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S. HRG. 109–992

NAFTA AT YEAR TWELVE

HEARING

BEFORE THE

SUBCOMMITTEE ON INTERNATIONAL TRADE

OF THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

SEPTEMBER 11, 2006

(

Printed for the use of the Committee on Finance
COMMITTEE ON FINANCE

CHARLES E. GRASSLEY, Iowa, Chairman

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

RICK SANTORUM, Pennsylvania

BILL FRIST, Tennessee

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

MAX BAUCUS, Montana

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JAMES M. JEFFORDS (I), Vermont

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

KOLAN DAVIS, Staff Director and Chief Counsel

RUSSELL SULLIVAN, Democratic Staff Director

SUBCOMMITTEE ON INTERNATIONAL TRADE

CRAIG THOMAS, Wyoming, Chairman

MIKE CRAPO, Idaho

TRENT LOTT, Mississippi

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

ORRIN G. HATCH, Utah

OLYMPIA J. SNOWE, Maine

BILL FRIST, Tennessee

JEFF BINGAMAN, New Mexico

MAX BAUCUS, Montana

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

(II)
(III)

C O N T E N T S

OPENING STATEMENTS

Page

Thomas, Hon. Craig, a U.S. Senator from Wyoming, chairman, Subcommittee

on International Trade, Committee on Finance ................................................ 1

Bingaman, Hon. Jeff, a U.S. Senator from New Mexico ...................................... 2

WITNESSES

Melle, John, Deputy Assistant U.S. Trade Representative for North America,

Office of the U.S. Trade Representative, Washington, DC ............................... 3

Sauceda, Cathy, Director, Special Enforcement, U.S. Customs and Border

Protection, Washington, DC ................................................................................ 5

Magagna, Jim, executive vice president, Wyoming Stock Growers Association,

Cheyenne, WY ...................................................................................................... 12

Lang, Craig, president, Iowa Farm Bureau Federation, West Des Moines,

IA ........................................................................................................................... 14

Pacheco, Jerry, executive director, International Business Accelerator, Santa

Teresa, NM ........................................................................................................... 16

Polaski, Sandra, senior associate and director, trade, equity, and development

project, Carnegie Endowment for International Peace, Washington, DC ....... 19

Weintraub, Dr. Sidney, William E. Simon chair in political economy, Center

for Strategic and International Studies, Washington, DC ................................ 22

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Bingaman, Hon. Jeff:

Opening statement ........................................................................................... 2

Statement of Thea M. Lee ............................................................................... 31

Grassley, Hon. Charles E.:

Prepared statement .......................................................................................... 36

Lang, Craig:

Testimony .......................................................................................................... 14

Prepared statement .......................................................................................... 38

Magagna, Jim:

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 45

Melle, John:

Testimony .......................................................................................................... 3

Prepared statement with attachment ............................................................. 49

Pacheco, Jerry:

Testimony .......................................................................................................... 16

Prepared statement .......................................................................................... 56

Polaski, Sandra:

Testimony .......................................................................................................... 19

Prepared statement .......................................................................................... 61

Sauceda, Cathy:

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 85

Thomas, Hon. Craig.:

Opening statement ........................................................................................... 1

Prepared statement .......................................................................................... 91

Weintraub, Dr. Sidney:

Testimony .......................................................................................................... 22

Prepared statement .......................................................................................... 93
Page

IV

COMMUNICATIONS

United Automobile, Aerospace & Agricultural Implement Workers of America

(UAW) ................................................................................................................... 97

U.S. Chamber of Commerce and the Association of American Chambers of

Commerce in Latin America ............................................................................... 101
(1)

NAFTA AT YEAR TWELVE

MONDAY, SEPTEMBER 11, 2006

U.S. SENATE, SUBCOMMITTEE ON INTERNATIONAL TRADE, COMMITTEE ON FINANCE, Washington, DC.

The hearing was convened, pursuant to notice, at 2 p.m., in room

SD–215, Dirksen Senate Office Building, Hon. Craig Thomas

(chairman of the subcommittee) presiding.

Present: Senator Bingaman.

OPENING STATEMENT OF HON. CRAIG THOMAS, A U.S. SENATOR FROM WYOMING, CHAIRMAN, SUBCOMMITTEE ON

INTERNATIONAL TRADE, COMMITTEE ON FINANCE

Senator THOMAS. Good afternoon, everyone. I think we will

begin. It is a little quiet around here today, but when there are no

votes, why, people do not show up very much.

In any event, we are very glad to have this hearing. The hearing

is intended to provide an update from USTR on NAFTA, as well

as an update on the review that is going on. Customs officials will

testify on a variety of border issues that have arisen during the

agreement and how the trade between the countries has impacted

the global war on terror.

Finally, a panel of witnesses that includes economists, agricultural representatives, and businessmen who have investments

along the U.S.-Mexican border has been invited to share their

thoughts.

As you all know, in 1993 President Clinton submitted to Congress the most comprehensive trade agreement ever negotiated.

Upon the implementation of the North American Free Trade Agreement, it created the largest trading bloc in the world.

Today, the member nations of NAFTA have a population that ex- ceeds 430 million and combined domestic production of nearly $13

trillion. Canada and Mexico represent the largest export markets

for U.S. goods.

Not surprisingly, the same holds true for my home State of Wyoming. Since implementation of NAFTA, exports from our State

have tripled, from just under $49 million to over $161 million. Exports to Mexico have had similar growth, at slightly more than $71

million.

Despite the impressive growth, the debate on what impact

NAFTA has had on our economy exists. It is estimated that 25 percent of U.S. economic growth in the 1990s was directly related to

exports.
2

Even with substantial growth in U.S. exports in the past, America continues, of course, to have a negative trade balance. The reasons for the negative balance are many, but the bottom line is, we

continue to import more than we export.

Today we will hear from a diverse group of witnesses who will

share their thoughts of what the impact of NAFTA has been. We

will hear from the Customs Service how NAFTA has impacted the

operations on the border. We will hear from the private sector on

how NAFTA has impacted their operations and what needs to be

addressed to make the agreement better and to boost benefits

today and in the future.

The world has changed, of course, in the 12 years since NAFTA

took effect. Innovation of technology has made the world smaller,

political changes have improved and continue to impact the dynamics, and the awakening of China has forever changed the global

landscape as well. A good trade agreement is one that is not only

fair and provides benefits to certain parties, but also gives flexibility. So we appreciate you being here.

Obviously today is a difficult day for many people. There is no

event in recent years that has had a more profound impact than

the events of September 11, 2001. Today represents that anniversary, and certainly it has changed our Nation forever. It is important to remember those who were killed and those who still bear

the scars of this day. I hope we will keep them in our thoughts as

we go forward.

Let me turn to Senator Bingaman.

OPENING STATEMENT OF HON. JEFF BINGAMAN,

A U.S. SENATOR FROM NEW MEXICO

Senator BINGAMAN. Thank you very much, Mr. Chairman.

Thanks for having the hearing. As you point out, it is a day of commemoration and remembrance for the whole country, and I do

think it is important that we continue to try to do constructive

work here in the Congress. I commend you for having the hearing.

Let me just say that the issue of NAFTA and the larger issue of

trade relations and globalization is one that I think is extremely

important for our economic future and one that we need to understand better here in the Congress. I think this hearing is a good

start in trying to help me to understand the issue better, and I appreciate your willingness to do it.

As you know, I had asked that, in addition to the seven witnesses that you have today, that we also hear from the policy director for the AFL–CIO, Ms. Thea Lee, and that was not the decision.

But I hope if we are able to have another hearing, as I hope we

will, I hope that she will be called as a witness.

I would, as part of today’s record, ask that we include the written

statement that she submitted to us, if we could do that.

Senator THOMAS. Without objection.

[The prepared statement of Ms. Lee appears in the appendix.]

Senator BINGAMAN. Thank you, Mr. Chairman. I appreciate that.

I will have questions for all the witnesses as we get into the testimony. I very much appreciate them coming and giving us their insights as to the impact of NAFTA.
3

I have long thought that, with regard to trade agreements, we

have much more interest in the administration and in the Congress

in getting new agreements signed than we do in reviewing our experience under the previous agreements that have been implemented. This is a welcome change in that approach and one that

I think we should do more of, and I look forward to this testimony.

Thank you very much.

Senator THOMAS. Thank you, Senator.

Now if we could have our first panel, please: Mr. John Melle,

Deputy Assistant U.S. Trade Representative for North America, Office of the U.S. Trade Representative in Washington; and Ms.

Cathy Sauceda, Director, Special Enforcement, U.S. Customs and

Border Protection, Washington, DC. Thank you for being here.

Mr. Melle, if you would like to begin.

STATEMENT OF JOHN MELLE, DEPUTY ASSISTANT U.S. TRADE

REPRESENTATIVE FOR NORTH AMERICA, OFFICE OF THE

U.S. TRADE REPRESENTATIVE, WASHINGTON, DC

Mr. MELLE. Thank you, Mr. Chairman and members of the committee, Senator Bingaman. I have submitted written remarks that

I would like to be issued for the record, and will summarize those

remarks here.

Senator THOMAS. It will be put in the record.

[The prepared statement of Mr. Melle appears in the appendix.]

Mr. MELLE. Thank you for the opportunity to appear before you

today. I am pleased to represent USTR and to provide an overview

of NAFTA 12 years after its implementation.

The North American Free Trade Agreement has defined our commercial relationships with Canada and Mexico since 1994. To

evaluate this experience, the appropriate place to begin is with

trade and investment itself. Total goods trade with Canada and

Mexico has more than doubled from pre-NAFTA levels and has

grown significantly faster than trade with the rest of the world.

