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THE FUTURE OF THE NORTH AMERICAN FREE

TRADE AGREEMENT

HEARING

BEFORE THE

SUBCOMMITTEE ON TERRORISM, 

NONPROLIFERATION, AND TRADE

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTEENTH CONGRESS

FIRST SESSION

DECEMBER 12, 2017

Serial No. 115–90

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ or

http://www.gpo.gov/fdsys/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

EDWARD R. ROYCE, California, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

DARRELL E. ISSA, California 

TOM MARINO, Pennsylvania 

MO BROOKS, Alabama 

PAUL COOK, California 

SCOTT PERRY, Pennsylvania 

RON DESANTIS, Florida 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

ADAM KINZINGER, Illinois 

LEE M. ZELDIN, New York 

DANIEL M. DONOVAN, JR., New York 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

ANN WAGNER, Missouri 

BRIAN J. MAST, Florida 

FRANCIS ROONEY, Florida 

BRIAN K. FITZPATRICK, Pennsylvania 

THOMAS A. GARRETT, JR., Virginia 

JOHN R. CURTIS, Utah 

ELIOT L. ENGEL, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

KAREN BASS, California 

WILLIAM R. KEATING, Massachusetts 

DAVID N. CICILLINE, Rhode Island 

AMI BERA, California 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

JOAQUIN CASTRO, Texas 

ROBIN L. KELLY, Illinois 

BRENDAN F. BOYLE, Pennsylvania 

DINA TITUS, Nevada 

NORMA J. TORRES, California 

BRADLEY SCOTT SCHNEIDER, Illinois 

THOMAS R. SUOZZI, New York 

ADRIANO ESPAILLAT, New York 

TED LIEU, California

AMY PORTER, Chief of Staff THOMAS SHEEHY, Staff Director

JASON STEINBAUM, Democratic Staff Director 

SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION, AND TRADE

TED POE, Texas, Chairman 

JOE WILSON, South Carolina 

DARRELL E. ISSA, California 

PAUL COOK, California 

SCOTT PERRY, Pennsylvania 

LEE M. ZELDIN, New York 

BRIAN J. MAST, Florida 

THOMAS A. GARRETT, JR., Virginia 

WILLIAM R. KEATING, Massachusetts 

LOIS FRANKEL, Florida 

BRENDAN F. BOYLE, Pennsylvania 

DINA TITUS, Nevada 

NORMA J. TORRES, California 

BRADLEY SCOTT SCHNEIDER, Illinois 

(III)

C O N T E N T S 

Page

WITNESSES 

Mr. Eric Farnsworth, vice president, Council of the Americas ............................ 8

Mr. Daniel Allford, president, ARC Specialties ..................................................... 17

The Honorable John D. Negroponte, vice chairman, McLarty Associates 

(former Deputy Secretary of State and Former Director of National Intelligence) .................................................................................................................. 23

Ms. Celeste Drake, Trade and Globalization Policy specialist, The American 

Federation of Labor and Congress of Industrial Organizations ....................... 29

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Ted Poe, a Representative in Congress from the State of 

Texas, and chairman, Subcommittee on Terrorism, Nonproliferation, and 

Trade: Prepared statement .................................................................................. 4

Mr. Eric Farnsworth: Prepared statement ............................................................ 11

Mr. Daniel Allford: Prepared statement ................................................................ 19

The Honorable John D. Negroponte: Prepared statement ................................... 25

Ms. Celeste Drake: Prepared statement ................................................................ 31

APPENDIX 

Hearing notice .......................................................................................................... 58

Hearing minutes ...................................................................................................... 59

The Honorable Darrell E. Issa, a Representative in Congress from the State 

of California: 

Prepared statement .............................................................................................. 60

Material submitted for the record ...................................................................... 61

(1)

THE FUTURE OF THE NORTH AMERICAN 

FREE TRADE AGREEMENT 

TUESDAY, DECEMBER 12, 2017

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION, AND TRADE,

COMMITTEE ON FOREIGN AFFAIRS,

Washington, DC. 

The subcommittee met, pursuant to notice, at 2:00 p.m., in room 

2172, Rayburn House Office Building, Hon. Ted Poe (chairman of 

the subcommittee) presiding. 

Mr. POE. The subcommittee will come to order. 

Without objection, all members may have 5 days to submit statements, questions, extraneous materials for the record, subject to 

the length limitation in the rules. 

I will now make my opening statement. 

Twenty-three years ago, the North American Free Trade Agreement revolutionized trade and investment between the U.S., Canada, and Mexico. We share thousands of miles of border with Canada and Mexico. They are our neighbors and our natural partners 

in trade and security. 

And I want to emphasize the word ‘‘neighbors.’’ Sometimes the 

United States seems to be more concerned about some country far, 

far away than they are about our neighbors, Mexico and Canada. 

I think that is a mistake. 

This partnership has been shaped by NAFTA and our mutual 

histories. I am a strong supporter of free trade. America’s strength 

is closely connected to its economic well-being. When we break 

down trade barriers, American trade and American jobs increase. 

Trade is the lifeblood of my home State of Texas. Last year in 

Texas, almost 1 million jobs were supported by some form of trade. 

Texas has been the top exporting State in the United States for 14 

consecutive years. The overwhelming majority of Texas exporters 

are not big corporations but 93 percent of the Texas exporters are 

small and medium-size businesses. 

In my district of Houston, over half of the economy depends on 

trade. Houston has one of the largest ports in the world and is the 

oil and gas capital of the world. And guess where our Texas exporters export the most? Mexico and Canada, our NAFTA partners. 

Mexico is Texas’ number-one exporting partner. Over 10,000 trucks 

a day pass the Texas-Mexico border, all involved in trade. 

Texas is just one of the many States that rely on NAFTA to fuel 

the economy. Study after study have shown that increased trade 

leads to increased jobs for all Americans. More jobs mean more 

2

wealth for Americans. NAFTA supports 14 million jobs in the 

United States, and, thanks to NAFTA, trade between the U.S., 

Mexico, and Canada has tripled. Nearly every industry is affected 

in one way or another by NAFTA. The U.S. economy relies on 

NAFTA. 

Free trade agreements like NAFTA do more than just grow our 

economy. Trade is one of our best tools for foreign policy and political policy. We have seen the connection between free trade and 

freedom, opportunity, and prosperity. When we signed the NAFTA 

agreement, Mexico was considered a developing country. Its economy was one of the most closed in the world. Now, thanks in part 

to NAFTA, Mexico has an open economy valued at $2.2 trillion. 

The growth has made Mexico a stable neighbor. 

The increased trade between our countries has also deepened the 

ties between Mexico and Canada, allowing us to work together on 

many critical issues. Today, we cooperate with the Mexican Government on numerous issues, surprisingly to some Americans, including border security, immigration, and the fight against organized crime and drug trafficking. Our southern border security depends on our joint effort with Mexico. 

Cooperation with Canada has improved due to NAFTA. Our 

forces train and work together to defend North America. We fight 

side-by-side against national security threats like ISIS, and we are 

NATO partners. These are some of the most critical issues to our 

national security and to the security of our world. 

That brings me to the reason we are having this hearing today, 

to address the renegotiation of this critical free trade agreement. 

This negotiation, or renegotiation, is going on as we speak. 

A lot has changed in 23 years. The internet has transformed the 

way companies do business. Reforms in Mexico have created new 

opportunities for U.S. businesses. The renegotiation presents an opportunity to update the agreement in areas like energy, e-commerce, customs and trade facilitation, and many others to strengthen and promote trade. 

While there is a lot of opportunity to strengthen the agreement, 

there is also the risk of hurting U.S. businesses and workers. Hundreds of thousands of jobs across North America could be at risk 

if we suddenly pulled out of NAFTA or weakened the agreement. 

We could also do damage to our partnerships with Mexico and Canada that have made North America so strong. 

There has been some criticism, maybe harsh criticism, by others 

of NAFTA for decades, but we must separate the rhetoric from the 

facts and the criticism from people that don’t have anything to do 

with trade. The fact is that NAFTA has benefited all three of our 

nations. 

I encourage the administration to strengthen and modernize 

NAFTA. There is always room to improve it to make it better for 

all three countries. And we have the rare opportunity at this very 

time to rewrite the rules of North American trade, to make it free 

trade and fair trade. We must take the opportunity to write them 

for the better. 

I believe it is important to the U.S. economy and national security that, throughout the renegotiations, the administration focuses 

on reaching an agreement that promotes free trade as well. We are 

3

sending a message to our current and future trading partners 

throughout this renegotiation. The U.S. should send a strong signal 

to support not only the NAFTA free trade agreement but free trade 

with other countries, as well, that want to trade with the U.S. 

A strong U.S. economy depends on a strong framework of free 

trade, and I look forward to hearing from our witnesses on how the 

administration can strengthen NAFTA and make it better. 

I will now yield to the gentleman from Massachusetts, Mr. 

Keating, former prosecutor—maybe still a prosecutor—for his opening statement. 

[The prepared statement of Mr. Poe follows:]

4


27810g-1.eps

Opening Statement of the Honorable Ted Poe (R-TX), Chairman 

Subcommittee on Terrorism, Nonproliferation, and Trade Hearing: 

"The Future of the North American Free Trade Agreement" 

December 12, 2017 

(As prepared for delivery) 

23 years ago, the North American Free Trade Agreement revolutionized trade and investment 

between the U.S., Canada, and Mexico. We share thousands of miles of border with Canada and 

Mexico. They are our neighbors and our natural partners in trade and security This partnership 

has been shaped by NAFTA. 

I am a strong supporter of free trade. America's strength is closely connected to its economic 

well-being. When we break down trade barriers, American trade and American jobs increase. 

Trade is the lifeblood of my great home state of Texas. Last year in Texas almost one million 

jobs were supported by trade. Texas has been the top exporting state in the U.S. for 14 

consecutive years. The overv,rhelming majority of Texas exporters are not big corporations: 93% 

percent of Texas exporters are small-and medium-sized businesses. Tn my district in Houston, 

over half of the economy depends on trade. Houston has one of the largest ports in the world and 

is the oil and gas capital of the world. And guess where we Texans export the most- Mexico and 

Canada. Our NAFTA partners. 

But, Texas is just one of the many states that rely on NAFTA to fuel its economy. Study after 

study has shown that increased trade leads to increased jobs for Americans. More jobs mean 

more wealth for the average American citizen. NAFTA supports 14 million U.S jobs. Thanks to 

NAFTA, trade between the U.S., Mexico, and Canada has tripled. Nearly every industry is 

affected in one way or another by NAFTA. The U.S economy needs a strong NAFTA. 

But free trade agreements like NAFTA do more than just grow our economy. Trade is one of our 

best tools offoreign policy. We have seen the connection between free trade and freedom, 

opportunity, and prosperity again and again. When we signed NAFTA, Mexico was a developing 

country. Its economy was one of the most closed in the world. Now, thanks in part to NAFTA, 

Mexico has an open economy valued at $2.2 trillion. This growth has made Mexico a more 

stable neighbor. This increased trade between our three countries has also deepened our ties with 

Mexico and Canada, allowing us to work together on many critical issues. Today, we cooperate 

with the Mexican government on issues of border security, immigration, and the tight against 

organized crime and drug trafficking. Our southern border security depends on our joint efforts 

with Mexico. Cooperation with Canada also improved due to NAFTA. Our forces train and work 

together to defend North America. We fight side by side against national security threats like 

ISIS and partner as NATO members. These are some of the most critical issues to our national 

security and to the security of our world. 

That brings me to the reason we are all here today. To address the renegotiation of this critical 

free trade agreement. A lot has changed in 23 years. The internet has transformed the way 

companies do business. Reforms in Mexico have created new opportunities for U.S. businesses. 

The renegotiation presents an opportunity to update the agreement in areas like enert\Y, ecommerce, customs and trade facilitation, and many others to strengthen and promote trade. 
5


27810g-2.eps

While there is a lot of opportunity to strengthen the agreement, there is also the risk of hurting 

US. businesses and workers. Hundreds of thousands of jobs across North America could be at 

risk if we pull out ofNAFTA, or if we weaken the agreement. We could also do damage to our 

partnerships with Mexico and Canada that have made North America so strong. 

There has been harsh criticism of NAFTA for decades. But we must separate the rhetoric from 

the facts The fact is that NAFT A has benefited all three of our countries. So, T encourage the 

administration to strengthen and modernize NAFTA. There is always room for improvement. We 

have a rare opportunity here to rewrite the rules of North American trade. But we must take this 

opportunity to rewrite them for the better. 

It is important to the U.S. economy and national security that throughout the renegotiations the 

administration focuses on reaching an agreement that promotes free trade. We are sending a 

message to our current and future trading partners through this renegotiation The U.S. should 

send a strong signal of our support for free trade. A strong US. economy depends on a strong 

framework for free trade. !look forward to hearing from our witnesses how the administration 

can strengthen NAFTA. 
6

Mr. KEATING. Thank you, Mr. Chairman. Thank you, Chairman 

Poe, and thank you for having this hearing today. 

We are here in the Subcommittee on Terrorism, Nonproliferation, 

and Trade, and, as anyone who watches the news knows, there are 

many threats facing us today in these areas: ISIS, lone-wolf attacks, escalating tensions with North Korea, and the threat, again, 

of nuclear war. We must be vigilant in addressing every threat 

here at home and in the globalized world. 

The threats that cross borders and affect all of us are important. 

Threats from terrorism and proliferation of nuclear weapons are sobering. We must do everything in our power to keep Americans 

safe. But, additionally, we cannot afford to lose sight of trade. It 

doesn’t command as much attention in the news as some of these 

issues I have just mentioned, but it affects every single American. 

Trade has the power to affect where jobs are located, to affect 

wages, to affect the cost of goods and services we rely on every day 

without even thinking about trade policies that affect them when 

they are in front of us. Trade is an incredible economic and foreign 

policy tool if it is wielded effectively and responsibly. It is the duty 

of U.S. Government to take full advantage of every tool at our disposal to make life better and easier for everyday, hardworking 

Americans. 

In order to do that in trade, we must be extremely careful in examining who wins and who loses. There has been a similar debate 

raging in this country over winners and losers recently, and that 

is over taxes. There are a lot of numbers and mathematical formulas and technical terms being thrown around with these issues, 

but, at the end of the day, how sure are we that it is the student, 

the assembly-line worker, the farmer, the mother of three, how 

sure are we that they are seeing the benefits of these policies? 

The good news is that there are things we can do in trade so that 

all boats rise, because our economies, our security, our institutions 

are all stronger when the people at the receiving end of trade and 

tax and any policy, for that matter, are stronger. 

However, we also have to be honest about what that means, because in trade this is not the norm. It is going to take real work 

to renegotiate NAFTA so that Americans, Mexicans, and Canadians see the benefits of what an effective, responsible trade policy 

should look like. 

Unfortunately, on this issue, which will have a significant impact 

on each and every American’s bottom line every month, I remain 

unconvinced that this President has approached this issue with the 

seriousness it demands. 

For starters, the unrealistic timing parameters placed on these 

negotiations only suggest that the administration is willing to accept more of the same. I hope I am wrong about that, but negotiating wholesale changes in trade policy that break with longstanding trade practices takes time, no matter how quickly we 

might want to change that to happen and how willing we are to 

make sure it works toward that end. 

This applies to tax, trade; it applies to anything. We should be 

very careful about anything that moves quickly in this city. And 

with very little oversight from Congress or engagement from the afVerDate 0ct 09 2002 13:58 Jan 11, 2018 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 F:\WORK\_TNT\121217\27810 SHIRL
7

fected stakeholders and their representatives, this is an area of 

concern. 

To our role in Congress, I am glad we are having this hearing 

in our subcommittee today, because it is a critical issue for our 

country and our foreign policy. We are fortunate to have our expert 

panel of witnesses here to inform us and inform this discussion 

right here in Congress on the NAFTA negotiations and what we 

should be paying close attention to so that we are serving the interests of the hardworking Americans in our own districts. 

While I am pleased with our witnesses here today, they are not 

government witnesses. Our panel, they are really not the ones that 

are going to be in the room negotiating this when it happens. They 

are not negotiating in terms of the trade policy that might have the 

single greatest impact on our constituents during our time serving 

here in Congress. They are not serving at the State Department, 

the Office of U.S. Trade Representative, USAID, Department of 

Labor. They are not working in our Federal agencies tasked with 

taking a new NAFTA and making it function properly at all levels 

of implementation, down to the workers in the fields or the assembly line or the parents buying groceries. 

With something of this significance, we owe it to our constituents 

to be fully informed on the terms that are being written into the 

new NAFTA, on the economic effects those terms will have on our 

communities back home, on what we need to do as the United 

States Government to make sure that everything is in place if and 

when a new NAFTA is signed. Because there are always risks and 

uncertainties when new policy is put into place, and we should 

work together to make sure people are not harmed in the process. 

