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65–145—PDF 2009

S. HRG. 111–918 

U.S.-PANAMA TRADE PROMOTION AGREEMENT 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

MAY 21, 2009 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

KENT CONRAD, North Dakota 

JEFF BINGAMAN, New Mexico 

JOHN F. KERRY, Massachusetts 

BLANCHE L. LINCOLN, Arkansas 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

CHUCK GRASSLEY, Iowa 

ORRIN G. HATCH, Utah 

OLYMPIA J. SNOWE, Maine 

JON KYL, Arizona 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

JOHN ENSIGN, Nevada 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

RUSSELL SULLIVAN, Staff Director 

KOLAN DAVIS, Republican Staff Director and Chief Counsel 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee 

on Finance ............................................................................................................ 1 

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 2 

WITNESSES 

Eissenstat, Hon. Everett, Assistant U.S. Trade Representative for Western 

Hemisphere Affairs, Washington, DC ................................................................ 5 

Owens, James, chairman and CEO, Caterpillar, Peoria, IL ................................ 7 

Lee, Thea, policy director, American Federation of Labor and Congress of 

Industrial Organizations (AFL–CIO), Washington, DC ................................... 9 

Carney, Sam, president-elect, National Pork Producers Council, Adair, IA ...... 10 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

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

Prepared statement .......................................................................................... 33 

Carney, Sam: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 35 

Responses to questions from committee members ......................................... 46 

Eissenstat, Hon. Everett: 

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

Prepared statement .......................................................................................... 47 

Responses to questions from committee members ......................................... 58 

Grassley, Hon. Chuck: 

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

Prepared statement .......................................................................................... 70 

Lee, Thea: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 72 

Owens, James: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 79 

Responses to questions from committee members ......................................... 87 

(III) 

(1) 

U.S.-PANAMA TRADE 

PROMOTION AGREEMENT 

THURSDAY, MAY 21, 2009 

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 10:23 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus 

(chairman of the committee) presiding. 

Present: Senators Wyden, Menendez, Grassley, Bunning, Crapo, 

and Roberts. 

Also present: Democratic Staff: Bill Dauster, Deputy Staff Director and General Counsel; Amber Cottle, International Trade Counsel; Darci Vetter, International Trade Advisor; and Rachel Poynter, 

Detailee. Republican Staff: Stephen Schaefer, Chief International 

Trade Counsel; David Johanson, International Trade Counsel; and 

Tony Coughlan, Tax Counsel. 

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR 

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The committee will come to order. 

I apologize for the delay. We had a vote at the same time this 

meeting was scheduled to begin, so in the interest of efficiency we 

decided I would go vote first so we could begin and not be interrupted. So, the witnesses have my apologies. 

Today we discuss our trade agreement with Panama, a country 

at the crossroads of the world. Panama links the Americas, North 

and South, with a land bridge that ties together two continents. 

Panama also links the world, east and west, with a canal that has 

changed the course of global trade. Our trade agreement with Panama also puts all of us—this committee, this administration, and 

this country—at a crossroads. 

This agreement provides an opportunity for this committee to 

build on its past work at creating jobs through exports, it provides 

an opportunity for the new administration to demonstrate its support for an outward-looking trade agenda, and it provides an opportunity for the kind of export-driven economic growth that our country desperately needs. I urge the administration not to hesitate too 

long at this crossroads. I urge them to move forward with this 

agreement. 

This agreement includes the comprehensive labor provisions that 

I helped to negotiate with Democrats and Republicans in May 

2007, and the current Panamanian government has agreed to farreaching changes to its labor code to comply with those provisions. 

2 

But the current Panamanian government leaves office in a few 

short weeks, and it is not clear that the next government will go 

as far. If we wait much longer, we may end up with a worse deal. 

The Panama agreement also provides new opportunities for 

American farmers, ranchers, and businesses. Panama already exports most of its goods to the United States duty-free under our 

trade preference programs. This trade agreement will level the 

playing field. It will provide the same duty-free treatment to our 

industrial and agricultural exports to Panama. 

This agreement will, for example, immediately eliminate all duties on more than half of our agricultural exports to Panama, and 

that includes high-quality American beef from States like Montana. 

These exports will not get tied up in unscientific trade barriers that 

have frustrated us in other markets. Panama has appropriately 

recognized the United States’ food safety and inspection system for 

U.S. meat and poultry as equivalent to its own. 

This agreement will also immediately eliminate tariffs on 80 percent of U.S. industrial exports to Panama. Panama has begun a 

significant expansion of the canal and will need more construction 

and other heavy equipment to finish the job. Under this agreement, 

United States equipment manufacturers like Caterpillar will get a 

leg up over their competitors. 

I would be remiss if I did not also mention Panama’s tax laws 

and practices. I share the goal of the G–20 leaders, the OECD, the 

administration, and this committee that tax havens must be shut 

down. I have introduced legislation that would improve the IRS’s 

ability to detect and deter offshore tax evasion. My interest in moving the trade agreement does not diminish my desire to address offshore tax abuse in Panama and other countries, and to move tax 

legislation as well. 

I understand that Panama is prepared to address these issues 

and has made clear that it intends to do so by working both with 

the U.S. Government and through the OECD process. I want to see 

rapid progress on tax issues in Panama, but I also believe that we 

can, and should, move ahead on our trade agreement right now. 

Starting any ambitious initiative, whether it’s a new trade agenda or new waterway, begins with the first step. The first step of 

the Panama Canal’s construction in 1880, as well as the first step 

of its expansion in 2007, was marked by the detonation of earthshaking explosives. I hope that we can begin the process of considering the U.S.-Panama Trade Agreement with considerably less 

drama. 

So let us instead break ground with an open and honest hearing 

of the facts, let us engineer the best path forward, and let us help 

to move the U.S.-Panama Trade Agreement down the path. 

Senator Grassley? 

OPENING STATEMENT OF HON. CHUCK GRASSLEY, 

A U.S. SENATOR FROM IOWA 

Senator GRASSLEY. Thank you, Mr. Chairman. I appreciate very 

much your involvement with this. 

I want to give an overview before I go to my statement, and that 

overview is in regard to, everything that we can do on opening up 

trade is going to do as much good with getting us out of the recesVerDate Nov 24 2008 21:21 Mar 25, 2011 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 R:\DOCS\65145.000 TIMD
3 

sion and keeping us out as what we do specifically through stimulus and other things that we have done already. 

I don’t think it’s something that’s been high enough on the agenda of the administration. I know that the President has very good 

intentions in trade, but moving quickly and talking about it on a 

very regular basis would be a very big help to enhancing the attitude of getting out of the recession in this country. 

I have an opportunity to introduce Mr. Sam Carney, a pork producer from Adair, and president-elect of the National Pork Producers Council, who is one of the people that you’re going to be introducing. Thank you very much, Mr. Carney, for coming. He’s 

from Adair, IA. 

I support the timely implementation of this trade agreement. It’s 

long overdue. Its implementation has been sidetracked for a variety 

of reasons. But now that the Finance Committee is taking the first 

step to advance a positive agenda of trade liberalization under the 

new administration, I want to take a moment to address the critics 

who would rather we not implement any of our pending trade 

agreements with Panama, with Colombia, or with South Korea, let 

alone negotiate others. The chief argument I’ve heard is that, given 

the magnitude of our global trade deficit, the last thing we should 

do is implement a new trade agreement. 

Well, I have heard that argument from some colleagues. The 

problem is, that argument is based on a false premise: it suggests 

that trade agreements translate into trade deficits. That’s not true. 

Consider our trade agreement with countries like Central America 

and the Dominican Republic. Before implementation, we ran a cumulative trade deficit. Following implementation, we enjoyed a 

trade surplus of about $6 billion just last year. How do we explain 

that shift? 

Well, the trade agreement required our trading partners to give 

our exporters the same duty-free access to their markets that their 

exporters already had to ours under our unilateral preference programs. In other words, we leveled the playing field, not for the benefit of somebody else, some other country, but for the benefit of our 

own country. In other words, that’s very important for helping our 

economy. 

The opponents of our trade agreements point to a large U.S. 

trade deficit with Mexico. They argue that our bilateral trade deficit is the result of the North American Free Trade Agreement because we had a relatively small trade surplus with Mexico before 

we implemented this agreement. 

Again, I think the validity can be questioned. Before NAFTA, 

over 51 percent of the imports of Mexico entered the United States 

duty-free, and the average tariff on the remaining imports was 

about 4.2 percent, for an overall average tariff of just over 2 percent. 

In contrast, Mexico had an average tariff of about 12 percent on 

imports from the United States before NAFTA. With NAFTA, this 

tariff disparity no longer exists. As a result, our exports to Mexico 

have increased significantly, particularly with respect to agricultural products. If we had never implemented NAFTA, would we 

have substantially altered the growth of international supply 

chains? I doubt it. 

4 

If NAFTA had not been implemented then, the trade deficit that 

we see with Mexico this very day would be shifted to some extent 

among other countries, but without the increase in exports to Mexico that our exporters enjoy today. 

Moreover, oil and gas imports are a big part of our recent trade 

deficit with Canada and Mexico, and I doubt that the absence of 

NAFTA would have changed that significantly. In this time of economic downturn and uncertainty we can ill afford then to base our 

trade policies on these few examples of false premises that I give. 

Trade is more complicated and the benefits of expanding trade are 

too important for both us and our trading partners. U.S. exporters 

understand that, and we’re going to hear some of that from our 

witnesses. Critics may question other elements of our trade agreements and economic relationships, but resting criticism on a bilateral trade deficit is a red herring. 

One aspect of our economic relationship with Panama that has 

come under scrutiny is the absence of tax information exchange 

agreements between our two countries. In 2000, the Organization 

of Economic Cooperation and Development identified Panama as a 

tax haven. Just last month, the OECD listed Panama as a jurisdiction that has committed to provide for exchange of tax information 

on request without regard to bank secrecy, but has not yet substantially implemented that standard. 

I welcome today’s report that Panama’s vice president-elect has 

committed Panama to negotiating with the United States, this 

year, a legally binding instrument to facilitate the exchange of tax 

information pursuant to Panama’s OECD commitments. I look forward to hearing the administration’s reaction to that announcement. 