Many of the most impressive NAFTA successes are in agriculture. Canada and Mexico are our top two agricultural markets

and continue to grow significantly. Many people are not aware that

Mexico is our largest market for a wide range of key farm products,

including beef, dairy, swine, rice, and apples. U.S. exports of services to Canada and Mexico have also increased 75 percent since

1993.

On investment, the NAFTA partners are investing more in each

others’ economies, while the rest of the world is investing more in

our economies in North America. This change has been especially

important for Mexico. Since 1994, annual Foreign Direct Investment inflows have averaged $14 billion, compared with less than

$3 billion in the 1980s. Mexico’s outward FDI has also increased

by about 14-fold since 1990.

Notably, this growth in Canada and Mexico has not come at the

expense of U.S. inward investment. Even excluding housing, U.S.

business investment has risen by 104 percent since 1993.

How much change has been caused because of NAFTA cannot be

measured precisely; however, there are many economic indicators

that have grown more rapidly since the agreement was implemented.
4

For example, U.S. employment has increased by 22.2 million jobs

since NAFTA. The average post-NAFTA unemployment rate was

5.1 percent, compared to 7.1 percent during the prior 12 years.

U.S. industrial production rose by 49 percent since NAFTA; for

the 12 years before NAFTA the increase was 28 percent. Average

U.S. real manufacturing compensation has grown 2.3 percent annually since NAFTA, compared to just 0.4 percent between 1987 and

1993.

In Mexico, we have seen consistent GDP growth since NAFTA,

40 percent overall, and annual real wage increases since 1995. Real

GDP in Canada has grown by nearly 50 percent, and Canadian unemployment fell from 11.2 percent in 1993 to 6.7 percent last year.

Turning to some recent successes, let me note some events that

have allowed us to resolve trade issues with Canada and Mexico

this year. In March, the United States and Mexico signed an agreement to promote bilateral trade in cement, which had been the subject of a great deal of litigation. Similarly, in July the United

States and Canada reached a final agreement on resolving our

softwood lumber dispute, which has continued for more than 20

years.

Also, in late July the United States and Mexico reached agreement on trade in sweeteners, which puts the two countries on a

glide path towards full implementation of NAFTA’s sweetener provisions in 2008. Today, this morning, Mexico announced that it is

revoking antidumping duties on milled rice as a result of U.S. challenge in the WTO.

Turning to the challenges that NAFTA faces today, there are

three circumstances to consider. The first is implementation of remaining NAFTA commitments. All tariffs between the United

States and Mexico will be eliminated on January 1, 2008.

While less than 1 percent of our NAFTA trade with Mexico remains subject to tariffs, their removal has raised concerns in some

sectors. The NAFTA Trade Ministers have made clear that they are

committed to full implementation of NAFTA.

A second set of challenges must take into account global trade.

The NAFTA partners have begun by reducing trade barriers with

other countries, which means there are smaller margins of preference provided by NAFTA itself. In 1993, for example, the average

United States duty on imports was 3.2 percent for the world; by

2005, it had fallen to 1.4 percent.

The United States also faces more competition in our NAFTA

markets. Mexico has free trade agreements with 42 countries

today, compared with one other country in 1994. Canada has, since

NAFTA, concluded three additional FTAs and is negotiating with

the Republic of Korea.

A third set of challenges is how best to address security concerns

while not creating trade barriers, an issue of which we are all especially aware of today. This issue is the mandate of the trilateral Security and Prosperity Partnership of North America. The SPP

builds on NAFTA. We have been using, and will continue to use,

both processes to advance common strategic goals in North America.

To conclude, the United States and its NAFTA partners today

are not only better customers of one another, but better neighbors,
5

more committed partners, and more effective colleagues in a wide

range of trade-related international initiatives.

Senators, I would be happy to answer any questions you may

have at the conclusion of this panel’s testimony. Thank you.

Senator THOMAS. Thank you, Mr. Melle.

Ms. Sauceda?

STATEMENT OF CATHY SAUCEDA, DIRECTOR, SPECIAL ENFORCEMENT, U.S. CUSTOMS AND BORDER PROTECTION,

WASHINGTON, DC

Ms. SAUCEDA. Chairman Thomas and Senator Bingaman, I, too,

have presented written testimony for the record.

It is a privilege and an honor to appear before you today to discuss the operational impact and enforcement efforts of the North

American Free Trade Agreement by Customs and Border Protection.

I want to begin by expressing my gratitude to Chairman Grassley and Ranking Member Baucus, and the committee, for the interest and support you provide as CBP continues to administer and

enforce NAFTA, while facilitating the flow of legitimate trade that

is so important to our Nation’s economy.

U.S. market-opening initiatives took a significant step forward

with the entry into force of the U.S.-Canada Free Trade Agreement

in 1989. This FTA greatly liberalized trade between the United

States and Canada. It was the first FTA that had specific rules of

origin, which provided concrete, non-subjective methods for determining the origin of a good.

In 1994, the US-CFTA was superseded by NAFTA. Implementation of this trilateral FTA with the United States’ two largest trading partners not only led to a surge of U.S. exportations, but also

resulted in a dramatic increase in importations from Canada and

Mexico. Since its implementation in 1994, the administration of

NAFTA has improved over the years, although CBP continues to

experience operational challenges.

NAFTA was the first FTA to address the concepts of transparency and facilitation within the context of implementation, administration, and enforcement of the agreement. CBP promoted

transparency through the creation of a temporary call center

manned by CBP NAFTA experts to assist CBP and the trade during the implementation phase of NAFTA.

In the spirit of facilitation, the NAFTA negotiators ensured that

the flow of trade was not disrupted or hindered by waiving the requirement of the presentation of a paper document, the Certificate

of Origin, as a condition of release of the goods. Canada adopted

this same procedure, while Mexico continues to require the presentation of a Certificate of Origin prior to the release of the goods.

CBP continues to refine the application of NAFTA and has introduced increased flexibility regarding the presentation of the Certificate of Origin. Initially, the certificate had to be completed on an

official, trilaterally agreed upon form, as directed by NAFTA’s Uniform Regulations. However, in July of 2005, CBP began to allow

the certificate to be in any format, as long as all of the data elements were present.
6

The experiences CBP has gained through implementing, administering, and enforcing NAFTA have been overwhelmingly positive,

although there have been some challenges posed by the agreement.

The provisions of NAFTA require a properly completed NAFTA

Certificate of Origin to be signed by the exporter and in the possession of the importer prior to the claim for preferential treatment.

If these requirements are not met, NAFTA requires that the

claim be denied, regardless of whether the good is, in fact, originating per the specific rules. This presents rigorous, paper-intensive requirements for the trading community and requires that

claims be denied based solely on a paper document rather than the

rules of origin. We have remedied this provision in subsequent

trade agreements.

Due to the fact that the exporter is required to complete the Certificate of Origin, NAFTA is termed an ‘‘exporter-focused agreement.’’ Although the importer makes the claim and is the responsible entity for duties and any penalties, if any accrue, the determination as to whether or not a good is originating is made by the

exporter who may or may not fully understand the requirements of

NAFTA.

CBP does verify the origin of a good for which NAFTA preference

is claimed through a verification, which also includes verification

visits. However, there are several steps necessary prior to initiating

a verification, and these steps can interfere with the ability to accurately gauge the veracity of a party’s preference claim.

CBP must first obtain a Certificate of Origin from the importer.

Obtaining this Certificate of Origin does not constitute a verification. The actual verification is of the exporter or producer, who

must provide information beyond the certificate to support the preference claim.

A shortfall of NAFTA is that the importer, who is ultimately responsible for the claim, is not an active participant in the verification process. Additionally, although CBP must conduct verifications through the exporter, CBP has no jurisdiction over an entity

in a foreign country.

A verification can include a visit to the site of production in Canada or Mexico. This allows for an extension of CBP’s enforcement

capabilities; however, NAFTA requires a 30-day notice to the exporter prior to the visit.

There is no flexibility with which to conduct strategic enforcement actions, as the exporter will have been provided at least 30

days’ notice, allowing dishonest exporters and producers to make

operational adjustments well in advance of the verification visit.

This notice effectively allows these exporters and producers the opportunity to clean up their act.

Although the United States, Canada, and Mexico have trilaterally discussed amending the restricted verification visit procedures to allow for more flexibility, no agreement has been reached

to date. The exporter-focused regime presents logistical and administrative burdens to importers, exporters, as well as CBP.

An additional area that presents challenges involves textiles and

wearing apparel. The three NAFTA parties still have not agreed

upon a verification process for certain textiles receiving preferential

treatment. CBP continues to meet trilaterally with the Mexican
7

and Canadian governments in an ongoing effort to resolve differences and agree upon verification procedures.

NAFTA provides for workgroups among the parties to address

these types of challenges and other concerns in the areas of administration, interpretation, and enforcement. These work groups successfully tackled many issues during the first few years; however,

the parties have not been able to make significant progress on the

remaining trilateral issues.

NAFTA’s concrete and transparent obligations for the importer,

exporter, and government agencies have taught us a great deal regarding provisions that work well and those that require refinement.

NAFTA serves as a framework for the newer FTAs. The newer

FTAs have shifted from an exporter-focused to an importer-focused

regime, while at the same time eliminating the Certificate of Origin as a formal document.

I have briefly discussed the operational impact and enforcement

efforts of NAFTA that CBP has encountered over the past 12 years.

NAFTA has been monumental in the creation of a framework from

which new FTAs are being modeled and shaped.

We have gleaned positive and effective provisions that allow for

an enforceable and operationally sound agreement and have also

streamlined the more complicated concepts. We continue to maintain and administer the largest multilateral agreement that the

United States has entered into, while retaining effective enforcement methods.