For today, with this opportunity before us, in what I hope will 

be the first effort at taking up the issue of NAFTA negotiations, 

I hope we can use this time today to learn more about what a successful renegotiation looks like. Trade is just like any other issue—

tax, healthcare, financial regulation. We have learned a lot from 

how past practices have gone, and we have learned about who the 

winners and losers were under those policies. We are better not to 

be repeating those same mistakes. Our communities back home deserve better. 

I yield back. 

Mr. POE. I thank the gentleman from Massachusetts. 

Without objection, all of the witnesses’ prepared statements will 

be made part of the record. 

I ask that each witness keep your presentation to no more than 

5 minutes. And there is an easy way to know how long 5 minutes 

has passed because a red button will blink in front of you. But we 

do have all of your testimony, all members have your testimony, 

and your bios as well. 

I will introduce briefly each witness and let them make their testimony. 

Eric Farnsworth is the vice president of the Council of the Americas. He previously worked at the State Department, Office of the 

U.S. Trade Representative, and was a senior adviser to the White 

House Special Envoy for the Americas. 

Thank you, Mr. Farnsworth, for being here. 

8

Mr. Daniel Allford has been the president and owner of ARC 

Specialties of Houston, Texas, for 35 years. ARC Specialties began 

as a one-man operation and has grown into an internationally recognized automation company that employs 65 engineers and craftsmen. 

Mr. Allford, thank you for being here and taking time away from 

your business. 

Ambassador John Negroponte is the vice chairman of McLarty 

Associates. He was previously the Deputy National Security Advisor under President Reagan and was the first Director of National 

Intelligence under President George W. Bush. In addition, he 

served as the Ambassador to Honduras, Mexico, Philippines, the 

U.N., and Iraq. 

Ms. Celeste Drake is a trade and globalization policy specialist 

for the American Federation of Labor and Congress of Industrial 

Organizations. Previously, Ms. Drake worked for Congresswoman 

Sanchez and Congressman Doggett, in addition to serving on the 

Advisory Committee for the U.S. Export-Import Bank from 2013 to 

2016. 

Mr. Farnsworth, we will start with you. You have 5 minutes. 

STATEMENT OF MR. ERIC FARNSWORTH, VICE PRESIDENT, 

COUNCIL OF THE AMERICAS 

Mr. FARNSWORTH. Thank you very much, Mr. Chairman. And 

good afternoon to you, Mr. Ranking Member, and members of the 

subcommittee. It is a real privilege to have the opportunity to appear before all of you to discuss the future of NAFTA. 

If I may, let me give you the bottom line first. NAFTA was a true 

innovation in economic relations. It was designed to increase trade 

and investment among its three parties, promote North American 

economic integration, and support a vision of open-market democracy for Mexico, providing that nation with a clear path toward political and economic development. It has succeeded on all three 

metrics, promoting our strategic, economic, and foreign policy interests as well as our values. 

Ending NAFTA would be a significant, lasting, and wholly unnecessary strategic mistake. At the same time, it is inevitable that 

after a quarter-century NAFTA has become dated and can usefully 

be modernized. And there is a landing zone, if the parties would 

like to achieve it. 

Since 1993, U.S. trade in goods and services with Canada and 

Mexico increased from $307 billion to well over $1 trillion by 2016. 

Annual trade between the United States and Canada has more 

than doubled. With Mexico, trade has quadrupled. Canada is the 

top trading partner of the United States, and Mexico is our secondlargest export market and third-largest trading partner. More than 

40 U.S. States count either Canada or Mexico as their top export 

destination. 

NAFTA has expanded trade and investment while organizing the 

majority of North American economic relations under a rules-based 

framework. As China continues its inexorable march up the development ladder and becomes increasingly economically assertive, 

our ability to compete economically will be further enhanced from 

a North America platform rather than the United States alone. 

9

Perhaps more importantly, NAFTA institutionalized a vision for 

North America that would have been impossible absent significant 

political and economic reforms in Mexico, both catalyzing such reforms and also benefiting from them. NAFTA has directly supported Mexico’s democratic transformation while also establishing 

a framework of trust, supporting close U.S. cooperation across a 

range of security issues, including counternarcotics, counterterrorism, and migration. Such cooperation is at risk if the United 

States continues on its current path. 

Negotiations to revise NAFTA are now well underway. Press reports indicate that the most difficult issues remain to be addressed. 

Unless they are soon resolved, the possibility is increasing that 

talks may break down altogether and that the U.S. might consider 

giving notice of withdrawal. 

According to The Wall Street Journal, some 80 percent of economists surveyed anticipate withdrawing from NAFTA would depress 

U.S. growth, even as Congress is right now pushing forward on a 

tax package designed to kickstart growth. Withdrawal would also 

reduce growth in both Canada and Mexico, perhaps leading to a recession and creating economic conditions that traditionally cause 

migration, especially from Mexico to the United States. 

Much depends on the outcome of discussions surrounding rules 

of origin as a means to address the trade balance, although other 

significant issues also remain, including a sunset provision proposal and disagreements on intellectual property, government procurement, and dispute settlement procedures. Backward steps on 

these issues would cause irreparable damage to fully integrated 

supply chains and the workers whose jobs depend on them, in part 

because companies would find it difficult, if not impossible, to meet 

the required rules of origin currently under discussion. 

Were NAFTA to be eliminated, the parties to the agreement 

would then return to previous bound tariff rates, Mexico’s being far 

higher than ours. Agriculture exports would suffer immediately, 

giving up the significant advantage that has turned Mexico into the 

U.S.’ second-largest—$18 billion—market, after only Canada. 

Meanwhile, to escape tariff barriers raised by Mexico, those seeking to supply Mexico’s growing market and increasingly middleclass population, may, in fact, seek to move production to Mexico. 

This is exactly the opposite of the intended result. 

Having said all of this, the uncertainty that has been caused by 

the negotiations has already had negative consequences. Doubts 

will linger about whether the word of the United States, even one 

that is confirmed on a bipartisan basis by both houses of Congress, 

can be fully trusted again. Were we intentionally to seek ways to 

undermine our own global strategic interest, we might not find a 

better means of doing so than this. 

The challenges that face the United States at this moment are 

significant and they are real, but NAFTA is not the culprit. Rather, 

the relaunch of an updated and modernized NAFTA, fully acknowledging the rapid technological advances that continue to be made, 

informed by a vision of a more economically integrated North 

America to compete effectively on a global stage, is part of the solution. 

10

And, in the meantime, the strong, public, timely assertion by 

Congress of institutional prerogatives on trade and NAFTA, in particular, would be a welcome and, in my view, appropriate step. 

So I want to thank you again, Judge Poe and the ranking minority member, for the opportunity to be with you today, and I look 

forward to your questions. 

[The prepared statement of Mr. Farnsworth follows:]

11


27810a-1.eps

THE FlJTlJRE OF THE NORTH AMERICAN 

FREE TRADE AGREEMENT 

HEARING BEFORE THE U.S. HOUSE OF REPRESENTATIVES 

COMMITTEE ON FOREIGN AFFAIRS 

SUBCOMMITTEE ON TERRORISM, NONPROLTFERA TTON, 

AND TRADE 

DECEMBER 12,2017 

ERIC FARNSWORTH 

VICE PRESIDENT 

COUNCIL OF THE AMERICAS 

* * * As Prepared for Deli very * * * 

Good afternoon, Mr. Chairman, Mr. Ranking Member, and Members. It is both a pleasure and a 

privilege to join you and the other distinguished panelists for today' s discussion on the future of 

NAFTA. Thank you for the opportunity to testify on such a timely and important topic, and 

thank you for your leadership in highlighting these important issues trom both a trade and also a 

security perspective. 

For over 50 years the Council of the Americas has been dedicated to the promotion of 

democracy, open markets, and the rule oflaw across the Americas. We strongly believe that 

US. economic, security, and foreign policy interests are best supported with the enlightened 

engagement of the private sector. We also believe strongly that agreements that expand trade 

and investment, enlarge consumer choice and utility, create jobs in the formal sector, and 

promote values we share are some of the best tools that the United States maintains in order to 

promote sound, meaningful, and lasting engagement in the Americas and worldwide on a 

mutually-beneficial basis. 

NAFTA is a Success in Economic and Foreign Policy 

Mr. Chairman and Members of the Subcommittee, let me give you the bottom line first: NAFTA 

was a true innovation in economic relations. It was designed to increase trade and investment 

among its three parties; promote North American economic integration; and support a vision of 

open market democracy for Mexico providing that nation with a clear path toward political and 

economic modernization. lt has succeeded on all three metrics, promoting our strategic, 

economic, and foreign policy interests, as well as our values. Ending NAFTA would be a 

significant, lasting, and wholly unnecessary strategic mistake. 
12


27810a-2.eps

At the same time, it is inevitable that after almost a quarter century NAFTA has become dated 

and can usefully be modernized. Tn attempting to do so, all three parties to the agreement must 

understand what is truly at stake if they are unable to come to satisfactory agreement. Mending 

NAFTA is appropriate, and there is a landing zone if the parties want to achieve it 

Since 1993, US trade in goods and services with Canada and Mexico increased from 

$307 billion to well over $1 trillion by 2016. Annual trade between the United States and 

Canada has more than doubled; with Mexico trade has quadrupled. Canada is the top trading 

partner of the United States and Mexico is our second largest export market and third largest 

trading partner. More than 40 states count either Canada or Mexico as their top export 

destination. Perhaps more importantly, beyond these tangible commercial benefits, NAFTA 

institutionalized a vision for North America that would have been impossible absent significant 

political and economic reforms in Mexico, both catalyzing such reforms and also benefitting 

from them. As China continues its inexorable march up the development ladder and becomes 

increasingly economically assertive, our ability to compete will continue to be enhanced from a 

North America platform rather than the United States alone. 

In addition, agreements like NAFTA are not just about trade and investment, they are also 

critical if often under-appreciated tools of US foreign policy and the promotion of our values. 

Unquestionably, NAFTA has directly supported Mexico's democratic transformation It 

required legislative and regulatory changes that might not otherwise have occurred absent an 

external catalyst. It has also empowered new economic constituencies and a growing middle 

class that has demanded and received an increasingly clear political voice. Arguably, Mexico's 

politics are more transparent and democratic today than ever before, and the Mexican people 

have made clear their disinterest in returning to the ways of the past. And NAFTA also 

established a framework of trust, built on stability and long-run commitment, supporting close 

U.S. cooperation with Mexico across a range of security issues including counter narcotics and 

counter terrorism, in addition to meaningful assistance to address migration ±lows that continue 

from Central America. (Net migration from Mexico itself to the United States has become 

virtually zero as Mexico's economy generates new opportunities for its workers). A full 

accounting ofNAFTA's impact cannot overlook these critically important issues. 

At the same time, NAFTA has done much to enhance confidence in the United States. Recent 

actions and rhetoric that stigmatize Mexicans or that are perceived as anti-Mexico, including 

intlexible NAFTA negotiating positions that are politically impossible for Mexico and also 

Canada to adopt, are leading to a revival of a more strident, traditional anti-US. posture that has 

taken a generation of goodwill on all sides to overcome. As Mexicans in particular go to the 

polls in 2018 to elect their next president, such matters will not be far from their minds and may 

impact both the final outcome as well as the political space that the new president, whoever he or 

she is, will have to cooperate with the United States on a multitude of issues-including security, 

counter narcotics, and immigration-going forward. 

2 
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The World has Changed Since 1994 and NAFTA has Become Dated 

From the trade perspective, NAFTA was at the cutting edge when it was passed originally. 

Heretofore there had never been an effort to link the world's largest, most developed economy 

with an economically backward, underdeveloped neighbor that seemed to lurch from economic 

crisis to crisis. The gulf between Mexico and its two other North American neighbors was large 

and perhaps insurmountable over the near term. At the same time, the pre-existing free trade 

agreement that the United States had already implemented with Canada was cause for Ottawa to 

join the talks as a defensive move, so as not to see their own benefits eroded by a US. agreement 

with Mexico. Along with certain constitutional and political restrictions in all three countries, 

this meant that negotiators could move ahead only so far, excluding certain sectors such as 

energy because they were too politically controversial at the time. What the negotiators created, 

however, proved to be an effective framework for ordering the majority of North American trade 

and investment relations during the economic stresses, political transitions, and security crises of 

the past 23, almost 24 years. 

Since then, however, the world has changed dramatically, and NAFTA is now showing its age 

and should be modernized. Three long-term trends must be highlighted, all of which continue 

apace even after the US. elections just over a year ago. 

First, production models have evolved. Canada, Mexico, and the United States do not merely 

trade products as we did when NAFTA was first implemented; we now design and make them 

together. In many industries, joint production and supply chains have developed to such an 

extent that, from the commercial perspective at least, national borders no longer define products. 

This is to our benefit: according to the National Bureau of Economic Statistics, every dollar of 

US. imports from Mexico, for example, includes some 40 percent of US. content; for Canada it 

is 25 percent As a result it is no longer accurate to think in terms of US. or Mexican or 

Canadian products when North America itself has become the production platform. North 

America has become a true 21 '

1 century economic space, just in time to compete more effectively 

with China, India, and others. As former Under Secretary of Commerce Stefan Selig has just 

written, putting America first therefore means putting North America first 

Second, consider that in 1994, there was barely an internet, much less Facebook or Twitter. 

Nobody knew how radically and rapidly electronic communications would fundamentally alter 

business models around the world. But it's not just email and social media. Consider the 

incredible advances that technology has made possible in the auto and manufacturing sectors, 

enerb>y, financial services, IT, medical products, agriculture, and virtually every other economic 

sector in the past two plus decades. Entire industries that were not even contemplated by 

NAFTA are now a significant part of all three economies. The original NAFTA could not 

possibly have anticipated these developments and a renegotiated NAFTA could potentially 

provide an opportunity to include them within the framework of an updated and more fully 

comprehensive regional agreement ln addition, it would allow the inclusion of sectors such as 

energy heretofore excluded for political reasons. 

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Third, there was a noticeable change in trade patterns within North America demarcated by 9/11, 

at which point the border "thickened" and commercial activities understandably took a second 

seat to security. A resulting lack of sufficient attention to commercial needs at the borders, 

specifically in cross-border infrastructure but in other areas too, created unnecessary bottlenecks 

and wait times for commercial traffic that erode the compelling advantages of geographic 

proximity. Some work has been done since then, but as NAFTA-facilitated trade increases, 

infrastructure has not kept up. And it goes without saying that building additional walls and 

barricades could only exacerbate the bottlenecks that already exist and which are so much 

unnecessary pressure on the a windpipe of the U.S. economy. Modernizing the agreement could 

also provide an excellent opportunity to take a more balanced look at border issues. 

Which Future Are We Working to Create? 

Negotiations to revise NAFTA beginning in August are now well underway. Five rounds have 

been concluded; a sixth is scheduled for January in Montreal, and negotiators are meeting right 

now in Washington for an interim "intercessional" gathering. Press reports indicate that the most 

difficult issues remain to be addressed even as negotiators race to try to conclude talks by the end 

of the first quarter, 2018, consistent with Mexico's pending election campaign process. 

Unless the most difficult issues are soon resolved, however, the possibility is increasing that talks 

may break down altogether and that the U.S. might consider withdrawal. Such a result would 

have meaningful negative consequences for the United States, to say nothing of the damage it 

would also in±1ict on our two closest neighbors Canada and Mexico. It would be a strategic 

setback for the United States. 

According to the Wall Street Journal, some 80 percent of economists surveyed anticipate that a 

withdrawal from NAFTA would depress U.S. growth, even as Congress is right now pushing 

forward on a tax package designed to kick-start grow1h. Withdrawal would also reduce growth 

in both Canada and Mexico, perhaps leading to recession and creating economic conditions that 

are traditionally the primary cause of migration especially from Mexico to the United States. 

And, it would mean the abandonment of dispute resolution mechanisms that have worked for the 

United States, risking a return to the days when the resolution of disputes is driven primarily by 

politics rather than rules-based systems. 

Much depends on the outcome of discussions surrounding rules of origin as a means to "fix" the 

trade balance, although other significant issues also remain including an ill-advised sunset 

provision proposal and disagreements on intellectual property, government procurement, and 

dispute settlement procedures. A singular focus on the trade balance in goods neglects the 

healthy trade surplus that the United States enjoys under NAFTA in services. But, more 

significantly, backward steps on these issues would also cause irreparable damage to fully 

integrated supply chains and the workers whose jobs depend on them, in part because companies 

would find it difficult if not impossible to meet the required rules of origin currently under 

discussion. 

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Assuming that agreement can even be found around these issues, steps the Administration is 

proposing to raise rules of origin requirements substantially would cause a re-evaluation by 

producers whether to utilize NAFTA provisions or whether to skip NAFTA altogether and utilize 

less onerous provisions. Domestic job creation could actually suffer as production is shifted 

elsewhere. 

Meanwhile, the elimination ofNAFTA would allow the parties to the agreement to return to 

previous bound tariff rates, Mexico's being far higher than ours. Agriculture exports would 

suffer immediately, giving up the significant advantage that has turned Mexico in the US.' 

second largest, $18 billion market in agriculture, after only Canada. This is a market that can 

rapidly be tilled by other globally-competitive producers, an overwhelming potential loss 

particularly for agricultural producers already hammered by lower commodities prices and 

mcome. 

