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23–918 2005

IMPLEMENTATION OF THE 

DOMINICAN REPUBLIC-CENTRAL AMERICA 

FREE TRADE AGREEMENT (DR–CAFTA) 

HEARING 

BEFORE THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

FIRST SESSION 

APRIL 21, 2005 

Serial No. 109–10 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

BILL THOMAS, California, Chairman 

E. CLAY SHAW, JR., Florida 

NANCY L. JOHNSON, Connecticut 

WALLY HERGER, California 

JIM MCCRERY, Louisiana 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

JIM NUSSLE, Iowa 

SAM JOHNSON, Texas 

ROB PORTMAN, Ohio 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

JERRY WELLER, Illinois 

KENNY C. HULSHOF, Missouri 

SCOTT MCINNIS, Colorado 

RON LEWIS, Kentucky 

MARK FOLEY, Florida 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

BOB BEAUPREZ, Colorado 

MELISSA A. HART, Pennsylvania 

CHRIS CHOCOLA, Indiana 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

BENJAMIN L. CARDIN, Maryland 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

WILLIAM J. JEFFERSON, Louisiana 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

ALLISON H. GILES, Chief of Staff 

JANICE MAYS, Minority Chief Counsel 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 

iii 

C O N T E N T S 

Page 

Advisory of April 1, 2005 announcing the hearing ............................................... 2 

WITNESSES 

Office of the U.S. Trade Representative, Hon. Peter F. Allgeier, Acting U.S. 

Trade Representative ........................................................................................... 14 

American Federation of Labor-Congress of Industrial Organizations, Richard 

L. Trumka ............................................................................................................. 98 

Chamber of Commerce of the United States of America, Association of American Chambers of Commerce in Latin America, and Aeropost International 

Services, James D. Fendell .................................................................................. 87 

McGraw-Hill Companies, Emergency Committee for American Trade, International Trade and Investment Task Force of the Business Roundtable, 

and Business Coalition for U.S.-Central America Trade, Harold McGraw, 

III ........................................................................................................................... 80 

Port of New Orleans, World Trade Center of New Orleans, Greater New 

Orleans, Inc., the New Orleans Board of Trade, BargeLink, LLC and 

MBLX, Inc., and M.G. Maher & Co., David P. Schulingkamp ......................... 106 

Warner Bros., Time Warner, and Entertainment Industry Coalition for Free 

Trade, Sheldon Presser ........................................................................................ 94 

American Apparel & Footwear Association, American Textile Company, Jack 

Ouellette ............................................................................................................... 155 

American Farm Bureau Federation, Wooten Farming and Seed, Larry 

Wooten .................................................................................................................. 116 

American Manufacturing Trade Action Coalition, Cranston Print Works, 

George Shuster ..................................................................................................... 148 

American Sugar Alliance, Jack Roney ................................................................... 129 

California Cattlemen’s Association, Hafenfeld Ranch, Bruce Hafenfeld ............. 121 

National Confectioners Association, Ferrara Pan Candy Co., Sal Ferrara ......... 146 

Burton, Hon. Dan, a Representative in Congress from the State of Indiana ..... 170 

DeFazio, Hon. Peter A., a Representative in Congress from the State of 

Oregon ................................................................................................................... 186 

Dreier, Hon. David, a Representative in Congress from the State of California ..................................................................................................................... 172 

Kaptur, Hon. Marcy, a Representative in Congress from the State of Ohio ...... 173 

Lungren, Hon. Dan, a Representative in Congress from the State of California ..................................................................................................................... 189 

Melancon, Hon. Charlie, a Representative in Congress from the State of 

Louisiana .............................................................................................................. 190 

Peterson, Hon. Collin, a Representative in Congress from the State of Minnesota .................................................................................................................... 187 

SUBMISSIONS FOR THE RECORD 

Advanced Medical Technology Association, Meena Khandpur, statement ......... 193 

American Textile Company, Duquesne, PA, Jack R. Ouellette, statement ........ 195 

Berlind, Mark, Kraft Foods, Inc., Northfield, IL, statement ................................ 234 

Brenner, Joseph E., Center for Policy Analysis on Trade and Health, San 

Francisco, CA, statement and attachments ....................................................... 206 

Brown, Hon. Sherrod, a Representative in Congress from the Sate of Ohio, 

statement .............................................................................................................. 197 

Business Software Alliance, Robert Holleyman, statement ................................. 198 

Page

iv 

Center for Latin American Studies, Berkeley, CA, Harley Shaiken, statement 200 

Center for Policy Analysis on Trade and Health, San Francisco, CA, Joseph 

E. Brenner and Ellen R. Shaffer, statement and attachments ........................ 206 

Center of Concern, on behalf of U.S. Gender and Trade Network, Kathleen 

McNeely, joint statement ..................................................................................... 213 

Coalition of Service Industries, Robert Vastine, statement ................................. 216 

Cohen, Rachel, Doctors Without Borders/Me ́decins Sans Frontiere`s, New 

York, NY, statement ............................................................................................ 219 

Denham, Lori L., Retail Industry Leaders Association, Arlington, VA, statement ...................................................................................................................... 259 

Doctors Without Borders/Me ́decins Sans Frontiere`s, New York, NY, Rachel 

Cohen, statement ................................................................................................. 219 

Farabundo Martı ́ National Liberation Party, San Salvador, El Salvador, statement ...................................................................................................................... 227 

Glickman, Dan, Motion Picture Association of America, statement and attachment ...................................................................................................................... 239 

Holleyman, Robert, Business Software Alliance, statement ................................ 198 

Interfaith Working Group on Trade and Investment, Maria Riley, statement .. 225 

International Labor Rights Fund, Trina Tocco, statement .................................. 231 

Kelley, Reed, Western Organization of Resource Councils, Meeker, CO, statement ...................................................................................................................... 266 

Khandpur, Meena, Advanced Medical Technology Association, statement ........ 193 

Kraft Foods, Inc., Northfield, IL, Mark Berlind, statement ................................. 234 

League of United Latin American Citizens, Gabriela Diana Lemus, statement 237 

Lemus, Gabriela Diana, League of United Latin American Citizens, statement ...................................................................................................................... 237 

McNeely, Kathleen, Center of Concern, on behalf of U.S. Gender and Trade 

Network, joint statement ..................................................................................... 213 

Motion Picture Association of America, Dan Glickman, statement and attachment ...................................................................................................................... 239 

National Center for Policy Analysis, Hon. Pete du Pont, statement ................... 242 

National Electrical Manufacturers Association, Arlington, VA, Craig Updyke, 

statement .............................................................................................................. 243 

Ouellette, Jack R., American Textile Company, Duquesne, PA, statement ....... 195 

Oxfam America, Stephanie Weinberg, statement ................................................. 244 

Oxley, Michael G., a Representative in Congress from the State of Ohio, 

and Pryce, Deborah, a Representative in Congress from the State of Ohio, 

joint statement ..................................................................................................... 249 

du Pont, Hon. Pete, National Center for Policy Analysis, statement .................. 242 

Pryce, Deborah, a Representative in Congress from the State of Ohio, and 

Oxley, Michael G., a Representative in Congress from the State of Ohio, 

joint statement ..................................................................................................... 249 

Public Citizen’s Global Trade Watch, Lori Wallach, statement ........................... 251 

Retail Industry Leaders Association, Arlington, VA, Lori L. Denham, statement ...................................................................................................................... 259 

Riley, Maria, Interfaith Working Group on Trade and Investment, statement . 227 

Shaffer, Ellen R., Center for Policy Analysis on Trade and Health, San Francisco, CA, statement and attachments ............................................................... 206 

Shaiken, Harley, Center for Latin American Studies, Berkeley, CA, statement ...................................................................................................................... 200 

Solis, Hon. Hilda L., a Representative in Congress from the State of California, statement .................................................................................................. 261 

Tocco, Trina, International Labor Rights Fund, statement ................................. 231 

U.S. Gender and Trade Network, Kathleen McNeely, joint statement ............... 213 

Updyke, Craig, National Electrical Manufacturers Association, Arlington, VA, 

statement .............................................................................................................. 243 

Vastine, Robert, Coalition of Service Industries, statement ................................ 216 

Vogt, Jeff, Washington Office on Latin America, statement ................................ 262 

Wallach, Lori, Public Citizen’s Global Trade Watch, statement .......................... 251 

Washington Office on Latin America, Jeff Vogt, statement ................................. 262 

Weinberg, Stephanie, Oxfam America, statement ................................................ 244 

Western Organization of Resource Councils, Meeker, CO, Reed Kelley, statement ...................................................................................................................... 266 

(1) 

IMPLEMENTATION OF THE 

DOMINICAN REPUBLIC-CENTRAL AMERICA 

FREE TRADE AGREEMENT (DR–CAFTA) 

THURSDAY, APRIL 21, 2005 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, Washington, DC. 

The Committee met, pursuant to notice, at 10:15 a.m., in room 

1100, Longworth House Office Building, Hon. Bill Thomas (Chairman of the Committee) presiding. 

[The advisory announcing the hearing follows:] 

2 

ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

FOR IMMEDIATE RELEASE CONTACT: 202–225–1721 

April 01, 2005 

FC–6 

Thomas Announces Hearing on Implementation of 

the Dominican Republic-Central America 

Free Trade Agreement (DR-CAFTA) 

Congressman Bill Thomas (R–CA), Chairman of the Committee on Ways and 

Means, today announced that the Committee will hold two trade-related hearings 

in April: 1. United States-China Economic Relations and China’s Role in the 

World Economy, and 2. Implementation of the Dominican Republic-Central 

America Free Trade Agreement (DR–CAFTA). 

1. UNITED STATES-CHINA ECONOMIC RELATIONS AND CHINA’S ROLE 

IN THE WORLD ECONOMY 

The hearing on United States-China economic relations and China’s role 

in the world economy will take place on Thursday, April 14, 2005, in the 

main Committee hearing room, 1100 Longworth House Office Building beginning at 10:00 a.m. Oral testimony at this hearing will be from both invited and 

public witnesses. Any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee or for inclusion in the printed record of the hearing. 

BACKGROUND ON CHINA HEARING: 

Since the United States and China established diplomatic relations in 1979, 

China has become an increasingly important trading partner of the United States 

and a major player in the global economy. Two-way trade between the two countries 

has increased since that time, growing from $4.8 billion in 1980 to $231.42 billion 

in 2004. In 2004, China was the United States’ third largest trading partner, the 

second largest supplier of U.S. imports, and the fifth largest buyer of U.S. exports. 

The U.S. trade deficit with China was $162 billion in 2004. Ten percent of all U.S. 

trade is with China. 

Reflecting its growing role in the world economy, China became a member of the 

World Trade Organization (WTO) on December 11, 2001, after many years of negotiations on its accession. Since its accession to the WTO, China’s integration into 

the world economy has proceeded rapidly. As a result, Congress, the Administration, 

and the U.S. private sector have focused on China’s compliance with its WTO commitments, its trade balance, the relationship between China’s pegged currency and 

trade with the United States, and other macroeconomic policies. 

The goal of this hearing is to discuss China’s importance as an economic partner 

to the United States and the issues surrounding the United States-China economic 

relationship. In announcing the hearing, Chairman Thomas stated, ‘‘China is an important player in the U.S. and global economies. We have been able to resolve many 

disputes, but we face more challenges to ensure that China integrates itself into the 

rules-based trading system that governs all WTO members. During this hearing, we 

will focus on China’s important economic role in the world, its progress in meeting 

its trade commitments, and its macroeconomic policies.’’ 

3 

FOCUS OF THE CHINA HEARING: 

The hearing will focus on United States-China economic relations and China’s role 

in the world economy, with a narrower focus on the following: (1) China’s progress 

and U.S. response in the implementation of China’s WTO accession commitments 

(including issues relating to China’s enforcement of intellectual property rights, use 

of subsidies, and the use of non-tariff barriers such as standards andimport licensing that affect imports); (2) trade relations between the United States and China; 

(3) China’s currency management and other macroeconomic issues; and (4) the relationship between trade with China and the U.S. economy, particularly the manufacturing sector. 

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD AT THE 

CHINA HEARING: 

Requests to be heard at the hearing must be made by telephone to Michael Morrow or Kevin Herms at (202) 225–1721 no later than the close of business Tuesday, 

April 5, 2005. The telephone request should be followed by a formal written request 

faxed to Allison Giles, Chief of Staff, Committee on Ways and Means, U.S. House 

of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515, 

at (202) 225–2610. The staff of the Committee will notify by telephone those scheduled to appear as soon as possible after the filing deadline. Any questions concerning a scheduled appearance should be directed to the Committee staff at (202) 

225–1721. 

In view of the limited time available to hear witnesses, the Committee 

may not be able to accommodate all requests to be heard. Those persons and 

organizations not scheduled for an oral appearance are encouraged to submit written statements for the record of the hearing in lieu of a personal appearance. All 

persons requesting to be heard, whether they are scheduled for oral testimony or 

not, will be notified as soon as possible after the filing deadline. 

Witnesses scheduled to present oral testimony are required to summarize briefly 

their written statements in no more than five minutes. THE FIVE-MINUTE 

RULE WILL BE STRICTLY ENFORCED. The full written statement of each 

witness will be included in the printed record, in accordance with House 

Rules. 

In order to assure the most productive use of the limited amount of time available 

to question witnesses, all witnesses scheduled to appear before the Committee are 

required to submit 300 copies, along with an IBM compatible 3.5-inch diskette in 

WordPerfect or MS Word format, of their prepared statement for review by Members 

prior to the hearing. Testimony should arrive at the full Committee office, 

1102 Longworth House Office Building, no later than close of business on 

Monday, April 11, 2005. The 300 copies can be delivered to the Committee staff 

in one of two ways: (1) Government agency employees can deliver their copies to 

1102 Longworth House Office Building in an open and searchable box, but must 

carry with them their respective government issued identification to show the U.S. 

Capitol Police, or (2) for non-government officials, the copies must be sent to the 

new Congressional Courier Acceptance Site at the location of 2nd and D Streets, 

N.E., at least 48 hours prior to the hearing date. Please ensure that you 

have the address of the Committee, 1102 Longworth House Office Building, 

on your package, and contact the staff of the Committee at (202) 225–1721 

of its impending arrival. Due to new House mailing procedures, please avoid 

using mail couriers such as the U.S. Postal Service, UPS, and FedEx. When a 

couriered item arrives at this facility, it will be opened, screened, and then delivered 

to the Committee office, within one of the following two time frames: (1) expected 

or confirmed deliveries will be delivered in approximately 2 to 3 hours, and (2) unexpected items, or items not approved by the Committee office, will be delivered the 

morning of the next business day. The U.S. Capitol Police will refuse all non-governmental courier deliveries to all House Office Buildings. 

4 

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE AT THE 

CHINA HEARING: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘109th Congress’’ from the menu entitled, ‘‘Hearing Archives’’ (http://waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, completing all informational forms and clicking ‘‘submit’’ on the 

final page, an email will be sent to the address which you supply confirming your 

interest in providing a submission for the record. You MUST REPLY to the email 

and ATTACH your submission as a Word or WordPerfect document, in compliance 

with the formatting requirements listed below, by close of business Thursday, April 

28, 2005. Finally, please note that due to the change in House mail policy, the U.S. 

Capitol Police will refuse sealed-package deliveries to all House Office Buildings. 

Those filing written statements who wish to have their statements distributed to 

the press and interested public at the hearing can follow the same procedure listed 

above for those who are testifying and making an oral presentation. For questions, 

or if you encounter technical problems, please call (202) 225–1721. 

2. IMPLEMENTATION OF THE DOMINICAN REPUBLIC-CENTRAL AMERICA FREE TRADE AGREEMENT 

The hearing on implementation of the DR–CAFTA will take place on 

Thursday, April 21, 2005, in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 10:00 a.m. Oral testimony at this 

hearing will be from both invited and public witnesses. Invited witnesses will include Ambassador Peter F. Allgeier, Acting United States Trade Representative. 

Any individual or organization not scheduled for an oral appearance may submit a 

written statement for consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND ON DR–CAFTA HEARING: 

On October 1, 2002, the President formally notified Congress that he would pursue a Free Trade Agreement (FTA) with Central America. Negotiations began in 

January 2003. Following nine rounds of negotiations, agreement was reached with 

El Salvador, Guatemala, Honduras, and Nicaragua on December 17, 2003, and with 

Costa Rica on January 25, 2004. Negotiations to include the Dominican Republic in 

CAFTA began in January 2004 and concluded on March 15, 2004. On May 28, 2004, 

Ambassador Robert Zoellick and ministers of five Central American countries signed 

the CAFTA. On August 5, 2004, Ambassador Zoellick, the Dominican Republic’s Secretary for Industry and Commerce Sonia Guzman, and representatives of five Central American nations signed the DR–CAFTA. 

The DR–CAFTA would immediately eliminate tariffs on more than 80 percent of 

U.S. exports of consumer and industrial products, phasing out the rest over 10 

years, thereby opening DR–CAFTA’s markets to U.S. goods, services, and farm products and leveling the playing field for U.S. workers and farmers. Because the Central American countries already enjoy duty free access to the United States for over 

75 percent of their exports, the agreement is estimated by the International Trade 

Commission (ITC) to have minimal effect on imports to the United States. At the 

same time, U.S. agricultural exports to the Dominican Republic-Central American 

region are estimated to increase by nearly $900 million under the agreement. The 

ITC found that manufacturers would also benefit through increased exports, especially in sectors such as fabric and yarn, information technology products, agricultural and construction equipment, paper products, pharmaceuticals and medical and 

scientific equipment. The agreement includes a negative list for services with very 

few reservations. All agricultural and industrial products are covered by the agreement. The agreement also contains strong protections for U.S. investors. 

The United States and the DR–CAFTA region had two-way trade of $33.4 billion 

in 2004. The DR–CAFTA countries combined make up the 2nd-largest U.S. market 

in Latin America, behind only Mexico. The United States exports more than $15 bilVerDate Aug 31 2005 06:20 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00008 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
5 

lion annually to the region, making it America’s 13th-largest export market worldwide. 

In announcing the hearing, Chairman Thomas stated, ‘‘I am very pleased not only 

about the potential commercial opportunities for our countries but also about the 

stability and development that the DR–CAFTA agreement brings to the region. This 

agreement will cement many of the democratic, legal, and economic reforms that 

these countries have struggled with in recent years, and it will do so while providing 

expansive trade opportunities for U.S. goods and services immediately. I look forward to moving this agreement quickly.’’ 

FOCUS OF THE DR–CAFTA HEARING: 

The hearing will examine the DR–CAFTA and the benefits that the agreement 

will bring to American businesses, farmers, workers, consumers, and the U.S. economy. 

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD AT THE 

DR–CAFTA HEARING: 

Requests to be heard at the hearing must be made by telephone to Michael Morrow or Kevin Herms at (202) 225–1721 no later than the close of business Tuesday, 

April 12, 2005. The telephone request should be followed by a formal written request faxed to Allison Giles, Chief of Staff, Committee on Ways and Means, U.S. 

House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 

20515, at (202) 225–2610. The staff of the Committee will notify by telephone those 

scheduled to appear as soon as possible after the filing deadline. Any questions concerning a scheduled appearance should be directed to the Committee staff at (202) 

225–1721. 

In view of the limited time available to hear witnesses, the Committee 

may not be able to accommodate all requests to be heard. Those persons and 

organizations not scheduled for an oral appearance are encouraged to submit written statements for the record of the hearing in lieu of a personal appearance. All 

persons requesting to be heard, whether they are scheduled for oral testimony or 

not, will be notified as soon as possible after the filing deadline. 

Witnesses scheduled to present oral testimony are required to summarize briefly 

their written statements in no more than five minutes. THE FIVE-MINUTE 

RULE WILL BE STRICTLY ENFORCED. The full written statement of each 

witness will be included in the printed record, in accordance with House 

Rules. 

In order to assure the most productive use of the limited amount of time available 

to question witnesses, all witnesses scheduled to appear before the Committee are 

required to submit 300 copies, along with an IBM compatible 3.5-inch diskette in 

WordPerfect or MS Word format, of their prepared statement for review by Members 

prior to the hearing. Testimony should arrive at the full Committee office, 

1102 Longworth House Office Building, no later than close of business on 

Monday, April 18, 2005. The 300 copies can be delivered to the Committee staff 

in one of two ways: (1) Government agency employees can deliver their copies to 

1102 Longworth House Office Building in an open and searchable box, but must 

carry with them their respective government issued identification to show the U.S. 

Capitol Police, or (2) for non-government officials, the copies must be sent to the 

new Congressional Courier Acceptance Site at the location of 2nd and D Streets, 

N.E., at least 48 hours prior to the hearing date. Please ensure that you 

have the address of the Committee, 1102 Longworth House Office Building, 

on your package, and contact the staff of the Committee at (202) 225–1721 

of its impending arrival. Due to new House mailing procedures, please avoid 

using mail couriers such as the U.S. Postal Service, UPS, and FedEx. When a 

couriered item arrives at this facility, it will be opened, screened, and then delivered 

to the Committee office, within one of the following two time frames: (1) expected 

or confirmed deliveries will be delivered in approximately 2 to 3 hours, and (2) unexpected items, or items not approved by the Committee office, will be delivered the 

morning of the next business day. The U.S. Capitol Police will refuse all non-governmental courier deliveries to all House Office Buildings. 

6 

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE AT THE 

DR–CAFTA HEARING: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘109th Congress’’ from the menu entitled, ‘‘Hearing Archives’’ (http://waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, completing all informational forms and clicking ‘‘submit’’ on the 

final page, an email will be sent to the address which you supply confirming your 

interest in providing a submission for the record. You MUST REPLY to the email 

and ATTACH your submission as a Word or WordPerfect document, in compliance 

with the formatting requirements listed below, by close of business Thursday, April 

28, 2005. Finally, please note that due to the change in House mail policy, the U.S. 

Capitol Police will refuse sealed-package deliveries to all House Office Buildings. 

Those filing written statements who wish to have their statements distributed to 

the press and interested public at the hearing can follow the same procedure listed 

above for those who are testifying and making an oral presentation. For questions, 

or if you encounter technical problems, please call (202) 225–1721. 

FORMATTING REQUIREMENTS FOR BOTH HEARINGS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman THOMAS. The Chair wishes to announce that the 

Committee witness structure has been available for some time, and 

it has been brought to the Chair’s attention that there are some 

Members who, notwithstanding prior notification, wish to testify, 

and the Chair believes that Members should be accommodated. 

However, the Chair believes that since there was no indication that 

Members wished to testify, the Chair wishes to provide a reasonVerDate Aug 31 2005 06:20 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00010 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
7 

able period of notification to all Members that there will be a Member panel following the already-structured panels coming before the 

Committee, and that the Chair, along with the Ranking Member 

and other interested Members, will extend the hearing for any 

Member who wishes to testify following the currently structured 

panels. That is, anyone who is pro and anyone who is con, who is 

a Member, the Chair believes has a right to be heard. We have a 

structured arrangement and the Chair believes we should go forward with the structured arrangement; and then, with ample notice as to when the structured panels appear to be concluding, we 

will notify and carry on with a Members’ panel. The Chair recognizes the gentleman from New York. 

Mr. RANGEL. I want to thank the Chairman for accommodating 

the wishes of Members of both parties that have not been able to 

get involved in this bill because it is on a fast track. I wish that 

we had advanced notice that Members wanted to testify. I don’t 

know whether our staffs invited them to testify. I do thank the 

Chair of this Committee for extending the courtesy to Members of 

Congress to be able to be heard on such vital legislation. Thank 

you. 

Chairman THOMAS. I thank the gentleman. The Chair believes 

that ‘‘obligation’’ is a better word than ‘‘courtesy.’’ We want to accommodate all Members. With that, the Chair would like to begin 

the opening statement and the hearing. 

Mr. LEWIS OF GEORGIA. Mr. Chairman, is it ordinary and customary as a rule to recognize Members first, to give them the priorities? 

Chairman THOMAS. Ordinarily, when there is a structured 

panel arrangement, the Members are placed first. The reason the 

Chair has decided to do it at the end of the panels is that since 

no Member officially structurally notified us, the Chair wants to 

make sure that knowing there is a Members’ panel, any Member 

who wishes to testify may do so. That extraordinary structure, I believe, better accommodates all Members, and that is why the Ranking Member and the Chair decided to follow that procedure. 

Mr. LEWIS OF GEORGIA. Thank you. 

Chairman THOMAS. I thank the gentleman. Seeing no further 

Member inquiries, that will be the way the Committee proceeds. I 

would like to say to all of you, good morning. Today’s hearing will 

examine the proposed Free Trade Agreement (FTA) with those 

countries of Central America and the Dominican Republic. This 

would immediately liberalize two-way trade. We currently have a 

one-way trade arrangement. This will liberalize two-way trade. The 

Chair wishes to thank and acknowledge the countries of Costa 

Rica, El Salvador, Guatemala, Honduras and Nicaragua, along 

with the Dominican Republic, because there was a precondition 

that they agree as a region before the United States would negotiate with them. I do believe that the Ambassadors from those 

countries are here, in addition to the Minister and Ambassador 

from Oman who are currently negotiating a free trade area. We 

thank you for the final work product and we look forward to dealing with, in a positive way, the country of Oman. 

I think it is important to know that in May of 2000, 309 House 

Members voted to give these same countries we have been menVerDate Aug 31 2005 06:20 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00011 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
8 

tioning unilateral preferential treatment by lowering tariffs on the 

products they export into the United States without any required 

reciprocal treatment. Pretty obviously, this amounts to a one-way 

trade deal benefiting those countries and not the United States. 

The Dominican Republic-Central American Free Trade Agreement 

(DR–CAFTA) would turn the relationship, as I said, into a positive 

two-way street. Specifically, the DR–CAFTA would eliminate tariffs 

on more than 80 percent of U.S. exports, with most remaining tariffs phased out over 10 years. What this means is that we would 

then open up markets to U.S. goods and services, so that it would 

be a level playingfield for the U.S. and Central American workers 

and farmers. The DR–CAFTA countries, combined, make up the 

second-largest U.S. market in Latin America. Enhanced trade with 

these nations, as we will hear in testimony from most of the witnesses—and we will examine in detail their arguments—will create 

new jobs for Americans and new partnerships in the region. The 

agreement covers all agricultural and industrial sectors and contains strong protections for U.S. investors. 

In addition to the commercial opportunities, DR–CAFTA will 

help cement many of the recent democratic legal and economic reforms in these countries. The Chair is often amazed at the short 

memories of many people, and I do believe some testimony will 

point out that just a few short years ago, the U.S. interest in the 

region stemmed more in the concern of humanitarian, national security and other arguments, rather than the very positive question 

we have before us today. It is a little bewildering to the Chair to 

have previous FTAs supported by a number of people who are now 

opposing this one, because the concerns over labor protections really would apply, in the Chair’s opinion, a double standard. In fact, 

the labor provisions in this agreement are stronger than in prior 

agreements, such as the Morocco (P.L. 108–302), the Chile (P.L. 

108–77), and the Singapore (P.L. 108–78) agreements. The arguments of an absolutist nature in terms of the unfairness of this 

agreement are belied by the examination of agreements just in the 

last few years, let alone those of several years ago. This is one of 

the strongest FTAs to come before Congress, and I assume that we 

are going to move fairly quickly to agreement. There has been a 

major buildup, and the Chair hopes for a positive, informative, and 

enlightening discussion before the Committee today. The Chair will 

recognize the gentleman from New York, Mr. Rangel, after which 

the Chair will recognize the Subcommittee on Trade Chairman, Mr. 

Shaw, and the Ranking Member, the gentleman from Maryland, 

Mr. Cardin. Mr. Rangel? 

[The opening statement of Chairman Thomas follows:] 

Opening Statement of The Honorable Bill Thomas, Chairman, and a 

Representative in Congress from the State of California 

Good morning. During today’s hearing, we will examine the proposed Free Trade 

Agreement with those countries of Central America and the Dominican Republic. 

This would immediately liberalize two-way trade. We currently have a one-way 

trade arrangement; this will liberalize two-way trade. The Chair wishes to thank 

and acknowledge the countries of Costa Rica, El Salvador, Guatemala, Honduras, 

Nicaragua, along with the Dominican Republic, because there was precondition that 

they agree as a region before the U.S. would negotiate with them. 

It is important to note that in May of 2000, 309 House Members voted to give 

these same countries we’ve been mentioning unilateral preferential treatment by 

9 

lowering tariffs on the products they export into the United States, without any required reciprocal treatment. Pretty obviously, this amounts to a one-way trade deal 

benefiting those countries and not the United States. The DR–CAFTA agreement 

would turn the relationship into a positive two-way street. Specifically, the DR– 

CAFTA would eliminate tariffs on more than 80 percent of U.S. exports, with most 

remaining tariffs phased out over 10 years. What this means is, that we would then 

open markets to U.S. goods and services so that it would be a level playing field 

for U.S. and Central American workers and farmers. 

The DR–CAFTA countries combined make up the 2nd-largest U.S. market in 

Latin America. Enhanced trade with these nations—as we’ll hear in testimony from 

most of the witness and we will examine in detail their arguments—will create new 

jobs for Americans and new partnerships in the region. The agreement covers all 

agricultural and industrial sectors and contains strong protections for U.S. investors. In addition to the commercial opportunities, DR–CAFTA will help cement 

many of the recent democratic, legal and economic reforms in these countries. 

The Chair is often amazed at the short memories of many people. I believe some 

testimony will point out that just a few short years ago, the U.S. interest in the 

region stemmed more from concerns of humanitarian, national security and other 

arguments, rather than the very positive question we have before us today. 

It’s a little bewildering to the Chair to have previous Free Trade Agreements supported by a number of people who are now opposing this one because the concerns 

over labor protections really would apply, in the Chair’s opinion, a ‘‘double standard.’’ In fact, the labor provisions in this agreement are stronger than in prior agreements, such as Morocco, Chile and Singapore. The arguments of an absolutist nature, in terms of the unfairness of this agreement, are belied by the examination 

of agreements just in the last few years, let alone those of several years ago. 

This is one of the strongest Free Trade Agreements to come before Congress, and 

I assume that we’re going to move fairly quickly to agreement. There has been a 

major build-up and the Chair hopes for a positive, informative and enlightening discussion before the Committee today. 

f 

Mr. RANGEL. Thank you, Mr. Chairman. This has to be one of 

the most awkward presentations that I have made in the 35 years 

that I have been in the Congress, because the Chair talks about 

the arguments that have been made, and I have polled the Democrats on this Committee and those that were at the caucus this 

morning had indicated, like me, no Republican has made any arguments for or against DR–CAFTA. I have spoken with more foreigners and business people about this most important piece of legislation, because I think it is not just important for the countries 

that are involved, but I think it is important for the United States 

of America. I really think if we are looking for liberty and freedom, 

that we have to do it through trade and not at the end of a rifle. 

If we are looking for people that are going to reject dictatorships, 

we have to make certain that they are able to work and eat and 

have decent wages. All of these things are very, very important to 

me, and that is why I feel so good that I was a part of the building 

of the Caribbean Basin agreement, one of the original authors of 

the African FTA (P.L. 106–200), and it just seems to me that this 

is the time we should have been working with our friends in the 

Dominican Republic and in Central America. The embarrassment 

and awkwardness is that on international affairs, I really had 

hoped and thought that we would not be acting like Democrats and 

Republicans, but we would be Americans. How awkward it is for 

me to share with people of foreign governments the fact that we 

are not only not working together, we don’t even argue together, 

we don’t discuss anything together, and it is embarrassing to me 

as an American and as a Member of this Congress. For me to say, 

with all of my years of seniority and as long as I have been on this 

10 

Committee and my involvement with trade issues, that not one Republican on this Committee has discussed this, including the Chair 

and the Chair’s staff I might add, is an embarrassing thing for me 

as a Member of Congress. 

I might say to the U.S. Trade Representative (USTR), and I do 

hope that the new Member, the new Trade Representative that was 

a Member of this Committee, I have every reason to believe there 

will be a change of attitude, but I cannot think of anything that 

your office has done, Mr. Allgeier, to present to our foreign friends 

the fact that we were looking for a bipartisan agreement; that we 

cannot take the attitude that if you pick up one or two Democrats, 

that that is bipartisan. It would seem to me that the USTR represents all of the United States, and we feel very strongly that in 

the House of Representatives, that is a part of our responsibility. 

So, Mr. Chairman, I find it awkward to have to say this, but knowing that it cannot be contradicted, we don’t have to argue this point 

publicly, since no one took advantage of the opportunity to discuss 

or argue it privately. Thank you. 

Chairman THOMAS. The gentleman from Florida, the chairman 

of the Subcommittee on Trade, Mr. Shaw. 

Mr. SHAW. Mr. Chairman, the trade agreement before us, DR– 

CAFTA, provides the United States access to one of the world’s 

fastest growing markets. We will hear today from both sides of this 

particular agreement, but I firmly believe that DR–CAFTA provides equality in our bilateral trade with our Latin American partners. Some people might not understand that we don’t have the 

luxury of merely maintaining the status quo if we don’t pass DR– 

CAFTA. If we fail to act now, American companies and American 

workers will be worse off than they are today. The reason is because DR–CAFTA’s main industry is textile and apparel production. Without DR–CAFTA, the apparel manufacturing industry in 

the Latin American region will not buy U.S. inputs like cotton, 

yarn, fabric, buttons and zippers. 

We have heard also from people from our last hearing that we 

had on China, manufacturers of zippers and other by-products that 

go into apparel were very much in favor of this agreement. We certainly know that the Chinese won’t buy those inputs. The National 

Association of Manufacturers estimates that we sell some $4 billion 

worth of U.S.-made inputs into the region and that we that will be 

jeopardized if we don’t pass DR–CAFTA. However, if we do pass 

the agreement, then those U.S. input industries have a free market 

in which to sell. At the same time, we expect to generate an additional $1 billion in increased exports if we pass DR–CAFTA. So, we 

don’t have a choice to merely sit back and not take action on this 

agreement. If we do, the world will leave us behind. I might say 

too that if we do, we will be turning our backs on some young democracies who are struggling in order to align themselves with the 

free market system and democracy in our own hemisphere. 

Nor is the limited access for sugar given to DR–CAFTA a reason 

to oppose this agreement. I say this as a Member of the Florida 

congressional delegation, one of the country’s largest producers of 

sugar. The increase in quota will account for just 1.1 percent of 

U.S. sugar consumption. The agreement also includes a compensation mechanism allowing the U.S. Government to pay to prevent 

11 

these sugar imports. Mr. Chairman, finally, DR–CAFTA is a tremendous opportunity for my State of Florida. In 2004, Florida exports to the region totaled $3.2 billion, making the DR–CAFTA region Florida’s largest export market. 

Mr. Chairman, just briefly in response to Mr. Rangel’s comments, 

I would not only welcome but would enjoy the opportunity to talk 

to Mr. Rangel about any type of agreements that come under the 

jurisdiction of my Subcommittee, and I have spoken, although very 

briefly, with the Democrat Ranking Member with regard to DR– 

CAFTA, and I believe, too, that communication is a two-way street. 

Anyone on the minority side that wants to talk to someone on the 

majority side about these agreements not only should be listened 

to, but they also have an obligation to come forward and ask for 

such a meeting or agreement, whether it be public or private. So, 

Charlie Rangel, my friend, I will gladly discuss anything with you, 

at any time, and any place. Thank you. 

Mr. RANGEL. I thank you for that. 

Chairman THOMAS. The gentleman from Maryland. 

Mr. CARDIN. Thank you, Mr. Chairman. Ambassador Allgeier, 

it is a pleasure to have you before our hearing. Mr. Chairman, I 

thank you for holding this hearing. As the Ambassador knows, I 

have concern about the overall direction of the U.S. trade policy. 

Every week we seem to get another fact that shows that we are 

moving in the wrong direction on international trade. Last year’s 

trade imbalance was $617 billion, a record amount. We have a 

record imbalance with China at $162 billion. We are now negative 

on advanced technology products, and we have been since 2002. 

The United States is on its way to becoming a net importer of services by the year 2010. According to the U.S. Department of Agriculture (USDA), the U.S. trade surplus for farm products will disappear in 2005, for the first time in over 50 years. 

Mr. Chairman, this direction is just not sustainable. Our highest 

priority should be to enforce our trade rights and expand our opportunities under the World Trade Organization (WTO). Yet this 

Administration appears to be timid in enforcing our trade rights 

and is well behind the schedule set out for the Doha Development 

Round. I must say that I was mystified by the statement of the 

Speaker that he would bring up a China trade bill in order to pass 

DR–CAFTA. I don’t understand why we should hold these issues 

hostage to one another, why we just don’t consider them on their 

own merits, and why our Republican friends are finally talking 

about serious trade policy problems with China just because they 

don’t have the votes on DR–CAFTA. 

