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[Senate Hearing 106-751]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 106-751

          LESSONS OF NAFTA FOR U.S. RELATIONS WITH THE AMERICAS

=======================================================================

                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON WESTERN HEMISPHERE,
                  PEACE CORPS, NARCOTICS AND TERRORISM

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 27, 2000

                               __________

       Printed for the use of the Committee on Foreign Relations

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
67-811                     WASHINGTON : 2000

                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska                PAUL S. SARBANES, Maryland
GORDON H. SMITH, Oregon              CHRISTOPHER J. DODD, Connecticut
ROD GRAMS, Minnesota                 JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas                RUSSELL D. FEINGOLD, Wisconsin
CRAIG THOMAS, Wyoming                PAUL D. WELLSTONE, Minnesota
JOHN ASHCROFT, Missouri              BARBARA BOXER, California
BILL FRIST, Tennessee                ROBERT G. TORRICELLI, New Jersey
LINCOLN D. CHAFEE, Rhode Island
                   Stephen E. Biegun, Staff Director
                 Edwin K. Hall, Minority Staff Director

                                 ------                                

                  SUBCOMMITTEE ON WESTERN HEMISPHERE,
                  PEACE CORPS, NARCOTICS AND TERRORISM

               LINCOLN D. CHAFEE, Rhode Island, Chairman
JESSE HELMS, North Carolina          CHRISTOPHER J. DODD, Connecticut
RICHARD G. LUGAR, Indiana            BARBARA BOXER, California
JOHN ASHCROFT, Missouri              ROBERT G. TORRICELLI, New Jersey

                                  (ii)

                            C O N T E N T S

                              ----------                              
                                                                   Page

Baer, M. Delal, chair, Mexico Project, Center for Strategic and 
  International Studies, Washington, DC..........................    27
    Prepared statement...........................................    31
MacKay, Hon. Kenneth H. (Buddy) Jr., Special Envoy for the 
  Americas, The White House, Washington, DC......................     2
    Prepared statement...........................................     3
    Responses to additional questions for the record by Senator 
      Helms......................................................     6
McNamara, Hon. Thomas E. (Ted), president, The Council of the 
  Americas, New York, NY.........................................    19
    Prepared statement...........................................    23
Samuel, Bryan, Acting Assistant Secretary of State for Economic 
  Affairs, Department of State, Washington, DC...................     8
    Prepared statement...........................................     0
    Responses to additional questions submitted for the record...    15
Woody, Michael M., vice president, Sales and Marketing, The Quill 
  Company, Cranston, RI..........................................    33
    Prepared statement...........................................    36

                                 (iii)

  

 
         LESSONS OF NAFTA FOR U.S. RELATIONS WITH THE AMERICAS

                              ----------                              

                        THURSDAY, APRIL 27, 2000

                           U.S. Senate,    
        Subcommittee on Western Hemisphere,
              Peace Corps, Narcotics and Terrorism,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met at 9:33 a.m., in room SD-419, Dirksen 
Senate Office Building, Hon. Lincoln D. Chafee (chairman of the 
subcommittee) presiding.
    Present: Senators Chafee and Dodd.
    Senator Chafee. Good morning. I will open the hearing on 
the Lessons of NAFTA for U.S. Relations With the Americas. I 
would like to welcome everyone here this morning.
    Today we are holding a subcommittee hearing to assess the 
North American Free Trade Agreement [NAFTA] and its impact on 
U.S. relations with the Americas. The NAFTA is one of the most 
significant agreements of any kind, trade or otherwise, to 
which the United States has become a party and is cause for a 
number of policy considerations 7 years after its enactment. 
Today's hearing represents an opportunity to explore how NAFTA 
has impacted U.S. relations with not only Mexico and Canada, 
but all of the Americas.
    Seven years ago, after a lively and thorough debate, the 
U.S. Congress approved NAFTA by a close margin. This landmark 
agreement eliminates trade and investment restrictions between 
the United States, Canada, and Mexico over a 15-year period, 
with most of the restrictions eliminated in the early years of 
the agreement. Today, NAFTA institutions are functioning, 
including the commissions created by side agreements to address 
labor and environmental concerns.
    During the debate on its enactment, proponents of NAFTA 
argued that it would spur economic growth in all three nations, 
while opponents predicted it would cause a massive shift in 
jobs from Canada and the United States to Mexico.
    Seven years later, it is difficult to assess with precision 
the exact number of jobs gained or lost due to NAFTA. However, 
at a minimum, it is accurate to state that NAFTA has 
accelerated trade related job trends that were ongoing before 
NAFTA.
    In addition, while there have been genuine NAFTA-related 
dislocations in some sectors of the U.S. economy, others have 
prospered. I note that according to the Congressional Research 
Service, no workers in my home State of Rhode Island lost their 
jobs because of increased imports from or plant relocations to 
Mexico or Canada.
    But there are many other important noneconomic factors to 
consider and lessons to be learned as we assess the 
consequences of NAFTA. These lessons will help this 
subcommittee take on future policy considerations involving 
trade, security, political, and other matters of U.S. relations 
with our closest neighbors. In particular, it would serve this 
subcommittee well to assess if and how NAFTA has helped bring 
about reform and modernization in Mexico as that nation 
approaches a critical Presidential election just 10 weeks from 
now.
    Overall, I believe a strong case can be made that NAFTA has 
improved in many respects U.S. relations with Mexico and 
Canada.
    I appreciate the appearance today of two very impressive 
panels of witnesses, and I look forward very much to their 
valued testimony. I will welcome Governor MacKay. Welcome, 
Governor.

  STATEMENT OF HON. KENNETH H. (BUDDY) MAC KAY, JR., SPECIAL 
    ENVOY FOR THE AMERICAS, THE WHITE HOUSE, WASHINGTON, DC

    Mr. MacKay. Thank you, Mr. Chairman, for this opportunity 
to testify on the positive impact that free trade and economic 
integration in the Western Hemisphere has on our national 
interests. I will summarize my written testimony, if that is 
acceptable, Mr. Chairman.
    Senator Chafee. Yes, sir.
    Mr. MacKay. I want to begin by thanking the members of this 
committee and the subcommittee for supporting our continuing 
efforts to win final passage of the Caribbean Basin Initiative 
[CBI]. We are close to an agreement that is important to reach. 
CBI and the North American Free Trade Agreement--and hopefully, 
in the next few years the proposed Free Trade Area of the 
Americas [FTAA]--exemplify what this hearing is about: the good 
results that can come from free trade, open markets, and 
economic development.
    Your subcommittee today is focusing on NAFTA and how it 
furthers the national interests of the United States.
    The first part of the subcommittee's focus is very 
straightforward and easy to discuss. Dozens of studies indicate 
how NAFTA has helped create jobs in this country and how it has 
caused trade between the three countries of North America to 
soar. NAFTA has helped the U.S. economy and thus the United 
States remains strong. Our longest economic expansion in 
history has produced the lowest unemployment rate in nearly 30 
years.
    The studies that document the positive impact NAFTA has had 
on the U.S. economy range from the President's authoritative 5-
year review, conducted by the administration in 1999, to the 
exhaustive State-by-State analysis conducted by the Trade 
Partnership in Washington, DC last summer. The study conducted 
by the Trade Partnership is of particular interest. It 
documents the positive impact that NAFTA has had on almost 
every State of the Union. NAFTA has contributed significantly 
to the economy of every State represented by the members of 
this subcommittee and its full committee.
    Since NAFTA's inception, U.S. goods exports to Canada and 
Mexico increased by $111 billion, an increase of 78 percent. 
These products were made by U.S. workers, many of them gaining 
employment in factories that were adding, not losing, jobs.
    Yet, greater attention must be paid to the issue of U.S. 
job displacement. The administration believes we must assist 
displaced workers. We support the trade adjustment assistance 
and NAFTA transitional adjustment assistance programs.
    The second part of what you are trying to do today, Mr. 
Chairman, is not often attempted, and I am glad to be able to 
help you and to discuss this issue. Your goal this morning is 
to examine how our national interest is served by NAFTA, a 
broader goal and really I believe the important question to be 
asked. This is an important story and statistical indices alone 
cannot measure the full positive impact of NAFTA. Our relations 
with Mexico and Canada have seldom been closer. As a result of 
NAFTA, we continually work to resolve problems that we as 
neighbors cannot ignore.
    The work NAFTA accomplishes goes beyond balance sheets and 
trade figures. As U.S. trade increases with Canada and Mexico, 
economic integration increases. In that process, fair and 
standardized practices in both the private and public sectors 
are strengthened.
    NAFTA serves the national interest of our country because 
it helps move our countries on to a common platform of 
democratic principles and transparent business practices. Upon 
this platform, we can engage in dialog and interaction that 
empowers human ingenuity to move problems to eventual 
resolution.
    The underlying faith that motivated an earlier Congress to 
enact NAFTA has been justified. The common denominator that is 
the basis of the future of the Americas is NAFTA's purpose: the 
creation of jobs and access to markets.
    Jobs is another word for trade. Jobs is the most peaceful 
diplomacy we can adopt. A person working is a person creating 
value for his or her family. Employment elevates an 
individual's self-worth and the individual's stake in society. 
NAFTA has strengthened our system of commerce based, as it is, 
on economic incentive.
    Few things serve the interests of the United States more 
than the spread of democratic government and open business 
practices built on transparency. For the United States, NAFTA 
was a good first step. CBI is another step and the Free Trade 
Area of the Americas is the logical next step in the 
progression.
    While expanding trade and helping our own economy grow, we 
are shaping values in the rest of the world and in the process, 
promoting democracy itself. That, Mr. Chairman, I believe is 
the definition of our national interest.
    Thank you very much.
    [The prepared statement of Mr. MacKay follows:]

       Prepared Statement of Hon. Kenneth H. (Buddy) MacKay, Jr.

    Thank you, Mr. Chairman, for this opportunity to testify on the 
positive impact that free trade and economic integration in the Western 
Hemisphere has on our national interests.
    I want to begin by thanking the members of the committee and the 
subcommittee for supporting our continuing efforts to win final passage 
of the Caribbean Basin Initiative.
    We are close to an agreement that is important to reach because CBI 
enhancement, like the North American Free Trade Agreement, exemplifies 
what this hearing this morning is most about: The good results that can 
come from free trade, open markets and economic development.
    Your subcommittee today is focusing on NAFTA and how it furthers 
the national interest of the United States.
    The first part of the subcommittee's focus is fairly easy to 
accomplish. Dozens of studies from many sources indicate how NAFTA has 
helped create jobs in this country and how it has caused trade between 
the three countries of North America to soar. NAFTA has helped the U.S. 
economy remain strong, and thus the United States, during the longest 
economic expansion in our history.
    The studies that document the positive impact NAFTA has had on the 
U.S. economy range from the President's authoritative five-year review 
conducted by the Administration in 1999 to the exhaustive state-by-
state analysis conducted by The Trade Partnership of Washington, D.C. 
last summer.
    The study conducted by The Trade Partnership is of particular 
interest because it documents the positive impact that NAFTA has had on 
almost every state of the Union. NAFTA has contributed significantly to 
the economy of every state represented by the members of this 
subcommittee and its full committee.
    Since NAFTA's inception, U.S. goods exported to Canada and Mexico 
increased by $111 billion, an increase of 78 percent. Those products 
were produced mostly by U.S. workers, in factories that were adding, 
not losing, jobs.
    Research by the U.S. Chamber of Commerce lists company after 
company that have been made more competitive in the global market place 
and that have added or retained jobs in this country because of NAFTA.
    While in some industries, displacements have occurred, other 
sectors have gained significantly. The overall impact of the agreement 
we made with our two neighbors has been good for the United States.
    The current demand for workers has created the most pressing 
skilled labor shortages in the United States since World War II, and, 
due in part because of NAFTA, unemployment has reached 30-year record 
lows.
    And Mexico has gained almost one million new, needed jobs directly 
from NAFTA since it went into effect. Jobs in Mexico that have been 
created as a result of direct foreign investment pay 48 percent better 
than the Mexican wage average. The number of employed workers in Canada 
overall in the first five years of NAFTA also increased by more than 
one million.
    Not withstanding the U.S. employment numbers, greater attention 
must be paid to U.S. job displacement. The Administration believes we 
must continue to assist workers who are displaced and supports reform 
and consolidation of the Trade Adjustment Assistance and NAFTA-
Transitional Adjustment Assistance programs.
    The second part of what you are trying to do today, Mr. Chairman, 
is not often attempted, and I am delighted to help you. Your goal this 
morning is to examine how our national interest is served by NAFTA.
    This is an important story, and statistical indices alone cannot 
measure the full, positive impact of NAFTA.
    Our relations with Mexico and Canada have seldom been closer. As a 
result of NAFTA, we enjoy healthy relations that force us continually 
to address aspects of our relationships that can be improved.
    NAFTA's side agreements create mechanisms that oblige each country 
to enter into discussions about environmental and labor issues. The 
inclusion of these elements into the NAFTA framework guarantee that 
attention will be given over the long term to these important aspects 
of our relationships.
    The work NAFTA accomplishes goes beyond balance sheets and trade 
figures. As U.S. trade increases with Canada and Mexico, economic 
integration increases and, in that process, fair and standardized 
practices in both the private and public sectors are strengthened.
    Trade depends on commercial and personal interactions. Standards 
make it easier for these transactions to take place, and increased 
trade forces these practices to be commonplace occurrences on a daily 
basis.
    NAFTA has struck down trade barriers, and its implementation has 
encouraged the breaking down of other barriers in Mexico because modern 
business practices depend on streamlining operations. Consumer banking, 
which has not always been a common experience for many Mexicans, has 
increased the flow of money in commerce and heightened overall economic 
activity.
    NAFTA serves the national interest of our country because it helps 
move our countries onto a common platform of democratic principles and 
transparent business practices. Upon this platform, we can engage in 
dialogue and interaction that empowers human ingenuity to move problems 
to eventual resolution.
    The underlying faith that motivated an earlier Congress to enact 
NAFTA has been justified. The common denominator that is the basis for 
the future of the Americas is NAFTA's purpose: The creation of jobs and 
access to markets.
    Jobs is another word for trade, and jobs is the most peaceful 
diplomacy we can engage in because a person working is a person 
creating value for his or her family, elevating in the process the 
worth of an individual's stake in society. NAFTA has strengthened the 
value of economic incentive for the individual.
    In this view of the future, people are free to let their creativity 
take them as far as they want to go. It is not an accident that the 
word ``free'' is part of NAFTA's title. The design of its creators was 
to promote freedom as much as economic progress.
    Mexico, driven by the increase of our trade produced by NAFTA, has 
replaced Japan as this country's second largest trading partner, and 
Canada remains our largest trading partner.
    The impact of NAFTA is not limited to economics. Trade also 
accelerates the progress that a nation can make if it opens its society 
to new technology that can vastly improve the quality of the lives of 
its citizens. It encourages common standards and promotes efficiencies 
in other sectors of society. It allows us to move past historical 
disputes, and mitigates cultural differences.
    Since becoming the President's special envoy to the Americas, I 
have been to 23 of the 34 democratic countries that comprise the 
hemisphere, and I can tell you that a new spirit of what is possible 
prevails.
    The challenges that exist today in the hemisphere in regards to the 
successful transition of the Latin and Caribbean nations to full, 
stable democracies are many, but they are closely linked to the success 
of their economic development and their role in a free, global 
marketplace.
    The stage is set for progress to be made: The Americas are already 
the world's largest consumers of U.S. products and 98 percent of the 
people of Central and South America live under democratic rule.
    Latin America and NAFTA countries consume 44 percent of all U.S. 
exports, creating jobs for workers in the United States and Latin 
America. By 2010, our exports to the Americas will represent nearly 50 
percent of our total exports to the world--more than to any other 
region, and exports from the Americas will also increase, creating jobs 
in those countries.
    The success of NAFTA is also changing us. We all know that the 
mechanisms and structures that have traditionally formulated foreign 
policy for and in this country have only minimally included a north-
south perspective.
    The east-west continuum that has traditionally dominated the 
foreign policy of this nation remains immensely important in how we 
perceive the world and its threats and opportunities. But it must 
change to include a north-south perspective because this hemisphere is 
the site of great economic opportunity.
    It is also the site of an increasingly growing Latino population 
within and without the borders of the United States that will matter 
more in the formulation of policies that affect the hemisphere. In less 
than three years, the Latino population in the United States will 
become our largest minority population.
    For the United States, NAFTA was a first step in building this new 
world; CBI is another step; and the FTAA is the next logical 
progression. The rest of the hemisphere is moving in the same 
direction. Mercosur, Caricom and the Andean Pact are the south's 
natural impulse to integrate and the FTAA is closer to reality as a 
result.
    The efforts to develop democratic societies and to develop 
competitive economies are part and parcel of an approach that serves 
the needs and interests of the United States.
    This approach contributes directly to the economic and political 
security of the United States and the regional security of the 
hemisphere.
    Few things serve the interests of the United States more than the 
spread of democratic government and open business practices built on 
transparency. This hemisphere has had enough conflict and enough benign 
neglect to last the next five generations. Ideological struggles in the 
hemisphere have been replaced by the struggle to develop the region 
economically.
    Many people do not appreciate the extent to which trade agreements 
such as CBI and NAFTA and, soon, the FTAA, export the best of our 
values, including fair trading practices, the rule of law, workers' 
rights and transparency.
    While expanding trade and helping our economy grow, we are shaping 
values in the rest of the world and, in the process, promoting 
democracy itself.
    That, Mr. Chairman, I believe, is the definition of our national 
interest. Thank you.