I fully support concluding a tax information exchange agreement 

with Panama as soon as possible, but I don’t see why our exporters 

should have to pay for that agreement with lost exports, which is 

what is now happening. Particularly in this time of economic downturn, export sales are more critical than ever. 

The expansion of the Panama Canal is moving ahead, so exporters are losing potential opportunities every day. I urge the Obama 

administration to continue to pursue aggressively the negotiations 

of this tax exchange agreement. At the same time, I urge the administration to submit this Panama Trade Promotion Agreement to 

Congress for approval next month. 

I yield the floor. 

The CHAIRMAN. Thank you, Senator. 

I would now like to introduce the panel. The first witness is 

Everett Eissenstat, Assistant U.S. Trade Representative for Western Hemisphere Affairs. Mr. Eissenstat was involved in the negotiation of this free trade agreement, and he will be charged with 

its implementation once Congress acts to approve it. Of course, 

Everett also served in another capacity on this committee, especially for Senator Grassley and also for the committee in general. 

Welcome back, Everett. We deeply appreciate your return. 

The next witness is Mr. James Owens, president and CEO of 

Caterpillar. Regrettably, you did not work here prior to your current job, so I cannot give the same kind of introduction to you, Mr. 

5 

Owens. I must say though, I love driving your equipment. It is a 

lot of fun. [Laughter.] 

Senator GRASSLEY. Do not say that in Waterloo, IA. 

The CHAIRMAN. No, no. I like John Deere, too. [Laughter.] 

In fact, I have driven a lot of John Deere tractors and a lot of 

Caterpillars. One of my biggest privileges was driving the biggest 

Cat, I think, in the State of Montana about 4 or 5 years ago when 

I was on a construction job in Montana. So, Mr. Owens, thank you 

very much. 

Ms. Lee, thank you very, very much for returning, too. Thea Lee, 

policy director for the AFL–CIO. You’ve been very forthright, very 

helpful, and have made many appearances before this committee. 

Thank you for your good work very, very much. 

Of course, Mr. Carney is a pork producer. In fact, he’s presidentelect of the National Pork Producers Council and a pork producer 

from the great State of Iowa. Thank you, Mr. Carney. I’m sure 

someone else sitting to my left might have something to say about 

you a little later today. Anyway, thanks for taking the time to come 

here and participate in this discussion. 

As is our usual practice, the witnesses will speak about 5 minutes. Your full statements will be in the record, and I would just 

urge you to proceed. 

I will begin with you, Mr. Eissenstat. 

STATEMENT OF HON. EVERETT EISSENSTAT, ASSISTANT U.S. 

TRADE REPRESENTATIVE FOR WESTERN HEMISPHERE AFFAIRS, WASHINGTON, DC 

Mr. EISSENSTAT. Thank you very much, Senator Baucus. It is 

such an honor to be here with the chairman and ranking member 

today, and I appreciate this opportunity to testify before the committee on the benefits of the U.S.-Panama Trade Promotion Agreement. 

I also want to thank you, Mr. Chairman, and all the members 

of this committee for the informed views and invaluable guidance 

we have received since we initiated negotiations with Panama over 

5 years ago. 

The President believes that the United States needs a new 

framework for trade. He recognizes that trade is essential to America’s prosperity and has the potential to lift up workers in America, 

and around the world. But for trade to accomplish this objective, 

our trade agreements need to include strong labor and environment 

standards. We also need to do a better job enforcing our trade 

agreements, and we need domestic policies to help Americans succeed in an increasingly dynamic economy. The President looks forward to outlining this framework in the very near future. 

At the same time, we want to make sure that any new trade 

agreements advanced, including our agreement with Panama, be 

part of this broader framework. The administration is working with 

Panama to ensure that this agreement and its implementation 

fully reflect the values of the President’s vision. 

In particular, we have been working with Panama to address 

labor law concerns and look forward to anticipated legislative and 

regulatory action by Panama that implements the agreement’s 

labor provisions. We also share concerns that have been expressed 

6 

about Panama’s tax policies and are working with Panama to address these concerns. 

This agreement, and the closer relationship it provides, will enable us to progress much more quickly in addressing these issues 

than we could otherwise. Successfully addressing these concerns 

will be an important step in determining when, in close consultation with Congress and as part of the President’s broader trade 

strategy, this agreement should be considered by the Senate and 

the House. 

The Panama agreement is a historic development in our longstanding and close relationships with Panama. The agreement will 

put into place a strong an up-to-date structure for the U.S.-Panama 

trade and investment relationship that will create new opportunities for American workers, farmers, ranchers, and businesses. 

Today, U.S. exporters face an unfair playing field. Last year, approximately 90 percent of Panama’s imports entered the United 

States duty-free. In contrast, U.S. exports of consumer and industrial goods faced an average tariff of 6.4 percent, with tariffs as 

high as 20 percent on some products. 

U.S. exports of agricultural products face an average tariff of 15 

percent, with tariffs on some of our key exports as high as 70, 90, 

and even 260 percent. The agreement will eliminate these tariff 

barriers, but the agreement goes far beyond tariff reductions. One 

of the best opportunities for U.S. exporters lies in the $5.25-billion 

expansion of the Panama Canal, as the agreement will ensure that 

U.S. firms have the opportunity to participate in one of the largest 

infrastructure projects in the hemisphere. The agreement will also 

provide important new opportunities in Panama for the whole spectrum of U.S. service providers. 

The agreement provides strong protection for intellectual property rights and ensures a secure, predictable legal framework for 

U.S. investors in Panama. It does not in any way undermine the 

ability of either the United States or Panama to regulate the financial sector or investment practices to protect the financial system. 

The labor and environmental provisions of this agreement incorporate Congress’s guidance. As a result, Panama is committed to 

implement ILO fundamental labor rights in its labor regime, reforms which will significantly enhance the rights of workers in 

Panama. Protection of the environment will also be enhanced, as 

the agreement requires Panama to fulfill its obligations under specified multilateral and environmental agreements. 

These provisions, along with our renewed focus and commitment 

to trade enforcement, reforms to Trade Adjustment Assistance, and 

the administration’s investment in domestic infrastructure and 

competitiveness, demonstrate how trade and economic policy can 

create jobs for working families at its core. 

Mr. Chairman and members of this committee, the agreement offers an opportunity to strengthen the economic and political ties we 

already have with Panama, set an example of how cooperation in 

commerce can elevate working and environmental conditions, and 

send a message to the region that the United States is engaged 

with willing, responsible parties. It is a strong agreement that fits 

with the President’s goal to build trading relationships that are 

fair, equitable, and benefit the citizens of both countries. 

7 

It has the potential, as part of the President’s broader trade 

strategy that he will outline, to move America’s trade policy forward. I hope that after carefully reviewing the agreement the 

members of this committee and the U.S. Congress will agree that 

it is a solid agreement that is strongly in our national interest. 

Again, thank you very much for the privilege of testifying today. 

The CHAIRMAN. Thank you, Mr. Eissenstat. 

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

The CHAIRMAN. Mr. Owens? 

STATEMENT OF JAMES OWENS, CHAIRMAN AND CEO, 

CATERPILLAR, PEORIA, IL 

Mr. OWENS. Chairman Baucus, Ranking Member Grassley, and 

members of the committee, I am Jim Owens, CEO of Caterpillar. 

I am very honored to be here today to make this presentation on 

behalf of not only Caterpillar, but the U.S. Chamber of Commerce, 

the Business Roundtable, and the Latin American Trade Coalition. 

It is an honor to share our views on the proposed U.S.-Panama 

Trade Promotion Agreement. 

Caterpillar and the companies I represent believe that the Panama Trade Promotion Agreement and agreements like it promote 

economic growth, both at home and abroad. In just the western 

hemisphere, we now have trade agreements with Canada, Mexico, 

Chile, Central America, and the Dominican Republic. 

I am pleased to report that Caterpillar exports have dramatically 

benefitted from all of these free trade agreements. Since the FTAs 

have gone into effect, Caterpillar exports have increased. In fact, 

last year our exports were up 4-fold to the NAFTA countries, 3-fold 

to Chile, and have nearly doubled in the CAFTA-DR countries in 

the short time that agreement has been in place. 

Others have benefitted as well. Last year, and for the first quarter of 2009, the U.S. had a trade surplus in services, in agricultural, and even in manufactured goods, and that is collectively 

across the 17 countries that have implemented free trade agreements with the United States. However, that surplus was more 

than offset by a large trade imbalance of manufactured goods from 

non-FTA partners. I think that demonstrates that American manufacturers can compete, but we need open markets and the type of 

level playing field that this trade agreement will provide. 

Like past agreements, the Panama TPA will substantially improve market access for American farm products, consumer and industrial goods, and services in Panama. It will bolster the rule of 

law, investor protections, internationally recognized workers’ 

rights, transparency, and intellectual property protections. 

Some dismiss Panama as a small country that should not be a 

U.S. trade priority. We disagree. Panama is an ally and a good 

friend of the United States. It has major ports to both the Atlantic 

and Pacific, and the canal is a major transit port for world trade. 

Further, Panama is a good place to invest. One-third of its population speaks English fluently, it has a dollarized economy, and it 

is strategically located, which makes Panama an excellent place to 

locate logistic and Latin American customer support operations. 

8 

For Caterpillar, the canal expansion is particularly exciting. It is 

one of the largest public works projects undertaken globally since 

the Three Gorges Dam in China, over $5 billion, as previously mentioned. If we can sell our U.S.-produced products to Panama dutyfree, it will help our customers and provide us with a competitive 

edge over products made in other parts of the world. 

In practical terms, the agreement means that Panama’s 10 percent duty on off-highway trucks, motor graders, wheel tractor 

scrapers, and diesel engines will be eliminated. The same would be 

true for other types of Cat equipment and products that are sold 

into Panama. Those tariffs today range from 3 to 10 percent. 

For other manufactured products, Panama’s tariffs are even 

higher: the tariff on autos, 15 percent; furniture, 15 percent; and 

for computers, 5 to 15 percent. By eliminating these duties, the 

Trade Promotion Agreement will provide the average Panamanian 

customer with a higher standard of living by offering more product 

choices at lower prices, and of course it enhances American manufacturer competitiveness in the country. 