Turning to DR–CAFTA for one moment, I believe we should have 

an FTA with Central America. I think it is in the interests of the 

United States and in the interests of our Central American friends. 

The problem is we should have the right agreement. Unfortunately, 

I think this is a missed opportunity. The process that was used, as 

pointed out by Mr. Rangel, was not one that had the consultation 

required by all the Members of Congress, but particularly those on 

both sides of the aisle, that support expanding trade opportunities 

for American producers, farmers, and manufacturers. This agreement was completed without the benefit of provisions that would 

12 

ensure that these countries observe the most basic standards of 

fairness and decency to working people. 

As to labor standards, I don’t understand why we move backward 

from the current U.S. law. Under the enhanced Caribbean Basin 

Initiative (CBI) program in effect for the last 5 years, the CBI 

countries are required to obtain the five basic standards of decency 

to working people. Under the basic CBI program for 15 years before that, nine countries were required to make progress toward 

those standards. In other words, we already have requirements 

from the Central American countries to make progress toward moving toward the internationally recognized labor standards and a 

mechanism to help them in that regard. The DR–CAFTA agreement would repeal that. It would only require the countries to enforce their current laws, and then the enforcement mechanism is 

not very strong, providing for monetary penalties primarily paid to 

the countries themselves rather than having enforcement, so the 

countries are able to stand up to the strong special interest forces 

in their own country that prevent the movement toward basic labor 

rights. So, I see this agreement as a real missed opportunity, a 

missed opportunity to build the kind of bipartisan support that the 

Australian (P.L. 108–286) and Chile and Singapore and Morocco 

agreements enjoyed, a missed opportunity to raise the bar in a reasonable way on issues important to U.S. workers, manufacturers, 

and farmers, a missed opportunity to continue to rebuild bipartisanship on U.S. trade policy. 

Mr. Chairman, I hold out one hope, and that is implementing 

legislation has yet to be submitted to Congress, so therefore the 

clock has not started to run. I offer hope that we will be able to 

work and build the bipartisan support for expanding international 

trade which has been the hallmark of this Congress. I look forward 

to working with my Republican friends and working with my 

friends on both sides of the aisle that are interested in expanding 

trade opportunities to figure out a way that we can have a DR– 

CAFTA agreement that represents the best traditions of this country, that will be in the interests of the United States and the Central American countries and the Dominican Republic, and one that 

can enjoy broad bipartisan support. I thank you. 

Chairman THOMAS. I thank the gentleman. One of the responsibilities of the Chairman of this Committee is to make sure that 

the record created by the Committee is as accurate as we can make 

it. There have been statements made which leave the impression 

that there have been no opportunities to have input into a product, 

as the gentleman from Maryland correctly stated, that is not yet 

before us, and the Chair wants to make sure that the record is 

clear. On October 1, 2002, under Trade Promotion Authority (TPA) 

(P.L. 107–210), which creates the greatest oversight role for Congress in the history of trade, there was formal notification by the 

President of the intent to negotiate this agreement. On January 7, 

2003, there was the first organizational meeting, which would have 

been an opportunity to discuss any issue on the subject of trade. 

I might indicate that the membership of the Congressional Oversight Group (COG) consists, as its core, the two key Committees: 

the Senate Committee on Finance and the House Committee on 

Ways and Means. The Chairman and the Ranking Member, indeed 

13 

three Republicans and two Democrats from this Committee, are 

permanent, full Members of the COG. 

On April 11 we met, dealing with Chile, Singapore, and a general 

update, which would have been an opportunity to have input on 

this proposal. On July 24, 2003, the House COG sub-group and full 

Senate COG Committee discussed Bahrain and adding the Dominican Republic to the CAFTA (the Central American Free Trade 

Agreement). On November 6, 2003, the COG sub-group—and Members of the Committee on Ways and Means are Members of the 

core COG, so that any meeting of the COG consists of the Committee on Ways and Means, the Chairman, the Ranking Member, 

three Republicans and two Democrats. The November 6, 2003 discussion covered not only the Andean Nation question, but also a 

Miami ministerial meeting of the Free Trade Area of the Americas 

(FTAA) and a discussion of other trade agreements in the region. 

On May 6, 2004, there was a meeting of the sub-group, once again 

the core group—meaning the Members of this Committee—with 

USTR on three trade arrangements which had been concluded but 

not yet signed: Australia, Morocco and the Central American countries, plus the Dominican Republic. On September 8, 2004, there 

was another meeting of the sub-group of the House and the Senate 

COG with the Trade Representative, Mr. Zoellick. On February 2, 

2005, there was an organizational meeting for this Congress with 

a general overview of trade subjects. 

For the gentleman from New York to say that he has had no opportunity for input into this agreement is to indicate and enforce 

the statement the Chair made at the beginning. This appears to be 

an attempt to have politics triumph over policy, but when absolutely false statements are made about the inability to have any 

opportunity for input, the Chair feels it is absolutely essential that 

the record be accurate. That record consists of meeting after meeting after meeting, from the initial notification on October 1, 2002, 

until the hearing that we are holding today. If anyone chose not 

to participate or not to engage, that is their choice. It wasn’t by exclusion, it was by choice. The Chair now recognizes the Honorable 

Peter Allgeier. 

Mr. RANGEL. I really don’t think so, and if we were in the 

House I would take down your words for attributing a false statement to me as a Member of this Committee. 

Chairman THOMAS. The gentleman from New York is recognized. 

Mr. RANGEL. Well, thank you so much. There is no indication 

in any record that the objections we have—we Democrats, and I as 

the Ranking Member, believe that this is a good agreement, and 

if we had been consulted and the issues that we had problems with 

were worked out, we would probably have almost unanimously 

voted for this. The fact that I am a Member of the House and have 

an opportunity to see you or have an opportunity to contact the 

USTR, has nothing to do as to the issue of having the International 

Labor Organization (ILO) standards included in these agreements. 

You know that is true and I know that is true. Bringing up dates 

saying we were alive and well in the Congress doesn’t mean that 

I had an opportunity or any Member of this Committee has had an 

opportunity to try to work out the agreements, so, when it is preVerDate Aug 31 2005 06:20 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00017 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
14 

sented to us we could support it. So, I would say that you have distorted the truth yourself, and we want to have a debate on this 

which I don’t think we should have, it just shows the foreigners 

and Americans how far we are apart in trying to become a bipartisan unit. I don’t think you add at all toward a climate of being 

bipartisan; your words and your tone dictate that. 

Chairman THOMAS. The Chair will recognize the first panel, 

but will conclude this discussion with the fact that the dates are 

history. This is a hearing on a proposal not yet before the Committee. The Committee plans to have a hearing in which the Administration, under TPA, will come before this Congress, and this 

Committee will have ample opportunity to examine the specifics 

negotiated by the Administration and have their input on desired 

changes. That is the structure that was created under TPA. 

So, for prospective purposes, the record needs to show the gentleman from New York and any other Member of this Committee 

will have a total, absolute opportunity to convey, based upon the 

presentation of the Administration’s specific language, their agreement or disagreement with the language, offer amendments in a 

so-called informal markup in front of this Committee, and the Committee will work its will on the specific language presented by the 

Administration. Between now and the time of that markup, I invite 

any Member of the Committee to continue to discuss with the 

Trade Representative what the language will look like that will 

come before this Committee, for the Committee to work its will 

over that language, which the Administration will then present formally at a future date. The entire discussion the Chair just conducted is based upon prospective opportunities for Members to engage in this process. The Chair looks forward to Members engaging 

in the process in the near future. So, the next time we meet to comment on this work product, no one can create the appearance or the 

illusion that not only have they not had an opportunity to participate, but they will have a full opportunity to present amendments 

to the agreement, offer them for a vote, and the Committee will 

then work its will. The Chair wishes to recognize the Honorable 

Peter Allgeier, who is, we hope, temporarily continuing to be the 

acting USTR. I know the gentleman from Maryland is now leaving 

to go over to the Senate to observe and hopefully participate in the 

hearing in the Senate under the Senate’s constitutional powers to 

assist the creation of the leadership in the process. 

Chairman THOMAS. So, Mr. Allgeier, your written testimony 

will be made a part of the record. You can address this Committee 

in any way you see fit. 

STATEMENT OF THE HONORABLE PETER F. ALLGEIER, 

ACTING U.S. TRADE REPRESENTATIVE 

Ambassador ALLGEIER. Thank you, Mr. Chairman. I would like 

to thank you and Congressman Rangel and all the Members of this 

Committee for the opportunity today to present to you the FTA between the United States and the CAFTA countries and the Dominican Republic. We greatly appreciate the guidance that the Committee has provided throughout this negotiating process, and in 

particular we appreciate the leadership of you, Mr. Chairman, and 

Congressman Rangel. The DR–CAFTA marks the successful culVerDate Aug 31 2005 06:20 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00018 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
15 

mination of a decades-long American policy, pursued by both Republican and Democrat Administrations, of promoting economic reform and democracy in Central America. This DR–CAFTA that we 

are presenting today, offers us the best interest to strengthen the 

economic ties that we already have with these countries but also, 

most importantly, to reinforce their progress toward economic, political and social reform. 

The DR–CAFTA is not an act of unilateral altruism by the 

United States. We have much to gain by this agreement. Collectively, as you pointed out, Mr. Chairman, Central America and the 

Dominican Republic make up the second largest U.S. export market in Latin America. It is larger than our exports to Brazil, but, 

interestingly, on a global scale, the exports that we have to these 

countries exceeds the total exports that we have to Russia, India, 

and Indonesia combined. The American Farm Bureau Federation 

(AFBF) has estimated that U.S. farm exports under DR–CAFTA 

would increase by $1.5 billion a year. That is an effective doubling 

of the agricultural exports that we have at present, $1.8 billion. 

The interesting thing is that the agricultural exports, our agricultural exports, would grow at an 8 to 1 ratio compared to our agricultural imports from these countries. The U.S. Chamber of Commerce also has done an analysis of the DR–CAFTA and it estimates for all goods, our exports to that region would increase by 

$3 billion a year. 

We currently face an unlevel playingfield. We do have free trade 

with Central America and the Dominican Republic in one direction. 

Nearly 80 percent of the imports into the United States from these 

countries enter the United States duty free. About 40 percent of 

our exports to those countries enter those countries duty free. In 

agriculture, it is even more dramatic. Approximately 99 percent of 

the agricultural products that we import from these countries enter 

our markets duty free. Now, more than half of current U.S. farm 

exports to Central America will become duty free on the first day 

of this agreement. That includes products such as high-quality cuts 

of beef, cotton, wheat, key fruits and vegetables, soybeans, and 

processed food products. There will be additional market opening 

for pork, dry beans, vegetable oil, poultry, rice, corn, and dairy 

products. That is the reason that every major agricultural organization, with one exception—that is more than 60 organizations— 

have already indicated their strong support for the DR–CAFTA. In 

services we also will be getting important new opportunities in this 

region covering the whole spectrum of services: telecommunications, banking, insurance, audio-visual services, transportation, 

engineering, express delivery, computer and related services, and 

on and on. This also is a trade agreement for the digital age. It provides strong protection for our intellectual property in the copyright 

areas of software, music, text and videos, but also in patents, 

trademarks, and trade secrets. The agreement provides strong anticorruption procedures and provisions in government contracting, 

government procurement, and in other areas of trade with these 

countries. 

I would like to focus on three particular subjects: textiles, labor 

and the environment. Textiles and apparel is an important component of our trade with this region. It is our second-largest market 

16 

for U.S. fabric and yarns. The DR–CAFTA represents a critical element in our domestic industries’ ability to compete with Asia. 

Without the tariff preferences and rules of origin of DR–CAFTA, 

apparel companies may well lose production to China, where they 

will be much more likely to use inputs from outside the United 

States. Just to put an order of magnitude on that, when we purchase apparel from China, on average 0.1 percent of that apparel, 

the value of that apparel, involves inputs from the United States. 

When we import, on the other hand, apparel from Central America, 

the Dominican Republic, 71 percent of the content of that is from 

the United States. The DR–CAFTA is essential for us to keep our 

customers for U.S. yarn and fabric and to maintain U.S. jobs in 

this sector. 

With respect to labor, obviously there is considerable interest in 

this Committee with regard to worker rights and labor standards 

in Central America. We share that goal of seeing the continuation 

of real, meaningful improvements in worker rights in the region. 

In DR–CAFTA, within the agreement itself, we focus our attention 

and our efforts on the chief problem, which is the need to improve 

enforcement of domestic labor laws in these countries. The Central 

American countries, and later the Dominican Republic, requested 

a study by the ILO of the labor situation in their countries. The 

ILO study demonstrated that the labor laws on the books in Central America and the Dominican Republic are in line with the ILO 

core labor standards. However, let us be clear: The enforcement of 

labor laws in the region needs more attention and resources. The 

Central Americans and the Dominicans themselves acknowledge 

this. They, with the assistance of the Inter-American Development 

Bank, produced this white paper on the labor situation in their 

countries. It is a very candid, thorough, analysis of the labor situation in these countries. What it points out is that the most important issue to be addressed is the one of enforcement. 

Within the DR–CAFTA we have a three-pronged strategy for 

dealing with this issue. First, the agreement requires that countries not fail to effectively enforce their labor laws. As the New 

York Times said in an editorial on November 24 of last year, 

‘‘CAFTA actually goes further than the pact with Jordan, since 

penalty fines collected for not enforcing labor laws would be sent 

back to the offending country to fix the offense.’’ Let me add, the 

use of those fines is subject to the agreement of the United States. 

The second part of our strategy is that the countries have already 

taken numerous concrete steps to improve labor law enforcement, 

even during the negotiations increasing labor inspectors, appointing special labor prosecutors, and making a number of other 

changes in their practices. Finally, we see the need to provide assistance to these countries to build the capacity to enforce their 

laws more effectively and to strengthen their enforcement infrastructure and institutions. The Department of Labor has committed $7.7 million to a multiyear effort. The Congress has appropriated $20 million for us to support capacity building in these 

countries in labor and the environment. The United States Agency 

for International Development (USAID) has obligated $2 million to 

launch a project on continuous improvement in the Central AmerVerDate Aug 31 2005 06:20 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00020 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
17 

ican workplace. There are other programs conducted by other agencies of the U.S. government and by the ILO. 

Quickly on the environment, environment also breaks new 

ground. We have included several innovations in this agreement. 

Working with Senator Baucus, for example, we have developed a 

new public submissions mechanism that will allow the interested 

public in these countries, including Non-Governmental Organizations (NGO), to put forward, to challenge, a party’s failure to enforce their environmental laws. This innovation has been recognized by environmentalists in Central America. Ten Central American environmental NGOs sent a letter to former Trade Representative Zoellick indicating their strong support for this agreement 

and particularly this public submission process that I mentioned. 

As with labor, there is a strong component of capacity building and 

also a strong component of cooperation in the form of an environmental cooperation agreement. 

Mr. Chairman, the last 20 years has been a very difficult road 

to democracy for these countries, but today we have neighbors in 

Central America and the Dominican Republic who want to trade 

goods, not guns, across their border; who want to replace chaos 

with commerce. They want to use the DR–CAFTA as an important 

tool of reform; to help deepen and strengthen their democracies. 

Working closely with the Congress, we have negotiated a landmark 

FTA. We believe that the DR–CAFTA meets the objectives set by 

Congress in the Trade Act. It is strongly in the economic and national interests of the United States. We hope that the Congress 

will agree that America should not turn its back on these struggling democracies that want a closer economic relationship with us, 

that will benefit our citizens and their citizens. The DR–CAFTA 

makes imminent sense for America, for Central America, and for 

the Dominican Republic. Thank you very much, Mr. Chairman. 

[The prepared statement of Ambassador Allgeier follows:] 

Statement of The Honorable Peter F. Allgeier, Acting U.S. Trade 

Representative, Office of the U.S. Trade Representative 

INTRODUCTION 

Chairman Thomas, Congressman Rangel, and Members of the Committee, I am 

pleased to have the opportunity to testify before you today on the free trade agreement with Central America and the Dominican Republic, or CAFTA. As I have stated before in this room on several occasions, the Office of the U.S. Trade Representative greatly appreciates the hard work of this Committee, and I commend in particular Chairman Thomas and Congressman Rangel for their leadership on trade 

matters. 

I would like to begin today with a bit of historical context. Twenty years ago, Congress held several hearings on the topic of Central America. But the Administration 

witnesses were not from USTR, and the topics had little to do with economics. In 

February 1985, the House Foreign Affairs Committee held a hearing about developments in Guatemala, where an undemocratic military government ruled and civil 

war raged. The following month, the House heard testimony from Pentagon and 

State Department officials about U.S. military assistance to El Salvador, which was 

then fighting an armed Communist insurgency. In 1985, to the extent that Congress 

or the American people paid attention to Central America, it was largely because 

of violence, dictatorships, and civil war. 

It is an extraordinary sign of the progress made in Central America that we meet 

here today—twenty years later—to discuss a free trade agreement—an economic 

partnership with these countries. Today, the Dominican Republic and the nations 

of Central America are all democracies. Elected leaders are embracing freedom and 

economic reform, fighting corruption, strengthening the rule of law and battling 

crime, and supporting America in the war on terrorism. And they want to help ceVerDate Aug 31 2005 06:20 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00021 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
18 

ment their courageous moves toward democracy and free markets by signing a free 

trade agreement with their neighbor to the North, the United States. 

CAFTA marks the successful culmination of a decades-long American policy of 

promoting economic reform and democracy in Central America. President Bush 

strongly believes that America should stand with those in our Hemisphere—and the 

world—who stand for economic freedom. CAFTA offers us the best opportunity to 

strengthen the economic ties we already have with these nations, and to reinforce 

their progress toward economic, political and social reform. 

But CAFTA is not an act of unilateral altruism on the part of the United States. 

We have much to gain from this trade agreement: access to a large and growing 

market of 45 million consumers close to our border, an opportunity to level the playing field for American workers and farmers who today must cope with one-way free 

trade from Central America and the Dominican Republic without a reciprocal 

chance to compete. 

The agreement that we are here to consider today is the result of over three years 

of hard work and close cooperation between the Administration and the Congress, 

which began when President Bush announced his intent to negotiate a free trade 

agreement with Central America in January 2002. Using guidance from Trade Promotion Authority, USTR formally consulted closely with committees of jurisdiction 

before and after every round of negotiations, shared proposed text of the agreement 

with staff and Members prior to presenting texts in the negotiations. Former USTR 

Robert Zoellick, myself, and our chief negotiators consulted with the Congressional 

Oversight Group and with Members on an individual basis. We took all views into 

consideration during each step of the negotiations, and greatly value the input provided by the Congress for this agreement. Our dialog with the Congress continues 

today, and I welcome this opportunity to talk with all Members about CAFTA. 

In concluding this FTA, our objective, which we feel confident that we have met, 

was to follow the negotiating objectives laid out by Congress in the bipartisan Trade 

Act of 2002 to strike a comprehensive and commercially meaningful agreement that 

will benefit U.S. workers, businesses, farmers, investors and consumers. At the 

same time, these complex negotiations took careful consideration of import sensitivities of the United States, many of which were communicated to us by Members of 

Congress. We worked hard to take into account all concerns raised with us by Members of Congress, and believe that we struck careful balances to reflect these interests. 

So today I would like to discuss the reasons why we believe CAFTA is strongly 

in the national interest of the United States, and why we want to work with Congress to pass this trade agreement into law. 

Small Countries, Big Markets 

Central America and the Dominican Republic are very large export markets for 

the United States. Collectively, these countries make up the second largest U.S. export market in Latin America, with more than $15.7 billion in U.S. exports in 2004. 

For some key states, for example Florida and North Carolina, the region is a topthree export destination for Made-in-USA products. Central America and the Dominican Republic form a larger export market than Brazil, a larger export market 

than Australia, and a larger export market than Russia, India and Indonesia combined. 

While the Central America countries and the Dominican Republic are physically 

small, they are clearly large markets for U.S. products and services. The American 

Farm Bureau Federation estimates CAFTA could expand U.S. farm exports by $1.5 

billion a year, which would represent nearly a doubling of our current agricultural 

exports to the region. Manufacturers would also benefit, especially in sectors such 

as information technology products, agricultural and construction equipment, paper 

products, pharmaceuticals, and medical and scientific equipment. The U.S. Chamber 

of Commerce has done a number of studies of the potential economic impact of 

CAFTA in just eight key U.S. states, and estimates that U.S. sales to the region 

would expand by more than $3 billion in the first year of CAFTA. From soft drinks 

to software, from pork to paper products, the region is a voracious consumer of U.S. 

products and services. In some areas, textile yarn and fabric for example, the region 

is second only to Mexico as a worldwide consumer of U.S. exports. 

Leveling the Playing Field: New Opportunities for U.S. Workers, Farmers 

But while these Central American countries and the Dominican Republic buy 

many goods and services from the United States, we currently face an unlevel playing field. Most Americans probably do not realize that we already have free trade 

with Central America and the Dominican Republic, but it is one-way free trade. 

Under unilateral preference programs begun by President Reagan and expanded 

19 

under President Clinton with broad bipartisan support, nearly 80 percent of imports 

from Central America and the Dominican Republic already enter the United States 

duty-free. In agriculture, that percentage is even higher: we estimate that 99% of 

Central America’s and the Dominican Republic’s farm exports to the United States 

are duty-free. For the countries of the region, CAFTA will lock in those benefits and 

expand on them, helping to promote U.S. investment in the region. 

But more importantly, CAFTA will level the playing field for American workers 

and farmers. It will further open regional markets to our products and services, 

which currently face very high average tariffs or non-tariff barriers. For example, 

today the average Central American applied tariff on motor vehicles is 11.1%, while 

U.S. applied tariffs on imports from Central America are zero. The regional tariff 

on steel averages 16.3%, but the U.S. tariff is zero. The regional tariff on chemicals 

is 12.8%, but the U.S. tariff is zero. The same situation exists in agriculture: Central American and Dominican tariffs on U.S. vegetables faced a tariff ranging from 

15 % to 47%; ours are zero. U.S. fruits and nuts faced a tariff as high as 25% while 

products in this same sector enter our market duty free. The chief effect of CAFTA 

is not to further open our market, but rather to tear down barriers to our products 

and services in Central America and the Dominican Republic. 

CAFTA will create new opportunities for U.S. workers and manufacturers. More 

than 80 percent of U.S. exports of consumer and industrial goods will become dutyfree immediately, with remaining tariffs phased out over 10 years. 

The agreement will also expand markets for U.S. farmers and ranchers. More 

than half of current U.S. farm exports to Central America will become duty-free immediately, including high quality cuts of beef, cotton, wheat, soybeans, key fruits 

and vegetables, and processed food products among others. Tariffs on most remaining U.S. farm products will be phased out within 15 years. U.S. farm products that 

will benefit from improved market access include pork, dry beans, vegetable oil, 

poultry, rice, corn, and dairy products. It is significant that every major U.S. farm 

commodity group but one has stated its strong support for CAFTA. 

In the important area of services, the Dominican Republic and the Central American countries will accord substantial market access across their entire services regime, offering new access in sectors such as telecommunications, express delivery, 

computer and related services, tourism, energy, transport, construction and engineering, financial services, insurance, audio/visual and entertainment, professional, 

environmental, and other sectors. The Dominican Republic and the Central 

Americancountries made significant commitments regarding their ‘‘dealer protection’’ regimes. These commitments will help ensure that U.S. firms are not locked 

into exclusive or uneconomical distributor arrangements. 

This is also a trade agreement for the digital age, providing state-of-the-art protections and non-discriminatory treatment for digital products such as U.S. software, music, text, and videos. Protections for U.S. patents, trademarks and trade 

secrets are strengthened, and several are Chile-plus provisions, such as strong patent protection by 2007 for certain modified plant varieties. 

And this agreement breaks new ground, providing strong anti-corruption measures in government contracting and other matters affecting international trade or 

investment. U.S. firms are guaranteed a fair and transparent process to sell goods 

and services to a wide range of Central American and Dominican Republic government entities. The agreement’s dispute settlement mechanisms call for open public 

hearings, public access to documents, and the opportunity for third parties to submit 

views, with limited exceptions to protect confidential information. Transparency in 

customs operations will aid express delivery shipments and will require more open 

and public processes for customs rulings and administration. 

Textiles 

Textiles and apparel is an important component of our trade with the region and 

deserves special mention. The Administration strongly believes that CAFTA is not 

a threat to U.S. textile producers but in fact represents a critical element in our 

domestic industry’s ability to compete with Asia. 

Today, garment factories in Central America and the Dominican Republic are very 

large consumers of U.S.-made textile fabric and yarn. The extensive use of U.S. inputs in the regional apparel business means that Central America and the Dominican Republic actually constitute the second-largest world export market for U.S. textile yarn and fabric, behind only Mexico. For states like North Carolina, exports of 

textile fabric and yarn to garment makers in the region make a small country like 

Honduras that state’s number one export market in the world. CAFTA will help 

keep it that way, by delivering tariff preference benefits for clothing made in the 

region that uses U.S. yarn and fabric. 

20 

Without CAFTA, our domestic yarn and textile industry would likely lose one of 

its biggest customers. Worldwide quotas on textiles and apparel expired at the end 

of last year, meaning that the hemispheric industry faces a new collective threat 

from Asia. Without the tariff preference benefits of CAFTA, apparel companies may 

well move production to China. Indeed, the uncertainty to date about CAFTA has 

already caused a number of apparel firms to shut down operations in Central America and move them to China; as many as 10,000 workers may already have already 

lost their jobs. In China, there are no special trade incentives for apparel producers 

to buy U.S. yarn and fabric. In fact, they are much more likely to buy inputs from 

Asian suppliers, rather than producers here Z in the United States. That’s why a 

T-shirt that is Made in Honduras is likely to contain well over 50% U.S. content, 

while a T-shirt Made in China is likely to contain very little U.S. content at all. 

To keep our customers for U.S. yarn and fabric, we need to keep them close to 

home. And to keep them close to home, we need to pass CAFTA soon. 

Labor 

I know that there is considerable interest on the Committee with regard to worker 

rights and labor standards in Central America and the Dominican Republic. We 

share that interest, and I believe we share the goal of seeing the continuation of 

real, meaningful improvements in worker rights in the region. I believe we should 

focus our strategy, and our attention and efforts, on the chief problem in these countries: the need to improve enforcement of domestic labor laws. 

The Central American countries, and later the Dominican Republic, requested a 

study by the International Labor Organization (ILO) of the labor situation in their 

countries. The ILO study demonstrated that labor laws on the books in Central 

America and the Dominican Republic, are generally in line with ILO core labor 

standards. The Administration’s own, more detailed analysis of the labor rights situation in these six countries confirms that their labor laws are generally ILO-consistent. Indeed, labor protections on the books in the region are broadly similar to 

labor laws in Morocco, and in some areas (e.g., child labor) are stronger. Congress 

gave broad bipartisan support to an FTA with Morocco in 2004. 

But let’s be clear: the enforcement of labor laws in the region needs more attention 

and resources. Our analysis shows this, and the Central Americans and Dominicans 

themselves acknowledge this, as the White Paper recently released by regional 

Labor and Trade Ministers clearly demonstrates. CAFTA is specifically designed to 

respond to the problem at hand by improving enforcement and expanding resources 

with a comprehensive, three-part strategy: 

• First, the agreement requires that countries not fail to effectively enforce their 

labor laws. If they consistently fail to enforce those laws in a manner that affects our trade, then they face the prospect of monetary penalties that will be 

directed to solve the problem, or potentially face the loss of preferential trade 

benefits. As the New York Times said in an editorial on November 24, 2004, 

‘‘Cafta actually goes further than the pact with Jordan, since penalty fines collected for not enforcing labor laws would be sent back to the offending country 

to fix the offense.’’ Exactly right. 

• Second, it’s important to note that countries in the region have already taken 

numerous, concrete steps to improve labor law enforcement, including hiring 

more labor inspectors, appointing special labor prosecutors, prosecuting perpetrators of violence against trade unionists, and cutting the backlog of cases 

in their labor courts. There is much more to do, however. So we were pleased 

that Labor and Trade Ministers recently announced a series of additional and 

specific recommendations to further improve labor law enforcement. 

• Finally, we need to provide assistance to build the capacity of these countries 

to enforce their laws more effectively and to strengthen their enforcement institutions and infrastructure. We’re pleased that the Department of Labor committed $7.7 million to a multi-year technical assistance effort. Congress has now 

appropriated $20 million for FY05 for ‘‘labor cooperation, capacity building on 

fundamental labor rights and the elimination of child labor, and improvement 

in labor administration’’, as well as for important environmental cooperation activities in this region. The Administration intends to work with the Congress 

and with the CAFTA countries to target these funds toward the areas of greatest need, and we hope that the funds provided for FY05 are only a first step 

in an ongoing commitment by the Congress to fund labor capacity-building in 

this region. 

Our comprehensive strategy does not attempt to minimize the challenges we 

faced: We negotiated a fully TPA-consistent labor chapter, we worked with the Dominican Republic and the Central American countries to make real worker rights 

21 

progress during the negotiations, and there is a strategy for long-term capacity 

building. This concrete, real-world effort is directed at where the problem lies: problems with the enforcement of existing laws in Central America and the Dominican 

Republic. By contrast, a strategy of defeating CAFTA would preserve the status quo, 

and very likely set back progress to date. Defeating CAFTA will do nothing to improve working conditions for a single worker in Central America or the Dominican 

Republic, and in fact will have the opposite effect, as tens of thousands of Central 

Americans and Dominicans stand to lose their jobs to China if the United States 

turns its back on CAFTA. We believe that one of the best ways to improve working 

conditions in Central America and the Dominican Republic is to have strong economic growth, combined with a comprehensive and targeted strategy to build the 

capacity of these countries to enforce their labor laws. 

Environment 

We have also broken new ground on the environment side. I believe that the 

CAFTA environmental provisions, and the associated Environmental Cooperation 

Agreement, are the most forward-leaning trade and environment package ever. We 

have worked closely with Congress in developing our approach and developing many 

of its unique features. 

The CAFTA countries have come a long way in the last decade in putting in place 

good environmental laws as well as the beginning of a complete environmental legal 

regime, but enforcement in many cases remains a significant challenge. There is 

also the need for greater transparency and involvement of civil society in environmental decision-making. To address these concerns, in addition to continuing existing Administration efforts to help the CAFTA countries further develop their legal 

regimes, we have included several innovations in the environment package: 

• First, we have developed a new public submissions mechanism that will allow 

the interested public, including NGOs, an opportunity to challenge a Party’s 

failure to enforce its environmental laws and to obtain an independent review 

of their submissions. CAFTA is the first trade agreement ever to include this 

kind of mechanism in its core provisions, and it will give civil society in the region a new voice in working to improve environmental enforcement in the region. Just a few weeks ago, in a ceremony taking place at the Organization of 

American States, we and our Central American and Dominican Republic counterparts signed a landmark agreement that designates a new environmental 

unit within SIECA—the Organization for Central American Economic Integration—as the secretariat to implement these provisions. 

• Second, the parallel environmental cooperation agreement (also signed at the 

OAS ceremony) builds on previous capacity-building efforts in the region, but 

breaks new ground in several ways. For the first time ever, the agreement provides for the establishment of short-, medium- and long-term benchmarks for 

measuring progress in meeting environmental goals. The agreement also provides for independent monitoring by outside organizations of success in meeting 

these benchmarks. Initial priority areas for cooperation include reinforcing capacity to implement and enforce environmental laws, including habitat conservation, trade in endangered species and treatment of hazardous wastes. 

• Finally, we are taking steps to ensure that capacity building efforts are adequately funded. The Administration has initiated a Deputies process to oversee 

environmental cooperation efforts linked with all the FTAs and to organize an 

inter-agency budget process to promote coordination across interested federal 

agencies. The Administration also is considering how to allocate the $20 million 

in FY05 funding between labor and environment activities. 

The response in the region is already gratifying. Last month ten Central American NGOs sent a letter to former U.S. Trade Representative Zoellick and the trade 

ministers of our Central American and Dominican Republic partners, expressing 

their support for the CAFTA and urging its passage. These groups praised the 

CAFTA environmental package and the opportunities it provides for them to have 

a new voice in pressing for environmental progress in the region. The governments 

are also doing their part to prepare the way for CAFTA’s implementation. With our 

participation, they have held numerous public outreach sessions in the region, with 

more to follow. And just to take some of the most recent examples of concrete action: 

Nicaragua has created a new office on trade and environment within its environment ministry as the result of the CAFTA, while El Salvador has established a new 

advisory committee on trade and environment issues, with NGOs on the committee, 

very much like our own Trade and Environment Policy Advisory Committee 

(TEPAC). In fact, the Environment Chapter requires all of the CAFTA–DR countries 

to establish such advisory committees. 

22 

Thus, we are poised to make a real difference in strengthening civil society and 

environmental protection in Central America and the Dominican Republic. We 

should not let this historic opportunity pass. 

Sugar: Handled with Care 

We are aware that some Members of Congress have expressed concerns with U.S. 

sectors that are sensitive to import competition, such as sugar. If I had to describe 

in a phrase how we handled those issues in the agreement, it would be, ‘‘handled 

with care.’’ 

On sugar, it is important to remember that there will be no change in the abovequota U.S. duty on sugar. This was an important accomplishment that recognizes 

the sensitivity of this important sector of the U.S. farm economy. CAFTA will not 

have a destabilizing effect on the U.S. sugar program, because even with a modest 

increase under CAFTA, U.S. imports will still fall comfortably below levels set for 

sugar imports in the Farm Bill. 

In other agreements, we have also been sensitive to this issue. In our FTA with 

Australia, sugar was excluded entirely. In our agreements with Chile and Morocco, 

we have provisions that effectively will result in no change in the levels of sugar 

imports from those nations. 

For Central America and the Dominican Republic we agreed to a very small and 

very limited expansion of the quota for sugar imports from these countries. 

The total increased quota amount is equivalent to only about one day’s worth of 

U.S. sugar production. We produce more than 7 million metric tons of sugar in the 

United States annually. The increased amounts under CAFTA are only a little over 

100,000 metric tons. Even after 15 years, increased sugar imports from Central 

America and the Dominican Republic will amount to only about 1.7% of U.S. consumption. 

In addition, the Agreement includes a mechanism that allows the United States, 

at our option, to provide alternative compensation to CAFTA country exporters in 

place of imports of sugar. 

To put sugar imports under CAFTA into perspective, the increased imports in the 

first year under CAFTA amount to about a teaspoon and half per week per American. That compares with average consumption of 10–20 teaspoons of added sugar 

per day for most Americans. The amount of sugar allowed into the United States 

under CAFTA is minuscule. Claims that the CAFTA will harm the U.S. sugar industry are simply wrong. 

A Unique Chance to Strengthen Democracy 

Mr. Chairman, the last twenty years has been a sometimes difficult road to democracy in El Salvador, Guatemala, Nicaragua, and other countries in the region. 

But today we have neighbors in Central America and the Dominican Republic who 

want to trade goods, not guns, across their borders. They want to replace chaos with 

commerce, and to use CAFTA as an important tool of reform that will help deepen 

and strengthen democracy. 

Working closely with the Congress, we have negotiated a landmark free trade 

agreement that will open these large and growing markets to our goods and services. CAFTA will level the playing field, helping our workers and farmers sell to 

countries that already enjoy virtually unlimited access to the United States market. 

The agreement will help the U.S. textile industry unite with some of its largest 

world customers to better compete against imports from China and other Asian competitors. It contains a focused, results-oriented strategy that will—when combined 

with a strong Congressional commitment to capacity-building—produce real improvements in working conditions and environmental protection in the region. And 

it handles sensitive commodities with great care. 

We believe CAFTA meets the objectives set by Congress in the Trade Act. It is 

strongly in the economic and national interests of the United States. We hope the 

Congress will agree that America should not turn its back on struggling democracies 

that want a closer economic relationship that will benefit workers in all our countries. CAFTA makes eminent sense for America, and for Central America and the 

Dominican Republic. 

Thank you. 

f 

Chairman THOMAS. Thank you, Mr. Ambassador. The Chair’s 

time will be utilized by the gentleman from Florida, the chairman 

of the Subcommittee on Trade. 

23 

Mr. SHAW. Thank you, Mr. Chairman. I would like to go back 

and just review the latter part of your testimony with regard to the 

environment provisions and with regard also to the labor provisions. As I understand your testimony, you said that these and the 

requirement for the enforcement of these provisions is the strongest that we have had in any other FTAs. Is that a correct statement? 

Ambassador ALLGEIER. That is an accurate statement. 

Mr. SHAW. So, if someone had voted for the prior agreements, 

it wouldn’t make any logical sense for them to vote against this 

agreement on that basis; is that correct? 

Ambassador ALLGEIER. It would be very mystifying if that were 

to happen. 

Mr. SHAW. One other area that I want to get into with you is 

with regard to the sugar industry and the lobbying that they are 

waging against this particular bill. They have been picked out of 

this agreement, I believe, for special treatment. Is there any other 

commodity that is receiving special treatment under this agreement? 