    [Additional questions submitted for the record follow:]

    Responses of Hon. Kenneth H. (Buddy) MacKay, Jr. to Additional 
       Questions for the Record Submitted by Senator Jesse Helms

    Question 1. How important were the U.S. policies on NAFTA and FTAA 
in stimulating economic and democratic reform in Latin America and the 
Caribbean?

    Answer. Both the NAFTA and the ongoing negotiation of the FTAA have 
succeeded beyond expectation in terms of encouraging open markets, 
expanding trade, promoting greater transparency, and supporting 
judicial reforms, while also enhancing cooperation and productive 
dialogue on other important foreign policy issues.
    In terms of the NAFTA, the great concern was about the treatment of 
labor and environment issues. The NAFTA established side agreements on 
labor and environmental matters that require each nation to enforce its 
own laws and establishes mechanisms to resolve disputes. In practice, 
the NAFTA has become a vehicle to address complaints by Canada, Mexico 
and the United States and to press for progress on labor and 
environment through the North American Agreement on Labor Cooperation 
(NAALC) and the North American Agreement on Environmental Cooperation 
(NAAEC). The NAFTA has also promoted partnerships and the creation of 
networks among the business communities and segments of civil society. 
This process has helped promote transparency and information sharing, 
increased broad sector participation in policy issues, and improved 
conditions for workers. The result has been stronger democratic 
governance and closer cooperation among the NAFTA countries, and 
increasing expectation and interest among other countries in the 
hemisphere to enter into similar free trade agreements.
    Since NAFTA, countries throughout the hemisphere have formed or 
expanded regional trade regimes. MERCOSUR includes a democracy clause, 
which it implemented to support a constitutional transition of 
government in Paraguay, and Brazil has led efforts to build a greater 
South America trade consensus. The interest in the Free Trade Area of 
the Americas has only increased, as has the understanding that trade 
and prosperity are interconnected with democracy and rule of law.

    Question 2. How have the Central American and Caribbean countries 
been affected by NAFTA?

    Answer. As NAFTA's success becomes apparent, countries in Central 
America and the Caribbean have sought to increase trade with the United 
States. During the recent renewal of the Caribbean Basin Initiative 
(CBI), the Caribbean and Central American countries (except Cuba) 
negotiated an increase in U.S. trade benefits for apparel and other 
industries to be eligible for duty free treatment, similar to terms 
given to Mexico under NAFTA. The CBI countries pointed to Mexico's 
large gain in market share for apparel exported to the U.S. under the 
NAFTA and sought equal terms to develop the apparel industry in the CBI 
region. The new terms, adopted in the Caribbean Basin Trade Partnership 
Act of 2000, will help the CBI countries and the United States as it 
develops this industry in the region. Throughout this process, the CBI 
countries have engaged in closer cooperation and emerged as a more 
cohesive voice on trade issues. This will have a positive impact as the 
hemisphere moves to greater economic integration and the conclusion of 
a Free Trade Area of the Americas.

    Question 3. Would you summarize the agreements that have been 
concluded by hemispheric leaders through the Summit of the Americas 
process?

    Answer. The Summit of the Americas process has launched several 
hemispheric agreements, declarations and conventions that are at 
various stages of completion or negotiation and that cover 
anticorruption, counter-narcotics, education, energy, health, security, 
human rights, indigenous populations, justice systems, labor, 
telecommunications, terrorism, trade, transportation, and women. We 
have completed an Inter-American Convention on Transparency in 
Conventional Weapons Acquisitions, the Inter-American Convention 
Against Corruption, and the Inter-American Convention on the 
Prevention, Punishment and Eradication of Violence Against Women, among 
others. In addition, the Summit process is responsible for convening 
hemispheric ministerial meetings that encourage continued high-level 
discussions on cross-border issues, such as justice system reform, 
transportation, energy, the environment, education, and financial 
systems. The negotiation of the Free Trade Area of the Americas is on 
track and will include discussion of labor and environment issues. The 
next Summit of the Americas will be an important opportunity for the 
United States to signal its support for the hemisphere and summit 
initiatives. The upcoming Summit will take place in April 2001 in 
Quebec City, Canada, within the first ninety days of the inauguration 
of the next U.S. President.

    Question 4. What is the status of negotiations possibly leading to 
a Free Trade Area of the Americas (FTAA)? Are the negotiations on track 
to achieve an agreement that could go into force in 2005?

    Answer. The negotiation for the Free Trade of the Americas is on 
schedule. At the Toronto Ministerial meeting (November 1999), the 
hemisphere's Trade Ministers instructed the FTAA negotiators to prepare 
a draft agreement for review at the next hemispheric Trade Ministers 
meeting prior to the Quebec City Summit of the Americas. The draft 
agreement will then be submitted to the Heads of State at the Quebec 
City Summit of the Americas in April 2001. President Lagos of Chile has 
suggested that the FTAA be concluded by 2003, to focus on ratification 
and implementation by 2005. Under this expedited timetable, the FTAA 
could be negotiated and ratified in the United States during one term 
of the presidency.

    Question 5. Do you expect the agreement to be similar to NAFTA or 
do you expect it to be different in many regards? What should be the 
main goals of the United States in negotiating the agreement?

    Answer. In many respects, NAFTA was a bold experiment. It was the 
first major trade negotiation where environmental and labor issues 
played a central role in terms of challenges and opportunities 
throughout the negotiations. These important matters were dealt with 
through separate side agreements concerning labor and environment.

    The FTAA is an extraordinarily ambitious, complicated initiative 
with enormous potential for the hemisphere. It brings together 34 
democratic nations and addresses the most complex issues: the opening 
of services markets, the development of electronic commerce, the 
response to the growing interest in trade and trade policy by civil 
society, and more. By 2005, we aim to create a single trade zone 
consisting of nearly 700 million people and a combined GDP of $10 
trillion. It will expand trade relationships that currently absorb more 
than half of all the goods exported from Brazil and roughly 46% of 
goods exported from the United States. It will strengthen our ability 
to achieve shared goals in broader trading systems. And ultimately, it 
will contribute to a lasting, prosperous, peaceful and democratic 
hemispheric community, one that is better positioned and more inclined 
to address our common responsibilities.
    As with NAFTA, the main goals of the United States for the FTAA is 
to develop a hemispheric trading system that encourages steady economic 
growth, equitable policies, protection of the environments, fair labor 
standards and stable financial systems. This will strengthen 
hemispheric cooperation on the range of issues important to our 
country.

    Question 6. Do you believe that participation in an FTAA should be 
limited to countries that have and maintain democratically-elected 
governments? How might these conditions be taken into account in a 
regional trade arrangement?

    Answer. Those countries whose leaders are committed to promoting 
full participation of their citizens in the democratic process and to 
negotiating free and fair open markets are best able to contribute in a 
manner consistent with the goals of the Summit. Participation in the 
Summit of the Americas process is limited to the 34 democratically 
elected governments in the hemisphere. The Plan of Action developed at 
the Miami Summit states that ``the strengthening, effective exercise 
and consolidation of democracy constitute the central political 
priority of the Americas.'' The FTAA negotiation is an important 
product of the Summit process, involving the democratically elected 
leaders of the hemisphere. By instilling the principles of transparency 
and the rule of law into commercial relations throughout the 
hemisphere, the FTAA negotiation is helping to strengthen democracy.

    Question 7. Do you believe that participation in an FTAA agreement 
should be limited to countries that are taking substantial steps to 
combat corruption? How might these conditions be taken into account 
such a regional trade arrangement?

    Answer. One of the fundamental goals of the Summit of the Americas 
is the elimination of corruption. The Declaration of Principles of the 
Summit of the Americas states that ``Effective democracy requires a 
comprehensive attack on corruption as a factor of social disintegration 
and distortion of the economic system that undermines the legitimacy of 
the political institutions.'' At the 1994 Miami Summit, the Heads of 
State agreed to strengthen their investigative and enforcement capacity 
with respect to acts of corruption, to establish mechanisms of 
cooperation in the judicial and banking areas, and to develop 
hemispheric approach to corruption. Corruption is a severe and 
debilitating reality in many countries, and the Administration has made 
it a priority to address the issue.
    The countries negotiating the FTAA are those participating in 
Summit and other multilateral anti-corruption efforts. The Clinton 
Administration is assisting countries to eliminate corruption by 
providing judicial reform assistance, insisting on compliance with 
integration obligations, and encouraging ratification of the Inter-
American Convention Against Corruption. To date 26 countries in this 
hemisphere have signed the Inter-American Convention Against Corruption 
and 18 have ratified it. In addition, several have signed the OECD 
Bribery Convention, agreeing to make it a crime to bribe foreign public 
officials for business advantage. Agreements such as the FTAA will help 
drive out corruption by creating market oriented policies that promote 
transparency, competition, and rules based behavior.

    Senator Chafee. Thank you, sir.
    Mr. Bryan Samuel, Acting Assistant Secretary of State for 
Economic Affairs. Welcome.

STATEMENT OF BRYAN SAMUEL, ACTING ASSISTANT SECRETARY OF STATE 
   FOR ECONOMIC AFFAIRS, DEPARTMENT OF STATE, WASHINGTON, DC

    Mr. Samuel. Thank you very much, Senator Chafee. I am 
pleased to be here and have the opportunity today to discuss 
lessons from NAFTA and prospects for further trade 
liberalization in the Americas.
    I will just, if I may, summarize the written statement that 
we brought.
    Senator Chafee. Please.
    Mr. Samuel. The economic benefits of NAFTA are clear. It 
has generated growth and economic momentum throughout North 
America. This helps spur the creation of a North American 
market with low and declining trade barriers, enhance 
cooperation on labor and environmental issues and economic 
innovation.
    As the Governor mentioned, trade among the three NAFTA 
countries has grown spectacularly since NAFTA entered into 
force in 1994. NAFTA has helped us spur growth in some of the 
most dynamic sectors of our economy such as information 
technology. With disappearing trade barriers and greater 
predictability, companies can better compete in this rapidly 
growing market.
    NAFTA has shown the American public and U.S. workers what 
opening markets for our products can do. My prepared statement 
presents several examples, but there are countless other 
success stories from throughout our 50 States. I understand 
that later in this hearing you will hear from a company in 
Rhode Island that has benefited from NAFTA-driven trade 
liberalization.
    Thanks to NAFTA, we have also changed investment patterns, 
leading companies from all three NAFTA partners to base their 
investment decisions more fully on economic factors. Increased 
investment in NAFTA partner countries has often led directly to 
more jobs here at home, as manufacturing operations become 
closely integrated across borders. Moreover, the opportunities 
created by the rapid growth of the North American market has 
pushed the total stock of foreign direct investment in the 
NAFTA countries to record levels.
    We have deepened relationships with our North American 
neighbors. We are constantly working with our NAFTA partners to 
resolve problems and address common challenges. NAFTA has been 
instrumental in making economic reforms in Mexico permanent and 
irreversible. And it is important to remember that while NAFTA 
has done much to increase economic integration, the United 
States, Mexico, and Canada remain in control of our own 
destinies.
    NAFTA has also provided mechanisms and institutions to 
increase cooperation on labor and the environment. We work 
closely with both countries to promote cooperation on boundary 
waters and controlling transboundary pollution. As of March, 
through the North American Development Bank, we have activated 
over $200 million in loans and grants for 26 projects to reduce 
water pollution and improve health conditions along our 
Southwest border. Since 1994, the United States, Mexico, and 
Canada have undertaken 36 projects through the Commission for 
Environmental Cooperation. Some examples are in my prepared 
statement.
    The North American Agreement on Labor Cooperation, the 
labor supplemental agreement to NAFTA, allows us to advance 
labor issues and monitor enforcement of labor laws and creates 
a forum for public concerns about labor law enforcement. 
Submissions filed under the agreement prompted ministerial 
consultations on freedom of association and safety and health 
issues and have led to trilateral seminars on union 
registration, certification of elections, recognition and union 
democracy.
    We are now in the process of building on the success of 
NAFTA to create a hemisphere-wide Free Trade Area of the 
Americas, encompassing all of the democracies of the Western 
Hemisphere. When completed in 2005, the FTAA will be the 
largest free trade zone in the world, establishing a $10 
trillion market with more than 800 million people.
    The abandonment of outdated economic models and the embrace 
of open markets, democracy, and the rule of law have made such 
an initiative possible. Trade groupings among Latin American 
countries have already dramatically lowered barriers and led to 
increased growth and political stability.
    With an incomplete transition to free markets and 
unforeseen events such as hurricanes, El Nino, and the Asian 
economic crisis, however, vulnerabilities remain. Clearly, a 
hemisphere-wide trade agreement would help to strengthen market 
economies for the long term while providing U.S. companies with 
better access to Latin American markets.
    The FTAA negotiations have already made considerable 
progress. Last November's ministerial meeting in Toronto saw 
the approval of a package of business facilitation measures, 
mostly in the critical customs area, that are already being 
implemented. Nine FTAA negotiating groups are at work on issues 
ranging from market access in agriculture to competition 
policy. A completed FTAA should eliminate tariffs, establish 
better protection of intellectual property, encourage 
competition, transparency, and impartial regulation and create 
an effective means of resolving trade disputes. The FTAA 
process includes a Civil Society Committee, which I have the 
honor to chair for the United States. This committee is 
designed to advise governments on the views of business, labor, 
and consumers, environmentalists, academics, and other citizens 
groups, as the negotiations proceed.
    Before I conclude, I would like to echo the Governor's 
mention of the bill to enhance the Caribbean Basin Initiative 
which, along with the companion Africa Growth and Opportunity 
Act, is currently in conference. The CBI is the key component 
of the administration's strategy to help the countries of the 
region strengthen democratic governance through economic 
development. Enhancing CBI will enable Caribbean nations to 
compete more effectively, to provide better opportunities for 
U.S. exports and help prepare these countries to undertake the 
obligations of an FTAA agreement. I urge your favorable 
consideration.
    Mr. Chairman, in the 6 years NAFTA has been in effect, it 
has helped increase economic growth and stability and 
strengthened the bonds of friendship. In doing so, NAFTA has 
served U.S. interests well.
    An FTAA will provide similar benefits on a hemispheric 
basis. We look for your support as we move vigorously to bring 
the negotiation process to fruition.
    Thank you for the opportunity to testify today.
    [The prepared statement of Mr. Samuel follows:]

                   Prepared Statement of Bryan Samuel

    Senator Chafee and Members of the Committee, I am pleased to have 
the opportunity today to review what lessons we can take from NAFTA and 
apply to our relations with the rest of the Americas.
    I would like to review first the significant successes we have 
experienced in expanding trade with our two NAFTA partners, Canada and 
Mexico and in so doing, strengthening the relationships with our North 
American neighbors. Then I would like to review prospects for extending 
these successes to the rest of the Western Hemisphere.

                             NAFTA'S RECORD

    The economic benefits of NAFTA are clear. It has generated growth 
and economic momentum for many regions, communities and individual 
citizens. NAFTA has helped spur the creation of a North American market 
characterized by low and declining trade barriers, common standards, 
enhanced cooperation on labor and environment issues and economic 
innovation and dynamism. Trade among the three NAFTA countries has 
grown by 96 percent since NAFTA entered into force in 1994. In dollar 
figures, our trilateral trade increased from $289 billion in 1993 to 
about $570 billion in 1999.
    In expanding trade in North America, NAFTA has contributed to job 
creation at home. Since NAFTA entered into force, U.S. employment has 
risen by over 7 percent (12.8 million jobs) and unemployment has 
dropped from 6.5% to 4.1%. Many of these jobs are tied directly to 
increased trade, and according to Commerce Department data, export-
related jobs pay an average of 16 percent more than other jobs.
    The trade liberalization measures of NAFTA have played a 
significant role in spurring growth in some of the most dynamic sectors 
of our economy. For example, the information technology industry now 
generates over one-third of growth in the U.S. GDP and has benefited 
greatly from lower barriers in Canada and Mexico. With disappearing 
trade barriers and greater predictability engendered by NAFTA, 
companies can plan better and more effectively compete throughout this 
dynamic market.
    NAFTA has shown to the American public, and to U.S. workers, what 
opening up markets for our products can do. The statistics cited 
earlier are represented in countless success stories at the individual 
company level:

   Coded Communications, a small manufacturer of wireless 
        mobile data communications systems, has seen its employment 
        grow by 25% since NAFTA went into effect, with plans to expand 
        employment by an additional 20% in the next 18 months;

   Taylor Dunn, another California firm which manufactures 
        electric vehicles, added fifty workers because of increased 
        sales after NAFTA reduced Mexico's tariff on its products from 
        25% to zero;

   Farmland Industries of Kansas City, the largest farmer-owned 
        cooperative in North America, which sold $50 million in wheat, 
        corn and soybeans to Mexico pre-NAFTA, is now exporting $450 
        million of its products to Mexico, including beef and pork;

   Goulston Technologies of Monroe, North Carolina, which 
        manufactures synthetic fiber lubricants, saw exports to Mexico 
        increase 250% since NAFTA began, and accordingly increased its 
        employee base. Tariffs for its product dropped from 15% to zero 
        thanks to NAFTA.