Thank you for this opportunity to testify. I will be happy to answer any of your questions.

Senator THOMAS. Thank you.

[The prepared statement of Ms. Sauceda appears in the appendix.]

Senator THOMAS. We will have a period of questions now.

Mr. Melle, you mentioned that we removed the duties in all sectors. In April, the Director said that there remains trade subject to

duties, but there are concerns in the various sectors.

Now, what is the status of that area where there were not duties?

Mr. MELLE. The major commodities that still have duties are

largely our exports to Mexico, which covers corn, dry beans, milk

powder, and, of course, we both have duties on sugar.

There has been some concern expressed in Mexico over the elimination of the duties on corn and beans. The Mexico government,

the Fox administration, has committed to implementing those obligations. Obviously, those are very large exports from a large number of States in the United States.

In fact, we have a working group meeting with the government

of Mexico tomorrow to discuss how to smooth that transition to full

and open trade in those commodities.

As I mentioned, we reached an agreement on sweeteners in July

that hopefully does put us on a path to full implementation of the

sweetener provisions as well.

Senator THOMAS. But you indicated that the duties would all be

removed in a certain time. Is that what you said?

Mr. MELLE. Absolutely. January 1, 2008. Yes.
8

Senator THOMAS. And you are going to be able to overcome the

difficulties?

Mr. MELLE. Well, the difficulties may be as much perception as

reality. To take corn, for example, which is probably the single

largest concern in Mexico, Mexican corn production has continued

to increase after NAFTA.

Much of the exports from the United States have gone to their

feed, their cattle and poultry industries, where the consumption of

those goods is way up. So we think the issue is manageable, yes.

Senator THOMAS. I see.

You mentioned settlement of the softwood lumber thing between

Canada and Mexico. One of the interesting parts of that is, apparently, the parties used both NAFTA and WTO rules to come to an

agreement. Why is it that rules of both these trade associations can

be used to govern this dispute?

Mr. MELLE. The two systems have a different standard of review.

I should say I am not an attorney, so I can just give you an informal answer here. But the WTO rule is based on meeting a WTO

set of obligations, while the NAFTA review is conducted by companies that are challenging, in this case, the administration and implementation of U.S. laws.

So, from the beginning, there are two different standards. When

you have two different standards, you sometimes get two different

results out of dispute settlement bodies, which is what happened

in some of the lumber cases.

Senator THOMAS. I guess the question is, why would WTO rules

be used in NAFTA?

Mr. MELLE. Well, it is the same issue that is being challenged

in both, that is, the imposition of dumping and countervailing duties. But again, each result was based on applying a different

standard. So it is not that the WTO was telling us what to do

under NAFTA. Both sets of panels were telling us what to do with

respect to those orders.

Senator THOMAS. I see.

As I said earlier, the purpose of this panel and the purpose of

this process is to see if there are things that could better the agreement, that would make it work better, that would be more productive.

You have been monitoring this for a good long time. Do you have

thoughts? Do you have areas that have worked well and areas that

need attention that you think should be considered?

Mr. MELLE. One of the areas that we are currently working on,

as Cathy Sauceda mentioned, is the complicated rules of origin.

NAFTA was a comprehensive agreement with our two largest trading partners, so it got an incredible amount of scrutiny by a wide

range of business and agricultural sectors, in much more depth

than you might expect for a smaller trading partner.

What we have seen over the last 12 years is that trade patterns

have changed, that production decisions have changed, and that

perhaps in some cases the old rules of origin no longer make sense

or facilitate trade.

So we have been making changes to those. We have done three

sets of changes so far and hope another set will be implemented
9

sometime next year. Cathy has talked about continued efforts we

need to make at the border.

There is always the potential to reduce the transaction costs and,

through both NAFTA and through the Security and Prosperity

Partnership, we are getting private sector input and attempting to

address some of those concerns.

Senator THOMAS. All right.

Ms. Sauceda, you apparently then have multiple hats. National

security has also become an even more important function over the

years. Does Customs balance the need between efficiently moving

products and security interests?

Ms. SAUCEDA. Certainly. Although I am not an expert on all of

these programs, since 9/11 there have been many programs put

into place with CBP: the Trusted Partnership programs, and the

like. We have established layered approaches to our enforcement

efforts so that we do not unnecessarily delay shipments.

Those types of inspection methods, the NII (Non-Intrusive Inspection) equipment and the like, allow us to expedite and facilitate

legitimate trade where we can more easily detect those shipments

that need further inspection.

Senator THOMAS. When problems arise or bottlenecks occur, do

you involve the private sector in identifying solutions?

Ms. SAUCEDA. I personally believe that one of the things that

CBP does very well is involve the trade in issues. One of the most

significant, of course, is the Trade Act of 2002, when we held multiple hearings with the trade on how to work with the advance information requirements so that the trade is not unnecessarily encumbered, while CBP can still get the information in advance of

the arrival of the shipment.

We also have committees within our ACE system called the

Trade Support Network (TSN), where we work with the trade on

our facilitative approaches through electronic means. We also have

other committees with the trade, such as the Commercial Operations Advisory Committee (COAC), where we meet quarterly and

discuss issues that involve the trade community and CBP actions

in the trade area.

Senator THOMAS. All right. Thank you.

Senator Bingaman?

Senator BINGAMAN. Thank you very much.

Mr. Melle, the Chairman here was asking you about areas in

NAFTA that need more work or need some changes. I think that

was the thrust of one of his questions.

The testimony that we have put in the record by the policy director for the AFL–CIO, Ms. Lee, says at one point, ‘‘The NAFTA

labor side agreement has utterly failed to protect labor’s rights.

None of the 34 cases filed under the side agreement has progressed

beyond the initial stage of cooperative consultations.’’

I would be interested in your reaction to that statement, whether

you think it is true, whether you think there is a logical explanation, or whether we need to make some changes.

I have here a chart that is entitled ‘‘The Dispute Settlement Procedure for the North American Agreement on Labor Cooperation.’’

I believe this sets out the procedure that is followed when there is

concern about labor rights under that side agreement.
10

According to the way I understand her statement, there are four

stages in this. We are still in the first stage with regard to each

of the 34 complaints that have been raised in the 14 years that this

agreement has been in place.

Do you have a reaction or any knowledge about this?

Mr. MELLE. Well, I am aware of those cases, Senator. I would

like to respond more extensively for the record later. I think the

one point I would make here is, I think the first question is, how

do you measure success?

I think we take the view that the dialogue, the openness, the

scrutiny that the NAFTA labor agreement has provided is, in and

of itself, a success and you do not necessarily have to score each

particular complaint or petition and see how far it gets in the process to get results that are useful and desirable.

Senator BINGAMAN. So your thought is that the fact that none of

these has gone beyond the first of the four stages is not a sign that

the system is not working.

Mr. MELLE. Correct.

Senator BINGAMAN. Well, I would be interested in any kind of

elaboration you could give me with regard to these 34 complaints.

It strikes me that there is something deficient in the system, the

procedures that we have set up, if there is no way to move these

cases along and resolve them one way or another.

[The information appears in the appendix on p. 54.]

Senator BINGAMAN. Let me ask about another issue. I have complained about this, even at hearings before this committee, before.

We have been trying for the last couple of years now to reopen the

Mexican border to imports of live breeding bulls and dairy heifers

from the United States.

As I understand it, so far in 2006 we have imported 780,000 live

Mexican cattle, and they have not imported a single live animal

from the United States. Mexico is now imposing 28 separate requirements on live cattle to be imported from the United States.

I guess my question is, if we cannot get any movement on this,

why do we not impose those same 28 requirements on Mexican cattle coming into this country?

Mr. MELLE. Senator, every time you ask a USTR official about

cattle trade with Mexico that question comes to me, so I am quite

familiar with your interest. I know you, indeed, are very interested

in this and are very much results-oriented.

I can report that we have succeeded in having breeding bulls

enter Mexico, but we have not yet obtained any agreement over

dairy heifers.

Senator BINGAMAN. So breeding bulls are now permitted to enter

Mexico?

Mr. MELLE. That is my understanding.

Senator BINGAMAN. Because that is contrary to what I have been

told.

Mr. MELLE. Let me verify that for you, Senator. But my understanding is, they have been allowed for several months.

Senator BINGAMAN. Oh, really? All right. That is new information. I thought they were continuing to block that.

Mr. MELLE. On dairy heifers, I do not have success to report yet.

I know our veterinarians are working at USDA and with our Mexi-
11

can counterparts very intensively. But again, since you are resultsoriented, I do not have an outcome yet, but hope that they are

quite close.

Senator BINGAMAN. All right.

Let me ask about one Customs-related issue that, Ms. Sauceda,

you would be the right person to respond to. This also is a fairly

parochial question related to my State. We have a port of entry between the United States and Mexico at Santa Teresa.

Several companies have complained that the rate of truck inspection at Santa Teresa is significantly higher than the rate of trucks

inspected at ports of entry in the neighboring State of Texas.

First, I guess I would ask whether you can confirm that, and if

you can, is there a reason to think that there are more illicit goods

being carried from Mexico to the United States through the Santa

Teresa port of entry than through ports of entry in Texas?

Ms. SAUCEDA. Sir, off the top of my head I do not know the answer, but we will get a response back to you.

Senator BINGAMAN. I would appreciate that. That would be very

useful.

Those were the questions I had of this panel, Mr. Chairman.

Thank you.

Senator THOMAS. Thank you.

Just one more question for both of you, I guess. I understand

NAFTA partners are undertaking a complete review of NAFTA

which identifies more ambitious disciplines than contained in other

free trade agreements. What do you think will be the result of this

review, either of you or both of you?

