperative that we open up our markets; that we encourage other countries to open up their markets and lower tariffs wherever possible. And, in fact, I'd like to ultimately eliminate tariffs across the board. I think the whole world would be much better off. It would mean jobs in my community, in Cincinnati. It would mean a lot more jobs for the people there. It would mean jobs for people all over this country. And, in fact, it would mean jobs to people all over the world. And I think we'd all have a higher standard of living all across the globe. So I would hope that we'll move in that direction. I hope that both parties can put politics aside sometime down the road, and open up the markets so we can have much better job opportunities all over the world.
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I yield back the balance of my time. Thank you.
Ms. ROS-LEHTINEN. Thank you so much.
Mr. Luther.
Thank you. We're so pleased to have with us Congressman Shaw, who was one of the leaders in our south Florida community in helping to ensure that Miami would be one of the locals for this free trade area of the Americas. We're so happy to have you with us in our Subcommittee for today.
Thank you, Mr. Shaw. If you'd like to make some opening statements.
Mr. SHAW. Thank you, Madam Chairman. I'd like to compliment you for your leadership on this issue and holding this hearing. I do have a prepared statement, and if you'd be kind enough——
Ms. ROS-LEHTINEN. Glad to enter that in the record without objection——
Ms. SHAW. I would appreciate it. And I will be very brief.
I think when you think of where we are in this country and what's going on globally, and see where the rest of the world is moving toward free trade, there is no logical argument that can be made that would say that the largest economy, the biggest economy, that has have ever been on the face of this earth is afraid of free trade. To me, that sends out all the wrong signals and it absolutely defies logic. We will no longer be the largest economy in the world if we shrink away from free trade while the rest of this world is going toward free trade.
I think that is black letter law, so to speak, if you're looking at just trying to find things that are economically—from the standpoint of an economy or an economist—is absolutely true. And there's no argument that can be made without, whether we like it or not. If protectionism was going on throughout the world, then we could perhaps get away with opposing a free trade agreement. But it is not. We're seeing what's going on in Europe. We're seeing what's going on in South America. These trade barriers are coming down, one after another. We recently saw where we pulled away from a free trade agreement, another expansion of NAFTA into parts of South America, giving the President the ability to negotiate in a fast track way, as we gave to the Republican President. And by not having passed that legislation this year or last year, we are seeing that the rest of this hemisphere is dropping its trade barriers and leaving us almost in an isolated position.
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Just last year, I understand that one of our telecommunications companies lost a very large contract—I believe it was to Chile—because the Canadians had already negotiated a fast track agreement, or a free trade agreement I should say, with Chile. We're going to see more and more of this, and we are going to be losing American jobs. And these are not minimum wage jobs. These are good jobs. These are jobs of members of labor unions. We cannot afford to continue the attitude that we've seen, and I am very hopeful that we will see a free trade agreement passed, having the present fast track agreement to negotiate such an agreement.
As a Member of the Trade Committee of Ways and Means, I will continue to work for a free trade agreement and cooperate with this Administration in giving the President the authority that he needs in order to bring us into the free trade column on a global basis so that we can maintain our economy as the powerful economy and the strongest economy on the face of this earth.
And I thank the gentlelady for right——
Ms. ROS-LEHTINEN. Thank you so much, Congressman Shaw. We will put your statement completely in the record. Thank you so much for being with us.
[The prepared statement of Mr. Shaw appears in the appendix.]
Our first witness today is Ambassador Richard Brown, who is the Director of the Office of Economic Policy and Summit Coordination of the Bureau of Inter-American Affairs in the Department of State. He is in charge of the special staff formed to coordinate the U.S. Government's policy positions for the Summit of the Americas and to orchestrate the followup implementations of the action plan. Much of Ambassador Brown's career has been spent in Latin America or in Washington assignments involving U.S. relations with our Latin American neighbors, including as U.S. Ambassador to Uruguay and Deputy Assistant Secretary of Defense for Inter-American Affairs.
Entering the career foreign service in 1963 as a junior officer, Ambassador Brown worked on and was the ambassador of Grenada and got you sent to another place—worked on a special Cuban information project, and we've discussed this often, and then served in Vietnam and in Barcelona. We welcome you today with us, Ambassador.
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He will be followed by Regina Vargo, who serves as Deputy Assistant Secretary of Commerce for the Western Hemisphere. Regina is responsible within the Department for the implementation of the U.S.-Canada Free Trade Agreement and the North American Free Trade Agreement. Prior to this position, Mr. Vargo served as the Director of the Office of the North American Free Trade Agreement, NAFTA. During her tenure, she earned two gold medals, the Department's highest award, for her contribution to the NAFTA negotiations and for her fine role in developing the Export Mexico Program.
We thank them both for being here today, and, Ambassador, we will begin with you.
STATEMENT OF RICHARD BROWN, DIRECTOR OF THE OFFICE OF ECONOMIC POLICY AND SUMMIT COORDINATION, BUREAU OF INTER-AMERICAN AFFAIRS, DEPARTMENT OF STATE
Mr. RICHARD BROWN. Thank you very much, Madam Chairwoman, for this opportunity to appear before you and this Subcommittee this afternoon to talk about a very important issue in the U.S. foreign policy. I would like to direct my testimony to the overall policy toward Latin America and how free trade fits into that. And I will leave to my colleague, Ms. Vargo, the topic of discussing the specifics of the implementation of the Free Trade Area of the Americas.
I will just make a summary of my remarks that I will, with your permission, submit for the record.
As you know, the second Summit of the Americas concluded its deliberations in Santiago, Chile, just about 10 days ago, and its agenda was very broad, with specific action programs grouped into four ''baskets''. Not only was there a basket of items having to do with economic integration and free trade, but there were three other very important areas in which the leaders discussed and later signed an action plan that dealt with them.
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First of all was the education of the area and how important that is to its development and dealing with poverty.
Second, a basket having to do with democracy, justice, and human rights.
And third, of course, more details on the alleviation of poverty and discrimination in the region.
The first Summit of the Americas, as you referred to in your earlier remarks, was held, of course, in Miami, Florida, in December 1994, and it celebrated our new commitment to democracy and market economics in Latin America and the Caribbean. Santiago moved that commitment into a new phase: a second generation of reforms to restructure institutions and make the benefits of reform available to all parts of society. Initiating the negotiations of the Free Trade Area of the Americas were certainly one of the highlights of Santiago. The leaders reaffirmed their commitment to conclude negotiating the FTAA no later than 2005 and to make concrete progress by the end of the century. Vice ministers of trade will meet in June to start the negotiations; and negotiating groups on specific issues will start their work in September.
While lack of fast track in the United States was clearly on many minds in Santiago, there was a recognition that this authority was not required at the initial stages of the negotiations. However, there is no question that without fast track, the U.S. position at the negotiating table has been weakened. And certainly, the United States will need fast track authority to successfully complete the negotiations for this historic trade pact.