To escape taritl'barriers raised by Mexico in a post-NAFTA environment, those seeking to 

supply Mexico's growing market and increasingly middle-class population, predicted to be a topseven global economy by 2050, may seek to produce in Mexico rather than the United States. 

This would also allow them to avail themselves of Mexico's impressive network of trade 

agreements that has turned the nation into a global production powerhouse. Mexico's recent 

energy and other reforms have brought down manufacturing costs further, making the nation still 

more competitive. As a result, rather than returning production to the United States, such an 

outcome would actually threaten to create incentives for a migration of production from the 

United States to Mexico and also Canada. This is exactly opposite the intended result. 

Having said all of this, even if final agreement is reached at some point in the New Year, the 

uncertainty that has been caused by the negotiations process has already had negative 

consequences. In addition to investments that have been delayed, and therefore jobs that have 

not been created, our closest allies and trading partners now have reason to question the 

reliability of the United States over the longer term. We would join the likes of others, such as 

Venezuela, that have unilaterally abrogated existing trade and investment agreements, followed 

by years of economic trials and unending legal actions. 

Trust in US. intentions and dependability as an ally is a precious commodity, and goes well 

beyond trade agreements. Once lost it is unlikely to be regained at the same level for many 

years, perhaps ever. Doubts will linger about whether the word of the United States, even one 

that is confinned on a bipartisan basis by both Houses of Congress, can ever be fully trusted 

again. The United States is diminished. Were we to intentionally seek ways to undermine our 

own global strategic interests, we might not find a better means of doing so than this. 

The economic and political challenges that face that United States at this moment in time are 

significant. They are not to be understated or ignored. They must be addressed, effectively and 

soon, with sensitivity and grace, particularly for those of our citizens who may have been left 

behind by the global economy. But NAFTA is not the culprit, and ending NAFTA will not bring 

back an earlier time nor will it provide U.S.leverage to promote the values that we hold dear, 

including environmental protections and labor rights. 

5 Council of the Americas 

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Rather, the relaunch of an updated and modernized NAFTA fully acknowledging the rapid 

technological advances that continue to be made, informed by a vision of a more economically 

integrated North America to compete effectively on the global stage, will be the far better option. 

This would also allow us the means to intensify the promotion of stronger environmental protects 

and labor rights, which we would actually lose altogether without the existence ofNAFTA And 

in the meantime, the strong, public assertion by Congress of its institutional prerogatives on trade 

and NAFTA in particular, well in advance of any irrevocable and precipitous decision made by 

the United States, would be a welcome and appropriate, even necessary, step. 

Thank you, again, Mr. Chairman, for the opportunity to be with you today, and I look forward to 

your questions. 

6 Council of the Alncricas 

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17

Mr. POE. Thank you, Mr. Farnsworth. 

Mr. Allford? 

STATEMENT OF MR. DANIEL ALLFORD, PRESIDENT, ARC 

SPECIALTIES 

Mr. ALLFORD. Mr. Poe and members of the Terrorism, Nonproliferation, and Trade Subcommittee of the Committee on Foreign Affairs, thank you for inviting me today to talk on NAFTA. 

I am Dan Allford, president of ARC Specialties in Houston, 

Texas. We design, program, and build automated machines and robots used around the world. 

I started in 1983 in Houston when I built a hot tap welding machine for a plutonium processing plant in Idaho. I have always suspected that if the customer had known it was a young man in his 

garage building this they might have been a little bit worried. 

However, it worked so well, we built another one in the 1990s. 

The business grew out of the garage around 1990, and, over the 

last 35 years, we have engineered and built hundreds of machines 

that are operating in 25 countries on 6 continents. We now occupy 

over 100,000 square feet of engineering and manufacturing space 

and employ 65 engineers and craftsmen. 

I have personally worked in and observed the market systems in 

15 different countries. This experience has made me an enthusiastic free-market capitalist. 

ARC Specialties has always built machinery used for the manufacture of equipment used in the exploration and refining operations in the energy industry. In 2015, when oil prices crashed and 

the Houston economy slowed, we needed new markets. We found 

that the solutions we had developed to solve oil industry problems 

worked equally well in other industries around the world. 

Since the beginning of 2015, we have designed, built, and 

shipped machines to Canada, Mexico, Romania, Singapore, Oman, 

Saudi Arabia, China, India, France, and the U.K. exports have account for 30 percent of our revenues. Canada and Mexico accounted 

for half of our exports. In the process, we have learned to deal with 

trade barriers ranging from red tape to tariffs. 

Most of my knowledge of NAFTA comes from personal experience 

doing business across the globe. My experience is that NAFTA has 

helped us sell machines in Mexico and Canada. I sincerely believe 

that the free-market system used here in the United States is a 

major contributor to the success and productivity of our country. 

Tariffs and subsidies distort markets and degrade efficiency. A free 

market and a level playing field bring out the best in people by rewarding their efforts. I firmly agree with the adage that competition breeds excellence. 

In 1960, one transistor cost $4. Now, $4 will purchase 1 billion 

transistors. This is the result of the free market encouraging technological improvements through automation. The whole process is 

driven by fair competition. I don’t fear competition. I relish the 

challenge. 

I can beat the competition, but I can’t beat the tariff. The United 

States innovates, others duplicate, and the cycle starts over, and 

everyone benefits from increased productivity. Better products are 

made available to consumers at lower prices. 

18

What I do fear is an unfair environment. Tariffs and red tape on 

one side tend to create reciprocal tariffs and red tape on the other. 

Technical problems can be solved using engineering and ingenuity, 

while tariffs create political and administrative cost barriers that 

restrict trade. 

I export machines to Brazil, where Brazilian tariffs can add as 

much as 40 percent to the cost of my equipment. This is counterproductive for all parties. These machines are used to apply welded 

internal coatings to valves and pipes used in the oil industry. 

These coatings create a corrosion-resistant barrier to the hydrogen 

sulfide or sour gas present in Brazilian crude and help prevent catastrophic failures and oil spills. Brazilian tariffs make my machines unaffordable for most companies. These tariffs cost my company revenues and cost the U.S. jobs. I fear the same thing will 

occur in Mexico and Canada if changes are made to NAFTA that 

distort the free-market system. 

I believe that everyone should have an opportunity to work and 

provide for their family. This is a great stabilizer in the world. In 

a free-market system, prices for goods and services are determined 

by the open market and consumers. A free market works when the 

laws and forces of supply and demands are unhindered by government intervention. 

I am proud to be involved in manufacturing because it is one of 

the few segments of our economy that creates wealth. Our robots 

and machines help U.S. companies compete in a global economy, 

and our exports of equipment help the balance of trade. 

I am honored to be here today, and I ask you to help me to continue to create jobs in the United States of America by encouraging 

international free trade. 

[The prepared statement of Mr. Allford follows:]

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The North American Free Trade Agreement and its Effect on a Texas Robotics Manufacturer 

Daniel Allford 

President 

ARC Specialties Inc. 

Testimony Submitted to the Subcommittee on Terrorism, Nonproliferation and Trade, House 

Committee on Foreign Affairs 

December 12, 2017 

The North American Free Trade Agreement passed congress in 1993 with strong bipartisan 

support. It went into effect in 1994. Since then trade between the U5., Mexico and Canada has 

more than tripled. This is the same time period during which my company began exporting our 

U.S. designed and built machines around the world. As a machinery and robotics manufacturer 

we have benefited from sales to Mexico and Canada. Mexico needed machines for new 

manufacturing plants and Canada needed machines to build oilfield equipment for their oil 

industry. Unhindered by tariffs ARC Specialties was well positioned to supply these machines 

which enabled ARC to grow and provide jobs for U.S. citizens. 

Industrial machinery, machine tools and robotics are used across the world in manufacturing. 

We have shipped automated manufacturing equipment and robots to 25 counties. We have 

encountered various trade barriers when exporting machines internationally. In Europe we 

were forced to comply with cumbersome certification requirements which entail $30,000 in 

compliance testing on each new design. In Russia there was endless red tape. In China the 

certification process is tedious and tends to reveal proprietary product designs. In most of the 

countries where we installed machir,es, tariffs made our products much more expensive than 

domestic units. In Brazil these tariffs could reach 40% of the price of the machine. In spite of 

tariffs we sold machines in countries around the world, including Brazil, but in smaller numbers. 

Each country offered unique challenges with two exceptions: Mexico and Canada. I attribute 

this to NAFTA and therefore I believe that the agreement should remain in force and any 

changes should be vetted to ensure that free trade remains unhindered. 

One of the commercial advantages of the United States is the size of our country and the 

diversity of our population, thus creating opportunities through the division of labor. 

Specialization works because interstate trade in the US is nearly effortless. Trade allows each of 

us to do what we do best. NAFTA provides the same advantage by essentially eliminating 
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27810b-2.eps

almost all tariffs among the three nations, and allowing for the seamless flow of goods and 

supplies across borders. 

NAFTA did not come without a price. Some jobs shifted to Mexico due to lower wages, 

consistent with historical trends. In the 1960s jobs shifted to Japan. Once Japanese wages rose, 

jobs shifted to China and more recently to India, Vietnam and other countries. The United 

States innovates. Other countries duplicate, then the cycle starts over and everyone benefits by 

increased productivity. When goods are produced at lower labor rates, Americans benefit by 

paying lower prices for electronics, cars, clothes and food. Lower prices are always the goal of 

manufacturers seeking a market advantage. Lower prices due to improved efficiency are an 

indication of progress. Productivity is a ratio of production output to what is required to 

produce it. Americans vote with their pocket book every time they look for lower prices. 

When mature industries shift production to low cost labor countries this frees up capital and 

talent in the US to create new products and new industries. In 1900 over 40% of our population 

worked in agriculture, now less than 2% do. Agriculture is the first automation success story. 

We never hear anyone complain about lower food prices or year around availability of fresh 

fruits and vegetables. No one has lamented to me that he would rather be plowing a field 

behind a horse. I don't believe that the U.S. jobs lost to Mexico and Asia are the necessarily the 

jobs we want in the future. Trade creates jobs. The U.S. Chamber of Commerce estimates that 

about 14 million U.S. jobs depend on trade with Mexico and Canada.1 

As a Houston company we are primarily involved in the energy industry. NAFTA has had a 

substantial and positive impact on the energy sector. The North American energy market is 

highly integrated and interdependent. Heavy crude oil from Canada and Mexico flows to the US 

where it is well suited for Midwest and Gulf refineries. Canada and Mexico now account for half 

of our total energy imports reducing dependency on less reliable and frequently hostile 

alternatives. In the US this crude is refined, adding value and some is exported back to both 

countries. This is the free market efficiently allocating resources. Each trading partner supplies 

what they can produce efficiently and purchases what they cannot. 

The benefits to the energy markets including oil, natural gas, and electricity provided by NAFTA, 

as supported by the American Petroleum Institute (API), also benefit equipment manufacturers 

in the US. 2 

ARC Specialties has built automated manufacturing equipment for companies in both Canada 

and Mexico. These machines are used in the produce equipment for the production oil and gas 

that may be imported into the US for processing in US refineries. 
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27810b-3.eps

According to the National Association of Manufacturers, 2016 exports of manufactured goods 

to Canada and Mexico equaled the total of the next 10 largest trading partners. 3 In the last 

three years my ratio was very similar. Half of my exports were to Canada and Mexico. U.S. 

exports to Canada and Mexico supported the jobs of 2 million men and women at 43,000 firms 

across the United States. These jobs paid an average wage of $81,289 which is 27% higher than 

the overall average nonfarm wage. Export related jobs pay an average of 18 to 20% more than 

jobs not related to exports. At a minimum everyone in the world deserves the opportunity to 

work and provide for themselves and their families. This is a great stabilizer in society. 

The Department of Commerce, International Trade Administration states that in 2015 Mexico 

was the largest export market for US machine tool manufacturers eclipsing China in both 

cutting and forming machine tool sales. 4 ARC Specialties is one of the last remaining 

manufacturers of large industrial robots in the United States. For ARC Specialties the loss of our 

two largest export markets due to tariffs would be devastating. 

Much of the impetus for withdrawal from NAFTA comes from the U.S. auto industry. Most 

studies have shown that NAFTA benefits the auto industry. The Motor and Equipment 

Manufacturers Association commissioned a study by The Boston Consulting Group on the 

"Impact of BAT and NAFTA Reforms on the U.S. Motor Vehicle Industry". 5 Th is study concludes 

that "the economics of reshoring are not favorable for most motor vehicle products" and that 

"production in Mexico still more economical in the event of a border adjustment tax". 

Withdrawal from NAFTA with a 35% tariff would result in an increase of ~$1,200 per vehicle 

passed on to the consumer. The study states that "access to NAFTA low cost production is 

critical to compete in the global market". Germany relies on low-cost production in nearby 

Eastern Europe to keep cost down. 

Ironically one probable response by automakers and consumers will be to "decrease content" 

or strip features to avoid cost increases. This decrease in content is predicted to cause the loss 

of 20 to SDk U.S. manufacturing jobs from the current 870k U.S. supplier employees. Charles 

Uthus at the American Automotive Policy Council said that the demise of NAFTA would be 

"basically a $10 billion tax on the auto industry in America" 

Withdrawing from NAFTA would have an even greater effect on U.S. Agriculture which 

exported $38B to Mexico in 2016. Reverting to pre NAFTA tariffs levels would result in 75% 

duties on chicken and corn syrup, 45% on turkey, potatoes and dairy products and 15% on 

wheat. 6 

While working in former USSR countries I witnessed the devastating effect that central planning 

has on markets. When governments pick winners with subsidies and trade barriers, everyone 
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27810b-4.eps

else in the market loses. Quality declines, innovation stalls, service is degraded and prices are 

distorted. 

In conclusion the North American Free Trade Agreement works. It stimulates trade and creates 

jobs. As a manufacturer who imports and exports, I believe that it is important to remain in 

NAFTA. I am proud to be involved with manufacturing because it is one of the few segments of 

our economy which creates wealth. Our robots and machines enable US companies to compete 

in a global economy and our exports of equipment help the balance of trade. I hope you will 

help me to continue to create wealth and create jobs in the United States of America by 

encouraging international free trade. 

1 https:/ /www.u scham ber.com/sites/default/files/legacy/reports/1112 I NTL NAFTA 20Years. pdf 

2

http: I iwww. a pi .ore/~ I media/ F i I es/Po I i cy/T rad e /North -American-Energy-One pager. pdf 

3http:(/www.nam.org/lssuesjTrade/North-America-Drives-Manufacturing-in-the-United-States-and-aModernized-NAFTA-Would-Further-Boost-US-Jobs-and-Exports/ 

4 www.trade.gov/topmarkets 

5

h ttps :(/www. rr• em a. o rg/ sites/ de fa u lt/files/BCG%20 lVI E MA %20 BA T%2 0 NAFT A %2 OStu dy%2 OSu m mary. p 

ill 

6 https://www.wsj.com/artides/trumps-nafta-threat-1508105756 
23

Mr. POE. Thank you, Mr. Allford. Well said. 

Ambassador? 

STATEMENT OF THE HONORABLE JOHN D. NEGROPONTE, 

VICE CHAIRMAN, MCLARTY ASSOCIATES (FORMER DEPUTY 

SECRETARY OF STATE AND FORMER DIRECTOR OF NATIONAL INTELLIGENCE) 

Mr. NEGROPONTE. Thank you. Thank you, Chairman Poe——

Mr. POE. Your microphone. 

Mr. NEGROPONTE. Oh, sorry. I should have remembered at least 

that. I haven’t been out of government that long. 

Thank you to Chairman Poe and Ranking Member Keating and 

other members of this subcommittee for inviting me to testify at 

this hearing on NAFTA, a topic that has long been of personal and 

professional interest and that is highly relevant for Congress at 

this critical juncture. NAFTA’s modernization is both necessary 

and important. 

For my part, I am proud to say that I have been an advocate for 

transforming North America into a more competitive economic 

force for decades. During my time as United States Ambassador to 

Mexico, I had the privilege to be involved in NAFTA’s conception 

and negotiation. When I went down to Mexico, our trade relationship was modest and the United States-Mexico political relationship was frequently fraught. ‘‘Distant Neighbors’’ was the title of 

the book that best described our bilateral interaction. 

Through NAFTA, we hoped to be able to integrate our economies 

in a way that would benefit all three countries and allow us to better compete, including with Asia and with the countries of Eastern 

Europe that were emerging after the fall of the Soviet Union. 

I will never forget my meeting with President George H.W. Bush 

and Secretary of State James Baker where I walked through the 

pros and cons of having a NAFTA, an idea that they green-lighted, 

seeing the economic and security benefits in such a strategic alliance. 

While the economic and social pressures of an increasingly 

globalized world have made NAFTA a controversial subject, I am 

of the view that NAFTA has been beneficial to our country. Its renegotiation should recognize the strategic importance of our North 

American partnership from both a geopolitical and economic perspective. Our work with our neighbors on law enforcement, counternarcotics, and counterterrorism are key components to keeping 

America safe. We simply do not have the luxury of putting this collaboration at risk. 