Mr. MELLE. Well, let me start. We expect to have a meeting with

our counterparts at a Vice Ministerial level in the next couple of

months—as you know, there have been some management changes

at USTR since we undertook our review—where we will be discussing it with our partners.

I think, generally, we are looking at issues of trade facilitation,

of simplification of NAFTA, and, as I mentioned, continued effort

to make sure all the NAFTA obligations are implemented on time.

Senator THOMAS. Do you have any comment?

Ms. SAUCEDA. The only comment I would like to make is that

CBP would be very pleased to participate with USTR in this review

to better facilitate under NAFTA.

Senator THOMAS. All right. Nothing very specific?

Ms. SAUCEDA. No, sir.

Senator THOMAS. Just one final comment. During the negotiations, we entered into a side letter on sugar. I will not go into detail, but apparently that process is flawed. I have never been able

to get a copy of the letter, and Mexico denies being bound by it.

Do we still use side letters in trade negotiation?

Mr. MELLE. I believe the literal answer to that would be yes, but

I also think we do a much better job of it than we did in this one

particular instance.

Senator THOMAS. All right.

Anything further, Senator?

Senator BINGAMAN. No.

Senator THOMAS. Well, thank you very much. We appreciate it,

and look forward to working with you.
12

Let us go on then to our next panel, which includes Mr. Jim

Magagna, executive vice president of the Wyoming Stock Growers

Association. I am being a little localized, but I want to particularly

thank Mr. Magagna for being here from Wyoming. I appreciate

that.

The rest of the panel consists of Mr. Craig Lang, president of the

Iowa Farm Bureau Federation; Mr. Jerry Pacheco, executive director, International Business Accelerator in New Mexico; Sandra

Polaski, senior associate and director, trade, equity, and development project, Carnegie Endowment for International Peace; and

Dr. Sidney Weintraub, chair in political economy, Center for Strategic and International Studies. I thank all of you for being here.

You will have about 5 minutes, please. You will see it on your

equipment there. Your full statements will be put into the record.

We appreciate it very much.

Mr. Magagna, would you like to begin?

STATEMENT OF JIM MAGAGNA, EXECUTIVE VICE PRESIDENT,

WYOMING STOCK GROWERS ASSOCIATION, CHEYENNE, WY

Mr. MAGAGNA. Thank you, Mr. Chairman. I appreciate the opportunity to be here with you today. It is also a pleasure to sit here

with Senator Bingaman, I would like to say, just a few years after

we sat in the halls of Stanford Law School together.

Mr. Chairman, for the record, I am the executive vice president

of the Wyoming Stock Growers Association. For some 134 years, we

have represented the cattle industry in the State of Wyoming. I am

also personally a lifelong sheep rancher, and the former president

of the American Sheep Industry Association.

I would like to focus this afternoon primarily on two areas with

regard to NAFTA. The first is the evolving dichotomy with which

the three nations look at this trade agreement in terms of the cattle industry.

I might preface this by saying that my remarks will tend to focus

on the situation that existed prior to the outbreak of BSE in Canadian cattle, since that has significantly distorted some of those relationships.

Second, I will focus on the way that the sanitary and phytosanitary regulations have been dealt with under NAFTA.

By way of a general opening comment, I want to acknowledge

that NAFTA has certainly resulted in a tremendous increase in the

movement of beef and live cattle products among the three nations.

The evidence is far less clear, however, that any benefit has occurred from that, particularly to the cow/calf sector of the cattle industry that I represent. And certainly in Wyoming, most of our producers would share my judgment that we have not seen any measurable direct benefit.

But to give you a better background, with Mexico in particular,

prior to NAFTA, total beef movement from the United States to

Mexico, net, was about $200 million a year.

Last year, in spite of even the partial restrictions of BSE, there

was some $893 million, and for the first 6 months of this year,

$564 million. So, certainly there is a tremendous amount of beef

product moving into Mexico.
13

But I caution, that has to be measured against the large number

of Mexican feeder cattle moving into the southwestern States of the

United States; so, to a great degree, we are turning product

around.

A comparison. For the first 10 years of NAFTA across the three

nations, at least one economic analysis that has been done that I

have referred to several times in my written testimony, would indicate that, as a result of NAFTA, there has been a reduction in

U.S.-fed cattle prices of approximately 82 cents per hundredweight, and a reduction in feeder cattle prices of approximately 77

cents per hundred-weight. So, again, when it is all added up, the

benefits are not quite that clear.

With regard to my first point, in the industry we view Mexico

and Canada as, clearly, our partners in the beef business, but also

as our competitors in the beef business.

We recognize that certain segments of our industry, particularly

the packer/processor segment, benefit by promoting the concept of

a North American beef industry. On the production side of the industry, particularly the cow/calf sector, we feel that that characterization is inaccurate, and perhaps even harmful.

There are clear differences in production, in regulatory practices

that our producers are faced with, in terms of environmental concerns, in terms of labor laws, that distinguish our industry very

clearly from the industry of our two partners, particularly from

that of Mexico.

So while perhaps it does not call for changes in NAFTA, we are

asking you, the members of this committee, to encourage a change

in the way that this administration looks at NAFTA in terms of defining the beef industry. We are clearly three distinct industries

that have much to be gained from cooperation from trade amongst

ourselves, but we are not a North American beef industry.

Turning to the issue of sanitary and phytosanitary provisions

contained in NAFTA, NAFTA provides significant language about

how these issues are to be addressed, protecting the rights of individual Nations to establish those standards that they need, not

necessarily binding them to international standards.

It was our hope when NAFTA was originally approved that it

would provide a process for effectively, efficiently, and timely dealing with differences and with concerns in terms of sanitary and

phytosanitary, or animal health, in particular, regulations among

the countries.

The best example I can provide to you, Mr. Chairman, is Canada,

where, since prior to the adoption of NAFTA, the U.S. has worked

hard to achieve a relaxation of Canadian standards with regard to

blue tongue and anaplasmosis on the movement of live cattle into

Canada from, particularly, our mid-level States—not the very

northern tier States, but the mid-level States—to move those

standards more into compliance with international standards.

All appearances are that NAFTA was totally ineffective in providing us a tool for getting there. Just this year, Canada has announced those relaxations. It would be my conjecture that that was

driven far more by the BSE situation and their desire to restore

their trade relationship in beef with the United States than it was

by anything contained in NAFTA itself.
14

Turning to Mexico, particularly commenting at this point on the

sheep industry, we have seen Mexico repeatedly close its borders

for a period of time to the importation of live-slaughter sheep and

to various sheep meats from the U.S., each time citing various

health and food safety concerns to justify such actions.

Again, if NAFTA is truly to provide for free and open trade between our Nations, among our Nations, then we feel that it should

address these issues. Not that they will not arise, but that it

should provide an efficient mechanism for dealing with them so

that they do not, as I believe to be the case with Mexico, allow

them to be used as trade barriers in an effort to protect the domestic industry. We need to move toward a harmonization of these

sanitary and phytosanitary standards.

By contrast to the comments I have made about Canada and

Mexico, the U.S. seems to have taken a much more liberal approach to respecting these.

We would urge, Mr. Chairman, that USTR and this committee

look at some change to Chapter 7 of NAFTA in an effort to ensure

that these sanitary and phytosanitary issues are addressed.

In closing, Mr. Chairman, I would simply point out that we do

believe that the U.S. cattle industry has a bright future based on

our ability to maintain our preference in our domestic markets and

to aggressively participate in international markets, including

those of Canada and Mexico.

But in order to achieve these goals, we ask your assistance in

providing our trade negotiators with direction to ensure increased

access to export markets on terms that are no more restrictive than

those that we grant to other nations.

In closing, Mr. Chairman, I again want to thank you for the opportunity to testify today, and I will stand ready to address questions from you and Senator Bingaman as this panel moves forward.

Thank you.

Senator THOMAS. Thank you, Mr. Magagna.

[The prepared statement of Mr. Magagna appears in the appendix.]

Senator THOMAS. Mr. Lang?

STATEMENT OF CRAIG LANG, PRESIDENT, IOWA FARM

BUREAU FEDERATION, WEST DES MOINES, IA

Mr. LANG. Thank you, Mr. Chairman and Senator Bingaman. I

also remember the events of 5 years ago, and believe me, as I got

on the plane today, I did think about that. But the good news is,

I believe it is safer to travel today than it was 5 years ago. So, I

appreciate your remarks.

My name is Craig Lang. I am a fifth-generation farmer from

Brooklyn, IA. My family and I farm a little over 1,000 acres of corn

and soybeans, and we also have pasture. We milk nearly 500 dairy

cows.

I am the president of the Iowa Farm Bureau, and I also serve

on the American Farm Bureau Federation Board of Directors and

the Trade Advisory Committee for the American Farm Bureau

Board. I want to thank you for this opportunity to speak to you

about the North American Free Trade Agreement.
15

NAFTA has been good for much of American agriculture, and for

Iowa agriculture, in particular. Thanks to NAFTA, Canada and

Mexico now buy a third of U.S. agricultural exports and also supply

a third of our agricultural imports.

Japan used to be our top export market for the American farm

products, but now Canada is number one and Mexico is number

two, followed by Japan.

Because of NAFTA, the United States is now the number-one export market for both Canada and Mexico, and I believe this is good.

Compared to 1993, the year before the NAFTA treaty went into effect, the dollar value of the 2005 U.S. agricultural exports to Canada has doubled. With our two-way trade agreement with Canada

in 2005, both exports and imports are up nearly 130 percent since

NAFTA.

Our history with Mexico is even more impressive. Compared to

1993, last year’s farm exports to Mexico have increased by 160 percent, and the two-way trade is up 180 percent. It is clear that

NAFTA has dramatically increased agricultural trade with our

neighbors by lowering tariffs and eliminating other trade barriers,

both of which are important ingredients in a true market integration.