Now my main point this afternoon is that free trade in the Americas is about far more than trade or even economics. Our foreign policy goals as well as the hemisphere's common goals, as expressed in the Summit documents, are interdependent and mutually reinforcing. More open trade will increase growth and jobs in the economies of all participating countries. I want to emphasize the word ''all''. Too many people persist, I believe, in seeing more open trade as a zero sum game. If you win, then I lose. But history has repeatedly proved that open trade is a win-win game, with all partners benefiting from the increased efficiency that trade provides in terms of more jobs, rising standards of living, and low inflation.
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The prevailing economic climate in the United States of growth and price stability is, to a significant degree, a function of the benefits we are deriving from more open global trade. More open trade means new opportunities. As we tear down the barriers among our economies, the new winds of competition will sweep out the old patterns of privilege and monopoly. Competition rewards efficiency, innovation, and enterprise. Increased growth and new opportunities give validity to the reforms being implemented in the region to strengthen democracy and implement market-based policies.
Economic vitality is indispensable to protecting the environment for future generations and waging an effective fight against illegal immigration, the drug trade, and other forms of transnational crime. The growth and new opportunities provided by open markets put a strong weapon in the hands of those Latin American leaders who want to work cooperatively with us in addressing these problems.
In turn, progress toward the goals of the non-economic baskets that I referred to earlier is crucial to achieving economic success. Rapid technological change and growing globalization require well educated workers. Investors and innovators need an efficient and fair judicial system as well as the long-term political stability which can only come when the citizens believe their government institutions are fair and effective in protecting their rights. Improving the capacities of the poor and increasing opportunities for marginalized people will stimulate growth as well as build more just and inclusive societies.
Now why is all of this important to the average U.S. citizen? For the United States, democratic opening and improved growth and social conditions provide unprecedented opportunities to advance the welfare of our own people. Latin America and the Caribbean have been the fastest growing markets for our exports—$134 billion in 1997. During the last half of 1997, our exports to that region overtook our exports to the European Union. And last year, Mexico overtook Japan as our second largest market after Canada.
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With a GDP approaching $2 trillion, almost half a billion consumers, a high propensity to import from the United States—about 40 percent of their imports last year came from the United States—and a firm commitment to growth-inducing reforms, Latin America and the Caribbean is a region of tremendous opportunities.
Never before has the United States had such favorable conditions for leadership in the hemisphere, for pursuing our interests, and for achieving the goals, which we now all share. The plan of action, which the hemisphere's leaders adopted in Santiago just 10 days ago contains an ambitious agenda, which addresses the major political, economic, and social challenges of our region as we enter the new millennium. The document reveals the fundamental new reality of our neighborhood. We have achieved a powerful consensus on how to work together to overcome difficult problems and begin to achieve the critical aspirations of our citizens to make their lives fuller, freer, and more prosperous.
Thank you very much.
[The prepared statement of Mr. Richard Brown appears in the appendix.]
Ms. ROS-LEHTINEN. Thank you so much.
Mrs. Vargo.
STATEMENT OF REGINA VARGO, DEPUTY ASSISTANT SECRETARY FOR THE WESTERN HEMISPHERE, DEPARTMENT OF COMMERCE
Ms. VARGO. Thank you, Madam Chairman. It's a pleasure to be here before you again today to discuss the Summit's launch of negotiations to create a Free Trade Area of the Americas by 2005. As you know, Madam Chairman, Miami will be the initial site of those negotiations. And in order to make the best use of our time today, I will summarize the statement I've submitted for the hearing record.
Ms. ROS-LEHTINEN. And we will include both of your statements without objection in the record.
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Thank you.
Ms. VARGO. Thank you.
Let me begin with a little context: The 34 democracies that would comprise the Free Trade Area of the Americas have a population of roughly 800 million and a GDP of $9 trillion. In 1996, these countries purchased $1.3 trillion in merchandise goods from the world, $600 billion of which was from one another. We are our own best customers, selling 54 percent of our global exports in each other's markets, up substantially from 47 percent in 1990.
The United States is benefiting greatly from this explosion in regional trade.
Expanded exports have made a critical contribution to our current economic prosperity, generating more than one-third of recent U.S. economic growth and contributing importantly to record job growth and higher wages for U.S. workers. Nowhere has this relationship been more evident than in our exports to our own neighborhood.
The markets of the Western Hemisphere have been the leading source of U.S. export growth in 5 of the last 6 years. In 1997, for example, the Western Hemisphere generated two-thirds of our national export growth. For some localities, like Miami, it was even more important. Madam Chairman, these markets get credit for 85 percent of Miami's recent export growth. This track record makes the FTAA central to our prospects for remaining a world trade leader in a globalized economy.
Of course, some of this strong export performance represents exports to Canada and Mexico, with whom we already have a free trade agreement. This year, tariffs between the United States and Canada reached zero on virtually all products, making ours the world's largest duty-free border in the world. And last year, Mexico surpassed Japan to become our second largest export market. And I'd like to note here that as Mexico's economy is recovering from the peso crisis, U.S. exports are rebounding so sharply that our bilateral trade deficit is running at about half of what it was just 1 year ago.
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But today, I want to focus on the other 31 Latin American countries, with which we will be devising a roadmap to free trade. These countries are engaged in a process of economic reform and unilateral trade liberalization that is creating a powerful new demand for U.S. goods, services, and technology. As a result, U.S. exports to these markets have jumped 150 percent since 1990. The United States now sells more to Brazil than it does to China, and more to Chile than it does to India.
With the FTAA we think we can do even better. For one thing, the gains of many U.S. companies that are currently benefiting from the Latin American market are in some ways at risk. To the extent that these countries have instituted unilateral reforms, they are fully reversible if reform fatigue sets in. By way of example, MERCOSUR did not violate any trade obligation when it recently raised its common external tariff by 3 percentage points to ward off the Asian flu.
Second, this is a lot of sub-regional integration occurring in Latin America, and preferential rules in sub-regional trade agreements may shift market purchases since they remove trade barriers for some suppliers. The American Chamber of Commerce in Chile has documented how Chile's recent free trade agreements with Mexico, Canada, and MERCOSUR have already cost the United States $0.5 billion in lost export sales to these competitors.
The longer we go without fast track, the greater the prospects that Latin countries will continue to integrate around the United States rather than with the United States.
By contrast, an FTAA will provide the United States with better and preferential access to these markets, strong protection for intellectual property rights, clear and transparent rules for trade and investment, and improved conditions for workers and the environment. At the Santiago Summit, the 34 leaders formally launched negotiations based on specific principles, goals, and procedures that we believe meet all U.S. objectives. But I want to stress that fast track negotiating authority will be essential to concluding and implementing an FTAA agreement that is in America's interest.
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What did we agree to in Santiago?
First of all, the negotiations will be comprehensive and are organized around nine negotiating groups that cover priority issues for the United States. The Chairwoman mentioned some of these: market access; investment; services; government procurement; dispute settlement; agriculture; intellectual property rights; competition policy; and subsidies, antidumping and countervailing duties.