There are other reasons why the TPA and an expanded Panama 

Canal will benefit the United States. Trade barriers take many 

forms, and one of the most onerous, certainly, is a weak infrastructure or a lack of infrastructure. If you cannot physically get the 

product to port in good time and cost-effectively, tariffs do not matter so much. Today, almost 5 percent of world trade passes through 

the Panama Canal, and much of that trade originates in the ports 

of Miami, New York City, and Los Angeles. 

But with canal capacity currently fully utilized and many of the 

newer, larger ships unable to use the canal, it takes longer than 

it should for some U.S. exports to reach overseas markets. An expanded canal will help fix that and allow many American manufacturers to be more competitive by shortening their global supply 

chain and reducing inventories. 

In summary, the proposed Panama Trade Promotion Agreement 

will be good for our country, and we have to do very little to realize 

it, as has been previously pointed out. We have, through the previous agreements and acts, essentially unilaterally granted to Panamanian manufacturers duty-free access to our markets. 

So, Mr. Chairman, Senators, I urge you to move with urgency to 

pass the Panama Trade Promotion Agreement, as well as the pending agreements with Colombia and Korea. Not only do these agreements promote U.S. exports and support American jobs, they also 

promote an understanding and improved living standards among 

all citizens in both countries. Further, at this tenuous time for the 

global economy, passing the Panama TPA would send a loud message to the world that the U.S. is, indeed, open for business. 

Again, I thank you very much for the opportunity to testify for 

what I think is a very important trade agreement. Thank you. 

The CHAIRMAN. Thank you, Mr. Owens, very much. 

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

The CHAIRMAN. Ms. Lee? 

9 

STATEMENT OF THEA LEE, POLICY DIRECTOR, AMERICAN 

FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL 

ORGANIZATIONS (AFL–CIO), WASHINGTON, DC 

Ms. LEE. Thank you, Mr. Chairman, Senator Grassley, members 

of the committee. I appreciate the opportunity to come here today 

on behalf of the 11 million working men and women of the AFL– 

CIO to talk about this important issue. 

We believe it is premature for Congress to consider passing the 

U.S.-Panama Trade Promotion Agreement at this time, and we will 

oppose passage if it is brought to a vote before outstanding and 

pressing concerns are adequately addressed. 

First, needed labor law reforms and tax policy reforms in Panama must be fully adopted and implemented before the agreement 

is considered by Congress. Second, the administration and Congress should address concerns that have been raised with respect 

to the investment, procurement, and services provisions in the Panama and other pending trade agreements. 

Finally, and most important, the administration urgently needs 

to lay out a coherent and principled overall international trade 

strategy before proceeding in haste to implement a patchwork policy left over from the previous administration. 

Current U.S. trade policy, in our view, has failed to deliver good 

jobs at home, equitable, democratic, and sustainable development 

abroad, or a stable global economy. We need to review and reform 

our trade policy with respect to the overall framework of rules, our 

chronic and large trade imbalances, and the impact of our trade 

and investment policies on U.S. manufacturers, farmers, service 

providers, consumers, workers, and the environment, nor should 

trade policy impinge on the ability of democratically elected governments at the Federal, State, or local level to implement and enforce 

public policies designed to achieve legitimate social objectives. 

We applaud President Obama’s initiatives to invest in America’s 

future with respect to infrastructure, clean energy, education, and 

health care; these are essential to America’s ability to compete in 

the 21st century. But unfortunately they are not sufficient. We also 

need to enforce our existing trade laws more effectively, consistently, and energetically. 

We need to ensure that we are devoting adequate resources to 

enforcement and that the different agencies in the government are 

coordinating with each other to make the best use of those resources, and, very importantly, we need a strategic approach to our 

enormous and growing trade imbalance with China which addresses currency manipulation, worker rights violations, and illegal subsidies. In our view, the administration needs to demonstrate concretely its commitment to a new direction in trade policy before we 

proceed with the Panama agreement. 

With respect to Panama, significant labor law reforms are needed to bring Panama’s labor laws into compliance with ILO minimum standards. The Panamanian government must also resolve 

the tax haven issues that have been raised by the OECD, among 

others. These issues should be resolved before the U.S. Congress 

proceeds with a vote. 

As we have seen repeatedly in the past, if legislative issues are 

not addressed before the congressional vote, it is much more chalVerDate Nov 24 2008 21:21 Mar 25, 2011 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 R:\DOCS\65145.000 TIMD
10 

lenging to convince the government to act in a timely way. The leverage that exists for important issues like this is the greatest before Congress votes, and it evaporates after the vote happens. 

In addition to the on-the-ground changes needed in Panama with 

respect to labor law and tax issues, it is also important to revisit 

the trade agreement template at this time. In particular, the AFL– 

CIO has consistently over many years raised concerns with respect 

to the investment, procurement, and services provisions in trade 

agreements. As we move forward, we should also look for ways to 

strengthen and improve the labor and environment provisions, as 

well as the enforcement of those provisions. 

During the 2008 Presidential campaign, candidate Obama and 

the Democratic Party platform emphasized the need for trade policy to be an integral part of an overall national economic strategy 

that delivers on the promise of good jobs at home and shared prosperity abroad. 

We strongly agree that our country needs a new trade policy. The 

Panama Trade Promotion Agreement does not represent the needed change and direction and has not been accompanied by the 

broader reforms that are needed. For these reasons, we urge Congress to oppose the Panama Trade Promotion Agreement. 

Thank you very much for the opportunity to express the views 

of the AFL–CIO, and I look forward to your questions. 

The CHAIRMAN. Thank you, Ms. Lee, very much. Very forthright 

statement. 

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

The CHAIRMAN. Mr. Carney? 

STATEMENT OF SAM CARNEY, PRESIDENT-ELECT, 

NATIONAL PORK PRODUCERS COUNCIL, ADAIR, IA 

Mr. CARNEY. Mr. Chairman, Senator Grassley, thank you for inviting me to this hearing. 

I strongly believe, as a farmer and a small businessman, that the 

future of my family’s farming operation depends in large part on 

future trade agreements and continued trade expansion. I cannot 

imagine another industry that has benefitted more from trade 

agreements than the U.S. pork industry. We are the poster child 

of expanded trade: thanks to new market access from the Uruguay 

Round, NAFTA and other trade agreements, the U.S. pork industry 

is now the largest pork exporter in the world. 

In 2008, the United States exported approximately 20 percent of 

the domestic pork production. Pork exports added $48 to the value 

of every U.S. hog marketed and supported over 65,000 U.S. jobs 

in 2008. As a low-cost global producer of pork and the largest exporter of pork in the world, the U.S. pork industry is wellpositioned to create jobs and generate wealth in the U.S. as new 

trade agreements are implemented. Last year, exports were our 

salvation. Due to high input costs, we had our second-worst financial year ever. Without the $4.9 billion in exports, the industry 

would have imploded last year. 

Unfortunately, just as things were starting to look up, this year 

we were hit by the H1N1 influenza outbreak, which wreaked havoc 

in our industry. Live hog prices have plummeted due to unwarranted fears about the safety of pork and non-science-based restricVerDate Nov 24 2008 21:21 Mar 25, 2011 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 R:\DOCS\65145.000 TIMD
11 

tions put in place by some of our trading partners. We appreciate 

the support of the committee, Congress, and the Obama administration in combatting these needless restrictions on our exports. We 

are pleased, with a few notable exceptions such as China and Russia, these unwarranted restrictions have been removed. 

Virtually every recent trade agreement from NAFTA to CAFTA 

has brought significant benefits to the Nation’s farmers and ranchers. President Obama recently noted that exports account for 13 

percent of U.S. total economic activity, but in agriculture exports 

account for as much as 30 percent of farmers’ income. In 2008, agricultural exports reached an all-time record of $115 billion, up from $46 billion in 1994, the year NAFTA was implemented. The agreement, and the 13 that the U.S. has implemented 

subsequently, are the principal reasons for exports’ growth. The 

U.S.-Panama Trade Promotion Agreement will provide new market 

opportunities for a wide range of U.S. agricultural products. 

Immediately upon implementation of the agreement, over half of 

these products will begin to enter Panama free of all duties. Most 

of the remaining farm products will become eligible for free access 

to Panama over a 15-year phase-in period. The American Farm Bureau Federation estimates that by 2027, when the agreement is 

fully implemented, the total increase in U.S. farm exports is expected to exceed $190 million per year. 

NPPC is eager to have the pending three free trade agreements 

passed by Congress. The Panama agreement, if implemented, will 

create important new opportunities for U.S. pork producers. U.S. 

pork exports to Panama are currently restricted by small-quota and 

out-of-quota duties as high as 80 percent. 

However, the Panama agreement, if implemented, will provide 

immediate duty-free treatment on pork variety meats and expanded market access for U.S. pork muscle meats through the Tariff Rate Quotas. The TRQs will be phased out in 15 years, and after 

the full implementation period U.S. pork will have unlimited dutyfree access to the Panama market. 

In addition to favorable market access provisions, significant sanitary and technical issues have been resolved. In a letter dated December 20, 2006, the Panamanian government confirmed that it 

shall recognize the meat inspection system of the U.S. as equivalent to its own meat inspection systems. The technical agreement 

ensures that U.S. pork producers will benefit from the Panama 

agreement without being blocked by unnecessary sanitary barriers. 

According to Iowa State University economist Dermot Hayes, the 

Panama Trade Promotion Agreement, if fully implemented, would 

cause hog prices to increase 20 cents higher than they otherwise 

would have been. Exports to Panama would be worth approximately $23 million to the U.S. pork industry, in addition to revenue that otherwise would not have been the case. 

No one should believe that there are no costs in rejecting these 

agreements. Other countries are moving forward with agreements 

that individually and collectively put U.S. products at a competitive 

disadvantage. Some 421 bilateral and regional trade agreements 

have been notified to the WTO through the end of 2008, and another 400 or so are scheduled to be notified and implemented by 

2010 to that organization. The U.S. is a party to just 18 of those 

12 

800-plus deals, and just 15 are in force. We will fall behind by 

standing still. 

Thank you very much. 

The CHAIRMAN. Thank you, Mr. Carney. 