Ambassador ALLGEIER. There is no commodity in this agreement, or, for that matter, any other FTA that we have negotiated 

that has the treatment that sugar has in this agreement. 

Mr. SHAW. Would you outline that briefly to us, please, sir? 

Ambassador ALLGEIER. Yes, I would be happy to. First of all, 

there is a very small amount of sugar that would be permitted to 

enter the United States under this agreement. It is less than 

110,000 metric tons. Just to put that in perspective, that would be 

equivalent to 11⁄2 teaspoons a week for each American. We Americans have quite a sweet tooth. We tend to consume between 70 and 

140 teaspoons a week of additional sugar. 

Mr. SHAW. If this package is a teaspoon, and I can tell you I 

believe it is, it would be 11⁄2 packets of sugar per week we are talking about. 

Ambassador ALLGEIER. Yes. 

Mr. SHAW. Proceed. I am sorry. 

Ambassador ALLGEIER. That is first. It is a very small amount. 

I have a chart here that shows how much additional sugar would 

be provided. I am sure you can’t see it, and that is the point; that 

it is such a small amount, that you can’t see it. I can barely see 

it from here. We will be happy to circulate that to the Membership. 

[The information was not received at the time of printing:] 

Second, as you know, we have a quota on sugar. We have not 

changed the tariff, which is over 100 percent, 1 percentage point. 

We haven’t changed it at all. The tariff that exists on sugar coming 

into the United States above the quota, that is the second element. 

The third element is the country has to be a net exporter of sugar 

to the world, other than the United States, for it to be able to send 

us additional sugar to the United States. Then, fourth, is the special compensation that you were talking about, the special compensation mechanism. What that is, it is an entirely unilateral provision which allows the United States at any point, with whatever 

criteria we want, to say no, we are not going to be able to let you 

send the sugar to us this year; we will provide you with some other 

form of compensation, which is also in our sole discretion to deterVerDate Aug 31 2005 06:20 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00027 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
24 

mine how we would do that compensation. So, that is the package 

for sugar. As I said, it is unique in this agreement, and it is unique 

in any other agreement that I am aware of. 

Mr. SHAW. Briefly, I want to get into the question of Chinese 

investment in that part of the world. We have heard quite a bit 

about this at a previous hearing on China. The question is, what 

is their impact in that area of the world, into Central America? 

Where will, if we do not have an FTA with Central America, particularly with textiles, cotton, and other kinds of products that go 

into cut and sew shops, where will those goods come from if they 

don’t come from the United States because of a lack of an FTA? 

Ambassador ALLGEIER. Well, they will have to determine 

where they obtain these inputs, but very likely, most likely, they 

will come from Asia. They certainly won’t continue to come from 

the United States. 

Mr. SHAW. So, you think our textile industry will probably profit 

considerably from this agreement; is that correct? 

Ambassador ALLGEIER. Actually, we think this agreement is an 

essential part of a strategy of maintaining competitiveness, both for 

our industry, and for industries in Central America. 

Mr. SHAW. I want to congratulate you for your part in developing this, which is a very fair agreement; an agreement which will 

certainly strengthen our economy as well as strengthen the democracies and the economies in Central America. I yield back, Mr. 

Chairman. 

Ambassador ALLGEIER. Thank you. 

Chairman THOMAS. The Chair recognizes the gentleman from 

New York. 

Mr. RANGEL. Thank you. Ambassador, in today’s Daily Reports 

for Executives, Thursday, April 21, 2005, there is a report of a 

meeting that took place with the House Committee on Ways and 

Means, Chairman Bill Thomas, Republican from California, and he 

made remarks at a closed-door meeting with Ambassador Zoellick, 

business leaders, majority whip Roy Blunt, Subcommittee on Trade 

Chairman, E. Clay Shaw, Kevin Brady, Republicans of Texas, and 

others. Were you at that meeting, that closed-door meeting? 

Ambassador ALLGEIER. No, I wasn’t. 

Mr. RANGEL. Have you attended other closed-door meetings 

with the Republicans? 

Ambassador ALLGEIER. No. 

Mr. RANGEL. To the best of your knowledge, did Ambassador 

Zoellick attend meetings, closed-door meetings, with the Republicans? 

Ambassador ALLGEIER. I don’t know Deputy Secretary 

Zoellick’s schedule. I am not aware of it, whether he did or not. 

Mr. RANGEL. Did the number of votes that this bill would get 

or not get, was that ever discussed in your presence? It is quoted 

here the Chairman said he intended—it is predicted the pact would 

pass the vote by a one or three vote margin. Have voting paterns 

ever been discussed in front of you or with you? 

Ambassador ALLGEIER. We discuss it within USTR, but I have 

not been in a meeting with a Member of Congress. 

25 

Mr. RANGEL. In the meetings that you have had in USTR, have 

you discussed whether they were Republican votes or Democratic 

votes? 

Ambassador ALLGEIER. Well, we are a two-party system. It is 

quite natural to talk about Republican votes and Democrat votes. 

Mr. RANGEL. During the course of these discussions, did anyone 

say how they might try to get Democratic votes in order to make 

it a bipartisan pact? 

Ambassador ALLGEIER. Yes, we have always talked about the 

attributes of this agreement, the positive characteristics of it, how 

it is overwhelmingly in the interests of the United States. 

Mr. RANGEL. I know. My question, Ambassador, was, did you 

have any plan or strategy to talk in closed-door meetings with 

Democrats in order to get those votes? 

Ambassador ALLGEIER. Yes. In fact, I have made a number of 

calls on Democrats, including Mr. Cardin, in recent weeks to talk 

about the advantages to the United States and to these countries 

of the DR–CAFTA. 

Mr. RANGEL. This goes on further to say, ‘‘Mr. Thomas expressed confidence that the House could pass the pact before Memorial Day. ‘Every time we have gone forward, we have never 

failed on a trade vote,’ Thomas allegedly said. He indicated that he 

expected Members to offer amendments during the markup of the 

pact, but he had a hunch that they would not pass.’’ I assume that 

is the markup that he has now offered the Committee Democrats 

an opportunity to participate in, but, as relates to these very strong 

enforcement provisions in DR–CAFTA, I have been advised that 

the stronger version says that the country is mandated to enforce 

its own laws. Is that true? 

Ambassador ALLGEIER. Yes, that is an obligation within the 

DR–CAFTA agreement. 

Mr. RANGEL. To enforce its own laws. 

Ambassador ALLGEIER. Yes. 

Mr. RANGEL. Well, would it mystify you if the country did not 

have laws to enforce? What would happen then? You would encourage them to enact laws, wouldn’t you? 

Ambassador ALLGEIER. Well, first of all, what I want to point 

out is that the ILO, which is the international institution responsible for labor issues, has done a very thorough study of the labor 

situation, including the laws in these countries. 

Mr. RANGEL. Are the ILO provisions included in the pact that 

would be presented to us? 

Ambassador ALLGEIER. What the ILO found is that—— 

Mr. RANGEL. Ambassador, I am trying to make this—I am talking about within the pact. The ILO study is not in the pact. I am 

asking you if the nation we are talking about has no laws to enforce, what is so strong about the labor provisions? 

Ambassador ALLGEIER. Well, the point is that these countries 

do have laws and that the ILO, which is the best qualified institution for judging it, has concluded that these laws are in line with 

the core provisions of the ILO. 

Mr. RANGEL. On the ILO basic minimum labor standards included in the pact that will be presented to this Committee and the 

Congress? Are they included? 

26 

Ambassador ALLGEIER. They are included in the laws of these 

countries, which the ILO has determined—— 

Mr. RANGEL. Ambassador, I am asking a basic question. I will 

just try again, and your answer will be very important to me. That 

is, are the ILO provisions that you refer to, are they included in 

the pact that will be presented to the House of Representatives? 

Ambassador ALLGEIER. These countries with one exception, 

have ratified all of the conventions, the eight conventions for the 

basic core labor standards, and therefore, it is part of their law. To 

that degree, it is in the agreement, because all of those substantive 

provisions, are in their domestic law. 

Mr. RANGEL. That you stated. 

Chairman THOMAS. The gentleman’s time has expired. The 

Chair recognizes the gentlewoman from Connecticut. 

Mrs. JOHNSON. I just want to clarify that last point. My understanding is that no labor agreement ever included the specifics. 

They just looked at the country’s law and enforcement capacity. Is 

that correct? 

Ambassador ALLGEIER. That is correct. That is what we have 

in other agreements, and we have gone well beyond those other 

agreements in the total package that we provide here to improve 

the labor standards and the conditions of work in these countries. 

Mrs. JOHNSON. Particularly to improve their enforcement? 

Ambassador ALLGEIER. Absolutely. That is what the ILO found 

as the area, if we want to make a change, a real contribution on 

the ground in the lives of working people in these countries, that 

is where the ILO suggested that we put our effort. 

Mrs. JOHNSON. We had a bipartisan meeting a couple of weeks 

ago with the leadership of these countries. They mentioned they 

have already hired more inspectors and begun to beef up their own 

infrastructure enforcement; is that correct? 

Ambassador ALLGEIER. Yes, that is correct. All of the countries 

have taken various steps to improve the enforcement in their countries, even before the agreement goes into effect. 

Mrs. JOHNSON. Then in your testimony, toward the end, you 

say it contains a focused, results-oriented strategy. To my knowledge, we have never had a really results-oriented strategy in other 

trade agreements. I would like you to enlarge on that a little bit 

and how that results-oriented strategy is stronger in this agreement than in others. One passage in which you referred to—it is 

in the environmental passage, where you say, ‘‘For the first time 

ever, the agreement provides for the establishment of short, medium, and long-term benchmarks for measuring progress in meeting environmental goals.’’ The ability to do that has improved our 

own environmental law quite considerably, and that looks to me 

like one of the things you are referring to. Would you enlarge on 

that and any other provisions you would care to? 

Ambassador ALLGEIER. Yes, thank you very much. Let me just 

say one thing about the labor and the environmental provisions. 

One thing that we will not hear at this hearing is the following: 

No one is going to say why didn’t you do in this agreement what 

the Canadians did for labor and environment in their agreement 

with country X or country Y? And you will not hear, well, why 

didn’t we do in this agreement what the Europeans did for labor 

27 

and environment in their agreement with country X or Y? The reason we will not hear that is because this agreement has the most 

advanced, the most results-oriented—it is internationally supported 

by the ILO, the support we have gotten from the Inter-American 

Development Bank—provisions and treatment for labor and the environment, of any agreement that anybody has negotiated. 

Mrs. JOHNSON. Congratulations. That is really impressive. 

Ambassador ALLGEIER. Let me just say why, briefly. 

Mrs. JOHNSON. I want you to say why, but I want to get that 

congratulations in there, because that is such a big point. We have 

led the world and we are implementing new ways of enforcement 

that are still leading the world. 

Ambassador ALLGEIER. Thank you. Just to summarize quickly, 

the package that we have done here that is different than any 

other agreement, and that is, first of all, it starts with the analysis 

that the countries themselves have done. I think many of you met 

with their labor and trade ministers when they were here, and you 

take that and the analysis that the ILO has done and you are able 

to put together a package. We have been able to put together a 

package that will make a difference in peoples’ lives. So, for example, in the agreement which is not in any of our other agreements, 

there are procedural guarantees for people in these countries as 

they seek to ensure that they have effective rights in their own 

country when they approach tribunals dealing with alleged labor 

infractions. There is a whole list within this agreement of the procedural protections that we would normally take for granted in the 

United States in such a circumstance. Now, this is embedded in 

this agreement for them. Those are things such as open access to 

these tribunals, certain procedural guarantees that there will not 

be excessive fees or delays in hearing the challenges, that they will 

get a response in writing and that they will have a right to appeal 

the judgment of these tribunals. That is why the New York Times 

said that this agreement goes beyond any other agreement that we 

have had in this area. 

Mrs. JOHNSON. Impressive. Thank you very much Mr. Chairman. 

Chairman THOMAS. The gentlewoman’s time has expired. The 

gentleman from California, Mr. Stark, wish to inquire. 

Mr. STARK. Thank you, Mr. Chairman, yes I do. Mr. Ambassador, you are familiar, I am sure, with the test data provisions of 

the intellectual property section of this bill, and I am not sure that 

my colleagues are, but basically, we have had for many years—we 

have provided in trade agreements—the ability for countries who 

may have an epidemic or a health crisis, the Acquired Immunodeficiency Syndrome (AIDS) crisis, for instance, in Guatemala or in 

African countries, a way for them to declare an emergency and get 

a license to produce a drug without the restrictions of American 

patents. In this agreement, I know that the Pharmaceutical Research and Manufacturers of America (PHARMA) has objected to 

that and the Administration generally does anything that 

PHARMA wants. In March of this year, Guatemala was forced to 

repeal a law to limit the protection of test data, and it has the 

highest incidence of Human Immunodeficiency Virus (HIV)/AIDS in 

Central America. So, if a country had a flu epidemic from some of 

28 

these new strange flu things or something else, and they needed 

a drug, this limitation on test data would prohibit the Central 

American country or the Dominican Republic from getting low-cost 

drugs to their populace in an emergency. Why do we have to do 

this? Should that not be dropped from the agreement as a humanitarian issue? 

Ambassador ALLGEIER. Okay. First of all, then, let’s start with 

TPA. 

Mr. STARK. No, let’s just answer the question. 

Ambassador ALLGEIER. That is the context in which we negotiate, and I just wanted to—— 

Mr. STARK. I just wanted to know about why it is that you have 

to give extra patent protection, in effect, to the pharmaceutical industry for these Central American countries who are the poorest of 

many. I know we tried it in Australia, and that got knocked out. 

Why can we not remove this test data issue and allow that? What 

is wrong with doing that? 

Ambassador ALLGEIER. Number one, it would be in contradiction with the TPA guidance that we receive. Trade Promotion Authority struck a very wise balance between protecting intellectual 

property and allowing other—— 

Mr. STARK. We do not do it in other trade agreements. Why in 

this? 

Ambassador ALLGEIER. Pardon me? 

Mr. STARK. Why in this? Under Doha, there was a declaration 

in the WTO rules that there should not be in. Why is it in this one? 

Ambassador ALLGEIER. Well, it is not accurate to say that the 

WTO ruled. We were a part—we were a leading part of negotiating 

that declaration in the WTO in Doha in November of 2001. We also 

were a leader in putting together a subsequent declaration by the 

WTO aimed at exactly this point, which is to ensure that countries 

have the opportunity to have access to medicine at prices that they 

can afford. 

Mr. STARK. With this test data protection, they cannot. Why 

can’t you take it out? 

Ambassador ALLGEIER. In our negotiations we have already indicated in the agreement, in a side letter, that nothing in this 

agreement, nothing in this agreement, including the data protection procedures, will prevent a country from meeting. 

Mr. STARK. Okay. In a side letter that has no force and effect 

at all. Why can’t it be in the agreement? If you are telling me that 

it would have the force and effect of law, besides which TPA says 

nothing about test data. That is beside the point. Why can’t it be 

in the agreement? 

Ambassador ALLGEIER. The agreement itself indicates the obligations. Sometimes it is useful to have a clarification, so, if there 

is ever a dispute in the future, you know what the intent of the 

negotiators was at the time. That is the purpose of side letters. 

Mr. STARK. The intent is to fulfill the—assistant trade rep for 

pharmaceuticals, the only U.S. trade rep. We do not have one for 

movies. We do not have one for the recording industry. We do not 

have one for software. We have a special assistant U.S. trade rep 

for pharmaceuticals. How do you suppose that got in there? From 

PHARMA maybe? Come on. If you are just dancing to the piper of 

29 

the pharmaceutical industry, be man enough to admit it. What the 

heck? If you want to harm a lot of poor people in Central America 

by denying them drugs in an emergency, you are doing a hell of 

a good job and you ought to be proud of yourself. 

Ambassador ALLGEIER. Nothing in this agreement prevents a 

country from meeting the—— 

Mr. STARK. Baloney. 

Chairman THOMAS. The gentleman’s time has expired. The gentleman from California, Mr. Herger, wish to inquire? 

Mrs. HERGER. Thank you, Mr. Chairman. Mr. Ambassador, I 

want to thank you for being here today on this incredibly important issue to American trade and particularly for the area I represent. I represent one of the richest agricultural districts in the 

Nation, growing a major percentage of our Nation’s almonds, dried 

plums, rice, walnuts, pistachios, just to mention a few of the specialty crops. So, when I look at a pending trade agreement, I pay 

very close attention to how the agreement treats American agriculture. 

The agriculture producers in the northern California district I 

represent depend on foreign markets. We cannot eat all the commodities that we grow. More than 60 percent of California’s almonds are exported. About half of our dried plums are exported. 

Just under half of our rice is exported. When I travel around my 

district and meet with farmers, I consistently hear the refrain that 

trade must be a two-way street. I support this agreement because 

I believe it takes the current situation where our markets are open 

to other countries and yet Central American markets are basically 

less open to our commodities, and it turns the relationship into a 

two-way street. The average Central American and Dominican Republic tariff on agriculture ranges from 35 to 60 percent. By contrast, 99 percent of all U.S. imports from DR–CAFTA countries 

enter the United States duty free. This, Mr. Ambassador, is a oneway Street. 

This agreement is the best chance to open markets for our agriculture producers and make our trade relationship for the first 

time a two-way street. Take rice for example, I represent one of the 

largest rice-producing districts in the Nation. Today, U.S. rice exports face DR–CAFTA duties of up to 60 percent. This agreement 

would bring down these duties over time and would allow for 

400,000 metric tons of U.S. rice immediately. This is why the U.S. 

Rice Federation and U.S. Rice Producers Association are publicly 

supporting this agreement. The same is true for our California almonds, another large commodity in my district. Current duties can 

reach 20 percent in DR–CAFTA countries. Under the agreement, 

California almond, walnut, and pistachio producers benefit from 

immediate duty-free access from all DR–CAFTA countries. This is 

why Blue Diamond Growers is publicly supporting this agreement. 

I could go on and on how this agreement is a win-win for U.S. agriculture. So my message is this: We should not allow the very tiny 

minority of U.S. agriculture that believes it will be negatively impacted to derail this agreement that is so crucially important to so 

many. Ambassador, I would appreciate any thoughts you might 

have on this point. 

30 

Ambassador ALLGEIER. Thank you very much, Congressman. I 

think the point that you were making about the great disparity in 

the tariff treatment between our agricultural products going into 

Central America and their products here is really the central point 

of the agricultural side of this. You referred to rice, and you said 

that tariffs are as high as 60 percent for American rice going into 

this market. Well, that is the applied rates. Under the WTO, some 

of these countries would have the right to raise their rice tariffs to 

90 percent. If you look at other products—and of course, we allow 

their rice to come in zero duty. If you look at other products, it is 

a very similar sort of thing. In soybeans and soy products, they 

have WTO rights that would allow to them charge up to 90 percent 

on our soybeans and soy products. We allow their products in at 

zero. If you look at vegetables, it is as high as 60 percent. We allow 

theirs in for zero. I could go on, as I am sure you could, and that 

is the reason that 60 agricultural organizations in the United 

States strongly support this agreement. 

Mrs. HERGER. Ambassador, again, I thank you. Mr. Chairman, 

this agreement, again, should be bipartisan. We should have basically 100 percent support on this. This is a win-win for almost everyone in our Nation, and we should not allow a small group, a 

small minority to somehow be successful in throwing a monkey 

wrench into an agreement that is so crucially important to our 

economy and our Nation and so many of our citizens. Thank you. 

Chairman THOMAS. The gentleman’s time has expired. The gentleman from Michigan, Mr. Levin, wish to inquire. 

Mr. LEVIN. Welcome, Mr. Allgeier. First, I want to put the 

issues here in perspective quickly. It is not whether there should 

be expanded trade. We here on this Committee on our side have 

a pretty clear record in most cases, if not all. The issue is not 

whether there should be a DR–CAFTA. The question is, is this one 

shaped appropriately? The issue is not protectionism versus free 

trade. Indeed, the basic argument here is among those who have 

very, very actively supported expanded trade. The basic issue is 

whether DR–CAFTA is negotiated. It is shaped so that the benefits 

will be widely shared or whether the notion is that that sharing, 

that spreading of the benefits will happen kind of automatically. 

That is especially critical as to Central America because in most 

countries the absence of a strong vibrant middle class and a major 

narrow distribution of income. In this agreement, there is a double 

standard. Only when it comes to labor and the environment is the 

standard, enforce your own laws. I do not think you can point to 

any other area whether it is intellectual property, whether it is investment, whatever it is, whether it is subsidies, whether it is tariff 

rates. We do not just say, enforce your own laws. So, there is a 

double standard here. You mention Morocco, Chile. There is agreement that their laws embodied the basic ILO standards. I will not 

argue with you now about Jordan, but you mischaracterize it. On 

November 6 of 2003, we wrote you a letter saying that you, USTR 

were mischaracterizing the ILO report. That was November 6 of 

2003. We never got an answer from you. We spelled out how in 20 

of the 24 cases, as I remember it, the ILO report indicated major 

flaws. You never answered it. We wrote you again on October 4 of 

this year. Yesterday, last night, we get a letter from you. So, you 

31 

have not responded to how you mischaracterize the ILO report. 

Look, the core labor standards issue involves this basic issue of 

how benefits will be spread and whether they will be or we should 

not worry about that. Are you aware of the 2000—I think it was 

2001 authorization to the Department of Labor for a study of internationally recognized worker rights? Are you aware of that? 

Ambassador ALLGEIER. I believe that you are talking about a 

study that was commissioned to the—let me get the name of this 

organization. 

Mr. LEVIN. You are right. Do not take up my time. That is the 

study. 

Chairman THOMAS. The Chair will protect the gentleman’s 

time. The organization that the Ambassador was looking to cite is 

what? The study was commissioned by which organization? 

Ambassador ALLGEIER. By the Department of Labor, the one 

that Congressman Levin is talking about I believe. 

Mr. LEVIN. The International Labor Rights Fund (ILRF), is that 

correct? We wrote a letter on May 26, 2004 asking to receive copies 

of those reports under the Freedom of Information Act (FOIA) (5 

U.S.C. 552). It is May 26 of 2004. We wrote saying—several weeks 

ago, I wrote to—this is to the secretary, requesting the documents 

described below, and we have been in touch with you. We never 

heard back. Then, on August 3, we wrote the letter, I guess we 

then heard at some point a denial, and then you said—she said 

that the reports are not final and are being reviewed. We then, on 

October 27, filed an appeal of that decision. When the secretary 

was here some weeks ago, we asked her about a response to that 

appeal. She said she would give us that response soon. We have 

never heard, and I just—you know of this report, right? 

Ambassador ALLGEIER. I have been made aware of it. I have 

not seen it, but I am aware of it. 

Mr. LEVIN. Have you asked for a copy of this? 

Ambassador ALLGEIER. Yes, but I just got back from Geneva 

last night. 

Mr. LEVIN. How old is the report? 

Ambassador ALLGEIER. I do not know. 

Mr. LEVIN. It is a year and a half, 2 years old. I just want you 

to know, and you can transmit this to the secretary, that I am 

going to file a privileged resolution demanding that those reports 

on labor standards in Central American countries be made available to this Congress. I would appreciate your conveying that, and 

I would hope that there would be a response, an appropriate response to our FOIA request. Will you convey that to her? 

Ambassador ALLGEIER. I will be happy to convey it. 

Mr. LEVIN. Will you read the reports? 

Ambassador ALLGEIER. Yes, I will. 

Chairman THOMAS. The gentleman’s time has expired. 

Ambassador ALLGEIER. Mr. Chairman, may I just make one 

point? 

Chairman THOMAS. One brief point. 

Ambassador ALLGEIER. Okay. The letter that was written by 

you and two other Members to Ambassador Zoellick in November 

of 2003 was answered in November of 2003. If you do not have a 

copy, I will be happy to provide it. The copy of the letter that I sent 

32 

last night was held because I was in Geneva, and I wanted to be 

sure to review it before sending it to you. 

Chairman THOMAS. The Chair recognizes the gentleman from 

Louisiana, Mr. McCrery. 

Mr. MCCRERY. Thank you, Mr. Chairman. Mr. Allgeier, you 

commented earlier that we will not hear at this hearing, ‘‘why don’t 

you do what Canada did,’’ or ‘‘why don’t you do what some European country did in their bilateral trade agreement?‘‘ Expound on 

that a little bit. Why won’t we hear that? Not because ours is the 

best, the furthest that anybody has ever gone, but don’t those countries insist as a condition of entering into the trade agreement that 

the other country change their domestic laws or anything like that? 

Ambassador ALLGEIER. No, sir. They do not insist. 

Mr. MCCRERY. They do not? 

Ambassador ALLGEIER. No. 

Mr. MCCRERY. Why not? 

Ambassador ALLGEIER. Well, you would have to ask them. 

They are the ones who are stating the objectives for their negotiations. 

Mr. MCCRERY. Well, doesn’t it strike you as being—the reason 

is apparent. If nobody does that, if no major industrial nations entering into trade agreements as a part of their trade agreement insist that the trading partner change their domestic laws, then what 

is the obvious reason for that if nobody does it? 

Ambassador ALLGEIER. Well, the obvious reason—there may be 

several reasons for it. That is because people do not think that that 

is really where the focus needs to be. The focus needs to be on 

making improvements in people’s lives, and frankly, whether one 

is incorporating certain particular wording in an agreement or not 

may not be as important as what sort of changes people are making through cooperation and through other mechanisms that are incorporated in the trade agreement 

Chairman THOMAS. Will the gentleman yield briefly? 

Mr. MCCRERY. Sure. 

Chairman THOMAS. Might it not be another reason that, if you 

really wanted to enter into a trade agreement, a bilateral agreement or a regional agreement, your chances of concluding it with 

particular countries diminishes significantly if you require as part 

of the agreement that they change their domestic law in any number of areas to suit you, so that, in fact, they have to allow you to 

dictate the way in which their country operates? What would be 

the chances of concluding successful agreements with those preconditions? 

Ambassador ALLGEIER. Well, that is, of course, part of the negotiating process, and it is—countries do not want to make those 

sorts of changes that are being suggested. 

Mr. MCCRERY. Isn’t that a fact? 

Chairman THOMAS. Thank the gentleman for yielding. 

Mr. MCCRERY. I thank the Chairman for citing the obvious. 

Countries—— 

Chairman THOMAS. The Chair always tries to please. 

Ambassador ALLGEIER. We would not be willing to make those 

sorts of changes in our laws. 

33 

Mr. MCCRERY. Exactly. Countries would resist any dictate, 

mandate as a condition of entering into a trade agreement, particularly if they are the ones dropping their trade barriers. They would 

certainly resist, if not down right walk out of the room if you said, 

‘‘well, we are not going to enter into this trade agreement unless 

you change your laws to suit us.’’ Isn’t that a fact? 

Ambassador ALLGEIER. Yes, and their reciprocal agreements— 

we would have to make changes in our laws. 

Mr. MCCRERY. That is why there is no country that does that 

because the object of trade agreements is trade. So, I hope that we 

can all get together and congratulate you and the USTR’s office for, 

in fact, going further than anybody has ever gone in getting these 

countries to accept responsibilities outside of the trade arena as 

you have done. Now, just—I would like for you to expound a little 

bit on Central America and China. Is China presently trying to 

make inroads into Central America in terms of their markets? 

Ambassador ALLGEIER. Certainly China is active in that area. 

They certainly look to make inroads into that market. 

Mr. MCCRERY. Will this agreement help us to compete with 

China in those markets? 

Ambassador ALLGEIER. Absolutely, because what it does is it 

gives us a permanent duty-free preference into those markets; 

whereas China will have to pay the normal Most Favored Nation 

tariff into those markets. 

Mr. MCCRERY. So, if people are concerned about our competitive position with China, this is a step in the direction of making 

us, maybe giving us an edge in that competition, at least in this 

particular region of the world. 

Ambassador ALLGEIER. Absolutely. It is much more than tariffs. All the other rules that are in this agreement are rules that 

American producers and exporters are familiar with. So, knowing 

what the rules are, being able to abide by rules, whether they are 

product standards or regulatory rules on telecommunications, gives 

our people an advantage. They are already used to these rules in 

other FTAs we have with Singapore, with Morocco and so forth. 

This is particularly important for small businesses who cannot, do 

not, have the resources to learn a whole new set of rules with every 

market that they try to penetrate. 

Mr. MCCRERY. Thank you, Mr. Allgeier. Thank you, Mr. Chairman 

Chairman THOMAS. Thank the gentleman. The gentleman from 

Maryland, the Ranking Member on the Subcommittee on Trade, 

wish to inquire? 

Mr. CARDIN. I do, Mr. Chairman. Thank you very much. Mr. 

Ambassador. Both of us favor expanding trade opportunity, but I 

think we have a fundamental difference here as to how we should 

do that. This agreement will require the Central American countries to change many of their laws despite Mr. McCrery’s comments 

about interfering with domestic law. The issue I want to really 

harp on or center on is a letter that you wrote back to Mr. Levin 

yesterday talking about the CBI rights that we currently have with 

the Central American countries where they have acknowledged 

their obligations to move toward international labor standards, and 

we have the ability to impose trade sanctions if they are not makVerDate Aug 31 2005 06:20 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00037 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
34 

ing progress. You state that DR–CAFTA is likely to be more effective than blunt instruments of withdrawing preference program 

benefits. That line, and I think about that for a moment, and I 

think about how we act and how other countries act. I do not know 

why we are the only country in the world that does not think we 

should play tough when it comes to enforcing trade laws. 

I give you many examples. This Congress changed our Tax Code, 

not because we thought it was the right thing to do. We did it because trade sanctions were imposed against us by the WTO. Now 

you are saying that we should not use trade sanctions to enforce 

rights that are important for American interests? How can you 

claim that it will be more effective to use the mechanisms of DR– 

CAFTA rather than having in your quill, having the ability to use 

effective mechanisms to get the attention of other countries? It is 

politically difficult for us to change our Tax Code. I disagree with 

the international community on that. We do it because of trade 

sanctions. It is going to be very difficult for the Central American 

countries to continue to make workers’ progress. The commercial 

interests down there, the societal interests, work against workers, 

and we have got to be tough. So, I just do not understand why we 

want to be so timid, why you do not want to have more opportunities to make sure that these countries do the right thing with 

workers’ rights. Can you explain that to me? 

Ambassador ALLGEIER. Yes. First of all, we are focused on 

making progress in these countries rather than making a point. We 

want to change the circumstances of workers in these countries to 

their benefit. 

Mr. CARDIN. Did we make progress under CBI? 

Ambassador ALLGEIER. Not as much progress as we would like. 

Mr. CARDIN. Did you impose sanctions against them? 

Ambassador ALLGEIER. I do not believe that there were sanctions that were imposed. 

Mr. CARDIN. Why didn’t you? If you did not make the progress 

that you thought we were going to make, why didn’t you use the 

rights that you had under the agreement? 

Ambassador ALLGEIER. Well, we used the agreement to extract 

some improvement in the situation there across the range of criteria of the CBI. One of the things is to see whether—you will not 

want to hurt U.S. interests. One of the problems with sanctions, it 

sounds like it is a very easy thing to do, but typically—— 

Mr. CARDIN. Did Europe hurt European interests when they 

went to the WTO to have sanctions imposed against the United 

States for our tax structure? 

Ambassador ALLGEIER. Yes. 

Mr. CARDIN. They did not win on their FSC (Foreign Sales Corporation) changes. Won’t that help European countries? 

Ambassador ALLGEIER. I do not know how much it will help 

European interests, but I can say that there were a number of European economic interests that did not appreciate the fact that the 

Commission imposed those sanctions on us. 

Mr. CARDIN. I did not hear from them, did not get a single letter. 

Ambassador ALLGEIER. Well, they would have sent it to the 

European Commission because that was the one who was making 

35 

the decision about whether to impose the sanctions. With respect 

to labor in Central America, the question there is, what is going 

to be most effective in changing the situation? And we think that 

working with the ILO, working with the Inter-American Development Bank, working with countries—they want to have their workers have a better situation. They are not—— 

Mr. CARDIN. We could have helped them if you would have had 

stronger ability in this agreement to make sure that they carry out 

what they want to do because of the political opposition within 

their own countries. They told us that. Yet, we did not negotiate 

to get the strength to be able to bring about those changes in a 

more constructive way in Central America. 

Ambassador ALLGEIER. I think the question is not what our objective is. We both share the objective of wanting to improve the 

labor standards and the labor rights of people in Central America 

and the Dominican Republic. We, obviously, have a difference on 

what would be the most effective way to do it. All I can say is that 

our judgment at this point is, particularly with the support of these 

other institutions, such as the ILO and the Inter-American Development Bank, that this is the best way to get the results that we 

both look for. 

Mr. CARDIN. Thank you, Mr. Chairman. 

Chairman THOMAS. I thank the gentleman. The gentleman’s inquiry reminded the Chair that the gentleman has just returned 

from the Senate. The Committee would be willing, I hope, by unanimous consent, to allow the gentleman from Maryland one minute 

to give us his impression of how the Senate hearing on our colleague, Mr. Portman, is going. 

Mr. CARDIN. Thank you, Mr. Chairman. If the Senate hearing 

is any indication of how Rob Portman is proceeding, he should be 

confirmed by the end of the day. I know it will not be quite that 

easy, but it was strong support on both sides of the aisle for our 

colleague, and we all wish him well. My purpose for being there is 

to show that we are anxious get his confirmation process completed 

and get him confirmed by the U.S. Senate, and I think that is 

going to happen sooner rather than later. 

Chairman THOMAS. Thank the gentleman. The Chair’s head 

swims that the Senate would actually accomplish anything in one 

day. The Chairman recognizes the gentleman from Michigan. 

Mr. CAMP. Thank you, Mr. Chairman. Mr. Ambassador, I obviously support the concept of duty-free access of American products 

to new markets and those trade opportunities that flow from that, 

and I have been a strong supporter of trade. Despite our trade 

agreements and promises of new markets, my concern is growing 

that these trade agreements are not adequately enforced. Years of 

non-tariff barriers for agricultural products in Mexico—some commodities I have worked on directly cannot get access to Asian markets for our auto parts and automobiles, cannot get China to stop 

dumping to counterfeit or to make the necessary currency changes. 

I know this agreement is heralded because of its import restrictions 

on certain commodities, particularly sugar. How can we be assured 

that these agreements will be enforced and that the import restrictions will actually be put into place? 

36 

Ambassador ALLGEIER. We take very, very seriously the responsibility to enforce our trade agreements, whether they are in 

the WTO or bilateral agreements. That is why we have such strong 

provisions for dispute settlement in all of our agreements. Thanks 

to the Congress, a few years ago we got additional resources at 

USTR to focus specifically on enforcement. I can assure you that 

we are very vigilant. Now, in the case of Central America, some 

people have criticized us for actions that we have taken with respect to some of the members of this agreement who were changing 

their laws in contradiction to what they had signed in this agreement. That was simply an example of us being vigilant and conscientious in making sure that, if we make an agreement with 

someone, both they and we need to abide by it. I can assure you 

that that will remain our approach to the DR–CAFTA. 

Mr. CAMP. You contend often that this just adds a spoonful of 

sugar to the U.S. market, which ignores the fact that not everyone 

grows sugar, and the government’s own ITC (International Trade 

Commission) report says that job losses in the sugar sector under 

DR–CAFTA will be 38 percent higher than the next highest sector. 

In Michigan, for example, that is $450 million in economic impact 

to the State and 2000 jobs that potentially could be lost. My concern is, why is there not a more worldwide approach to this issue, 

given the economic impact that this agreement potentially has on 

particular sectors? In the same sense, the growth in those areas is 

so modest, because the economies are so small that we are getting 

access to, that this agreement really becomes a symbol for some of 

the flaws in our trade policies in terms of not enforcing, and then 

having really disparate impacts on particular sectors. 

Ambassador ALLGEIER. Well, just speaking about the agricultural sector, this agreement certainly levels the playing field for 

our agricultural exporters, and that is why so many of them, 60 of 

them, have indicated support for this agreement, including, of 

course, the American Soybean Association, the National Grain and 

Feed Association, the Oilseed Processors, all of whom I think are 

important for Michigan. Therefore, we see this agreement as actually setting a pattern of leveling the playingfield for our people and 

getting them the access that you and I both want them to have. 

Mr. CAMP. All right. Thank you, Mr. Chairman. 

Chairman THOMAS. Thank the gentleman. The gentleman from 

Washington, Mr. McDermott, wish to inquire? 

Mr. MCDERMOTT. Yes. Thank you, Mr. Chairman. Mr. Allgeier, 

the symmetry between the American textile industry and the Central American garment industry is very important—you would 

agree to that, I believe—especially if we want to continue to increase economic opportunities in Central America and retain textile 

jobs here. That is part of your goal. 