And, economically, trade with Canada and Mexico supports millions of jobs, and our North American partners buy more U.S. manufactured goods every year than the next 10 largest markets combined. Rather than offshoring to Asia, critical supply chains have 

been able to remain in North America, enhancing our ability to 

compete. 

NAFTA created unprecedented export opportunities for U.S. 

manufacturers, farmers, energy and service providers, small- and 

medium-size enterprises, and, yes, even workers, building the foundation of a closer strategic trilateral partnership. 

24

At the same time, NAFTA has long been a punching bag, as our 

country has failed to effectively address the needs of communities 

hit by shifting market demand, enhanced globalization, and technology. These are pressing matters that we must take head-on. But 

withdrawing from NAFTA to attempt to address these issues is like 

putting a splint on your arm to try to heal a broken leg. It is not 

likely to work. The uncertainty created by withdrawal benefits no 

one, least of all the United States. 

Do we need to modernize this agreement? Absolutely. The world 

has moved on since NAFTA’s entry into force. Do we need to 

threaten withdrawal to do so? Absolutely not. 

So what can we do? First and foremost, I think it is important 

that Congress exercise its prerogatives in matters concerning trade 

and commerce. Hopefully this hearing will be a piece of that. And 

my hope is that local communities threatened by a dissolution of 

NAFTA will help to build a national consensus for the status quo, 

ideally for NAFTA modernization as well. 

Most importantly, I think we must rebuild a consensus not on 

trade necessarily but on competitiveness, on the need to ensure 

that the United States remains one of the most competitive economies in the world. This will mean engaging in real policy debates 

about the causes of economic struggle in certain parts of the country rather than turning to NAFTA as a convenient scapegoat. 

Wouldn’t it be ironic if it were the United States’ actions that 

harmed the bilateral relationship with Mexico, returning us once 

again to being distant neighbors? 

Thank you again for the opportunity to testify today. I look forward to your questions, Mr. Chairman. 

[The prepared statement of Mr. Negroponte follows:]

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27810c-1.eps

The Future of the North American Free Trade Agree_ment 

Hearing Before the Terrorism, Nonproliferation, and Trade Subcommittee 

Commitlee on Foreign AITairs 

U.S. House of Representatives 

Tuesday, December 12,2017 at 2:00pm 

Written Teslimonv of Julin D. Negroponle 

Vice Chairman, McLarty Associates 
26


27810c-2.eps

Chairman Poe, Ranking Member Keating, and distinguished members of the Committee: 

Thank you for inviting me to testify at this hearing on NAFTA, a topic that has long been 

of personal and professional interest and that is highly relevant for Congress at this critical 

juncture. Modernization of NAFT A is both necessary mul important, a fact I believe no one 

disputes. The absence of digital trade disciplines is the starkest example. For my part, I am proud 

to say that I have been an advocate for transforming North America into a more competitive 

economic force for decades. 

During my time as U.S. Ambassador to Mexico, l had the privilege to be involved in 

NAFTA's conception and negotiation. People ot1en forge! how fraught the U.S.-Mexico 

relationship was pre-NAFT A. Anti-Americanism was the norm, but the threat of the rise of Asian 

economies was real. !n addition, with the fall of the Soviet Union, the economies ofEastem Europe 

were newly emerging, seeking to attract investment. We hoped to be able to integrate our 

economies ina way that would accrue to the benefit of all three countries- the United Stales, 

Mexico and Canada~ and allow us to compete better. l will never forget my meeting with President 

George H.W. Bush and Secretary of Slate James Baker where l walked through the pros and cons 

of having a NAFTA. It goes without saying they green-lighted the proposal, seeing the economic 

and security benefits in such a strategic alliance. 

While the economic and social pressures of an increasingly globalized world have made 

NAFTA a controversial concept since its early days, lam of the view that NAFTA has been 

enormously beneficial lo our Renegotiation should recognize the strategic importance 

of our partnership within North from both an economic and a geopolitical perspective. lt 

should recognize that- to our mutual benefit - NAFT A institutions increased labor standards in 

Mexico, decreased environmental degradation in border areas, and enhanced rule of law south of 

the border. 

We arc no longer living in the en depicted in that classic tome Distant Neighbors, 

by then-New York Times correspondent Alan Riding. Suspicion and mistrust no longer rule the 

day. In fact, we have increasingly developed a shared sense of security ~ which only intensified 

after 9/ll, as I saw during my lime as Director for Nationallntelligence. 

Our work with our neighbors on law enforcement, counlcrnarcotics, and 

counterterrorism are key components to keeping America safe. Canada is a steadfast ally, and the 

United Stales maintains sophisticated law enforcement collaboration and intelligence exchange 

with Mexico to fight money laundering and jointly combat !he menace posed by organized crime. 

We simply de not have the luxury of putting this collaboration at risk. 

Economically, fourteen million American jobs depend on trade with Canada and 

Mexico, by far the largest export markets for the United States. Our North American partners buy 

more than $600 billion in U.S. manufactured goods every year, more than the next ten largest 

markets combined. Since 1993, U,S. trade with Mexico has quintupled in nominal terms, while 

trade with the rest of the world has only tripled. Three-way trade quadrupled, creating a powerful 

engine for economic growth. Rather than offsnoring to Asia, critical supply chains have been able 

to remain in North America, enhancing our country's ability to compete. U.S. services and 

2 
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27810c-3.eps

technology companies found open markets in which to operate; imlecd, the United States has a 

services surplus in North America of $88 billion. Comparing this strategy to thai of nations like 

Brazil, where forced local content requirements and high tariffs have ruled the day, making 

manufactured exports uncompetilive and local prices on items like autos and computers 

astronomical, the wisdom of creating a competitiveness zone in North America seems clear. 

In addition, the integration of North American energy markets allowed the United Stales 

to decrease our reliance on energy imports from across the Atlantic, encournging greater energy 

independence in the region. 

In particular, NAFTA has helped U.S. farmers and ranchers, boosting U.S. agricultural 

exports by 350%. It is important to note that many U.S. slates in the heartland lis! Canada and 

Mexico ns their top export destinations this is due to NAFT A. Looking at the electoral map from 

the last election, it is hard to overlook thai these states in great measure supported the President, 

making consideration of a NAFTA withdrawal no! only questionable economically, but politically. 

Small and medium sized enterprises have also been big winners under NAFTA. 

Canada and Mexico have become "test markets," if you will, for smailer U.S, companies seeking 

to go global one step at a time. Jndeed, we have seen that at my consulting !1rm, McLarty 

Associates, as we have helped companies to internationalize- the first step is almost always North 

America. 

In short, NAFTA created unprecedented export opportunities for U.S. manufacturers, 

farmers, service providers, and, yes, even workers, building the foundation of a closer strategic 

trilateral partnership that has yielded economic and benefits. At the same time, NAFT A 

has llmg been a punching bag, as our country has to address the needs of 

communities hit by shifting market demand, enhanced globalization, technology shifts. In 

many areas struck by job losses, workers l1nd themselves underwater in their homes, unable to 

sell, unable to leave to pursue other economic opportunities. These are the pressing issues we must 

address. But withdrawing from NAFT A to attempt to address these issues is like putting a splint 

on ;'our arm to tr:' to heal a broken leg. II is not likely to work. 

Do we need to modemize Ill is agreement'! Absolutely. The world has moved on since 

NAFTA's January 1, 1994, entry into force. Do we need lo threaten willldrawallo do so? 

Absolutely not. 

What we have seen with the looming threat of withdrawal is companies hedging against a 

possible dissolution of the agreement, thus reducing NAFTA's benefits today. Why continue to 

buy high-fructose com syrup from the United States when you can lock down sugar contracts with 

third purties now? Why not investigate the price of Argentine wheal? This is rational economic 

behavior, driven by an unreasonable threat of withdrawal. 

There is no doubt that the United States should come to the table ready to negotiate tough. 

We always do~ and I can personally assure you that we did in the original NAFTA talks, as I was 

intimately involved. However, the uncertainty created by withdrawal benefits no one, least of all 

the United States. Our trading partners have already made clear that they will abliJldon the 

3 
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negotiating table if the United States moves to withdraw, and I for one do not think they are 

bluffing. It would be difficult to continue after being so disrespected by such an important 

economic and geopolitical ally. 

Further, Canada and Mexico have pursued their own agreements outside of North America. 

Prime Minister Trudeau was in China just last week to initiate talks, and Canada recently 

completed its free trade agreement with Europe, the Ell-Canada Comprehensive 

Economic and Agreement (CET A). Mexico has advanced in trade discussions with South 

America. As Mexico and Canada logically hedge their bets, U.S. producers, farmers, and workers 

lose out. With these moves, the United States risks moving from a partner of choice for Canada 

and Mexico to a partner when convenient. 

So, what can we do? First and foremost, it is important that Congress exercise its 

prerogatives in matters concerning trade and commerce. Hopefully, this hearing will be an 

important piece of that. Given the legal uncertainties that I understand cloud any withdrawal 

scenario, it is imperative in my view that Congress move swiftly to protect the agreement, stressing 

to the Executive Branch the opportunity costs involved in putting not only the agreement but our 

lrila!eral relationships in peril. 

My hope is thai the local communities threatened by a dissolution of NAFT A will be 

educated on the maller, so at a minimum, we can build a national consensus for the status quo, 

ideally for NAFTA modemizalion as well. A.nd lastly, but most importantly, we must rebuild a 

consensus not on trade necessarily, bul on competitiveness-- on the need to ensure that the United 

States remains one of the most competitive economies in the world. This will mean engaging in 

real policy debates about the causes of economic struggle in certain parts of the United States, 

rather than deploying trade and NAFTA as a convenient scapegoat. 

How ironic would it be if it were our actions that seriously hanned the North 

American partnership, returning our 1·elationship with Mexico once again to that or "distant 

neighbors." 

Thank you again for the opportunity to testilY today. !look forward to your questions. 

4 
29

Mr. POE. Thank you, Ambassador. 

Ms. Drake? 

STATEMENT OF MS. CELESTE DRAKE, TRADE AND 

GLOBALIZATION POLICY SPECIALIST, THE AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS 

Ms. DRAKE. Thank you. Good afternoon, Chairman Poe, Ranking 

Member Keating, members of the committee. 

I am pleased to testify about NAFTA on behalf of the American 

Federation of Labor and Congress of Industrial Organizations, representing 121⁄2 million working people in every sector of our economy, including mining, retail, manufacturing, transportation, public service, and construction. 

While CEOs and global corporations have generally benefited 

from NAFTA, it has failed the working people of North America. 

While it has increased the amount of trade between Mexico, Canada, and the United States, it has also cost jobs, depressed wages, 

weakened worker negotiating power, and destabilized communities 

across all three countries. 

Trade will always be disruptive, both creating and destroying 

jobs, but NAFTA’s rules redistributed income upwards, providing 

rewards to the wealthiest and most powerful, while making it 

tougher to succeed for the rest of us. Trade does not inevitably 

have to redistribute income in this manner. So if we change the 

rules, we can change the outcomes. 

That is why today’s hearing is so important. The renegotiation 

process that began in August is continuing even as we meet today 

here in Washington, DC. Unfortunately, due to the secrecy of the 

talks, we cannot discuss at this open hearing the specifics of the 

texts that each party is proposing. 

But we do know some of the general outlines. Canada has been 

very transparent about its ambition to protect its workers from 

being undercut by U.S. and Mexican policies that suppress wages 

by limiting the negotiating power of working people. And the U.S. 

has been equally transparent about its proposal to limit NAFTA’s 

special legal privileges for foreign investors, which act as a subsidy 

for U.S. employers who outsource to Mexico. 

The AFL-CIO believes these proposals represent positive steps 

toward the transformation of NAFTA that is necessary to reverse 

its race-to-the-bottom model. We also commend Ambassador 

Lighthizer and his team for their willingness to consult with Labor. 

But initial steps and respectful consultations are not sufficient to 

provide confidence that the future of NAFTA will vary from its 

past. To truly set up a fair and level playing field, NAFTA, in renegotiation, must address labor issues that were basically swept 

under the rug the first time around. NAFTA’s labor and environment side deals must be replaced with clear, effective, binding 

rules in the core text. 

Put simply, NAFTA’s side agreements don’t work. Over 23 years, 

they have done nothing to ensure that NAFTA’s labor rules are 

monitored or enforced, including in the case of Mexico, where the 

government cooperates with employers and employer-dominated 

unions to keep wages low and workers from having an independent 

30

voice in the workplace. Indeed, just last week, two senators from 

Mexico’s ruling party introduced a bill that would undermine constitutional amendments as well as commitments already made to 

the U.S. 

This failure to address longstanding denials of worker rights and 

freedoms in Mexico is a key reason that NAFTA has not raised 

wages, benefits, or freedoms for North American families. If effectively addressing Mexico’s entrenched system of labor repression is 

not part of the NAFTA renegotiation, there is little chance that it 

will stop hurting North American families. 

For this committee, this issue is critical. Working people, not just 

in the United States but around the globe, have been expressing 

more and more doubt about the current model of globalization—not 

about trade, but about global economic rules that reward exploitation and pollution, that fail to protect migrant workers, that deny 

working families open access to global rulemaking, that provide 

special privileges to Wall Street banks and brand-name pharmaceutical companies, and that make the American Dream harder to 

reach, particularly for the two-thirds of working Americans who 

lack a bachelor’s degree. 

Congress should demand that NAFTA negotiators think bigger. 

Negotiators must consider how to incorporate rules that allow the 

U.S. to develop manufacturing policy to bring new family-wage jobs 

to our industrial heartland. The new NAFTA should also include 

rules to combat tax avoidance and promote infrastructure investments. Without such rules, disinvestment in the U.S. economy will 

continue to undermine productivity and the middle class. 

For NAFTA to have a bright future, it must incorporate lessons 

learned from mistakes of the past, including the failed 9-year case 

against Guatemala. A new NAFTA that addresses these issues 

should be viewed as the first of a new line of trade deals that have 

the confidence of the people making the products and providing the 

services that are traded. 

I will stop here, and I am happy to answer any questions you 

may have. 

[The prepared statement of Ms. Drake follows:]

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.Aml!rkan F«i~r.ation 

of tabor and CongrMs of Industrial 

Organlzati!)ns 

WJS!ii!lgb<). DC :W006 

202-637-SCOO 

AFL-CIO 

AME iC N!O S 

BEFORE THE HOUSE SUBCOMMITTEE ON TERRORISM, 

NONPROLIFERATION, AND TRADE 

OF THE COMMITTEE ON FOREIGN AFFAIRS 

HEARTNGON 

"THE FUTURE OF THE NORTH AMERICAN 

FREE TRADE AGREEMENT" 

TESTIMONY OF 

CELESTE DRAKE 

TRADE POLICY SPECIALIST 

AMERICAN FEDERATION OF LABOR& 

CONGRESS OF INDUSTRIAL ORGANIZATIONS (AFL-CIO) 

DECEMBER 12,2017 
32


27810d-2.eps

lntmduction 

On behalf of its 55 affiliates representing more than 12 and a half million working families, the 

AFL-CIO appreciates the opportunity to testifY on the future of the North American Free Trade 

Agreement (NAFTA). The AFL-CTO represents working people in evety sector of the economy, 

from energy and health care to manufacturing and retail. We provide a voice to working families, 

advocating for policies that will help create high quality jobs and ensure working people have the 

freedom to join together to negotiate for better wages and working conditions. 

The AFL-CIO appreciates the Foreign Affairs Committee's interest in NAFTA renegotiation. 