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

The CHAIRMAN. I have a question for you, Mr. Eissenstat. I’m 

just a little perplexed here. There was a template agreed to by all 

parties, on labor and environmental provisions with respect to future FTAs back in 2007. It was not only assumed, it was stated by 

the parties involved in this business—industry, labor, House and 

Senate, so on and so forth—that the next free trade agreements 

could proceed under that template. 

It is my understanding that the agreement that has been negotiated with Panama does provide for those labor provisions. I further understand that Panama has agreed to make the necessary 

changes to its labor law. Also, the country of Panama, Torrijos’s 

government, has said that it would honor that and enact them, but 

it would like the United States to send the agreement up prior to 

June 30 when the Torrijos government leaves power. 

So I am just confused. Why would the administration not want 

to take advantage of that situation and send up the agreement, 

since the labor provisions are those that were in the template, basically, and Panama has agreed to those provisions? Further, it is my 

understanding that the Martinelli government, the subsequent government, agrees to begin to negotiate a tax information exchange 

agreement. So I am just scratching my head here. That sounds like 

a pretty good deal to me. Why does the administration not just 

take it? 

Mr. EISSENSTAT. Well, thank you, Senator. I think you are absolutely correct, this agreement does incorporate the May 10 provisions on labor and the environment. We have been working with 

the government of Panama to ensure that their labor regime fully 

reflects that commitment that was the agreement between Congress and the executive branch. 

The President believes it is very important that Panama be considered in the context of a broader domestic agenda. As I indicated 

in my opening statement, it is important that the President have 

an opportunity to articulate this framework in conjunction with the 

Panama agreement so it can be understood how the agreement will 

fit into the broader, overall domestic agenda. 

The CHAIRMAN. I am sorry. Overall domestic—— 

Mr. EISSENSTAT. The overall domestic and trade agenda. Yes, sir. 

And many of those elements, this committee has been very active 

on, including health care reform, infrastructure, a lot of the elements that have been on the domestic front. That is not my area 

of expertise, but it is part of the broader picture. The idea is that 

we need to ensure that all these pieces fit together so we can build 

an economic framework that can help the—— 

The CHAIRMAN. And trade is part of health care reform? 

Mr. EISSENSTAT. No. No, Senator. There are several elements to 

the framework. There’s both the domestic policy elements and the 

international trade framework. You articulated correctly a couple of 

the elements of the international trade framework, which is the 

strong labor and environmental provisions incorporated in the 

13 

agreements, reflected in the laws of the countries with which we 

have those agreements. So that is one element. 

There is also the domestic part, so the American worker can 

thrive in the dynamic global economy, Trade Adjustment Assistance, some of the other initiatives that this committee has undertaken, and working together to provide a framework for the American worker to be able to thrive in a very quick and dynamic economy. 

The President will be articulating—— 

The CHAIRMAN. Might I ask how wide-sweeping, how broad? 

When do we see this? Meanwhile, June 30 is coming pretty close. 

It is going to go by. 

Mr. EISSENSTAT. That is a very good point. It is a difficult situation, because we do have the Torrijos government that obviously 

will be leaving power at the end of June, and then a new government, the Martinelli government, coming into power shortly thereafter. So we have a transition ongoing, and we have been working 

with both governments on issues of concern on both the labor front 

and the tax front. 

As Senator Grassley and yourself pointed out, we have made 

great progress in both areas. In fact, the statement that Senator 

Grassley referenced, I believe it was by the Vice President-Elect 

Varela, is a very powerful statement, I think, to their continued 

commitment, and the incoming administration’s commitment, to 

openness and transparency. 

The CHAIRMAN. Well, to be honest, this sounds—Senator Grassley was not with me. I was down with the President when he went 

to Mexico City and the Summit for the Americas down in Trinidad. 

We, I, others were there, members of Congress there, met with 

President Torrijos, and we discussed their concerns. But frankly, 

what I understand to be the agreement now is a major advance 

compared with what the state of play was back then, not too long 

ago, about a month ago. 

Man, I do not understand why you do not just take it. We can 

always negotiate frameworks. Trade policy can always come out in 

the next couple of weeks, the next month, whenever. But man, if 

we do not take this now, we jeopardize getting an agreement. 

There may not be an agreement. 

To some degree—and I will just be honest with you—there is a 

sense in the United States—especially with the President’s visit to 

Trinidad, that was interpreted as a good-faith effort by the United 

States to help reach agreement with Panama—now we seem to be 

backing off. I just do not get it, frankly, personally. 

Senator Grassley? 

Senator GRASSLEY. Yes. A comment on what you just said, because I agree with what you said totally. But I would also say, as 

I hear Mr. Eissenstat state the administration’s position, it sounds 

to me, if trade issues are dependent upon health care reform, dependent upon other things to revitalize the economy that are piein-the-sky, that all of those things are going to fit together and 

they all have to kind of make sure they are all going to pass before 

we pass a relatively small trade agreement, we ought to be doing 

things that we can. It may sound a little piecemeal to pass a Panama free trade agreement, but it is going to do some economic 

14 

good. It has been proven in other trade agreements, particularly in 

the western hemisphere, and we ought to move ahead. 

I am going to start out with my questioning of Mr. Carney. You 

touched on this a little bit, so I am not going to ask you just about 

Panama, but could you elaborate on the value of our trade agreements generally to address sanitary and technical barriers to 

trade? For example, with respect to trading partners that do not 

recognize the equivalency of meat inspection systems. 

Then let me follow up with this one. In your experience, do countries with which we have bilateral trade agreements treat our pork 

exports significantly better than countries with which we do not 

have bilateral trade agreements? 

Mr. CARNEY. Yes, I can explain a little bit on that. First of all, 

the ones that we do not have agreements with—and I will touch 

base with, like, Russia, and we have had troubles there and they 

have de-listed our plants, and then they re-list our plants. They are 

not even a WTO member, and we do not have a free trade agreement. Right there is the problem. 

Where we do have the free trade agreements and they are in the 

WTO, they try to eliminate the sanitary barriers in these free trade 

agreements. If you need more information on that, I can get it for 

you. I do not have it all in front of me right now, but I can get that 

to you. 

Senator GRASSLEY. I will follow up with something maybe you or 

your association can answer in writing then. 

Ms. Lee, in your testimony you criticize the government’s procurement provisions in our trade agreements. The AFL–CIO opposes the provisions in the Panama agreement that would require 

Panama to allow U.S. manufacturers to compete for contracts to 

help expand the Panama Canal? 

Ms. LEE. The procurement provisions that we object to are those 

that would limit the ability of the government, including the U.S. 

Government, to use domestic sourcing preferences, to use American 

taxpayer dollars to create good jobs at home in our own communities. We think that it is inappropriate for trade agreements to 

put additional limitations on that. 

With respect to transparency—and countries can do whatever 

they want if they want to open up their procurement provisions. 

We are very supportive of transparency in government procurement provisions and voluntary commitments that are made along 

those lines, but what we do not want to do is weaken our own ability to put in place protections that are either with respect to social 

and environmental objectives or with respect to job creation at 

home. 

Senator GRASSLEY. Mr. Eissenstat, what is your reaction to—— 

Senator ROBERTS. Would the Senator yield? I am over here. 

Senator GRASSLEY. Yes. Yes. 

Senator ROBERTS. I do not understand. Ms. Lee, I do not understand your answer to the Senator’s question. Maybe I am just 

dense, but I do not get it. I do not know whether I just did not understand it or that is just your rote answer to what we are trying 

to do at the Panama Canal, or what. 

Senator GRASSLEY. I think what she is getting at, we weren’t 

quite sure whether or not you see the relationship between U.S. 

15 

manufacturers, particularly if they are going to use products down 

there that are manufactured in the United States, and wouldn’t 

you like to have those products manufactured by American workers 

to be used in the expansion of the Panama Canal? 

Senator ROBERTS. That was the question, and I do not understand the answer. 

Ms. LEE. Well, the answer was with respect to our criticism of 

the government procurement provisions in general in trade agreements, so I was answering with respect to the argument that we 

have made, that the government procurement provisions in the 

WTO, GPA, the NAFTA and so on—— 

Senator ROBERTS. All right. All right. So you are opposed to the 

government procurement provisions—and I am sorry I am taking 

your time—overall. But we are talking about Panama and these 

particular government procurement provisions. 

Ms. LEE. Right. 

Senator ROBERTS. So you are tying them together simply because 

you are opposed to the whole shebang? 

Ms. LEE. Well, we are concerned about what the impact of the 

government procurement provisions has been on U.S. ability—— 

Senator ROBERTS. I understand that. 

Ms. LEE. Right. 

Senator ROBERTS. But this particular provision does not really 

deal with that. 

Ms. LEE. Well, of course it does. It is a 2-way sword. It is not 

just about opening up the Panamanian government, it is also about 

making a commitment on the part of the United States to open its 

own procurement markets as well. It deals with both. That is how 

the procurement provisions work in the trade agreements. 

Senator ROBERTS. I would just like for you to shake hands with 

the guy to the left of you; he has a stake in this. 

Ms. LEE. I would be happy to. 

Senator GRASSLEY. Mr. Eissenstat, this is just a short question. 

It is not to just what she said, but generally speaking, what is your 

reaction to the concerns that Ms. Lee raised about Panama labor 

laws? And I am speaking more about her testimony than I am her 

answer to my question. That is just one example. Then that is the 

last question I will ask. 

Mr. EISSENSTAT. All right. Thank you, Senator. 

Well, obviously the Congress and the administration have shared 

some of those concerns, and I think that that is why there was 

some agreement within the May 10 compromise, the congressionalexecutive agreement to undertake these provisions as part of the 

core of the agreement itself. 

We have been working with the government to address a lot of 

these issues, and we know that the Torrijos administration has already taken steps as recently as this week on a number of issues 

that have been outlined in the AFL–CIO testimony, and we expect 

them to continue to take steps forward. They are very committed 

to making sure that these ILO core labor standards are reflected 

in their domestic labor regime, which will significantly enhance the 

standard of living in Panama and the working conditions there. 

Senator GRASSLEY. The chairman’s list says that Senator Menendez is next. 

16 

Senator MENENDEZ. Thank you, Mr. Chairman. 