    I understand that later in the hearing we will hear from a company 
in Rhode Island that has benefited from NAFTA-driven trade 
liberalization.
    These successes have been replicated many times over throughout our 
50 states. In many respects, NAFTA has created a true North American 
market.
    NAFTA has also changed investment patterns, leading companies from 
all three NAFTA partners to base their investment decisions more fully 
on commercial factors alone. NAFTA is eliminating requirements that 
forced U.S. firms to invest in Mexico if they wanted to sell products 
and services there. Companies can now more easily spread manufacturing 
and distribution operations among all of the NAFTA partners. This is 
leading to higher degree of economic integration across our borders, 
spurring the economies of all three nations.
    A U.S. company building a facility in Mexico, for example, will 
often need to increase production from its U.S. base to supply it, 
leading manufacturing operations to become closely integrated across 
borders. When investment occurs further afield, such relationships are 
often not as strong. Moreover, the dynamism of the North American 
market and the greater attractiveness of a larger, more integrated 
market has helped spur investment levels from all sources. The total 
stock of foreign direct investment in the NAFTA countries has now 
reached $864 billion.
    NAFTA has also had the positive effect of mitigating the adverse 
effects of regional economic downturns, such as what occurred in Asia 
several years ago. Despite Asia's contraction of purchasing power, 
NAFTA's reduced barriers permitted us to increase our exports to Mexico 
and Canada by $13 billion in 1998. Moreover, the NAFTA agreement means 
that even during times of economic difficulty such as Mexico's peso 
crisis in 1994-95, North American markets must stay open to us.
    The economic benefits of NAFTA have led to equally important 
beneficial effects concerning our wider relationships with our North 
American neighbors. As trade rises to unprecedented levels, we are 
constantly being brought together to resolve problems and address 
common challenges. The higher growth and greater employment resulting 
from NAFTA have also helped to create increased confidence in NAFTA 
countries.
    With respect to Mexico in particular, NAFTA has been instrumental 
in making necessary economic reforms permanent and irreversible and in 
reinforcing the rule of law. And it is important to remember that while 
NAFTA has done much to increase economic integration in North America, 
the U.S., Mexico and Canada remain sovereign, each very much in control 
of our own economic and political destinies.

                         LABOR AND ENVIRONMENT

    NAFTA has also provided mechanisms and institutions to increase 
cooperation on labor and the environment.
    Environmental issues loom large in our NAFTA relationships, given 
the shared North American continent and the long borders with both 
Mexico and Canada. We work closely with both Canada and Mexico to 
promote cooperation on resolving issues related to boundary waters and 
controlling transboundary air and water pollution. For example, the 
North American Development Bank (NADB) is working with the sponsors of 
29 certified projects that are applying for financial assistance from 
the Bank. As of March 2000, the NADBank has authorized $209 million in 
loans and/or grant resources for 26 infrastructure projects. These 
projects will represent a total investment of $764 million to reduce 
water pollution and improve health conditions.
    Since 1994, through the Commission for Environmental Cooperation 
(CEC), the U.S., Mexico and Canada have undertaken 36 projects in 
biological diversity, conservation, sound chemical management, marine 
ecosystem protection, pollutant reporting, and trade-environment 
issues. Examples include conservation of the Monarch butterfly, 
developing the North American Bird Conservation Strategy, and the 
initiation of a North American Biodiversity Information Network. Under 
the CEC, the North American Fund for Environmental Cooperation (NAFEC) 
has awarded 127 community-based grants totaling $4.8 million to 
community-based initiatives contributing to the conservation, 
protection and enhancement of the North American environment.
    The North American Agreement on Labor Cooperation (NAALC), the 
labor supplemental agreement to NAFTA, allows us to advance labor 
issues and monitor enforcement of labor laws in our trading partners. 
It also creates a forum for airing public concerns about labor law 
enforcement directly with governments. Twenty-two submissions have been 
filed under the NAALC, several leading to ministerial consultations and 
adoption of work programs to address concerns raised in the 
submissions. In 1997, for example, submissions prompted ministerial 
consultations on freedom of association and safety and health issues. 
Earlier consultations have led to a trilateral conference on the labor 
rights of women in North America, and a work program of trilateral 
seminars on union registration, certification, elections, recognition 
and union democracy.
    And of course, NAFTA has been instrumental in creating new higher-
paying jobs, not just in the United States, but also in Canada and 
Mexico. This has led to increased demand for U.S. products and services 
from consumers throughout North America.
         extending nafta's success to the rest of the americas
    We are now in the process of building on the success of NAFTA to 
create a hemisphere-wide Free Trade Area of the Americas, encompassing 
all of the democracies of the Western Hemisphere. When completed in 
2005, the FTAA will be the largest free trade zone in the world, 
establishing a market exceeding $10 trillion, with more than 800 
million people. It will further enhance trade within our hemisphere, 
which already accounts for 47% of our total trade.
    The dramatic changes in Latin America over the past decade have 
made such an initiative possible. Throughout the hemisphere, countries 
have moved from outdated economic models emphasizing state control, 
closed markets and import substitution to privatization and open 
markets where foreign trade and investment are welcome. Just as 
important, democracy and the rule of law are now very much the norm 
rather than the exception.
    In opening up their trade regimes, nearly all countries in the 
Western Hemisphere have participated in establishing a wave of trade 
groupings that have dramatically lowered barriers and contributed 
significantly to economic growth and political stability.
    Yet the transition to free markets is incomplete and there is 
danger of drifting backwards. Unforeseen events have also taken a toll. 
In recent years, many Latin countries have been severely affected by 
hurricanes, El Nino, the fallout from the Asian economic crisis and the 
subsequent decline in commodity prices. Clearly, a hemispheric-wide 
trade agreement would help to strengthen market economies while 
providing welcome new access to Latin American markets.
    The leaders of the Americas have already made much progress in 
building a more integrated and prosperous hemisphere. In two Summits of 
the Americas, leaders have set out numerous far reaching goals, 
including a program of universal education, access to modern 
telecommunications and the Internet, cooperative programs of 
environmental law enforcement, crime and narcotics control, and 
anticorruption measures. At their December 1994 summit, they made the 
historic decision to create the FTAA by 2005.

                                  FTAA

    In taking part in the FTAA negotiations, the administration is 
applying the many lessons we learned in establishing the NAFTA. For 
instance, prior to the launching of formal negotiations, the 34 FTAA 
countries met regularly to discuss existing trade regulations and 
practices in the hemisphere and began to identify issues for 
negotiation. Nine negotiating groups and three committees were formed, 
and actual negotiations began in September 1998. Since then, 
negotiators have been meeting in Miami nearly every week.
    The negotiators created annotated outlines for the proposed 
chapters of an FTAA agreement in time for last November's Ministerial 
meeting in Toronto and are now working on a draft text. The ministers 
in Toronto also approved a package of meaningful and practical business 
facilitation measures that is already being implemented. The measures 
are mostly in the critical customs area, and should do much to promote 
commerce throughout the hemisphere.
    The nine FTAA negotiating groups, which range from market access 
and agriculture to competition policy, have as broad goals reducing 
trade barriers, facilitating trade and establishing clear rules. The 
FTAA aims to eliminate tariffs, establish better protection of 
intellectual property and encourage competition, transparency and 
impartial regulation of the services industries. The FTAA will also 
create an effective means of resolving trade disputes. All of these 
measures will greatly expand consumer choice, lower prices and spur 
innovation.
    In addition to the nine negotiating committees, the FTAA has 
established three other groups whose mandate is to take into account 
the special challenges of negotiating a trade agreement in the 21st 
century. An e-commerce committee is working to identify how trade rules 
might best address the interests of consumers and business in this 
rapidly growing sector. Another committee is specifically focused on 
the needs of smaller economies while the third is designed to advise 
governments on the views of business, labor, consumers, 
environmentalists, academics and other citizens groups. The 
establishment of this Civil Society committee, for which I am the U.S. 
lead, is unprecedented in any major trade negotiation.
    Through the reduction of trade barriers and the institution of 
fixed and clear rules, the FTAA will strengthen the values of openness, 
accountability, and democracy.

                                  CBI

    Before I conclude, I would like to take the opportunity to mention 
a related issue, the bill to enhance the Caribbean Basin Initiative 
(CBI), which along with the companion Africa Growth and Opportunity 
Act, is currently in conference. Since its inception in 1983, CBI has 
encouraged the countries in the Caribbean and Central American region 
to diversify their industries by providing preferential access to the 
U.S. market. It is a key component of the Administration's strategy to 
help the countries of the region strengthen democratic governance 
through economic development.
    The existing program has been a great success for the both the U.S. 
and the region, with annual two-way trade now topping $40 billion. 
Enhancing the CBI will enable Caribbean nations to compete more 
effectively while providing better opportunities for U.S. exports. 
Passage of this measure would support favorable economic and political 
trends in the region and also help enable these countries to undertake 
the obligations of an FTAA agreement.

                               CONCLUSION

    We have achieved much during the six years NAFTA has been in 
effect. In increasing economic growth and stability in North America 
and strengthening the bonds of friendship and cooperation across the 
continent, NAFTA has served U.S. interests well.
    An FTAA will provide similar benefits on a hemispheric basis. We 
intend to continue to move vigorously to bring this process to fruition 
by the 2005 target date. We look for your support.
    Thank you for the opportunity to testify today. I would be pleased 
to respond to any questions you or other members of the committee may 
have.

    Senator Chafee. Well, thank you very much.
    As I mentioned in my opening statement, NAFTA passed by a 
close vote, and now we are moving forward with the Caribbean 
Basin Initiative and FTAA, as well as free trade agreements in 
other parts of the world.
    Do either of you have any advice on how we can push these 
initiatives, especially considering all the positive testimony 
we have had both not only on the economic parameters of NAFTA 
but noneconomic, what has happened with environment, labor, 
economic innovation, noneconomic progress we have made as a 
result, you might argue, of NAFTA's implementation? So, any 
advice as we go forward on some of these other initiatives to 
make sure we can get passage?
    Mr. MacKay. Mr. Chairman, I am not sure I would call this 
advice, but my observation, as we look at this broad range of 
efforts, is that it is important that there be a forum where 
the civil society issues can be discussed. There is no denying 
that this is an area of great concern, Seattle first and then 
here in Washington, the demonstrations.
    In some countries perhaps that kind of issue can be held 
aside. In our system of government it simply cannot. I think 
that the way the FTAA is set up so that there is a forum for 
those concerns to be heard inside the building, instead of 
outside in the street, is the right way to do it.
    I believe that the FTAA process has been set up in a way 
that reflects a great deal of wisdom in the sense that the 
focus is not only on trade, but it is on democracy, on 
strengthening democracy, on finding ways to help the benefits 
of trade be spread broadly among society. The countries where 
we see stresses today are countries where they have now 
committed themselves to democracy and open markets, and yet the 
ordinary working people, the middle class, who have been 
prejudiced by the recessions and the other adverse events of 
the past few years, have yet to see that this benefits them.
    I believe that this idea that it be not just trade, but 
that you negotiate other things and that the United States can 
be in the role of a helping partner, as we are on environmental 
issues, as we are in helping to strengthen justice and helping 
with education, helping with health care. I believe this is the 
right way for us to do it. And I think NAFTA in some ways was 
the pilot project, and I believe the FTAA process now has, in 
effect, applied a number of the lessons of NAFTA.
    Mr. Chairman, I was very pleased that you are hosting this 
meeting. What we need are forums where we can discuss this and 
where people can understand the breadth of the effort that is 
taking place. Our Government has a binational commission with 
Mexico where Cabinet members are working with their 
counterparts. Some of these very knotty issues are not going to 
be resolved immediately, but they will be resolved in the 
atmosphere of trust that is building between our countries.
    So, my observation, not my advice, would be I think we are 
on the right track. My hope would be that the Congress will 
take a great interest in the depth and the breadth of the 
effort that is being made here. I think it is an unprecedented 
effort.
    Senator Chafee. Well, thank you, Governor.
    Mr. Samuel, anything to add?
    Mr. Samuel. Yes. I agree very much with what Governor 
MacKay has said certainly.
    I think the administration needs to continue to work on 
getting the message out of the benefits for the economy of 
trade liberalizing agreements. I appreciate this opportunity to 
do that. Again, trade is one aspect of our overall relationship 
with countries in the foreign policy and should be seen, I 
think, in that broader context.
    Finally, I think we do need to address the concerns, as 
Governor MacKay mentioned in his statement, that workers are 
nervous about trade liberalization, and there are often 
dislocations. Again, the administration and the Congress, as it 
looks at various trade adjustment legislative measures, need to 
keep in mind the role that those programs can have in preparing 
workers for adjustments and continuing participation in a 
changing economy.
    Senator Chafee. Just to followup a little bit, do you think 
we could improve, as we go forward, any aspects of NAFTA as we 
look at other trade agreements throughout the world?
    Mr. Samuel. I think that certainly NAFTA is, as we say, a 
state-of-the-art agreement. It has certainly been proved right 
in many of its provisions. As we continue ahead, there are 
certainly areas that NAFTA did not address fully that we can 
continue to look at. In areas of services, there are perhaps 
other services that might be covered for liberalization.
    Now that we have had some experience in the dispute 
settlement procedures of NAFTA, we may, as we talk in perhaps a 
new round, want to add greater measures of transparency and 
openness in the dispute settlement procedures, as we move 
forward and look at new agreements.
    Similarly, I think we would like to continue to revisit 
some of the agriculture interests, especially as regard Canada 
which is in the NAFTA, as we look forward perhaps to 
negotiations in the WTO.
    Senator Chafee. Thank you very much.
    Governor, anything to add on that? Any areas, job 
dislocation or the criticism--we are here praising NAFTA. I do 
not know, but I am sure there are critics out there--and how we 
address their concerns?
    Mr. MacKay. Of course, I think it is important that we do 
as much as possible to continue to tell the story. In some 
ways, things are moving on and people sometimes look at NAFTA 
as yesterday's news. I mean, we are now working on something 
else. The truth of the matter, as Secretary Samuel has said, 
NAFTA continues to be a state-of-the-art agreement.
    My own observation is that some of the issues that were 
dealt with have proven to be much broader than could have been 
anticipated. I think the efforts jointly working on 
environmental issues is a very good example. There is a 
cooperative effort to raise the standards, but it turns out 
that is a very difficult issue and one that nobody can walk 
away from. We have to just continue together.
    The trade adjustment and dislocation issue continues to be 
extremely important. The law needs to be continued. The 
administration needs to continue its commitment to make sure 
the law works. The benefits that are on the books have got to 
be benefits that are, in fact, delivered to workers who have 
found their lives disrupted because of trade dislocations.
    Senator Chafee. I appreciate very much your time in coming 
here. I suppose the message is we have to continue to 
communicate the benefits of agreements such as this as we go 
forward, not only in the Western Hemisphere but around the 
world. Thank you very much. It is worthwhile.
    We will take a 5 minute recess and convene the second 
panel.
    [Recess.]

    [Additional questions submitted for the record follow:]

  Responses of Bryan Samuel to Additional Questions Submitted for the 
                                 Record

    Question 1. What are the major benefits for Mexico and for the 
United States from NAFTA? What are the sources of dissatisfaction with 
NAFTA in Mexico?