Repeatedly, over many decades, America's workers have made recommendations for improving 

trade policies-only to find the bulk of our recommendations ignored. Our criticism is not 

against trade per se: it is about the mles governing trade. We look fmward to working with 

Congress to advance a new set of trade rules that promote good jobs, high wages, and sustainable 

and responsible economic growth that protects our environment and respects human dignity. 

f\leed a 

Under NAFTA, U.S. finns and workers lost more than 850,000 jobs. 1 A much more widespread 

impact, though less frequently discussed, is the wage suppression that affects about two-thirds of 

Ametica's workers-those who lack a college degree. As the Economic Policy Institute's Jeff 

faux explains: 

"[t]he inevitable result [ofNAFTA's rules] was to undercut workers' living 

standards all across North America. Wages and benefits have fallen behind 

worker productivity in all three coumries. Moreover, despite declining wages in 

the United States, the gap between the typical American and typical Mexican 

worker in manufacturing remains the same. Even afier adjusting for differences in 

living costs, Mexican workers continue to make about 30% of the wages of 

workers in the United States. Thus. NAFTA is both symbol and substance of the 

global 'race to the bottom. "'2 

As explained at length in the AFL-CTO publication "NAFT A at 20," NAFTA and subsequent 

U.S. trade deals facilitate higher volumes of trade, but contain no measures to ensure that 

increased trade flows will be reciprocal or that any gains will be widely shared. Many of the 

provisions-including investor-to-state dispute settlement and limitations on banking regulations 

and food safety mles-actively hinder policies that would foster equitable development. While 

there have been modifications to NAFTA's language in subsequent agreements, the fundamental 

architecture that promotes broad investor rights while restricting worker freedoms and regulatory 

autonomy remains in place. On the whole, NAFTA-style agreements have proved to be a vehicle to 

1 Scott, Robert E .. "The etl'ects ofNAFTA on US trade, jobs. and investment, 1993-2013." Review 

Economics. Vol. 2 No.4, Winter 2014, pp. 429-441. Avwlable a!. ~cll_,!"lliillQill!Jll':.S:2!ll'.'!.i~'b'l!lilllliL~iliL: 
33


27810d-3.eps

increase corporate profits at the expense of workers, consumers, farmers, communities, the 

environment and even democracy itself 3 

While one need look no further than the staunch defense of the current NAFT A by the 

Chamber dT0mmercc and the U S. Council fix Tntemational Rusiness to know that the current 

version ofNAFT A has benefited some sectors of the economy, one can also easily find 

devastation, particularly in Mexico's agricultural sectm..J and America's manufacturing 

heartland5 The paltry Trade Adjustment Assistance6 program provides no help to working 

people whose wages, healthcare and retirement benefits have been pushed down by NAFT A's 

relentless race to the bottom, nor does it help devastated communities rebuild their tax base, 

build new infrastructure, or provide needed services to the m1- and Ullderemployed and those 

who find themselves in precarious ')obs" with uncertain incomes in the new digital economy. 

Trade policy should never be a question of "free trade" versus "protectionism." The AFLCIO's reconnnended fl-ame for NAFTA renegotiation is "How should the U.S. structure 

international trade rules so that they promote good, family-wage jobs, sustainable growth, 

dynamic economies, smm1 natural resource conservation, and the realization of human rights and 

dignity globally?" We believe that using this frmne will lead to better trade policy choices and 

better outcomes for working fmnilies. 

As Josh Bivens explains in his 2017 piece Adding Insult to Injury, this complex frmne is what 

has been missing from U.S. trade policy, which seems to have been based on a misunderstanding 

of who benefits from trade. An extended excerpt is wananted: 

''When people say that economics teaches that expanded trade is a 'win-win' 

proposition, this means only that trade is 'win-win' for total national income in 

each partner counlty. But textbook economics does not predict that expanded 

trade will be a win-win for all groups within those counn·ies. 

''Because it can be shown that the sum of capital's gains exceeds labor's losses, 

globalization remains "win-win" at the country level. Within the U.S., however, 

there is nothing "win-win" about it; labor loses not just in relaii\'e terms, but can 

suffer absolute income losses as well. 

''lmport31ltly, these losses me not the dmnage stetmning from the adjustment cost 

of manufacturing workers' temporary unemployment spell[s] .... Rather, the big 

3 For more detail, sec ''NAFTA at 20.'' AFL-CIO Report, March 2014. Avwlahle at: llllil5.iGJf1cio.<Jrvill..l2ons/ngjl-!!: 

e.g.. Wise. TimothY. Agricultural Dumping Under NAFTA: Estimating the Costs of U.S. Agricultural Policies 

to Mexican Producers. Global De,·elopment and Environment Institute Working Paper No. 09-08, Tufts University. 

December 2009. Available at: llttp)/~~-'-~' \·~~;}se_Jq(t_~-~~~w'g.Q_ayj:r~!lr~!_y~nNS_-_Q_&Agr~c]J_~mn_ip_g_JJ_ttf 

5 S'ee. e.g., Stockman. Farah, ''Becoming a Steelworker Liberated Her. Then Her Job Moved to Mexico."' The Ne\v 

York Times. Oct. 14. 2017. Avazlahle at: hl.tifu:LF,E.\3LICLlirctt;ljc£1:~£i!_l.L1.QIH1!t'i\ill.'9.l'JQl2Ii.:Jr.<:~Q.:.'J'E'illl!.llllilll 6 ,\'ee. e.g, DePillis, L~dia. ''Obama's 

Democratic votes.·· The Warshl'n£1011 

2 
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27810d-4.eps

damage is the permanent wage loss resulting from America's new pattern of 

specialization that requires less labor and more capital. Further_ this wage loss is 

not just suffered by workers in tradeable goods sectors who are displaced by 

imports: it's suffered by all workers who resemble these workers in tenns of 

credentials and labor market characteristics. A simple way to say this is that while 

landscapers may not be displaced by imp01is, their wages suffer from having to 

compete with apparel (and auto, and steel) workers who have been displaced by 

imports."7 

The following charts show the impact of this model of trade-and other neoliberal economic 

policies-on U.S. wages and the share of U.S. national income going to working people. 

The gap between productivity and a typical worker's 

compensation has increased dramatically since 1973 

Productivity growth and hourly compensation growth, 1948-2016 

300% 

~ 250 0 

~ ·;:;:; 

0 200 ~ 

.§ 

~ 150 

~ 100 

., 

E 50 3 

0 1960 1980 2000 

productrvity' 1S tbe yrowtf1 of output of 

Source: EPI analys:s of Bureau of Labo,· Statrst:cs .:Jnd Bureau of Ecoromrc Anill:,"!>is dat<:~ 

Updated from FigurP A in Fhii''''IIJA:.J!:-'Jinf·.,, !''.ry: \l'l!ry!l'"' 

Economic PoJic,' lnslHui.t:' 

3 
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27810d-5.eps

Source: Created'frith the F&V Hconomic Data Tool of the St. Lows Federal Reserve Bank Available at: 

!l'J.J"L-JI.f~'Jf'1J'0.£~'[¥_(/)ec. 8, 2017). 

As these graphs demonstrate, even if the size of the U.S. economic pie is growing, if the rules 

goveming our economy are not carefully crafted, the bulk of the population gets a smaller slice, 

as is happening currently. Although it is important to note that trade policy is not the sole cause 

of the trends examined here, it is an important one, in particular because it tal<es more than a 

single act of Congress or a single Executive Order to change the rules enshrined in NAFT A or 

any other trade agreement. lt tal<es the consent of all parties involved. 

Protectionism is not the answer, but changing the rules of trade is. To mal<e any new NAFTA 

successful, the administration and Congress must ensure that a new trade deal incorporates 

different incentives. In other words, the stmcture of the new NAFTA must recognize that current 

trade and globalization mles have pushed wages down and weal<ened worker negotiating power. 

It must build in counterbalancing incentives and tools to raise wages, empower working people, 

protect precious natural resources, and address the United States· persistent trade deficit. In 

addition, in conjunction with the deal itself, Congress should enact a broad set of domestic 

industrial and economic policies to rebuild, repair and modernize U.S. infrastructure; support 

research, development and advanced manufacturing; and provide working people with state of 

the art education and skills. Absent these investments, a new NAFTA seems poised to continue 

to leave workers behind. 

We also caution against viewing NAFTA renegotiation as an effective growth strategy in and of 

itself Given the already low levels of tariffs worldwide, the oppotiunities for large efficiency 

gains due to trade are largely exhausted8 We should improve NAFTA because NAFT A needs 

x S'ee. e.g., Kmgman. Paul, ''A Protectionist Moment?.,. TI1e Conscience of a Liberal 

llmes. Mar. 9, 2016. Avwlahle at: h~~~~~p);~~~~:~".'~~~);;~·;~~:~~S~;lj,~~;':!~~~:·~lf~~':;~: Amlti, Mar~ and Mandel, Benjamin, ''Wil_l_ "Liberty Street 

Economics Blog, Federal Reserve Bank ofNew York. 

4 
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27810d-6.eps

improving-not as a substitute for a purposeful growth policy. For example, the U.S. could 

achieve far greater growth, far faster, by investing in our mvn economy. As the International 

Monetaty Fund has demonstrated, an infrastructure investment of I% ofGDP will result in an 

increase in GDP of almost 3% a mere four years after the investment. 9 This outcome is six 

times the projected outcome of the failed Trans-Pacific Partnership and would occur more than 

four times more quickly. In addition, according to economic modeling results by Ozlem Onaran 

of the University of Greenwich for the L20 in 2014, the U.S. could achieve as much as 9.84%, 

growth over five years by coordinating a I% of GDP infrastructure investment with wage-led 

growth policies. 111 

the 

Working people who advocate for better trade policies often face the simplistic response 

"Globalization is here to stay. You can't cut the U.S. off from the rest of the world, so just get 

over it." This response misrepresents the problem and misunderstands the proposed solution. 

Unions, faith communities, health advocates, environmental organizations, migrants tights 

organizations and small farmers and ranchers who complain of the harmful effects ofNAFTA 

and other trade anangements (such as the World Trade Organization) do not advocate building 

walls or turning back the clock. In fact, many working people and their employers rely on 

exports for some or all of their income. Refonners simply want to change the rules under which 

trade and globalization operate. Throwing up ones hands and saying that low wages, 

skyrocketing drug prices, dangerous imports and environmental crimes are inevitable is not only 

wrong, it is counterproductive. 

Globalization was shaped by the rules ofNAFTA and the WTO, and it can be reshaped by 

alternative rules. Such reshaping is necessary if the U.S. and its allies are interested in more. 

rather than fewer trade arrangements-and outcome that appears to be in doubt given the United 

Kingdom's impending exit fi·om the European Union, the United States exit fi·om the TransPacific Partnership, and the stalled negotiations on a number of other agreements, including the 

Trans-Atlantic Trade and Investment Partnership. 

9 ·'Chapter 3: Is It Time for an Infrastructure Push? The Macroeconomic Effects of Public Jn,,rcstmcnt'' in World 

Economic Outlook, International Monetary Fund, Oct 2014. Available af 

b-JtQ..s_d/"iY'c~Y.in]J.un.:,&~.h:LJJ.ill1m~·J;}fu:'6~l20U/()2/pdi~-~-Q..;lf. Sec especially p. 83 (''I AI debt-financed public 

investment shock of I percentage point ofGDP increases the le,.e! of output by about 0.9 percent in the same )ear 

and by 2.9 percent after the shock .''): Smnmers, '"\Vh: public investment reall: is a free hmch: 

111c IMF finds that nearly $3.'. Larry Summers Blog. Oct. 7, 2014. 

Coordinated Policy Mix of Wage-led Recmery and Public Investment in the G20. 

with ITUC. TUAC. and the Council of Global Unions. Jun. 2014. Available at: h!wdwww.ituc5 
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27810d-7.eps

As Harvard economist Dani Rodrik wtites, trade breeds opposition when it "violates norms 

embodied in our institutional anangements." 11 In other words, trade anangements become 

unpopular not just when they affect jobs, but when they undermine hard fought protections such 

as the tight to join together in unions to negotiate for better. Rodrik continues: 

''The benefit of thinking about fair trade along these lines is that it allows the 

drawing of a cleaT line between trade flows that threaten legitimate domestic 

political anangements and those that don't. For example, there is a clear 

distinction between situations where a trade partner's low wages are due to low 

productivity, and the abuse of worker rights (including, say, the absence of 

collective bargaining, or freedom of association). Both may generate 

distributional implications at home, but there is a problem of unfair trade only in 

the second case." 12 

Similarly, Nobel Prize winning economist Joseph Stiglitz has written recently about tbe growing 

opposition to globalization in botb developed and developing countries. How can it be tbat the 

ordinary citizens of both tbe developed and developing worlds see the cunent trade and 

globalization regime as hatmful? Stiglitz explains that the common dissatisfaction is a result of 

rigged rules that "weaken workers' bargaining power. What corporations wanted was cheaper 

labor, however they could get it. " 13 He notes that unless most workers view trade and 

globalization as benefiting tbem. it carrnot be sustained. 

Titis is the cmTent dilemma. Can and will NAFTA be refonned in ways that satisfY and benefit 

the many instead of the few in the U.S., Canada and Mexico? I fit will not, it seems likely that 

the social fabric in each countty will continue to deteriorate and harmful populist rhetoric will 

increase, as families become more dissatisfied and angry about broken promises by govemments 

that do the bidding of economic elites while ignoring the co1mnon good. 14 

Labor 

By putting the U.S., Canada, and Mexico into competition for investment without ensuring that 

each countty not only had high standards on paper but an effective enforcement regime for 

worker attd environmental protections, NAFTA acted as an attchor, dragging down tax revenues, 

wages and environmental standards, not just in the U.S., but in all three NAFTA countt·ies. 

Because oftbe incentives imposed by NAFTA and similar trade policies, income distributions 

11 Rodrik, Dani. '·Jfs Time to TI1ink for Yourself on Free Trade: \:Vhat economists and popuhsts both get wrong 

about the international " Jan. 27,2017. Awn/able at: 

6 
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27810d-8.eps

became more unequal as global companies captured an ever-larger share and workers an eversmaller share. 15 

All the NAFTA renegotiation efforts in the world will not create U.S. jobs, raise U.S. wages. or 

reduce the U.S. trade deficit if the new rules do not include clear, strong, and effective labor 

rules that require Mexico to abandon its low wage policy16 and instead implement and enforce 

the fundamental labor rights developed by businesses, working people and govemments at the 

International Labor Organization. The pull factor ofpove1iy wages, denial of worker freedoms, 

and exploitive working conditions simply cannot be counterbalanced by new rnles of origin or 

digital trade rules alone. Working families and their advocates across North America are united 

in their support for greater workplace protections, a level playing field, and higher wages. 

With few exceptions, Mexican "unions" are undemocratic and aligned more with employers or 

local political elites than with workers. These employer-dominated unions often sign contracts 

without any participation or input from workers for the sole purpose of interfering with the right 

to form effective, worker-directed unions. The govermnent has gone along with this practice as 

part of a low-wage development strategy. The cumulative effect of these bogus unions is to 

lower wages and working conditions in Mexico. 17 Improving wages will reduce the ability of 

employers to use NAFTA as a tool of arbitrage that pushes wages down across North America. 

Higher wages in Mexico not only are good for Mexico· s working families. they are a required 

outcome of beneficial trade policy. Raising wages in Mexico must be one of the most important 

outcomes ofNAFTA renegotiation, or the effort will not affect outsourcing, trade balances or 

wage stagnation. 

When workers lack the fieedom to speak up about workplace conditions and negotiate together 

to improve their lives and livelihoods, wages, benefits and job safety are lower than they would 

othetwise be. NAFTA's race to the bottom has led to a global weakness in demand that hampers 

gross domestic product (GDP) growth and exacerbates inequality. Even the IMF has recognized 

a link between the decline in unionization and the dramatic increase in inequality worldwide.'" 

Those who advocate to maintain trade policies that drive wages ever lower in the relentless 

pursuit of quarterly profits and "competitiveness" ignore the fact that workers also are 

consumers. Consumers drive the demand necessary to support the global economy. This onesided vision of competitiveness has limited the potential for U.S. exports. Indeed, wage 

suppression in Mexico means that there are even more Mexicans living in poverty than before 

15 ,)'ee Capaldo, Jeronlrn et al., 'Trading Down: Unernplo~ment, Inequality and Other Risks of the Trans-Pacific 

Partnership Agreement:· Global Development and Environment Institute Working Paper No. 16-01, January 2016. 

at pp. 12-13. A vailahle at: ~!..:t:~2.':'_cf!..~:J.!! fts_~JJiS:ilil:'~~I:Yh..~L,~'li.0_:!ll.LU1E1hj_~:Jj.llJj~J.U:I.I:f_.llii-£. 16 Sec. e.g.. U.S. Sandy Levin, Press Release: NAFTA's Problem: Mexico's Industrial Policy ofLo\\ 

and No 

supra note 18 Jaumotte. Florence. and Buitron. Carolina Osorio, '·Power from the People." Finance & Development VoL 52. 

No. I. International Fund. March 2015. Avmlable at· 

7 
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27810d-9.eps

NAFTA, 19 that immigration push-factors have not abated, and that Mexico has become an 

increasingly attractive investment target. 

Tt is too early to judge the NAFTA renegotiations a success orfailure. To date, it is not clear 

whether any of the negotiating parties have taken our advice. While some interesting and 

potentially beneficial proposals have been made (including Canada's proposal to expand 

workplace freedoms and worker protections and the U.S. proposals to radically restrict investorto-state dispute settlement and to incorporate a periodic review mechanism to measure whether 

NAFTA is achieving results), many other proposals fall in the categmy of"trade policy as usual" 

or worse, would radically expand the privileges granted to global banks and brand name 

pharmaceutical companies. 

The AFL-CIO's NAFTA recmmnendations (included below in summary form) are 

comprehensive, and include changes not just to the labor provisions, but to most chapters of 

NAFTA. as well as to domestic policies. The 2016 elections showed that America's working 

people are not satisfied with the status quo. They have heard promises about the benefits of 

trade-but seen those benefits accrue to global corporations and economic elites. It is imperative 

that Congress provide a comprehensive response that improves trade and related policies. 