Mr. Eissenstat, let me ask you, one of President Obama’s consistent campaign pledges and his consistent engagements since becoming President has been closing tax loopholes and eliminating 

tax breaks for corporations that offshore United States jobs. Panama is a renowned tax haven, considered one of the top tax havens 

in the world for both U.S. and multinational corporations. It has 

lax financial regulations and is one of the easiest countries in the 

world in which to register a foreign subsidiary. 

So what in the agreement that we are discussing today addresses 

the tax haven problem, and what effect, if any, does it have on 

Panama’s regulation of its financial sector? 

Mr. EISSENSTAT. Senator, those are good questions. I have a 2- 

part answer. The first part: there are provisions in the agreement 

in the services sector that do provide for transparency and openness that do not exist now in services regulation; so a more open, 

transparent process is in the agreement. 

But in parallel to the agreement, as you know, there are a number of steps ongoing, many of which Panama has been taking part 

in, to address these concerns over taxation issues, including the 

OECD framework. I would like to note that they have committed 

to the principles of transparency in information exchange in 2002. 

We are continuing the dialogue with them. 

We understand from our conversations with the Torrijos administration they are going to take some steps very soon to deal with 

what are called numbered accounts, which would be a way to hide 

assets from an individual owner. We also understand that they recently took steps to put in place a presidential committee that will 

make recommendations to immobilize bearer shares, which requires legislation in Panama. Demobilization of bearer shares is 

very important because, as you know, someone with a bearer share 

is able to hide an asset. 

Senator MENENDEZ. Let me just interrupt you for a moment. 

Mr. EISSENSTAT. Yes, sir. 

Senator MENENDEZ. These are all prospective aspirations, they 

are not included in the agreement. Is that correct? 

Mr. EISSENSTAT. No. The taxation issues are generally in parallel 

to the agreement. Yes, sir. 

Senator MENENDEZ. Yes. Parallel to the agreement. They are not 

part of the agreement, is that correct? 

Mr. EISSENSTAT. There is nothing in this agreement specifically. 

There are exceptions on taxation policies, but generally the agreement does not apply to tax issues. 

Senator MENENDEZ. All right. So, if the agreement does not apply 

to tax issues, then largely speaking we are working on the aspiration that the government of Panama will change its tax laws and 

regulatory processes in a way that we would hope to see so that 

in fact it does not continue to be the tax haven that it is for U.S.— 

as far as we are concerned, U.S.—companies. 

Mr. EISSENSTAT. Well, we are. In fact, I think because of the relationship that we have and because we have built this relationship 

through the negotiations for so many years, we have been talking 

to them about this and making significant progress, some of 

which—— 

17 

Senator MENENDEZ. If we were to pass the agreement tomorrow, 

nothing that we really, for the most part, want to see as it relates 

to the reality of Panama being one of the world’s top tax havens 

would change. Is that true? 

Mr. EISSENSTAT. Well, I think that—— 

Senator MENENDEZ. As a result of the agreement, would it 

change? 

Mr. EISSENSTAT. As I said, generally the agreement does not 

apply to taxation issues. 

Senator MENENDEZ. All right. 

Mr. EISSENSTAT. If I could just mention one other factor that I 

think is important. As I discussed, there is a transition ongoing. 

There is a new president-elect who was just elected, the Martinelli 

administration. There was, as was noted, a very important statement that was put in the press by the vice president-elect today, 

and I could read that if you would be interested. 

Senator MENENDEZ. No. I would be happy to receive it. I sit on 

the Foreign Relations Committee, so I am very aware of what the 

new administration is aspiring to, and I think they are headed in 

the right direction. 

The point is, I do not want anyone to be misled that this agreement does anything as it relates to those tax havens, so we are 

looking aspirationally towards what the government of Panama 

may do down the road. But, if we were to pass the agreement tomorrow, we would still have Panama, at least at this point in time, 

as a major tax haven. That is a fair statement, is it not? 

Mr. EISSENSTAT. The work is ongoing. Yes, sir. 

Senator MENENDEZ. But as of tomorrow, it would still be a major 

tax haven. Is that not the case? 

Mr. EISSENSTAT. Until these steps are taken, there are elements 

of that. 

Senator MENENDEZ. And then finally, with reference to the labor 

provisions which, I agree with the chairman, have been incorporated in this agreement, in your testimony you talk about what 

is going to happen in terms of implementation. Is that implementation viewed in the time frame that it would take place before a vote 

here, or is that an implementation that, again, is in the future? 

Mr. EISSENSTAT. Well, we have actually seen steps on some of 

the issues that we have discussed with Panama being taken as 

early as this week, so actually some of the reforms are in place as 

of today. Our understanding in our conversations with the current 

administration is that they are going to continue moving in that direction. There are both legislative and regulatory steps that are 

going to be taken, and we anticipate that they will be in place. I 

cannot give you the specific time frame, but I know that they are 

committed to it, and we would expect that to occur before the end 

of the administration. 

Senator MENENDEZ. Thank you, Mr. Chairman. 

Senator GRASSLEY. Yes. Thank you, Senator Menendez. 

Senator Crapo stepped out, so now, Senator Bunning. 

Senator BUNNING. Thank you, Ranking Member Grassley. 

First of all, it has been since June of 2007—both countries, both 

the United States and Panama signed this agreement in 2007, 

June 28th, so we have been dealing with it for 2 years. Almost evVerDate Nov 24 2008 21:21 Mar 25, 2011 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 R:\DOCS\65145.000 TIMD
18 

erything that Panama sends to the United States is duty-free. Almost everything. Not quite everything, but almost. Ninety-six percent is duty-free. 

More than 88 percent of the U.S. manufacturing exports would 

be duty-free if this agreement were in force, with the remaining 

tariffs phased out over 10 years. That is according to what we have 

already signed. More than 60 percent of our agricultural exports to 

Panama will receive duty-free treatment immediately, and the remaining tariffs will be phased out over 15 years. 

Approval of the U.S.-Panama trade agreement would also improve Panama’s economic development, and maybe, just maybe, the 

improvement of the Panama Canal so it could actually handle the 

larger ships that need to be handled. Unfortunately, they are limited right now. 

My question is for Mr. Eissenstat. I support the Panama pending 

agreement, but I also believe that the Colombia trade agreement 

is essential to our national interest, especially because of Colombia’s proximity to Venezuela. Can you tell me what the administration is doing specifically to move Colombia along with Panama? 

You outlined this broad picture for us, that it has to fit into a 

broader picture, but you did not say anything about things that we 

have already agreed to, which are Colombia, and Panama, and not 

Korea yet. We are still working on that one. But see, health care 

is going to be done at the pace that this administration would like 

to see it done here in this committee, but trade is not health care. 

What I am trying to say is that we understand the broad picture. 

We see it every day; if you are on the Energy Committee or you 

see an energy bill coming before us that deals with a lot of different 

things, in this committee we are going to see a health care bill, so 

we understand the broader picture. But specifically on trade, we do 

not see any movement. So maybe I can get a better explanation 

from you. 

Mr. EISSENSTAT. No. And thank you. I appreciate that opportunity. I do think that the way that I articulated it, it gave a perception that these were conditions precedent, and I do not want to 

give that perception. These issues move in parallel—the trade 

agenda, the domestic agenda. It is all part of the broader framework that the President will be laying out in his vision of how this 

fits together. 

Senator BUNNING. When would that happen, since we have dealt 

with these for 2 and 3 years? I mean, we have had an agreement 

with these foreign countries. I think preferential trade agreements 

are proven to be very beneficial to the United States and our trading partners. 

Mr. EISSENSTAT. Well, I think that the key question or one of the 

key elements is to move the agreement at an appropriate time, in 

consultation with Congress so it gets support, and enables us to 

move forward on the broader trade agenda, including other items 

like Colombia. Panama is a very important agreement, and that is 

why we have been working on it since the administration began. 

Senator BUNNING. Well, because they are changing administrations, first of all. 

Mr. EISSENSTAT. Part of the transition does require some movement and some discussion and some review of the agreements. I 

19 

think that would be expected. But since that time we have also 

been working with them to understand their labor regime, make 

sure their labor regime fully implements the commitments under 

the agreement to address some of the taxation issues, which are 

somewhat recent concerns because of the financial situation. 

Senator BUNNING. I have to ask one more question. 

Mr. EISSENSTAT. Yes, sir. 

Senator BUNNING. So, I am not trying to cut you off, I just want 

to make sure I ask the question of Mr. Owens. 

I appreciate your testimony about how the pending trade agreement will open up new opportunities for American companies like 

Caterpillar. I realize that this hearing is on trade policy, but I also 

believe that U.S. tax policy has a dramatic impact on the ability 

of American companies to compete in the global marketplace. If 

policies like the repeal of tax deferral on overseas income were pursued, can you talk about how that would affect the ability of U.S. 

companies to compete with foreign multinational companies in 

international marketplaces? 

Mr. OWENS. Well, thank you, Senator. I would be pleased to. 

As you know, it is a very significant concern to the multinational 

business community. I think the fundamental question for the 

American public is, do we want to have leading U.S. multinational 

companies based here, that are the leading companies in the 

world? If the answer is no, which I would be surprised and disappointed, I guess we could all move our headquarters. 

I think the answer is yes. If the answer is yes, then we have to 

think about, what does it take to have U.S.-headquartered companies be competitive and be winners in the global marketplace? If 

we repeal deferral and keep one of the highest corporate tax rates 

in the world, we render American multinational companies uncompetitive. 

Just take a small example, China. I compete in China. I have investments in China. I compete with Koreans, Japanese, European 

companies, as well as domestic Chinese companies. I would really 

like to see our government, the U.S. Government, negotiate a level 

playing field for me there. I feel like I can compete, and I know 

other multinationals feel we can compete, given a level playing 

field. 

But let us say their tax rate in China is 25 percent. We pay that 

tax as we earn profits on the investment in China; so do the Japanese, so do the Koreans, so do the Europeans, and the domestic 

players: a level playing field. If we have to top ours up to 35 percent immediately on all the profits made, then we have a differential tax of 10 percent on all the profits we earn, and we simply cannot compete. We will end up having to sell our Chinese subsidiaries, as will other multinationals, U.S. multinational-headquartered companies, or move our headquarters. 