    Answer. Clearly, NAFTA has been a major engine of trade-driven 
growth for the United States, as well as for Mexico and Canada. During 
NAFTA's first five years, U.S. goods exports to our NAFTA partners 
(Mexico and Canada) rose $93 billion or 66 percent (to $235 billion), 
including $37 billion in export growth (a 90 percent increase) to 
Mexico and $56 billion in export growth to Canada. Jobs supported by 
U.S. goods exports to Canada and Mexico total an estimated 2.6 million 
in 1998, 31 percent (600,000 new jobs) more than in 1993. In the United 
States, export-related jobs pay an average of 16% more than non-export 
related jobs.
    The vast bulk--over 85 percent--of our NAFTA trade is in 
manufactured goods. The U.S. manufacturing sector grew over 66 percent 
between 1993 and 1998. For instance, our exports of textiles and 
apparel products to our NAFTA partners have more than doubled, topping 
$8 billion in 1998.
    The benefits of the NAFTA are by no means limited to the United 
States. Our decision to open doors and break down barriers is producing 
a thriving relationship among our three countries--one that has led to 
strong economic growth in the region and that has helped to fuel global 
economic growth in recent years. Since NAFTA was implemented, trade 
within North America has increased around 75 percent. All three NAFTA 
partners now enjoy a bigger piece of a much larger trade pie--and the 
jobs and economic opportunities created are key to our continued well-
being. Merchandise trade among NAFTA's partners reached $507 billion in 
1998, a leap of $218 billion in just five years.
    During NAFTA's first five years, employment in Mexico grew by 22 
percent, generating 2.2 million jobs; and employment in the United 
States grew by more than 7 percent, generating 12.8 million jobs.
    Although Mexico is very pleased overall with NAFTA's benefits, 
cross border trucking has been a source of dissatisfaction for Mexico, 
it is currently in the NAFTA dispute resolution system. In addition, 
Mexico seeks greatly increased access to our sugar market. Some in 
Mexico have, inappropriately, blamed NAFTA for weaknesses in their 
agricultural markets.

    Question 2. In your opinion, how much progress has Mexico made in 
establishing democratic practices, and to what extent, if at all, could 
the progress be attributed to NAFTA?

    Answer. The huge upswing in trade, and contact with the rest of the 
world that NAFTA has catalyzed, has done much to spur the development 
of Mexico's political institutions. The legislative branch of 
government, no longer under the sole control of the PRI, is more 
independent and assertive of its constitutional prerogatives than ever. 
The Executive no longer ``taps'' the new President. Mexico is today in 
the midst of its most open electoral campaign ever--one that the 
opposition could win. The Mexican media is likewise more free and 
independent of government control than at any time in recent Mexican 
history.
    While it is difficult to quantify how much of this progress in 
political institutions can be attributed to NAFTA, one can certainly 
argue that closer ties with the world's strongest democracy and the 
increased prosperity the NAFTA has engendered have improved social and 
political mobility--in effect helping to empower a broader spectrum of 
the Mexican people.

    Question 3. How much progress has Mexico made in terms of opening 
the economy to foreign trade and investment? In what areas do you 
expect to see additional progress? In what areas do you see a lack of 
progress?

    Answer. NAFTA covers about 97 percent of Mexico's imports from its 
NAFTA partners. Tariff rates on covered items have either been reduced 
to zero or are on a schedule to reach zero by 2004. In most cases, 
Mexico is on schedule or ahead of schedule in the phase out process. 
Mexico has negotiated or is negotiating free trade agreements with a 
number of other countries and the European Union. There is apparently 
interest in negotiating such agreements with Japan and Singapore.
    Some critics feared the NAFTA would create incentives for companies 
to close up shop in the United States and move their plants to Mexico. 
Instead, what has happened is an increase in integration and 
competition to the benefit of the United States, Mexico, and Canada. If 
you look at the best measure of where firms are putting their money--
foreign direct investment and direct investment abroad--the facts show 
that investment has risen in all three countries.
    U.S. direct investment in Mexico reached a total of about 25.9 
billion dollars (historical cost basis) in 1998, about 7% more than in 
1997. It is concentrated in manufacturing (maquilladoras) and financial 
services. The rate of total foreign direct investment in Mexico during 
the period 1995-2000 is roughly double that of the preceding five 
years. In particular, Mexico is opening its financial services sector 
(primarily banking) to foreign investment.
    Mexico maintains a number of state monopolies, in such areas as 
petroleum and petrochemicals, and certain businesses are limited to 
minority foreign participation.

    Question 4. What is the status of Mexican efforts to open the 
electricity sector to foreign investment? Do you foresee a time when 
the petroleum sector would be more open to foreign investment?

    Answer. The Mexican administration made proposals (involving 
constitutional changes) during 1999 to privatize or open to private 
sector investment portions of the national electrical power system 
(other than transmission). These were subjected to serious political 
challenges and were not pressed. It is not possible to predict what 
steps, if any, will be taken in this direction in the near future. 
However, it should be noted that demand for electricity is generally 
believed to be growing at six percent per year; some steps will be 
needed to expand power supply.
    As for petroleum, its status as a state-owned resource makes it 
improbable that it will be opened to foreign investors. The sentiment 
is deeply rooted in Mexico that this resource is and must remain the 
patrimony of the Mexican ``nation.'' An attempt to privatize production 
facilities for secondary petrochemicals was not successful.

    Question 5. Will the outcome of the July 2000 presidential election 
be important in terms of the speed or degree of openness to additional 
trade and investment liberalization? What opinions regarding NAFTA have 
the major Mexican presidential candidates expressed?

    Answer. Increasing democratization in Mexico virtually guarantees 
growing public policy debate on all issues, including trade and 
investment liberalization. The two front runners in the presidential 
campaign are both committed to NAFTA and to continued trade and 
investment liberalization, but either would likely be more obliged than 
previous presidents to develop support for their proposals in the 
Mexican Congress and with the public.

    Question 6. What is the status of labor rights and human rights in 
Mexico? Do independent labor unions exist in Mexico?

    Answer. The Labor Rights section of the 1999 Human Rights Report 
(sent to Congress in February of 2000) provides an extensive profile of 
the current situation in Mexico. In addition, the 1999 Annual Labor 
Trends Report on Mexico (2000 edition in progress), provides a detailed 
discussion of the current labor situation. Yes, there are independent 
unions in Mexico, in fact their principal federation, the National 
Union of Workers (UNT), claims 1.5 million members. The AFL-CIO 
maintains an office of its American Center for International Labor 
Solidarity (ACILS) in Mexico, and has signed cooperative agreements 
with the UNT, as well as with the largest confederation of traditional 
unions (CTM).
    Mexico has a vigorous independent trade union sector. The Mexican 
Constitution and Federal Labor Law guarantee the rights of freedom of 
association and collective bargaining. Around 25 percent of the total 
workforce and 50 percent of the formal sector is unionized. Mexico has 
ratified most International Labor Organization conventions. Some 
concerns have arisen in recent years over the application of labor 
legislation in specific cases. Such concerns have been and are 
continuing to be addressed through the submission process of the North 
American Agreement on Labor Cooperation (NAALC).
    Mexico is not among the major rights violators, and guarantees, in 
theory and practice, its citizens many fundamental rights. However, as 
the State Department's 1999 Country Report on Human Rights indicates, 
serious human rights violations do occur in Mexico.

    Question 7. How effective is the Commission for Labor Cooperation 
(CLC) under NAFTA as a mechanism for channeling complaints, encouraging 
dialogue and consultation, and promoting improvement in these areas?

    Answer. The North American Agreement on Labor Cooperation (NAALC), 
the labor supplemental agreement to NAFTA, allows us to advance labor 
issues and monitor enforcement of labor laws in our trading partners. 
It also creates a forum for airing public concerns about labor law 
enforcement directly with governments. Twenty-two submissions have been 
filed under the NAALC, several leading to ministerial consultations and 
adoption of work programs to address concerns raised in the 
submissions. In 1997, for example, submissions prompted ministerial 
consultations on freedom of association and safety and health issues. 
Earlier consultations have led to a trilateral conference on the labor 
rights of women in North America, and a work program of trilateral 
seminars on union registration, certification, elections, recognition 
and union democracy.
    And of course, NAFTA has been instrumental in creating new higher-
paying jobs, not just in the United States, but also in Canada and 
Mexico. This has led to increased demand for U.S. products and services 
from consumers throughout North America.

    Question 8. Do you believe the existence of NAFTA contributes to a 
reduction in illegal immigration from Mexico to the United States? What 
do the data show?

    Answer. We believe more liberal trading arrangements between the 
United States and Mexico, i.e. NAFTA, have had a dampening effect on 
migration flows from Mexico to the United States. But NAFTA is only one 
of many factors influencing overall migrant flows. NAFTA's effect may 
well be outweighed by other factors, such as the general state of the 
Mexican economy. In fact, this seems to have been the case when Mexico 
experienced the ``Peso Crisis.'' According to the INS, apprehensions of 
Mexicans attempting to enter the United States without inspection 
increased from 1.26 million in FY93 to 1.46 million in FY97 (the last 
year for which we have complete data). These figures include some 
individuals apprehended more than once. We hope that this figure 
declined in 1999 as the Mexican economy strengthened.

    Question 9. How would you assess U.S.-Mexico cooperation on border 
and environmental issues?

    Answer. The NAFTA side agreement on environmental protection has 
been quite effective. The North American Agreement on Environmental 
Cooperation (NAAEC) appropriately emphasizes cooperative efforts among 
the Parties. It also promotes, and ensures, adequate enforcement of 
environmental laws in the United States, Canada, and Mexico. We must 
keep in mind that this is an unprecedented agreement and incorporates a 
far reaching range of constructive efforts to maintain and improve 
environmental protection. We did not expect to be in a position to 
argue that this agreement would resolve every environmental concern at 
the border or in North America, but we did expect to make progress--and 
we have.
    The growing success of the bilateral NAFTA side agreement which, is 
addressing environmental infrastructure needs along the U.S.-Mexico 
border is noteworthy. The institutions created by this agreement (BECC 
and NADBank) are bringing a variety of resources to bear upon the 
water, wastewater, and solidwaste needs of the rapidly-growing 
population in the border region. There are now 36 approved projects in 
various stages of development, more than have ever before been underway 
in this region.

    Question 10. What is your assessment of Mexico's performance on 
environmental issues?

    Answer. As indicated in the previous question, Mexico has been 
working closely with us in a number of bilateral fora to advance our 
mutual interest in ensuring adequate protection for our natural 
resources. In this bilateral context--as well as by means of its own 
domestic policies--Mexico has been making significant progress on 
environmental issues. Naturally, a great deal still remains to be done, 
but we expect that progress will continue, especially based on the 
general link between the level of economic development and 
environmental consciousness.

    Question 11. In your opinion, how have the Central American and 
Caribbean countries been affected by NAFTA?

    Answer. Since the signing of the NAFTA, countries participating in 
the Caribbean Basin Initiative (CBI), which includes all the Caribbean 
and Central American countries except Cuba, have claimed that Mexico 
gained a significant trade advantage. Mexico's access to the U.S. 
market, for which they made significant concessions in the NAFTA, is 
superior in certain sectors to that enjoyed by the CBI countries. The 
CBI countries point to Mexico's large gain in market share for apparel 
imported into the U.S. as proof that NAFTA altered the trade terms. 
However, because exports from several of the CBI countries continued to 
grow, albeit at a slower pace, and because the duty rate is only one of 
many elements considered by apparel manufacturers, it is difficult to 
estimate the impact NAFTA had on CBI exports.

    Question 12. Do you believe that participation in an FTAA agreement 
should be limited to countries that have and maintain democratically-
elected governments? How might these conditions be taken into account 
in such a regional trade arrangement?

    Answer. The strengthening of democracy is at the core of the Summit 
of the Americas, and the FTAA is a fundamental product of the Summit 
process. The Plan of Action developed at the Miami Summit in 1994 
states that ``the strengthening, effective exercise and consolidation 
of democracy constitute the central political priority of the 
Americas.'' By instilling the principles of transparency and the rule 
of law into commercial relations throughout the hemisphere, the FTAA is 
helping to strengthen democracy. Participation in the Summit of the 
Americas process is limited to the 34 democratically elected 
governments in the hemisphere.

    Question 13. Do you believe that participation in an FTAA agreement 
should be limited to countries that are taking substantial steps to 
combat corruption? How might these conditions be taken into account in 
such a regional trade arrangement?

    Answer. Corruption is a severe and debilitating reality in many 
Latin American countries, and the Administration has been working 
actively to address the issue. One of the fundamental goals of the 
Summit of the Americas is the elimination of corruption. The 
Declaration of Principles of the Summit of the Americas states that 
``Effective democracy requires a comprehensive attack on corruption as 
a factor of social disintegration and distortion of the economic system 
that undermines the legitimacy of political institutions.'' The Plan of 
Action developed at the 1994 Miami Summit requires that the governments 
will, among other goals, strengthen investigative and enforcement 
capacity with respect to acts of corruption, develop mechanisms of 
cooperation in the judicial and banking areas, and develop a 
hemispheric approach to corruption.
    The countries participating in the FTAA have been actively involved 
in many multilateral anti-corruption efforts, such as the Inter-
American Convention Against Corruption. To date 26 countries in this 
hemisphere have signed that Convention and 18 have ratified it. 
Argentina, Brazil and Chile have signed the OECD Bribery Convention, 
agreeing to make it a crime to bribe foreign public officials for 
business advantage.
    Market oriented policies promote transparency, competition and 
rules based behavior. The Administration is further assisting these 
countries to eliminate corruption by providing judicial reform 
assistance, insisting that the countries comply with their 
international obligations, and encouraging them to become a party of 
the Inter-American Convention Against Corruption. Agreements such as 
the FTAA will help to drive out corruption by creating a trading system 
based on transparency and the rule of law.

    Senator Chafee. We are pleased to convene the second panel 
of the Honorable Ted McNamara, Ms. Delal Baer, and Mr. Michael 
Woody from the great State of Rhode Island. The Honorable Ted 
McNamara, would you like to start off?