NAFT A renegotiation cannot be just mere tweaks or the importation of rules from the failed 

TPP. Working people are ready to support beneficial changes to NAFTA. We will oppose any 

NAFTA that continues the status quo, even if it carries a "new and improved" label. 

1. Democratize the Renegotiation Process 

The TPP negotiations demonstrated that secrecy breeds contempt. NAFT A renegotiation must be 

transparent, democratic and participatory, with more access for Congress and the public to 

proposals and negotiating texts. There must be opportunities for public comment, periodic 

congressional hearings to review progress and more inclusive trade advisory committees. 

2. Add Strong Labor Rules with Swift and Certain Enforcement 

To help raise wages and improve working conditions, NAFTA must ensure all working people 

can exercise the fundamental labor rights reflected in International Labor Organization (TLO) 

labor conventions, including the bedrock right to fonn unions and bargain collectively. NAFTA 

must embed strong labor obligations in the text and establish an independent enforcement 

mechanism with innovative tools and penalties to overcome entrenched indifference and hostility 

to worker rights, including the use of violence in Mexico. The new provisions must ensure that 

labor reforms are measured by performance, not merely changes on paper, and they must address 

the failed labor case against Guatemala. which provided strong evidence that the existing 

19 Weisbrot. Mark. et aL '·Did NAFTA Help Mexico'' 

Research. updated March 2017. Available at: lillJ;.;0;y.l2I.&;ili'lliU~S'!I<;~!iL!:.;'l!.QlTI/''!£tflit:l.!1!2ili:1>.::illl.®.I£.:.:illll: 

illJJ.ill::Ff_. 

2

° For an expanded explanation of the AFL-CTO's NAFTA renegotiation recommendations, please see our 

submission to the U.S Trade Staff Committee. ''How to Make NAFTA Work for Working People," a;ailable 

at: hlli~:llil:.!iLQJ:!i§.llll!,\&lli'l~:JJ.tl£1::'-Q!l!!!Jll,',!ill.::.!lilli::lllil~:!WJJ~~.::l!:;;!!lill~!'",:.t;'\,2. 

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27810d-10.eps

framework is not only ineffective, but wholly inadequate, setting up barriers to effective 

enforcement of trade obligations. 

3. Eliminate Investor-to-State Dispute Settlement and Minimum Standard of 

Treatment 

Investor-to-state dispute settlement (ISDS) is a separate justice system for foreign investors. It 

discriminates against U.S.-located firms by providing extraordinmy procedural and substantive 

rights to foreign-based investors. According to the Cato Institute, "It is effectively a subsidy that 

mitigates risk for U.S. multinational corporations m1d enables foreign MNCs [multinational 

corporations] to circumvent U.S. courts when lodging complaints about U.S. policies."21 By 

offering additional legal protections beyond those that exist under U.S. law or other countries' 

national courts, ISDS makes it more attractive to send production a11d investment overseas. 

As one of the lawyers who brought a case against the United States on behalf of a Ca11adia11 

company explained, "[The ISDS provision in] NAFT A does clearly create some rights for 

foreign investors that local citizens a11d compa11ies don't have. But that's the whole purpose of 

it. "22 Rule oflaw requires that the law-including the system of justice-apply to evetyone 

equally. ISDS violates this bedrock principle of democracy. ISDS also disadva11tages U.S. 

companies that only produce in the United States (e.g., micro- and small- to medium-sized 

companies) because they have fewer rights than their foreign-owned competitors. 

Eliminating lSDS will protect democracy, Article Ill ofthe Constitution and America's rich 

jurisprudence while eliminating a subsidy to companies that choose to produce abroad. 

Moreover, the new NAFT A must abolish the vague and overbroad "minimum standard of 

treatment" (MST) obligation that goes far beyond the property rights available under the U.S. 

Constitution.23 

4. Create Jobs by Adding Enforceable Currency Rules 

NAFTA must include enforceable currency disciplines subject to trade sa11ctions in the text of 

the agreement24 NAFTA parties should also conunit to coordinating enforcement efforts with 

respect to the currency ma11ipulation a11d misalignment by non-NAFT A countries. The goal of 

both provisions would be to reduce the unsustainable U.S. trade deficit by addressing issues of 

21 Jkenson. Daniel J.. ··A Compromise to Advance the Trade Agenda: Purge Negotiations of Investor-State Dispute 

Settlement" Cato Institute's Free Trade Bulletin No. 57, March 4. 2014. Avmlahle at: 

Even the staunchly free trade Cato Simon Lester calls the minimum standard of treatment a ·'poorly 

vwitten" provision. Lester. Simon, ··Responding to the \Vhite House Response on ISDS.'' Cato at Liberty Blog. Feb. 

27, 2015. A vmlahle at: \\'\\·\v.cato onifblcw/rcsnonditw--. .. hite~housc~-<1efl;ns~-invc8:tor-state -dJ~pute-settll:"m-.~r.t. 

2

"' TI1ere are many ways to establish such enforceable prm--isions against currency manipulation and misalignment. 

During the TPP negotiations. for example. two useful proposals included a test promoted by the American 

Autornoth-e Polic~ Council and the incorporation of the Intemational Monet..'lry Fund's se\-en factor guidelines 

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27810d-11.eps

trade and exchange rates. Currency realignment would create 2.3 million to 5.8 million jobs over 

the next three years 25 

5. Strengthen Rules of Origin 

Tn general, "mles of origin" should be set so that domestic producers and workers in the NAFT A 

signatory countries are the primary beneficiaries of NAFTA, not third-party countries that take 

on no trade obligations. Strengthening the auto regional value content and closing related 

loopholes is impmiant, but is not the only way to address this recommendation. The pmiies must 

also strengthen content requirements for steel, almninum, textiles and appru·el, and aerospace 

products, for exmnple. Strong rules of origin will provide an incentive to produce in North 

Ametica as opposed to China, Vietnrun or other export platfotms that exploit workers, and the 

incorporation oflabor and other reforms suggested elsewhere in this document will ensure 

workers in all three NAFT A countries can benefit. 

6. Protect Responsible Government Purchasing and Buy American Policies 

NAFTA should support domestic job creation efforts by eliminating procurement cmmnitments 

and promoting responsible bidding standards 26 Cmrently, N AFT A gives bidders fi'om all 

NAFTA countries expansive access to U.S. goods, services and construction contracts. These 

provisions can undennine not only domestic preferences, but also responsible bidding criteria 

(such as requirements that a bidder have no outstanding environmental cleanup obligations or the 

implementation of a system that awards bonus points for bidders with better safety records or 

that source from local fanns). Arbitraty procurement commitments curtail efforts to ensure 

bidders-from any NAFT A Party-are not unfairly undercut by unscrupulous employers, which 

is a further reason to eliminate procurement commitruents. 

The United States' trade obligations open far more U.S. procmement (by dollat· mnount and by 

percentage) to foreign bidders than any other large economy. 27 Instead of blindly repeating 

existing procurement rules, N AFT A Patties should work to develop transpat·ent, multilingual 

bidding systems and responsible employer standards that will benefit enterprises and workers 

located within Notih Ametica, while leaving om democracies the freedom to choose when 

domestic preferences are necessaty and appropriate, and when other considerations should 

prevail. The new rules should continue the prohibition on government offsets. 

25 Scott. Robert E., ''Stop Currency Manipulation and Create Millions of Jobs. \Vith Gains across States and 

Congressional Districts:· EPT Briefing Paper #372, Economic Policy Institute, Feb. 26. 2014. Avmlable at: 

',\-\\ Y{SJ!~'.I&.rJJJ2.li£;·~~i~l9P-r:t:rn .. op..J::;:.:iP :cn4Dll1.9lion.-.nlsl::f'..L£AlY ·rT!illig_m:-v fTiobfu 26 Although there is room for additional study of the impacts of existing procurement deals (e.g., an anal)sis of the 

job and \\·age effects of the reciprocal agreement bet\\een the United St.'ltes and Canada that \\as adopted for the 

expenditure of American Recoycry and Reinvestment Act funds and an analysis of U.S. procurement contracts won 

by multinational versus domestic-only tinns). to date. there is simply no evidence to suggest that the current 

procurement rules create U.S. jobs or raise U.S. vvages. 27 U.S. Government Accountability Office. ·'Qoyernment Procurement: United States Reported Opening More 

Opportunities to Foreign Firms than Other Countries, but Better Data Arc Needed,., Feb mary 2017. Fig. 2. p. 12. 

A vai !able at: nJi.Jl.JJ~<;J&2S21.L~Jlill(fi1. 0 -1 7 ·l.6.Q.. 

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27810d-12.eps

7. Eliminate Chapter 19 Obstacles to Effective Trade Enforcement 

Chapter 19 should be eliminated and replaced with a mechanism for North American 

cooperation to ensure effective enforcement against unfairly traded products fiom non-NAFT A 

countries 

8. Combat Tax Dodging 

NAFTA and subsequent trade and globalization rules have had a negative long-term impact on 

tax revenues and public investment. In addition, through a variety oflegal and illegal tax 

avoidance schemes, tax revenues have fallen for jurisdictions around the world, regardless of tax 

rates. This troubling trend undennines the social contract and inhibits robust public investment in 

infi"astructure and human capital. The new NAFT A should address base erosion and tax 

avoidance to help meet infrastructure needs and cultivate public support for international trade. If 

trade rules are beneficial, they should help America build new schools, high -speed 

communications networks, and transportation corridors. But if trade is viewed as a vehicle to 

facilitate tax dodging by economic elites, public opposition will only grow. 

9. Remove Rules That Undermine Protections for Workers, Consumers and the 

Environment 

NAFT A must not limit, undennine or inhibit public interest standards or regulations. NA FT A 

must ensure that North America· s democracies retain the freedom to develop, advance and 

implement commonsense protections. including country-of-origin labeling, fiee from the threat 

of trade challenges. Tite renegotiated NAFT A must contain no negative lists, no ratchet clauses 

and no "'regulatory impact analysis" requirements. Negative list commitments in NAFTA must 

be rewritten into positive list commitments to ensure that Nmth Ametican democracies retain to 

right to advance commonsense mles relevant to newly developed services, free from the threat of 

trade challenges. 

While the AFL-CIO agrees that, under the right circumstances, regulatory cooperation can 

increase trade and efficiency in ways that benefit workers and consumers, we also caution 

against blunt effmts to use NAFTA renegotiation as a back-door route to attack important 

worker. consumer, environmental, health and food safety protections. Deregulation via 

international negotiations is inherently undemocratic, reducing trust in both trade and democracy 

because it undermines standards that citizens struggled to enact (such as "COOL"labeling). 

10. Add Commitments to Invest in Infrastructure 

Investing in infrastructure drives long-term, broadly shared growth, but is hard to do when global 

companies are driving a race to the bottom. Adding an infrastructure commitment will help 

offset the incentives of prior trade deals that have depressed public investment. 

Specifically, NAFT A must include a new chapter in which each Party commits itself to investing 

a minimum of 3% of its GDP annually in its own public infiastmcture construction. repair and 

maintenance. The commitment must ensure that preferences for domestic procurement are 

allowable. Parties shall detennine their respective infiastructure priorities with public input, and 

all public construction, repair and maintenance investments (transit, aviation, bridges, roads, 

ports, water, sewer, electricity, conununications, schools, parks, other public facilities, etc.) shall 

II 
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27810d-13.eps

count toward the minimum. The idea behind this provision is simple: set a reasonable target28 for 

public infrastructure spending and require Parties to repmt their actual spending annually. The 

public reporting aspect will assist local, state and federal policy makers in evaluating their 

respective investments and helping their economies to grow. 

Separately, and in addition, the NAFT A implementing bill must contain one-time mandatory 

funding for specific trade-related projects in the United States, to enhance the benefits working 

families can reap from North American trade, including but not limited to new and improved 

land border crossings; ports, airports, roadways and watetways; new and improved rail cotridors, 

including high-speed rail; and broadband infrastructure, including in rural communities. 

11. Protect Consumers and Ensure Financial Stability 

A new NAFT A should not expand financial services conunitments or litnit regulation of the 

fmancial sector. NAFTA should protect the ability to engage in fair and nondiscriminatory 

application of capital controls and other measures to ensure the stability of the financial system. 

As Philip R. Lane explains in his paper, "Financial Globalization and the Crisis,'' financial 

globalization enabled the scaling-up of the U.S. "securitization boom" that triggered the crisis 

and was a key factor in the rise oflarge credit grmvth differences and current account imbalances 

that propelled the crisis across countries29 NAFT A Parties must incorporate the lessons learned 

from the aggressive financial deregulation of the 1990s and resist the entreaties of Wall Street 

and Canadian banks to use NAFTA renegotiation to ease financial services regulation. 

12. Promote Transportation Safety 

TI1e new NAFTA must ensure that all Parties may enforce domestic highway safety, labor 

protections and environmental standards on foreign trucks, rail and buses. Tn addition, NAFTA 

should continue its existing policy of broadly excluding water and air transportation services 

from coverage. This includes maintaining existing reservations covering the Jones Act, laws 

respecting ownership and control of airlines, and the like. 

13. Protect Intellectual Property While Ensuring the Right to Affordable Medicines 

For copyright: NAFTA should retain strong provisions to protect creative and innovative 

workers (including actors, writers, musicians and others) whose income, standard ofliving, and 

health and retirement benefits rely upon residuals, royalties and other payments tied to 

international copyright protection. 

For patents and related protections: NAFTA must balance innovation with affordability of 

healthcare. The adtninistration must work to ensure NAFTA' s patent provisions do not become a 

corporate welfare program for brand-name phannaceutical and medical device companies. Nor 

should NAFTA undennine democratic choices about how to ensure prescription drugs and 

medical devices provided through public programs are affordable for taxpayers and beneficiaries. 

28 According to the C ongrcssional Budget Office, public spending on transportation and \Yater infrastmcturc alone 

'"over the past three decades has hovered at about 2.4 percent.'' '·Public and \Vater 

Infrastructure. 1956 to 20 14:' CBO, March 2015. Available a/. ll.J'lli.§U!.'l:Llilli~tllillWCJ.!!'£'i.LL±lli.:IT'l.'ll~?.:. 

iflt;~~,~~~;''Jf''~~!f~~~l~~~i~~~;~;~r'and the Crisis." Prepared for the II th BIS Annual Conference on The 

Luceme. Jun. 21-22.2012. 

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27810d-14.eps

Reproducing TPP provisions on patents, exclusivity and so-called "transparency and procedural 

fairness" into a renegotiated NAFTA would be a step backward for the health of working 

families in the United States, Canada and Mexico, and is unacceptable. 

14. Prohibit Global Corporations from Using NAFTA to Capture Public Services for 

Profit 

NAFTA renegotiation must expand the public services exception so that public services are fully 

carved out, or protected, from the agreement. The cunent NAFTA text leaves out a number of 

important public services, including energy, postal, water and sewer, sanitation, inunigration and 

public transportation services from its Annex II reservation. This shortcoming must be rectified 

to protect the full spectrum of democratic decision making regarding the provision of public 

services. 

15. Add Strong Environmental Rules with Swift and Certain Enforcement 

NAFT A must be reformed to include strong envirorunental standards that will be enforced. 

NAFTA must require adoption of and compliance with key multilateral environmental 

agreements: prohibit illegal trade of timber and wildlife: promote responsible fisheries: and 

ensure countries cannot gain an unfair trade advantage by allowing highly polluting practices. 

This should be done in a manner akin to the recommendations for labor obligations. 

16. Improve Screening for Foreign Direct Investment 

Congress and the administration should work together to enhance the powers ofthe Committee 

on Foreign Investment in the United States to be sure the U.S. can review greenfield investments 

and use a "'net economic benefit test" to measure more impacts on our working people as a 

whole. Tn addition, NAFTA should be updated to accommodate this domestic policy change. 

17. Improve Trade Enforcement as Part of a Robust Manufacturing Policy 

Trade rules are only as good as their enforcement. Enforcement tools must be expanded and used 

promptly. Rules crafted to create a fair and level playing field and promote good jobs in growing 

industries will support employment and wage growth in all three NAFTA countries. This will be 

a significant improvement over the cunent rules. which reward low-road practices, harming 

businesses, farms and working families across North America. 

18. Improve the ITC's Economic Modeling 

The United States International Trade Commission (ITC) is responsible for projecting the 

economic outcomes of proposed U.S. trade and investment negotiations. The lTC uses a model 

called the computable general equilibrium (CGE). The CGE has a number oflimitations and 

does not adequately address such issues as mercantilist trade policies, cunency manipulation, 

long-term wage stagnation or inefficiencies that result from trade deal-caused deregulation. 

privatization, market concentration or deunionization. As a result, the TTC's past projections 

been over rather than under optimistic30 Tmpmtantly, the CGE method is particularly ill suited to 

NAFTA renegotiations, as tariffs for nearly all traded goods already are at zero. 

30 ,)'ee. e.g, Drake. Celeste, on behalf of the AFL-CTO, Oral Testirnon~ on··rnvestigation No. TPA-105-001, TransPacific Partnership Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors." Before the 

U.S.lntcrnational Trade Commission. Jan. 13.2016. Avmlable at: 

y, \\ w.tLt:,i.!g.z.~U::..:'i.U~~JL'Ji!f.Y.Dli:Jlt,?.!)csrlnlQ_!~LQUIO l OOS_jis}f 

13 
45

Mr. POE. Thank you. 