Almost every major trading competitor we compete with has a 

territorial tax scheme where you pay the tax in the country you 

earn the profit in, and you can then repatriate that money tax-free 

back to your home-country base. It seems to me that would serve 

the United States very well. I fully recognize U.S. companies need 

to pay their fair share of the tax, and we are prepared to, and want 

to. 

20 

The CHAIRMAN. Senator Roberts? 

Mr. OWENS. And we want to stay an American-based company. 

Senator BUNNING. Thank you very much. 

The CHAIRMAN. Senator Roberts, you are next. 

Senator ROBERTS. Mr. Chairman, thank you for your courage and 

your very candid comments, and the same for Senator Grassley and 

my dear friend from Kentucky. 

My statement goes into why trade is important to Kansas. I 

think that is obvious. But I would like to mention that our Kansas 

farmers and ranchers know that 35 percent of the Kansas farm 

economy relies on agricultural exports, much like Sam is talking 

about. 

Our cash receipts total over $14.5 billion. That is what is at stake here, $14.5 billion, in regards to Kansas producers. We have 

to export over half of our wheat crop. If you fail to expand access 

to foreign markets such as in Panama, every farmer and rancher 

will pay the price. So, I have strong feelings about this. 

And it is not just Kansas agriculture. Our manufacturers ex- ported $4.7 billion in transportation equipment last year. That is 

a big number in Kansas. The growth is significant. 

Approximately 80 percent of exporters are small- and mediumsized enterprises. Lowering barriers would certainly help these 

folks and their workers. The U.S.-Panama trade agreement levels 

the playing field for 2-way trade. I am not going to get into all that; 

it has been stated before. 

I want to say something. As the former chairman of the Senate 

Intelligence Committee, I worry about the Southern Command— 

there are 31 nations in the Southern Command, 360 million people, 

average age 14, and most of them malnourished. We are entering 

into a situation now where our relationship with our Latin American allies and all those countries in that Southern Command have 

grown more hostile towards the United States. 

Panama is a very important country in between. It is strategically located, obviously. The canal is extremely important to us, not 

only in terms of a shipping route, but also strategically. So I think 

this is a national security issue as well as a trade issue. 

Mr. Owens, I was going to ask you how the export side of your 

business has been impacted by the recent economic slow-down, and 

I know the answer. But how have exports helped your ability to 

sustain your business in the middle of this slow-down? 

Mr. OWENS. Thank you very much. Roughly 50 percent of everything we manufacture in the United States is exported. Last year 

we exported about $16 billion worth of product that not only affects 

our own employment directly, but also probably 3 times as many 

employees of small- and medium-sized companies who are our suppliers. So I think we demonstrate we can very effectively compete 

in the global marketplace from a U.S. manufacturing base, and I 

would encourage us to think more about competitiveness of U.S. 

manufacturing and encourage exports. So, we are proud to be 

there. 

But we have been severely impacted. The global economy is in 

a severe recession, unprecedented since the 1930s, and it has had 

a huge impact on our employment and our suppliers’ employment 

as we downsized our business this year. 

21 

Senator ROBERTS. I appreciate that. 

Mr. Eissenstat, you know all about the beef industry and it is 

pretty central to our State’s economy, and then the pork industry 

from Iowa. You know about the consequences of what diseases like 

BSE, and more recently the H1N1 virus can do to the livestock industry. Countries can, and they do, shut down their trade based on 

fear or politics or whatever, while ignoring sound science and their 

broader trade obligations. In your statement you highlight the sanitary and phytosanitary—the SPS—portion of the agreement. Can 

you expand on why the consensus in the SPS area is so important? 

Mr. EISSENSTAT. Well, Senator, it is vitally important. I think the 

tariff reductions are one element to our ability to export quality 

products like beef, but, if there are sanitary and unjustified scientific barriers to those exports, we cannot get into the market. As 

you note, we have a very sound agreement with Panama that has 

really made a difference, from what I understand, in our ability to 

export to that market, and the tariff reductions will actually enhance and be a big part of that whole picture, enabling us to continue to take advantage of that export market. 

Senator ROBERTS. I appreciate your answer. 

Mr. Chairman, my time has expired. But I just want to say 

something. I remember clear back in NAFTA when I worked with 

‘‘Kika’’ de la Garza, the esteemed chairman of the House Agriculture Committee; he was the Democrat, I was the Republican. 

There was a lot of criticism about NAFTA, and it continues. But 

I said at that time I think a lot of trade agreements are over-sold. 

I think we tend to over-sell them in regards to the prospects of 

what we can do, but the real thing I want to touch on is that they 

are definitely over-criticized. 

And boy, are we seeing that today. You have asked the question: 

when is the President going to move on this prior to June, whatever that date was that you mentioned? Mr. Eissenstat said that 

we are going to have to articulate a broader domestic agenda. Man, 

I do not know how much broader it can get. I mean, you have a 

fire hose coming at us. The government has intervened with the 

banks, we have intervened with automobiles, we have intervened 

with insurance, credit cards, you name it. 

As these things fly by us, and we are going to do it with education, we are going to do it with health care, we are going to do 

it with cap-and-trade that may or may not work—probably will not, 

but that is just my prejudice. And as this stream of change comes 

by, containing all these little bits and pieces, I want to grab onto 

them and say, whoa, wait a minute. Let us have a hearing. Let us 

put it in regular order. Let us put it in the committee of jurisdiction. 

If we are waiting on the President to articulate all that, then we 

are going to wait years. When is he going to make the speech on 

a broader domestic picture? I am not doing that right. I tried to 

write this down, and I used to be a reporter, but I cannot read my 

writing. [Laughter.] 

I do not understand, when we are trying to increase trade to 

Cuba with Raul Castro, and Fidel in whatever shape he is in, and 

then we trade with China. Then we are even talking about possible 

22 

trade to Iran as a carrot out there to say, stop what you are doing 

in regards to your nuclear ambitions. 

Here we have three countries, South Korea, Colombia, and now 

Panama, strategically located, very important to our national security, very important to send a signal to manufacturers like Caterpillar, or to the hog industry—or the pork industry, pardon me— 

with Sam, and Kansas with $14 billion, and we are not doing anything. We have one official who has raised nine different objections 

to the labor laws of Panama. Shucks, he ought to run for labor secretary of Panama. I do not see it happening. Mr. Chairman, in 

some ways I think you have great courage to have this hearing, but 

I do not think it is going to happen, and this is nuts. Absolutely 

nuts. 

Ms. Lee, you can complain about everything from apples, aardvarks, to zebras, my Lord, in the circus of trade. I understand that, 

and Lord knows during this economy we want to do everything for 

the worker. But you are cutting off your nose to spite your face. 

The CHAIRMAN. Senator, thank you very much. One point you 

make is we have to walk and chew gum much better than we even 

do now. 

Senator Wyden, thank you for your patience. 

Senator WYDEN. Thank you, Mr. Chairman. 

As the new chairman of the Trade Subcommittee, on the basis 

of what Senator Roberts has just said, I am going to have my 

hands full. I want my colleague to know I am going to work closely 

with him, and of course with the chairman. 

The first question to you, if I could, Mr. Eissenstat. How many 

multinational corporations have subsidiaries in Panama now? 

Mr. EISSENSTAT. Senator, I do not know the exact number, but 

I believe it is over 300,000. 

Senator WYDEN. So as of today there are over 300,000 corporations with subsidiaries. Obviously on the basis of what colleagues 

are asking about, there are questions about whether this is being 

done to take advantage of Panama’s status as a tax haven. 

I think the question I would want to ask on the basis of what 

colleagues have already gotten into at this point is, what does the 

agreement do, what does the FTA do to the standing of these corporations, these hundreds of thousands of corporations, to challenge current and future U.S. regulation in, take an area, financial 

services, any area? 

Mr. EISSENSTAT. Well, thank you, Senator. I will note at the outset that, while there are many subsidiaries there, I think there is 

a misperception that many of them move there primarily because 

of the taxation regime. I do not believe that is the case. I think a 

lot of them move there to expand market share in the region. It 

is a transportation logistical hub and a very important growth market, with 8 percent growth. 

On your specific question, the agreement actually builds upon 

the bilateral investment treaty (BIT) that has been in place now 

with Panama for 25 years, and it actually takes and modernizes 

the BIT to take into account many of the new elements, including 

the elements of the investment agreement in the May 10th agreement, to incorporate those elements as part of our investor state 

dispute process. 

23 

So the question is, what does this agreement do to enhance those 

rights? Actually, those rights exist for corporations today under the 

BIT; this brings and builds in new protections, procedural protections, and also sets out some standards for review when these 

issues go forward. 

Senator WYDEN. What would be an example of such a protection? 

Mr. EISSENSTAT. Well, that is a good question. It is actually one 

of the areas that we have advanced very significantly on the procedural protections, in consultation with this committee. For example, in the investor state arbitration, I will just run through a quick 

list here: hearings and documents are public, eligible for amicus curiae brief so, if somebody has concerns with a particular case that 

has been filed, they have the right to have that case put before a 

dispute settlement panel and have it reviewed by that panel and 

those facts taken into account and those legal arguments put forth 

as well. 

The tribunals also have the ability to dismiss frivolous claims, 

and if there is a frivolous claim filed they have the ability to award 

attorneys’ fees in that instance. 

In a couple of others, governments can actually review the opinions before they are issued, and there is also a provision that enables governments to issue a joint interpretation of the rules that 

are binding once that occurs. So those are some of the protections. 

There are also substantive protections. It is a very complex area, 

as you know, but basically the substantive protections are designed 

as part of the work of this committee to reflect U.S. constitutional 

principles of taking and jurisprudence, and that is what basically 

the substantive elements of the investor chapter are intended to do. 

Senator WYDEN. And what else can be done to address Senators’ 

concerns, and I am sure I am going to get this—Chairman Baucus 

will get this—to address the concerns of Senators about Panama as 

a tax haven? 

Mr. EISSENSTAT. Well, it is a very good question. There are a couple of steps that have already been taken very recently. One which 

I do not want to be minimized is the step that the Torrijos government is committed to taking on bearer shares, which is basically 

the ability to hold corporate shares without identification, which is 

one way to hide your assets and evade taxes. 

He is committed to immobilizing those, which is a very important 

step forward in transparency, and has formed a committee—in fact, 

I believe it was done just this week—to do that, and we expect legislation on that in the near future. 