STATEMENT OF HON. THOMAS E. (TED) MC NAMARA, PRESIDENT, COUNCIL 
                 OF THE AMERICAS, NEW YORK, NY

    Ambassador McNamara Thank you, Senator. Good morning, Mr. 
Chairman and members of the subcommittee. It is a great 
pleasure for me as the president and CEO of the Council of the 
Americas to appear before this committee and to have the 
opportunity to testify today. I would like to summarize in 
about 5 or so minutes my statement, but if I could have the 
full statement printed in the record, I would appreciate that.
    Senator Chafee. Please.
    Ambassador McNamara. The Council of the Americas is the 
leading business organization which is dedicated to promoting 
hemispheric economic integration, free trade, investment, open 
markets, and the rule of law throughout this hemisphere. The 
membership includes major U.S. multinational companies, small, 
medium, and large sized companies with interests and 
investments in Latin America. We were founded 35 years ago in 
the belief that the future of the hemisphere depends upon 
promoting democracy and open market economic principles.
    Mr. Chairman, you have aptly titled this hearing ``Lessons 
of NAFTA for U.S. Relations with the Americas.'' NAFTA has been 
a tremendous success for the United States and has had much 
broader and more positive impact than most Americans realize. 
We all remember the NAFTA debates of the early 1990's. There 
were incredibly alarmist statements about how this agreement 
would destroy the U.S. economy and ruin the job market. The 
``great sucking sound'' was the cry, supposedly draining 
investments and jobs from the high-wage United States to low-
wage Mexico.
    By now it is obvious that that did not happen. The United 
States has had the longest peacetime boom in history. Recent 
GDP growth is strong. Unemployment is at its lowest level in 30 
years, and inflation is under control. Since 1993, trade among 
United States, Canada and Mexico is up more than 86 percent. 
U.S. merchandise exports to these two NAFTA partners are up 
more than 75 percent. And those exports to those two countries 
have supported an estimated 2.6 million jobs in 1998. This is 
600,000 more jobs than were supported by U.S. exports to Canada 
and Mexico just before NAFTA.
    I could go on with more statistics, but the point I think 
is clear: There is no sucking sound here. NAFTA, despite some 
problems, has indisputably benefited the United States. This is 
the first of many lessons that I think NAFTA has taught us.
    I want to stress, however, that NAFTA's benefits transcend 
economics. In Mexico, NAFTA has given a new energy and a new 
confidence to the entire country. This attitude spills over 
into Mexican domestic affairs where a more confident Mexico is 
addressing broader social issues and is moving toward modern 
democracy, in part because of the underlying security and 
stability that NAFTA is providing the country.
    The traditional Mexican anti-gringo ideology is giving way 
to a more friendly and cooperative attitude. The new Mexico 
sees it in its national interest to cooperate with us, whereas 
the old Mexico saw its role in world affairs as opposing the 
United States to demonstrate Mexican nationalism. The new, 
modern Mexico understands that its future depends on three 
healthy nations in North America and that cooperation can 
produce a win-win-win situation. And believe me, after many 
years, more than 30 years visiting Mexico and working in 
Mexico, this is revolutionary thinking in Mexico.
    It is clear that without NAFTA, Mexico would not have 
advanced as it has. President Zedillo has opened up economic 
and political systems to competition. We have political 
pluralism, true political pluralism, in Mexico for the first 
time. The ruling party has lost control of the Mexican Chamber 
of Deputies for the first time in 70 years. The opposition 
parties now govern in many states and municipalities, including 
the capital state and capital city of Mexico, and an opposition 
candidate could win the election to the Presidency in July. 
This pluralism is a very positive development.
    Without NAFTA, Mexico's traditional social and political 
elites would have little reason to change, and these 
modernizing developments would not have been what they are 
today. They are the unforeseen benefits of the economic 
modernization. Clearly Mexico still has a long way to go, but 
NAFTA has been a good stimulus for moving it in the right 
direction.
    Of course, there are tensions and distortions that 
accompany any change, and these are not missing in the NAFTA 
phenomenon. Mexico still suffers from the old problems of 
grossly inequitable distribution of wealth. Northern Mexico has 
benefited more than southern Mexico from the NAFTA agreement, 
and the gap between rich and poor has widened in Mexico, as it 
has elsewhere in the hemisphere, including the United States. 
Education and health reforms have not kept up with some of the 
other reforms, and corruption and lack of transparency are 
still a plague.
    Obviously, a free trade agreement is not panacea for 
Mexican or Latin American ills, but it is an essential part of 
any program whose goals are democracy, open economic systems, 
and social justice.
    So, I offer a second lesson to be learned from NAFTA, 
namely, that a dramatically new economic approach to our 
neighbors may produce unexpected benefits for us in the 
political and social areas. This can happen because economic 
modernization does not take place in a vacuum. We should be 
alert to this, and we ought to foster it.
    The Free Trade Area of the Americas, the FTAA, Mr. 
Chairman, is important to us and we need to negotiate that. If 
we cannot negotiate with our neighbors in this hemisphere, 
neighbors who are asking us to lead them to a new level of 
economic performance, then how can we hope to be a leader of 
world trade and economic development elsewhere in the world?
    Free Trade Area of the Americas is a unique opportunity. It 
represents a potential market of 800 million people. The FTAA 
promises more than just economic gains. The Council of the 
Americas believes that the FTAA represents a great opportunity 
for growth and development in the region. Trade leads to 
prosperity and improves the ability to address broader social 
and political agendas, as I have just mentioned in the case of 
the NAFTA.
    Mr. Chairman, I believe that the FTAA is an opportunity 
that should not be missed. But we are missing it. Through 
inattention, misinformation, and fear, we are not doing all we 
can to advance that agreement. The leadership that we need in 
the executive branch and in the Congress is lacking. Our 
leaders have not told the American people of the importance of 
continued free trade to our economic well-being. Let me cite 
some of the activity that we are missing out on by our mistaken 
policies of neglect and indifference.
    There are currently over 20 major trade agreements in place 
in the Americas. The United States is a party to one of these, 
NAFTA. Almost all of these agreements have been entered into 
force in the 1990's and they are establishing a web of 
preferential trade arrangements without the participation of 
the United States. This is putting the U.S. economy, U.S. 
workers, and U.S. industry at a disadvantage.
    Because the U.S. has failed to negotiate, for example, 
Chile's inclusion into NAFTA, our NAFTA partners, Mexico and 
Canada, have gone ahead and signed bilateral free trade 
agreements with Chile. So, that is great for Canada and Mexico, 
for their workers, and for their industries, but it is bad news 
for U.S. industries and U.S. workers.
    This brings me to the third lesson of NAFTA. Once the 
enormous advantages of free trade are demonstrated to our 
neighbors, they will continue to move down that road with or 
without us. If we sit on our hands, we are sitting on our hands 
at our own risk. Our neighbors and NAFTA partners are not idle. 
They are improving their economic prospects by forging 
preferential trade agreements that exclude us. While we are 
foolishly distracted by the strident shouts of the neo-
protectionists, our economic interests and our advantages are 
suffering. Our workers are suffering and our industries are 
suffering.
    This situation highlights yet another lesson, albeit not a 
NAFTA lesson; namely, that our neighbors are moving in 
different directions. Consider the example of Mercosur made up 
of Brazil, Argentina, Uruguay, Paraguay, and now as an 
associate member, Chile. Its strength, reach, and importance in 
South America is growing. But Mercosur is not a free trade 
zone. Its goals are not the same as NAFTA and the FTAA, 
although they are not inimicable to that. Mercosur is a customs 
union, aiming at free trade inside the union and a common 
tariff for those outside. Its objective is to move to a common 
market with a free movement of labor, coordinated macroeconomic 
policies and possibly even a common currency within that union. 
Only secondarily and only after the union is established can we 
expect Brazil and its partners to move to the negotiating table 
with the United States to negotiate free trade.
    I know I do not need to detail to this committee the 
history of the disputes and tensions in Europe in the 1950's 
and 1960's when the European Free Trade Area competed with the 
European Common Market for the support of European states. The 
situation is not identical. History does not repeat itself. 
There are, however, similarities that deserve our attention, 
but as I have noted above, we are not paying attention. We are 
not involved.
    Mercosur has made Chile and Bolivia associate members and 
it is now consulting with the Andean community about a trade 
agreement that could cover most of South America. South 
American heads of state will meet in Brazil in August, at 
Brazil's initiative, at a summit that could lay the groundwork 
for a unified South American trade bloc led by Brazil and 
Mercosur.
    Our inaction on the FTAA encourages these regional 
arrangements and keeps the United States on the outside. Lack 
of progress on FTAA will impact the United States most of all 
because our trade barriers are much, much lower than those of 
our neighbors, and it is to our advantage to get the others' 
down. These regional customs blocs tend to be exclusive, not 
inclusive, such as the free trade zone we are talking about 
which is inclusive. And as such, these regional blocs will 
hinder hemispheric-wide integration.
    So, my last point is not to cite another lesson of NAFTA. 
Rather, it is to point out that no one else will teach us the 
lessons of NAFTA. They are there for us to see if we are 
disposed to see them. We displayed nonpartisan leadership in 
negotiating, ratifying, and implementing NAFTA. And now we need 
to show that same leadership to shape the future trade agenda 
of this hemisphere. If we do not do so, that agenda will be 
shaped by others. And without us, it will not be shaped to our 
advantage. The United States needs to get working on this 
because, in fact, that agenda is already being shaped. This is 
already happening.
    The FTAA can reinforce many of the positive trends and 
democratize various parts of the hemisphere that need 
strengthening of democracy, open economic systems that need 
opening, and lead to greater social justice, just as NAFTA has 
done with respect to Mexico. We are counting on the FTAA 
negotiations to start a movement in the direction very similar 
to what has happened in the case of NAFTA. Fast track is needed 
to get that negotiation under way, and the major issues on the 
table need to be addressed now. I propose that we seize the 
moment and move forward.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Ambassador McNamara follows:]

          Prepared Statement of Ambassador Thomas E. McNamara

    Good morning, Mr. Chairman and Members of the Subcommittee. I am 
Ted McNamara, President and CEO of the Council of the Americas, and I 
appreciate the opportunity to testify before you today.
    The Council is the leading business organization dedicated to 
promoting hemispheric economic integration, free trade and investment, 
open markets, and the rule of law throughout the Western Hemisphere. 
The Council's membership includes major U.S. multinational companies 
with interests in Latin America. Members represent a variety of 
sectors: manufacturing, energy, transportation, technology, 
communications, banking, financial services, and natural resources, 
among others.
    The Council was founded thirty-five years ago on the belief that 
the future of the hemisphere depends on promoting democracy and open 
market economic principles. Expanding hemispheric cooperation through 
increased trade and investment benefits all nations of the hemisphere, 
including the United States, where these are central to our growth and 
economic health.
    Mr. Chairman, you have aptly titled this hearing, ``Lessons of 
NAFTA for U.S. Relations with the Americas.'' NAFTA has been a 
tremendous success for the United States and has had a much broader, 
positive impact than most Americans realize. We all remember the NAFTA 
debate of the early 1990s. There were incredibly alarmist statements 
about how this agreement would destroy the U.S. economy and ruin the 
job market. The ``great sucking sound'' was the cry, supposedly 
draining investments and jobs from the high-wage United States to low-
wage Mexico.
    By now it is obvious that this did not happen. The United States 
has had the longest peacetime boom in history; real GDP growth is 
strong; unemployment is at it lowest level in 30 years; and inflation 
is under control. Since 1993, trade among the U.S., Canada and Mexico 
is up more than 85%. U.S. merchandise exports to our NAFTA partners are 
up more than 75%. And those exports to Canada and Mexico supported an 
estimated 2.6 million jobs in 1998. This is 600,000 more jobs than were 
supported by U.S. exports to Canada and Mexico in 1993. I could go on 
with more statistics, but the point is clear. There is no sucking sound 
here; NAFTA, despite some problems, has indisputably benefited the 
United States. This is the first of the many ``lessons'' NAFTA has 
taught us.
    I want to stress, however, that NAFTA's benefits transcend 
economics. The agreement has also enhanced our relationships with our 
neighbors in many other ways and on many levels. In Mexico, NAFTA has 
given new energy and confidence to the entire country. This attitude 
spills over into Mexican domestic affairs where a more confident Mexico 
is addressing broader social issues and is moving towards modern 
democracy, in part because of the underlying stability NAFTA provides.
    The traditional, Mexican, anti-gringo ideology is giving way to a 
more friendly and cooperative attitude. The new Mexico sees it in its 
national interests to cooperate with us, whereas the old Mexico saw its 
role in world affairs as opposing the U.S. to demonstrate Mexican 
nationalism. The new, modern Mexico understands that its future depends 
on three healthy nations in North America, and that cooperation can 
produce a win-win-win situation. This is revolutionary new thinking for 
Mexico.
    Since 1994, President Ernesto Zedillo has opened the economic and 
political system to competition, fostered respect for the rule of law, 
and decentralized power. Political pluralism is growing. The 
Institutional Revolutionary Party (PRI), lost control of the Mexican 
Chamber of Deputies in 1997 for the first time in almost 70 years. 
Moreover, the opposition National Action Party (PAN) and Party of the 
Democratic Revolution (PRD) now govern a number of states and 
municipalities, including Mexico City, and an opposition candidate 
could win the presidency next July. This emergence of political 
pluralism after 70 years of one-party rule is a very positive 
development.
    It is clear that, without NAFTA, Mexico's traditional social and 
political elites would have had little reason for change, and that 
these modernizing developments would not have been what they are today. 
They are the unforeseen benefits of the economic modernization. 
Clearly, Mexico still has a long way to go, but the process has 
started, and NAFTA has been an important stimulus for it.
    There are, of course, tensions and distortions that accompany any 
change, and these are not missing in the NAFTA phenomenon. Mexico still 
suffers from the old problem of grossly inequitable distribution of the 
wealth recently generated. Geographically, northern Mexico has 
benefited more than southern Mexico. The gap between rich and poor has 
widened in Mexico, as it has throughout the hemisphere (including in 
the United States). Broad based educational and health-care reforms 
have not kept up with other reforms. Old style, pervasive corruption 
and lack of transparency are still a plague on Mexico.
    Obviously, free trade is not a panacea for Mexico's or Latin 
America's ills, but it is an essential part of any program whose goals 
are democracy, open economic systems, and social justice.
    So I offer a second lesson to be learned from NAFTA, namely, that a 
dramatically new economic approach to our neighbors may produce 
unexpected benefits for us in political and social areas. This can 
happen because economic modernization does not take place in a vacuum 
and repercussions can favor increased democracy, open economic systems, 
and social justice. We should be alert to this, and foster it.
    It is important that we understand how critical NAFTA has been to 
the three signatory states, so that the United States can commit to 
pursuing what should be our broader objective in the hemisphere, a Free 
Trade Area of the Americas (FTAA). For in the end, Mr. Chairman, if we 
cannot negotiate with our neighbors in the hemisphere, neighbors who 
are asking us to lead this hemisphere to a new level of economic 
performance, how can we hope to be a world leader of trade and economic 
development?
    The Free Trade Area of the Americas is a unique opportunity for the 
United States and the hemisphere. The FTAA represents a potential 
market of 800 million people to whom U.S. producers can sell goods and 
services. And, similar to the broad benefits of NAFTA, the FTAA 
promises more than just economic gains. The Council believes that the 
FTAA represents a great opportunity for growth and development in the 
region. Trade leads to prosperity and improves the ability to address 
broader social and political agendas.
    Mr. Chairman, I believe that the FTAA is an opportunity that should 
not be missed. But we are missing it. Through inattention, 
misinformation, and fear, we are not doing all we can to advance the 
agreement. The leadership that we need in the executive branch and the 
Congress is lacking. Our leaders have not convinced the American people 
of the importance of continued free trade to our economic well-being. 
Let me cite some of the activity that we are missing out on by our 
mistaken policies of neglect and indifference.
    There are currently over 20 major trade agreements in place in the 
Americas. The United States is a party to only one of these, NAFTA. 
Almost all of these agreements have entered into force in the 1990s, 
establishing a web of preferential trade arrangements without the 
participation of the United States. This is putting the U.S. economy, 
U.S. workers, and U.S. companies at a disadvantage. Let me cite just 
one example, that of Chile. Because the U.S. has failed to negotiate 
Chile's inclusion into NAFTA, Canada and Mexico have each signed 
bilateral trade agreements with Chile. As a result, Canadian and 
Mexican products enter Chile duty-free while U.S. products pay duties. 
This is great news for Canadian and Mexican companies and workers, but 
it is bad news for U.S. companies and workers.
    This brings me to the third lesson of NAFTA. Once the enormous 
advantages of free trade are demonstrated to our neighbors, they will 
continue to move down that road, with or without us. We sit on our 
hands at our own risk. Our neighbors and NAFTA partners are not idle; 
they are improving their economic prospects by forging preferential 
trade agreements that exclude us. While we are foolishly distracted by 
the strident shouts of the neo-protectionists, our economic interests 
and advantages are suffering. Our workers are loosing jobs. And our 
industry is disadvantaged.
    This situation highlights yet another lesson, albeit not a NAFTA 
lesson. Namely, not all our neighbors are moving in the same direction. 
Consider Mercosur, the largest trade grouping in Latin America. Made up 
of Brazil, Argentina, Uruguay and Paraguay, its strength, reach and 
importance in South America is growing. Mercosur is not a free trade 
zone. Its goals are not the same as NAFTA and the FTAA. Mercosur is a 
customs union, aiming at free trade inside the union and a common 
tariff for those outside. Its objective is to move to a common market 
with free movement of labor and coordinated macroeconomic policies, 
possibly even a common currency, within that union. Only secondarily 
and only after the union is secure can we expect Brazil to lead its 
partners to the trade negotiation table with the United States.
    I know I need not detail to this committee the history of the 
disputes and tensions between European states in the 1950s and 1960s 
when the EFTA free trade zone and the European common market competed 
for the support of European states. The situation is not identical; 
history does not repeat itself. There are, however, similarities that 
deserve our attention. But, as I have noted above, we are not paying 
attention. We are not involved.
    Mercosur has made Chile and Bolivia associate members and is 
consulting with the Andean Community, Latin America's second largest 
trade group. What they are talking about is a trade agreement that 
could cover most of South America. As part of this strategy and at 
Brazil's initiative, South American heads of state will meet in Brazil 
this August in a summit that could lay the groundwork for a unified 
South American trade bloc, led by Brazil and Mercosur.
    Our inaction on the FTAA encourages these regional arrangements and 
keeps the United States on the outside. Lack of progress on the FTAA 
will impact the United States most of all, because our trade barriers 
are much, much lower than those of our neighbors. But our continued 
economic strength depends greatly on our ability to bargain for reduced 
trade barriers that now protect other markets.
    There is a school of thought that regional trading blocks serve as 
stepping-stones to broader free trade agreements. However, the history 
of the ``inner six,'' and the ``outer seven'' in Europe suggests that 
once nations go down the road to regional economic unions, they are 
reluctant to abolish them and to enter free trade associations. The 
regional blocs tend to be exclusive, not inclusive, and as such they 
will hinder hemispheric-wide integration.
    As I said, Mercosur's first priority is not to foster free trade 
beyond the borders of its members. For example, as Brazilian and 
Argentine private enterprises try to compete internationally, some 
sectors are calling for government support through subsidies (a la 
Europe). Such actions warrant concern because they threaten 
negotiations seeking to open borders. Also, considering Mercosur's 
unified economic rules and regulations and common external tariff, a 
customs union with a combined barrier will certainly be harder for 
outsiders to penetrate. Mercosur countries can be sure of open access 
to the U.S. markets, while they negotiate separate arrangements with 
others. They are doing so with the European Union and with our 
neighbors.
    So, my last point is not to cite another lesson of NAFTA. Rather, 
it is to point out that no one else will teach us the lessons of NAFTA. 
They are there for us to see, if we are disposed to see them. We 
displayed non-partisan leadership in negotiating, ratifying, and 
implementing NAFTA. We must now show that same leadership to shape the 
future trade agenda of the hemisphere. If we do not do so, that agenda 
will be shaped by others without us, and it will not be our agenda. 
Indeed, that is already happening.
    Mr. Chairman, our efforts to reduce trade barriers with Canada and 
Mexico through NAFTA have greatly benefited North America. The U.S. 
economy has boomed and we have witnessed supplementary benefits in all 
three countries. The FTAA presents an opportunity to link the 34 
democracies of the Western Hemisphere by broadening and deepening 
relations in ways that benefit the U.S. economy and its citizens. The 
FTAA can reinforce many of the positive trends of democratization, open 
economic systems, and greater social justice, which are occurring 
throughout the hemisphere. We are approaching a critical time in the 
FTAA negotiations. Fast track will be needed to negotiate the major 
issues that are now on the table. Let us seize the moment.
    Thank you very much.