Also, for the first time in any trade negotiation, a Committee on Civil Society will provide a formal mechanism for labor and environmental groups and other non-governmental organizations to make recommendations to trade ministers. From the outset, these talks will explicitly recognize that we need to do a better job in ensuring that all citizens perceive and identify with the benefits of trade.
We also mapped out the entire negotiating structure between now and the year 2005. The talks will get a strong start from being located in Miami for the first 3 years, along with an administrative Secretariat, and by having Canada chair the process through the next ministerial in 18 months. Equally important is the end of the process, which the United States and Brazil will co-chair to maximize leadership and issue resolution as the 2005 deadline draws near.
The talks will be managed by a trade negotiations committee composed of vice ministers from each of the countries who will be tasked to ensure that progress is made.
Negotiations begin immediately, with the Trade Negotiations Committee meeting no later than June, and each of the nine negotiating groups no later than next September.
I'd like to close by pointing out two areas of particular interest to the Commerce Department which will be addressed up front: business facilitation and global electronic commerce.
The Miami declaration included the directive to make concrete progress in the FTAA by the year 2000, and we have agreed to identify specific business facilitation measures that would be adopted by then. Secretary Daley was in San Jose at the America's Business Forum where private sector representatives focused on this topic, and some of the recommendations that seem to have broad appeal include progress on export shipments; greater transparency in government procurement; and improvements in customs procedures. We will be working very closely with our business community in the coming weeks to build hemispheric support for specific initiatives.
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Commerce also worked hard to get the ministers to establish an experts committee on electronic commerce, composed of private sector and government participants, to begin now to develop recommendations on how we can make electronic commerce work for all of us as we expand trade in this hemisphere. Certainly, we will seek to keep electronic commerce duty free as befits a free trade area.
In closing, I look forward to continuing to work with thisCommitteethroughout the negotiations, and I would be happy to answer any questions you might have, Madam Chairman.
[The prepared statement of Ms. Vargo appears in the appendix.]
Ms. ROS-LEHTINEN. Thank you so much. Thank you to both of you.
Let me ask you about the labor and environmental standards. Can provisions related to these issues be considered trade barriers by others countries who wish to enter our U.S. markets and will the United States need to lower our standards in order to compete with other countries in the region?
Ms. VARGO. No, Madam Chairman. There is nothing in these negotiations that would keep the United States from having the highest labor and environmental standards in the world.
Ms. ROS-LEHTINEN. But are we already weakening those standards in order to enter into these agreements? And will we be setting up another procedure similar to the Word Trade Organization that will then come back to the U.S. Congress and ask us to redo a law because they believe, according to their decisions, that it violates their treaty agreements?
Ms. VARGO. I can't think of an example in that area, and I'd like to clarify that dispute settlement cannot force a change in U.S. law. To the extent that these trade agreements involve a reciprocal exchange of commitments on trade and a dispute settlement mechanism decides that one party's policies do not fully live up to that commitment in some fashion, there may need to be a rebalancing of concessions but there is nothing that they can do to make us change our laws—only the U.S. Congress can do that, Madam Chairman.
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Ms. ROS-LEHTINEN. Now in relation to the treaties that we've already entered into, such as NAFTA, there have been a lot of arguments about whether the labor and environmental standards that we set forth there are very weak, some would say unenforceable, and that they have had a detrimental effect on our U.S. industries, specifically agriculture; and we have a gentleman who will be speaking on that in the second panel. How can we ensure that we are not setting up a procedure where, once again, we'll enter into these trade agreements where it will be easy for those countries to enter into our markets and still not have protection or still not have a level playing field, where our products can enter their areas. What are the types of trade barriers you will be working on to make sure that we remove them so that there is a level playing field, so that we don't lose U.S. jobs, and we don't lose U.S. sovereignty in these dispute resolutions?
Ms. VARGO. I think there are lot of questions—topics that you covered there, so if I miss one in my response, please just go back to it.
First, I'd like to say that I do not believe and would not agree that we have lowered our standards in the agricultural area in any way out of these free trade agreements. As a matter of fact, I think the side agreement, the cooperation agreement, we have with Mexico on environmental standards has, in fact, allowed us to make some progress. One that I'd note is that Mexico has now agreed to ban chlordane and DDT. And I think we would all agree that that's a measure of progress.
By the way, the agreement would not let goods with those chemical on them into the United States. But the fact is that Mexico has agreed to stop the practice of using those chemicals.
Ms. ROS-LEHTINEN. Except for the occasional strawberries or raspberries that have found their way into school system cafeterias?
Ms. VARGO. I don't know the details of these cases to comment, but they did not involve the use of prohibited chemicals.
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Your other question had to do with what kind of barriers we might see removed in the other countries, what kind of opportunities are out there in Latin America. And I think that probably one of these easiest illustrations in this area to address is tariffs. The fact is that right now we have a very open market, and over half of what we import from these 31 Latin countries, with which we don't have a free trade agreement, already do enter duty free, either because we don't charge a duty on that good anyway or because we already have a preferential program that they're taking advantage of. So on the whole, they're paying only about 2.3 percent on average duty for their goods that enter the United States.
In contrast, as you mentioned, U.S. products pay a minimum of about a 5 percent tariff, and usually it is 10 percent to 20 percent in the larger markets. And often this is enough to determine who gets the sale, and can be particularly affected when they're coupled with a non-tariff barrier. So, we'll be looking broadly at market access there and not only in goods, but also in services—very importantly for financial services, telecommunications services, and professional services.
Ms. ROS-LEHTINEN. Thank you, and I hope that you both stick around to listen to Mr. DiMare, who's got real hands-on experience about how it has devastated our south Florida economy in terms of the agricultural problems that we've had as a result of some of these agreements. We have a series unfortunately on the floor, and I know that you've got other places to go, so if I could recognize Mr. Manzullo for some questions; and then we will begin with our second panel, and will take a recess.
Mr. MANZULLO. Thank you.
Ms. ROS-LEHTINEN. Thank you, Don.
Mr. MANZULLO. I appreciate the opportunity to ask a couple of questions. And welcome. I am reading page two from your testimony—the fourth full paragraph talking about the cutting in half of our deficit with Mexico over the past year. And I would encourage you to elaborate upon those figures, not here—but to make those figures known because unless the labor unions are convinced that their workers would not be jeopardized, we could talk all we want about these agreements, you can't do anything without fast track. And unfortunately, people are at a time when they perceive the failures of NAFTA to be those of fast track with which I do not agree. So, you've done a lot of great work here, and I look forward to more testimony. But everything you do here depends upon convincing people who are opposed to fast track and that's many on my side of the aisle also. And the best way to do that, I believe, is to show that NAFTA has been a net winner—just a word of counsel and a word of encouragement. And now we have to go vote.
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Ms. VARGO. We'll certainly do that.
Mr. MANZULLO. Thank you.
Ms. ROS-LEHTINEN. Well, thank you so much both of you for being with us today, and I'm sure that you regret that we ran out of time and we have three pages of questions for you. But I look forward to chatting with you about these questions. We will begin with our second panel, if I could convene them, and then call the meeting in recess.
Thank you.