Ambassador ALLGEIER. Absolutely. 

Mr. MCDERMOTT. Well, the first slide that I have put up on the 

screen shows that the U.S. market is the number one destination 

of Central American products. 

[The information was not received at the time of printing.] 

They are very tightly tied to us at this point in time. The second 

slide clearly shows that more than half of Central American exports are apparel. That is what they are exporting to us. I suspect 

37 

if we went around this room, everyone in this room is wearing a 

garment at some level made in Central America. The third slide 

shows that the importance of American products to Central America, we are the biggest source of imports for them by sending in our 

yarn and our fabric. Correct? Now, the fourth slide shows how important those American yarns and fabric and apparel are to Central America. This really, in my view, is a key point, because these 

Central American garments that we made, we wear, are largely 

made with American yarn and fabrics. That is by design. That is 

what CBI was designed to do. Isn’t that correct? 

Ambassador ALLGEIER. Yes. 

Mr. MCDERMOTT. So, as I understand it, the apparel rules are 

generally the same that are found in other FTAs, many of which 

we have passed on a bipartisan basis. Is that true? 

Ambassador ALLGEIER. Yes. They are, generally speaking, the 

same, although we have some stronger enforcement elements in 

this agreement. 

Mr. MCDERMOTT. Okay. So, in what you trade technocrats call 

the yarn-forward rule, meaning that, in order for Central American 

apparel to qualify for the benefits under DR–CAFTA, that apparel 

must be made of yarn and fabric produced in the United States or 

Central America; is that correct? 

Ambassador ALLGEIER. That is correct. 

Mr. MCDERMOTT. I want to understand, and if I understand it 

correctly, that is the system we put in place, and it is actually 

working. 

Ambassador ALLGEIER. Yes. 

Mr. MCDERMOTT. To some benefit for Central America at the 

moment—— 

Ambassador ALLGEIER. For both of us—— 

Mr. MCDERMOTT. For our consumers? 

Ambassador ALLGEIER. Correct. 

Mr. MCDERMOTT. Now, this is my question. Would you assert 

that the yarn-forward rule enables American yarns and fabrics to 

continue to have a stable export market so DR–CAFTA could potentially be a win-win for Central America and the U.S? 

Ambassador ALLGEIER. That is the intention, and we have 

worked very hard with our industry and their industry to ensure 

that that remains the case. 

Mr. MCDERMOTT. Well, I would like to take you back in history 

a little bit to NAFTA (the North American Free Trade Agreement). 

NAFTA uses this same yarn-forward rule on Mexican apparel products. If you look at—in 2000, several years after NAFTA was in 

force, the American—the Mexican apparel industry had taken off, 

but we passed normal trade relations with China. One of the problems with looking at all these agreements is that we do one thing, 

and then we do another thing. You have got to see how they relate 

to one another. It is pretty interesting to see how China’s share of 

the imports increased since we have had normal trading relations. 

That is a pretty steep climb. China’s share has tripled in the last 

few years in United States, but as you can see, the apparel rules 

and the so-called FTAs are grossly onerous and inadequate. 

Show the next slide. That is what happened to Mexico. They 

have had NAFTA through this same period when we had the inVerDate Aug 31 2005 06:20 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00041 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
38 

crease in Chinese imports. NAFTA has been going down in Mexico. 

So, they have witnessed a dramatic and precipitous decline in their 

market share, despite our protections. The fact of the matter really 

is that the yarn-forward rule is nothing but an old world approach 

to protectionism, and it is time—it has got to go. That red line is 

pretty stunning. China has emerged since January 1. I bet that is 

even steeper if we had the numbers in the apparel industry, and 

they are the world’s largest cotton producer, so, why do they need 

the United States? They have low labor costs and that is the whole 

reason why they are very competitive. I would think that the tariff 

preference that we provide for our free trade partners would give 

them an advantage over China. We have tried to do that in the African Growth Opportunity Act and others. We have tried, but it is 

pretty clear that these rules are really not working very well. I 

think that we need to really sit down and talk about what is going 

to happen when we finally give up our subsidies on cotton so that 

our cotton rises in cost, which we demand that Central America 

use. Their prices are going to be out of sight. It will be all coming 

from China when this occurs, in my view. I do not see how this 

works in the long run. 

Chairman THOMAS. Will the gentleman allow an inquiry by the 

Chair on his chart? 

Mr. MCDERMOTT. Sure. Yes. 

Chairman THOMAS. I believe the chart is accurate. 

Mr. MCDERMOTT. I think so. It came from us. 

Chairman THOMAS. The gentleman also indicated that we had 

created preferential arrangements with the Caribbean Nation countries. Does the gentleman have any data on the regional direction 

rather than just Mexican? The Chair believes that some of the activities that had been in Mexico have been shifted to the CBI countries by virtue of the preferential treatment that the CBI countries 

get vis-a-vis Mexico. So, a country’s specific line may show a downturn, but the general region, since Mexico is not a member, the 

CBI may in fact be an upturn. Does the gentleman have any information on that? 

Mr. MCDERMOTT. I am sorry. I did not put the slide in. My remembrance is that, in fact, the CBI line is also drifting down with 

this increase in the China line. 

Chairman THOMAS. That is the kind of information on the regional basis we need to look at, and the Chair would like to look 

at that. 

Mr. MCDERMOTT. I would welcome another hearing in which 

we could talk about this 

Chairman THOMAS. The Chair thanks the gentleman. The gentleman from Minnesota wish to inquire? 

Mr. RAMSTAD. Thank you, Mr. Chairman. Mr. Ambassador, 

given the nature of our economy, which is becoming more and more 

knowledge-based literally every day, and given the nature of my 

district, which puts a high priority on intellectual property rights 

(IPR), I am concerned about protection of intellectual property 

rights overseas. We all know that intellectual property theft is 

rampant worldwide, and every item that is reproduced comes right 

out of the pocket of the American owner. It hurts the economy and 

certainly costs us jobs. My question is, how does this agreement 

39 

strengthen intellectual property rights so that American companies 

and workers receive just compensation for their work? 

Ambassador ALLGEIER. As you know, Congressman, the international rules, the multilateral rules on protecting intellectual 

property are in the WTO, the so-called Trade Related Intellectual 

Property Rights (TRIPS) agreement. That agreement, at this point, 

is basically 10-years old. We all know the changes in technology 

that have occurred during that period. So, it is very important for 

our—precisely the reason that you were describing, the degree to 

which we depend upon the knowledge-based industries, that in our 

trade agreements we keep the level of protection at the same pace 

as all the technology changes. 

That is the advantage of these FTAs and particularly the DR– 

CAFTA; if you look in the DR–CAFTA agreement, you have, as I 

said, state-of-the-art intellectual property protection that goes beyond what is in the TRIPS agreement. So, as a result, a number 

of these countries will join new copyright protection agreements 

that have been developed since the Uruguay round, and they will 

be making other changes in order to protect our intellectual property. 

Mr. RAMSTAD. So, it is your position that if no intellectual property protections were in this agreement, that intellectual property 

theft would be even more rampant? 

Ambassador ALLGEIER. Oh, absolutely, especially in the copyright area. 

Mr. RAMSTAD. Which is very important, not only to Minnesota 

but to our entire Nation. I appreciate your important work on this 

agreement. Thank you for testifying. Certainly, we need this trade 

liberalization, because it means jobs. It means economic growth in 

all sectors, not just knowledge-based. So, I appreciate your good 

work on this important agreement and would yield back. 

Ambassador ALLGEIER. Thank you very much. 

Chairman THOMAS. I thank the gentleman. The gentleman 

from Pennsylvania wish to inquire? 

Mr. ENGLISH. Thank you; I do indeed. Ambassador Allgeier, I 

am very grateful for the opportunity to pose to you some specifics. 

First of all, I read in your testimony that you have created a mechanism for promoting environmental standards through DR–CAFTA 

that would, among other things, allow the NGOs an opportunity to 

challenge a party’s failure to enforce its environmental laws and to 

obtain an independent review of their submissions. You also indicate that the agreement provides for independent monitoring of environmental benchmarks by outside organizations. Let me ask you 

to briefly describe exactly how this process would work, and how 

would this process ultimately have more teeth in it than, say, the 

environmental side agreement that was created for NAFTA? 

Ambassador ALLGEIER. First of all, the provisions on environment in the DR–CAFTA are exactly that; they are in the DR– 

CAFTA text itself. It is not a side agreement. The second point I 

would make, going to the point that you made, Congressman, about 

the submission process, I think that we all know that the best assurance that any obligation is going to be carried out, whether it 

is in domestic law or international, is to have light on the agreement. So, the submission process is an important way of providing 

40 

light on what is happening in these countries, whether it is on the 

labor side or the environmental side, so that groups that have a 

great interest, for example, in improving the level of environmental 

protection, ensuring that environmental laws are carried out, they 

can, on their own, submit a submission through a secretariat, an 

independent secretariat that has been set up, called the Organization for Central American Economic Integration (SIECA), who will 

then evaluate whether the challenge to the country’s practice has 

some merit. Then they can determine whether to do a factual 

record, again, by an independent body, and then refer it to the parties of the agreement. 

Mr. ENGLISH. If there is ultimately a finding that a country is 

not meeting appropriate benchmarks or is even, on a wholesale 

basis, violating environmental standards, what will be the consequences under this trade agreement? 

Ambassador ALLGEIER. If a country were to be violating the 

agreement with respect to environment—it was not, let’s say it was 

not enforcing its own law—then any other party—let’s say the 

United States—could seek to consult with that other party. If the 

other party is not willing to make the changes to come into compliance with its obligations, then the United States could take them 

to dispute settlement, and there would be a panel that would determine whether that country was abiding by its obligations. If the 

panel were to determine that the country is not abiding by its obligations, then it would indicate, where it is falling short. It would 

then be up to the country, under the agreement, to make changes 

to come into compliance. If the country, at that point, refused to 

come into compliance, then a fine could be imposed upon that country and the proceeds from that fine, which is recurring—it is year 

after year after year until they fix the problem—there would be a 

joint determination. The United States would have to agree how 

those proceeds would be used to fix the problem. So, let’s say that 

they were not enforcing their environmental law with respect to 

clean water; they would have to be using those resources to improve that situation. 

Mr. ENGLISH. Thank you. My other question, Ambassador 

Allgeier, I frequently look to the record of countries that we are negotiating FTAs with in terms of their willingness to cooperate with 

us on policy. Several of the countries we have recently negotiated 

FTAs with have very much cooperated with the United States in 

a number of international forums, including the WTO. I was at 

Cancun, and I saw how the G21 organization went in very much 

at cross purposes with us and ultimately, I think, led to the failure 

of the Cancun opportunity. I have also noticed that we have—and 

I credit the Administration for this—aggressively argued that the 

WTO should not re-open the anti-dumping laws. Yet, I notice that 

at least a couple of the countries in DR–CAFTA participated in the 

G21, and one of them, Costa Rica, is currently involved in the socalled Friends of Anti-Dumping group that is trying to use the 

WTO to dismantle our trade laws. Do you feel that this is a significant problem, and have the countries responded to us on these 

points? 

Ambassador ALLGEIER. First of all, as you know—— 

41 

Chairman THOMAS. The Chair would request a very brief response but a more extensive response would be in writing to the 

gentleman from Pennsylvania and to the Committee because the 

Committee is interested in the thrust of the gentleman’s question. 

Ambassador ALLGEIER. I would be happy to provide a more expansive response. Let me just say that, in the DR–CAFTA itself, 

there is no change in U.S. law regarding anti-dumping that is required. I will note that Costa Rica and El Salvador left the G20 

and have withdrawn from that. So, we are working with all of 

them in the WTO, but I think that our positions with respect to 

our trade remedy law is quite clear. 

[The information follows:] 

The written response from Ambassador Allgeier follows: 

We enjoy a close and cooperative relationship with our FTA partners as we work 

in the WTO, and one of our common objectives is to complete the DDA negotiations 

successfully. There are many informal groups of representatives that meet together 

to focus on issues of concern in the negotiations, and while we don’t necessarily agree 

with all their positions, discussions are useful in developing a fuller appreciation for 

the issues. In the case of the Group of Negotiations on Rules, membership in the socalled ‘‘Friends of Antidumping’’ informal group has varied from time to time depending on the issues in question. The 15 members of the Friends are: Brazil, Chile, 

Colombia, Costa Rica, Hong Kong, Israel, Japan, Korea, Mexico, Norway, Singapore, 

Switzerland, Taiwan, Thailand and Turkey. None of the U.S. bilateral free trade 

agreements include commitments on anti-dumping and countervailing duties. We 

have had limited discussion of these issues to the WTO. 

Chairman THOMAS. Thank the gentleman. The Chair will indicate to Members and others that, following the inquiry of the gentleman from Georgia, the Chair will recess. There are three 15- 

minute votes on the floor. Parliamentary procedure does not allow 

us to stack at 5-minute intervals. I would ask the Ambassador if 

he would be willing to wait until we reconvene because, clearly, 

there are additional Members who wish to inquire. The Chair recognizes the gentleman—and the Chair will reconvene 5 minutes 

after the conclusion of the last vote in this sequence. The Chair recognizes the gentleman from Georgia. 

Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Chairman. Mr. Ambassador, thank you for being here. I will be very 

brief because of this vote. Mr. Ambassador, what I want to say 

from the outset is, we live in a different world. We live in a different time; this is the 21st century. So, I want to ask you a question or two about workers’ rights under this agreement. Is there 

anything in this agreement to prevent workers from being paid 

below a living wage? 

Ambassador ALLGEIER. Yes. All of these countries have various 

protections for workers and the conditions under which they work. 

So, those do have to be enforced under the agreement. 

Mr. LEWIS OF GEORGIA. Is it possible that workers in these 

countries, some workers will be paid $0.75 an hour or maybe a dollar a day? 

Ambassador ALLGEIER. The purpose of this agreement is to 

provide workers in these countries with more opportunities so that 

they can make more money, and I do not know the precise wage 

levels in these countries. 

42 

Mr. LEWIS OF GEORGIA. There is not anything in the agreement to prevent some of these countries, some of the companies 

from paying people starvation wages? 

Ambassador ALLGEIER. No, they cannot pay starvation wages 

under this agreement. 

Mr. LEWIS OF GEORGIA. Could people be forced to work without breaks? Is there anything in that agreement to prevent people 

from working 7 days a week? 

Ambassador ALLGEIER. No. One thing I would like to point out 

is that these countries all have ratified the major ILO conventions. 

All but El Salvador have ratified all eight of them. El Salvador has 

ratified six of them. In the case of the United States, we have ratified two. Their labor laws—the problem is not with the labor laws. 

I think some of you may have met last week with the Archbishop 

of Guatemala, and I will not say he is certainly not a fan of DR– 

CAFTA but what he did say is they have an excellent labor law in 

Guatemala, but it needs to have better compliance. 

Mr. LEWIS OF GEORGIA. That is maybe one country. 

Ambassador ALLGEIER. No, but that is just symptomatic of the 

situation there, and that is what the ILO found, that that is 

where—if we want to make a difference in people’s day-to-day lives, 

which we both want to do, the way to do it is to focus on enforcement of the existing laws in those countries—all of them. 

Mr. LEWIS OF GEORGIA. Mr. Ambassador, someone said many 

years ago, if we do not stand for something, we will fall for anything. If you have the choice to open up a new factory in America, 

in our own country, or in Central America, where labor is cheap 

and people receive very little compensation for their work, where 

will you go if you want to make a big profit? Will you stay in America, or will you go to Central America? 

Ambassador ALLGEIER. I think that decisions about where to 

locate production hinge on many, many factors. One part of the— 

one factor certainly is compensation for workers, but that also has 

to be related to productivity. I think if one tours the—or visits the 

factories in Central America that are run by American 

headquartered companies, one finds that those companies tend to 

be setting the highest standards for the treatment of their workers. 

Mr. LEWIS OF GEORGIA. Thank you, Mr. Ambassador. Thank 

you, Mr. Chairman. 

Chairman THOMAS. I thank the gentleman. Ambassador, is 

there any indication that the workers’ lot would improve in these 

countries if DR–CAFTA was not agreed to? 

Ambassador ALLGEIER. No. There is no evidence that that 

would happen. I do not see how improvement would occur without 

assistance to them on the objectives that they themselves have set 

to improve their workers. 

Chairman THOMAS. As the Chair indicated, the Committee will 

stand in recess until 5 minutes after the last vote. Ambassador, if 

it is possible, the Chair would request that you stick around because there are a number of other Members who wish to inquire. 

The Committee stands in recess. 

[Recess 12:08 p.m.] 

43 

Chairman THOMAS. Could we ask our guests to find seats, 

please. The Committee will reconvene. The Chair recognizes the 

gentleman from Illinois, Mr. Weller. 

Mr. WELLER. Well, thank you, Mr. Chairman; and I commend 

you for this particular hearing today as we look at the DR–CAFTA. 

I want to commend Ambassador Allgeier and former Special Trade 

Representative Bob Zoellick and Regina Vargo and the entire team 

that worked to put together over the last several years what I believe is a good, fair and balanced agreement with our friends in 

Central America and the Dominican Republic. With the subject 

being the Dominican Republic, I also want to thank my colleague, 

Mr. Rangel of New York, who I worked with to encourage the Dominican Republic to be included as part of what was originally 

known as CAFTA, and is now known as DR–CAFTA with the addition of the Dominican Republic. That was a bipartisan effort, and 

I appreciate the good relationship I have with my friend from New 

York. 

I would also note, as we look at DR–CAFTA, that it changes, 

frankly, the situation we currently have. In the year 2000, an overwhelming bipartisan majority of this Committee and this House of 

Representatives, 309 Members—183 Republicans, 126 Democrats— 

voted to support our friends in the Dominican Republic and the 

Central American countries by expanding and creating the Caribbean Basin Trade Partnership Act (CBTPA). What was interesting 

about the CBTPA was that it was a unilateral opening of the U.S. 

markets, essentially creating a one-way opportunity for our friends 

without any reciprocity. I would note again, 309 Members, an overwhelming bipartisan majority, supported that legislation. 

Now before us we have legislation which I believe deserves an 

equally high level of support, bipartisan support, but it does something different. Previous overwhelming bipartisan support created 

a one-way street when it came to trade; DR–CAFTA creates a twoway street on trade. Because of that, I am a very enthusiastic supporter of the DR–CAFTA. I believe it is fair; it is balanced. You can 

always find provisions you personally wish were a little better, but 

it is a compromise, and that is how treaties are, particularly when 

you have seven countries. 

When folks back home ask what does it mean to Illinois, what 

does DR–CAFTA mean to Illinois manufacturing, what does DR– 

CAFTA mean to Illinois farmers, the good news is DR–CAFTA is 

good news for Illinois farmers and good news for Illinois manufacturing workers. In fact, it is a win-win for both manufacturing and 

agriculture. As I mentioned, Illinois is a big winner because, right 

now, Illinois agriculture faces high tariffs on Illinois farm products 

that go into Central America and Dominican Republic. Under this 

agreement, one-half of tariffs on U.S. agricultural exports are 

eliminated immediately. Think about that; immediately. While Illinois is the second largest exporter of soybeans, which face today a 

20 percent tariff, it means a big difference, because, under this 

agreement, soybeans will immediately have duty free access. Think 

about that, a 20 percent tariff will be eliminated immediately for 

Illinois soybeans under DR–CAFTA. Illinois is also the second largest exporter of feed grains and will benefit from the immediate 

elimination of duty on yellow corn in Costa Rica and the Dominican 

44 

Republic and the phaseout of duties in the other countries. Pork— 

and Illinois is a major livestock State—currently faces duties as 

high as 47 percent, but all duties will be eliminated and phased out 

over 15 years. I would note from a livestock perspective that our 

friends in the Dominican Republic and the Central American countries are working to recognize U.S. meat inspection and certification systems to facilitate the ease of U.S. exports. That is why 

50 Illinois farm organizations stand in strong support of DR– 

CAFTA. 

Now, the district I represent and the State I represent is a major 

manufacturing State, heavily dependent on exports, heavily dependent on manufacturing, and by DR–CAFTA opening up a twoway street on trade, this agreement immediately eliminates tariffs 

on 80 percent of U.S. exports, 80 percent of Illinois exports. It 

eliminates all tariffs within 10 years, including the up to 15 percent tariffs on Illinois’ exports on chemicals, electrical equipment, 

machinery, processed food and transportation equipment. That is 

good news for the small manufacturers that I represent in Illinois, 

both the little guys as well as the big guys, Caterpillar being my 

biggest employer. Eight thousand Caterpillar workers reside in my 

congressional district, and Caterpillar is one example of an Illinois 

company that will benefit significantly, meaning there will be more 

opportunities for Illinois workers to make the yellow trucks, the 

yellow bulldozers, the yellow construction equipment. With this 

agreement, the tariff on U.S.-produced off-highway trucks, for example, made by Caterpillar, which currently is 5 percent in Guatemala, 8 percent in the Dominican Republic, 14 percent in Costa 

Rica, they will be immediately—on the first day of implementation, 

those tariffs on manufactured goods will be eliminated; and that is 

good news for the thousands of manufacturing workers in Illinois 

and in the district that I represent. The bottom line is, DR–CAFTA 

is a win-win for Illinois workers, Illinois farmers, Illinois manufacturers; and I stand in strong support. 

Ambassador Allgeier, can you, as we talk about the differences 

between the current status quo of a one-way street on trade, where 

we have essentially given full access to the U.S. marketplace for 

our friends from Central America and the Dominican Republic, but 

at the same time our products to go into their markets currently 

face duties and tariffs and barriers, what will this mean from the 

perspective of Illinois manufacturers, or just say U.S. manufacturers and U.S. farmers, having that two-way street now with the 

elimination of the barriers as a result of DR–CAFTA? What impact 

do you see as a result, particularly on exports of agricultural and 

manufacturing? 

Chairman THOMAS. I will tell the ambassador that that is a 

question the entire Committee is interested in, and if you could 

submit that response in writing, we would appreciate it. 

[The information follows:] 

The written response of Ambassador Allgeier follows: 

CAFTA–DR offers significant benefits for American workers, businesses, farmers, 

and ranchers. First, it’s a growing market for our exports—Central America and the 

Dominican Republic rank as the second-largest U.S. export market in Latin America, 

behind only Mexico. This agreement offers opportunities for many sectors of the U.S. 

economy, including textiles, manufacturing, services, and agriculture. CAFTA will 

support U.S. textile jobs and help our industry compete against China and other 

45 

Asian countries by encouraging the use of U.S. yarn and fabric in the region’s large 

apparel-making industry, which is why the National Council of Textile Organizations (NCTO) supports this agreement. The National Association of Manufactures 

projects that as a direct result of CAFTA–DR, U.S. manufacturers stand to gain $1 

billion of additional goods exports, with approximately 12,000 related job opportunities for American workers. Moreover, CAFTA–DR could help to preserve up to four 

times that amount of existing U.S. exports in textiles. Factoring in manufacturing, 

agriculture and services trade, the Chamber of Commerce estimates a gain of $3 billion in U.S. exports. 

U.S. farmers will also benefit significantly—CAFTA will open the Central American and Dominican Republic markets to U.S. wheat, rice, soybeans, beef, pork, poultry, dairy, and many other products. The American Farm Bureau estimates this 

agreement could mean $1.5 billion to the U.S. in additional farm exports. 

You asked about the benefits of two-way versus one-way trade. Today, Central 

America and the Dominican Republic already export 80 percent of their goods dutyfree to the U.S. market through preference programs and most favored nation rates. 

But many U.S. goods and agricultural products face high tariffs on exports to the 

region. CAFTA will remove those tariffs and open up the Central American and Dominican Republic markets to U.S. products to the benefit of American workers and 

farmers. Over 80 percent of tariffs on consumer and industrial goods will be eliminated immediately, with the remaining tariffs phased out over 10 years. 

The U.S. ITC reported in its economy wide effects study of a CAFTA–DR that U.S. exports to the CAFTA–DR countries would increase annually by $2.7 billion. 

Moreover, according to an independent study using the Michigan Model of World 

Production and Trade, the U.S.— CAFTA–DR FTA will boost U.S. exports to the region by $8 billion and increase U.S. welfare by $17.3 billion (or 0.17 percent of 

GNP). 

It is also important to note that CAFTA will strengthen democracy and economic 

freedom in a region that has seen too little of both. President Bush believes we should 

stand with those in our neighborhood who stand for economic freedom. 

Chairman THOMAS. The gentleman’s time has expired. Does the 

gentleman from Massachusetts wish to inquire? 

Mr. NEAL. I do. Thank you, Mr. Chairman. Mr. Allgeier, in 2003, the trade deficit was $500 billion, and in 2004 it grew to 

$617 billion. I think we would all agree it has impacted, in some 

shape or form, the dollar. Do you think we have a trade deficit 

problem? 

Ambassador ALLGEIER. Congressman, we certainly have a 

trade deficit problem with certain countries where we are not getting the kind of access that we should. Obviously, the trade deficit 

depends upon many other factors, the principal one being differences in growth rates between the United States, which is a 

great consuming Nation, given our relatively high growth rate, and 

other countries, such as Japan and in Europe where they have not 

had the same growth rates. 

With respect to this particular region, as Congressman Weller 

pointed out, they are a very important customer of the United 

States, and we very much want to keep them a good customer of 

the United States, and I would say particularly with respect to this 

textile situation. They are an important customer right now. If we 

do nothing, however, they will be losing jobs in their own textile 

sector, they will be buying, therefore, fewer inputs from us, and 

both of us will be big losers. 

Mr. NEAL. If you argue, as you have, that access is a problem 

which has contributed to the deficit, what is the plan for doing 

something about it? 

Ambassador ALLGEIER. The plan—well, there are a number of 

aspects. Obviously, the trade aspect is only one part of it. Trade negotiators can’t reverse the deficit. As I said, relative economic 

46 

growth and other policies, monetary policies of some countries and 

so forth, play a role. What we can do is to ensure that we are getting as level a playingfield as possible for our producers, our farmers, our service suppliers, and that is what we are doing with this 

agreement and the other elements of the President’s trade negotiating agenda. 

Mr. NEAL. With the help of many of us here, these agreements 

have gone forward, but, in the last few years, five of the six trade 

agreements we have put together now reflect significant deficits. 

Ambassador ALLGEIER. Actually, when one looks at the deficit 

situation country by country, something like 14 percent of the deficit, 15 percent of the deficit, is with countries with whom we have 

FTAs. The other 85 percent is with countries with whom we don’t 

have FTAs. 

Mr. NEAL. Five of the last six trade agreements have created 

significant deficits. Would you agree with that? 

Ambassador ALLGEIER. No. As I said, the countries with whom 

we have FTAs are a small minority of the deficit. 

Mr. NEAL. Let me take you to the next point then, DR–CAFTA. 

Will that create a deficit, in your judgment, a trade deficit in your 

judgment, or will that contribute to the trade deficit? 

Ambassador ALLGEIER. According to the ITC study, the net effect worldwide of the DR–CAFTA will be to improve our trade balance by about three-quarters of a billion dollars. 

Mr. NEAL. I hope to have you back so we can explore that possibility down the road, that possibility. Let me ask you another question which I think is important for those of us from New England, 

and the Northeast in particular, and that is retraining. Would you 

agree that retraining really, by and large, hasn’t worked very well? 

Ambassador ALLGEIER. I think there are always improvements 

we can have to help individuals make the adjustment. 

Mr. NEAL. Let me try to reframe that question then. One of the 

reasons that we have such difficulty in America selling these FTAs, 

and there is so much resistance, is largely because the retraining 

programs really haven’t worked very well. Until we gain some traction on retraining and what it comes to mean, other than lower 

wage, less job stability, you are going to have trouble forever and 

this Committee and the Members of Congress are going to have 

trouble for a long, long period of time in selling FTAs. The one 

thing I think we would all agree on here, on both sides of the aisle, 

retraining has not worked very well. 

Ambassador ALLGEIER. I don’t think, however, whatever one’s 

views are on retraining, that the solution is to stop opening markets, to refrain from opening markets overseas. If we are going to 

have to have opportunities for our workers to have additional job 

opportunities in high-tech areas, for example, in agriculture, we are 

going to have to keep opening markets. So, I don’t think that voting against the trade agreements that open markets is really an effective response to any concerns that one has about retraining. 

Mr. NEAL. One of the more intriguing alliances in Congress is 

between people on the real left and people on the real right who 

generally oppose these trade agreements, and they come at that for 

different reasons. I think one thing they agree on is, when they go 

back home, it is the level of frustration that laid-off workers feel. 

47 

I think we have not been significantly mindful of that in Congress 

as it relates to how we restructure these training programs. Thank 

you, Mr. Chairman. 

Chairman THOMAS. I thank the gentleman. Does the gentleman 

from Missouri, Mr. Hulshof, wish to inquire? 

Mr. HULSHOF. I do, Mr. Chairman. Thank you. I appreciate the 

fact you allowed our colleague from Maryland to give us an update 

about our colleague from Ohio, Mr. Portman, who I think would be 

an exceptional Trade Representative. He has the talent and expertise, and I can assure you, Mr. Chairman, my wishing him well 

does nothing to do with my desire to ascend to the upper deck— 

maybe a little bit to do with it. 

Nonetheless, some of the frustration, Mr. Ambassador, that you 

are hearing, and this is frustration, for example, we had in our 

hearing on China, especially from the agriculture point of view. I 

am going to pick up a thread that my colleague from Illinois has 

raised. The Japanese are excluding our beef, the Chinese have created some dubious sanitary and phytosanitary claims, even our 

trading partners in the European Union, we have pushed, prodded, 

cajoled as far as accepting our genetically enhanced foods. I do 

want to commend this Administration and particularly Mr. Johnson, a former colleague of ours. Wes Watkins and I introduced the 

legislation that created the permanent Chief Agriculture Negotiator for the Office of the USTR within your office, and Ambassador Johnson is doing a great job there. 

We do have a positive trade balance globally as it reflects agriculture, but certainly as we now focus on the Central American 

countries, as a witness will tell us later this afternoon, we do, right 

now at least, face a $700 million trade deficit regarding agriculture 

in this part of the world. To echo what my friend Mr. Weller said, 

he mentioned soybeans and pork. Right now, American beef, our 

exports have a tariff as high as 30 percent. One in five rows of corn 

in Missouri are exported, and right now corn exporters face duties 

up to 35 percent. If you happen to be a dairy State, sometimes exports are as high as 60 percent. So, I see that this is a good, continuing step forward at least to create that positive trade balance 

for our farmers and ranchers here in America. 

That was my comment. Let me shift though to a question and 

be sensitive to my time and allow you to answer the question. 

There have been some questions about the labor standards. So, let 

me ask you a very basic question I think I understand the answer 

to, but I will give you a chance to reiterate. Back in May of 2000, 

we had a vote in the House. There were 309 House Members, a 

very bipartisan vote—I think 126 Democrats joined 183 Republicans—and we supported some of the Central American countries, 

including the Dominican Republic, regarding the CBTPA. We increased the CBI preference in that particular area. Now, the question is maybe a little simplistic; were the labor protections in that 

initiative, are they more stringent or less stringent than what is 

being proposed in this agreement? 

Ambassador ALLGEIER. The labor protections in this agreement 

are much more robust, because it is a package of cooperation and 

support for these countries. It starts with the ILO standards, which 

is what the CBI referred to. Then, rather than just kind of putting 

48 

it on paper and then walking away, we have been working with 

these countries in order to help them meet the very specific needs 

that they have, that, first of all, the ILO identified, and then the 

countries themselves in this country identified. They didn’t just 

identify them, they went on to say these are the steps we need to 

take to improve our situation. There will be a donors conference on 

May 9 that the Inter-American Development Bank is organizing to 

respond to the needs that have been identified in this document. 

I met the other day with the Director General of the ILO to talk 

about the ongoing monitoring role that they will have. So, none of 

that is in the CBI. 

Mr. HULSHOF. Let me ask you this final follow-up question, because, again, a later witness will tell us in his testimony, at least 

his written testimony, that not one country included in the DR– 

CAFTA comes close to meeting a minimum threshold of respect for 

the ILO’s core labor standards. Since you won’t have a chance to 

respond after that witness testifies, what response would you make 

to that claim or allegation? 

Ambassador ALLGEIER. I would respond that the ILO is in the 

best position to judge compliance with its standards, and it has 

said in the report that it did, a very comprehensive report, that 

these countries’ laws are compatible, comply by and large with the 

ILO convention standards. Now, they didn’t do a review of the 

United States because we have not ratified as many of the ILO 

conventions as these countries have. 

Mr. HULSHOF. Thank you, Mr. Chairman. 

Chairman THOMAS. I thank the gentleman. Does the gentleman 

from Kentucky, Mr. Lewis, wish to inquire? 

Mr. LEWIS OF KENTUCKY. Thank you, Mr. Chairman. Mr. 

Ambassador, I would like to address some of the questions that Mr. 

Neal asked a little while ago. NAFTA, since it was signed in 1993, 

how much have our exports increased to that region? 

Ambassador ALLGEIER. Well, when you say NAFTA, you want 

the exports to Canada and Mexico? They have more than doubled 

in that period, and perhaps even more significant, is that our production at home, manufacturing production, has increased by onethird during the period of that agreement. 

Mr. LEWIS OF KENTUCKY. What is the deficit, trade deficit, 

with Canada and Mexico right now? 

Ambassador ALLGEIER. I would have to look up the exact number. 

Mr. LEWIS OF KENTUCKY. What I am getting at is that, if we 

didn’t have this trade agreement with the increase in exports, what 

would our deficits be? 

Ambassador ALLGEIER. Obviously they would be much, much 

larger. As I said earlier, if you look at all of the FTAs that we have, 

they account for something like 15 percent of our overall world deficit. That includes, obviously, the NAFTA. So, 85 percent is with 

countries with whom we don’t have agreements. 

Mr. LEWIS OF KENTUCKY. The reality is that trade is going 

to go on. It is a matter of whether we are going to get the best 

deals we can possibly get in our trade agreements and be able to 

increase our exports. I know in Kentucky alone our exports increased to Canada and Mexico by 267 percent since NAFTA, and 

49 

that has created a lot of good, good jobs. So, I think it is a pretty 

bogus argument to argue that we are worse off by these trade 

agreements. 

Ambassador ALLGEIER. It is hard to imagine how this could 

make things worse, when we are at the disadvantage that has been 

documented here already in terms of the relative tariff levels. 

Mr. LEWIS OF KENTUCKY. Exactly. I would just like to address the issue of retraining. I have talked about this community 

several times in this Committee, but I have a perfect example in 

my district, Campbellsville, Kentucky, where they lost a Fruit of 

the Loom company a few years ago, 2,500 jobs. That was quite a 

significant negative impact on the community, but through retraining, through their local university, they were able to bounce back 

within a three or 4 year period with 13 new companies and expanded companies, several in-source companies from other countries. The employment now is greater than what it was before the 

Fruit of the Loom company closed. So, retraining does work. It 

takes a lot of effort on the part of the community to get involved 

and have the leadership to do what Campbellsville did. If a community the size of Campbellsville can do what they have done, then 

I don’t think there should be a problem for any community. 

Ambassador ALLGEIER. We have to keep opening markets in 

order to make the opportunities for those employees. 

Mr. LEWIS OF KENTUCKY. Absolutely. Just one more question. I know Kentucky is a large exporter of fabric and yarn, at the 

tune of about $110 million in 2004, I think. The DR–CAFTA agreement, what kind of impact is that going to have on Kentucky? I am 

sure it is going to make it a lot better, but how much better, do 

you think? 

Ambassador ALLGEIER. If I could just focus on the textile part 

of that for a minute, people should not be under the impression 

that if we do nothing we will still have all of those jobs in the textile and apparel area, because there is no such thing as the status 

quo in this world with the quotas of, and the competition from, 

China. So, it is a question of whether we prepare ourselves and 

make ourselves more competitive, to compete in that environment, 

or whether we stand by and watch jobs go across the Pacific to 

Asia. The National Association of Manufacturers has documented 

this quite clearly in the study they have done. 

Mr. LEWIS OF KENTUCKY. Thank you. Just let me say, the 

jobs in Campbellsville are better paying, higher tech. Like I say, 

they certainly would have liked to have kept Fruit of the Loom, but 

they have been able to rebound very, very well. 

Ambassador ALLGEIER. We are pleased to hear that. 

Chairman THOMAS. Does the gentleman from Louisiana, Mr. 

Jefferson, wish to inquire? 

Mr. JEFFERSON. Thank you, Mr. Chairman. I would like to 

begin by saying that I wish I could offer a defense for the Chairman or for USTR with respect to what Mr. Rangel said today about 

the lack of inclusion in decisionmaking by the Committee, the lack 

of consultation by USTR with respect to the entire Committee, with 

respect to both sides of the Committee, Republicans and Democrats. There is a lot of room for improvement there. Many of us 

struggled with the TPA to get it passed, and then we find ourselves 

50 

frustrated by the fact there are closed meetings, and that is unfortunate. So, I hope going forward, as we try to implement these provisions, we will find a way, you will find a way and our Chairman 

will, to include all of our Members in those discussions. 