    Senator Chafee. Thank you. We hear your call to action and 
appreciate it.
    I would like to welcome Senator Dodd.
    Senator Dodd. Thank you, Mr. Chairman. I know we have got 
the other two witnesses here and I will be brief with some 
opening comments. I apologize for missing the first panel. 
Buddy MacKay I have a high regard and respect for, and I am 
sorry I missed his testimony. I am anxious to hear our other 
two witnesses.
    But let me just begin by, first of all, commending you, Mr. 
Chairman. This is a good hearing to hold. There are a lot of 
other issues going on that sort of grab headlines when it comes 
to the Americas in recent days that have a certain amount of 
appeal for obvious reasons. This hearing ought to be packed. 
You do not get a television camera here, but this is the kind 
of issue that has a far greater impact on our relations in the 
world than these other issues we are hearing about from day to 
day. But it is hard to get people to pay attention to something 
as important as this, unfortunately.
    So, I am very grateful to you for doing this. This is a 
good leadership to focus on this issue and to invite competent 
people who are knowledgeable, as Buddy MacKay is and obviously 
our panelists here. Ted, I appreciate your testimony already. I 
think you have said some very important things, and I could see 
Buddy MacKay's head nodding in agreement in the back of you 
here, so you have no disagreement from us on these points.
    Let me just make a couple of comments, if I could, Mr. 
Chairman, about this. I happen to be one who strongly supported 
NAFTA. I thought it was a very good idea. I have always said I 
do not think President Clinton probably could have signed NAFTA 
and I do not think President Bush probably could have passed 
it. It really was a combination of the Bush administration 
negotiating the agreement and the arrival of the Clinton 
administration which made it possible to pass it in the 
Congress. So, you had a confluence of forces that produced the 
results that we saw.
    It really did raise high hopes that we might start looking 
at the Americas as a way of really expanding trading 
opportunities for this country and raising the economic well-
being of people in this hemisphere. It has been pointed out 
over and over again we have for the first time virtually in 
every country with the exception of one, democratic 
governments. Now, some are a little shakier than others, and 
problems in Ecuador recently have highlighted some of the 
problems, but nonetheless, democratic governments by and large. 
But they do not last forever, and they only last because you 
have got economic underpinnings that can produce the results 
that people will see that will cause them to be more supportive 
of democratic institutions.
    So, I think it is critically important that we try to move 
on some of these issues. But you have already indicated, Mr. 
McNamara, how difficult it is. We are making a huge mistake in 
my view because we are going to get left out. This is 
potentially a billion people in this hemisphere. Very shortly 
there will be a billion consumers from the Yukon to Tierra del 
Fuego. So, from an enlightened self-interest standpoint, it 
makes sense for us. We are talking about normal trade relations 
with China. I think that has value, but in this hemisphere, 
there are some real opportunities.
    We are seeing in just a few short years some of the results 
in terms of what has occurred here, just how levels have gone 
up to $197 billion last year in trade with Mexico. That is a 50 
percent increase in 3 years. A 50 percent increase in 3 years.
    Now, I know the good economy has had something to do with 
that, but it is not only that. It has been because of 
eliminating tariffs. What were they? Forty percent in the past 
or 45 percent, and that was what we paid as a tax on our goods 
to be sold in Mexico. That is gone today, and so we are seeing 
jobs increased.
    In my State alone, in Connecticut, Connecticut's exports to 
Mexico have increased 62 percent to some $544 million. I 
suppose in terms of billions, that may not sound like much. But 
that $544 million are jobs in my State. That means people are 
producing products and selling in a market that they could not 
sell in or had a very difficult time selling in before. I know 
the same is true in Rhode Island. This is not about Texas and 
New Mexico and Arizona. All across the country people are 
benefiting from this.
    So, the evidence is clear. It seems to me we ought to be 
more aggressive in pursuing these agreements. I am saddened 
that we are not. It is mortifying what we have done to Chile in 
my view. With all the promises we have made, we still cannot 
seem to get that.
    We are now going to have a Caribbean Basin Initiative which 
I hope we get done here on the textile stuff, which I think can 
be tremendously helpful. In my view we ought to make Colombia, 
Venezuela, and Ecuador a part of that right away as well. Do 
you want to talk about making a difference in Colombia? I 
support the Colombia Plan, but provide some real economic 
opportunities for these people. If we are going to try and stop 
them from producing coca leaves and heroin and give them a job 
in the textile area, for instance, that is a real long-term 
economic advantage in terms of our battling the 
narcotraffickers in Colombia. So, I am hopeful still that on 
those agreements we might be able to get some support to 
include those three countries as part of the CBI, which I am 
hopeful we are going to pass this year.
    But again, Mr. Chairman, I am grateful to you for hosting 
this hearing. It is a very important subject matter.
    Mr. McNamara, Ted, I want to thank you for your testimony. 
It is excellent testimony, and we will probably put it in the 
record or something, not only here but maybe on the floor as 
well and try and raise the level of awareness of what is going 
on.
    Ambassador McNamara. Thank you, Senator.
    Senator Chafee. Thank you, Senator, very much also for your 
interest in this subject for many years.
    I now would like to welcome Ms. Delal Baer, the chair of 
the Mexico Project, Center for Strategic and International 
Studies. A warm welcome.

 STATEMENT OF M. DELAL BAER, CHAIR, MEXICO PROJECT, CENTER FOR 
      STRATEGIC AND INTERNATIONAL STUDIES, WASHINGTON, DC

    Ms. Baer. Thank you, Mr. Chairman. Thank you, members of 
the subcommittee. I thank you for asking me to testify before 
you here today and for your creativity in choosing to focus on 
the intangibles of NAFTA. You have asked me to focus on the 
impact of NAFTA on bilateral relations with Mexico. It is an 
angle of NAFTA that is not often looked at, and I thank you for 
your creative take on this issue.
    Before I comment on the noneconomic aspects of NAFTA, let 
me also chime in and make a few comments on the economic 
benefits of NAFTA.
    Two-way trade has almost doubled since NAFTA has gone into 
effect in 1994 when two-way trade was only $100 billion. Today 
it is close to $200 billion. Of course, that touches every 
State, including Rhode Island. I took the time to look up the 
figures on the State of Rhode Island, and I found that in fact 
Rhode Island's exports to Mexico have jumped from roughly $15 
million a year to around $90 million a year in the period from 
1993 to 1999. And the most dramatic growth was being led by the 
primary metal industry, and this is extremely dramatic where 
exports jumped from $6.4 million in 1993 to $67.7 million in 
1999. So, I think there are stories like this. I am sure we 
will hear some more along these lines in just a moment, and 
these stories are replicated across the United States.
    I too would congratulate your superb testimony and add only 
one point before I move on to the noneconomic issues, and that 
is in order for us to be able to take advantage of these new 
opportunities in the hemisphere and move forward with the 
vision that we all have described here, I believe that it is 
essential at some point for the United States to take up once 
again the question of fast track authority for the President to 
negotiate free trade agreements in this hemisphere. Without it, 
it is extremely difficult to move forward on this agenda. We 
have all spoken about the urgent need to move forward on this 
agenda, but no one has yet mentioned the magic words ``fast 
track.'' I thought I would just throw that in at the beginning 
of my testimony.
    It is not often that we see national cultures break out of 
the mold formed by centuries of history, but the passage of 
NAFTA has brought truly paradigmatic change in U.S.-Mexican 
relations. When the assumptions underlying a relationship shift 
away from mistrust and hostility to a focus on shared goals and 
values, a higher spirit animates and permeates that 
relationship.
    Let me briefly summarize where we have been in our 
relations with Mexico so you can appreciate how far we have 
come because often we focus on our frustrations in the 
bilateral relationship and forget that a short time ago that 
relationship was much more complex and conflictual than it is 
today.
    For many decades, the United States had a stunted and 
quasi-adversarial relationship with our nearest neighbor, 
Mexico. Five hundred years of history had convinced Mexico that 
little good would come outside its borders. This reticence, 
vis-a-vis the outside world, springs from a sense of 
vulnerability dating from the Spanish Conquest, reinforced by 
19th century French installation of a Hapsburg emperor in 
Mexico, and then later U.S. conquest of a large portion of what 
was then Mexican territory. It is not surprising then that for 
many years Mexico viewed the United States as its greatest 
potential threat, its greatest potential enemy, an attitude 
that was summed up in the famous saying, ``Poor Mexico, so far 
from God and so close to the United States.'' Of course, the 
United States from its lofty perch of superpower status, did 
not always do a great deal to alleviate the concerns of our 
Mexican neighbors, and our attitudes at times ranged from 
benign neglect to arrogant unilateralism.
    This could not fail to affect every aspect of bilateral 
relations. The principal goal of Mexican diplomacy for much of 
the 20th century was to keep the United States at arm's length 
and to demonstrate its independence by opposing U.S. 
objectives. For example, Mexico spent much of the cold war 
period making speeches denouncing American intervention and 
defending Soviet-sponsored guerrilla movements in the name of 
defending national sovereignty. What cooperation took place 
between our two countries was hidden as if it were something 
shameful. Common problems were not tackled in an open, joint 
spirit of friendly cooperation. Rather, meetings with our 
Mexican friends were ladened with a thousand reasons why our 
two countries could not cooperate, spiced with history lessons 
reminding the United States of its perfidy. Mexico's anti-
American dogma defined virtually all cooperation as a form of 
capitulation.
    As a scholar, not as a government official, I also spent my 
share of hours listening to history lessons delivered to me by 
my friends across the border. Only recently with NAFTA has 
Mexico begun to look toward the future and bury the historical 
axe and seek historic reconciliation with the United States. 
Only with NAFTA has Mexico begun to revamp its formerly insular 
and defensive stance vis-a-vis the outside world. Only recently 
with NAFTA has the United States begun to view Mexico with 
newfound interest and with respect. And these implications 
extend far beyond the immediacy of commerce.
    NAFTA changed the fundamental cost-benefit calculations of 
bilateral relations. For the first time, Mexico began to see 
its location next to the largest market in the world as more of 
an opportunity than as a problem. And the United States began 
to see Mexico as a commercial and investment opportunity rather 
than the sole source of immigration and drug problems. The 
dynamic, the fundamental motor of U.S.-Mexican relations 
shifted from a zero sum outlook to a win-win outlook. And that 
is of fundamental importance.
    NAFTA also I believe has contributed to a healthy 
convergence of basic values between the United States and 
Mexico regarding free markets and democracy, and I believe that 
this convergence of values is a driving force in the betterment 
of bilateral relations.
    NAFTA consolidated Mexico's commitment to free markets, a 
precondition to democracy. This is not an insignificant point. 
We tend to forget that Mexico was home to the first social 
revolution of the 20th century in 1910 and that the 
Institutional Revolutionary Party, the PRI, was a product of 
that revolution. For much of the 20th century, Mexico had a 
closed economy, had a mixed economy with a marked tendency 
toward excesses of economic and political statism. NAFTA 
anchored Mexico more firmly in the free market camp, and that 
is of historic importance.
    NAFTA has also been a force for democracy in Mexico. NAFTA 
reinforced the dismantling of Mexico's statist economy, which 
was essential to undermining the economic basis of Mexican 
authoritarianism. If the state owns fewer industries, the state 
has fewer patronage resources to use to control its electorate 
and its potential political allies. This frees up civil society 
in a way that we could hardly have anticipated before NAFTA's 
implementation.
    NAFTA also has contributed to greater decentralization of 
economic and political power, as Mexican states attempt to 
capture NAFTA-related investment. Mexican political and human 
rights practices came under greater scrutiny as a result of the 
political battle to pass NAFTA in the United States, and I 
believe that scrutiny was healthy. The signs of greater 
pluralism are everywhere to see. In 1991, the ruling PRI 
controlled 320 seats in Congress compared to 239 seats in 1997, 
losing its congressional majority for the first time in 
decades. Opposition candidates have a greater chance to win 
Mexico's year 2000 Presidential elections than perhaps ever 
before. I think there are very few who would argue today that 
Mexico is less democratic after NAFTA than it was before NAFTA. 
Yet, during the NAFTA debate, there were many voices who argued 
that the passage of NAFTA would reinforce the control of the 
PRI and would reinforce authoritarianism in Mexico. We have 
seen that that is simply not the case.
    As our values converge, so do our foreign policy 
objectives. A lot of folk in this town remember the days when 
Mexico's United Nations voting record coincided around 98 
percent of the time with the then Soviet Union. Mexico would 
vote to defend Cuba's abysmal human rights record from scrutiny 
in the United Nations, for example. Today, Mexico abstains from 
supporting the Cuban position and accompanies that abstention 
with a call for free elections in Cuba. After years of 
championing the cause of guerrilla movements in Central 
America, Mexico played a key role in brokering the peace in 
Central America during the 1990's. These changes may have 
occurred because Mexico reasoned that it was not worth 
sacrificing the economic benefits of U.S. goodwill by 
deliberately alienating the United States in international 
diplomatic venues. But I would prefer to believe that some of 
this harmonization of our foreign policy goals is a result of 
newly shared values motivating our foreign policy.
    Once the historic inhibitions to cooperation were removed 
in trade, it became harder to justify restricting cooperation 
in other areas. Law enforcement is one of those areas. Mexico's 
interest in law enforcement cooperation with the United States 
has intensified in order to create a secure investment 
environment and to guarantee trade flows within NAFTA. NAFTA 
underscores the point that traditional concepts of sovereignty 
and anti-American nationalism are as outmoded in the face of 
global organized crime as they are in the economic arena. 
Although the results of bilateral anti-drug cooperation at 
times leave much to be desired, the taboos that once blocked 
cooperation are giving way to a more regular and normal 
relationship.
    Mexico now speaks of our cooperative anti-drug effort as an 
alliance. The word is loaded with symbolic value.
    The creation of a high level contact group in 1995 may not 
have occurred without the fundamental shift in values and 
attitudes that accompanied NAFTA.
    It would have been taboo to openly seek and acknowledge the 
training of Mexican police and armed forces by U.S. 
counterparts in the pre-NAFTA years. Today, that training is a 
cooperative program that is openly acknowledged and viewed very 
positively on both sides of the border.
    Since NAFTA's passage, bilateral relations have deepened on 
every imaginable level. The North American Development Bank 
[NADB] and the over 20 projects that are coming out on line 
along the border has already been mentioned in a previous 
testimony today.
    The precursor of the High Level Contact Group was the 
reinvigoration of the Binational Commission meetings, which 
bring together the heads of our Federal agencies every year. At 
the Federal level, there is probably a closer working 
relationship between agency heads than at any other time in the 
20th century. Our counterparts pick up the telephone and speak 
regularly and freely and openly with their counterparts. That 
is a fundamental advance in bilateral relations. And even in 
conflictual areas like migration, high level immigration 
officials meet regularly as a result of something called the 
Puebla Process initiative.
    And then there is the spawning of a greater network of ties 
at the grassroots level between our people, from city to city, 
state to state, and university to university. And I believe 
that these contacts are beneficial for both countries.
    In sum, NAFTA has set the tone and the example for better 
bilateral relations, but I agree that it is not a panacea. It 
cannot substitute for strong political leadership and strategic 
vision. In some quarters, the United States has regressed to a 
Mexico-bashing mode, reminiscent of an earlier century. Since 
the passage of NAFTA, U.S. leadership has at times run away 
from explicit NAFTA commitments for the sake of political 
expediency, and I believe that that sets very dangerous 
precedents for the future functioning of NAFTA. Of course, some 
in Mexico continue to yearn for the day when national dignity 
required chilly relations with the United States. But my final 
conclusion is that the close to $200 billion in trade that 
currently flows between our two countries and the ties of 
friendship that inevitably accompany that flow is a permanent 
foundation on which to build a better bilateral future.
    Thank you very much.
    [The prepared statement of Ms. Baer follows:]

                  Prepared Statement of M. Delal Baer

    Mr. Chairman and Members of the Subcommittee:
    I would like to thank you for the kind invitation to testify before 
you. I am grateful that you have offered this opportunity to look at 
the role of NAFTA in transforming U.S.-Mexico bilateral relations. It 
is not often that we see national cultures break out of the mold formed 
by centuries of history, but the passage of NAFTA has brought truly 
paradigmatic change in U.S.-Mexican relations. When the assumptions 
underlying a relationship shift away from mistrust and hostility to a 
focus on shared goals and values, a higher spirit animates the entire 
bilateral relationship.
    Let me briefly summarize where we have been so that you can 
appreciate how far we have come. For many decades, the U.S. had a 
stunted and quasi-adversarial relationship with Mexico. Five hundred 
years of history had convinced Mexico that little good would come from 
outside its borders. This reticence vis a vis the outside world springs 
from a sense of vulnerability dating from the Spanish Conquest, 
reinforced by the 19th century French installation of a Hapsburg 
emperor and U.S. conquest of Mexican territory. Mexico viewed the U.S. 
as its greatest natural enemy, an attitude summed up in the famous 
saying, ``Poor Mexico, so far from God and so close to the United 
States.'' The U.S., from its lofty perch of superpower status, did not 
do a great deal to alleviate Mexico's concerns. U.S. attitudes ranged 
from benign neglect to arrogant unilateralism.
    This could not fail to affect every aspect of bilateral relations. 
The principal goal of Mexican diplomacy for much of the 20th century 
was to keep the U.S. at arm's length and to demonstrate its 
independence by opposing U.S. objectives. For example, Mexico spent 
most of the Cold War period making speeches denouncing American 
intervention and defending Soviet-sponsored guerrilla movements in the 
name of national sovereignty. What cooperation took place was hidden as 
if it were something shameful. Common problems were not tackled in an 
open, joint spirit of friendly cooperation. Rather, meetings with 
Mexican officials were laden with a thousand reasons why our two 
countries could not cooperate, spiced with history lessons reminding 
the U.S. of its perfidy. Mexico's anti-American dogma defined virtually 
all cooperation as a form of capitulation.
    Only recently, with NAFTA, has Mexico begun to revamp its formerly 
insular and defensive stance vis a vis the outside world. Only 
recently, with NAFTA, has the U.S. begun to view Mexico with new-found 
respect and interest. The implications extend far beyond the realm of 
commerce.