Leading off the second panel is Mr. Robert Scott, who is an economist with the Economic Policy Institute of Washington, DC, where he has focused on the effects of trade and protection on the U.S. textile, apparel, and steel industries. He has authored numerous books and articles and is the principal author of a series of widely reported studies on the employment impacts of U.S.-Mexico trade under the NAFTA.
He is joined on the panel by Mr. Paul DiMare, who owns and operates DiMare Company Operations. These companies operate in Homestead, Ruskin, Tampa—all three in Florida—as well as Johns Island in South Carolina; Boston; and Newman and Indio in California. Mr. DiMare has been an industry activist since his early days in Florida. He is past president of the Florida Tomato Exchange and the Florida Tomato Committee. He is currently chairman of the Florida Farmers and Suppliers Coalition, Inc.
Welcome, gentlemen. And now the Subcommittee will be in brief recess. We'll vote and we'll come back.
Thank you.
[Recess.]
Ms. ROS-LEHTINEN. [presiding] The Subcommittee will reconvene. Thank you so much for your patience.
Mr. Scott, we will begin with you.
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STATEMENT OF ROBERT SCOTT, ECONOMIST, ECONOMIC POLICY INSTITUTE
Mr. SCOTT. Thank you, Madam Chairman and Members of the committee. Thanks for the opportunity to appear here this afternoon. I will briefly summarize my remarks for the record.
Ms. ROS-LEHTINEN. We will enter both of them into the record without objection.
Mr. SCOTT. Thank you. This afternoon I'll discuss the results of our research on the effects of changing trade flows on American workers. I will then consider policy alternatives and the FTAA negotiations.
Trade has had a depressing effect on employment and wages in the United States for almost two decades. NAFTA has contributed to these problems, and the Asian financial crisis threatens to greatly deepen them, as shown in recent EPI research.
Between 1979 and 1994, trade eliminated 2.4 million jobs in the United States. NAFTA has added to the outflow and eliminated an additional 395,000 jobs. The Asian financial crisis could eliminate an additional 1,000,000 jobs if the Federal reserve does not act quickly to lower interest rates.
These trade deficits and associated job losses are important for two reasons.
First, the Administration, as we've heard this afternoon—has used the promise of jobs to sell trade agreements to the American people. That promise has not been fulfilled.
Second, trade-related job losses are symptomatic of the much larger problem of falling real wages and growing income inequality. Globalization has weakened the bargaining power of workers in the United States, and it has, therefore, depressed wages in the United States; and it's done the same thing in poor countries. Our research suggests that trade is responsible for 30 to 100 percent of the increase in income inequality which occurred in the United States between 1979 and 1989.
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We turn briefly to policy alternatives. The negative effects of trade, including job displacement and falling wages, have been growing in the 1990's, and trade has escalated. Despite these problems, the United States is doing very little to help workers and communities that have been hurt by globalization. The United States has lost about 200,000 jobs a year since 1979 because of trade. A reasonable program of retraining and adjustment assistance would require at least $10,000 per worker per year for at least 2 years, which suggests that we need at least $4 billion a year for retraining alone. We're currently spending less than $1 billion. So I would urge to support a substantial expansion of funding for these programs to help injured workers.
There is much more that can and should be done to improve the benefits of trade for workers and communities. The past several decades' trade agreements have emphasized investor rights and the production of intellectual property and other concerns of the business sector. Little or no attention has been paid to labor or the environment in trade negotiations and their interests have suffered as a result. Governments, workers, and communities have become entangled in a global race to the bottom that has lowered wages, increased income inequality, and eroded environmental quality.
Yet these are not the only possible outcomes of globalization. As a first step in improving matters, labor rights and environmental standards should be included in the core of any trade agreements that involve the United States. These codes should be enforceable through trade sanctions, just as investor and intellectual rights are enforceable under the NAFTA and WTO agreements. Labor and the environment should be afforded the same level of attention and respect as investors in future trade agreements.
The inclusion of enforceable labor rights in the FTAA in particular will ensure that hemispheric integration generates widely shared benefits to workers, both in the United States and in less developed countries in the region. Two weeks ago, in Santiago, an alternative Summit of the Peoples of the Americas was held for those who were shut out of the official FTAA and Summit negotiations. I attended and participated in many of those forums. The forum for labor unions in particular produced a remarkably strong declaration that included many important demands. Three of these were in particular No. 1, the creation of a working group on labor topics within the negotiation process for the FTAA. No. 2, the recognition of fundamental labor rights and creation of a mechanism for their effective implementation. No. 3, the introduction of a social clause referring to worker rights and the environment. And the assembled labor unions specifically rejected the idea of a NAFTA-style side agreement as not being effective.
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These demands demonstrate that there is strong support throughout labor movements in the hemisphere for the inclusion of labor rights and environmental standards, contrary to what we sometimes hear from other venues.
In conclusion, it's clear that the forces behind globalization are quite powerful. However, there are many ways in which integration can proceed in the hemisphere. Expanded programs of adjustment assistance and inclusion of labor rights and the environmental standards in the FTAA can raise the benefits for all workers while lowering the costs of globalization. We can achieve these goals if we place a high priority on labor and the environment in the FTAA negotiations.
Thank you for your time and attention. I'll be happy to answer questions.
[The prepared statement of Mr. Scott appears in the appendix.]
Ms. ROS-LEHTINEN. Thank you so much.
Mr. DiMare.
STATEMENT OF PAUL DIMARE, PRESIDENT, DIMARE COMPANIES
Mr. DIMARE. Madam Chair and Members of this important Subcommittee, thank you for allowing Florida Winter Vegetable Growers the opportunity to appear before you today and present our views on the proposed Free Trade Agreement of the Americas.
My name is Paul DiMare. I'm president of DiMare Companies in Homestead, Florida. Our company farms in California, South Carolina, and Massachusetts. I am chairman of the Florida Farmers and Suppliers Coalition, a non-profit association of winter vegetable farmers and agricultural suppliers. I wish my testimony to be entered into the record.
Ms. ROS-LEHTINEN. Without objection.
Mr. DIMARE. The Florida winter vegetable industry opposes FTAA for very much the same reasons we opposed fast track authority last year, and will oppose any new hemispheric trade agreement in the future.
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The Administration failed to live up to promises made to us during the NAFTA debate. This has resulted in disastrous consequences for our industry and Florida. Since 1994, more than 200 winter vegetable producers have gone out of business. These were not run-of-the-mill operations but rather good, efficient family operations that have farmed for decades, supported farm families that employed thousands of farm workers. I have listened, Madam Chair, the last time I was up here to political people make the same statements about NAFTA; that there would be a creation of jobs and this is a win-win situation.
They have no proof of that. The proof is just the opposite. NAFTA was a total failure for the United States in trade policy. We have a $40 billion trade deficit since NAFTA with the United States. We have lost, as this gentleman has just told us, over 395,000 jobs to NAFTA. I believe it's even higher than that because when they sold NAFTA, they said 20,000 jobs were created for every billion dollars in trade. If you use those numbers, it's over 800,000 jobs that have been lost.