There was also, partially because of the way we have been working with the government of Panama based upon the overall trading 

relationship, some discussions with them on the taxation issues. 

This has been, as you know, under discussion for many years. But 

we are seeing a general movement, not just with Panama but in 

the world, towards greater transparency. The key to that is obviously a tax information exchange agreement. 

Senator WYDEN. Here is my message: push harder. 

Mr. EISSENSTAT. Yes, sir. 

Senator WYDEN. Because I can tell you, when this agreement 

comes up, this is going to be one of the litmus tests, and perhaps 

one of the key questions that is going to be debated here, and cerVerDate Nov 24 2008 21:21 Mar 25, 2011 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 R:\DOCS\65145.000 TIMD
24 

tainly going to be debated on the floor. That is the question of what 

this agreement does with respect to Panama as a tax haven. So, 

push harder. 

Mr. EISSENSTAT. Thank you, Senator. 

Senator WYDEN. A question for you, Mr. Owens, if I might. One 

out of seven jobs in my State depends on international trade. The 

trade jobs pay better than do the non-trade jobs. I have voted for 

every major market-opening agreement since I have been in the 

Congress. 

My principles on trade have not changed in the least, but the 

way the American people look at trade has clearly changed, not 

just in my part of the country, but everywhere else. There is a 

sense that these trade agreements are good for people in the front 

office, but they are not so good for people in the back offices and 

the people out on the shop floor. There is the sense that their jobs 

are being exported. 

I would like your sense about what else can be done at your company and in this agreement to expand the winner’s circle, to expand the winner’s circle for the members. For example, Ms. Lee 

has a lot of members who want to know, what is in this agreement 

for them, what are they going to get out of it? I have said in the 

past that, when there is a major trade agreement that is passed, 

part of the tariff reductions ought to be shared with the workers. 

I do not think you even need a piece of legislation to do that. You 

can just turn around and say, we believe in expanding the winner’s 

circle, we want to share some of the winnings with workers. 

So, if you are speaking to blue collar workers who are skeptical 

about this agreement and other market-opening agreements, what 

is in it for them? 

Mr. OWENS. A terrific question. I agree, there is a public skepticism of trade in general which is astronomical, and it has been 

demagogued. Every job loss gets blamed on trade. First off, I think 

the business community has an obligation to get out and speak 

more to our communities and to our employees to help them understand the benefits of trade. A lot of the manufacturing ‘‘job loss,’’ 

the vast majority, in fact, comes from productivity gains which are 

changing the demographic of the American workforce. 

Now, we have spent a lot of time trying to help our employees— 

and our suppliers, I might add—understand that their jobs are 

critically related to successful trade agreements. The free trade 

agreements we have negotiated, as we talked about earlier here, 

have been hugely successful in expanding our exports to those markets. 

Let year, if you just took Illinois, the big three plants that we 

have in Illinois, all very well-paying jobs, terrific plants, highly productive, competitive in the world market, close to 60 percent of everything built in those factories was exported. We are the numberone or number-two player for every major product line on every 

continent, and last year we exported $16 billion worth of product. 

Most American companies, I think, are confident in their ability to 

compete, given a level playing field. 

We mask, sometimes, the benefits. I mean, nobody talks about it 

because there are multiple winners. The fact that the average 

American family, by even the Peterson Institute estimate, benefits 

25 

to the tune of about $10,000 annually from the globalization efforts 

that we have already achieved. That comes in the form of lower 

prices for generally everything they buy, and better choice. 

I think trade is truly a win-win. We always want to characterize 

it as win-lose, and in fact it is win-win. I find it hard to imagine 

that anybody in the country, particularly anybody who has traveled 

extensively to China, thinks that the world is not better off because 

the Chinese economy has expanded the standard of living in China, 

lifting hundreds of millions of people out of poverty, that we are 

not better off even in our country for that event, that happening. 

The CHAIRMAN. I would just like to know if I could ask a question here. Mr. Owens, you like this agreement because it helps, obviously, your company. But what does that do for jobs here at home 

in America? I mean, to what degree are you going to set up plants 

overseas, and so on, and so forth, which does not really help Americans looking for jobs in the U.S.? 

Mr. OWENS. Well, I think it is maybe misunderstood. In fact, we 

can demonstrate that, when we have set up overseas manufacturing activity, it has helped our U.S. exports. China is a good example. We have a number of factories in China today that build 

our product, but it has allowed us to create a marketing and distribution presence in-country, brand recognition, and has increased 

our exports to China as we have made that manufacturing investment. So in China today—we sold over $2 billion worth of product 

last year. The majority of that was exported to China. 

The CHAIRMAN. I guess that is my question. I mean, it creates 

jobs in China. 

Mr. OWENS. No, it creates jobs in the United States. 

The CHAIRMAN. That is what I am saying. 

Mr. OWENS. Export jobs. 

The CHAIRMAN. Right. Also in the United States. But both. 

Mr. OWENS. Both places. Absolutely. 

The CHAIRMAN. Right. So my question really is, on a net basis, 

more here or more there? 

Mr. OWENS. Generally speaking, more here. I mean, if a multinational company is headquartered in our country, I believe it creates administrative jobs, financial services and treasury-related 

jobs, research and engineering-related jobs that are used in our 

manufacturing operations around the world. 

If we went to a territorial tax regime similar to what other large 

industrial countries have, Germany, all the European countries essentially, Japan, Korea, they have a territorial tax system. If we 

had that, U.S. multinationals would bring all of their foreign profits back to the United States, and we would manage it from here. 

But we need to be engaged in the world. We are 5 percent of the 

global population. If we are going to have leading companies that 

are U.S.-based, we have to not only export from the United States, 

but invest in creating a presence, if you will, in the key countries 

of the world to allow us to be successful in those countries. 

The CHAIRMAN. Yes. That is a huge, big issue, the degree to 

which the United States compares from worldwide to territorial. 

That is a huge issue. 

Mr. OWENS. I know. 

26 

The CHAIRMAN. There are a lot of arguments for it. But I would 

be interested in knowing and getting data from Caterpillar about 

the degree it could—like, how many Caterpillar jobs are created 

overseas versus how many jobs are created in the United States. 

That would be helpful to know. 

Mr. OWENS. In broad numbers, we employ about 100,000 people 

around the world today, about half of them in the United States, 

half of them outside the United States. The half outside is scattered; we have been in Brazil for 55 years, we have been in Europe 

since World War II. So we have a manufacturing presence all over 

the world. 

The CHAIRMAN. I see Ms. Lee seeking recognition here. 

Ms. LEE. Yes. 

The CHAIRMAN. All right. 

Ms. LEE. Thank you. I just wanted to get in on this conversation 

because I think it is an important one, about whether U.S. companies have done a good job in terms of managing globalization and 

what they have done for American workers. We talked a lot about 

exports today. We have heard a lot about exports and the importance of exports. 

Workers—American workers—are totally in support of the idea 

that the United States should be a successful exporting country, 

but for too much of the time I think we forget we ran a $700-billion 

trade deficit last year, so we were importing $700 billion more than 

we were able to export, some of that oil, but a large chunk of it 

was manufactured goods. We have lost almost 5 million manufacturing jobs since 2000, not all of them due to trade, but I think 

about half of them probably due to trade according to the research 

that we have done. 

But even the productivity gains which you talked about are important. We have lost some jobs to productivity gains and improved 

technology, but what we have not seen is that, in the past, there 

has been a linkage between productivity gains and wage gains, 

that as productivity increases the amount that each worker produces, generally that allows for non-inflationary wage gains. But 

we have seen a rupture between the growth in productivity, which 

has been pretty substantial over the last couple of decades, and in 

fact a decline or a stagnation in real wages, real hourly wages. 

So when you talk about the figures, that the average American 

family has benefitted from trade, well, the average American family is losing ground in real terms. So even given all the cheaper imports that we are able to buy, the average worker, the typical worker, the full-time median worker earned less in 2008, the typical 

male worker working full-time, than his counterpart did in 1975. 

So that is 30 some-odd years of technological improvement—— 

The CHAIRMAN. Let me ask this question. 

Ms. LEE. Yes? 

The CHAIRMAN. Let us assume—I mean, take your point only for 

the purpose of discussion, that the productivity gains are not 

passed on to workers. Let us take that as a given, without arguing 

it one way or the other. To what degree, though, is trade relevant 

to that point? 

Ms. LEE. I think it is extremely relevant to that point. What I 

would argue is, the reason that productivity would diverge from 

27 

wage gains is that bargaining power of workers is undermined, and 

there are a couple of reasons why that would be the case. One is 

globalization, that to the extent that companies are global and mobile internationally and workers are not—we live in the United 

States—we cannot out-source ourselves. We need to find a good job 

on American soil, unlike American companies that can make 

money wherever they go in the world. 

So, to the extent that the companies sit down—and this happens 

to my members every day—at the bargaining table and they say, 

you have to take a pay cut, you cannot have health care, you cannot have a bathroom break, you cannot have safety equipment because we are in a global economy now. They use their global mobility as a way of bargaining down wages. And the second reason for 

the diminished bargaining power is the decline of unions and the 

attack on unions, and globalization has been one part of that. 

The CHAIRMAN. Right. 

Let me ask Mr. Owens to take a crack at that. Is productivity 

passed on? What about some of the points that Ms. Lee was making? 

Mr. OWENS. Good question. I mean, if you look at the industries 

that have been the most impacted by foreign competition in terms 

of lost jobs—for example, the textile industry would be near the top 

of that list, and it, by the way, was a non-union environment in 

the textile industry—— 

Ms. LEE. No. No. 

Mr. OWENS. Largely. 

Ms. LEE. We have—— 

The CHAIRMAN. Sorry. Do you want to speak in the microphone, 

please? You can talk to Mr. Owens, that is fine, but we would like 

to hear it too. 

Mr. OWENS. Yes. Anyway, things like the high-tech industry in 

the United States, the pharmaceutical industry in the United 

States, some of our highest tech industries are largely—it is not so 

much a matter of whether they are organized in terms of labor 

unions or not, it is a matter of education and skill of the workforce, 

I think, that has a big impact on compensation. I think we can 

have very high-paying jobs here that are competitive in the global 

marketplace, and in addition to that, of course, I think we almost 

have to get away from this blue collar/white collar related discussion. We have employment. 