Having said that, I support this agreement for a lot of reasons. 

I am from New Orleans. We have been working for the last 4 years 

with DR–CAFTA ministers and the rest trying to get some points 

of agreement. We have had DR–CAFTA institutes created down 

there by universities. We have done a great deal with our port, but 

I have been as concerned as anyone about how it affects environmental and labor issues. From our research, what it looks like to 

me, and I want to see if you can confirm this, that unlike the 

United States, which is a common law system, the six DR–CAFTA 

countries are a civil law system, and when they adopt international 

conventions, as with the ILO standards, they become a part of their 

domestic law. Is that true or not? Is that what your reading shows? 

Ambassador ALLGEIER. Yes, Congressman, that is accurate. 

When they ratify these agreements, at the moment that it is ratified it then becomes essentially incorporated in their law. It is domestic law. 

Mr. JEFFERSON. If that is true, then when you require them 

to enforce their domestic laws, you require them to enforce all of 

the conventions that they have adopted as a part of the domestic 

law, is that not true? 

Ambassador ALLGEIER. That is right, and that is why it is so 

useful to have within the agreement itself these procedural requirements, if someone in one of these countries challenges how they 

have been treated with respect to labor protections. 

Mr. JEFFERSON. Now, many of these countries—in fact, all of 

them; I just looked at it—in their constitution also adopt the ILO 

core standards in each of the constitutions of these countries. Each 

of the countries, except for the Dominican Republic, has adopted all 

eight of the conventions, and the Dominican Republic has adopted 

all except one. Isn’t that correct? 

Ambassador ALLGEIER. I think El Salvador has ratified six of 

the eight. The others have done the eight, if I am not mistaken. 

Mr. JEFFERSON. That is close. 

Ambassador ALLGEIER. The point about the constitution is absolutely right. These rights, by and large, are embedded in their 

constitutions. 

Mr. JEFFERSON. Now, there are ways to improve this agreement and to make it work. I don’t know about making it work better, but make it work. I am concerned about the labor and trade 

capacity, the commitment there, and whether or not we will put 

money behind our efforts to help the countries fund their white 

paper suggestions. I am concerned about whether we might have 

a look-see in some biannual way with a report to the Congress 

about what happened with respect to the labor and environmental 

issues, something that might be an action-forcing event from our 

end of it. In the African bill, we required a meeting of ministers 

with the President about various issues. I would like to see one 

where DR–CAFTA labor ministers meet to discuss their efforts to 

afford workers workers’ rights on an annual basis here in the country as we do under the African bill. Would any of these things 

51 

sound objectionable to you? Are these things we can work on as we 

work to implement the legislation? 

Ambassador ALLGEIER. Actually, I think those ideas are completely compatible with the approach that we are taking and, 

frankly, with the approach that these other countries are taking. 

We are all in agreement that there should be benchmarks, there 

should be periodic review, and we would be happy to work with you 

and other Members of Congress to establish that kind of a system 

between us and the Congress. 

Mr. JEFFERSON. There are probably a few other ideas out there 

about the subsistence farmers projects and that sort of thing to 

make sure that the smallest agricultural units down there are able 

to participate in this agreement and the small industries are able 

to participate in the agreement. Would that also be the kind of 

thing that you would see us working on as we move toward implementation? 

Ambassador ALLGEIER. We would be happy to. We are very 

proud of this agreement, and we think that as we go through time, 

it will be evident how good it is. So, having scrutiny and monitoring is actually a positive for us. 

Mr. JEFFERSON. Do we have your commitment—I know you 

won’t be the man who decides all this in a few minutes, maybe by 

the end of the day, according to some reports, but do you support 

the notion that, as we move forward with implementation, that you 

will work hard or suggest that your agency work hard to make sure 

that Democrats and Republicans are brought to the table to work 

on implementing legislation? 

Ambassador ALLGEIER. Yes, we certainly will work that way, 

and I appreciate the time you have taken for me to visit with you 

and other members of USTR to visit with you. We will work with 

you on that very hard. 

Mr. JEFFERSON. Thank you very much. 

Chairman THOMAS. I thank the gentleman. Does the gentleman 

from Arizona wish to inquire? 

Mr. HAYWORTH. Mr. Chairman, I do, and I thank you very 

much for the time. Sir, thank you very much for both your stewardship on this interim basis in the USTR’s office and your generous 

time today before our Committee to talk about this proposed FTA. 

It is interesting, we talk about the inter-related nature of decisions 

we make here in the Congress of the United States, and certainly 

there are classic pocketbook issues at stake, Mr. Chairman and my 

colleagues. 

One item as familiar as the kitchen table is this rather hefty 

family sized bottle of ketchup. Interestingly enough, this particular 

brand in some quarters is a bone of contention in terms of branding 

in the recent election campaign, but I bring this up not on a political sense but really on a pocketbook issue. What is transpiring in 

terms of access for this product and others like it, as familiar on 

our kitchen tables, in our pantries and grocery stores, right now, 

before this FTA comes into being, with the circumstances that we 

confront for this American product in the countries to be affected 

in this proposed DR–CAFTA, right now, ketchup faces a 15 to 20 

percent duty in this region. It is a sensitive product which will be 

subject to a 10 to 15 percent phaseout of the duty. Now, underVerDate Aug 31 2005 06:20 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00055 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
52 

stand these duties really are nothing more than penalty fees or, in 

essence, taxes, I guess you would call it, that restrict, literally, the 

consumption of American products and have an impact on our 

economy. I think it is something that we have to remind ourselves, 

especially given the tenor and tone of some of the discussion, 

though I welcome greatly the substantive question from my good 

friend from Louisiana who preceded me. Could you amplify, not 

only for food brands but for other products, and pardon the pun, 

from soup to nuts, including ketchup, what it means to have a repeal or a decrease in these duties in terms of American jobs and 

opportunity and market share for American products in the area 

affected? 

Ambassador ALLGEIER. Yes. Well, that certainly is the point of 

the agreement, is to level those differences. You can go through the 

whole range of products. We have talked a lot today about agricultural products but also on industrial products, but we haven’t 

talked very much about the other areas of commerce, about services and the openings that will be created for our services industries. After all, two-thirds of our economy is services, and we are 

the most competitive in the world in financial services, audio-visual 

services, telecommunication services, express delivery. All of these 

are areas that will be opened up through this agreement. So, all 

of these things should be looked at together. We have rightfully 

concentrated on the tariffs, but I don’t want to have people miss 

the other opportunities. government procurement, for example, 

which has not been opened previously, will now be opened on a 

non-discriminatory basis for our suppliers. These create opportunities especially for smaller and medium-sized businesses, which are 

also extremely important to our economic health. 

Mr. HAYWORTH. Let me move from the kitchen table. I mentioned earlier the geopolitical impact of what goes on in terms of 

trade, and it is no secret, indeed it is part of the public record, that 

I had serious concerns about our trade agreement with the People’s 

Republic of China. Indeed, as we look at this new century, and having returned recently from a trip to China and given the challenges 

we confront there, it is worth noting that there is a significant 

presence of the People’s Republic of China in Central America in 

the area to be affected. Now, I know that, certainly, this has impact on economics. To the extent you have seen evidence of Chinese 

entry into these markets and the presence of the Communist Chinese in this hemisphere, opening up trade opportunities would 

seem to serve us well as a counterbalance geopolitically to the rising influence of the Communist Chinese in this hemisphere. 

Ambassador ALLGEIER. This agreement is a commercial agreement, but it is much, much more, in terms of, as I said earlier, supporting reform in these countries, but in terms of cementing our 

overall relations with these countries. This is something they badly 

want—the relationship with the United States. If we were to walk 

away from them by not passing this agreement, when would they 

ever trust us again? We have worked with them very, very hard 

to get to this agreement, and what would happen—I am actually 

in some ways less concerned about the Chinese influence than the 

influence of people like President Chavez of Venezuela. He would 

turn to them and he would say, I told you so. You trusted the 

53 

Americans. Bad choice. That is, I think, a greater risk, a consequence of rejecting this agreement, than the Chinese activities in 

that area. 

Mr. HAYWORTH. Thank you. 

Chairman THOMAS. The gentleman’s time has expired. Does the 

gentleman from Florida, Mr. Foley, wish to inquire? 

Mr. FOLEY. I thank you very much, Mr. Chairman. Earlier 

today we heard from you, among others, that we are only talking 

about a teaspoonful of sugar, and I know that was illustrative of 

the imports that may be allowed under this bill. It may be a teaspoon and a half for every American. I represent the region that 

grows it, so I didn’t have a prop to bring in, because it would have 

been too big. It does have an impact on jobs in my district, it has 

an impact on businesses in my district, and so I don’t want my concerns to be trivialized by anyone. By anyone. Members have a right 

to assert the importance of trade for their district. I keep my rights 

to protect the workers in my State. 

The reason I ask that question is it seems specific to this, and 

we are trying to be cooperative. I am having discussions with our 

grower groups, because I think there are some compelling reasons 

to support DR–CAFTA, but if I am pushed in a corner, I will have 

no alternative. I have had conversations with the White House, and 

I will continue to have them with my colleagues, but I would like 

the respect of the USTR office in understanding, while it is important for the global look, Members do have political and individual 

concerns that at the end of the day they have to balance. So, I just 

ask for respect at least on that point of order. The question is, what 

is the opposition to elevating sugar, considering it is grown worldwide? We excluded it from Australia. I believe every FTA ever completed excludes import access mandates on sugar. We excluded it 

from the Canadian portion of NAFTA. The only one that was included was Mexico. I think South Africa, Japan, Mercosur all excluded the import access mandate. Obviously, this is reflective of 

the fact that so many countries grow it, and because of the imbalance of debate, they found ways to exclude it. Is there opposition 

to elevating all of the discussions relative to sugar to the WTO? 

Ambassador ALLGEIER. Certainly not. Our view is that, in agriculture and in specific products such as sugar, the United States 

should not be out there unilaterally changing our programs if other 

countries are permitted to either subsidize their sugar or maintain 

other barriers to their markets in sugar. I do want to say, Congressman, that we are very respectful of the need to deal sensitively, very sensitively, with sugar, and we have tried very hard to 

do that in this agreement, in no sense trivializing it. When I say 

it is a teaspoon and a half, I understand, though, it is a very sensitive product, and that is exactly why we worked so hard to get 

the provisions in this agreement that we did. We will be happy to 

work with you on the global scale as to what should be the appropriate negotiating posture that we take in the WTO. 

Mr. FOLEY. I urge my grower groups again to cooperate and 

participate and not throw around rhetoric. Let’s have a reasonable 

discussion. Both sides may have had some foul here, so I am trying 

to bring balance to the debate. 

Ambassador ALLGEIER. We appreciate that. 

54 

Mr. FOLEY. Let’s start with professional attitudes. I think one 

of the things you have also heard from Members is concern about 

enforcement of existing treaties. I have heard a lot about China. 

Virtually everywhere we go we have some question. On Brazil, for 

instance, and intellectual property rights—a recent attempt, possibly by Brazil, to take an AIDS drug that is patent-protected, 

eliminate that patent, and just claim it is their own. So, we are all 

concerned about, as we negotiate trade agreements, will there be 

substantial ways to insist on compliance without some Nation just 

saying, oh, we are not so interested in intellectual property; we are 

just going to work on this other thing. Can you assure us as we 

continue on some of those agreements that there will be a look 

back to see where we failed and will we modify, or, at least intensify our efforts to have negotiations that are protected on both 

sides? 

Ambassador ALLGEIER. Yes. We certainly take very, very seriously our responsibility to enforce the agreements that we negotiate, and that is one of the reasons that we take such care during 

the negotiation to be absolutely as clear as we possibly can as to 

what was the intent of any given provision, so that if there are disputes in the future, people know what the intent of the negotiators 

was. Beyond that, we are probably the most active, certainly one 

of the most active litigators in the WTO’s dispute settlement. Similarly, in any of our bilateral agreements, if we see a country that 

is slipping away from compliance, we waste no time in seeking a 

correction of that. 

Mr. FOLEY. Could you just share, and for the future, my time 

is up, could you share our victories in those tribunals? I would love 

to see a compilation of the victories so I can keep score. 

Ambassador ALLGEIER. I would be glad to. 

[The information follows:] 

55 

SNAPSHOT OF WTO CASES INVOLVING THE UNITED 

STATES 

Updated: April 28, 2005 

UNITED STATES AS COMPLAINING PARTY—of the total of 

74 complaints (69) and compliance proceedings (5) the 

United States has filed so far, 50 (including 1 that is partially concluded) have been concluded; 3 were merged 

with other complaints; 5 are in the litigation stage (for 

one complaint, consultations continue on one of the products at issue); and 18 are either in the pre-litigation consultation stage or currently inactive, as follows: 

23—resolved 

to U.S. satisfaction 

without 

completing 

litigation: 

(1) Korea—shelf-life restrictions; (2) EU—grain imports; (3) Japan— 

protection of sound recordings; (4) Portugal—patent protection; (5) 

Pakistan—patent protection; (6) Turkey—tax on movies; (7) Hungary— 

agricultural subsidies; (8) Philippines—pork & poultry imports; (9) Brazil— 

auto regime; (10) Sweden—intellectual property protection; (11) Australia— 

salmon imports; (12) Greece—intellectual property protection; (13) Ireland— 

intellectual property protection; (14) Denmark—intellectual property 

protection; (15) Romania—customs valuation; (16) Philippines—auto regime; 

(17) Belgium—rice imports; (18) Brazil—patent law; (19) EU—corn gluten 

imports; (20) Mexico—hog imports; (21) Argentina—patent protection 

(partial); (22) China—VAT; (23) Egypt—apparel tariffs.

23—U.S. won 

on core 

issue(s) 

(1) Japan—liquor taxes; (2) Canada—magazine imports; (3) EU—banana 

imports; (4) EU—banana imports (compliance proceedings); (5) EU— 

hormone-treated beef imports; (6) India—patent protection; (7) Argentina— 

textile imports; (8) Indonesia—auto regime; (9) Korea—liquor taxes; (10) 

Japan—fruit imports; (11) Canada—dairy sector; (12) Canada—dairy sector 

(compliance proceedings); (13) Australia—leather subsidies; (14) Australia— 

leather subsidies (compliance proceedings); (15) India—import licensing; (16) 

Mexico—antidumping duties on high—fructose corn syrup; (17) Mexico— 

antidumping duties on high-fructose corn syrup (compliance proceedings); 

(18) Canada—patent law; (19) Korea—beef imports; (20) India—auto regime; 

(21) Japan—apples (fire blight); (22) Mexico—telecom barriers; (23) EU— 

geographical indication protection (two complaints consolidated into one 

case).

4—U.S. did 

not prevail 

on core 

issue(s): 

(1) Japan—film imports; (2) EU/Ireland/UK—tariff classification of computer 

equipment (three complaints consolidated into one case); (3) Korea—airport 

procurement; (4) Canada—wheat.

0—in appellate stage 

5—in panel 

stage: 

(1) EU—biotech products; (2) Mexico—AD duties on beef and rice (rice); (3) 

Mexico—beverage tax; (4) Japan—apples (fire blight) (compliance 

proceedings); (5) EU—customs.

4—in consultations: (1) Argentina—patent protection (partial); (2) Venezuela—import licensing; 

(3) Mexico—AD duties on beef and rice (beef); (4) EU—Aircraft.

14—monitoring 

progress or 

otherwise 

inactive: 

(1) Korea—import clearance; (2) Japan—Large Stores Law; (3) Belgium— 

yellow pages; (4) EU—dairy subsidies; (5) Chile—liquor taxes; (6) Belgium— 

tax subsidies; (7) France—tax subsidies; (8) Greece—tax subsidies; (9) 

Ireland—tax subsidies; (10) Netherlands—tax subsidies; (11) EU/France— 

avionics subsidies; (12) Argentina—footwear imports; (13) Brazil—customs 

valuation; (14) EU—Steel safeguards.

56 

UNITED STATES AS RESPONDING PARTY—of the total of 

103 complaints (97) and compliance proceedings (6) filed 

against the United States so far, 50 have been concluded; 

22 were merged with other complaints; 12 are in the litigation stage; and 19 are either in the pre-litigation consultation stage or currently inactive, as follows: 

14—resolved 

without 

completing 

litigation: 

(1) Autos (Japan); (2) Wool coats (India); (3) Various products (EU); (4) 

Tomatoes (Mexico); (5) Poultry (EU); (6) Urea (Germany); (7) Brooms 

(Colombia); (8) Helms-Burton Act (EU); (9) TVs (Korea); (10) Cattle, swine & 

grain (Canada); (11) Textiles (EU) (two complaints consolidated into one 

case); (12) Massachusetts government procurement (EU, Japan) (two 

complaints consolidated into one case); (13) Steel safeguards (ChineseTaipei); (14) Orange juice (Brazil).

11—U.S. won 

on core 

issue(s): 

(1) sections 301–310 of Trade Act 1974 (EU); (2) ‘‘Shrimp/turtle’’ law (India, 

et al.) (compliance proceedings); (3) CVD regulations (Canada); (4) AD—steel 

plate (India); (5) CVD—German steel (EU); (6) section 129 (Canada); (7) 

Rules of origin—textiles and apparel products (India); (8) AD—sunset review 

(Japan); (9) CVD—softwood lumber (final) (Canada); (10) AD—softwood 

lumber (final) (Canada); (11) Gambling and betting services (Antigua & 

Barbuda).

25—U.S. did 

not prevail 

on core 

issue(s): 

(1) Gasoline (Venezuela, Brazil) (two complaints consolidated into one case); 

(2) Underwear (Costa Rica); (3) Wool shirts (India); (4) ‘‘Shrimp/turtle’’ law 

(India, et al.); (5) DRAMs (Korea); (6) UK leaded bars (EU); (7) Music 

licensing provision in U.S. copyright law (EU); (8) 1916 Revenue Act (EU, 

Japan; two complaints consolidated into one case); (9) Bonding requirements 

(EU); (10) Wheat gluten import safeguard (EU); (11) Stainless steel AD 

(Korea); (12) Lamb meat import safeguard (Australia, New Zealand; two 

complaints consolidated into one case); (13) Hot-rolled steel AD (Japan); (14) 

Cotton yarn (Pakistan); (15) section 211 of Omnibus Appropriations Act 

(EU); (16) Taxes on Foreign Sales Corporations (EU); (17) Taxes on Foreign 

Sales Corporations (EU) (compliance proceedings); (18) Line pipe safeguard 

(Korea); (19) CVD—steel products (EU); (20) CDSOA (Australia, et al.; 

eleven complaints consolidated into one case); (21) CVD—softwood lumber 

(prelim) (Canada); (22) Steel safeguards (EU, et al.; eight complaints 

consolidated into one case); (23) Injury-softwood lumber (Canada); (24) AD— 

sunset review (Argentina); (25) Cotton subsidies (Brazil).

1—in appellate stage: (1) CVD—Semiconductors (Korea).

11—in panel 

stage: 

(1) Safeguards on steel line pipe and wire rod (EU); (2) CVD—steel plate 

(Mexico); (3) AD—cement (Mexico); (4) AD—OCTG (Mexico); (5) ‘‘Zeroing’’ of 

AD margins (EU); (6) Privatization (compliance proceedings) (EU); (7) 

CVD—softwood lumber (final) (Canada) (compliance proceedings); (8) 

Injury—softwood lumber (Canada) (compliance proceedings); (9) Taxes on 

Foreign Sales Corporations (EU) (compliance proceedings II); (10) EU 

hormones sanctions; (11) ‘‘Zeroing’’ of AD margins (Japan).

10—in consultations: (1) CVD—steel (Brazil); (2) AD—steel pipe (Italy); (3) AD—silicon metal 

(Brazil); (4) AD/CVD—sunset reviews (EU); (5) Wheat injury (Canada); (6) 

CVD—softwood lumber reviews (Canada); (7) Aircraft (EU); (8) AD—UK 

steel bar (EU);(9) AD—Shrimp (Thailand); (10) ‘‘Zeroing’’ of AD margins 

(Mexico).

9—monitoring 

progress or 

otherwise 

inactive: 

(1) Salmon (Chile); (2) Peanuts (Argentina); (3) Harbor maintenance tax 

(EU); (4) Live cattle (Canada); (5) Sugar syrups (Canada); (6) section 337 of 

Tariff Act 1930 (EU); (7) amendment to section 306 of Trade Act 1974 (EU); 

(8) U.S. patent law (Brazil); (9) AD—softwood lumber (prelim) (Canada).

Chairman THOMAS. Does the gentleman from California, Mr. 

Becerra, wish to inquire? 

57 

Mr. BECERRA. Thank you, Mr. Chairman. Mr. Allgeier, good to 

see you again. Thank you for being with us. I wish I could start 

on a happy note, and perhaps maybe I can find a way by saying 

to you congratulations on the provisions on intellectual property. I 

appreciate that you continue to fight to make sure the interests 

with regard to intellectual property are protected. It is an industry 

that we helped create, and certainly we should continue to reap the 

benefits of it. For far too long, we have seen too many countries 

continue to pirate our goods. So, I thank you for being very vigorous, going out there with guns blazing when it came to protecting 

intellectual property. 

I am disheartened that we missed an opportunity. It seems to me 

that this is an agreement that amounts to nothing more than bargain hunting at America’s expense. It is going to lead to a race to 

the bottom. By that, I mean when Americans earn an average wage 

of about $21.50 an hour, including benefits, and you compare that 

to what China pays its average worker in wages, about 64 cents 

an hour, or if you look at Mexico, where one of every four workers 

earns the minimum wage, and that totals for a day’s worth of 

work, not an hour, a day, $4 an hour. We know in Central America 

the wages are even less than that per day than in Mexico. What 

you do is set us up to engage in a race to the bottom, which ultimately we can’t win as American workers and certainly as American companies, if we are going to be forced to have to compete at 

those lower and lower wages. 

I wanted to go to a few of the points that you have raised. We 

have had this discussion about core labor standards, and no one 

has mentioned what they are. So, really quickly, what we are telling the American public is we don’t want to see any country engage 

in trade with us if they are engaging in slave labor, child labor, the 

worst forms of child labor, discrimination in the workplace, where 

they can discriminate and hire whomever they wish and fire whomever they wish and where they prohibit people from collectively associating or collectively bargaining if they choose. Those are five 

basic ILO standards. That is it. We are not talking about having 

a U.S. minimum wage. We are not talking about having working 

conditions in this country. All we are saying is those five basic 

things around the world, which most countries agree with; and, as 

you have mentioned, the Central American countries in most cases 

have adopted most of those five conventions—not all, but most. 

Now, I hear you saying that satisfies you, that they have adopted 

most of those five ILO conventions. Am I hearing you correctly? 

Ambassador ALLGEIER. Not entirely. 

Mr. BECERRA. So you are not satisfied. I just want to know if 

you are satisfied or not? 

Ambassador ALLGEIER. I am not satisfied that the overall 

working conditions—— 

Mr. BECERRA. If you are not satisfied, why would we have settled for that? 

Ambassador ALLGEIER. We didn’t settle for it. We put together 

a package—— 

Mr. BECERRA. Wait, let’s make sure. If the only thing in the 

trade agreement that says DR–CAFTA countries, enforce your own 

laws, and now you are trying to say by association the fact you 

58 

didn’t enforce your own laws and, by the way, because you adopted 

some of these ILO conventions, they now become self-executing 

within your rubric of laws, that now we have adopted them, why 

should that not satisfy you? 

Ambassador ALLGEIER. There is the question of enforcing those 

standards, and that is exactly what the ILO identified as the area 

we should go to. 

Mr. BECERRA. So, let me ask you a question. When we sent 

that letter back in October or November, 2003, identifying 25 different cases of violations by the Central American countries—not 

that we identified but that the State Department and the ILO itself 

had found—none of those has been taken care of, not with a change 

in law, to address what should have been taken care of if they 

adopted these conventions to begin with. What concerns me is, if 

you are satisfied that the Central American countries are moving 

forward with adopting these conventions, does that mean you are 

also satisfied with the way things are in China, Syria and Iran? 

Because they, too, have accepted more of these ILO conventions 

than the United States has. 

Ambassador ALLGEIER. No, I am certainly not claiming that a 

simple count of how many conventions one has adopted is a proper 

indicator. 

Mr. BECERRA. That is a concern that some of us have. I know, 

for example, that recently, a few months ago, there was an assassination of a labor leader in El Salvador who happened to be, by 

the way, an American citizen who was down in El Salvador. We are 

still trying to find out what happened to the gentleman, but we 

know it was an assassination of a labor leader. We also know in 

Guatemala not too long ago some of those labor reforms that I believe you have touted as being very successful were overturned and 

no longer can be implemented. To me, when you say that no country should change their laws to conform to what we would like, and 

that whole discussion that took place with, I think, Congressman 

McCrery, where you don’t force any countries to change their laws 

and therefore in terms of labor we didn’t do that, I urge you to take 

a look at the provisions that you helped push forward on intellectual property, where in section 7 of Article 15, I believe it is, you 

say each party shall provide for criminal procedures and penalties, 

so that if any of these Central American countries don’t have criminal laws in place to prosecute people who violate our intellectual 

property rights, they must now under this agreement change their 

domestic laws. 

I think most of us are just saying, if you are willing to force, contrary to what you just said earlier, force a country in Central 

America to change its laws so that it adopts new criminal penalties 

and procedures, at minimum we should be willing to say that these 

Central American countries should conform to basic ILO standards 

when it comes to labor rights. That is where we have this big disagreement. What we see on the ground is different from what we 

see on paper, and I hope that we can get to the point of seeing it 

in practice. 

Ambassador ALLGEIER. Well, I think that is exactly the point, 

is that we want to see changes on the ground and not just changes 

on a piece of paper. That is why we are working with the ILO and 

59 

with the Inter-American Development Bank to change the situation 

on the ground in these countries. What everybody who looks at this 

situation agrees on is that enforcement is the place to put the emphasis, and that is exactly what we are doing. 

Mr. BECERRA. Thank you, Mr. Chairman. 

Chairman THOMAS. The Chair would indicate the gentleman 

was 1:30 over, and he continues to hope that Members will self-discipline themselves, rather than making it appear as though the 

Chairman forces the Member to stop, but if it continues, the Chairman will force the Members to stop. This is a long panel. I want 

all the Members to be able to inquire. Those who continue to push 

the red light really are denying their colleagues the opportunity to 

speak. The Chair will allow all Members who wish to participate 

to participate, but we have two other panels, plus Members who 

failed to notify timely, but have indicated that they want to address the Committee on this subject. Does the gentleman from 

Texas, Mr. Brady, wish to inquire? 

Mr. BRADY. Yes, Mr. Chairman; and I would hope that Xavier’s 

time doesn’t come out of my own. 

Mr. BECERRA. I don’t think you should worry, because I think 

just about everybody had a red light. 

Chairman THOMAS. The gentleman from Texas has the time. 

Mr. BRADY. I would defy anyone in this room to argue that Central America hasn’t made remarkable progress the past 15 years in 

labor rights, in environmental standards, in democracy and the 

rule of law. It has been simply remarkable. I agree with Mr. Becerra that adopting the conventions alone doesn’t prove anything, but 

in Central America’s case it proves a great deal. An objective assessment recently by the ILO said not only has Central America 

adopted these conventions, but these laws are compliant with the 

high standards of the ILO in each case. The point they made to 

us—and, by the way, they don’t give that assessment to Syria or 

China or other countries—their point was, let’s work on enforcement. To Central America’s credit, their labor ministers came up 

here 2 weeks ago in a remarkable meeting where they not only laid 

out a plan for enforcement, but showed what steps they had already taken, how they would not only increase enforcement but 

would measure results, providing 6-month benchmarks on every 

one of these important labor provision. The DR–CAFTA is already 

making great progress, I think having great benefits in labor protection simply by its discussion. 

I will make this point, too. People say this is not a bipartisan 

trade agreement, but, in truth, it is. I am looking at a letter from 

a bipartisan group of former Secretaries of Agriculture that include 

Dan Glickman and Mike Espy and others who say the failure to 

approve this trade agreement will have a devastating effect on U.S. 

efforts to negotiate trade agreements on behalf of U.S. agriculture. 

I am looking at an open letter to Democrats from some of the key 

leaders, from Henry Cisneros, to Stuart Eizenstat, to the former 

chairman of this Committee, Sam Gibbons, Robert Strauss, the 

former Chairman of the Democratic National Committee (DNC), 

that talk about Central America’s progress as a legacy of congressional Democrats and how important this trade agreement is to 

60 

moving along with democracy and all the progress that members 

of this panel rightfully should be proud of having been a part of. 

The truth is, while some will say Central America is too small 

and too poor, tell that to U.S. farmers who have the opportunity 

to sell $1.5 billion of their agriculture products at a time when 

much of the world has shut them out. Tell that to our U.S. manufacturing workers who have an opportunity to sell another $1 billion of products and risk losing $4 billion of products a year if we 

don’t bring this to fruition. Tell that to our textile workers who 

today we have already lost, because of China’s just swamping of 

the market, five textile plants in America already. The Dominican 

Republic has lost 19,000 jobs. You say that is not a big deal, but 

those were 19,000 of our customers for U.S. products. You look at 

jeans that come from China, where there is no American content 

at all. Look at jeans that come from Honduras, where the fabric is 

American, the thread, zippers and yarn is American, this is 70 to 

80 percent American goods. We are losing those customers because 

of China. 

This gives us a chance to not only find new customers for American products but to better compete against China in textiles. Perhaps as importantly as that, it gives us a chance to look at the remarkable progress that Central America has made. I think this is 

not only one of the most important trade agreements we have ever 

faced but one of the most important foreign relations policy decisions we have ever made. Are we going to turn our back on Central 

America? Are we going to keep our arm extended, bringing them 

forward, recognizing they have made remarkable progress in rule 

of law and democracy and labor rights and all those values we appreciate? They painfully pulled themselves up the ladder of democracy. Kicking them back down would be a terrible mistake. 

I am still hopeful in the end we have a lot of discussions, and 

all of these are fair questions, Mr. Allgeier, I am just hopeful in 

the end perhaps as Republicans and Democrats we came together 

to help open our market to Central America. Let’s come together 

to keep that open and to reopen it for American products and goods 

and services. I think this is one of those truly win-win trade agreements, and I would ask your comments on that. 

Ambassador ALLGEIER. Well, first of all, Congressman Brady, 

thank you very much for the support you have been giving us 

throughout the negotiations. Let me pick up on the first thing that 

you said, and that was referring to the remarkable progress that 

has been made in these areas of labor and the environment. I have 

been working in this region since the original Summit of the Americas in 1994, and the United States hosted the first ministerial 

meeting of the FTAA. Almost that entire meeting was spent by 

then Ambassador Cantor trying to get the word ‘‘labor’’ and the 

word ‘‘environment’’ in the communique. There, we really were 

talking about things on paper. 

To think the reason there was so much resistance in the hemisphere was because they were afraid this was going to become a 

new way of stifling their trade. Think about how far we have come 

to this agreement where we have the countries themselves advocating change in their own economies, in their own labor standards 

and environmental standards, and coming to us and saying will 

61 

you help us. The effect of us voting against, the Congress voting 

against, the DR–CAFTA, would be to say, no, we heard you, but 

we are not going to help you. 

Chairman THOMAS. The gentleman’s time has expired. Does the 

other gentleman from Texas, Mr. Doggett, wish to inquire? 

Mr. DOGGETT. Thank you, Mr. Chairman. Ambassador, does 

the text of this agreement grant standing to subsidiaries of U.S. 

corporations in DR–CAFTA countries to bring investor state claims 

here in the United States? The wording appears to be slightly different than NAFTA. 

Ambassador ALLGEIER. The investor state provisions are for 

our investors in these countries to bring a claim against a foreign 

country in which they are operating. 

Mr. DOGGETT. Yes, sir, I understand how they are supposed to 

work. My question is very specific. Does the text of the agreement 

permit standing for subsidiaries of U.S. corporations to come here 

to the United States and bring investor state claims if they have 

some operation here in the United States? 

Ambassador ALLGEIER. If they have an operation here in the 

United States. If it is a company that is based in one of the DR– 

CAFTA countries, and it has an investment here in the United 

States—— 

Mr. DOGGETT. It could bring an investor state claim against 

something that it considered inappropriate here in the United 

States, couldn’t it? 

Ambassador ALLGEIER. I believe that a company based in one 

of these countries, regardless of what the particular ownership of 

that company is, if it had an investment here. Typically subsidiaries of American companies in these countries are established to 

operate in these countries. 

Mr. DOGGETT. I understand what they typically do. Under this 

agreement they would have that standing. 

Ambassador ALLGEIER. They wouldn’t have investment back 

here, though. 

Mr. DOGGETT. They could. There is nothing in this agreement 

to prevent it, is there? If they had an investment, they would have 

standing to challenge, for example, a government action. Say, if a 

State were to ban the use of arsenic in mining. Wouldn’t it be up— 

under this agreement, if there were a claim by any foreign company that that interfered and took—was a taking of its right to do 

business here, wouldn’t that be up to a DR–CAFTA arbitration 

panel to resolve? 

Ambassador ALLGEIER. No, because, first of all, we are assuming—I am assuming—that the State implements this ban on a nondiscriminatory basis. 

Mr. DOGGETT. Yes. 

Ambassador ALLGEIER. What we have done in this agreement, 

which wasn’t in previous bilateral investment treaties in the past, 

is we have, first of all, put a provision in this agreement which 

says that if a government entity like a State government is exercising its normal, its legitimate powers to protect public health and 

safety and the environment, that that, except in rare circumstances—— 

62 

Mr. DOGGETT. Yes, sir, and that is what I want to ask you 

about. I understand what the agreement says, but it would be up 

to an arbitration panel to determine what those rare circumstances 

would be, would it not? 

Ambassador ALLGEIER. Yes, but we have another provision in 

here which helps to define what an indirect expropriation would be; 

and what it is, it is the language from the Penn Central case in 

the United States, which is the guiding legal principle on what—— 

Mr. DOGGETT. Ultimately, the interpretation of those principles, though, is left up to a DR–CAFTA arbitration panel, correct? 

Ambassador ALLGEIER. That is the way arbitration works, but 

the panel is compelled to look at the treaty to see what the principals are. 

Mr. DOGGETT. There is nothing to prevent someone from being 

a trade lawyer, bringing a claim to the panel 1 day and then being, 

or maybe the very same day, being on a different panel as an arbitrator? 

Ambassador ALLGEIER. No, that would be a conflict of interest. 

Mr. DOGGETT. I am not saying the same issue, on an entirely 

different issue. In other words, the people that serve on arbitration 

panels can also be attorneys bringing claims to other arbitration 

panels of which they have no direct interest. 

Ambassador ALLGEIER. Well, number one, we are part of the 

procedure for selecting panelists. We would certainly not select 

such a panelist, or, frankly, if there were such a panelist who later 

had a conflict—— 

Mr. DOGGETT. We are not talking about a conflict; some may 

perceive it as a conflict. You can both practice trade law and bring 

claims to panels, and if you are not involved in a case, you could 

end up being one of the arbitrators in a different case involving different production and different issues, correct? 

Ambassador ALLGEIER. It is conceivable, but I just want to emphasize how closely we pay attention to conflicts of interest. 

Mr. DOGGETT. If, for example, a State had a requirement that 

on a large road or a water construction project that it was required 

that you pay the prevailing wage, that would be the type of regulation that a DR–CAFTA arbitration panel could consider and would 

be the ultimate arbiter on as to the validity of that regulation. 

Ambassador ALLGEIER. No. Once again, if the requirement by 

the State is that one has to pay the prevailing wage, let’s say on 

a construction project, that applies and stands whether it is a foreign company that is doing the construction, or an American company. 

Mr. DOGGETT. It is one of these DR–CAFTA arbitration panels 

that will determine whether that is a proper regulation if challenged as a taking by a foreign company or a subsidiary of an 

American company. 

Ambassador ALLGEIER. Let me just mention two other protections that we have. 

Mr. DOGGETT. Let me request if you would do that in writing. 

[The information follows:] 

The written response of Ambassador Allgeier follows: 

Thank you for your questions regarding the CAFTA investment chapter. You raised 

as a concern whether the fact that attorneys can both sit on arbitration panels and 

63 

serve as counsel in other matters in some way undermines the benefits that U.S. investors receive from the investor-state provisions. As a general matter, it is not uncommon for arbitrators to be lawyers. Indeed, parties to arbitration usually want 

lawyers to serve as arbitrators, as lawyers are likely to have the background necessary to resolve the parties’ disputes. Prohibiting active lawyers from serving as arbitrators would diminish the attractiveness of arbitration. However, the United 

States is vigilant in its responsibility to ensure that no conflict of interest exists with 

a potential arbitrator and the matter being heard. 