We now have a $2 trillion trade deficit with the world. It ran at $180 billion last year. We're talking about a 50 percent increase in trade deficit this coming year because of the Asian crisis. This is another sale of a trade agreement to this country that the United States can no longer go along with. Our history on trade is terrible in this country. We've had 25 years of trade deficits. The largest consuming nation in the world, with the best industrial base, has been destroyed. We have gone from 30 percent of our employment in manufacturing down to 15 percent. Real wages in this country have deteriorated because of our trade agreements. They are now down approximately 20 percent in the last 20 years. Real wages. That means that people today are earning less money than they did 20 years ago in real dollars. That is in the eyes of having a productivity increase in this country that's been unknown. We've never had something like that happen. Never has this country had a problem where productivity goes up and real wages go down. It started with trade—when we started to open our doors to all these people.
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Trade is a wonderful thing, but it has to be fair. And with these nations that we're trading with—Third World countries, slave wages, child labor, human rights violations, sanitary problems, especially in food products like we produce—this is a terrible, terrible problem. Physosanitary problems in these countries on produce and meats would be a total disaster for this country. We cannot afford to go into a Free Trade Agreement with the Americas. We will continue in the agricultural industry in the United States to fight it at every point. Fast track is not the way I believe this country should go. I believe that trade should be in the hands of Congress, not in the hands of either party of the President. That is what Congress is for, to do our trade agreements, so that we, as individual manufacturers or producers, can have some input into those trade agreements, not to have them brought to a Congress and have them voted up or down after 20 hours of debate. That is a total disgrace. We are losing our sovereignty, and I don't believe in that.
The World Trade Organization has been a total disaster for the United States. It is absolutely another step in the end of our trade relations and our fighting. I'd like to see more people like myself up here. I've been here twice. I have only seen one person who employs people. The rest of the people are basically either academia or government people. Let's go out to the small business people and see what they think about free trade, not General Motors, not Kodak, not GE. Let's go to the real people—the small businessman who employs the bulk of the people in the United States and see what they think about free trade.
Am I moving to Mexico, am I moving to South America to produce? I hope not. I don't want to be chased out of this country, but that's what you're doing to people of this country that have been the backbone of the whole country—is chasing them out of here. Because as you go into the trade agreements that you are making, you are destroying us. We cannot survive in a level playing field against countries that have slave wages. It is impossible. The person who produces the cheapest widget will survive. And you can't do it in the United States under the situation we have with the wages that we pay. It's impossible. And I'm all for higher wages. As long as the person I'm competing with is paying the same price, I don't care what we pay people. But don't tell me we're going to pay $80 a day to pick tomatoes and the Mexicans are paying $3, and I expect to compete against that person. It's impossible.
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By the way, I hear chlordane was eliminated. We eliminated chlordane in 1973 in the United States. Mexico just agreed to eliminate it 10 years from now. That gives them 35 years to use the product that we have never used in the United States. You'd think that they'd at least say that they're going to stop it tomorrow. No, 10 years from now, they're going to stop chlordane. We stopped it in 1973.
Madam Chair, thank you very much again for your response to us as an industry. You know we are suffering, and Florida agriculture is having a tough time competing.
[The prepared statement of Mr. DiMare appears in the appendix.]
Ms. ROS-LEHTINEN. Thank you so much, both gentlemen for your testimony. And following up on your last remarks since Florida's agricultural community has been hard hit as a result of NAFTA, Mr. DiMare, what do you foresee happening with the Free Trade Area of the Americas? Are we going to learn mistakes made that were harmful to the agricultural community and have a much improved trade agreement now that will actually benefit Florida's agriculture? That is a possibility rather than saying it should not happen and we foresee doom. Is it based on your experiences—the promises made during NAFTA that were unfulfilled—that's why you have a jaded view about future negotiations where they will appear to be rosy, but in implementation Florida's agriculture—any agricultural market—will be hard hit again because of the different pesticides that are used, because of the dumping regulations, because of the non-access to their markets. What impediments do you foresee with this Free Trade Area of the Americas?
Mr. DIMARE. Well, again, Madam Chair, as you know, NAFTA was a very tough push as it was. It passed by only a few votes and at the very end a few people jumped on because they thought they had it won.
Ms. ROS-LEHTINEN. And the Florida congressional delegation was key——
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Mr. DIMARE. The Florida delegation had held out total vote on—except for a couple of votes—a couple of people—had held out a vote on NAFTA until the President wrote a letter to Tom Lewis promising that he would protect Florida agriculture, in a written letter, which we have. This wasn't a promise made by word to somebody else. This is in a letter from the President to our delegation saying that you would protect Florida agriculture against any cheap products coming in from Mexico, dumping. Let me tell you what happened in that. It was never done. We had to go and file a lawsuit, twice, in the courts. And finally got a dumping action, which we now are working on under a suspension agreement. But let me tell you what that thing cost. It cost over $2,000,000. I don't know any industry that can do that that's in a small business like we are. It happened to be done by the State of Florida. The first time it's ever been done. The Commissioner of Agriculture filed a suit against Mexico for dumping. They found dumping causes. We are now in a suspension agreement with Mexico unless there are safeguards put in to protect agriculture. And our dumping laws do not——
Ms. ROS-LEHTINEN. —What kind of safeguards are you looking for, Mr. DiMare?
Mr. DIMARE. Well, safeguards—First of all, we're a seasonable business. You operate in Florida for 5 to 6 months a year. It moves to Carolina for 6 weeks. It moves to Virginia for 6 weeks. It goes to California for 4 months. We're not a year-round industry. Most of our dumping laws are made for the steel industry, for textiles, for shoes. An industry that's a year-round manufactured product, like U.S. Steel or General Motors, when they want to file. But when you have to file an action like we did, we had to get the whole U.S. agricultural community to sign on board to a problem that was basically Florida's at the time. Most people don't want to do that. They don't want to get involved. It's very difficult paperwork to fill out. I'm fairly educated. It was a 40-page thing. I had to have my lawyers and my accountants fill it out. I couldn't even fill it out. It's very difficult. Those things have to be changed.
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Ms. ROS-LEHTINEN. And let me follow up on what you had said about the split in the U.S. agricultural sector. There was a split over NAFTA, over trade agreements in general. Do you foresee a split over the FTAA in the agricultural community?
Mr. DIMARE. You'll definitely have in the agriculture community a definite split with row crop people and citrus people that are against the free trade agreements and the grain people and probably poultry and pork people who are for the free trade agreements. They might benefit. We might be able to produce—in fact, I know we can produce grain probably cheaper than anybody in the world because it's mechanically done, with hybrid seeds. We can produce tremendous volumes of grain cheaply. We can't do that with our fresh fruits and vegetables. It's very expensive. It's hand labor. And these are the items that we have a problem with.