     NAFTA changed the fundamental cost-benefit calculations of 
bilateral relations. For the first time, Mexico began to see its 
location next to the largest market in the world as more of an 
opportunity than a problem. The U.S. began to see Mexico as a 
commercial and investment opportunity rather than solely as a source of 
immigration and drug problems. The dynamic of U.S.-Mexican relations 
shifted from a zero sum outlook to a win-win outlook.
     NAFTA has contributed to a healthy convergence of values 
between the U.S. and Mexico regarding free markets and democracy. I 
believe that this convergence is a driving force in the betterment of 
bilateral relations.

   NAFTA consolidated Mexico's commitment to free markets, a 
        precondition for democracy. This is not an insignificant point. 
        We tend to forget that Mexico was home to the first social 
        revolution of the twentieth century in 1910, and that the 
        Institutional Revolutionary Party (PRI) was a product of that 
        revolution. For much of the twentieth century, Mexico had a 
        mixed economy with a marked tendency toward excesses of 
        economic and political statism. NAFTA anchored Mexico more 
        firmly in the free market camp.

   NAFTA has been a force for democracy in Mexico. NAFTA 
        reinforced the dismantling of Mexico's statist economy, which 
        was essential to undermining the economic basis of Mexican 
        authoritarianism. NAFTA also has contributed to greater 
        decentralization of economic and political power, as Mexican 
        states attempt to capture NAFTA-related investment. Mexican 
        political and human rights practices came under greater 
        international scrutiny as a result of the political battle to 
        pass NAFTA in the U.S. The signs of greater pluralism are 
        everywhere to see. In 1991, the ruling PRI controlled 320 seats 
        in Congress compared to 239 seats in 1997, losing its 
        congressional majority for the first time. Opposition 
        candidates have a greater chance to win Mexico's year 2000 
        presidential elections than ever before.

     As our values converge, so do our foreign policy 
objectives. A lot of folk in this town remember the days when Mexico's 
United Nations voting record coincided around 98 percent of the time 
with the Soviet Union. Mexico would vote to defend Cuba's abysmal human 
rights record from scrutiny in the United Nations. Today, Mexico 
abstains and accompanies that abstention with a call for free elections 
in Cuba. After years of championing the cause of guerrilla movements in 
Central America, Mexico played an important role in brokering the peace 
in the 1990s. These changes may have occurred because Mexico reasoned 
that it was not worth sacrificing the economic benefits of U.S. 
goodwill by deliberately alienating the U.S. in international 
diplomatic venues. But I would like to think that some of this 
harmonization is a result of the newly shared values motivating our 
foreign policy.
     Once the historic inhibitions to cooperation were removed 
in trade, it became harder to justify restricting cooperation in other 
areas. Law enforcement is one of those areas. Mexico's interest in law 
enforcement cooperation has intensified in order to create a secure 
investment environment and to guarantee trade flows created by NAFTA. 
NAFTA underscores the point that traditional concepts of sovereignty 
and anti-American nationalism are as outmoded in the face of global 
organized crime as they are in the economic arena. Although the results 
of bilateral anti-drug cooperation leave much to be desired, the taboos 
that once blocked cooperation are giving way.

   Mexico, which refused to align itself with the U.S. on any 
        issue for years, now openly describes our cooperative anti-drug 
        program as an ``alliance.''

   The creation of the High Level Contact Group in 1995 may not 
        have occurred without the fundamental shift in attitudes that 
        accompanied NAFTA.

   It would have been taboo to openly seek and acknowledge the 
        training of Mexican police and armed forces by U.S. 
        counterparts in the pre-NAFTA years. Progress has been made in 
        areas such as extradition, performance measures, training 
        programs, etc. This process has been slow, but I am hopeful 
        that the next two administrations that are elected in 
        Washington and Mexico City will renew bilateral impetus.

     Since NAFTA's passage, bilateral relations have deepened 
on every imaginable level.

   The North American Development Bank (Nadbank), a direct 
        creation of NAFTA, today has close to 20 projects in the 
        pipeline or near completion in the area of strengthening water 
        treatment infrastructure along the border.

   The precursor of the High Level Contact Group was the 
        invigoration of the Binational Commission meetings, which bring 
        together the heads of our agencies every year. At the federal 
        level, there is probably a closer working relationship between 
        agency heads than at any time in the twentieth century.

   Even in areas of conflict, like migration, high-level 
        immigration officials meet regularly as a part of the Puebla 
        Process initiative.

   NAFTA naturally has intensified the contact between our 
        people at the grassroots level, from city to city, state to 
        state and university to university. NAFTA has spawned more 
        contact between non-governmental organizations on both sides of 
        the border, from unions and environmental groups to business 
        associations. I believe that these contacts are beneficial for 
        both countries.

    NAFTA has set the tone and example for better bilateral relations, 
but it is not a panacea. It cannot substitute for strong political 
leadership and strategic vision. In some quarters, the U.S. has 
regressed to a ``Mexico bashing'' mode reminiscent of an earlier 
century. Since the passage of NAFTA, U.S. leadership has at times run 
away from NAFTA commitments for the sake of political expediency. And 
some in Mexico yearn for a return to the day when national dignity 
required chilly relations with the United States. But the close to $200 
billion in trade that currently flows across the U.S.-Mexico border, 
and the ties of friendship that inevitably accompany that flow, is a 
permanent foundation on which to build a better bilateral future.

    Senator Chafee. Thank you very much. You are echoing 
certainly Mr. McNamara's comments that it is not only providing 
confidence in Mexico, but reducing the anti-gringo philosophy 
that permeated Mexico prior to NAFTA. So, in our best interest, 
both of those elements, confidence in Mexico and a reduction of 
the anti-Americanism that might have been prevalent prior to 
NAFTA's inception.
    I would like to welcome Mr. Woody from the Quill Company in 
Rhode Island. Mr. Woody has been in Hong Kong in the last week 
and from there to Santa Fe and now in our Nation's capital. 
Welcome.

   STATEMENT OF MICHAEL M. WOODY, VICE PRESIDENT, SALES AND 
           MARKETING, THE QUILL COMPANY, CRANSTON, RI

    Mr. Woody. Thank you, Mr. Chairman and members of the 
committee, for inviting me to testify this morning.
    The Quill Company is a manufacturer of pen and pencil sets 
for the promotional products market. We are a medium sized 
manufacturer, employing 95 people at our factory in Cranston, 
Rhode Island. Our company began as a mechanism manufacturer in 
1945 and moved into finished goods by purchasing Quill in 1972. 
Currently 82 percent of our sales are domestic, 18 percent are 
international. Our two major non-domestic markets are Europe 
and Canada. One of our strategic goals is to increase our 
export business to 33 percent of total sales.
    We customize our products with the buyer's corporate logo, 
and the pens are subsequently used for customer gifts, sales 
incentives, employee service awards, and a wide variety of 
other motivational purposes. We market through a network of 
20,000 promotional products distributors who sell to the 
approximately 10 million U.S. businesses that are potential 
buyers for our products. I have been involved in marketing our 
products internationally for 15 years. Although I am here today 
to represent Quill and my own views on NAFTA, I also represent 
Alison, Wendy, Gabe, and 12 other co-workers whose livelihood 
depends on our access to international markets.
    My point of view on international trade in general, and 
NAFTA in particular, was shaped by listening to my American 
competitors complain that overseas manufacturers were 
aggressively pursuing market share here in the States. Their 
typical reaction to this threat was to wring their hands and 
complain that government was not doing enough to prevent it. It 
seemed to me a feeble response to a competitive situation. I 
came to the conclusion that if our company was to effectively 
compete against foreign manufacturers, we needed to both defend 
our own market and pursue market share outside the U.S.
    The global pen market is fiercely competitive and writing 
instruments are, to the say the least, in the mature stage of 
the product life cycle. We face competition from countries all 
over the world, including China, Spain, Japan, Italy, and 
Germany. But we have unique product and service advantages that 
we believe are exportable, so we joined the global fray, 
targeting Europe, Canada, and Mexico as our first priorities.
    In NAFTA's first year, our sales into Canada increased 20 
percent. This was largely due to the 5 percent price decrease 
we were able to pass on to our customers. A change in 
distribution strategy led to a temporary decrease in sales in 
1995. By 1997, we had surpassed our 1995 sales and were on our 
way to our goal of Canadian sales representing 10 percent of 
total domestic sales. Unfortunately, the relative strength of 
the U.S. dollar has contributed greatly to flattening our sales 
in Canada, but that situation will not be a permanent one. 
Indeed, one of the reasons we export is to diversify risk as 
currencies fluctuate.
    Our major problem with NAFTA vis-a-vis the Canadian market 
is that it has not gone far enough. In the promotional products 
business, most orders are time sensitive, requiring that our 
product be in a specific place at a specific time for a 
specific event. However, documentation complications routinely 
delay our shipments into Canada. Our export documentation 
specialist tells me that shipping to any major European city is 
actually easier and often quicker than shipping into Toronto.
    She targets the NAFTA certificate of origin as the main 
problem. Great pains are taken at the border to insure that the 
form is completed thoroughly and accurately. If not, the 
shipment will likely be delayed. Thus, a 2-day delivery to 
Frankfurt, London, or Madrid proceeds smoothly and painlessly, 
whereas promising a 2-day delivery to a Canadian customer is 
risky.
    Another reason, aside from the strong dollar, that our 
Canadian business has become more challenging is the increase 
in competition from some of our U.S. based competitors. In 
1996, The Counselor magazine, one of our industry trade 
publications, surveyed 113 U.S. supplier companies doing 
business internationally. Eighty-seven percent said that they 
were doing business in Canada. When I first focused on Canada 
in 1988, almost none of them had a presence in Canada. Of those 
suppliers polled, 38 percent increased their export sales in 
1996. Canada and Mexico were mentioned as the two places in 
which international sales were most frequently made. The second 
most attended trade show by these same U.S. suppliers, after 
our own flagship PPAI Expo in Dallas, was the show sponsored by 
the Promotional Products Association of Canada.
    Although more recent evidence is anecdotal, my experience 
tells me that U.S. companies are competing more aggressively 
with Quill in Canada, and that U.S. firms in our industry are 
doing significantly more business in Canada since the inception 
of NAFTA.
    Now, for Mexico. The Mexican market for our product has 
always been highly price sensitive, and although NAFTA lowered 
our prices into Mexico, that decrease was easily overshadowed 
by the late 1994-1995 peso devaluation. My Mexican partner 
tells me that immediately preceding the devaluation, the peso 
was 3.6 to the dollar. It plunged to 7, and even now 6 years 
later, it stands at 9.25. Yesterday it closed at 9.4. As a 
result, our business into Mexico evaporated.
    However, last year we identified a Mexican partner 
dedicated to overcoming our marketing challenges, and 1999 was 
the first year since the 1994 devaluation that we have done 
significant business in Mexico. We expect to double that figure 
in 2000.
    We also experience occasional red tape with documentation 
on shipments into Mexico. But, in general, the exchange rate is 
a more daunting issue. Given a slightly stronger peso and a 
continuing commitment to our partner's success, the Mexican 
market could eventually approach 3 percent of our domestic 
business, or 10 percent of our total export sales.
    Now, I am keenly aware of the human rights issues 
surrounding NAFTA and Mexican labor, and I sympathize with 
those concerns. However, the condition of the worker in Mexico 
will improve with improving economic conditions and a tighter 
labor market. To bolster that argument, I could cite an article 
that appeared in the April 14 issue of the Wall Street Journal 
illustrating that job growth in Mexico is expected to surpass 
labor force growth by 2006. But I am more convinced by our 
partner in Guadalajara, Alexis Bellon of Cklass Industries. 
When I asked him his opinion on NAFTA and its effect on Mexican 
workers and companies, he said, ``Competition--at first it 
makes you sick, then it makes you stronger.''
    The international business landscape has changed 
dramatically since the inception of NAFTA. Two key factors that 
increasingly influence virtually every business today are 
technology and globalization. The synergy between these two 
forces creates a vortex that spins faster each year.
    Technology facilitates globalization, leading global 
companies to seek better and faster technology, which leads to 
increasing globalization. From century to century, decade to 
decade, year to year, this vortex spins faster: from the 
printing press to radio to television, from telegraph to 
telephone to fax to e-mail, from carriages to railroads to 
automobiles to airplanes. Technological innovation spurs 
economic globalization. Then global companies demand still 
better, faster technology in order to compete.
    In a recent interview with the Wall Street Journal, the 
musician Quincy Jones noted that ``it took 40 years to build a 
50 million consumer base for radio. It took 13 years to build a 
50 million consumer base for television. For the Internet, it 
took 4 years.'' The growth of communication technology 
facilitated the growth of international marketing. The 
development of faster, cheaper transportation spurred the 
globalization of distribution channels. Technology and 
globalization each spurring the other to the next level, and 
that next level is developed with ever increasing speed.
    My business reality at the Quill Company in Rhode Island is 
increasingly global. That process is inexorable. If our company 
and our industry is to be successful long term, it will 
undoubtedly be in a global marketplace. If we pull back from 
NAFTA, if we pull back from trade agreements generally, the 
target governments will retaliate and my overseas competitors 
will gain the advantage. This will damage our ability to grow 
the business, to compete globally, to be the engine for job 
growth that small to medium sized businesses traditionally have 
been. We are not looking to export jobs; we are looking to 
export our products.
    I urge you to stay the course on NAFTA and continue your 
efforts to open markets worldwide. Thank you.
    [The prepared statement of Mr. Woody follows:]

                 Prepared Statement of Michael M. Woody

                               BACKGROUND

    The Quill Company is a manufacturer of pen and pencil sets for the 
promotional products market. We are a medium-size manufacturer 
employing 95 people at our factory in Cranston, RI. Our company began 
as a mechanism manufacturer in 1945, and moved into finished goods by 
purchasing Quill in 1972. Currently, 82% of our sales are domestic, 18% 
are international. Our two major non-domestic markets are Europe and 
Canada. One of our strategic goals is to increase our export business 
to 33% of total sales.
    We customize our products with the buyer's corporate logo, and the 
pens are subsequently used for customer gifts, sales incentives, 
employee service awards, and a wide variety of other motivational 
purposes. We market through a network of 20,000 promotional products 
distributors who sell to the approximately 10 million U.S. businesses 
that are potential buyers for our products. I have been involved in 
marketing our products internationally for 15 years. Although I am here 
today to represent Quill, and my own views on NAFTA, I also represent 
Alison, Wendy, Gabe, and 12 other co-workers whose livelihood depends 
on our access to international markets.
    My point of view on international trade in general, and NAFTA in 
particular, was shaped by listening to my American competitors complain 
that overseas manufacturers were aggressively pursuing market share 
here in the States. Their typical reaction to this threat was to wring 
their hands and complain that government was not doing enough to 
prevent it. It seemed to me a feeble response to a competitive 
situation. I came to the conclusion that if our company was to 
effectively compete against foreign manufacturers we needed to both 
defend our own market and pursue market share outside the U.S.
    The global pen market is fiercely competitive, and writing 
instruments are, to say the least, in the mature stage of the product 
life cycle. We face competition from countries all over the world, 
including China, Spain, Japan, Italy, and Germany. But we have unique 
product and service advantages that we believe are exportable, so we 
joined the global fray, targeting Europe, Canada, and Mexico as our 
first priorities.