Separately, it is important to recognize the value that U.S. investors get from the 

protections afforded to them by the investment chapter in our free trade agreements, 

including the CAFTA. Millions of Americans have invested their personal wealth in 

the American and global economy. The U.S. legal system affords them and foreigners 

who invest in the U.S. access to fair, transparent, and rules-based legal systems. But 

for many U.S. investors, the playingfield is not level. Foreigners get access to the U.S. 

legal system, but U.S. investors overseas are often disadvantaged. CAFTA’s investment chapter levels the playingfield by including fair and transparent arbitration 

procedures available to U.S. investors in the event that a government expropriates 

their property, discriminates against their investment, or violates one of the other investment obligations. U.S. companies abroad have successfully used NAFTA Chapter 

11 and our BITs to redress unfair and discriminatory action against them by foreign 

governments. 

Nothing in the CAFTA or any other FTA or BIT interferes with a state or local 

government’s right to regulate. An investor cannot enjoin regulatory action through 

arbitration. That form of relief is not available under our FTAs and BITs. Even if 

arbitrators were to find that a state regulation discriminated against a foreign investor in some way, nothing in the CAFTA or our other agreements requires that the 

regulation be amended or repealed. 

Moreover, in drafting these provisions, we were careful to follow the detailed guidance on investment negotiations that Congress provided in the Trade Promotion Authority Act (TPA) to ensure that there be a fair and level playingfield for U.S. investors. The Administration has taken care to ensure that the substantive rights accorded to foreign investors are no greater than the rights accorded to our own investors. For example, TPA sets as a negotiating objective the establishment of expropriation standards consistent with U.S. legal principles and practices. As with our other 

FTAs negotiated under TPA, CAFTA fully satisfies this standard. Consistent with 

U.S. law, for example, CAFTA clarifies that only property rights in an investment 

are entitled to protection under the expropriation provisions of the Agreement. It also 

clarifies, consistent with U.S. law, that nondiscriminatory regulatory actions designed and applied to protect the public welfare generally do not constitute indirect 

expropriations. In determining whether an indirect expropriation has occurred, 

CAFTA directs panels to examine the factors in Penn Central, the seminal U.S. Supreme Court case on regulatory expropriation. 

Mr. DOGGETT. I think the spoonful of sugar that is referenced 

by several people in this discussion applies to the environment as 

well. You mentioned Senator Baucus. Seven of the eight recommendations he made were rejected in this agreement, and the 

investor state provisions still pose great concern. Have I additional 

time, Mr. Chairman? 

Chairman THOMAS. If the gentleman understands the way the 

Committee works, that red light that is out there has been on for 

1 minute. 

Mr. DOGGETT. Then I yield back. 

Chairman THOMAS. The gentleman has no time to yield back, 

and I will continue with the other Members, that if you don’t have 

the courtesy toward the other members of the panel, at least have 

the courtesy toward your colleagues. The gentleman from Wisconsin wish to inquire? 

Mr. RYAN. I do Mr. Chairman. Mr. Allgeier, a couple of questions, but first a point I want to make. I think it is important that 

as we look at trade agreements, we view them in their own context 

and on their own merits. For this agreement, when you can see 

64 

that measured to the status quo that we find ourselves in today, 

when 80 percent of their goods coming into our country come in 

duty free, yet we don’t see reciprocal treatment toward our goods 

going into their countries and we are equalizing that, that is a step 

in the right direction. Particularly what is interesting to me is for 

my own State of Wisconsin. Our major industry is wood products, 

which is northern Wisconsin, our forest industry. We have 0 percent tariff on DR–CAFTA wood products coming into America, but 

they have a 10 percent tariff on our goods going there. Motor vehicle parts, which is a very big industry in my district, 0 percent tariff. Auto and auto parts coming into America, 11.1 percent tariff of 

American-made auto and auto parts going into the DR–CAFTA 

countries. Corn and soybeans, grains, which is a big area of Wisconsin’s industry, 0 percent tariff; their grain products coming into 

America, 10.6 percent tariff of our products going there. Dairy 

products: Wisconsin—put the California advertising aside, Wisconsin is still America’s dairy land, and the dairy tariff against our 

dairy products—— 

Chairman THOMAS. The gentleman’s time has expired. 

[Laughter.] 

Mr. RYAN. Reclaiming my time, it is a 19.5 percent tariff on 

Wisconsin cheese going into the DR–CAFTA countries. We charge 

them 9.3 percent tariff. Meat products, 14.7 percent tariff of our 

products going into the DR–CAFTA countries, and a 3 percent tariff we charge them. So, I am very pleased with the fact that this 

levels the playingfield for our products to be able to—for us to sell 

into their markets. 

Also of concern to constituents are the labor standards, and I just 

have a couple of quick questions. I would actually appreciate being 

copied on the letter you are going to send to Mr. Doggett on the 

project labor agreements. My understanding of the agreement, that 

this does nothing to affect in any way our project labor agreement 

and prevailing wages. If you could copy me on that interpretation 

as well, I would appreciate that. My question basically is this: 309 

House Members voted in support of the CBI Unilateral Preference 

in 2000. Are the labor protections stronger in this agreement than 

they are in the status quo? If we do not pass this, how would that 

improve the labor protections in the enforcement of the labor protections that the DR–CAFTA countries have right now? We are 

kind of dancing around this issue. The question is, does this agreement help increase the enforcement of labor standards in the DR– 

CAFTA countries? Is this not a step in the right direction compared 

to the status quo, not just to mention the tariff rates but also on 

labor standards? 

Ambassador ALLGEIER. I thank you. These are all very important issues. If I could just say one thing. The tariff examples that 

you gave and that others have been giving are the tariffs that we 

pay now going into these countries. They can tomorrow raise those 

tariffs, and in most cases very substantially, because their WTO 

rates are way up here, and we would have no recourse whatsoever. 

So, actually we are leveling the playingfield in even a greater way 

than these examples have given. 

With respect to the CBI versus this agreement here, this agreement for labor and environment is immeasurably better and 

65 

stronger. What would happen if we don’t pass it? Well, as I said 

earlier, if we don’t pass it, we are not involved then in the cooperative efforts with these countries and providing them the support 

that they so desperately are asking so that they can improve the 

lot of their workers. 

I think one thing we should be really clear on: These countries 

are not trying to keep workers at low wages or at—not have rights. 

They want to improve the welfare of their workers. That is why 

they are coming to us and the ILO and the Inter-American Development Bank and saying ‘‘please help us,’’ and ‘‘please help us’’ 

now translates into passing the DR–CAFTA. 

Mr. RYAN. Well, I see my red light is about to come on and I 

want to stick with the rules of the Committee, but a lot of people 

look at these trade agreements and let the perfect be the enemy 

of the good. If this is a trade agreement that raises labor and environmental standards and gives us the kind of access that they are 

already—that we are already now giving to them—and improves 

our ability to create more jobs here at home and sell more overseas, 

then to me this is a good agreement. I thank you for your time. 

Ambassador ALLGEIER. Thank you 

Mr. SHAW. [Presiding.] Mr. Pomeroy. 

Mr. POMEROY. Thank you, Mr. Chairman. Frankly, from the 

Administration there seems to be a rather self-congratulatory tone, 

not with the witness before us, but throughout the presenters to 

the Committee on Ways and Means, which I find completely surprising in light of the circumstances we now find ourselves. We 

have the deepest trade deficit with the world we have had in the 

history of the country. Representing rural America, I am astounded 

that we are in a quarter-by-quarter foot race in terms of whether 

we are going to be a net importer of food or a net exporter. To 

think about the United States of America being a net importer of 

food shows what a sorry, sorry trend this has been. 

We have on this chart the relationship of trading with China. 

You can see more than ever, we are at a deep, deep trade deficit 

circumstance with China, and that does not capture the first 3 

months of this year. We have read just recently, a Wall Street 

Journal article on April 1, of the tremendous textile surges we have 

seen just in the first quarter: a 1,258 percent increase in cotton 

knit shirts; a 1,521-percent increase in cotton pants. Last week we 

had a panel before us that couldn’t say they had done anything 

more to respond to this than refer it to some Committee. 

In the face of this onslaught of imports, we have not seen the Administration take the action required to protect Americans. In 

many cases, terms for fair trade were put into the very agreements, 

but not enforced by the Administration themselves. So, small wonder we have some uncertainty as we approach this trade agreement. Just looking at what has happened with the NAFTA countries since the trade agreement was entered, 523 percent change to 

the detriment with Canada; 2,742 percent to the detriment with 

Mexico. Perhaps it is all a matter of perspective. When you get before us and talk about this sugar deal, it is just a spoonful a week, 

that may be your way of looking at it; but to us, what is in the 

DR–CAFTA agreement is going to impact adversely U.S. sugar to 

the tune of $180 million. I have heard my own growers try to pencil 

66 

this out in terms of what losing a penny on the price might be, 50 

to $80 an acre; all of this coming when we are at the deepest trade 

deficit in the history of the country. I want to ask you, why wasn’t 

sugar taken off the table when this trade agreement was negotiated? 

Ambassador ALLGEIER. There are a number of things that you 

mention, and I do want to get back to the China point. 

Mr. POMEROY. Actually, I wanted to talk about sugar, here, 

now. China just set the stage for why we are anxious, but let’s now 

talk about sugar. Why was sugar not taken off the table? 

Ambassador ALLGEIER. Sugar was handled very, very sensitively, more sensitively than any of the other agricultural products, 

I would say. However, once we say to a country we are not going 

to consider anything to do with a given product, they will come 

back to us and they will say, fine; we will not consider a particular 

product of yours, or a particular interest of yours. 

Mr. POMEROY. If I might just then pursue this. There are 21 

sugar-exporting countries lined up for future bilateral negotiations 

with the United States. Will sugar be on the table in those negotiations? Or can you assure us this afternoon, right here in this hearing, on the record, right now, that sugar will not be on the table 

in those future negotiations? 

Ambassador ALLGEIER. Well, first of all, I am not sure what 

you mean when you say there are 21 countries lined up to do FTAs 

with us. We have not agreed to do any FTAs at this point other 

than the ones that are currently under negotiations. 

Mr. POMEROY. Well, let’s not quibble about the number. Let’s 

just say as to future bilateral trade negotiations with countries 

that might be sugar exporters, will you commit right now that 

sugar is off the table in those cases? 

Ambassador ALLGEIER. In all of these agreements, we are looking at the agreement itself and we are looking to be very sensitive 

to any product that is import-sensitive in the United States, whether it is an agricultural product or an industrial product. 

Mr. POMEROY. Back where I come from, we may not be diplomats or trade negotiators, but that is definitely not a no. That is 

our problem with this. You put sugar on the table of DR–CAFTA 

and we lose $180 million of opportunity. That is why we are so terribly anxious with future trade agreements still pending. I yield 

back. 

Mr. SHAW. The time of the gentleman has expired. Mr. 

Beauprez. 

Mr. BEAUPREZ. Thank you, Mr. Chairman. Mr. Ambassador, 

good to have you in front of us today. Let me start out by mentioning that I too have some angst over the sugar portion of this 

trade agreement because we have got some sugar beet growers in 

my State. They are concerned, and I share their concern. I must 

tell you, on balance, and with far greater balance, I am very happy 

with the agreement you have put in front of us, especially given 

the rather monumental step forward we take, not only on our behalf, but on behalf of the people of Central America. I will talk 

about that in a minute. 

In Colorado, some of our exporters would include the high-tech 

sector, and the high-tech sector took a pretty bad blow to the head 

67 

and other body parts in this recent downturn that they just went 

through. We have got companies like Storage Technology and IBM 

and Ball Aerospace and Lockheed Martin and Northrop Grumman 

and Raytheon, and they are not only anxious to compete more favorably and more openly in this expanding market, but they very 

much appreciate the progress you have made in protecting intellectual property rights. So, that is just a thank-you. 

Colorado, after the fur traders and the silver miners came to Colorado, it was agriculture that built Colorado and still to a large degree maintains Colorado. Beef, pork, wheat, barley, chicken, poultry are all products that we not only participate in exporting now, 

but frankly, we want to get our piece of that projected $1.5 billion 

of additional exports that we think are coming from that trade 

agreement. In addition to raw agricultural products, we send a lot 

of processed food down that direction, especially dairy products and 

processed beef, poultry, and pork. Also something close to my 

heart, tea, believe it or not. Celestial Seasonings is a Colorado company that actually employs my son as their market manager. They 

do it both ways. They import some of their raw product, the raw 

tea from Central America, and send it back in those cute little 

packages with the nice designed boxes. 

Here is my question to you, sir. One, two questions. One, it 

seems that a premise was just put forward to us that somehow by 

not approving this trade agreement, we improve our trade deficit. 

I find that just a completely upside-down argument. It seems to me 

the way to address our trade deficit is to open more markets to 

American companies not to keep them closed. I would like you to 

opine on that one. Second—and I will just give you both of them 

right now. I have found Mr. Becerra’s statement about the race to 

the bottom relative to somehow pulling our laborers, employees, 

the working-class people of the United States down to the bottom 

of the bucket, if you will, a rather upside-down argument as well. 

Illegal immigration is a concern in Colorado, as it is in a good 

bit of the country. I remember distinctly hearing the President say 

one time that, one element of resolving this problem—in addition 

to securing the border and dealing with the illegals that are here— 

the third element is to actually elevate the economic opportunity 

of the people that might be so motivated, inclined to come here legally or illegally, elevate their opportunities, their economic standards to the point where, guess what, they might like to stay home. 

Now, while all of us, I expect, would like to take multiple steps forward, not just one in this process of accomplishing that, this looks 

to me like with the cooperation, in fact, the invitation of the partners in this trade agreement, we are doing just exactly that, assisting these people in climbing that ladder. 

Ambassador ALLGEIER. Thank you, Congressman. I guess that 

you and I both learned mathematics in the same school, which says 

that you are likely to improve your trading relationship if you get 

rid of tariffs and you get rid of other barriers. At least that is the 

way that I learned math, and I guess that probably you did to. In 

terms of the race to the bottom, the National Association of Manufacturers has done a very interesting study on textiles. It says that 

without the DR–CAFTA agreement, those countries would lose 

something like $10 billion of their apparel exports to the United 

68 

States to Asian competitors. What that means is they would have 

to cut their global imports from us because they use so many imports, and that would result in a 40 percent loss of those imports 

from the United States with an impact on 48,000 U.S. jobs. That 

is the kind of race to the bottom we want to avoid with the DR– 

CAFTA, by passing the DR–CAFTA. 

Mr. BEAUPREZ. I thank the gentleman. 

Chairman THOMAS. The gentlewoman from Ohio, Ms. Tubbs 

Jones, wish to inquire? 

Ms. TUBBS JONES. Thank you, Mr. Chairman. Good afternoon, 

sir. How are you? You have been brave to sit through all of our 

questions. I am going to try and be quick, even though I am not 

usually very easy. I want to show you a chart. This chart happens 

to be a chart of my colleague, Marcy Kaptur, from Toledo. Now, you 

and Mr. Beauprez were talking about mathematics. This shows 

that our trade deficit has grown to close to $50 billion since we entered into NAFTA or NAFTA was signed. That is not good mathematics, is it? 

Ambassador ALLGEIER. The deficit with Mexico has increased, 

but so have our exports, very dramatically. 

Ms. TUBBS JONES. So, does that give us greater money? Does 

that decrease that $50 billion we are talking about? 

Ambassador ALLGEIER. The export growth that we have had 

with Mexico, during that same period, we have had an increase of 

20 million U.S. jobs, not all—— 

Ms. TUBBS JONES. We had an increase of how many; 20 million U.S. jobs? 

Ambassador ALLGEIER. In the United States during the period 

of NAFTA. 

Ms. TUBBS JONES. Can you provide that information to me, 

where they are? They couldn’t be in Ohio; we have lost 200,000 jobs 

since 2001. So, where are these 20 million jobs? 

Ambassador ALLGEIER. Well they are throughout the United 

States during the period, and I am not attributing them all to 

NAFTA. I am just saying that during the period of NAFTA—— 

Ms. TUBBS JONES. Well, what is the net number of jobs? 

Ambassador ALLGEIER. Well, that is—— 

Ms. TUBBS JONES. The loss plus the gain. What is the net? 

Ambassador ALLGEIER. Well, that is what—I believe that is the 

net; that we have got 20 million more jobs in the United States 

now than we had at the time of NAFTA. 

Ms. TUBBS JONES. Sir, show me that information. If that were 

the case, I wouldn’t believe we would be having the unemployment 

rates that we have. In Ohio, 202,000 jobs lost since January 2001. 

So, somewhere else in this country you have got 200,000 more jobs 

that we don’t have in Ohio as a result of this manufacturing 

change. I see your people shouting, turning their heads, yes. I 

would love to see the information if you could provide it to me as 

quickly as you could. 

Ambassador ALLGEIER. Fair enough. 

[The information follows:] 

69 

NAFTA and U.S. Jobs 

United States 

U.S. employment rose from 112.2 million in December 1993 (the month before the 

beginning of NAFTA implementation) to 133.3 million in April 2005. This was an 

increase of 21.1 million jobs, or 18.8%. 

Ohio 

State of Ohio employment rose from 5.0 million in December 1993 to 5.4 million 

in March of 2005. This was an increase of 433,000 jobs, or 8.7%. 

Imports from Mexico and U.S. employment 

U.S. job growth does not fluctuate based on the growth of imports from Mexico. 

Consider: 

• Substantially rising imports from Mexico from 1993 to 2000 occurred at the 

same time U.S. employment was growing. U.S. imports from Mexico grew from 

roughly $40 billion to $136 billion, and U.S. employment grew from 110.8 million to 129.0 million. 

• Neither does stagnant import growth from Mexico correspond to periods of robust U.S. job growth. From 2000–2003, imports from Mexico barely move ($135 

billion to $138 billion over 3 years) while employment growth in the U.S. slows 

sharply (2.6 million jobs a year added from 1993 to 2000; but not much over 

300,000 added a year from 2000 to 2003). 

• This pattern continued in 2003–2004, when imports from Mexico rose from 

$138.1 billion to $155.8 billion and employment grew by a much more robust 

1.5 million on a year over year basis, or by 2.2 million from December 2003 to 

December 2004. 

Since NAFTA was implemented, it has been true that when the U.S. economy is 

growing well, both U.S. employment and imports from Mexico rise rapidly; when 

U.S. growth is slow or even negative, both the growth of both imports and U.S. employment plummet. 

Sources: U.S. Department of Labor/Bureau of Labor Statistics data for total nonfarm employment, seasonally adjusted, and U.S. Department of Commerce. 

Ms. TUBBS JONES. Like today. Let me go on. Let’s talk about 

Trade Adjustment Assistance (TAA). Under this Administration, 

instead of those dollars going up for the loss of jobs, the dollars 

going toward TAA are going down. Can you explain the rationale 

of that for me? 

Ambassador ALLGEIER. Well, those—the TAA, obviously, depends on people who have been affected by changes in the trade 

regime of the United States. So, it depends on whether, in fact, the 

dislocation that they have been experiencing is attributable to—— 

Ms. TUBBS JONES. Have you assessed the dislocation of jobs in 

Ohio? Does that have anything to do with it? Are you saying it does 

or does not have anything to do with trade? 

Ambassador ALLGEIER. Well, obviously, it has to do with trade, 

both the jobs that are created and the jobs that are lost. 

Ms. TUBBS JONES. So assume, then, that Ohio adequately reflects other areas across the country. How do you explain the lowering of the dollars allocated for TAA? 

Ambassador ALLGEIER. Well, there can be several reasons for 

that. First of all, it is dependent upon people applying for it and 

qualifying for it. 

Ms. TUBBS JONES. Okay. Understood. That is a given. What 

else? 

Ambassador ALLGEIER. Okay. I am not an expert in TAA. 

Ms. TUBBS JONES. Okay. Well then, I won’t tarry with you on 

that, then. I will ask you something else. Tell me, sir, under the 

agreements that we have with China, WTO, there are several enVerDate Aug 31 2005 06:20 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00073 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
70 

forcement tools that are necessary or available to the United States 

of America to enforce the agreement that we have, correct? 

Ambassador ALLGEIER. Yes. 

Ms. TUBBS JONES. Under these agreements, the DR–CAFTA 

agreements, there are several enforcement tools that are available 

to the United States to enforce those agreements, are there not, 

sir? 

Ambassador ALLGEIER. Yes, there are, specific to the agreement. 

Ms. TUBBS JONES. Do you, as to—well, you are acting, but I 

am assuming you are going to still be around, assuming a new person is appointed—commit to a vigorous use of the tools we have to 

enforce these trade agreements, much more vigorous than what we 

have seen with the WTO in China? 

Ambassador ALLGEIER. We certainly are committed and will 

continue to be committed to use all of the tools available in whatever agreements we have, whether it is the Chinese accession to 

the WTO, the bilateral agreements that we have already negotiated 

and Congress has passed and, we hope, the DR–CAFTA agreement 

which we look forward to congressional passage. We will use all the 

tools. We will use them as aggressively as we can and we are constantly looking at ways to be more effective. 

Ms. TUBBS JONES. I would love to have in writing at another 

time—I am running out of time—the enforcement that you have 

done against China with regard to the WTO: Stephanie Tubbs 

Jones, Ohio, 11th Congressional district. Thank you Mr. Chairman 

Chairman THOMAS. The gentlewoman is welcome. The enforcement on the FTA vis-a-vis the WTO would, of course, be a different 

sheet. 

Ms. TUBBS JONES. Understood. 

Chairman THOMAS. I believe the Committee would like to have 

both. That helps us see the difference between the two. 

Ms. TUBBS JONES. I agree. Thank you, Mr. Chairman. 

[The information follows:] 

The written response of Ambassador Allegeier follows: 

China acceded to the WTO on December 11, 2001. In its accession agreement, 

China agreed to extensive, far-reaching and often complex commitments to change its 

trade regime, at all levels of government. China committed to implement a set of 

sweeping reforms that required it to lower trade barriers in virtually every sector of 

the economy, to provide national treatment and improved market access to goods and 

services imported from the United States and other WTO members, and to protect 

intellectual property rights. China also agreed to special rules regarding subsidies 

and the operation of state-owned enterprises, in light of the state’s large role in China’s economy. In accepting China as a fellow WTO member, the United States also 

secured a number of significant concessions from China that protect U.S. interests 

during China’s WTO implementation stage. Implementation should be substantially 

completed—if China fully adheres to the agreed schedule—by December 11, 2007. 

To date, while China’s efforts to fulfill its WTO commitments are impressive, they 

are far from complete. At times, China’s efforts have been unsatisfactory, and the Administration has responded with appropriate steps in such cases. The first year of 

China’s WTO membership (2002) saw significant progress, as China took steps to repeal, revise or enact more than 1,000 laws, regulations and other measures to bring 

its trading system into compliance with WTO standards. In 2003, however, China’s 

WTO implementation efforts lost momentum, and we identified numerous specific 

WTO-related problems. 

In response, the Administration stepped up its efforts to engage China’s senior 

leaders. In December 2003, President Bush and China’s Premier, Wen Jiabao, committed to upgrade the level of economic interaction and to undertake an intensive 

71 

program of bilateral dialog with a view to resolving problems in the U.S.-China 

trade relationship. Premier Wen also committed to facilitate the increase of U.S. exports to China. This new approach was exemplified by the highly constructive Joint 

Commission on Commerce and Trade (JCCT) meeting in April 2004, with Vice Premier Wu Yi chairing the Chinese side and Secretary of Commerce Evans and United 

States Trade Representative Zoellick chairing the U.S. side. 

At that meeting, which followed a series of frank exchanges covering a wide range 

of issues in late 2003 and early 2004, the two sides achieved the resolution of no 

fewer than seven potential disputes over China’s WTO compliance. Those successes 

ranged across the economic spectrum, including the following: 

• China agreed to suspend indefinitely its proposed implementation of a unique 

Chinese standard (WAPI) as a mandatory wireless encryption standard, which 

would have disadvantaged our high-tech sector and required technology transfer 

to Chinese firms. • China agreed to support technology neutrality with respect to 3G wireless phone 

standards, and telecom service providers will be allowed to make their own 

choices. • China agreed to implement its WTO trading rights obligations ahead of schedule, allowing U.S. firms to ship U.S. products to China without using local middlemen. 

China also presented a detailed action plan to address the piracy and counterfeiting of American ideas and innovations, particularly through increased criminal 

penalties for violators. We have seen some, but insufficient, results from this plan, 

as IPR infringement is still at unacceptable levels. Following a comprehensive ‘‘outof-cycle’’(OCR) review of China’s intellectual property rights (IPR) protection and enforcement under the Special 301 provisions of the Trade Act of 1974, USTR concluded on April 29 that while China has recently undertaken a number of serious 

efforts at the national level to address this situation, such as lowering the value 

thresholds that trigger criminal investigations and prosecutions, these steps have not 

significantly reduced IPR infringements across China. Therefore, USTR elevated 

China to the Priority Watch List, and announced that we would work closely with 

industry with an eye toward utilizing all available WTO procedures to address our 

serious concerns about China’s compliance with its TRIPS obligations. USTR will 

also use rely on the transparency provisions in the TRIPS Agreement to obtain specific information from China on the operation of its IPR enforcement regime. Given 

the deficiencies in China’s IPR enforcement system, the OCR report sets out tangible 

results that USTR expects of China to fulfill the commitment it made to the United 

States at the April 2004 JCCT meeting to substantially reduce IPR infringements 

throughout China. USTR will pursue benchmarks to gauge China’s results. 

In the last year, the Administration also filed, and successfully resolved, the firstever dispute settlement case brought against China at the WTO. In that case, the Administration, with support from several other WTO members, challenged discriminatory value-added tax policies that favored Chinese-produced semiconductors over imported semiconductors. In July 2004, within 3 months of our initiating the case, 

China agreed to end its discriminatory policies, allowing U.S. manufacturers to preserve and expand their $2 billion export business to China. 

Despite successes in a number of areas, important problems remain and new ones 

have emerged. At present, we are pressing China in a number of areas, with priorities being IPR enforcement; distribution services, including direct selling; industrial 

policies that limit market access by non-Chinese origin goods and that often aim to 

extract technology and intellectual property from foreign rights-holder;, restrictions in 

certain services sectors; and problematic sanitary and phytosanitary measures. 

With respect to our trade remedy laws, the United States was the first WTO member to invoke the China-specific textile safeguard to address market disruption 

caused by a surge in Chinese imports and recently self-initiated investigations to consider limits on three additional product categories. The Administration has also continued to apply the anti-dumping laws with respect to unfairly traded imports from 

China. Indeed, since China’s entry into the WTO, the Department of Commerce has 

imposed 22 antidumping orders on imports from China, representing one-third of 

total U.S. antidumping orders issued during that time period. In addition, the Administration has continued to utilize the special non-market economy methodologies 

in assessing dumping margins, as we negotiated the right to do when China joined 

the WTO. 

For further details on the Administration’s efforts to enforce the commitments that 

China made in its WTO accession agreement, attached is the 2004 USTR Report to 

Congress on China’s WTO Compliance (also available at http://www.ustr.gov/assets/ 

Document_Library/Reports_Publications/2004/asset_upload_file281_6986.pdf). This 

72 

report was issued in December 2004 and presents a comprehensive analysis of China’s WTO commitments and compliance efforts, along with the efforts that the Administration has made to monitor and enforce the terms of China’s WTO accession 

agreement. 

Chairman THOMAS. Thank the gentlewoman very much. The 

gentlewoman from Pennsylvania, Ms. Hart, wish to inquire? 

Ms. HART. Yes, I do, Mr. Chairman. Thank you, Mr. Chairman. 

Thank you, Mr. Ambassador, for joining us today. I am listening 

to the arguments and I need you to kind of go through this with 

me. My colleagues on the other side of the aisle keep mentioning 

our trade deficit, and they seem to somehow believe that our trade 

deficit will decrease if we prevent the DR–CAFTA agreement and 

other agreements to proceed. I must be missing something here, because currently our products are more expensive to the consumers 

in the DR–CAFTA nations. After DR–CAFTA would be accepted, 

our products would be less expensive to consumers in the DR– 

CAFTA nations; is that not correct? 

Ambassador ALLGEIER. That is absolutely correct, significantly 

cheaper. 

Ms. HART. From what we all know about consumer behavior, 

would it not then be true that our products are more likely to be 

purchased in the DR–CAFTA nations after DR–CAFTA is accepted 

than they are today? 

Ambassador ALLGEIER. That is what I learned in economics, 

and I have noticed it in the grocery store quite consistently. 

Ms. HART. I notice every time a sale sign goes up, crowds grow. 

It seems to me that if we look at the present situation—which is 

better for them, that means their products are cheaper here, but 

not particularly better for us—we would be crazy not to adopt this 

agreement, especially if we like sales. Okay. Thanks for that. I just 

needed a little bit of logic to prevail here, because I haven’t been 

hearing a whole lot today and I think it was important to make 

that point. 

My colleagues have been holding up a lot of food items, and I 

have a little bit of agriculture, but I want to touch on something 

that I think is also important. I exchanged an e-mail today with 

someone very close to me, who happens to be my brother, and he 

is in the chemical business. I was looking at the figures, and I understand that a significant number of our current exports to these 

countries are chemicals and industrial related. He is in industrial 

coatings manufacturing. Would it not then be true—and I am looking at the figures on the amount of duties that our companies’ 

products currently have to endure, pretty high amounts, 5 percent, 

some even higher. Then wouldn’t that then open up a pretty good 

market for a lot of our other manufacturers, our industrial manufacturers? 

Ambassador ALLGEIER. Absolutely. That is the point of the 

agreement. 

Ms. HART. Okay. That having been said, we have cheaper access 

to American products in these countries. We have some decent 

agreements regarding advancement in labor. Their employees 

would be treated much better. Mr. Beauprez was alluding to some 

issues I think are very important that we haven’t looked at regardVerDate Aug 31 2005 06:20 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00076 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
73 

ing the likelihood of more people from those countries attempting 

to get into the United States illegally. Obviously, if they have more 

strength in their economy, they are more likely to stay. Have we 

seen in prior trade agreements like this the economy of the country 

we are making the agreement with get stronger? 

Ambassador ALLGEIER. Absolutely. The economy—certainly the 

economy of Mexico has gotten stronger as a result of NAFTA, and 

they have made a number of other changes that have been very favorable to the United States. 

Ms. HART. Okay. I think we have gotten a little bit of the logic 

forward. I want to thank you for coming to see us today. Just one 

final thing, and that is on industrial goods again, which are very 

important to the communities I represent. Is it true that after 10 

years, that all the tariffs on those goods would be phased out? 

Ambassador ALLGEIER. That is true, but actually, almost all of 

them, especially on the industrial side, will be done in the first 

year; the first day, actually. 

Ms. HART. So, it would be a significant improvement, then, in 

the marketability of American products to Central America very 

quickly. 

Ambassador ALLGEIER. It would be very significant. Eighty 

percent of our products will go to duty-free on the first day. 

Ms. HART. Thank you. I appreciate your answers and I appreciate your logic, and I yield back to the chairman. 

Chairman THOMAS. Thank the gentlewoman. Gentleman from 

California, Mr. Thompson, wish to inquire? 

Mr. THOMPSON. Yes, I do. Thank you, Mr. Chairman. Mr. Ambassador, thank you for being here today. I want you to know that 

I believe strongly that, however we enhance our opportunities and 

our abilities to trade with our global neighbors is important to all 

of us, on both a micro and a macro level. A couple of things have 

been mentioned today that concern me, both the questions and the 

answers. There has been a lot of focus on the trade deficit issue, 

particularly how it relates to agriculture. If you look back at the 

past year since NAFTA has been enacted, the trade—agricultural 

trade deficit with the NAFTA countries has just about tripled. So, 

if you consider that the NAFTA countries, there are more consumers there, and they have much more purchasing power than 

the DR–CAFTA countries, can you explain to me how we are not 

going to have the same problems if we do DR–CAFTA that we had 

with NAFTA as it pertains to the agricultural trade deficit? 

Ambassador ALLGEIER. Well, obviously, every market is different and the 60 agricultural organizations that support the DR– 

CAFTA are far better—— 

Mr. THOMPSON. I am not interested in who supports it. There 

are fewer people in the DR–CAFTA countries. They have less purchasing power than the NAFTA countries, and our agricultural 

trade deficit grew three times since NAFTA has been passed. 

Ambassador ALLGEIER. Right, but what I was going to say is 

that these agricultural organizations, who are obviously out there 

marketing their products every day, are in a much better position 

than I to judge what the prospects are in their markets. They all 

have come to the conclusion that DR–CAFTA improves that. 

74 

Mr. THOMPSON. I know I have heard from one. The U.S. cattle 

folks are one of those groups, but I understand in this particular 

proposal, it only immediately opens the market for high-grade cuts 

of beef. Given the poverty situation in the DR–CAFTA countries, 

there is very little likelihood that they would be able to purchase 

those expensive high-grade cuts. So, I am not sure if everybody is 

working off the same set of numbers. 

Ambassador ALLGEIER. Well, I think the thing here is what has 

been emphasized; that we already are open to their products. So, 

this is basically a one-way opening. That is why the AFBF has calculated that our exports of agricultural products will grow at an 8 

to 1 ratio compared to the growth of our imports. 

Mr. THOMPSON. If you could get to me—and do some sort of 

juxtaposition between DR–CAFTA and NAFTA—because if you go 

back and look at what happened, the very real numbers of NAFTA, 

your thesis does not prove out. 

[The information follows:] 

The written response of Ambassador Allgeier follows: 

Since the implementation of NAFTA, Canada and Mexico have become our first 

and second largest markets for U.S. agricultural exports. U.S. agricultural exports 

to our NAFTA partners reached $18.2 billion in 2004, accounting for 30 percent of 

U.S. agricultural exports to the world. We have worked hard to actively monitor and 

enforce the NAFTA, to resolve issues where enforcement concerns have arisen, and 

we have a strong record of success in doing so with Mexico. For example, we negotiated compensation for Mexico’s safeguard action on U.S. poultry leg quarters that 

has allowed continued export growth. Poultry exports hit a record in 2004 and have 

grown another 34 percent so far in 2005. 

The CAFTA/DR offers significant opportunities for U.S. farmers and ranchers, and 

treats import sensitive products, like white corn grown by subsistence farmers in 

most Central American countries, with care. Currently, over 99% of agricultural exports from CAFTA/DR enter the United States duty free under MFN tariffs and trade 

preferences. Yet the average allowed agricultural tariff for the CAFTA/DR countries 

under their WTO commitments are 42% in Costa Rica, 41% in El Salvador, 49% in 

Guatemala, 35% in Honduras, 60% in Nicaragua, and over 40% in the Dominican 

Republic. The CAFTA/DR will level the playingfield for American farmers and 

ranchers. On day one, more than half of current U.S. farm exports to CAFTA/DR 

countries will be duty-free, including high quality cuts of beef, cotton, wheat, soybeans, key fruits and vegetables, processed food products, and wine. Tariffs on most 

remaining U.S. farm products will be phased out within 15 years. Benefiting from 

improved market access are: pork, dry beans, vegetable oil, poultry, rice, corn and 

dairy products. 

The farm community is very supportive of this agreement. The American Farm Bureau estimates that the CAFTA/DR could mean $1.5 billion to U.S. farmers and 

ranchers, and nearly 60 agricultural trade associations have offered their public support of the CAFTA/DR (see attached). 

U.S. industry identified exports of prime beef as a priority under this agreement. 

Immediate duty free access into the region will target the region’s active hotel industry trade. Furthermore, the U.S., Central American and Dominican beef industries 

stand to benefit from increased trade as our beef is of different qualities, and therefore, does not compete directly. 

April 4, 2005 

Dear Member of Congress: 

The undersigned groups representing the U.S. food and agricultural community 

urge your support for the Free Trade Agreement with Central American and the Dominican Republic (CAFTA–DR). CAFTA–DR is a home run for American agriculture. We are giving up very little to gain very much. Normally in trade agreements, each party expects the concessions it receives to balance the concessions it 

grants. Uniquely in CAFTA–DR, the agriculture agreement is tilted steeply in the 

direction of the United States. 

75 

Previous trade arrangements approved by Congress gave generous access to the 

U.S. market for food and agriculture exports from these six nations but provided 

no reciprocal benefits to U.S. food and agriculture exports to those same six markets. Between the Generalized System of Preferences, which has been in place since 

1976, and the Caribbean Basin Economic Recovery Act, or Caribbean Basin Initiative (CBI), which has been in place since 1983, U.S. tariffs on most of the food and 

agricultural products imported from the CAFTA–DR countries are already zero. 