Since NAFTA, Mexico has become a priority market for American

grain. Soybeans, corn, and sorghum are some of our major exports

to Mexico, where they are used in livestock feed. Mexico is also a

promising market for corn gluten meal and distillers’ dried grains,

the corn ethanol co-products fed to our livestock. With the buildup in ethanol plants today, you know how important that extra

market is.

Income and population growth in Mexico mean more demand for

protein, so the Mexicans are buying both livestock feed for their

own industry and finished meat and dairy products from the U.S.

We in Iowa are especially grateful for Mexican purchases of U.S.

beef. Since the Japanese market closed to U.S. beef in 2003, Mexico

is now our number-one export market for beef.

A couple of years ago, the Iowa Farm Bureau put up $50,000

with the U.S. Meat Export Federation Board and put a project together in dining areas in Mexico, and we immediately had fans of

high cuts of meat from the Midwest.

The Mexican consumer preference also provides valuable markets for meat products in low demand here, such as turkey dark

meat for processing into turkey ham, beef tripe, or menundo, and

pork intestines for sausage casings. Now, menundo is a beef tripe,

which is a stomach stew, and is very popular in Mexico, but I cannot tell you that I have ever had it.

What food products do we import from Mexico? Consumer goods

and warm climate labor-intensive crops for which Mexico has a

comparative advantage. Everybody knows about Corona beer and

Tequila, peppers and tomatoes, avocados and mangoes. American

consumers benefit from lower prices and more year-round variety

in fruits and vegetables because of NAFTA. Both countries we

trade in have a large diversification of trade. Our agriculture trade

is diversified in Canada, with processed foods, lumber, and paper

products as some of our top exports.
16

Most of our agricultural exports to Canada are consumer-ready,

high-value food products. Iowa’s top 10 merchandise exports from

Mexico are mostly farm commodities. In Iowa, we sell manufactured goods to Canada, like tractors and front-end loaders, refrigerators and washing machines, and processed steel.

The only agricultural product in Iowa’s top 10 exports to Canada

is soybean meal for the livestock feed. But U.S. grain is also going

to Canada in the form of those processed foods, and Canada is buying U.S. corn for livestock feed, ethanol production, and corn syrup

production.

Iowa is the number-one State in pork production, thanks, in part,

to Canada. Only about half of the hogs marketed in Iowa are born

in Iowa. Iowa farmers buy baby feeder pigs from other States to

fatten on Iowa corn and soybeans.

Our largest single source of feeder pigs is Canada. Iowa imported

almost three million Canadian piglets last year, and believe me,

our growers of pork believe Canadian pigs are the best.

Our beef industry is even more integrated with Canada and Mexico, thanks to NAFTA. Last year, American cattlemen imported

about 1.25 million feeder cattle from Mexico and about 240,000

feeder cattle from Canada. U.S. packing plants also imported

320,000 slaughter cattle from Canada.

When the border closed on BSE, our slaughtering facilities—or

harvest facilities as we like to call them—were seriously in jeopardy because they had to close down on one shift, and you cannot

do that very long in the processing industry.

With these numbers of cattle crossing the borders, we have

evolved into an integrated North America cattle industry that benefits ranchers, meat processors, and consumers in all three countries. Over the past 12 years, the forecasted benefits of NAFTA

have come true.

Nobody can deny that the overall effect of NAFTA has been overwhelmingly positive. Our closest neighbors are American agriculture’s best export customers. There is no doubt that NAFTA has

helped American farmers expand export markets and increase

American farm income.

Thank you. I will answer any questions later.

Senator THOMAS. Thank you very much.

[The prepared statement of Mr. Lang appears in the appendix.]

Senator THOMAS. Mr. Pacheco?

STATEMENT OF JERRY PACHECO, EXECUTIVE DIRECTOR, INTERNATIONAL BUSINESS ACCELERATOR, SANTA TERESA,

NM

Mr. PACHECO. Thank you, Mr. Chairman and members of the

committee. Thank you for inviting me here today to discuss NAFTA

from a private sector standpoint on the border.

For the record, let me state that I have lived and worked in Mexico for the past 16 years in both the public and private sectors. My

main focus during this time has been assisting both large and

small companies wishing to explore the trade opportunities in Mexico.
17

Currently, I manage the International Business Accelerator, a

nonprofit international trade counseling center that is part of the

New Mexico Small Business Development Center network.

The Accelerator helps businesses take their products and services

to the global market. We have offices in Santa Teresa, NM, where

we have an inordinate amount of inspections, as the Senator said,

and we also have an office in Chihuahua City, which is about 240

miles south of El Paso, TX. The El Paso/Juarez/southern New Mexico border complex is the largest industrial base on the entire U.S.-

Mexico border.

Now, from a large company standpoint, NAFTA has facilitated

the entry, which was previously difficult or at times impossible,

into the Mexican market. I have seen this firsthand. My old real

estate development group recruited to our three industrial parks in

Santa Teresa approximately 35 companies for which we built more

than 2 million square feet of industrial space.

Approximately 1,500 direct jobs, and three to four times as many

indirect jobs were created by these companies in southern New

Mexico, which is one of the poorest regions in all of the U.S. Almost

every single one of those companies is tied into either the Mexican

maquila industry or some type of Mexican industry.

American companies account for the largest portion of Mexico’s

imports, and NAFTA has facilitated this flow of goods and services

south. Now, from the standpoint of smaller companies, the biggest

effect that I believe NAFTA has had is creating an interest in exploring business in Mexico that previously did not exist.

In the pre-NAFTA period, it was extremely difficult to generate

any Mexican export successes because smaller companies simply

did not have the resources to overcome all of the barriers that the

Mexican market presented. Today, our trade counseling center is

inundated with smaller companies hungry to explore opportunities

south of the border.

In my experience, the removal of tariffs from a Customs schedule

is clear and understandable. What are hard to eradicate, and continue to pose a serious threat to the fulfillment of NAFTA, are the

non-tariff barriers or the bottlenecks, and these can take the form

of congestion at the ports of entry, confusion over proper documents

needed to cross merchandise across borders, uncertainty over work

visa permits, and inconsistent cargo inspections, among others.

I will discuss a couple of these, briefly. Total two-way trade between the U.S. and our NAFTA partners has increased by more

than 100 percent, despite the fact that Mexican commercial trucks

coming to deliver merchandise in the U.S. market cannot go further than a thin border commercial zone north of the U.S.-Mexico

border.

Truck drivers and their cabs, if they are coming from Mexico,

have to cross into the United States, unhitch their trailers with

their cargo, and have an American truck and driver deliver the

merchandise to its final destination in the U.S. A similar situation

exists for U.S. trucks going south. This extra process adds time and

costs to the logistic chain, which are then passed on to the consumer.

Of course, we do not want to endanger U.S. citizens with unsafe

trucks on our roads. I live in the Border Commercial Zone. I have
18

a wife, Loretta, and son, Joseph, who are driving side by side with

the Mexican trucks on a daily basis, and I certainly do not want

to see them put in harm’s way. But the restricted trucking area

there really adds a bottleneck that impedes the free flow of trade.

A positive development in terms of the expediting of cargo, while

at the same time addressing security, is the Fast and Secure Trade

program, or the FAST, that is managed between the private sector

and the Bureau of Customs Protection, under the aegis of the Customs Trade Partnership Against Terrorism.

In this program, qualified manufacturers, distributors, and logistics firms commit to securing shipments against terrorist activities

and contraband from the time the product is made to the time that

it crosses the border and is delivered.

Companies participating in this program are then allowed to use

the special FAST crossing lane for expedited crossings. This program holds a lot of promise for combatting illegal activities and

congestion at the ports of entry.

Now, NAFTA created a special temporary work visa for Canadian and Mexican citizens wishing to work in the U.S. called the

TN visa. From 1996 to 2005, almost 700,000 TN visas were issued

for Canadians. This averages more than the current total annual

65,000 cap on the H1B visa.

During this same period of time, Mexican workers were issued

about 20,000 TNs, which averages less than 2,000 per year. Many

employers do not want to go through the paper-heavy, time-consuming bureaucratic process of sponsoring a Mexican employee or

trying to qualify them per a list of acceptable TN professions.

I, myself, have gone through the TN process to sponsor an employee who works in our program, and by the time we had finished

the application, we had created a book about the size of ‘‘War and

Peace,’’ and it was not a very pleasant experience. I can see why

many U.S. employers or many U.S. companies that need Mexican

work within the company do not want to go through that process.

Now, if we realistically want to create a North American free

trade bloc so that we can remain competitive against other regions

of the world, can we realistically expect to do this without some

type of viable work visa program?

Now, the retraining of workers negatively affected by NAFTA

has been a rocky road, at best. Many workers or companies do not

know that training funds are available, and, if companies are

aware of this assistance, it can be hard for them to prove that an

agreement such as NAFTA has negatively affected their welfare.

At the time that NAFTA was implemented, the U.S. Department

of Commerce started charging for its services that previously were

provided for free. Many smaller companies cannot afford or are not

willing to pay for these services.

The potential for this organization to increase its impact on the

small business sector is great, but more along the lines of how it

operated before. Commerce has been one of my favorite agencies to

use when we help businesses, but it has become less user-friendly.

Now, 15 years after having become involved in supporting

NAFTA, I still believe that the agreement has brought more positive than negative effects to the U.S., especially in terms of increased exports and the creation of export-based jobs.
19

Every day I work on the U.S.-Mexico border assisting U.S. companies to break into the Mexican market. We have had export successes in Mexico with clients involving telecommunication systems,

high technology products, and automotive accessories.