I didn't mention, but one problem that I still can't understand in free trade agreements and that is the currency devaluations. We dropped all our tariffs over a 10-year basis with Mexico and they're going to drop theirs. We were selling Mexico out of California at $5 a box tomatoes for 25 pounds back previous to NAFTA. That basically cost them 15 pesos. The very following year, those cost them 35 pesos for the same box that cost them 15. They didn't buy one box of tomatoes from California that year. Because the devaluation that they put on was over 200 percent tariff. You know, devaluation is a tariff. As you balance your trade agreements out and go to free trade, you can't forget the currencies. Because if a person devalues their currency, they just put a tariff on your product going back in there. And that's a serious, serious problem. And I'm going to tell you something: We have that problem in our own little industry, just the little tomato industry that we call
But another problem is, you talk about strategic—how would you like to put all your food in the hands of foreign people. I don't believe that Americans should turn over their food production to foreigners. It's fine to bring some in here. But I don't want to be in the position we are with oil. I think food is more important than oil. I can go without riding in my car. I can't go without eating. I think it's very important that we have food. And we've done a great job in this country of producing cheap food. Our food is only 13 percent of our disposal income is what we spend. We're the cheapest country in the world on food production—done a tremendous job. Only 1 in 90 people work on farms. That leaves a lot of time for other people to do other things. Years ago, it used to be 1 in 3. We were an agricultural nation at one time. We became an industrial nation. I hope we keep the industrial nation which I see disappearing too.
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Ms. ROS-LEHTINEN. Thank you so much, Mr. DiMare.
Mr. Scott, how would you refute the argument that many have made, including our previous witnesses, that trade agreements and that integration produce millions of jobs and better paying jobs for the U.S. worker?
Mr. SCOTT. Well, I think you have to be very careful in interpreting those kinds of arguments. The Administration experts we heard of in the last panel talked about the benefits of exports, but we never heard the word imports mentioned. And basic economic accounting tells us that it's the difference between exports and imports, that is, the trade balance, that determines the effect of trade on the economy. To look at exports, which create jobs, and to ignore imports, which eliminate domestic jobs—to ignore imports and look only at exports is like balancing your checkbook by counting your deposits but not your withdrawals. And that's what many of the proponents of trade are doing when they talk only about exports.
The problem is not with trade in general. Trade expansion can certainly be good for the economy if it's done in a fair and balanced way. The problem is that over the last two decades, our trade has grown increasingly imbalanced. And I think you can certainly trace that, in part, to the structure of the trade agreements that we have been agreeing to.
Ms. ROS-LEHTINEN. Let me discuss with you briefly the labor and environmental safeguards—the promises that were made during NAFTA and also the ongoing negotiations about the Free Trade Area of the Americas. Do you believe that specifically this tenth negotiating group should have been established to address labor issues, or do you believe that labor issues were properly addressed in the plan of action that was issued at the recently concluded Santiago Summit?
Mr. SCOTT. Well, it's my belief that labor and environmental issues need to be treated with the same level of attention as is given to a business issue, such as investor rights and intellectual property rights. Labor is certainly at least as important a factor of production as capital. And yet, the committee that was set up in the Costa Rica Agreement treats labor and environment very differently from other issues. It has been referred to as a mailbox, which has been established to receive input from four groups—from producers, from academics, from labor, and from environment—to summarize the agreement. And that committee will then summarize the results and present the conclusions to the trade ministers. But there's no process for negotiations in that structure as there is in the other nine committees. So it's my belief that labor and environment should be elevated to the working group level that has been established for the other issues.
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Ms. ROS-LEHTINEN. Thank you so much. Mr. Blunt.
Mr. BLUNT. Thank you, Madam Chairman. I apologize for not being able to be here for the hearing because clearly trade is one of those issues that is going to take a lot of discussion and a lot of strategy. How, Mr. Scott, would you suggest that we open other markets up to our products if we don't do it through the trade negotiations? I think our tariffs are down to an average now of about 3 percent, so essentially there's not much of a hurdle to send products into the United States. Should we raise that barrier? What would you recommend that we do?
Mr. SCOTT. I think that we ought to look, for example, to the European model of integration. Europe faced problems in the 1960's similar to those that we face today with Mexico and with the other countries in Latin America. At that time, they wanted to integrate with Portugal and Greece and Spain, which, at that time, were very low-income countries. And they developed a plan to gradually raise incomes in those countries over a matter of decades, both by raising labor rates and in Europe's case by through substantial aid payments, so that the consumers in those countries could have their incomes go up and become effective purchasers of their products. And the other thing that they did, of course, was raise wages in those markets, and so there was less competition between workers in the north and the south, with less of the downward pressure on wages I discussed in my written testimony. So I think that attention to the details of a trade agreement and paying attention to closing the gap can lead to a win-win situation. But just lowering tariff barriers alone will not necessarily do that, and as we saw in the NAFTA agreement.
Ms. BLUNT. But our tariff barriers are pretty low, aren't they?
Mr. SCOTT. Yes, they are. In fact, the reduction in Mexican tariffs, as I think you were suggesting, was larger than ours in percentage terms. And yet we've gone from a small trade surplus with Mexico to a substantial trade deficit. And it's that trade deficit that has eliminated jobs and contributed to the downward pressure on wages.
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So it was the total structure of the agreement, which was designed to facilitate a tremendous flow of investment to Mexico—make it easier for U.S. producers to make goods there and import them back into the United States that has resulted in this tremendous imbalance. So my belief is that we need to approach these negotiations with a view toward achieving balanced trade, or fair trade, and not just improving the rules of the game for one set of producer interests, which is what I think we did in NAFTA.
Mr. BLUNT. Did you discuss Canada at all in your comments earlier? I guess from your comments about a similar market, Canada and Mexico would present very different sets of problems?
Mr. SCOTT. That is correct.
Mr. BLUNT. And so you're talking mostly about any southern oriented trade?
Mr. SCOTT. I am concerned about southern oriented trade. We have also developed a trade deficit with Canada during the period of the NAFTA agreement. We had a trade deficit, and it's gotten substantially larger—at least through 1996. And that was, in part, tied to a currency devaluation. And that raises an issue that Mr. DiMare raised in his testimony. I think currency values are another issue that need to be addressed in these kinds of trade agreements. When the United States entered into the U.S.-Canada FTA, the Canadian dollar went from about 85 cents on the dollar. It's now down, I think, in the 60's. That made Canadian goods much more competitive and workers more competitive that led to the trade deficit. So I think that's another issue that we need to address agreements that we're not now considering; that is, exchange rate regimes.
Mr. BLUNT. Mr. DiMare, I'm also on the Agriculture Committee and we have lots of ag folks come and talk to us about trade. With the exception of the fresh fruit and vegetable markets, I think I'm safe in saying that they are always there to ask us to expand trade. Is there any way that that general voice from the agriculture community can be reconciled with your sense with what happens with the fresh product, like tomatoes or, you know, grapes or any other fresh product?