On a trade-weighted basis, over 99 percent of the food and agriculture products 

we import from the region enter duty-free. On the other hand, the food and agriculture tariffs our products must overcome in the CAFTA–DR countries exceed 11 

percent on average, but can range as high as 150 percent or more on sensitive products. This does not include the highly restrictive tariff-rate quotas many of our products face. The result is that we have an agriculture trade deficit with these six nations. In 2004, U.S. imports from these countries exceeded our exports to the region 

by over three quarters of a billion dollars. 

So, a vote for CAFTA–DR is a vote to give American farmers trade reciprocity. 

It is also a vote to keep our food and agriculture exports competitive with products 

from other countries. Our market share in the CAFTA–DR nations has fallen from 

54 percent in 1995 to around 40 percent because of preferential arrangements negotiated by these six countries with our competitors. The implementation of CAFTA– 

DR will remedy this problem. 

Congress last voted to extend the unilateral benefits under GSP and CBI to these 

countries and others as part of the Trade Act of 2002. The most recent stand-alone 

vote on a CBI conference report in 2000 demonstrates the willingness of Congress 

to provide trade benefits to an important region of the world. In the Senate, CBI 

passed by a vote of 77–19 with 4 abstentions; in the House, it was approved by a 

vote of 309–110 with 16 abstentions. The undersigned organizations, representing 

the vast majority of U.S. agriculture, are simply requesting that Congress provide 

to American farmers what it has already provided to farmers in the CAFTA–DR 

countries—improved market access for their exports. 

Sincerely, 

Altria Group, Inc.

American Bakers Association

American Farm Bureau Federation

American Feed Industry Association

American Frozen Food Institute

American Meat Institute

American Potato Trade Alliance

American Soybean Association

Animal Health Institute

Biotechnology Industry Organization

Blue Diamond Growers

Bunge North America, Inc.

California Canning Peach Commission

California Table Grape Commission

Cargill, Incorporated

Corn Refiners Association

CropLife America

Elanco Food Products Association

Grocery Manufacturers of America

International Dairy Foods Association

Louis Dreyfus Corporation

National Association of Wheat Growers

National Cattlemen’s Beef Association

National Chicken Council

National Confectioners Association

National Corn Growers Association

National Grain and Feed Association

National Grain Sorghum Producers

National Grain Trade Council

National Grange

National Milk Producers Federation

National Oilseed Processors Association

National Pork Producers Council

National Potato Council

National Renderers Association

National Turkey Federation

North American Export Grain Association

76 

North American Millers’ Association

Northwest Horticultural Council

Pet Food Institute

Sweetener Users Association

The Distilled Spirits Council

The Fertilizer Institute

U.S. Dairy Export Council

United Egg Producers

United States Dry Bean Council

U.S. Apple Association

U.S. Hide, Skin, and Leather Association

U.S. Meat Export Federation

U.S. Wheat Associates

USA Poultry and Egg Export Council

USA Rice Federation

Washington State Potato Commission

Western Growers Association

Wheat Export Trade Education Committee

National Cotton Council 

Industry Affirms Support for DR–CAFTA 

May 10, 2005 

MEMPHIS—The National Cotton Council’s (NCC) board of directors announced 

May 9, following a special session, the NCC’s support for the Dominican RepublicCentral American Free Trade Agreement (DR–CAFTA). 

NCC represents the U.S. cotton industry’s seven segments-—producers, ginners, 

cottonseed handlers, warehousers, merchants, cooperatives and textile manufacturers. The NCC board adopted a resolution that urges Congress to endorse the current 

DR–CAFTA and recognizes that the ‘‘agreement should provide the United States 

the best opportunity for supplying apparel manufacturers and other end-use manufacturing industries in the western hemisphere’’ with U.S. cotton fiber and U.S.-produced cotton textile products. In addition, the resolution urges the Administration 

to continue to address the trade priorities of the U.S. cotton industry, including taking appropriate action regarding increased competition for U.S.-produced textiles. 

Earlier this year, during its annual meeting, the NCC reaffirmed its conviction 

that a good CAFTA is beneficial to the U.S. cotton and textile industries. The NCC 

stated its intent to recommend passage of the current agreement ‘‘—if benefits to 

all segments of the cotton and textile industries are achieved by effectively reducing 

the adverse effects of 3rd-country participation and the Administration continues to 

address other Council trade priorities.’’ 

‘‘Our board reviewed developments over the past several months and concluded 

that the conditions specified in the late January resolution have been satisfied,’’ said 

NCC Chairman Woods Eastland, a marketing cooperative official from Greenwood, 

Mississippi. ‘‘The agreement is essential for preserving our current trade with the 

DR–CAFTA countries, particularly in light of the elimination of all textile quotas 

effective January 1, 2005.’’ 

U.S. raw cotton exports to DR–CAFTA countries in 2004 totaled more than 

200,000 bales, accounting for more than 90 percent of raw cotton consumption in 

those countries. U.S. exports of yarn and fabric totaled more than 2.5 million bale 

equivalents of cotton textile products accounting for more than 50 percent of total 

U.S. cotton textile exports in 2004. 

American Cotton Producer Chairman John Pucheu, a Tranquility, CA, cotton producer, noted that, ‘‘It has been the longstanding view that a good Western Hemisphere trade agreement is vitally important to the U.S. cotton and textile industries. 

Already, some 80 percent of the cotton consumed by U.S. mills depends on cut-andsew operations outside the U.S., primarily in Central America and Mexico, and that 

dependence will continue to grow. The DR–CAFTA agreement will certainly improve 

our competitiveness in the textile and apparel arena.’’ 

NCC President and CEO Mark Lange, said, ‘‘We believe the DR–CAFTA agreement will be approved by Congress in the weeks ahead. We look forward to working 

with Congress, the Administration and the National Council of Textile Organizations toward its adoption and appropriate implementation and to ensure that the 

potential benefits to U.S. cotton and textiles are not subsequently diminished as 

other trade agreements are negotiated.’’ 

——— 

77 

Mr. THOMPSON. The other thing I wanted to ask you about was 

enforcement. We heard a lot about the lack of enforcement. We had 

a hearing last week about China. During that hearing I raised a 

concern, a very parochial concern that a wine company in Beijing 

is labeling their wine Napa Hongye wine, which means Napa Valley. If DR–CAFTA comes out and your enforcement practices remain the same, what is to stop the Valley de Napa label from cropping up in one of the DR–CAFTA countries? 

Ambassador ALLGEIER. Okay. I certainly am not familiar with 

that particular—with the Chinese example, but what I will say to 

you is that we have a very good record of enforcing our agreements 

and particularly with respect to intellectual property, and we certainly—— 

Mr. THOMPSON. Well, I think you have a terrible record in enforcing your agreements when it comes to China. We were there 

just a couple of weeks ago and our Ambassador told us that he 

can’t walk outside of his house without being offered a stack of Digital Versatile Discs (DVD) for less money than he can rent one for. 

Last, I would like to revisit this issue of the ILO standards. 

When you are talking about freedom of association, elimination of 

discrimination in the workplace, elimination of forced labor, elimination of child labor, those all seem pretty fair and straightforward. I guess I have a real hard time understanding why we 

just don’t put them in the agreement, or maybe we are going to put 

them in the bill. I don’t know how we can vote for this without 

some assurance, other than it is going to morph into their law if 

we pass it, and rest assured all of this will be taken care of. Just 

put them in the bill, put them in the agreement. 

Ambassador ALLGEIER. Well, if we put them in the agreement, 

we would be putting in the agreement elements that our Congress 

has not seen fit to ratify, and that seems to us to be a back-door 

way of doing this and not really the way we would want to do it 

in the United States. It should be a more up front decision by the 

Congress if they want the United States to ratify those conventions. 

Mr. THOMPSON. Thank you, Mr. Chairman. 

Chairman THOMAS. Thank the gentleman. Prior to calling on 

the last member for this panel, I do hope that Members who are 

discussing these Central American countries have had an opportunity to visit them. The version I am hearing from many Members 

about their inability to buy moderate or even high-priced cuts of 

beef sounds like they are countries of all peasants with a hoe, 

working on a half acre of maize. If you have gone there, you have 

a very sophisticated, cosmopolitan, European population in beautiful cities. There is a disparate distance between the low income 

and the high income. The opportunity to sell quality beef in these 

Central American countries is there. Cheaper-priced cuts will be 

even more anticipated. Given the change in the current cost versus 

the future cost, they will be happy consumers of quality beef. It is 

true, there is a difference, more significant in terms of the highest 

and the lowest, but to continue to stereotype these countries and 

their populations does no service to us or to them. They have the 

ability to buy quality cuts of beef. If any Member has not been 

down there, the Chair is anxious to assist any Member to go to our 

78 

neighbors and take a look at some of the most interesting historic 

areas in the Americas, north or south, in terms of the ability to 

interrelate and mix with a significant cross-section of ethnic and 

racial groups. The Chair recognizes the gentleman, Mr. Chocola, if 

he wishes to inquire. 

Mr. CHOCOLA. I do Mr. Chairman, thank you. Mr. Ambassador, 

thank you for being here and thank you for your good work. Not 

long ago, before I was elected, I participated in this debate in the 

private sector generally by getting on an airplane and trying to go 

convince our customers to buy our products in places like Central 

America and over 100 countries. Following my colleague from 

Pennsylvania’s logic, the lower we could offer the product’s price, 

the more likely they were to buy. When we ran into tariffs we had 

more problems competing in a world economy. So, I know that 

there will be jobs created in little Milford, Indiana as a result of 

DR–CAFTA. I am sure that story can be told thousands and thousands of times. 

We have talked about tariffs, and certainly they are important. 

We haven’t talked about non-tariff barriers much today. One of the 

things we ran into, I think what is called in the agreement as dealer protection regimes, we called it lost sales. Could you talk a little 

more about non-tariff barriers and how they are reduced? 

Ambassador ALLGEIER. Yes. That is a very important point. 

Someone can reduce, eliminate their tariffs, but there are lots of 

ways they can keep one out. Now, let me—I want to talk about the 

dealer protection laws that exist in many of the Latin American 

countries. Basically what it means, it has different forms, is if you 

are selling through an agent there, you have a distribution agreement, you get locked into these agreements in ways that if you are 

dissatisfied with a distributor, you can’t just terminate the contract. Many of the companies that get into those arrangements end 

up being almost blackmailed in terms of having to pay an enormous amount to their inadequate distributor to get out of that arrangement. 

Another non-tariff barrier is Customs, which is a place where 

you can end up paying an enormous amount of money, one way or 

the other, either across the counter, or your goods will stick there 

in the Customs area before they get through for a long, long time. 

One of the important areas of this agreement is the whole area of 

Customs measures and these countries taking on obligations to 

value goods at their proper value, to move the goods through Customs very efficiently. Part of this is they don’t have the institutions 

and the resources to do it; that is also part of the capacity building 

in this agreement. So, the whole Customs area is one that is a, potentially big barrier, even when one eliminates tariffs and we address that in this agreement along with other barriers of standards 

and other non-tariff barriers; licensing, for example. 

Mr. CHOCOLA. We have heard a lot of talk about labor and environmental standards and what this agreement—how it relates to 

it. Let me just ask a simple question. Are labor and environmental 

standards going to increase if we don’t enact DR–CAFTA in these 

countries? 

79 

Ambassador ALLGEIER. No. They will lose one of their most important partners, the United States, in trying to raise the status 

and the conditions of their workers. 

Mr. CHOCOLA. Finally, back when I was in college in the early 

eighties, there were some students from El Salvador and Nicaragua 

and they told horrible stories about what was going on in their 

countries at that time. How do you think that this relates, our 

trade, strengthening our trading relationship with these countries, 

will help their, maybe fragile, but growing democracies? 

Ambassador ALLGEIER. It is absolutely essential, because there 

are so many elements within this trade agreement that involve 

making the kinds of reforms that are in the process of making in 

their own economies: openness, nondiscrimination, accountability of 

government, the rule of law. These trade agreements embed those 

principles into those economies, and it inevitably spreads to the 

rest of their society. This is one of the biggest contributions we can 

make. 

Mr. CHOCOLA. So, you think that by enacting this agreement 

we would not only enhance trade but we could make the world a 

safer and more stable place as well. 

Ambassador ALLGEIER. Absolutely, especially in this region. 

Mr. CHOCOLA. Thank you. Thank you, Mr. Chairman. 

Chairman THOMAS. Thank the gentleman. The Chair wishes to 

thank you, Ambassador Allgeier. We will not charge you for the inservice practice of negotiating with the Europeans, but hopefully 

this was some useful training for you. The Chair would now like 

the second panel to come forward. Members of the panel have been 

very patient. You also need to know that this is the only opportunity that Members have of asking questions in an open hearing 

format over this extremely important piece of legislation. As you 

have heard in terms of the Members’ inquiries, putting down for 

the record the information that you have and will provide to us is 

extremely important. The second panel consists of Harold McGraw, 

III, Chairman, President, and CEO (chief executive officer) of the 

McGraw-Hill companies; James D. Fendell, Resident, Aeropost 

International, on behalf of the Association of American Chambers 

of Commerce in Latin America; Sheldon Presser who is the Senior 

Vice President, Warner Brothers Entertainment, behalf of the Entertainment Industry Coalition for Free Trade; Richard L. Trumka, 

Secretary-Treasurer, American Federation of Labor-Congress of Industrial Organizations, and David P. Schulingkamp, Vice President, M.G. Maher & Co., New Orleans, Louisiana. The Chair will 

start on the left. Prior to going across the panel, the gentleman 

from Louisiana wishes to be recognized. 

Mr. JEFFERSON. Thank you Mr. Chairman. I appreciate your 

leave for just a moment—— 

Chairman THOMAS. This is a just-in-time hearing procedure 

here—— 

Mr. JEFFERSON. To recognize my friend Dave Schulingkamp, 

who has come to testify. He has been the chairman of our Port Authority back in New Orleans. He is a leading businessperson there, 

and he and I have had the luxury of traveling throughout Latin 

America, South America, particularly Brazil, to work on projects 

80 

for our port and for our city. So, I wanted to, with your leave, welcome him to our Committee. Thank you very much, Mr. Chairman. 

Chairman THOMAS. Thank the gentleman. If he is as effective 

as you are, the Port of New Orleans is in good hands. Mr. McGraw, 

you have written testimony, in fact all of the witnesses who have 

written testimony, it will be made a part of the record and you can 

address us as you see fit in the time you have. 

f 

STATEMENT OF HAROLD McGRAW, III, CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER, THE McGRAW-HILL 

COMPANIES, NEW YORK, NY; CHAIRMAN, THE EMERGENCY 

COMMITTEE FOR AMERICAN TRADE; CHAIRMAN, THE 

INTERNATIONAL TRADE AND INVESTMENT TASK FORCE OF 

THE BUSINESS ROUNDTABLE; ON BEHALF OF BUSINESS COALITION FOR U.S.-CENTRAL AMERICA TRADE 

Mr. MCGRAW. Thank you Mr. Chairman, Congressman Rangel, 

and Members of the Committee. Good afternoon. I am Terry 

McGraw, and I am Chairman, President, and CEO of McGraw-Hill 

companies. I am here today on behalf of the Business Roundtable, 

the Emergency Committee for American Trade and the Business 

Coalition for U.S.-Central America Trade. We strongly support the 

prompt congressional approval of DR–CAFTA, which will advance 

our economic, regional, and foreign policy interests. Now, given our 

time constraints this afternoon, let me quickly talk about five, just 

five different key benefits of DR–CAFTA. 

First, DR–CAFTA countries represent an important and growing 

market. As we have been hearing, U.S. exports to the six DR– 

CAFTA countries in 2004 equaled $15.7 billion, making these countries the second-largest U.S. export market in Latin America, after 

Mexico; the 12th largest U.S. export market worldwide, larger than 

Russia, India, and Indonesia combined; and poised for growth, 

given DR–CAFTA’s proximity and close partnership with our country. With overall trade of $33.4 billion in 2004, once implemented, 

DR–CAFTA will be the United States’ second-largest FTA of overall trade flow after NAFTA. 

My second point, Mr. Chairman, is that DR–CAFTA will obviously level the playingfield by opening markets for U.S. workers 

and farmers. Some 75 percent of the DR–CAFTA imports and 99 

percent of DR–CAFTA agriculture products already enter the 

United States duty-free, and this is through the preference programs Congress approved on a bipartisan basis. This agreement 

will lock in and expand those benefits. The DR–CAFTA will make 

trade with our neighbors a two-way street. The DR–CAFTA will 

open their markets to our farm and industrial goods and our services, eliminating high tariffs, tariff rate quotas, and non-tariff barriers. 

Third, DR–CAFTA will promote strong labor and environmental 

protection. Simply put, it is economic growth that is the single 

most important driver for improved labor and environmental conditions. The DR–CAFTA will promote economic growth, increase 

transparency and accountability, enhance the investment climate, 

and promote stability, creating new opportunities for workers and 

81 

increasing demand for better labor and environmental protection. 

This is particularly important given the textile and apparel sector, 

which is the second-largest employer overall in these six countries, 

providing some of the better-paying jobs in the region, where subsistence farming engages the largest segment of the working population. Without DR–CAFTA, these jobs will increasingly be lost, 

bringing increased poverty in a region where nearly half the population today lives in abject poverty. 

Beyond the economic growth opportunities, DR–CAFTA promotes 

the labor and environmental objectives Congress called for in the 

Trade Act of 2002. It incorporates binding commitments subject to 

dispute settlement, and each of the countries will enforce its labor 

and environmental laws as well as the most robust labor and environmental capacity-building mechanisms of any U.S. FTA. Though 

some labor laws in some DR–CAFTA countries could be enhanced, 

what they have enacted includes many strong protections. We 

should recognize that the progress that they have made in a very 

short period of time is substantive and that the commitments they 

have recently made to go even further are welcome. 

My fourth point, Mr. Chairman, is that DR–CAFTA will help 

promote economic growth, bolster democracy and the rule of law. 

The DR–CAFTA will play a positive role in promoting stability and 

the United States’ own security in a region that we all know was 

wracked by violence and civil war only two decades ago. By promoting economic opportunity and growth, DR–CAFTA will help alleviate poverty, and promote stability in our own neighborhood. 

Fifth and finally, DR–CAFTA is absolutely vital, vital to signaling continued U.S. support for global trade negotiations. Congressional approval of DR–CAFTA will bolster U.S. leadership on 

trade and create new partners in the developing world. Approval 

will also promote forward momentum on trade at a critical time in 

the WTO’s Doha negotiations and will help to create much needed 

momentum for the FTAA negotiations. Failing to approve DR– 

CAFTA would be a particularly destructive message to our regional 

neighbors and would send a very negative signal to the world that 

the United States is retreating from its historic role as a leader in 

promoting liberalized international trade and investment policies 

and as a leader in a region that is strategically important to us. 

In sum, DR–CAFTA is more than just another trade agreement. 

While it is not a panacea, it is the logical next step in America’s 

historic commitment to promote economic growth, advance marketbased reforms, promote stability, and improve standards of living. 

Approval of DR–CAFTA will also send a powerful message to the 

rest of the world that regional and multilateral trade agreements 

should be pursued and will promise a more open and fair system 

to promote commerce among nations. I urge the Committee to support the approval and the implementation of this agreement. I 

thank you, Mr. Chairman. 

[The prepared statement of Mr. McGraw follows:] 

82 

Statement of Harold McGraw, III, Chairman, President, and Chief Executive Officer, The McGraw-Hill Companies, New York, NY; Chairman, the 

Emergency Committee for American Trade; Chairman, the International 

Trade and Investment Task Force of the Business Roundtable; on behalf 

of Business Coalition for U.S.-Central America Trade 

Mr. Chairman, Congressman Rangel, Members of the Committee. Good morning. 

My name is Terry McGraw, Chairman, President and CEO of The McGraw-Hill 

Companies. 

I welcome the opportunity to appear before you today to express strong support 

for the U.S.-Central America-Dominican Republic Free Trade Agreement (CAFTA) 

not only on behalf of the McGraw-Hill companies, but also as Chairman of the 

Emergency Committee for American Trade (ECAT) and Chairman of the International Task Force of the Business Roundtable (Roundtable). I am also appearing 

before you today on behalf of the Business Coalition for U.S.-Central America Trade, 

for which ECAT serves as the secretariat and the BRT and others play a leading 

role. 

The McGraw-Hill Companies is a global content provider headquartered in New 

York. We employ 18,000 people in 280 offices in 37 countries worldwide. You know 

us best through the McGraw-Hill imprint in education, Standard and Poor’s, and 

Business Week. 

We are members of ECAT, the Business Roundtable and the Business Coalition. 

• Both ECAT and the BRT are associations of chief executives of major American 

companies with global operations who represent all principal sectors of the U.S. 

economy. They are strong champions of strong, commercially-meaningful and 

comprehensive bilateral, regional and global agreements, such as the NAFTA, 

the Uruguay Round and the recently-approved free trade agreements—FTAs— 

with Jordan, Chile, Singapore, Australia and Morocco. 

• ECAT was founded more than three decades ago to promote economic growth 

through expansionary trade and investment policies. Today, the annual sales of 

ECAT companies total $2 trillion, and the companies employ approximately five 

and a half million people. 

• The Business Roundtable is committed to advocating public policies that ensure 

vigorous economic growth, a dynamic global economy, and the well-trained and 

productive U.S. workforce essential for future competitiveness. Roundtable 

members employ more than 10 million workers in the United States. 

• The Business Coalition for U.S.-Central America Trade comprises over 400 companies and associations representing all major sectors of the economy with 

members in all 50 states that have come together to support implementation 

of the CAFTA. The Business Coalition was formed to support the negotiation 

of a comprehensive and high standard agreement. Once those negotiations were 

completed, the Business Coalition has worked to support the implementation of 

the CAFTA by the U.S. Congress. 

CAFTA represents a truly comprehensive, commercially meaningful and high 

standard agreement that has very important economic, development and foreign policy implications for the United States and the six countries involved—Costa Rica, 

the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua. It also 

has important implications for other negotiations that are critically important, from 

global Doha Development Agenda negotiations ongoing in the World Trade Organization to the negotiations to establish a Free Trade Area of the Americas, which 

have nearly stalled. 

My testimony today will focus on five key issues that are critical to the broadbased support of the CAFTA within the U.S. business and agricultural community 

and the organizations that I represent today: 

1. The commercial importance of the CAFTA countries to the United States. 

2. How CAFTA will level the playing field for U.S. farmers, service providers, 

manufacturers and their workers by moving from a system of unilateral preferences to two-way free trade. 

3. The importance of CAFTA in promoting improved working and environmental 

conditions in the region. 

4. The importance of CAFTA for promoting economic growth and bolstering democracy and the rule of law in the region. 

5. The importance of CAFTA more broadly in fostering U.S. objectives in global 

and other regional negotiations. 

83 

FIRST: The Six CAFTA Countries Represent a Very Important and Growing 

Market for the United States. 

Despite their size and population, U.S. trade with the CAFTA countries is rather 

striking. In 2004, U.S. exports to the six CAFTA countries equaled $15.7 billion, 

making these countries: 

• The second largest U.S. export market in Latin America, after Mexico. 

• The 12th largest U.S. export market worldwide. 

• A larger export market than Russia, India and Indonesia combined and larger 

even than our exports to Australia or Brazil. 

With overall trade of $33.4 billion in 2004, once implemented, CAFTA will be the 

United States’ second largest FTA in terms of overall trade flows, after NAFTA. 

It is also a market of great potential given its proximity and close partnerships 

with the United States. U.S. goods appear throughout these countries, in grocery 

stores to shopping centers. Indeed, U.S. exports already represent about half of each 

of these countries’ imports. As economic growth and new opportunities develop, the 

markets will attract even greater exports. 

Without even figuring in such growth, the independent U.S. International Trade 

Commission concluded that U.S. imports would increase by $1.9 billion worldwide 

as a result of the CAFTA, more than with any other recent FTA partner. A recent 

report by the National Association of Manufacturers, one of the Business Coalition’s 

members, predicts that CAFTA will help generate $1 billion in new U.S. manufacturing exports. For agriculture, the American Farm Bureau Federation has estimated that U.S. agricultural exports to the CAFTA countries will increase by nearly 

$900 million. 

SECOND: The CAFTA Will Level the Playing Field by Opening Markets for 

U.S. Workers and Farmers. 

Through unilateral preference programs overwhelmingly approved on a bipartisan 

basis by Congress since the 1980s, some 75 percent of CAFTA imports and 99 percent of CAFTA agricultural products already enter the United States duty-free. This 

agreement will lock in those benefits, making them permanent, and expand on 

them, particularly in the textile and apparel sector which I will discuss momentarily. 

But from the point of view of many U.S. businesses, the CAFTA is about making 

trade with our neighbors more of a two-way street. CAFTA will open their markets 

to our farm and industrial goods and our services, eliminating high tariffs, tariff 

rate quotas and non-tariff barriers. Let me quickly identify some of the key areas 

where CAFTA eliminates barriers: 

• In the manufacturing sector, CAFTA will provide immediate and tangible benefits. Many U.S. exports to the CAFTA countries currently face tariffs between 10 and 15 percent and, in some cases, more. Upon implementation 

of the agreement, 80 percent of all U.S. goods exports to the region will become 

permanently duty-free. In particular, CAFTA will eliminate tariffs immediately 

on such key products as information technology products, agricultural and construction equipment, paper products, chemicals, and medical and scientific 

equipment. By year 10, the CAFTA will eliminate all tariffs on all U.S. manufactured goods. 

CAFTA also eliminates other major non-tariff barriers to consumer and industrial goods, including discriminatory standards, licensing and other barriers. 

It also includes important provisions to improve customs administration 

through more transparent, predictable customs operations and processes. Most 

notably, perhaps, is that the CAFTA—for the first time ever in any free trade 

agreement—includes substantial commitments to reform and to open up distribution channels that have been restricted for decades by onerous dealer protection barriers. This is particularly important for many consumer goods and 

information technology producers. 

• Beyond manufactured goods, CAFTA expands market access throughout the services sector. Each of the six countries is committed to provide national treatment to U.S. services companies, unless specifically exempted. This 

‘‘negative list’’ approach goes far beyond these countries’ commitments under 

the WTO’s General Agreement on Trade in Services (GATS). As a result, 

CAFTA will provide important new opportunities for such key U.S. services as 

banking and other financial services, insurance, telecommunications, distribution, computer, audiovisual and entertainment, energy, transport, construction, 

and professional services. The six countries also have agreed to significant commitments on regulatory transparency and principles to guide independent reguVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00087 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
84 

latory authorities. Of particular importance are Costa Rica’s commitments to 

open up key portions of its currently closed telecommunications and insurance 

markets, which are important areas of growth for U.S. companies abroad. • CAFTA also creates new opportunities for the U.S. information technology sector. In particular, it requires all parties to eliminate information 

technology tariffs by joining the WTO’s Information Technology Agreement 

(Costa Rica and El Salvador are already members), open up key information 

technology services, including telecommunications, include strong intellectual 

property rights protections and open up distribution channels. The agreement 

also incorporates important e-commerce provisions that ensure that electronically delivered goods and services receive the same treatment as traditional, 

physically delivered goods and services, setting an important precedent for global negotiations. • CAFTA ensures new access and transparency in growing government 

procurement markets. While none of the six CAFTA countries are signatories 

to the WTO Government Procurement Agreement, CAFTA commits the parties 

to many of the same principles. Key commitments that will expand access for 

U.S. goods and services suppliers include the provision of fair and transparent 

procurement procedures and national treatment and anti-corruption rules. • Since 99 percent of CAFTA agricultural imports already enter the 

United States duty-free, this agreement is critical to provide reciprocity for U.S. farmers. Upon implementation, over half of U.S. agriculture 

products will enter the Central American and Dominican Republic countries 

duty-free immediately, with most remaining duties on U.S. products phased out 

over 15 years. This is important access to a region where the United States is 

the single largest source of agricultural imports, but faces new competition as 

other countries enter into preferential arrangements in the region. The new access will be particularly important for: 

• Beef products with the immediate elimination of tariffs on high-quality cuts 

and full elimination over 15 years; • Pork products with an increase in duty-free quotas for sizeable amounts of 

U.S. pork over 15 years, after which all tariffs will be eliminated, as well as 

commitments to the U.S. meat inspection system and to accept pork from any 

USDA-inspected facility. • Dairy products with duty-free tariff rate quotas that will expand from over 

10,000 tons in year one and out-of-quota tariffs eliminated over 20 years. • Corn, wheat and grain products with the immediate binding at zero of tariffs 

on wheat, barley, oats and rye, as well as for corn in Costa Rica and sorghum 

in the Dominican Republic and Guatemala. All remaining tariffs on feed 

grains will be eliminated over 15 years (except white corn in a few markets 

that will be gradually provided greater duty-free access). 

• Soybean products with the immediate binding of zero tariffs on all soybeans 

and soybean meal, except for Costa Rica, which will phase out its 5 to 6 percent soybean meal tariffs over 15 years. 

• Rice with an increasing duty-free quota and the elimination of up-to-60 percent tariffs on out-of quota rice over 18 years in El Salvador, Guatemala, 

Honduras, and Nicaragua and 20 years in Costa Rica and the Dominican Republic. 

• Cotton products by immediately binding tariffs at zero and by bolstering U.S.- 

CAFTA textile and apparel partnerships that create a significant demand for 

cotton in the region. 

• Processed food products with immediate duty-free treatment for key products, 

including breakfast cereals, soups, cookies and pet food and the complete 

elimination of tariffs over 15 years. 

Beyond opening markets, CAFTA helps U.S. businesses and workers by improving 

the protections afforded by key international trade rules: 

CAFTA incorporates strong protections for U.S. investors abroad, committing the 

six countries to rules derived from U.S. legal principles and practice, including, nondiscrimination; due process rights; prompt compensation for expropriation; free 

movement of capital; no performance requirements (such as local sourcing rules or 

export requirement); and the resolution of disputes in a neutral and objective forum. 

In accordance with Congress’ directions in Trade Promotion Authority, enacted as 

part of the Trade Act of 2002, the CAFTA also ensures that key protections conform 

to U.S. legal principles and practice and that disputes are handled transparently, 

efficiently and with public input. Unlike any prior FTA, the CAFTA also provides 

a concrete mechanism for the development of an appellate or other review procedure 

to ensure the coherence of decisions. 

85 

CAFTA incorporates strong rules for the protection of intellectual property, building upon and enhancing WTO protections in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Such rules are critical to promote innovation and new research in some of America’s strongest sectors, from information 

technology to chemical, pharmaceutical and other scientific industries, and to stimulate a rich and diverse marketplace for America’s leading entertainment and publishing industries. 

The McGraw-Hill Companies likely will expand our sales of print and on-line materials in the region, which will help us create jobs both in the region and in the 

United States. 

THIRD: CAFTA Will Sustain and Expand Textile and Apparel Partnerships 

and Competitiveness. 

The CAFTA countries are the United States’ largest market for U.S. apparel and 

yarn exports, and the second largest market for U.S. fabric exports. CAFTA is critical to sustain and expand existing partnerships and to give U.S.-CAFTA goods a 

competitive edge, particularly with the elimination of global quotas and increased 

competition from Asia, and to help support approximately 500,000 jobs in Central 

America and the Dominican Republic and 700,000 workers in the U.S. cotton, yarn, 

textile, and apparel sectors. This piece of the agreement has much larger implications for labor and development as discussed further below. 

As you will hear from others who focus entirely on this sector, the permanence, 

flexibilities, and reciprocity created by the CAFTA are critical to the future of their 

and our industries. The existing unilateral preference program—the Caribbean 

Basin Trade Partnership Act—is simply not sufficient and sufficient to provide the 

U.S.-regional textile and apparel trade partnership the competitive edge they need 

in a world without quotas. 

FOURTH: CAFTA Promotes Strong Labor and Environmental Protections 

and New Opportunities to Improve Working and Environmental Conditions. 

In addressing labor and environmental issues, I think it is important not to lose 

sight of two essential facts. First, the single most important driver for improved 

labor conditions and environmental protection in these countries is, economic growth 

and development. CAFTA, which will help promote new and improved economic opportunities and partnerships, increased transparency and accountability, a better investment climate and stability, is the best tool we have to promote the economic 

growth that will in turn help create new opportunities for workers and an increasing demand for better environmental protections. 

As the World Bank and others have documented, it is precisely through increased 

trade and economic growth that developing countries are better able and increasingly motivated by a growing middle class to improve labor and environmental 

standards. Since World War II, the liberalization of trade has produced a six-fold 

growth in the world economy and a tripling of per capita income and enabled hundreds of millions of families to escape from poverty and enjoy higher living standards. The World Bank has also document that developing countries that participate 

actively in trade grow faster and reduce poverty faster than countries that isolate 

themselves. In the 1990s, per capita incomes grew 5.1 percent in developing countries with high trade and investment flows, while more isolated countries saw incomes decline by 1.1 percent. 

This is a particularly important point for the CAFTA countries given that the textile and apparel sector is the second largest employer overall in these six countries, 

providing some of the better paying jobs in a region where subsistence agriculture 

occupies the largest segment of the working population. Without CAFTA, these jobs 

will increasingly be lost—as is already starting to occur in several countries—signaling increased poverty in a region where 47 percent—almost half—of the population lives in poverty today. 

Beyond the economic growth opportunities, the agreement itself promotes labor 

and environment standards as Congress directed in the Trade Act of 2002. It incorporates binding commitments, subject to dispute settlement, that each of the countries will enforce its labor and environmental laws, as the Trade Act sought, as well 

as the most robust labor and environment capacity-building mechanisms of any U.S. 

FTA. I applaud Congress’ action last year to appropriate $20 million specifically for 

labor and environmental capacity-building in these countries. 

The International Labor Organization, in reports that these countries requested 

on their labor laws, identified constitutionalprotections in all six countries guaranteeing the right of freedom of association and prohibitions against labor discrimination, child labor and forced labor. The ILO report also identified key national law 

86 

protections in each of the core areas in each country. It is also notable that five of 

the six countries have ratified all eight of the ILO’s core conventions, which, by operation of their own domestic laws (unlike the United States) actually become part 

of their domestic law. 

Though the labor laws of some CAFTA countries could be enhanced, what they 

have enacted includes many strong protections—not just in their national law, but 

in their constitutions. An even greater concern is the capacity of these countries to 

implement fully their laws, as detailed in the recent report by the Working Group 

of the Vice Ministers Responsible for Trade and Labor in the Countries of Central 

America and the Dominican Republic—The Labor Dimension in Central America 

and the Dominican Republic: Building on Progress: Strengthening Compliance and 

Enhancing Capacity. That report, which was endorsed by the Trade and Labor Ministers of these countries, details how each government has made and continues to 

seek progress in improving labor standards and working conditions. The report also 

identifies specific areas where the countries require technical assistance to improve 

working conditions. 

Most of all, given the obvious work that went into preparing a document of that 

depth and unparalleled transparency, I believe this report demonstrates a new and 

substantial commitment at the highest levels of these democratically elected governments to continue to work to improve labor conditions in their countries. 

FIFTH: CAFTA Will Help Promote Economic Growth and Bolster Democracy and the Rule of Law 

CAFTA will also play a positive role in promoting stability and the United States’ 

own security in a region that was racked by violence and civil wars only two decades 

ago. Indeed, many view it as the logical next step in the United States’ relationship 

with these countries. Implementation of the CAFTA signals that the futures of the 

United States, Central America and the Dominican Republic will be linked more 

than ever. Key factors at work include: 

• Economic Opportunities and Growth for the Region: Much of CAFTA’s 

importance for the region is with regard to the economic growth opportunities 

it provides. Although the United States already provides duty-free treatment to 

most of the imports from the region, the unilateral preference programs—from 

the Generalized System of Preferences to the Caribbean Basin Trade Partnership Act—are temporary programs that need to be renewed periodically, creating uncertainty for purchasers and investors. CAFTA will change that dynamic by making permanent duty-free treatment for most of the CAFTA countries’ exports to the United States. 

As I have previously discussed, CAFTA does create important new marketopening in the United States for perhaps the most vital sector of the region’s 

economies—textiles and apparel. This access is critical to sustain the region’s 

competitiveness in the post-global quota world and to sustain jobs for hundreds 

of thousands of Dominicans and Central Americans. 

Access to the U.S. market is not the only attraction. By creating a free trade 

area among the countries of Central America and the Dominican Republic, 

CAFTA eliminates barriers between these six countries, opening cross-border 

opportunities, while also providing additional incentives to investment as companies can now take advantage of economies of scale when investing in the region. 

Strong investment and intellectual property protections, improved customs 

administration, and fair and transparent government procurement rules will 

also promote additional investment to the region in a manner that further increases growth and opportunities for the region’s own workers. 

• Alternatives to Illegal Activity: By helping to alleviate poverty through new 

economic opportunities and growth, CAFTA will help promote stability and provide alternatives to illegal activity, such as narcotics trafficking and illegal immigration. 