Without NAFTA, the majority of our clients would not have been

able to expand the markets or create the new jobs that currently

exist in my State due to this agreement. From 1993 to 2005, the

State of New Mexico’s exports to Mexico more than quadrupled.

Similar results have occurred in an overwhelming number of U.S.

States.

Now, by no means is NAFTA perfect; many issues need to be addressed. However, we can learn from the positives and negatives of

NAFTA in order to better structure future U.S. trade agreements

to create new opportunities for U.S. companies and new jobs for

Americans.

Thank you very much for allowing me to testify in front of this

committee. I would be happy to take any questions you may have

on my remarks.

Senator THOMAS. Thank you very much.

[The prepared statement of Mr. Pacheco appears in the appendix.]

Senator THOMAS. Ms. Polaski?

STATEMENT OF SANDRA POLASKI, SENIOR ASSOCIATE AND

DIRECTOR, TRADE, EQUITY, AND DEVELOPMENT PROJECT,

CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE,

WASHINGTON, DC

Ms. POLASKI. Thank you, Mr. Chairman, and thank you, Senator

Bingaman, for this opportunity to comment on the performance of

NAFTA at 12. I, too, have submitted more extensive written testimony for the record.

My name is Sandra Polaski, and I am a senior associate at the

Carnegie Endowment for International Peace, where I direct policy

work on trade and development. Previously, I had the privilege of

serving both Secretary Colin Powell and Secretary Madeleine

Albright as the Senior Representative for International Labor Affairs at the State Department where, among other responsibilities,

I did negotiate labor issues in trade agreements.

Prior to that, I was the Director of Research for the NAFTA

Labor Secretariat, the intergovernmental organization that administers the NAFTA labor side agreement.

As the brief biography suggests, my analysis of trade agreements

tends to include particular emphasis on the employment and related effects of trade agreements. In the case of NAFTA, it is very

instructive to look at the agreement’s employment consequences,

because that is one of the most important channels through which

NAFTA has affected the United States.

I am speaking not about the direct effects on employment and income within the United States, because frankly NAFTA’s effects on

these have been small given the enormous difference in the size

and comparative advantages of the two countries. My written remarks go more extensively into the experience of the U.S. under

NAFTA, and employment, again, is very small.
20

But, rather, it is the employment and income effects of NAFTA

in Mexico that I think are key to understanding several related

current policy challenges that now confront the United States, and

Congress in particular.

In Mexico, NAFTA was a key contributing factor to a series of

changes that have had deep and important consequences affecting

migration patterns, overall economic growth in Mexico, and, indeed, political stability.

I would like to mention only the highlights of my written testimony on these points. NAFTA has produced disappointing results

for job growth in Mexico. Data limitations and the difficulty of isolating NAFTA effects from other causes preclude an exact tally, as

with other measures of NAFTA, as my fellow speakers have mentioned, but it is clear that, overall, the jobs created in the manufacturing sector in Mexico have not kept pace with the jobs lost in the

agricultural sector in Mexico.

There has been a decline in non-maquila manufacturing employment in Mexico since NAFTA took effect in 1994. Employment in

the non-maquila manufacturing sector stood at 1.4 million in January of 1994, sharply declined during the peso crisis, recovered briefly, but then began declining again, and has declined over the last

5 years, so that in June of this year there were about 130,000

fewer manufacturing jobs in Mexico outside of the maquilas than

when NAFTA took effect.

The pattern in the maquiladoras themselves has been more positive, as maquiladora assembly plants added about 800,000 jobs between NAFTA’s enactment in 1994 and the sector’s peak employment, which occurred in 2001. However, they have been shedding

jobs since then. Currently, they employ about 700,000 more workers than they did before NAFTA.

Adding the results together for the maquila and non-maquila

manufacturing sectors in Mexico, we can see that, overall, about

half a million jobs were gained in Mexican manufacturing between

January of 1994 and June of 2006, the most recent statistics available.

By contrast, Mexican agriculture has been a net loser in trade

with the United States. Although we have heard statistics on the

two-way flow of trade between Mexico and the U.S., indeed, Mexico

has had a negative trade balance with the U.S. in agriculture persistently since NAFTA was adopted, except for the peso crisis year

of 1995, when Mexicans could not afford imports.

Employment in the agricultural sector in Mexico has declined

sharply. U.S. corn exports, in particular, have been implicated, in

that they have depressed corn prices and agricultural employment

in Mexico.

It is a fair conclusion to say that the rural poor in Mexico have

borne the brunt of adjustment to NAFTA in that country. Agricultural employment in Mexico stood at about 8.1 million in the years

before NAFTA came into force in the early 1990s. It actually increased slightly during the peso crisis, when many unemployed

workers returned to the agricultural sector and agricultural production. However, ever since the peso stabilized, employment in the

sector has been on a steady downward trend, currently about 6 mil-
21

lion jobs in the first quarter of 2006, in other words, a loss of over

2 million jobs compared to the pre-NAFTA levels.

Not all that reduction could be attributed to NAFTA, of course,

but other forces that influenced agricultural trade in Mexico, such

as the devaluation of the peso, pushed in the opposite direction in

favor of exports. So we have to assume that the lowering of trade

barriers was an important factor in that continued decline in agricultural employment more than offsetting the growth in manufacturing employment.

The experience of Mexico, unfortunately, confirms the prediction

of trade theory, that there will be both winners and losers from

trade. The losers, however, may be as numerous—or in some cases

more numerous—than the winners, especially in the short to medium term, and in Mexico, clearly, more farmers lost from NAFTA

than gained from the NAFTA-induced changes.

Looking at another related measure very quickly, real wages for

many Mexican workers today are lower than when NAFTA took effect. When I did the study of NAFTA at 10, 2 years ago, that was

true overwhelmingly for workers in Mexico.

There has been some slight recovery, but still there is a stunning

setback in wages in Mexico over the past 12 years. Mexican wages

are diverging from, rather than converging toward, U.S. wages.

This overall performance of Mexican labor markets would be a

concern to us, and certainly a concern to the members of your committee in general, looking at the economic performance of a near

neighbor, but they are particularly important because of the impact

that they have had on the pattern of Mexican migration to the U.S.

Migration is always a function of both push and pull factors, as

the migration economists like to identify: the push outward of a

sending country which cannot satisfy the employment and income

needs of all of its population, and the pull into the receiving country which may have more job opportunities than its workforce can

satisfy.

But the fact is, Mexican migration to the U.S. surged during the

1990s when the U.S. economy was going very strong and unemployment was at record post-war lows, and it surged even greater

in the years after 2001 when the U.S. was in the recession and

when unemployment levels were rising in the U.S. Clearly, the

push factor out of Mexico is the strongest economic factor which

can account for the pattern of migration that we have seen.

The policy consequences of this surge in migration are well

known to this committee, and I will not rehearse them now, but I

hope that this analysis helps to trace the sources of the migration

push because, in part, that source is NAFTA, not in full but in

part, and I think it suggests some of the ways that our implementation of NAFTA can be improved going forward.

This leads to a particular challenge that this committee will confront next year. As many have mentioned, there are still a few remaining tariffs that govern trade between the U.S. and Mexico,

and these are on the most sensitive agricultural products traded

between the countries, most importantly, from the perspective of

Mexico, white corn and beans.

There is no doubt that this further liberalization of agricultural

trade on January 1, 2008 will add new and very high impact
22

stresses in the countryside in Mexico. These stresses have implications for migration to the U.S. and for political stability in Mexico.

When earlier rounds of tariff reductions were implemented in the

course of the NAFTA schedule, we saw blocking of highways, we

saw massive demonstrations by Mexican farmers. More recently,

we have seen demonstrations in the context of political frustration,

and some of that frustration, again, can be traced to the countryside in Mexico which has not fared well in recent times.

These issues should be addressed with the greatest seriousness.

There will certainly be a need for much more trade adjustment assistance for small-scale farmers within Mexico by the Mexican government, but there may also be a need for the U.S. to consider

flexibility in the timetable for implementation of the tariff phaseout on white corn and beans.

I would argue that the U.S. Government should also consider development assistance targeted specifically at the Mexican countryside, particularly those regions of Mexico, mainly the south and

some of the central regions, that have felt negative impacts from

NAFTA in their agricultural sector but have felt few positive effects in other sectors.

This would be an investment in good neighborliness, but also one

of the more effective instruments in addressing future sources of

migration. It would also contribute to the political stability of one

of our closest neighbors and allies.

In addition to these policy considerations, let me make one final

point. As more free trade agreements have been negotiated and the

World Trade Organization membership grows, the advantages that

Mexico gained as the first developing country to have a free trade

agreement with the United States are progressively eroded.

The accession of China, for example, to the WTO has meant

mounting competition for Mexico’s manufactured exports, particularly in labor-intensive sectors such as apparel and electronics.

The U.S. free trade agreement with Central America will add a

sizeable pool of low-wage labor to the available regional labor force,

further undermining Mexico’s remaining advantages.

It is not in the United States’ strategic interests to demonstrate

that free trade agreements between the U.S. and developing countries do not produce clear advantages for our developing country

trading partner. This is one more reason why the U.S., and this

committee, should take a leadership role to ensure that NAFTA’s

negative impacts on Mexico are assuaged, to the extent that we can

help the Mexican government do that.

Thank you. I would be happy to take questions.

Senator THOMAS. Thank you, Ms. Polaski.

[The prepared statement of Ms. Polaski appears in the appendix.]

Senator THOMAS. Dr. Weintraub?