Thank all of you. 

I will recognize myself for 5 minutes. 

Just answer this question ‘‘yes’’ or ‘‘no’’; it is easy. Has NAFTA 

benefited the United States? 

Mr. Farnsworth? 

Mr. FARNSWORTH. Yes. 

Mr. POE. Mr. Allford? 

Mr. ALLFORD. Yes. 

Mr. POE. And Ambassador? 

Mr. NEGROPONTE. Yes. 

Mr. POE. Ms. Drake? 

Ms. DRAKE. No. 

Mr. POE. Three to one. 

Mr. Allford, you heard the testimony of Ms. Drake. And you 

started out as a single owner, inventor, businessperson, worker. 

You were all of the above when you started. You said NAFTA has 

helped you. You have 65 employees. Is that correct? 

Mr. ALLFORD. That is correct. 

Mr. POE. How much of your trade—how much do you trade with 

Mexico? Can you give us a percentage? 

Mr. ALLFORD. Over the last 3 years, it has been 15 percent of our 

revenues, but it fluctuates year to year. 

Mr. POE. Okay. How about Canada? 

Mr. ALLFORD. Again, the same, 15 percent. 

Mr. POE. What would happen to your business if the United 

States hit the road with NAFTA? 

Mr. ALLFORD. We would probably lay off 15 people. 

Mr. POE. Ambassador, the renegotiation with NAFTA is taking 

place now. What should we do, the United States do, to make it 

better, specifically? 

Mr. NEGROPONTE. Well, I think some of the changes, the new 

concepts that were introduced to the Trans-Pacific Partnership, 

which, of course, we have not entered into—we have withdrawn 

from that agreement. But in that TPP negotiation, things like intellectual property protection, e-commerce, updating the labor and 

environmental provisions, those kinds of features are things that I 

believe ought to also be introduced into a bilateral—or into the 

NAFTA discussion. 

And my understanding is that they have been, although, like Ms. 

Drake, I haven’t seen the specific language being discussed, 

but——

Mr. POE. So you agree with her that we need to update the labor 

provisions in NAFTA? 

Mr. NEGROPONTE. Yes. And I——

Mr. POE. For the United States. That would benefit the United 

States. 

Mr. NEGROPONTE. Right. And just as a reminder of the history 

of this, I think we have to remember that in 1993 and 1994 the 

labor and environmental provisions were sort of an afterthought. In 

other words, Mr. Bush signed the agreement, and then Mr. Clinton, as a condition, when he came into office, for actually going 

through with the agreement, insisted on negotiating these environVerDate 0ct 09 2002 13:58 Jan 11, 2018 Jkt 000000 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 F:\WORK\_TNT\121217\27810 SHIRL
46

mental and labor accords. And so it really was an afterthought. I 

think now it is less so. 

Mr. POE. Mr. Farnsworth, I mentioned in my opening statement 

that United States policy, economic policy, foreign policy, whatever 

you want to call it, we seem to get involved in working with countries across the seas and trying to help their economy, but we seem 

to ignore our neighbors, specifically helping the economy of Mexico, 

which I think not only helps Mexico, it helps us. 

Do you agree with that statement? 

Mr. FARNSWORTH. Judge Poe, I strongly agree with that statement, and I thank you for raising that as a priority of this hearing. 

Mexico also has politics, and Mexicans will go to the polls in July 

for a Presidential election. It is too early, at this point, to declare 

who is going to be the winner in Mexico, but simply to say that, 

to the extent they feel that the United States is being a partner 

that is looking to distance the relationship rather than make it 

closer, that could very well encourage folks to vote for candidates 

in the Mexican process who may take a view of the United States 

that is less charitable. 

And the last thing we would want, in my view, would be to have 

a Mexico that views the United States in the way that we had in 

terms of the relationship back before NAFTA was finalized. 

We have to remember that the recent relationship over the last 

23, 24 years is actually not the traditional relationship that Mexico 

and the United States have had. That relationship tended to be 

more acrimonious at times, but, at the best of times, benign. 

Now, over the last 23, 24 years, we have had the opportunity for 

real, intensive, and mutually supportive cooperation across a range 

of issues, yes, on the economy but also on the security side and on 

the migration side, and that would be put immediately at risk. 

Mexico has its own interests; they might view some of these issues 

differently. And I think we have to remember that. 

Mr. POE. Historically, the relationship between Mexico and the 

United States, especially Mexico and Texas, has been tense, in my 

opinion, and has changed for the better but slowly. I think we need 

to work with our next-door neighbors and look at them closer than 

we start—people across the seas. 

And one last question. Does Mexico and Canada want to renegotiate NAFTA? Anybody can weigh on this. Just ‘‘yes’’ or ‘‘no.’’

Mr. FARNSWORTH. Yes, they have indicated a willingness to do 

so. 

Mr. POE. Ambassador, I think you wanted to say something? 

Mr. NEGROPONTE. Yes, sir. I think they do, but within limits. I 

think there are some provisions that have been suggested that I 

think they probably would not be willing to accept. For example, 

a sunset provision, a 5-year sunset provision, would be one, I think, 

rather significant example of——

Mr. POE. A sunset provision is bad for business, wouldn’t you 

think? 

Mr. NEGROPONTE. Well, it is hard to make an investment——

Mr. POE. That is right. 

Mr. NEGROPONTE [continuing]. If you only have 5 years. 

Mr. POE. I will yield to the ranking member, Mr. Keating from 

Massachusetts. 

47

Mr. KEATING. Thank you, Mr. Chairman. 

And, indeed, a lot has happened over the last decades since the 

NAFTA agreement was negotiated. One of those areas is really—

and I mentioned the growth of Mr. Allford’s business is indicating 

that—the growth of artificial intelligence and robotics and the new 

industries there. 

So I would like to ask you all, you know, given that, you know, 

what importance in retraining workers and preparing them for new 

industries should be part of this agreement in terms of promoting 

this? You know, can we use this opportunity to deal with, you 

know, the dislocation that comes from these new industries? Can 

we use this to make sure that American workers have the option 

of retraining and have the resources to do it, in preparing them for 

these new industries? 

Ms. Drake? 

Ms. DRAKE. Thank you. 

I think not only can we but we must do that. 

The problem is that all the training and education in the world 

doesn’t create one single job. So, while we are investing in training 

and education to get U.S. workers up to a world-class level, we also 

have to make the investments that will help create the jobs, so promoting innovation, investing in infrastructure, making the U.S. a 

more attractive place to invest. 

Right now, it takes as long for a freight train to get from Los Angeles to Chicago as to just get through Chicago. And compare that 

to the investments, for example, that China is making in its infrastructure that makes it an attractive place to invest. 

So we need to combine training and education to prepare workers and to retrain workers who have lost their jobs, but we also 

need to do the homework to make sure that we are creating those 

jobs for the trained workers to go into. 

Mr. KEATING. I think, incidentally, as I have talked to business 

leaders and I asked them to prioritize their needs, enhancing our 

infrastructure is either one or two in everyone’s comments. And 

that is one reason I am concerned, quite frankly, about this tax 

plan, because there is going to be no money left for that. And I believe infrastructure should be, if it is not parallel, incorporated 

with our plans. 

You mentioned the Guatemalan case. Is there anything—and 

this is open to all our panelists—is there anything that we should 

learn from that case in terms of reshaping this agreement? 

Ms. DRAKE. I will start, that the Guatemalan case, it lasted for 

more than 9 years. So one thing is just in terms of timeliness and 

delay. 

But, secondly, there is no question on the world stage that Guatemala is not enforcing its laws, any laws—labor laws, criminal 

laws of any kind. The U.N. High Commissioner on Human Rights 

has an office there to deal specifically with rule-of-law issues and, 

in particular, freedom of association and human rights in the economic sphere. That is exactly what we are talking about. 

But because the CAFTA, the Central American Free Trade 

Agreement, limited the way that we could enforce labor obligations—it had to be in a manner affecting trade and a sustained or 

48

recurring course of action, or inaction—the panel said the U.S. had 

failed to prove its case. 

So what we have to do is make sure that these additional hurdles to labor enforcement aren’t repeated in the NAFTA. Labor obligations should be as enforceable as every other obligation, and 

right now, with that language, they are not. 

Mr. KEATING. Yeah. 

I think a final question—and the panel can answer the previous 

question or this, as they see fit. But looking at changes that have 

occurred over this time and what we should take into consideration, do you think there should be commitments about climate 

change as part of the NAFTA or trade agreement negotiations? 

And why or why not? 

Ms. DRAKE. I would say absolutely. And the reason why is we 

would not want to lose high-value manufacturing, in particular, to 

a trading partner that says, ‘‘Pollute all you want. Contribute to 

global warming all you want. You can produce here, and it will be 

cheaper.’’ And the problem is that everyone has to live with the effects of putting that high carbon output into the global environment. 

Mr. KEATING. Ambassador? 

Mr. NEGROPONTE. Yeah, I think that—I took a look at the TPP 

language, and I would say it is good in terms of encouraging proper 

environmental behavior, but I don’t think it goes so far as to impose enforcement within the agreement itself. I think it allows for 

domestic enforcement in each of the cases. But I think it goes farther than the agreement we had back in 1993, in terms of encouraging the right kind of environmental policies. 

And having dealt with both Canada and Mexico on environment, 

I think they both want to make the environment better. I don’t 

think there is any doubt about it. When I got to Mexico, you could 

barely see in front of your nose, there was so much particulate 

matter in the air. There was leaded gas; they hadn’t gotten rid of 

leaded gas yet. 

Mr. KEATING. I am encouraged, myself. I think that is one area 

where we have the three countries sharing some of these values together. And together, if we move forward on this, it will be a strong 

example for other agreements as we go forward. So it is great to 

have some common areas where we can agree. 

And I want to thank you. This is a fascinating area. I am so 

pleased you are here. 

And I yield back. 

Mr. POE. I thank the gentleman from Massachusetts. 

The Chair recognizes the gentleman from Florida, Mr. Mast. 

Mr. MAST. Thank you, sir. I appreciate that. 

You know, I only have 5 minutes, so I don’t want to necessarily 

hear from everybody on each one of these questions, but I do generally open this up to each and every one of you, whoever champs 

at the bit first. 

But I want to start by asking a little bit about e-commerce and 

some of the provisions that we should be looking at to strengthen 

what is going on with NAFTA and e-commerce in benefiting the 

United States of America. 

49

I mean, obviously, that is always a fair thing to say. We can assume that Canada will be looking at any NAFTA 2.0 to strengthen 

provisions for Canada. Mexico would be looking to do the same. I 

think they rightfully fear any intrusion of products coming in from 

Asia, which is probably the way most Americans feel about products that have come in from other places, even throughout our own 

region. 

But what do you see as things that we can do to strengthen ecommerce through any NAFTA 2.0 for the United States of America? 

Don’t all start at once. 

Mr. FARNSWORTH. There is one thing that we could do. We have 

tried already in multiple fora, and it resides with the Government 

of Mexico to make this decision, but we could change the de minimus levels for package delivery from the United States to Mexico. 

From an e-commerce perspective, that would have a potentially 

dramatic impact. 

Mr. MAST. Do you see the other players, Canada and Mexico, 

being willing participants for compromise in this region? 

Mr. FARNSWORTH. As I say, this has been a perennial issue between the United States and Mexico. They have indicated that they 

are not ready to entertain those proposals, but I think we need to 

continue pushing forward on that. 

And this is an entire industry that really didn’t even exist when 

NAFTA was first negotiated. And I think the broader point here is 

something that bears focus. You know, if you think back to, for example, the automobile that you were driving in 1993, mine had a 

tape deck in it and that was about it. Now, the automobiles are literally driving themselves. 

I mean, the world has changed so fundamentally, and NAFTA, 

the provisions in the auto sector and every other sector that are included, actually still maintain the provisions, in large measure, of 

the world as it existed in 1994, when NAFTA went into effect. 

This is something that, from the updating perspective, we really 

need to have a hard look at. And it can actually help the innovation agenda for all three economies. But there are some sand in the 

gears, like the one that you have just referred to. I think that 

would be a good place to start. 

Mr. MAST. Are you pointing, to some degree, in terms of the origin of parts and the percentage that we need in, say, a U.S. automobile, 62 percent of it being made in the region, something like 

that? 

Mr. FARNSWORTH. Certainly, rules of origin plays into that, absolutely. And this is a very complicated issue, there is no question 

about it. We have to be careful here. With the right intentions, if 

we try to manage rules of origin in a way that is ultimately counterproductive from a commercial perspective, we could actually decrease production in the North American zone and force that production overseas in a way that is unhelpful to job creation in the 

United States. 

So this is something that is currently being negotiated among the 

three parties right now. It is something the U.S. administration 

has made a very high priority, and it is something that we have 

to watch very carefully. 

50

Mr. MAST. Yes, Ambassador? By all means. 

Mr. NEGROPONTE. I think that, in part, what Mr. Farnsworth is 

referring to is the fact that our negotiators are asking for an explicit U.S. content of—I believe they are asking for 50 percent with 

respect to automobiles, as opposed to a North America-wide content 

of the 62.5 percent that you referred to. 

And I think there is real concern amongst people who look at 

this that, if we were to insist on that, it would damage the competitiveness of vehicles made in North America. And it wouldn’t have 

the effect, necessarily, of driving production back to the United 

States. I think it might be taken offshore to places like Asia and 

Europe. 

Mr. MAST. And that is what we are looking for, is production 

here, jobs here. This is something that we want to see. I heard a 

little jab over there on taxes. I think one of the most important 

points we can make, even—it came from a Democrat President. 

John F. Kennedy talked about how paradoxical it is, the relationship between lowering taxes and increasing revenue. One of my favorite quotes that exists out there. 

But in the aim of talking a little bit more about jobs, I have one 

more question, and that is, do you see anything within NAFTA 

that we could be renegotiating specifically to actually put Asia a 

little bit more on its heels and not have to worry about, necessarily, 

the loss there but actually put them on their heels and put them 

on the defensive? 

Ms. DRAKE. I would say one of the recommendations that the 

AFL-CIO made was this commitment to work together as a threeparty bloc to make sure that we are addressing tax avoidance so 

the taxes that are due are collected and able to be invested in infrastructure; commitments to invest by all three countries in infrastructure so that we can build that back up and make this an attractive place. 

And, finally, something that is very important is to have all three 

countries work together to cooperate on enforcement when there 

are non-NAFTA parties doing trade cheating, dumping, subsidizing, whatever it is, to work together to cooperate on enforcement. And that would make the U.S. enforcement a lot stronger. 

Mr. MAST. Very fair. Thank you. 

Thank you for your time. Thank you for your answers. 

Mr. POE. I thank the gentleman from Florida. 

The Chair recognizes the gentlelady from Nevada, Ms. Titus. 

Ms. TITUS. Well, thank you, Mr. Chairman. 

Mr. Negroponte, you and Mr. Farnsworth both referenced in your 

comments concern that if this negotiation goes awry or if the U.S. 

pulls out of NAFTA that we will return to being distant neighbors 

with Mexico. I think you said the relationship in the past wasn’t 

quite as copacetic as it is today. 

I wonder what you both think the President’s anti-Mexico rhetoric and call to build a wall and have them pay for it is doing for 

our relationship with Mexico and the potential negotiations. And if 

this fails, do you think a wall will be able to stop the millions who 

will suffer as a result of the economic consequences? 

Mr. NEGROPONTE. Well, I think in atmospheric terms, I don’t 

think that kind of rhetoric goes down particularly well in Mexico, 

51

and I think it contributes to a sense that the President may not 

regard Mexico and the Mexican people as highly as they would 

like. 

But if you go to the core of it and talk to them about it in depth, 

what they really care about is the NAFTA and the trading relationship, and they want to see that renewed. And I think they are prepared to tolerate a certain amount of rhetoric provided the practical results are beneficial to them. 

Ms. TITUS. And what about in this election that is coming up? 

You mentioned that perhaps someone less favorable to the U.S. 

would get elected because of some of this rhetoric. 

Would you weigh in, Mr. Farnsworth? 

Mr. FARNSWORTH. Yes, ma’am. And thank you for the question. 

And I agree with Ambassador Negroponte. It is not particularly 

helpful, and it stigmatizes, in some way, the relationship. And people don’t necessarily appreciate that. 

The one thing about—in reference to your question about the 

border wall, Ms. Drake referenced infrastructure within the United 

States, which I think is absolutely correct. I am actually from Chicago, and I can verify that traffic there is complicated. But to the 

extent that we are also building additional obstructions or obstacles with our border with Mexico, that is only going to make the 

commercial relationship that much more complicated, particularly 

in sectors that final production is not in one country or the other 

but that production actually crosses the border multiple times—for 

example, in the auto sector. And each time, if the border is congested or complicated, that reduces the efficiency of production, 

raises the cost of production, and ultimately make U.S. manufacturing less competitive. 