                                 CANADA

    In NAFTA's first year our sales into Canada increased 20%. This was 
largely due to the 5% price decrease we were able to pass on to our 
customers. A change in distribution strategy led to a temporary 
decrease in sales in 1995. By 1997, we had surpassed our 1995 sales, 
and were on our way to our goal of Canadian sales representing 10% of 
total domestic sales. Unfortunately, the relative strength of the U.S. 
dollar has contributed greatly to flattening our sales in Canada, but 
that situation will not be a permanent one. Indeed, one of the reasons 
we export is to diversify risk as currencies fluctuate.
    Our major problem with NAFTA vis-a-vis the Canadian market is that 
it has not gone far enough. In the promotional products business most 
orders are time-sensitive, requiring that our product be in a specific 
place at a specific time for a particular event. However, documentation 
complications routinely delay our shipments into Canada. Our export 
documentation specialist tells me that shipping to any major European 
city is actually easier and often quicker than shipping to Toronto.
    She targets the NAFTA certificate of origin as the main problem. 
Great pains are taken at the border to insure that the form is 
completed thoroughly and accurately. If not, the shipment will likely 
be delayed. Thus, a 2-day delivery to Frankfurt, London, or Madrid 
proceeds smoothly and painlessly, whereas promising a 2-day shipping 
time to a Canadian customer is risky.
    Another reason, aside from the strong dollar, that our Canadian 
business has become more challenging is the increase in competition 
from some of our U.S. based competitors. In 1996, The Counselor 
Magazine, one of our industry trade publications, surveyed 113 U.S. 
supplier companies doing business internationally. 87% said that they 
were doing business in Canada. When I first focused on Canada in 1988, 
almost none of them had a presence in Canada. Of those suppliers 
polled, 38% increased their export sales in 1996. Canada and Mexico 
were mentioned as the two places in which international sales were most 
frequently made. The second most attended trade show by these same U.S. 
suppliers, after our own flagship PPAI Expo in Dallas, was the show 
sponsored by the Promotional Products Association of Canada.
    Although more recent evidence is anecdotal, my experience tells me 
that U.S. companies are competing more aggressively with Quill in 
Canada, and that U.S. firms in our industry are doing significantly 
more business in Canada, since the inception of NAFTA.

                                 MEXICO

    The Mexican market for our product has always been highly price 
sensitive, and although NAFTA lowered our prices into Mexico, that 
decrease was easily overshadowed by the 1994 peso devaluation. My 
Mexican partner tells me that immediately preceding the devaluation, 
the peso was 3.6 to the dollar. It plunged to 7.0 and even now, six 
years later, it stands at 9.25. As a result, our business into Mexico 
evaporated.
    However, last year we identified a Mexican partner dedicated to 
overcoming our marketing challenges, and 1999 was the first year since 
the 1994 devaluation that we have done significant business in Mexico. 
We expect to double that figure in 2000.
    We also experience occasional red tape with documentation on 
shipments into Mexico. But, in general, the exchange rate is a more 
daunting issue. Given a slightly stronger peso and a continuing 
commitment to our partner's success, the Mexican market could 
eventually approach 3% of our domestic business, or 10% of our total 
export sales.
    I am keenly aware of the human rights issue surrounding NAFTA and 
Mexican labor, and I sympathize with those concerns. However, the 
condition of the worker in Mexico will improve with improving economic 
conditions and a tighter labor market. To bolster that argument, I 
could cite an article that appeared in the April 14th issue of The Wall 
Street Journal, illustrating that job growth in Mexico is expected to 
surpass labor force growth by 2006. But I am more convinced by our 
partner in Guadalajara, Alexis Bellon of Cklass Industries. When I 
asked him his opinion on NAFTA and its effect on Mexican workers and 
companies, he simply said, ``Competition--at first it makes you sick, 
then it makes you stronger.''

                             FUTURE TRENDS

    The international business landscape has changed dramatically since 
the inception of NAFTA. Two key factors that increasingly influence 
virtually every business today are technology and globalization. The 
synergy between these two forces creates a vortex that spins faster 
each year.
    Technology facilitates globalization, leading global companies to 
seek better and faster technology, which leads to increasing 
globalization. From century to century, decade to decade, and year to 
year, this vortex spins faster: from the printing press to radio to 
television, from telegraph to telephone to fax to e-mail, from 
carriages to railroads to automobiles to airplanes. Technological 
innovation spurs economic globalization, then global companies demand 
still better, faster technology to compete.
    In a recent interview with The Wall Street Journal, the musician 
Quincy Jones noted that ``it took 40 years to build a 50 million 
consumer base for radio. It took 13 years to build a 50 million 
consumer base for television. For the Internet, it took 4 years.'' The 
growth of communication technology facilitated the growth of 
international marketing. The development of faster, cheaper 
transportation spurred the globalization of distribution channels. 
Technology and globalization each spurring the other to the next 
level--and that next level is developed with ever increasing speed.
    My business reality is increasingly global. That process is 
inexorable. If our company, and our industry, is to be successful long-
term it will undoubtedly be in a global marketplace. If we pull back 
from NAFTA, if we pull back from trade agreements generally, the target 
governments will retaliate and my overseas competitors will gain the 
advantage. This will damage our ability to grow the business, to 
compete globally, to be the engine for job growth that small to medium 
size businesses have traditionally been. We're not looking to export 
jobs; we're looking to export our products.
    I urge you to stay the course on NAFTA, and continue your efforts 
to open markets worldwide.

    Senator Dodd. That is great testimony.
    Senator Chafee. Thank you, Mr. Woody.
    Earlier, Ms. Baer, you mentioned lack of fast track. Maybe 
I could ask the question, do you think that the lack of fast 
track negotiating authority has slowed down our progress and 
hampered our efforts to achieve certain goals? Maybe, Mr. 
McNamara, you might want to comment also since you were 
critical of our progress on other trade issues throughout the 
hemisphere. Ms. Baer.
    Ms. Baer. I do not think there is any doubt but that the 
absence of fast track has put a halt to expanding our trade 
relations with the rest of the hemisphere. We have not signed a 
single major free trade agreement with another Latin America 
since NAFTA, and we essentially left Chile like the bride 
standing at the altar with, as Senator Dodd mentioned, lots of 
commitments and promises and absolutely no follow-through.
    The reason why fast track is so essential to negotiating a 
trade agreement is because trade agreements are very complex 
things. They require compromise across a wide variety of issues 
and tradeoffs between issues. And unless you can vote on those 
issues as a package, which they are in fact a package, it is 
impossible to negotiate trade agreements. No country will want 
to negotiate a trade agreement with the United States if they 
face the prospect in the future of a U.S. Congress that would 
say, well, perhaps we like this part of the agreement, but we 
do not like that one. These deals are negotiated with a great 
deal of delicate balance, and if you unravel one thread, you 
can unravel the entire fabric. So, I think it has had 
definitely a chilling effect on our ability to be effective and 
exert leadership in the hemisphere.
    Ambassador McNamara. I would second that. It certainly has. 
Without fast track, the United States has not in over a 
generation, made a major trade agreement without having fast 
track or an equivalent in place for the negotiating period. The 
reason why we need it is as just stated, that these packages 
are negotiated, and if you pull them apart in the process of 
ratifying them back here, they then have to go back to the 
table and other countries, which have processes for the most 
part which do not allow for that--the executive branches in 
most countries, many countries are able to simply approve it.
    The other reason is because if a small country decides to 
pull back from an agreement, the larger country simply takes 
advantage of that. A small country, which is what we are 
talking about in the case of most Latin American economies, 
does not have the strength, the power, and the force to pull 
away from an agreement like that. They either accept it or do 
not accept it. The United States, with the enormous power and 
economic leverage that we have, can pull an agreement apart 
unless we have fast track. And a vote up or down on the total 
agreement is necessary or they will not come to the table. And 
that does not mean just Latin America. The Europeans and the 
Asians have made that point also.
    Senator Chafee. Thank you very much. We will try and make 
progress on those areas.
    Senator Dodd.
    Senator Dodd. Well, thank you.
    Let me just pick up on that point. I take a back seat to no 
one on my support of trade. I think it is tremendously valuable 
for us, for all the reasons you have identified.
    But I think we have got to be a little careful. I think 
with multilateral agreements, fast track is important obviously 
because there it really is too complex. With bilateral 
agreements, one of the dangers you run here is we have a 
Congress, and it is the only area we think of, with exception 
of some other unique pieces, that we do not allow for a normal, 
healthy, full debate and discussion allowing the majority to 
express their views on things. And when you try and so narrow 
these things, you run the risk that you prohibit people from 
expressing themselves. You may disagree with their ideas, but 
you need to build a base of public support for these agreements 
that will sustain them and support them over the years. And if 
we jump to fast track too often and too quickly, when it is not 
really necessary, then we undermine the basis by which all of 
these laws ultimately have to depend, and that is, public 
support and a free-wheeling, free-flowing debate. I grant you 
they are dangerous. There are risks involved in that. But that 
is a democracy.
    So, I have always been for fast track on multilateral 
agreements because once you have many nations involved in these 
things and if we undo one piece of it, then you just never get 
anything done. With bilateral agreements, I am less inclined. I 
know it takes time and it is painful to watch, but democracy is 
and we should not be afraid of that. I think a good healthy 
debate in the country and arguing these points out that people 
feel strongly about is not done unwise.
    So, I understand your point you are making and I have made 
it myself on many occasions. But I want to be careful that too 
often we do not lunge to that as the quick fix on this and, in 
the meantime, do a lot of damage, unnecessarily so. We need to 
energize people, educate people about it, how important these 
issues are. Not enough Members in my view go back to their 
States and talk about what it means to their jobs and their 
people to be able to have these markets. I would like to take 
you, Mr. Woody. In fact, if Rhode Island is ever unkind to you, 
you could just move down the road a little bit to Connecticut. 
We would love to have you.
    Mr. Woody. Thank you for the offer, but I love Rhode 
Island.
    Senator Dodd. But my point is I would like to take you and 
have you come and address the Chamber of Commerce or come and 
talk to some people in our State about what it has meant to 
your business in job growth, the enlightened self-interest that 
trade agreements ought to have. We do not do enough of that, so 
we end up with sort of a two-dimensional view on trade rather 
than appreciating multilateral aspects, the beneficial aspects 
of trade agreements for our society and for the nations with 
whom we strike these agreements.
    Let me just ask you one question that is related. It is one 
thing that has bothered me, and it goes to the heart of what I 
think you are talking about. It goes to this notion of sort of 
doing this country by country by country where we set the 
standard. So, we end up having in the Senate 51 to 49 Chile is 
in, and then 51 to 49 Bolivia is out. You know, depending on 
the whims of a Congress on any given day, we accept one trading 
partner and reject another. The unevenness of that is 
dangerous, it seems to me, for political purposes here.
    I have always argued with the notion that you take 
something like the Organization of American States, which 
originally was conceived as a trading organization. At least, 
that was one of the main ideas behind the OAS. Not the only 
one, but one of the main ones. And we set up some standards for 
it, rules by which nations agree to trade with one another so 
that democratic institutions, free markets, human rights, 
standards that all of us would agree with, and if you meet 
those, then you can be a member of the family. But it is not 
the United States alone establishing those rules. It is sort of 
a regional agreement as to what it means to be able to trade 
freely one with the other.
    This way you get away from the idea somehow that we 
determine free trade on our own. We do not. It is an illusion. 
That is one of the arguments we get on the WTO, that if somehow 
if we do not vote to have normal trade relations with China, 
China will never be a member of the World Trade Organization. 
That is ridiculous. They are going to be a member of the World 
Trade Organization whether or not we support it or not.
    In the case of Latin America, here as you point out, you 
are getting a lot of these multilateral agreements in the 
region that exclude us. So, it is not as if nothing happens and 
they wait to see whether or not we are going to do something.
    So, it needs more thought, obviously, but the idea of 
having some neutral determination of what constitutes proper 
behavior, if you will, by countries so that we can open up a 
process that does not leave it up to the whims of a particular 
Congress from year to year to accept or reject certain 
countries. I think it is dangerous for us from a foreign policy 
perspective, and we could end up suffering the consequences.
    So, I do not know if you have any thoughts on that, but I 
would raise it as an issue for you.
    Ambassador McNamara. Well, I would say with respect to the 
OAS and the IDB also, these multilateral organizations do need 
to step up and take a more active role. I do recognize and 
congratulate the OAS for having moved in on the trade issue in 
the last few years, and it has assumed a role supporting 
working groups of officials and private sector individuals who 
are trying to work out, if you will, the basis and the 
technical issues that would go into whatever an FTAA agreement 
might encompass. They are feeding into a regular series of 
meetings by ministers of trade in the hemisphere. The last one 
was held last November in Toronto. So, the OAS has been playing 
a role in this and an important one. And the IDB has also.
    The fact is, though, that they represent sort of the 
accumulated position or the assembled positions of the member 
states. Therefore, it is difficult for them to go beyond where 
the member states wish them to go. They do not have an 
independent position or an independent attitude about a 
particular trade issue, whether it is a technical issue or a 
more policy level issue. So, there are limitations as to how 
far the OAS can push the process without having the active 
support of the member nations. And when you talk about the OAS 
and the IDB, the active support of the member nations means the 
United States has to be in the lead in that active support or 
they are not going to be able to move forward. We are so 
powerful in this hemisphere that we are the leader. We cannot 
not lead in this hemisphere.
    Senator Dodd. Before you answer this question, again I am 
thinking back to the days, I remember, when the business 
community just was furious with the Congress when we passed 
legislation that prohibited the Foreign Corrupt Practices Act. 
And this was going to kill American business overseas because 
everyone else did it. Of course, today most American businesses 
will tell you, thank God Congress did it because it insulates 
us from what other people have to put up with all the time. But 
I remember testimony, overwhelming testimony, about it. So, 
some of these issues that we incorporate here actually in the 
long term prove out to be very beneficial for business in some 
of these aspects. And I wanted to just raise that.
    Go ahead.
    Ms. Baer. Senator, with regard to your point about how we 
should proceed in any kind of future negotiation, should it 
occur, the whole notion of Chile first reflects a historical 
moment, at which time most of the rest of the hemisphere was 
still at the early phases of their economic reform process, 
whereas Chile was really quite far advanced, and it was one of 
the few countries in the hemisphere, at the time when we were 
talking about this, that would have been capable, whose trade 
barriers were low enough already and whose economy had been 
sufficiently privatized that they would be able to enter into a 
free trade negotiation. I think that situation has changed 
substantially over the course of years.
    The other alternative that people looked at at the time and 
I think would probably continue to be something worth 
considering is negotiating with countries en bloc, that is to 
say, Mercosur is erecting protectionist measures, but it would 
perhaps make sense to negotiate with Mercosur as a bloc and it 
would limitate some of the political wear and tear of taking 
countries one at a time. So, I think the regional approach may 
still be an option worth considering.
    With regard to being able to negotiate a bilateral 
agreement with fast track as opposed to a multilateral 
agreement, goodness, my copy of NAFTA occupies an entire shelf 
in my library, obviously an extraordinarily complex agreement. 
Perhaps an agreement with a country like Chile would not be 
quite as complex, although I wonder. I just have to question 
whether or not there is any bilateral trade negotiation that is 
so unsensitive that we would be able to negotiate it sector by 
sector in the U.S. Congress. I think you might end up creating 
even more political wear and tear for the U.S. Congress. This 
is not to say that extensive consultation and democratic debate 
should not take place, but you may end up with more conflict 
trying to do it the way you were suggesting without a fast 
track procedure.
    Senator Dodd. Mr. Woody, any comments?
    Mr. Woody. No, sir.
    Senator Chafee. That is very illuminating testimony this 
morning. I appreciate it. Singing the praises of NAFTA and all 
the pain that went into its enactment, now 7 years later, 
seeing the benefits worth the pain, and look forward to moving 
in the future with other productive agreements throughout the 
hemisphere and indeed the world.
    We will leave the record open for 3 days for members who 
wish to submit questions for the record.
    Again, thank you. Much appreciation.
    [Whereupon, at 10:55 a.m., the subcommittee was adjourned.]

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