STATEMENT OF DR. SIDNEY WEINTRAUB, WILLIAM E. SIMON

CHAIR IN POLITICAL ECONOMY, CENTER FOR STRATEGIC

AND INTERNATIONAL STUDIES, WASHINGTON, DC

Dr. WEINTRAUB. What I really want to do is make several points

that have to do with NAFTA and with the context in Mexico and

in the United States under which NAFTA has operated.
23

One of the main points I am going to make is that it is over-simplistic to say that a lot of things occurred in Mexico after NAFTA

and, therefore, NAFTA was at fault. There is a tendency to do that.

It is a well-known economic fallacy that whatever comes later was

caused by whatever came before, and it just ain’t so, as I am going

to say.

You have already been given a lot of data on the growth in trade

between the two countries. Mexico’s exports have grown considerably more than our exports to Mexico have grown. We have a trade

deficit with Mexico. We have a trade deficit with Canada. As an

aside, we have a trade deficit with just about everybody in the

world, so it is hard to just single out those two.

The idea that the net export growth—I mean, exports as compared with import growth—of Mexico was the problem in job creation in Mexico just defies common sense. The trade growth has

been significant. I think there are other reasons.

I am going to get into some of them, and I will do it fairly quickly. Mexico has some deep structural problems that have not been

addressed. I will get to the agricultural area in a few moments, but

I will first look at some others.

Tax collections are low in Mexico. They are normally about 10 or

11 percent of GDP; we are 18 percent of GDP, not counting what

we collect in the States. In order to meet its budgetary needs, Mexico makes up about 6 percent of its GDP by taking money away

from PEMEX, the national oil company. That compounds PEMEX’s

problems of exploration and production.

Indeed, the Mexican energy situation is quite bad, and PEMEX

has had no new serious finds in a good many years. At the moment, Mexico has about 10 years of proven reserves at current

usage rates. PEMEX’s budget has been helped recently by high

prices, but that is not a full solution.

Mexico’s educational structure at the primary and secondary levels is inadequate. The labor system is quite inflexible. I can go into

the details, but this creates an awful lot of problems in Mexico.

People do not want to hire full-time workers because of the benefits they have to pay when they dismiss these workers. So because

of the incentives built into the system, employers hire part-time

workers, and about 40 percent of the total labor force is informal.

Mexico does have laws to promote competition, but in point of

fact there are many, many public and nonpublic monopolies and

oligopolies in Mexico. Government procurement is not always

straightforward.

I have listed a bunch of things that are really, really quite serious: an inadequate fiscal system, robbing PEMEX of enough money

for exploration, a weak educational system, an inflexible labor system, a system of justice that needs improvement. These are structural issues.

Alongside those, NAFTA is small potatoes. To blame NAFTA for

what these issues cause pushes way beyond what NAFTA was intended to do. The one strong feature of Mexican policy in recent

years, and it has been quite strong, is the financial sector.

Mexico has a strong financial sector. Government paper is investment-grade. Money flows into Mexico. Investment in Mexico is substantial. The new president, who takes office on December 1, thus
24

inherits deep, deep problems—and I will come back to these—that

will have to be faced, but a strong financial situation.

One of the deeper weaknesses of Mexico which has not been

mentioned here by others is that it may be one of the most unequal

societies in the world, it and Brazil. It is now a divided country,

with 35 percent voting for center left, and 35 percent center right.

The victory for the center right candidate was just declared.

I just came back from Mexico City, and the Reforma and all of

the main streets are still covered by tents. There are not many people in them, but they are still covered by tents.

I agree with one thing that was just said by Sandra Polaski. I

think the United States should take a leaf out of European Union

practice and provide more aid, not for the agricultural sector itself,

I do not agree with that, but for provincial rural centers where

manufacturing can take place so that workers, when they have no

jobs, do not necessarily come to the United States.

Let me deal a bit with the agricultural picture. I see it quite differently from the way you have just heard. I will give you one or

two numbers first. One indicator is that the rural sector of Mexico

is about 23, 24 percent of the population. But this sector contributes about 6 to 7 percent of the GDP of Mexico. Translate that into

the real world; it means that the people living in rural areas are

quite poor and there are few opportunities for them.

The idea, when NAFTA was negotiated, was that a lot of people

in agricultural areas would get jobs in the cities or in the urban

centers. That proved to be wrong.

If people are living in rural areas where there is no future for

them, I find quite cruel the idea of keeping them there. The Mexican negotiators felt that way as well. Unfortunately, economic

growth since NAFTA has not been great, and I gave you some of

the reasons for this earlier in my discussion.

Let me add a note on corn. You have already heard, the tariffs

disappear in 2008. Mexicans have not really prepared for that.

Many Mexicans have said they would like to renegotiate the agricultural provisions of NAFTA. I do not think they really want to

do that.

I think if you take the packaged agricultural goods, Mexico’s agricultural trade with the United States is probably in surplus, if

you include processed products. Mexico has had a big boost in exports of fruits, vegetables, and other high-priced products. These

products come from a different region than where the subsistence

corn is grown.

What I believe is that, rather than renegotiate NAFTA, the

Mexicans may have a case for corn, and we may negotiate some

kind of agreement. Yes, we still do have side agreements, Senator,

from time to time in NAFTA.

But an agreed side agreement—the sugar one was not mutually

agreed to, by the way—should be possible in order to help out the

corn people. It is only white corn, it is not all corn. It is only one

variety of beans, not all beans. I think agreements could be worked

out.

I do not want to get into what I think have been some of the political benefits of NAFTA. I think they have been great. Mexico is

not an anti-American country any more. U.S. and Mexican busi-
25

nessmen cooperate with each other. You have just heard from some

of the agricultural people, and they cooperate with each other. Government officials do, the environmentalists do the same. There is

a world of difference from what existed in 1990 to what exists

today in the relations with the two countries.

Now, one final note on Canada. The big issue in Canada when

the free trade agreement with the United States was negotiated

and went into effect in 1989—after, I think you will all remember,

a difficult election in 1988—was the issue of sovereignty in a free

trade agreement with the United States.

The Conservatives won. The free trade agreement with Canada

went into effect. Nobody hears much any more about sovereignty

in connection with free trade agreements in Canada.

In other words, I do not know all of the operations of NAFTA,

but what I think NAFTA has done is to bring into the open the

shortcomings of basic economic and structural policies in Mexico—

not macro-economic policy, but structural policy—that need correction. If that is not done, none of the other solutions we have talked

about will matter.

Thank you.

[The prepared statement of Dr. Weintraub appears in the appendix.]

Senator THOMAS. Thank you. Thanks to all of you. We will have

a couple of short questions, and then we will see if we can get short

answers and be on our way here, soon.

Mr. Magagna, you mentioned the situation in your written testimony, the difference in how beef trade with Canada has impacted

the producers in the United States. What do you think can be done

there?

Mr. MAGAGNA. Well, Mr. Chairman, I think that certainly some

of that, perhaps I should say, corrected itself, but not through the

right process, but unfortunately through the continuance of BSE in

the Canadian cattle herd. But I think that that is a process that,

again, can be corrected if we have good processes in place to deal

with the disputes that arise. I spoke earlier of the failure of a process under NAFTA to address the sanitary and phytosanitary measures.

If I might take a moment to address one other, I think, outstanding example of this. This is actually with Mexico. In April of

2000, Mexico imposed a wide array of antidumping tariffs on a variety of U.S. beef products going into that country.

The U.S. called for a review under Chapter 19 of NAFTA. It took,

first, 9 months for the review panel to even be appointed. It then

took them 4 years to issue a decision. The tariffs have been imposed for 5 years. Under the processes allowed by NAFTA, they

continued to the end of that 5th year.

The Mexican director of the economy at that point accepted a request from the cattle feeding industry in Mexico for a review of the

sunset provision and, in a decision just issued 2 months ago, has

reimposed virtually all of those same antidumping tariffs for another 5 years. So, clearly the process has failed us there.

It has failed us in two ways. One is that we are now facing a

variety of tariffs on beef products into Mexico. You might naturally
26

say, well, then how have we been able to export such large volumes

into Mexico?

Well, one or two companies in the U.S. have been able to effectively argue that they were not guilty of dumping, and therefore

the market is open to them. Meanwhile, the remainder of the processing and distribution companies in the U.S. are facing tariffs

anywhere from 3 cents a pound to 85 cents a pound.

So not only do we have antidumping tariffs being used as barriers to protect the Mexican cattle industry, but we have a distortion here within our own domestic system that is already a very

concentrated system in the processing sector where basically two

processors have full access to the Mexican market and the rest of

our processes face stiff tariffs in going into that market. So, those

are the types of things that I think need to be corrected in NAFTA.

Senator THOMAS. All right. Thank you.

Mr. Lang, you mentioned the value of exports has doubled, and

so on, yet critics continue to claim that NAFTA has been devastating to agriculture. Why do you think that is the case?

Mr. LANG. Well, I do not know why they continue to say that.

But I honestly believe in an integrated market system where all

three countries can work together. I will give you an example of

one that just recently presented itself to us at the Iowa Farm Bureau, where the pork producers from Canada were in Iowa, and

they would like to put together an I–35—that is the Interstate 35—

corridor for hog production.

They would like to farrow the piglets in Canada. They would like

to ship them through Minnesota and Iowa, where we grow the

corn, so that we can take advantage of the resources that we have

in soil, appropriate weather, and rain, and they can utilize the resources they have with a certain amount of security on disease and

things like that in a less populated area of Canada.

I have seen the results of a true integration of markets and the

value that it brings to those subsistence farmers that both individuals to my left referred to, that in some cases the technology in agriculture allows us to move ahead, and the best result for those individuals is to seek employment somewhere else.

That employment somewhere else certainly has to be encouraged.