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Mr. DIMARE. I think because of our situation with the intense amount of labor that we use, that our problem is probably going to always be greater than the grain people. The grain people—it is mechanical. I mean, you plant it with very few people. And you certainly harvest it with combines. We've got tremendous hybrids that we've come up with and producing just great crops. But we have hybrids in our product, but we have tremendous labor. We use a lot of labor. I mean, we're labor intense. We have 1,500 pickers and workers in the field all the time. We have about 300 or 400 people in the packing house at all times, packing the product after we pick it and grow it. So it's an intense labor situation. I don't see how you can take a high labor cost product like we have, fresh fruits and vegetables, and expect that we can compete with any kind of product in Mexico that's grown in the same manner. It just is impossible. I think that's what tariffs are about. I think that's what this country was about. I think that's how this country built itself. We were an industrial giant. We had high tariffs. We went from no income tax and high tariffs to high income taxes and no tariffs. I'd just like the opposite way, as an American. I'd rather see high tariffs and low incomes taxes. That's how this country was built and, believe or not, was a protectionist country. The history of this country was protectionist. And that's, you know, we want to get away from, we want to change it—the philosophy I'm very strong thinking Republican conservative. And I think our party has gotten away from that philosophy of exactly what our founding Republican people believed this country was; and that was an industrial giant and protect it. Because they were protectionists. Go back to the original founders, they were protectionists. We have changed our philosophy. We cannot compete.
And the other thing that upsets me tremendously. If it is all so good—and they all testify these big companies, multi-nationals testify—that they want to compete on a trade basis, why do they pick up and leave and go to those other countries to produce to send it back here? Stay here and send it over to those countries. No, they're leaving and going that way. General Motors just came out in the newspaper that they're going to produce another 300,000 cars in Mexico. They're going from 300,000 to 600,000 cars. They're not selling them to Mexico. They're selling them here. Why don't they stay here and try to sell them in Mexico? No, they want to build a factory in Mexico and send them back this way. Because they're using $2 an hour labor against $45 an hour labor in the United States.
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We've got a serious problem. We might not want to address it, but one of these days it's going to hit us right between the eyes because our trade deficit is going up. It's continuing to go up and that means a loss of jobs. And it means a loss of good jobs—industrial, manufacturing jobs. I'm not worried about McDonald's and Burger King and Pepsi Cola and Coca Cola going over there. They're not taking any business away from me. I'm worried about General Motors going overseas and making cars and sending them back here. I'm worried about Smith-Corona moving down there. Mattel, GE—those people moving into these foreign countries are making products and coming back here with them. I wouldn't mind if they even sold them over there. No, they want to make them there and send them back to the United States. I think it's completely wrong in philosophy. I think it's wrong for the American people. And they keep saying it's cheap goods for the American consumer. That same consumer is the guy that just lost his job. You can't separate the worker from the consumer. And the Labor Department scares me to death when they say the next job creation in this country for the next 10 years, the largest No. 1 job creation is cashiers. That's a $6 to $7 an hour job, with no benefits. What happened to manufacturing? That's where the people could buy cars and build homes and send their kids to school. We can't do it in service jobs. A kid could come out of high school when I was a kid growing up in the 1950's and go to work in a manufacturing job and make more than a person that came out of college. That's no longer so. He had a good job—in a steel mill or making cars or in a tire factory. Those were good jobs. What's happening to our country? Does everyone have to go to school to get an education to become a computer expert? There are only so many of those jobs. That's what scares me. There are not a lot of those jobs. That's a good job, don't get me wrong. But there are not a lot of them. It's not like manufacturing was. And that scares me, Congressman. It really does.
Ms. BLUNT. At the time that the Congress voted on NAFTA, there was an exchange of letters specifically related to Florida crops, specifically, I think, related to tomatoes and other similar crops. Were you familiar with that?
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Mr. DIMARE. Yes, I am, Congressman.
Mr. BLUNT. And what does your industry expect to happen as opposed to what you see as having happened? What did you think those letters were going to accomplish?
Mr. DIMARE. What happened in that particular—and I was very much involved in that particular—we had held out our delegation—we had quite a few people from the State of Florida Congresspeople that would not vote because agriculture was completely against the NAFTA unless we had some protections written in. Tom Lewis was our person at that time, was representing the rest of the delegation. He was approached by the President and Mickey Cantor to make a side deal that if he would promise to protect any low-price and that was—I'll give you copy of the letter—I'll be glad to send it to you because I do have a copy of the letter.
Mr. BLUNT. I'd like to see it.
Mr. DIMARE. From the President. And signed by him—that he would protect us against—Florida agriculture—against any low-price based products coming out of Mexico on agriculture. Well, that didn't happen to us. I went before the ITC twice. It's a joke. The ITC does not protect the American businesspeople. We were being completely destroyed. We show where our industry has gone down, and the ITC voted against twice in 201's. The ITC has only voted twice for American businesspeople to give them any kind of aid—that was for the corn broom people, who won a case just about a year ago, and for Holly Davidson. Everybody else has been a disaster. The flatware industry has gone before them. The tool and die industry has gone before them. We've lost all those industries. They said there were no problems in those industries. Meanwhile, they're gone. And that's what the ITC was set up for. The ITC 201's were set up to give aid to American businesses being hurt by imports. We have a problem with these people being free traders. I don't mind being free traders, but if we're destroyed and set up an agency to help the American business that's being destroyed, let's help them. Let's give them some sort of technology, whatever it is. Maybe there are things we can do to keep our industries alive. I don't want to transfer all of what America has been great on. We're all immigrants. We came from foreign countries because we couldn't make it in those countries. That's why my parents left Italy. They wanted to come to a place where they had an opportunity. This country had great opportunities. I don't want to see them disappear. Because once they've gone, we'll never get them back. And I think we're losing them.
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Mr. BLUNT. Thank you.
Ms. ROS-LEHTINEN. Thank you so much, Mr. Blunt.
Mr. Manzullo.
Mr. MANZULLO. I'm sorry. I didn't have a chance to hear your testimony. You've probably summarized it very well during the question and answer period.
An academic question: Does anybody know what the average rate was on Mexican tomatoes before NAFTA?
Mr. DIMARE. What was the question? What was the average what?
Mr. MANZULLO. What was the U.S. tariff rate on Mexican tomatoes before NAFTA? Does anybody know?
Mr. DIMARE. Yes, I do know what it is. It was a penny and half up to February 1 a pound; it went to 2.5 cents a pound on March 1. So it had two separate rates per pound. It was on a pound basis. It was very inexpensive. The tariff is not the problem with NAFTA. Even though I thought the tariffs were too low, because we always had the tariffs since the 1930's. It's basically on our basis it was a little over 50—it's about 60 cents a box.
Mr. MANZULLO. So the tariff wasn't the problem on NAFTA—was it the fact that the Mexican Government couldn't control the co-ops?
Mr. DIMARE. Well, I think you have few problems with NAFTA. I think that when you established NAFTA——
Mr. MANZULLO. What I'm trying to zero in on is exactly what caused the collapse of the tomato industry, if you say that tariffs were not the problem?
Mr. DIMARE. Well, I think it's part of the problem. First, I don't think it's all of the problem. I think that when you allowed people to go down there, Congressman, when the NAFTA was put in—previous to NAFTA, you could own 49 percent. Well, let me tell you something. There are not a lot of Americans who went to Mexico to invest money in an operation that you could only 49 percent of.