In our case, almost half of our employees in the United States 

are in traditionally what you might think of as white collar jobs, 

because a lot of our manufacturing operations are very highly automated and robotic, and it takes a lot more design engineers, computer scientists, and accountants, and everything else to run our 

business, and global business, successfully. So it is all payrolls. 

The CHAIRMAN. I appreciate that. I am sure Senator Wyden has 

many more questions. This is an extremely important conversation. 

So my next point—and do not misunderstand it, misinterpret it, 

but I just cannot resist—I have always, for a long, long time, wondered why in the world is it, at the Panama Canal, that the Pacific 

Ocean level is higher than the Atlantic Ocean, when water seeks 

its own level down at the bottom of South America? I could never 

figure that out. 

28 

Remember, I asked this question first—it popped in my mind 

when I was in 7th grade, or something. I asked my science teacher 

that question. He thought I was being some upstart wise, blanketyblank kid. But it was just an honest-to-goodness question. I have 

never seemed to get a good answer to it. So I am wondering, to 

what degree will this treaty level the water levels? [Laughter.] 

Actually, I looked into it a little bit. My understanding is that 

the Pacific Ocean is a little bit higher than the Atlantic, about 20 

centimeters, and it is due to the higher density of the Atlantic 

Ocean versus the Pacific. It is due also to water currents and wind 

currents and so forth. If we could dig a ditch between the two right 

straight on through, the water would pass from the Pacific side 

straight on through to the Atlantic. There would be a flow of water 

through. It has always intrigued me that one is higher than the 

other. All right. Thank you. 

Senator Wyden? 

Mr. OWENS. You should talk to my friend, Riley Bechtel. The engineering of this thing is to essentially keep the fresh water in the 

canal, because now almost every boat that transits out, all the 

fresh water goes into the ocean. The engineering of the expanded 

canal essentially will preserve the fresh water. It is quite an engineering feat. 

The CHAIRMAN. That is a very interesting point, yes, to keep the 

fresh water there. 

Mr. OWENS. Yes. 

The CHAIRMAN. That is very interesting. Thank you. 

Senator Wyden, you can wrap up. 

Senator WYDEN. Thank you, Mr. Chairman. I was not up on the 

water level issues, but I sure share your views about the American 

jobs issue and look forward to working with you closely under your 

leadership. 

Let me see if you can get into this issue of the winner’s circle 

a little bit differently, because one of the things I want to do, working with Chairman Baucus, is to try to bring business and labor 

together on trade issues—obviously easier said than done. There 

has been a lot of tension in the past in terms of trade agreements 

and trade-related issues. 

One of the areas I have focused on in terms of trying to promote 

better relations between business and labor is this idea of expanding the winner’s circle, that you can walk in and go to a hall with 

Ms. Lee’s members, or a break room at any company in the country 

and you can explain in understandable terms why a trade agreement expands the winner’s circle. 

Mr. Owens, I say this respectfully, and I ask you the question, 

just telling people trade is good for them is not going to cut it. It 

is going to take new and concrete, specific actions in order to make 

that case. That is why I suggested this idea that, when companies 

get tariff reductions as part of a trade agreement, that they share 

some of the winnings with the workers. I do not think people even 

need a piece of legislation to do that. 

Mr. OWENS. Senator, the term—— 

Senator WYDEN. Let me just make sure the idea is clear. That 

is only one example, but, if there is going to be a new effort to 

bring business and labor together in this area of trade, there are 

29 

going to have to be specific, concrete examples that do it or else Ms. 

Lee’s members and working people generally, I think, are going to 

continue to drift away from the position that I think you and I 

largely share, and certainly is reflected in my voting record. 

So, your response? 

Mr. OWENS. Well, Senator, I agree with you. I think we have to 

really work very hard to, first off, be sure we do expand the winner’s circle, be sure the American public understands how important trade is to our national future. There is no way we are going 

to build a wall to greatness in this country. It is the best ideas, the 

most original thinking, the most competitive products. Most tariff 

reductions, by the way, get passed to the buyers, consumers. So, for 

example, if we had a tariff on textiles and we drove up the cost of 

socks and underwear, who would pay for it? The lowest-income people in the country. But we have not explained it in those kind of 

terms. 

I have an obligation—and I have worked pretty hard at it. I 

might add, CNN was outside of our plant when we just had recent 

layoffs, significant layoffs. They asked employees coming out, don’t 

you wish we had passed ‘‘Buy America’’ legislation? Don’t you wish 

it was more vigorous? The hourly workforce coming out of our plant 

said, no. We are global players. If we pass ‘‘Buy America,’’ they are 

going to pass ‘‘Buy China,’’ ‘‘Buy Germany,’’ ‘‘Buy Brazil.’’ This is 

what happens—— 

Ms. LEE. Guess what? They have already done that. 

Mr. OWENS. We need, in this tenuous time for the global economy, to keep the trade flows going. Close to 1 in 5 jobs in the 

United States is tied to either imports or exports, and they are 

some of the best-paying jobs. We need to work hard with our trading partners to keep doors open. 

In my case, half the employment—half the employment—in the 

United States is tied to our exporting from the United States. We 

have a pretty good infrastructure here. Most of the mining in the 

world, most of the oil and gas development in the world is occurring elsewhere with our products. So, if we are not very successful 

as an exporting country, we need to be focused more on export competitiveness than on protectionism, and our employees understand 

that. We need to do a better job. 

Senator WYDEN. I want to let Ms. Lee and Mr. Eissenstat have 

a crack at this. I would only say that there is no question that 

market-opening agreements are a plus for consumers. It has been 

a central consideration in my supporting them. I am just saying 

they have to do more for workers. They have to do more for workers on the shop floor. That is why I call it expanding the winner’s 

circle. 

Ms. Lee, what is your thinking in terms of policies that your 

members and your organization would find expand the winner’s circle? 

Ms. LEE. Thank you so much, Senator Wyden, for the question. 

I think you are approaching it in the right way. This is exactly the 

kind of challenge that we need to face. My view is that it is not 

so much that we need to explain better to my members why trade 

is good for them. We need to make trade better for them. That is, 

30 

I think, the whole point of my testimony today, that we need to do 

some changes. I think there is a real difference. 

There are two different things that happen. One, on export promotion, we agree with you, Mr. Owens. We think export promotion 

is a good thing, that we want U.S. producers on American soil to 

be more competitive and more successful in the global economy. 

But I think what has happened in the recent couple of decades is 

that there has been really a confusion between export promotion 

and putting in place policies that make it easier for multinational 

corporations to move around the globe, including to offshore our 

jobs and to bring the goods back into the U.S. market for consumers, usually at a higher profit. 

A lot of times—Mr. Owens, actually, you would be amazed, I 

have done some research on it, that the tariff reductions are certainly not passed on, dollar for dollar, to consumers. A lot of them 

get really sucked up by the retailers and the middlemen. So when 

a big tariff cut happens or when a company moves production from 

the United States abroad, a lot of times the price of the consumer 

product does not change at all. So it goes to the profits, the workers 

lose, and the consumers do not see as much of the benefit as you 

might expect that they would. 

I think what I would like to see—and I think that the Obama 

administration policies are going in the right direction in terms of 

investing in home and infrastructure and education and health 

care and clean energy, that is all the exact right thing to do, and 

I think that the tax deferral policies are also in the right direction, 

that we are trying to incentivize companies to produce on American 

soil for the global market and not to always serve their global markets by moving to another country, but rather to do that here. 

If we start creating more good jobs at home through exports— 

and I have to say we certainly appreciate what Caterpillar has 

done, but I do not think that it is necessarily typical of multinational corporations. Many multinational corporations have very 

little production in the United States, and they move production 

offshore, not to serve markets, but to bring the goods back into the 

United States. It is that distinction where we should make a distinction in policy: our tax policy, our currency policies, and our 

manufacturing support policies need to recognize that difference 

and figure out how we can incentivize U.S. production. 

Senator WYDEN. Mr. Eissenstat? 

Mr. EISSENSTAT. Thank you, Senator Wyden. This debate is exactly why it is so important to put this agreement in the broader 

framework and why the President wants to talk about the agreement and articulate why this is part of a bigger framework. The 

hearing title is a hearing on the U.S.-Panama Trade Agreement, 

but that is not what we have been debating here, and that is not 

what we were discussing. We are discussing the role of globalization and how we can make the economy work better. You have 

some very innovative ideas on that. 

The idea is that we need to bring these together and talk about 

them in a way that the American people can understand and communicate with them and show the benefits of trade, while at the 

same time helping the American worker be able to adjust in the 

global economy. It is clear that trade agreements over the past sevVerDate Nov 24 2008 21:21 Mar 25, 2011 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 R:\DOCS\65145.000 TIMD
31 

eral years have been much too divisive, and we want to ensure that 

when the Panama agreement comes forward it does not contribute 

to that divisiveness, but actually lays the groundwork for us to be 

able to move forward on a broader global agenda, not just on Panama, but on the many other very important trade issues that we 

have before us. 

Senator WYDEN. I will just tell you, especially since we have a 

company that clearly is trying to do the right thing, acknowledged 

by Ms. Lee, that the Obama administration, and particularly this 

committee under Chairman Baucus’s leadership, we have a chance 

to build a new business-labor alliance on this trade issue, an alliance that essentially has gone by the boards in the last decade. 

There is much to agree on. I mean, both of you have talked about 

exports. 

I mean, the way people see exports in the State of Oregon is, we 

want to grow it and build it in the State of Oregon, add as much 

value to it as we possibly can in the State of Oregon with family 

wage employment, and ship it somewhere. That is what people 

really see as a winner for Oregon workers. So, there is a lot to 

work with. 

I hope that this Panama agreement, as it is considered here in 

this committee, as the committee works with the Obama administration, that this agreement can be used as a model for bringing 

together business and labor, in particular, to show workers in a 

concrete way how this agreement expands the winner’s circle, how 

they get more out of this in terms of being able to fulfill their economic aspirations. 

You all are great to come, and the conversation will certainly be 

continued. 

With that, the committee is adjourned. 

[Whereupon, at 12 p.m., the hearing was concluded.] 

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Æ 


65145056.eps