It has to be supported in some fashion. But for Iowa growers, certainly growing the amount of corn that we do, and now with ethanol and the byproducts from ethanol, we need markets for that,

and both countries provide that.

Senator THOMAS. All right. Thank you.

Senator, I will stop there. Do you have a question?

Senator BINGAMAN. Thank you very much, Mr. Chairman.

Thank you all for your testimony. Let me start by asking Ms.

Polaski if she has any knowledge or view as to the issue that I had

raised before with the first panel related to the NAFTA labor side

agreement, this argument that Ms. Lee from the AFL–CIO has

made that the labor side agreement ‘‘utterly failed to protect workers’ rights,’’ and she cites the 34 cases that have been filed under

the side agreement that have gone nowhere. At least, that was her

general characterization.

Do you have any knowledge of that or any view on that issue?
27

Ms. POLASKI. Senator, I do have some knowledge. When I was

the Research Director at the NAFTA Labor Secretariat I was responsible for both legal and economic research, and so we followed

the cases very, very closely. It is true that none of the cases have

gone beyond the consultation stage, which you might call the factfinding or job-owning stage.

In a few cases, I think that fact finding, including some public

hearings that were held in the early years of NAFTA by the U.S.

Department of Labor on complaints, did have some positive impact.

It had the sunshine effect of calling attention to problems in Mexico, which are rife in their industrial relations system. It is quite

a distorted system.

The unions, in many cases, used to be affiliated with the governing party, which is no longer the governing party, but there are

these sorts of distortions in the system. As a result, many Mexican

workers do not really have recourse to improve their grievances at

work or their conditions at work.

The sunshine of these hearings, I think, was positive, but in

many cases the problems were so serious, including very serious

health and safety problems, minimum wage problems, lack of enforcement of domestic laws, discrimination against women workers

for pregnancy, et cetera, that they really should have been carried

further to an attempt at adjudication.

There is a very finely calibrated series of steps in the labor side

agreement where you do not have to go all the way to dispute settlement right away, you can go through fact finding, you can go

through an expert committee that can give advice.

That has not been utilized by any of the three countries, and I

think that that has really been a missed opportunity, because there

are these tensions around employment issues, around labor issues.

We have machinery in the side agreement that could be used to

not only uncover problems, but to try to resolve them. It is a

shame, really, that none of the cases has gone farther.

Senator BINGAMAN. Jerry, let me ask you a question about the

maquiladora program. I remember a period a few years ago where

there was a substantial decline in the number of people employed

in maquiladora plants. That was my recollection.

And the general consensus was that a lot of the work that had

been going on in maquila plants was now going to shift to China,

was now shifting to China, and this was not going to be a future

opportunity for job creation in Mexico.

I would be interested in your view as to what the future holds

with regard to the maquiladora industry. Is this something that

can continue to be competitive with manufacturing operations elsewhere? Is it something that is on the decline? What is your view

on that?

Mr. PACHECO. Well, previous to 9/11, we saw a softening of the

maquila industry which had not really occurred to that extent before in all of its history since 1965.

The maquila industry, at certain points, was growing up to 20

percent a year. After 9/11, that went down to 1 percent, 2 percent.

It is now back up to about 5 percent growth a year, which is not

20 percent any more, but it is still a pretty healthy growth.
28

Now, it was a fallacy for people to say, well, the sky is falling,

the maquila industry is going away. When you have the industrial

base that Mexico has with the maquila industry, and for the greater part of the last 15, 20 years it has been its greatest source of

export revenues—now with PEMEX and the oil prices pretty high

that has switched a little bit—the maquila industry is there, and

it is going to stay there. The firms that moved to China were the

ones that probably should have gone to China. They were the very

labor-intensive operations where Mexico, in its industrial base, is

not very competitive any more.

You saw a lot of assembly operations that require very low automation go to China. The firms in the maquila industry that stayed

are the ones that are moving big, bulky products, like Electrolux.

Electrolux just put a big plant in Juarez, Mexico. They built 1.2

million square feet of space. They are producing I do not know how

many thousands of refrigerators a day there in Juarez. But big,

bulky products.

Products that are sensitive with intellectual property do not

want to go to China because they are still very unsure of whether

their patents, trademarks, what have you, the intellectual property, will be protected in China. Lastly, the third group of companies that I see staying and keeping the maquila industry strong are

those companies that have a very tight supply chain.

When you are waiting on a 3-month lead time to get your product from China, and they are actually finishing it on the ship coming over here to try to shore up the lead time, and Mexico is our

neighbor and we trade with Mexico and you can do dock-to-dock,

you have suppliers in El Paso and Santa Teresa literally taking a

trailer to their Mexican buyers, leaving the trailer there for a period of a half day or a day, bringing the trailer back and, thus, decreasing the cost in terms of warehousing, it is that tight supply

chain that is keeping a lot of the maquila industry there and very

competitive.

Senator BINGAMAN. Let me ask one general question here before

I quit. This is one I will maybe direct to Dr. Weintraub and Ms.

Polaski, and any of the rest of you who want to comment.

There was an interesting article on Friday in the Financial

Times by Joe Stiglitz, who used to work around here in Washington. He had what I thought was a thought-provoking set of

statements in there.

He says, ‘‘Full economic integration implies the equalization of

unskilled wages throughout the world. Although this has not yet

happened, the downward pressure on those at the bottom is evident. Unfettered globalization actually has the potential to make

many people in advanced industrial countries worse off, even if economic growth increases.’’

Do you agree with that, Dr. Weintraub, or do you think Joe

Stiglitz has been in the academic world too long? What is your

view?

Dr. WEINTRAUB. Well, I have been in the academic world a long

time, too. In part, I agree with it. In part, I disagree with it. If

there were a one-price rule around the world, if goods were traded

very, very widely, or if people moved across borders very widely,

that would happen exactly as he said.
29

But it is not happening. Goods do not move that efficiently across

borders and a lot of people move, but it is not complete. In other

words, while I think his tendency is right, I do not think, in the

real world, it is going to happen quite that way.

Senator BINGAMAN. All right.

Dr. WEINTRAUB. Although I am one of those who thinks that the

great increase in immigration of low-wage people has lowered

somewhat the wages, not necessarily of everybody at the bottom,

of the Americans at the bottom, and somewhat of the previous immigrants who came here. I think they have been adversely affected

by immigration. I would complicate what he said, is what I am saying.

Senator BINGAMAN. All right.

Ms. Polaski, did you have a view?

Ms. POLASKI. I think even the theoretical models, going way back

to David Ricardo, would show how trade can be good for both trading partners. Certainly I think no one here would dispute that

trade, indeed, is good and can be good for trading partners around

the world. Still, we will have winners and losers. If you look at the

classical models, they do not have capital mobility.

They do not have investment flowing from one country to another. It is assumed that labor and capital stay in their own country and you only trade the goods, and therefore you will not necessarily have this downward pressure.

However, with investment flowing quite readily across borders, I

think that we are seeing—and I do not think there really are any

serious economists, any serious labor market scholars who do not

see—that unskilled labor is under pressure everywhere in the

world. I mean, we can look at the pressures in our own country.

You can see it on other developing countries.

To the extent that China can produce goods for lower prices,

their competitors in other developing countries put downward pressure on wages. So, I think we have to acknowledge that.

That is not to say we should not trade, but it is to say that we

are going to need, at our own national level and at the international level, complementary policies that can help the people who

would otherwise be losers from trade turn themselves into winners.

That was the sort of policy toward Mexico I was advocating that

we consider when we come to the final phase-out of the tariffs on

the crops that the very poor in Mexico produce.

Senator BINGAMAN. Good. Anybody else want to comment on it?

[No response.] Thank you all very much. I appreciate you being

here.

Thank you, Mr. Chairman.

Senator THOMAS. All right. Thank you.

Just one very quick question, if you can have a quick answer, Dr.

Weintraub. You have studied this thing pretty closely. What has

been the biggest disappointment to you in terms of putting NAFTA

into use?

Dr. WEINTRAUB. Well, it has not been NAFTA, as such. I sort of

agree with what several of the other panelists said. NAFTA has

worked the way it was supposed to work, at least as far as increasing trade and increasing investments in Mexico. Not perfectly.

There are shortcomings. There are big shortcomings.
30

I guess my main disappointment is with the Mexican policies

where there are great disparities between the north and the south,

long before NAFTA ever existed. There was great poverty in southern Mexico long before NAFTA.

My greatest disappointment is that the Mexicans did not deal

with that issue in any effective way. We did not deal with that

issue in any effective way. We provided no real help, for a lot of

reasons which I can understand.

Because NAFTA benefitted most the areas in the northern part

of Mexico where the trade takes place, the disparities have worsened, and it is now a deep issue for the incoming president.

Senator THOMAS. Sure. That is more of a problem for Mexico, I

presume.

Dr. WEINTRAUB. Well, it is a problem for Mexico, and then they

come up here and you have to deal with them.

Senator THOMAS. All right. Got you.

Mr. Magagna, you mentioned you might have something you

wanted to bring attention to.

Mr. MAGAGNA. Mr. Chairman, that was basically the issue of the

processes for dealing with antidumping that I raised partly in response to your earlier question.

Senator THOMAS. All right. Very good.

Your written statements will be included in the record. If members who are not here have additional questions, they might give

them to you, and written responses will be required.

So, thank you very much. I hope we will all keep in mind that

the purpose of this hearing, and the purpose of the consideration

we are giving, is to find ways to help NAFTA boost the benefits

that come from the agreement that we have. It is being reviewed

now, of course. I think the input that you have had, hopefully, will

be helpful.

So, we thank you very much for being here. Thank you for your

input.

The committee is adjourned.

[Whereupon, at 3:42 p.m., the hearing was concluded.]
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