And we have to remember that final goods that are exported 

from Mexico, according to the National Bureau of Economic Research, actually include some 40 percent of U.S. content. 

So, as we are making that border more complicated to cross, we 

are actually impacting the commercial relationship in a way that 

I think is very, very compelling, and something we need to think 

hard before we do it. 

Ms. TITUS. Thank you. 

I would also like to ask you about tourism. I represent Las 

Vegas, and I co-chair the Travel and Tourism Caucus. And our 

greatest source of tourists are Mexico and Canada. I think half of 

all international visits came from those two countries—18.7 million 

last year from Mexico, 19.3 million from Canada. But we have seen 

a decrease, according to the Department of Commerce’s National 

Travel and Tourism Office, from Mexico this past year, and some 

of that is tied to that same rhetoric that I mentioned. 

Could you discuss how a poor renegotiation or withdrawing from 

NAFTA would address tourism as part of our economic interaction 

with these two countries? Anybody. 

Mr. NEGROPONTE. Well, I think maybe in the broader sense. If 

the NAFTA fails and then it has negative, adverse economic consequences on Canada and Mexico—I could see a devaluation of 

their currency, for example, and then there would be all sorts of 

knock-on effects which might, over time, affect the ability of Mexicans to travel to the United States. 

52

But visiting the U.S. is near and dear to their hearts. You know, 

a lot of visa applicants in those visa lines in Mexico are wanting 

to take their children to Disneyland, right? I mean, that is what 

they want to do, or go to Las Vegas or visit the other tourist highlights in the country. 

Ms. TITUS. Mr. Farnsworth? 

Mr. FARNSWORTH. Well, again, I think that, in the broadest 

sense, things that would indicate that the United States is a less 

welcoming environment to anybody coming to visit would, I think, 

depress the interest from Mexicans and others, frankly, in visiting 

the United States as tourists. 

Ms. TITUS. Big difference in a wall and a welcome mat. 

Thank you. I yield back. 

Mr. POE. The Chair recognizes the gentlelady from California, 

Mrs. Torres. 

Mrs. TORRES. Thank you, Mr. Chairman. And thank you for 

bringing us together to talk about such an important issue between 

North American countries. 

I was recently in Mexico. I travel as part of the U.S.-Mexico 

Interparliamentary Group. It is heartbreaking to hear how offended—or how much our administration, our current President 

has offended our Mexican nationals and how he has negatively impacted our relationship with our closest neighbors to the south, 

neighbors who we depend on for our national security and great 

partner on this issue. 

Ms. Drake, I agree with you on the labor and environmental 

issues. I think it is unfortunate that it was a second thought, it 

wasn’t negotiated. And I think that this is an opportunity for us 

to really bring about labor issues, wages, and climate change 

issues, although we don’t want to call it ‘‘climate change issues’’ 

anymore. I get that. ‘‘Weather pattern changes,’’ as I refer to them. 

Friday night, I had some gifts for my little grandbaby, and I was 

wrapping them. The toy was made here, the wrapping was made 

in China, but the ribbon—and I took a picture of it. It is on my 

social media. And I am happy for you if you follow me. The ribbon 

says it is made in Mexico from materials manufactured in the USA, 

Rancho Cucamonga, California, 91730. That is my neighboring city. 

And I was so proud of that that I had to tweet out that photo, because that is NAFTA. 

I traveled through my district and visited 17 manufacturers that 

say they are dependent on NAFTA to trade with—you know, within 

businesses across. That means that those California workers, those 

California companies that are a part of the Paris Agreement, that 

are committed to ensuring that we have air quality that we can all 

be proud of for our future generations, will be denied those jobs. 

So, rather than abandoning, you know, an agreement that might 

have not benefited all of our communities in all of our States in the 

U.S.—as a matter of fact, some parts of Mexico are just as angry 

as some parts of the U.S. Southern Mexico, for example, has not 

benefited a single job, you know, from the NAFTA agreement. And 

they would say, just like some of our States would say in rural 

counties, it has negatively impacted them. 

So how do we focus on those areas and ensure that, whether it 

is infrastructure—what are some of the ways that we can bring 

53

about this dialogue to an administration that is so much opposed 

to it? 

Ms. Drake? 

Ms. DRAKE. I would start by abandoning the us-versus-them 

rhetoric. It really isn’t the United States versus Mexico versus 

China. And, in fact, the firms that are competing, the firms are 

global; the profits are global; the places where profits are booked 

and taxes are avoided are global. The only thing that is not global 

are the workers themselves and the worker rights. 

So it really takes a change of our frame of how are we looking 

at this and how do we give businesses the right incentives to create 

jobs, not just in the U.S. but—of course in the U.S., but also in 

Mexico and in Canada, and to make sure that those are good jobs, 

family-wage jobs. 

You know, there are millions more living in poverty in Mexico 

now than before NAFTA. It is not all attributable to NAFTA, but 

there are certain things that all three countries can do to try to 

make a more progressive economy and to create not just any job, 

not just a job that has no security, but really say, ‘‘We are going 

to work on this together.’’

And then what we are doing, if we are able to do that, in the 

context of NAFTA, to say we are going to also continue to trade 

and continue to grow the trade relationship, as Chairman Poe referenced earlier, it is good for the U.S. not just because you are raising wages there so we get a better labor market here, but you are 

creating new customers for U.S. exports. There are so many in 

Mexico right now that aren’t really participating in the global economy and can’t afford to buy American goods. 

So how can we do all of that? And there are lots of ways, and 

it starts with labor rights, but there are many other investments 

we can make. 

Mrs. TORRES. Thank you. 

And I yield back. 

Mr. POE. I thank the gentlelady. 

The Chair recognizes Ms. Frankel from Florida. 

Ms. FRANKEL. Thank you, Mr. Poe. 

Thank you to our witnesses. 

So I want to pick up where my colleague Mrs. Torres left off and 

just say I agree that we have to—when we rework this agreement, 

we have to improve the labor standards and also environmental 

standards. 

I want to look at this from a little different angle, maybe more 

from the aspect of this committee on terrorism. That is, I have very 

mixed emotions when I think about this, because I want to do everything possible to improve America’s economy; we also have to be 

concerned about our security. 

And so I think when—Ms. Drake, I like your approach. It is not 

us against them. Because my big concern is, if we allow Mexico to 

go downhill, to have more economic losses, well, things are going 

to start to happen that we don’t want to happen, which will be 

probably more illegal immigration, more violent drug trading, more 

border issues. 

And so I would like to hear some comment on that from whoever 

would like to. 

54

Mr. NEGROPONTE. If I could, Mr. Chairman, I would just like to 

say I think the cooperation on the security front with Mexico has 

been at an unprecedented level. I mean, some examples would of 

course be the fact that we have been cooperating on immigration 

issues, not only on our common border but also down on Mexico’s 

border with Central America. So I think that is important. We 

have been, lately, doing a lot of good work on transnational crime 

and that kind of activity. 

And perhaps one that is really politically very significant for 

Mexico, when I was Ambassador down there 25 years ago, Mexico 

wouldn’t extradite criminals to the United States, and now they do 

it, and they do it without any difficulty whatsoever. And, to my 

mind, that really represents a major shift in their approach toward 

cooperation with our country. 

Ms. FRANKEL. And I assume, from what you are saying, that if 

we just really walked away from NAFTA, that the border cooperation and the other cooperation might fail. 

Mr. NEGROPONTE. Well, I certainly wouldn’t want to wish that, 

nor would anybody, I don’t suppose. But it might make it a little 

harder for them and give them a little less room for maneuver, politically, if they were working in the context of a failed NAFTA. 

Ms. FRANKEL. Mr. Farnsworth, I see you—and Mr. Allford, you 

have both been shaking your head—and Ms. Drake. Who wants 

to——

Mr. FARNSWORTH. I have nothing in particular to add, other than 

to associate myself with Ambassador Negroponte’s comments. I 

think that is exactly right. 

And we also have to remember Mexico is not doing this cooperation necessarily to please the United States. It is doing it because 

it is in its own interests. And those interests will continue no matter what happens on the north side of the border. 

So there will be, in my view, some continued level of cooperation. 

The question will be how easy it will be, how politically possible it 

will be, and what extent it will be. And you could paint a scenario, 

I think, quite easily that the next President of Mexico, whoever he 

or she may be, could not have the same level of political room to 

maneuver to cooperate with the United States. So I think that is 

a real risk. I wouldn’t think that the cooperation would end, but 

I think perhaps it would become much more fraught. 

Ms. FRANKEL. Ms. Drake, did you want to add to that? 

Ms. DRAKE. Yes. Thank you. 

I would just add that NAFTA has not been a magic bullet on this 

front. The noted economist and author Jeff Faux has done some 

really good work about how some of the campesinos who were 

pushed off the land after NAFTA ended up in the narcotrafficking 

regime. 

And we also must note that rule of law continues to be a problem. A couple of years ago, 43 student teachers were kidnapped in 

Mexico. We still don’t have a resolution of that. And just within the 

past couple of weeks, we had two labor activists who were assassinated in a worker strike in a mine. 

So we have lots of work to do. And the U.S. could do a much better job of pushing Mexico to make sure that it protects workers and 

women as part of its rule-of-law issues. 

55

Ms. FRANKEL. Thank you. 

Mr. Allford? 

Mr. ALLFORD. As you can tell, I believe that trade creates jobs. 

I ship machines overseas that allow people to build high-valueadded products, not just wrapping ribbons. If everybody has a job, 

they are able to feed their family, the world is a more tranquil 

place. 

Ms. FRANKEL. Thank you. 

Thank you all for your response. 

I yield back. 

Mr. POE. I thank the gentlelady. 

I want to thank all of you all, or all y’all, as we say as a plural 

to ‘‘y’all’’ in Texas, for being here today. The testimony has been 

excellent, and we appreciate your time and your information. 

There may be questions that members of the panel may have. 

They will submit that through the Chair to you in writing. And 

then we would like a timely response, preferably before the NAFTA 

agreement is reached. 

And, with that, the committee is adjourned. 

[Whereupon, at 3:07 p.m., the subcommittee was adjourned.] 

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SUBCOMMITTEE HEARING NOTICE 

COMMITTEE ON FOREIGN AFFAIRS 

U.S. HOUSE OF REPRESENTATIVES 

WASHINGTON, DC 20515-6128 

Subcommittee on Terrorism~ Nonproliferation~ and Trade 

Ted Poe (R-TX), Chairman 

TO: MEMBERS OF THE COMMITTEE ON FOREIGN AFFAIRS 

You arc respectfully requested to attend an OPEN hearing of the Committee on Foreign Affairs, to be held 

by the Subcommittee on Terrorism, Nonproliferation, and Trade in Room 2172 of the Rayburn House Office 

Building (and available live on the Committee website at hlt}J://\\ \\\\ .Forem\<-'li1J;rs h_.9usc,g,Q_y): 

DATE: 

TIME: 

SUBJECT: 

WITNESSES: 

TuesdaY. December 12,2017 

2:00p.m 

1l1e Future of the North American Free Trade Agreement 

Mr. Eric Farns\\-orth 

Vice President 

Council of the Americas 

Mr. Daniel Allford 

President 

ARC Specialties 

The Honorable John D. Ncgropontc 

Vice Chaim1at1 

McLarty Associates 

(Former Deputv ,\'ecretalJ! f?f"S'tate and Fonner Director oj"Nationallntelhgence) 

Ms. Celeste Drake 

Trade and Globalization Policy Specialist 

The American Federation of labor and Congress of Industrial Organizations 

By Direction of the Chairman 
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COMMITTEE ON FOREIGN AFll'AlRS 

MINUTES or SUIJCONIMITTEE ON Tetrorlsm, ,Vrmpr{lf({ernlirlll, ami Tmrfe& Europ'!, Eumslrr, mul Emu~!llf: Threats liEARING 

llay __ 1_'t_W_':I'_tl~"·'--l' __ Dale. ___ 1_21_1_1_12_0_1_7 ___ .Ruvm ___ .:c2.::.1c.:72"----

Stal'ting Time. 2:00jJitL __ Ending Time __ __ ,'5:_0]pn1 __ . 

Recesses L___!o __ ) L___to __ ) L___to __ ) L___to __ ) L___to __ ) L___to __ ) 

llepre,,·entilih'e Poe 

Open Session 0 

Executive (£!<>sed) Session 0 Televised U 

TITLE Oil I!EARING: 

Elcctrmlically Rcco!'dlli!Jtaped) 0 

Stenogt·npllic Recot·<l W 

"The Future of the NGJ·tll Ameriam Free Tmde Ag1'eeme11t" 

SUBCOMMITTEE MEMJJJ<:HS PU!:SENT: 

NON-SUBCOMMITTEE MEMBERS PRESENT: (Mark with mr '' l,f they are not members of fit! I committee.) 

Rep, W11gner 

HEARING WITNESSES: Same liS meeting notice attRched? Yes m NoD 

(!f"no '

1

, please list beloH' and include titlej agency, department, or orgcmizatkm.) 

STATEMENTS FOR THE RECORD: (Lis/ any statements submitred for the record) 

SFR sub milled by Rep. lmr 

IFR submittetl by Rep. hm 

or 

TIME ADJOURNED __ 3_:0_7.:_p_IJ_I _ 
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House Committee on Foreign Atfairs 

Terrorism, Non-proliferation, and Trade Subcommittee 

"The Future of the NAFTA' 

Statement for the record submitted by Mr. Issa of California: 

In September 1993, I testified before the House Ways & Means Committee regarding the 

importance of the North American Free Trade Agreement (NAFTA) on behalf of the Greater San 

Diego Chamber of Commerce. Throughout my 17-year tenure in Congress, I have continued to 

support free trade and open markets. 

NAFTA has been incredibly important to the United States, especially to California, and 

particularly to Southern California and my district According to a 2017 report from the 

Congressional Research Service, NAFTA has increased trade with Mexico and Canada from 

$290 billion in 1993 to $1.1 trillion in 2016. Product supply chains have grown, jobs are up, and 

tarim; are down. 14 million American jobs depend on trade with Mexico and Canada according 

to the US. Chamber of Commerce. Moreover, San Diego exports to Mexico are valued at $5.5 

billion per year, making it our largest export market 

Negotiations began in August and are expected to complete in March 2018. It is my hope 

that this timeframe with allow the US. to achieve its main objectives, update and modernize the 

agreement to better foster American job creation in our 21 '

1 century global economy. As such, I 

wish to raise several issues related to energy in the ongoing negotiations. 

Enert\Y is an important aspect of the current NAFTA discussion. Currently, US. trade 

with Canada and Mexico in energy commodities, including electricity, liquid fuels, and natural 

gas, exceeds $140 billion annually. Last year the US enjoyed an energy trade surplus with 

Mexico of more than $11 billion. At the time NAFTA was created, our energy domestic 

production was down and we were a large importer; now the circumstances are in reverse. As 

the US. continues to increase domestic supply, we need to ensure private investments and 

research into cleaner and more etlicient fuels, which may lower costs and have environmental 

benefits. 

When NAFTA was tirst negotiated, Mexico's energy sector was largely closed to foreign 

investment In recent years, however, Mexico has enacted constitutional reforms to open the 

sector to foreign companies, creating huge potential opportunities for US. finns. In order to take 

full advantage of Mexico's market opening, US. companies have expressed the need for 

certainty that their investments will be protected against potential future government 

mistreatment. The renegotiation process presents an opportunity to lock in Mexico's energy 

reforms and to maintain and strengthen NAFTA's investment protections. 

1 appreciate the efforts being made to collaborate on mutual priorities with our neighbors, 

and modernize and update the deal to spur further job growth, with economic benefits to 

Southern California and beyond. 
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REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA


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will also ensure that products made in the U.S. can compete on store shelves abroad, while 

lowering prices and expanding consumer choice here at home. 

Furthermore, exiting NAFTA will weaken the trilateral diplomatic relationship North America 

currently enjoys. In fact, strengthening the relationship was a primary reason NAFTA was 

created in the first place. We are also concerned that binational collaboration on national 

security, environmental issues will be weakened, and that siting, designing, and management of 

future ports of entry may become more difficult. 

While we are a staunch supporter of NAFTA, there are many areas for improvement specifically 

in the areas of improving customs processing with the implementation of the North American 

Single Window proposal, a three-nation COAC, single company identifier, improved crossborder inter-agency coordination, and unified cargo processing. We also encourage a 

modernized NAFTA to allow and encourage cross-border investment by the trucking industry to 

develop a more competitive North American transportation market and a modernized North 

American Development Bank expanding the Bank's ability to participate in trade facilitation 

projects at our international land crossings while supporting border security. 

Once again, we appreciate the opportunity to provide these comments on NAFTA. Please count 

on our organization's expertise and experience in cross-border commerce as a resource as you 

and your colleagues consider the future ofthe agreement. 

Sincerely, 

Jerry Sanders 

President and CEO 

Paola Avila 

Vice President, International Business Affairs 

Chair, Border Trade Alliance