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Second, if you had a problem, you had to go to a Mexican court. Now, it's an international court.
Third, if it's confiscated, we protect them in NAFTA that you can get it back. And let's face it, we went through a Cuban situation when a lot of Americans lost a lot of money in Cuba. So you want to be protective if anything happened in the country. That's what happened. A lot of money has poured into Mexico because you changed the rules of the game.
Mr. MANZULLO. Let me make a couple of comments.
First of all, with regard to the ITC, I represent a manufacturing area and also heavy agriculture—grain—sells a lot of boned pork to Japan as a result of GATT. Dropping the tariffs on that. And I helped a brake parts corporation file a dumping case against China. And we won it. It was an unanimous decision. I think it was a 137 percent tariff that was imposed upon three or four Chinese companies on rotors and drums—I'm sorry, just on rotors. The drums was ruled out of order. But I'm trying to take NAFTA in the historic sense. There were two currency devaluations before NAFTA. In each of those, there was a dramatic decrease in U.S. exports to Mexico. The last time Mexico devalued its peso, under the terms of NAFTA, they couldn't impose those high tariffs again. I think the extent of our loss of exports to Mexico was somewhere around 7 or 8 percent. It was a small figure compared to what it was before NAFTA. In other words, because of NAFTA, NAFTA prohibited Mexico from throwing up those high tariff barriers when they devalued their currency. We can talk about trade surplus. Japan has always grown a positive trade surplus in the past 18 to 20 years. Yet look how anemic their economy is. The disaster that's going on over there. The United States has always run a trade deficit, and, you know, we're desperately looking for workers to fill what's going on in American industry. And I think the problem is, you know, sure we were founded on a protectionist society. I mean, under the Articles of Confederation, the States had tariffs among each other. Then we got rid of that. Congress was given the exclusive power over tariffs, and as we became more of an international economy, as ships obtained power as opposed to wind, we eventually saw the benefit in decreasing the amount of tariffs. All I can say is that the—I don't know what the President promised you in that letter on protection. But really NAFTA can only go to the elimination of those tariffs.
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Then, Mr. Scott, I noticed in your document, you say your research indicates the United States has lost about 200,000 jobs per year because of international trade since 1979. Well, if we've lost all these jobs and unemployment is at 3.5 to 4.0 percent, well then where would all these people come from to fill in the jobs that have been lost?
Mr. SCOTT. If I may respond?
Mr. MANZULLO. The answer is that what's happened is that workers have cut their wages, and they've gone to work in other low-wage industries, particularly service industries. Workers in this country don't have much of a safety net to fall back on, and so they're forced to go out and take the first job available and often it's very low paid. And we heard the Administration speakers here before talk about the high wages paid in export jobs-–10 to 15 percent above average. What they didn't mention was that industries that produce import competing goods also pay high wages. In fact, we found that in a study that I did—in a study cited in my first footnote in my prepared testimony. So what's happened is increasing imports have destroyed good jobs in manufacturing industries and put people to work in services.
Mr. MANZULLO. But you know the problem is it's great to export, but nobody wants to import. And you wouldn't have the exports without the imports because it becomes a two-way street out there. With regard to grains, in Illinois I mean, most grains—U.S. grains—I think 38 percent are exported. In Illinois, it's 44 percent. And even into China where China used to be a net exporter of soy meal, now it's a net importer of soy meal. And that's coming from the United States as a result of these trade agreements. And I think it's—I don't want to use the words wrong or incorrect—but maybe there has to be different language with regard to all these trade agreements. I mean all the trade agreement did was with Mexico is before NAFTA the average U.S. tariff to Mexico was 10 percent. And the average Mexican tariff to the United States was 4 percent. And we zeroed that out. Their tariffs were 2.5 times higher than ours, as was demonstrated with the fact on the tomatoes. But there could be a more structural problem as I talk to one member of the Florida delegation—I've been very close to him—he's a good friend of mine—who traveled to Mexico and talked to the Mexican trade authorities and they said, well, yes, tomatoes had been dumped there. He said that the problem is that we can't control the co-ops. That's because the co-ops continue to send more tomatoes than what they should have. That was his assessment of it, and I don't know how something like that could be corrected. I'd like to hear your thoughts.
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Mr. DIMARE. Well, there is certainly a problem in perishables more than grains, where you don't store them—our product——
Mr. MANZULLO. And it's not labor-intensive. You're correct on that.
Mr. DIMARE. Our problem is on a perishable when it's shipped into the marketplace in a week's time, let's say. It comes in daily across the Nogales border—that's where most of our produce comes across from Mexico for the time of the year that it competes against Florida. They're coming across from San Diego right now because Baja has started, which is the other side. But across the Nogales border, let's say that the United States can consume about 150,000 tomatoes out of Mexico a day, along with what Florida is producing. We have had surges out of Mexico of 600,000 and 700,000 packages in one day. Well, on a perishable you completely destroy that market, not only for that week, that day, but for probably 2 weeks. But worse than that, you have to go back and rebuild the product you already shipped because when it gets in the marketplace the guy says I'm not paying you for what you shipped last week because the market has gone to hell here.
Mr. MANZULLO. So the violations become aggravated because——
Mr. DIMARE. It multiplies.
Mr. MANZULLO. Because of season——
Mr. DIMARE. —We're seasonal FE
Mr. MANZULLO. —And because of being perishable. And that's how that differs from grapes——
Mr. DIMARE. It's such a perishable product. I mean, honestly, our markets change hourly on perishables. It is that technical because the weather can affect it very emphatically. We don't have any storage. We don't have inventories of this product. It's a daily picked sold product. When you have tremendous influx of product coming into the market, you really have a destruction of that marketplace. Now, I don't know whether you've watched the apple situation that happened in Washington State. But you know, the Mexicans accused the Washington apple growers of dumping apples into Mexico. Without any findings whatsoever, they imposed a 101 percent tariff on them. They finally went through a complete study for 6 months, came up with no findings of dumping, have not taken off the 101 percent tariff, but just entered into a suspension agreement with the United States, after never finding any kind of dumping—for a suspension price.
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Mr. MANZULLO. Of course, the United States has powers to retaliate also, such as in tomatoes.
Mr. DIMARE. Did what?
Mr. MANZULLO. The United States has the power to retaliate by upping the tariffs for something like that also.
Mr. DIMARE. I wish they would.
Mr. MANZULLO. I want to thank you, gentlemen, for your testimony even though all I heard was on the response to the answers, and that's more than sufficient to give me an idea as to where you're coming from. I appreciate your thoughts.
Mr. DIMARE. Thank you, Congressman.
Ms. ROS-LEHTINEN. Thank you so much. Thank you so much, and we thank the panelists for being with us. We will now go into a briefing format. We will adjourn the hearing, and in this briefing format, we will have an informal discussion with the ambassadors who are present here today. We thank them for being here and sharing their insights and their views on regional integration and the Free Trade Area of the Americas.
[Whereupon, at 3:36 p.m., the Subcommittee proceeded to other business.]
A P P E N D I X
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