• Rule of Law: Strong commitments on transparency, accountability in government procurement and fair and enforceable investment rules, will also help foster respect for the rule of law. 

• Integration: Through further integration, CAFTA will promote continued regional stability and cooperation. 

SIXTH: Approval and Implementation of CAFTA Is Vital to Signaling Continued U.S. Support for Global and Hemispheric Negotiations 

By implementing CAFTA, the United States Congress signals to our trading partners, and the rest of the world, that the United States continues to support liberalVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00090 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
87 

ized trade and will continue to negotiate and implement agreements that expand 

trade and stimulate economic growth and development. In particular: 

• Approval of CAFTA bolsters U.S. leadership on trade, and creates new partners 

in the developing world, to promote forward momentum on liberalized trade at 

a critical time in the WTO’s Doha Development Agenda negotiations. 

• Approval of CAFTA will send a message to our trading partners in Latin America that the United States is serious about trade liberalization in the Western 

Hemisphere, even as negotiations to create a Free Trade Area of the Americas 

(‘‘FTAA’’) have made little progress in recent years. 

• CAFTA not only signals the United States’ serious intentions with regard to 

Western Hemisphere trade, it will, like our very successful FTA with Chile, provide a concrete example in the hemisphere of the fruits of liberalization. 

If we turn our backs on CAFTA of all agreements—one where these six countries 

have done the lion’s share of work in opening their economies and adopting strong 

protections—we not only turn our backs on our trading partners in Central America 

and the Dominican Republic, we reject America’s traditional role as the leader in 

the march toward liberalized hemispheric and global trade. We can ill afford to abdicate the role of leader at this critical time. 

CAFTA will benefit the United States and our manufacturing, services and agricultural producers through the expansion of markets, renewed partnerships to advance the competitiveness of U.S.-Central American-Dominican industries, and the 

development of a stronger, more stabile hemisphere. It is also more than just another trade agreement—it is the logical next step in America’s decades-long work 

to promote stability and democracy in this region and it is a symbol of continued 

U.S. support and engagement in open international markets. I urge the Committee 

to support the approval and implementation of this agreement as soon as possible. 

Thank you again Mr. Chairman, Congressman Rangel, Members of the Committee. I appreciate this opportunity to express my views, and those of the Business 

Roundtable, ECAT and the Business Coalition for U.S.-Central America Trade about 

the importance of CAFTA for the broad-based business community that I represent 

today. 

f 

Chairman THOMAS. Thank you very much Mr. McGraw. Mr. 

Fendell. 

STATEMENT OF JAMES D. FENDELL, PRESIDENT, AEROPOST 

INTERNATIONAL SERVICES, MIAMI, FL, ON BEHALF OF THE 

CHAMBER OF COMMERCE OF THE UNITED STATES, AND THE 

ASSOCIATION OF AMERICAN CHAMBERS OF COMMERCE IN 

LATIN AMERICA 

Mr. FENDELL. Chairman Thomas, please say hello to Congressman Rangel and the entire Committee. Thank you for your opportunity that you have given me to testify on DR–CAFTA. I appear 

for the U.S. Chamber of Commerce and the Association of American Chambers of Commerce throughout Latin America (ACLA). I 

am that organization’s president and I report to you today that millions of U.S. businesses and their workers and thousands of American companies in Latin America staunchly support DR–CAFTA. A 

huge percentage of these businesses are small- and medium-sized 

companies like mine. This opportunity to testify is personally very 

meaningful. 

I was born in Ohio, raised in Latin America, educated in the 

United States, and I have worked and lived in both hemispheres 

of the Americas all of my life. I am president of Aeropost International Services, a small company that operates in Miami, the 

Caribbean, and Latin America. We provide a convenient address in 

Miami for the receipt and forwarding of mail and parcels, which 

enables thousands of individuals and companies outside the United 

88 

States to buy goods and services as though they themselves had an 

office in Florida. We ship thousands of packages a week to our clients abroad, with a value of many millions of dollars a year. 

So, I really understand what our neighbors in Central America 

and the DR want to buy from the United States. Our customers are 

hungry for a staggering array of American-made goods from hightech to the mundane, but they suffer pocketbook indigestion when 

they have to pay high import duties and taxes in their countries. 

They don’t buy as much as they would like to, or as many packages 

as I would like to see moving through my system. 

We don’t ship many farm products either, because of other barriers. The United States is unilaterally open to imports from DR– 

CAFTA countries, but their current tariffs will remain a significant 

barrier to our exports and our services until we approve this important agreement. This will give American companies, and especially 

small and middle sized ones which cannot afford to build factories 

abroad, market access. You will hear more today about how important DR–CAFTA is for exports of America’s high value-added U.S. 

agricultural products and for our core textile industry, but let’s look 

at U.S. exports and the opportunities that this will provide. In the 

first year post agreement, we conservatively expect $3.99 billion in 

new U.S. sales, mostly from small- and middle-sized companies. 

This means $866 million in new earnings for U.S. workers and 

more than 26,000 new jobs in just the 12 key States that we 

profiled. These are conservative numbers, folks. United States exports to Chile surged by 33 percent in the first year of that agreement. 

Now, as one who has lived for many years in Central America, 

I am also convinced that the agreement will benefit the people and 

the workers of Central America and the Dominican Republic. I will 

be glad to answer any questions about my own personal labor relations experience if you so choose. Twenty years ago, many of our 

countries down there were torn by civil war and violence. The Central Americans and the Dominican Republic were handout States, 

receiving millions upon millions of dollars in U.S. aid, but very little of that trickled down to the working class. Contrast that with 

the peaceful and democratic elections and the other significant social and human advances we see today and that the DR–CAFTA 

agreement will strengthen. 

I believe that a wise bipartisan change in policy that emanated 

from this House, the people’s House, from this very Committee, 

made the difference. As the Chair noted, Congress chose to move 

from aid to trade. Members from both parties, some of whom, like 

Congressman Rangel, continue to lead today, created and approved 

the CBI and built upon its ensuing success by enhancing it again 

and again. These countries today are where they are because of 

this Committee, this House, that unilateral legislation. We opened 

our borders to the Central Americans and to the Dominican Republic to give them time to strengthen their economic bases, their 

democratic process and their human rights. These countries made 

some tough choices, and their people have been rewarded by economic growth and strengthened institutions. Now they are ready to 

open their borders to our goods and services. This is the crowning 

89 

piece of DR–CAFTA, of a very successful long-term policy for an 

important part of our third border neighbors. 

It is also my duty as a U.S. citizen who knows Latin America 

well to advise you that if this agreement is defeated, not just Central America and the Dominican Republic, but all of Latin America 

will view that defeat as a real kick in the teeth by the United 

States. Messrs. Chavez and Castro will be dancing with glee. The 

Committee on Ways and Means can lead Congress to secure a winwin-win for our economies, for our institutions, and, above all, for 

our democratic principles and ideals. We appreciate and salute 

your leadership and vision. On behalf of our company members and 

their millions of workers and voters, please move expeditiously to 

bring DR–CAFTA to a successful vote. Thank you. 

[The prepared statement of Mr. Fendell follows:] 

Statement of James D. Fendell, President, Aeropost International Services, 

Miami, FL, on behalf of the Chamber of Commerce of the United States, 

and the Association of American Chambers of Commerce in Latin America 

On behalf of the Chamber of Commerce of the United States of America (U.S. 

Chamber) and the Association of American Chambers of Commerce in Latin America (AACCLA), I am pleased to present the House of Representatives Committee on 

Ways and Means with this testimony regarding the U.S.-Dominican Republic-Central America Free Trade Agreement (DR–CAFTA). Our organizations strongly support Congressional approval of this landmark trade agreement, and we urge the 

House to do so as soon as possible. 

The organizations I am representing today represent huge numbers of businesses 

that staunchly support this agreement. The U.S. Chamber is the world’s largest 

business federation, representing more than three million businesses of every size, 

sector and region. AACCLA represents 23 American Chambers of Commerce in 21 

Latin American and Caribbean nations, and its 20,000 member companies manage 

over 80% of all U.S. investment in the region. I am pleased to serve as AACCLA’s 

President. 

For personal reasons, this opportunity to testify before the House of Representatives is particularly meaningful for me. My father was from New Jersey, and my 

mother from Washington. They met and married in Latin America in the 1940s. I 

was born in Ohio, raised in Latin America, educated in the United States, and have 

worked and lived in both the United States and Latin America. 

I am President of Aeropost International Services, a company that operates in 

Miami and a number of countries in Central and South America and the Caribbean. 

Aeropost provides a convenience address for mail and parcels in Miami so that 

many thousands of individuals and companies outside the United States can buy 

goods and services as though they themselves had an operation in Florida. 

To give you an idea of what our neighbors want to buy from us, we ship thousands of packages a week to our offices and franchisees with a value of many millions of dollars a year. And that’s without DR–CAFTA, an agreement that will give 

American companies such as mine a level playing field by eliminating the tariffs 

and other barriers that put U.S. goods and services at a disadvantage in the Central 

American and Dominican markets. Based on my personal experience, I can say that 

this agreement will boost U.S. exports to Central America and the Dominican Republic many times over. 

International trade plays a vital part in the expansion of economic opportunities 

for American companies such as mine. As such, the U.S. Chamber and AACCLA 

have helped lead the business community’s effort to make the case for new free 

trade agreements. We do so because U.S. businesses have the expertise and resources to compete globally—if they are allowed to do so on equal terms with our 

competitors. 

From this perspective, DR–CAFTA is an outstanding trade agreement. It will 

slash trade barriers for U.S. exports, enhance protections for U.S. investment overseas, and strengthen the competitiveness of American companies—both big and 

small—throughout the world. We believe the agreement is worthy of your support. 

90 

Opening Trade, Generating Growth 

America’s international trade in goods and services accounts for nearly a fifth of 

our country’s GDP. As such, it is difficult to exaggerate the importance of the leadership demonstrated by Congress in renewing Presidential Trade Promotion Authority (TPA) two and a half years ago. As we predicted, this action by Congress has 

helped reinvigorate the international trade agenda and has given a much-needed 

shot in the arm to American businesses, workers, and consumers. 

When TPA lapsed in 1994, the United States was compelled to sit on the sidelines 

while other countries negotiated numerous preferential trade agreements that put 

American companies at a competitive disadvantage. As we pointed out to Congress 

during our aggressive advocacy campaign for approval of TPA, the United States 

was party to just three of the roughly 150 free trade agreements in force between 

nations at that time. 

The passage of TPA allowed the United States to complete negotiations for bilateral free trade agreements with Chile, Singapore, Australia, and Morocco, all of 

which won bipartisan approval in Congress. These agreements are already bearing 

fruit; for example, the Department of Commerce reports that U.S. exports to Chile 

rose by an astonishing 33% in 2004, the first year of implementation of the U.S.- 

Chile Free Trade Agreement. Free trade agreements with roughly 20 additional 

countries are now in various stages of completion. 

Why is DR–CAFTA so critical? First, the agreement is good for workers, consumers, and businesses in the United States. And second, the agreement is good for 

workers, consumers, and businesses in Central America and the Dominican Republic. 

Big Markets, Big Opportunities 

The commercial benefits of DR–CAFTA for the United States are expected to be 

highly significant. While these six democracies look small on a map, they are excellent customers for American business. Purchasing $15.7 billion in U.S. exports in 

2004, Central America and the Dominican Republic buy more U.S. goods than Australia, Italy, or Sweden. 

These existing trade flows make DR–CAFTA the largest free trade agreement in 

more than a decade. In fact, the 45 million citizens of Central America and the Dominican Republic purchase more U.S. goods than the 1.5 billion citizens of India, 

Indonesia, and Russia—combined. 

What is the United States selling to these countries? About one-third of all U.S. 

exports to Central America and the Dominican Republic are made by the U.S. textile and apparel industries. Computers, electronics, and information technology 

products represent almost another third. And farm products, ranging from soup to 

nuts, account for a large share of American sales to the six countries. 

This success story began 20 years ago, when a tremendous bipartisan coalition 

created the Caribbean Basin Initiative. By a vote of 392 to 18, the House of Representatives decided in July 1983 to do away with most tariffs on imports from Central America and the Caribbean in an effort to help the region with ‘‘trade, not aid.’’ 

The Senate followed suit with a similarly significant favorable vote. 

The Caribbean Basin Initiative eliminated tariffs on nearly all imports from Central American and the Caribbean. In 2003, 77% of Central American and Dominican 

industrial products (including 99% of non-apparel industrial products) and 99.5% of 

agricultural products entered the United States duty-free. 

Making Trade a Two-Way Street 

More than any previous free trade agreement, DR–CAFTA is about reciprocity. It 

will level the playing field for the thousands of U.S. workers and businesses that 

rely on exports to Central America and the Dominican Republic. It will provide immediate, duty-free access to the six-country market for more than 80% of U.S. consumer and industrial goods and more than half of all U.S. agricultural exports to 

the six countries, with further openings phased in. 

To gauge the commercial value of the agreement, the U.S. Chamber of Commerce 

has released a series of state-by state economic impact studies that found substantial economic gains for American workers and the economy from DR–CAFTA. We 

used a widely respected input-output economic model known as RIMS II that has 

been used for years by economists at the U.S. Department of Commerce and elsewhere, and we proceeded with some very conservative assumptions about the 

growth of exports. For instance, we assumed that U.S. exports to the six countries 

would grow at only half the rate of growth of exports to Chile in 2004, the first year 

of implementation of the free trade agreement with that country. 

The results are extremely promising. In the first year of DR–CAFTA’s implementation, the agreement would generate $3.9 billion in new sales across all industries 

91 

and $866 million in new earnings for workers in the 12 states profiled. In would 

also create over 26,000 new jobs in its first year. This table summarizes our findings: 

Summary of Findings of State-by-State Economic Impact Studies 

The full studies are available at: www.uschamber.com/goto/drcafta 

AFTER ONE YEAR Increased salesin all 

industries 

Increased earnings of 

employeesin all industries 

New jobs 

createdin 

all industries 

Alabama 190,000,000 40,000,000 1,490 

California 221,000,000 51,000,000 1,287 

Florida 985,000,000 232,000,000 7,008 

Georgia 262,000,000 52,000,000 1,516 

Illinois 79,000,000 24,000,000 693 

Louisiana* 339,000,000 77,000,000 2,769 

New Jersey 71,000,000 14,000,000 342 

New York 149,000,000 32,000,000 794 

North Carolina 736,000,000 163,000,000 5,404 

Pennsylvania 94,000,000 20,000,000 608 

South Carolina 167,000,000 27,000,000 912 

Texas 683,000,000 134,000,000 3,326 

TOTAL $3,976,000,000 $866,000,000 26,149 

* ‘‘CAFTA: Potential for Louisiana’s Prosperity,’’ by Dr. James A. Richardson, Alumni Professor of Economics, Louisiana State University, March 2004. This study used the U.S. Department of Commerce’s Bureau of 

Economic Analysis Regional Input-Output Modeling System (RIMS II) in the same fashion as the U.S. Chamber studies. However, the figures cited in this table are based on a projected increase in exports from Louisiana to the other DR–CAFTA countries of 16%. The U.S. Chamber studies use a figure of 17% for the first 

year. For comparison, U.S. exports to Chile rose by 33% in 2004, the first year of implementation of the U.S.- 

Chile Free Trade Agreement. 

Nine years after implementation, DR–CAFTA would boost sales by over $20 billion in the 11 states for which data are available. In the same period, the agreement 

would raise workers’ earnings by $4.5 billion and create more than 130,000 new jobs 

in the 11 states. 

AFTER NINE YEARS Increased salesin all 

industries 

Increased earnings of 

employeesin all industries 

New jobs 

createdin 

all industries 

Alabama 1,021,000,000 214,000,000 7,901 

California 2,486,000,000 573,000,000 13,132 

Florida 5,200,000,000 1,200,000,000 36,982 

Georgia 1,405,000,000 283,000,000 8,691 

Illinois 445,000,000 97,000,000 2,402 

New Jersey 381,000,000 79,000,000 1,801 

New York 802,000,000 173,000,000 4,215 

North Carolina 3,900,000,000 876,000,000 28,913 

92 

AFTER NINE YEARS Increased salesin all 

industries 

Increased earnings of 

employeesin all industries 

New jobs 

createdin 

all industries 

Pennsylvania 504,000,000 107,000,000 3,062 

South Carolina 701,000,000 144,000,000 6,273 

Texas 3,600,000,000 718,000,000 17,127 

TOTAL $20,445,000,000 $4,464,000,000 130,499 

As noted above, the vast majority of Central American and Dominican exports already enter the U.S. marketplace duty-free, so the risk of job losses due to enhanced 

competition from imports is extremely limited. In sectors where imports from Central America and the Dominican Republic are not entering the United States dutyfree, the U.S. average tariff is significantly lower than that faced by our exports to 

these countries. While U.S. rates average 3.6%, Guatemala’s average applied industrial tariff is 7.1%, Honduras’s is 6.7%, El Salvador’s is 6.5%, Nicaragua’s is 4.9%, 

Costa Rica’s is 4.6% and the Dominican Republic’s is 10.7% (2001 figures). 

Support from Farms to Factories 

The Chamber is far from alone in recognizing the potential of DR–CAFTA; studies 

prepared by other organizations have also projected impressive gains. A study by 

the American Farm Bureau Federation, which is the nation’s largest association of 

farmers and ranchers, projected that the agreement will boost U.S. agricultural exports by $1.5 billion, which explains why over 50 leading agricultural commodity 

groups have endorsed the agreement. 

In the textile and apparel sectors, the agreement will promote even stronger partnerships between companies in the United States, Central America, and the Dominican Republic. This will enable this hemisphere to compete more effectively in the 

face of rising international competition in these sectors since the demise of the global system of quotas on textiles on January 1, 2005. Most experts predict that Asian 

textile and apparel manufacturers will be the principal beneficiaries of the end of 

quotas—at the expense of apparel producers in Central America and the Dominican 

Republic, and their textile suppliers in the United States. 

For years, the U.S. textile industry has benefited from an integrated supply chain 

and market with the DR–CAFTA nations, which constitute a key sourcing location 

for U.S. apparel and retail companies. Unlike other garment production centers, 

Central America and the Dominican Republic have emerged as the dominant consumers of U.S. textile products. Since the passage of the U.S.-Caribbean Basin 

Trade Partnership Act in 2000, the region has become one of the largest and fastest 

growing export markets for U.S. cotton growers, yarn spinners, and fabric mills. 

As a result, garments imported from Central America and the Dominican Republic have U.S. content exceeding 50% while garments imported from Asia typically 

have less than 1% U.S. content. Without DR–CAFTA, apparel operations in Central 

America and the Dominican Republic will not be able to compete with Asian manufacturers, who have been ramping up sales since the global quota regime on textiles 

ended in January. If apparel manufacturers in Central America and the Dominican 

Republic cannot compete with Asia, a domino effect will hit cotton growers, yarn 

spinners, and fabric mills in the United States as their best customers go under. 

On a more general level, the evidence is overwhelming that trade is a powerful 

tool to strengthen the U.S. economy. As former U.S. Trade Representative Robert 

Zoellick has pointed out, the combined effects of the North American Free Trade 

Agreement (NAFTA) and the Uruguay Round trade agreement that created the 

World Trade Organization (WTO) have increased U.S. national income by $40 billion to $60 billion a year. This helped lead to the creation of millions of new American jobs in the past 15 years. Many of these jobs were created in the export sector 

where, on average, jobs pay 13 to 18% more. 

In addition to the increased wages, the lower prices generated by NAFTA and the 

Uruguay Round on imported items mean that the average American family of four 

has gained between $1,000 to $1,300 in spending power—an impressive tax cut, indeed. 

Benefits for Central America and the Dominican Republic 

The U.S. Chamber and AACCLA are speaking in favor of DR–CAFTA to advance 

the interests of U.S. businesses, workers, and consumers. However, it’s clear that 

93 

the agreement will also be beneficial for workers, consumers, and businesses in Central America and the Dominican Republic—some of our closest neighbors. 

Consider what Central America and the Dominican Republic were like 20 years 

ago. Several of these countries were at war, internally, and with violence spilling 

across their borders. Contrast that with the peaceful and democratic elections we 

have just seen in the past 18 months in El Salvador, Guatemala, and the Dominican 

Republic. It’s worth recognizing that the outgoing administrations all supported 

DR–CAFTA strongly—and so do the new ones. These countries made some tough 

choices, and they’ve been rewarded with economic growth and progress in the fight 

against poverty. 

Consider the example of El Salvador, which in the 1990s brought inflation under 

control, fought corruption, and moved toward a more free market economy. As a result, per capita incomes in El Salvador grew 10 times faster in the 1990s than in 

the 1980s. 

Again, if things are going so well, what do we need DR–CAFTA for? The agreement is strong medicine, and it represents an opportunity to make sure the progress 

of the past two decades doesn’t slip away. The agreement will enhance democratic 

institutions, business transparency, and economic reform—all while locking in a 

strong partnership with the United States. Consider the following: 

1. DR–CAFTA will guarantee transparency in government procurement, with 

competitive bidding for contracts and extensive information made available on 

the Internet—not just to well-connected insiders; 

2. DR–CAFTA will ensure a level playing field in the regulatory environment for 

services, including telecoms, insurance, and express shipments; and 

3. DR–CAFTA will shore up legal protections for copyrights, patents and trademarks, so that creative artists who produce movies and television shows, researchers who create new medicines, and companies that create software will 

be protected. Pirates and counterfeiters will be put on notice that these countries will protect intellectual property with the full force of the law. 

Fighting Poverty, Helping Workers 

Finally, DR–CAFTA will help in the fight against poverty. Despite significant 

progress in the past 20 years, many Central Americans continue to live on just a 

few dollars a day. By enhancing opportunities for economic growth, the agreement 

will help provide jobs at all levels of the Central American and Dominican economies, while providing governments with additional resources for much-needed education, health care, and basic infrastructure projects. 

Some critics charge that the agreement doesn’t do enough to protect workers’ 

rights. Because I have worked in Central America for much of my professional life, 

I can address this matter in the first person. Speaking as both a former member 

of the United Auto Workers and a former manager in the U.S. offices of an airline 

whose workers were members of the International Brotherhood of Teamsters, my 

experience is that the laws on the books in these countries are more protective of 

workers’ rights than union contracts in the United States today. The agreement 

builds on the fact that five of these countries have ratified all eight of the core conventions of the International Labor Organization; the sixth country, El Salvador, 

has ratified six of the conventions and is already upholding the final two based on 

provisions in its own constitution. 

It is entirely appropriate that the U.S. negotiating team insisted that DR–CAFTA 

must contain tough, unwavering provisions requiring that the countries enforce 

their labor laws. It is also proper that new resources are being provided to guarantee such enforcement, and to provide for stiff penalties that actually provide additional resources for enforcement in the event of non-compliance. 

The Washington Post summarized the situation in an editorial: ‘‘It is a bad idea 

to oppose trade deals on the grounds that labor protections are advancing, but not 

quite fast enough—This neglects the truth that the best way to boost workers’ bargaining capacity is to boost job creation, so that labor is in strong demand. Trade 

deals that create jobs are good for workers’ rights as well as workers’ incomes.’’ We 

agree. 

What the Chamber and AACCLA Are Doing 

The U.S. Chamber and AACCLA are conducting an ambitious educational strategy to build support for Congressional approval of DR–CAFTA. In concert with our 

partners in the Business Coalition for U.S.-Central America Trade, the Chamber 

and AACCLA have organized hundreds of face-to-face meetings with members of 

Congress to make the case for the agreement. We have also met with members of 

Congress in their districts throughout the country as part of our ongoing 

‘‘TradeRoots’’ program to educate business people and workers about the benefits of 

94 

open trade. We have found broad support for the agreements, both in the Congress 

and in the business community. 

As part of this ‘‘TradeRoots’’ effort, the U.S. Chamber and AACCLA have published a ‘‘Faces of Trade’’ book to highlight small businesses in the United States 

that are already benefiting from trade with Central America and the Dominican Republic—and that stand to benefit even more from free trade with these two markets. 

We invite you to review these success stories and see the face of American trade 

today (electronic copies of the book are available at www.traderoots.org). It isn’t just 

about multinational corporations, which can usually find a way to access foreign 

markets, even where tariffs are high. DR–CAFTA will first assist the hundreds of 

thousands of small companies that are accessing international markets—and that 

are meeting their payroll, generating jobs, and growing the American economy. 

The U.S. Chamber and AACCLA are also making the case for the agreement in 

a nationwide tour with the Central American and Dominican ambassadors to meet 

with local business people, farmers, and journalists in their home towns. We’ve organized major events in more than a dozen cities with the ambassadors, and people 

from all walks of life are excited to learn about how DR–CAFTA will create new 

opportunities for business and employment. 

This is just the tip of the iceberg. We’ve generated a wealth of information about 

the potential benefits of these agreements and our efforts to make them a reality. 

In the interest of brevity, I would simply urge you to contact the Chamber if you 

need more information. Our websites are a good place to start: www.uschamber.com 

and www.aaccla.org. Another great source of information is the website of the Business Coalition for U.S.-Central America Trade at www.uscafta.org. 

Conclusion 

Trade expansion is an essential ingredient in any recipe for economic success in 

the 21st century. If U.S. companies, workers, and consumers are to thrive amidst 

rising competition, new trade agreements such as DR–CAFTA will be critical. In the 

end, U.S. business is quite capable of competing and winning against anyone in the 

world when markets are open and the playing field is level. I have no doubt that 

this agreement will bring very real benefits to the United States, and especially to 

exporters, the textile industries, farmers and ranchers, and the Hispanic and Latino 

communities of the United States. All we are asking for is the chance to get in the 

game. 

The U.S. Chamber and AACCLA appreciate the leadership of the House Committee on Ways and Means in reviving the U.S. international trade agenda, and we 

ask you to move expeditiously to bring DR–CAFTA to a vote. Thank you. 

f 

Chairman THOMAS. Thank you Mr. Fendell. Mr. Presser. 

STATEMENT OF SHELDON PRESSER, SENIOR VICE PRESIDENT, WARNER BROS., BURBANK, CA, ON BEHALF OF TIME 

WARNER, AND THE ENTERTAINMENT INDUSTRY COALITION 

FOR FREE TRADE 

Mr. PRESSER. Mr. Chairman, Congressman Rangel, Committee 

Members, on behalf of Warner Brothers, our parent company, Time 

Warner, and the broader Entertainment Industry Coalition for 

Free Trade, thank you for the great opportunity to appear before 

you today to discuss the benefits of the DR–CAFTA. Our company, 

as well as the Entertainment Industry Coalition and the U.S. 

workers we represent strongly believe that this agreement will create important opportunities for our businesses to increase exports 

and create jobs and additional revenue in the United States. As an 

industry that will substantially benefit from this agreement, we 

ask Congress to act quickly to vote in favor of it. Warner Brothers, 

through Time Warner, is a member of the Entertainment Industry 

Coalition, which represents the interests of men and women who 

produce, distribute, and exhibit many forms of creative expression. 

This includes theatrical and TV motion pictures, home video enterVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00098 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
95 

tainment, recorded music and, video games. Our coalition members 

include multi-channel programmers and cinema owners, producers 

and distributors, trade associations, individual companies like Time 

Warner, and guilds and unions, which themselves include over 

100,000 members. 

The entertainment industries are among the U.S. economy’s 

greatest assets. We represent approximately 6 percent of the Nation’s GDP (gross domestic product). We have created jobs at three 

times the rate of the U.S. economy in recent years. We bring in 

more international revenue from exports than aircraft, agriculture, 

and auto parts. Our industries export between $90— $100 billion 

worth of goods per year. The movie industry alone has a surplus 

balance of trade with every single country in the world that exhibits our films. We know of no other American enterprise that can 

make that statement year after year. Following up on the five Congressmen and women who extensively discussed the trade deficit 

this morning, we are doing our part in connection with the trade 

balance. Unfortunately, America’s creative industries are under attack. As Congress well knows, and as Congressman Ramstad mentioned earlier today, losses from physical and online piracy have 

reached staggering levels. Estimates are in excess of $25 billion for 

2004 alone. Without strong protections and improved market access, our industry’s ability to continue to expand U.S. jobs, revenue, 

and exports will be jeopardized. These troubling trends increase 

the importance of international trade agreements including the 

DR–CAFTA. More specifically, the DR–CAFTA countries have committed to reduce current tariffs that go as high as 20 percent, down 

to zero on all movies, music, consumer products, software books 

and magazines that Time Warner and others export into the region. We are in the same position as Congressman Hayworth mentioned in respect to catsup. 

The agreement also includes a commitment to nondiscriminatory 

treatment of digital products and zero tariffs on electronic transmissions. This significant cut in our cost will enable us to bring 

more products to consumers in the region and more revenue back 

home. The DR–CAFTA agreement provides for improved market 

access for many services including audiovisual, computer, telecommunications, advertising, and distribution. The agreement also 

includes investment protections that will allow for future growth in 

the development of multiplex movie theaters in the DR–CAFTA 

countries, providing an important base for expanding U.S. entertainment exports to the region. 

While breaking down market access barriers is critically important, the entertainment industry cannot survive without strong 

IPR protection and enforcement. The value of our products is undermined when piracy goes unchecked. Improving intellectual property rights protection has been an important part of past FTA’s and 

the DR–CAFTA continues that success. The agreement includes 

copyright term extension, digital protections age IPR protections 

and strengthened IPR enforcement, which is the only way to maintain the integrity of an IPR system. We are already seeing benefits 

from the DR–CAFTA negotiation as illustrated by the August 5, 

2004 side letter to the agreement, which provides a strong commitment to eliminate the longstanding and serious problem of broadVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00099 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
96 

cast piracy in the Dominican Republic. We thank Congressman 

Rangel for his help with this important advancement. Time Warner’s top trade policy priorities are ensuring protection of our intellectual properties through strong enforcement measures and securing improved market access for our products and services around 

the world. The DR–CAFTA meets these deals. The agreement represents valuable opportunities. Thank you for your time and for the 

very positive comments made by a number of Members regarding 

intellectual property today. 

[The prepared statement of Mr. Presser follows:] 

Statement of Sheldon Presser, Senior Vice President, Warner Bros., Burbank, CA, on behalf of Time Warner, and the Entertainment Industry Coalition for Free Trade 

Mr. Chairman, Congressman Rangel, and Committee Members, on behalf of Warner Bros., our parent company Time Warner, and the broader Entertainment Industry Coalition for Free Trade (EIC), thank you for the great honor and opportunity 

to appear before you today to discuss the benefits of the Dominican Republic-Central 

America Free Trade Agreement (DR–CAFTA). 

Our company, the Entertainment Industry Coalition, and the U.S. workers we 

represent, strongly believe that this agreement will create important opportunities 

for our businesses to increase our exports, and create jobs and additional revenue 

in the United States, all of which will advance the economy of the United States. 

We also believe that passage of DR–CAFTA will be good for the economies of the 

Dominican Republic and the CAFTA countries. Strengthening the economies of the 

Dominican Republic and the CAFTA countries will create wealth in those countries, 

thereby providing greater opportunities for the legitimate distribution of our products. In addition, the high standard of commitments, particularly in the area of intellectual property and services, will hopefully lead to additional stronger commitments in other negotiations, such as the FTAA. As an industry that will substantially benefit from this agreement, we ask Congress to act quickly to vote in favor 

of the agreement. 

Warner Bros., through Time Warner, is a member of the Entertainment Industry 

Coalition (EIC), which represents the interests of men and women who produce, distribute, and exhibit many forms of creative expression, including theatrical motion 

pictures, television programming, home video entertainment, recorded music, and 

video games. Our members are multi-channel programmers and cinema owners, producers and distributors, guilds and unions, trade associations, and individual companies. 

Our members include BMG Music; The Directors Guild of America (DGA); EMI 

Recorded Music; the Entertainment Software Association (ESA); The International 

Alliance of Theatrical Stage Employees, Moving Picture Technicians, Artists and Allied Crafts of the United States, Its Territories and Canada (IATSE); Independent 

Film and Television Alliance (IFTA); Motion Picture Association of America (MPAA); 

National Association of Theatre Owners (NATO); New Line Cinema; the News Corporation Limited; Paramount Pictures; Producers Guild of America (PGA); Recording Industry Association of America (RIAA); Sony Music Entertainment Inc.; Sony 

Pictures Entertainment Inc.; Television Association of Programmers (TAP) Latin 

America; Time Warner; Twentieth Century Fox Film Corporation; Universal Music 

Group; Viacom; Universal Studios; the Walt Disney Company; Warner Bros.; Warner Music Group; and The Writers Guild of America, west (WGAw). 

The goal of the EIC is to work with policymakers to highlight the importance of 

free trade for the U.S. economy, the positive economic impact of international trade 

on the entertainment community, and the role of international trade negotiations 

in ensuring strong intellectual property protections and improved market access for 

our products and services. 

The entertainment industries are one of the U.S. economy’s greatest assets. Based 

on Department of Commerce statistics, the copyright industries represent more than 

6% of the nation’s GDP. We bring in more international revenues from exports than 

aircraft, agriculture, auto parts. We also are creating new jobs at three times the 

rate of the rest of the economy. The movie industry alone has a surplus balance of 

trade with every single country in the world that exhibits our films. No other American enterprise can make that statement. 

Unfortunately, America’s creative industries are under attack. As the Congress 

knows well, piracy of copyrighted materials has had a devastating impact, and the 

97 

impact has grown in recent years with the advance of digital technology. Losses 

from physical and online piracy in the industry have reached staggering levels, estimated in 2004 at well above $25 billion. While the digital revolution has created 

new ways for all of us to reach consumers with compelling content, and for consumers in turn to access it from almost anywhere, this same technology also has 

facilitated the efforts of those who steal the innovation and creativity of others. 

Without strong protections, our ability and the rest of the entertainment industry’s 

ability to continue to expand U.S. jobs, revenue and exports will be jeopardized. 

Market access barriers also plague the entertainment industries. High tariffs on 

our products, discriminatory customs valuation disciplines, quotas and discriminatory restrictions on the ability to produce and distribute our products prevent the 

entertainment industries from competing in many markets which pirates readily exploit. 

These troubling trends increase the importance of international trade agreements. 

In addition to updating traditional copyright protections, our industry needs new 

agreements that otherwise keep pace with changes in technology. The Dominican 

Republic and Central America Free Trade Agreement is such an agreement. 

Central America and the Dominican Republic are already important export markets for the United States. The U.S. exports more than $15 billion annually to the 

region, making it our 14th largest export market. It is the 2nd largest export market in Latin America for U.S. products, just behind Mexico. For our industry sector, 

it is a market that has tremendous growth potential, as we have seen our products 

sell well—but unfortunately mostly in the hands of pirates. Across the entertainment industry, we stand ready to fill the pirate void with legitimate product now 

that all of the Central American countries and the Dominican Republic have committed to strengthened IP protection, and elimination of tariffs and other market 

access barriers. 

More specifically, from a Time Warner perspective, the DR–CAFTA countries have 

committed to reducing tariffs that currently go as high as 20%, down to zero on all 

movies, music, consumer products, software, books and magazines that Time Warner exports into the region. This significant cut in our costs will enable us to bring 

more high-quality, lower cost products to consumers in the region. 

The agreement also contains several other important commitments that will reduce or ensure that the cost of exporting into these markets does not increase. For 

instance, the agreement reaffirms the concept that customs duties should be based 

on the value of the carrier media and not the value of the movie, music or software 

contained on the carrier media, in order to assist in efforts to create global consensus on this customs valuation standard. The DR–CAFTA also includes important 

commitments providing for non-discriminatory treatment of digital products, including DVDs and CDs, as well as an agreement not to impose customs duties on such 

products. 

While the tariff reductions included in the agreement are important and will benefit the companies of Time Warner and the entire entertainment industry, the 

agreement also includes important services commitments and intellectual property 

rights protections. The DR–CAFTA builds on the successful record of past FTAs, 

such as Chile, Singapore, Morocco and Australia, in developing a high standard for 

trade commitments in the services sector, particularly in areas where countries have 

agreed to go beyond their services commitments in the WTO, strengthening and 

modernizing IP protections, and creating modern trade agreements aimed at the 

digital economy. 

The agreement provides for improved market access for many services, including 

audiovisual, computer, telecommunications, advertising, and distribution services 

such as wholesaling and retailing. The agreement also demonstrates that a trade 

agreement can harmonize two important objectives—trade liberalization and the 

promotion of cultural diversity. It avoids the ‘‘cultural exceptions’’ approach while 

demonstrating that a trade agreement has sufficient flexibility to take into account 

countries’ cultural promotion interests. The agreement also includes investment protections that will allow for further growth in the development of multiplex movie 

theaters in the DR–CAFTA countries, providing an important base for expanding 

U.S. entertainment exports to the region. 

While breaking down market access barriers and creating a duty-free system of 

trade between our countries will present excellent opportunities for increased trade, 

the entertainment and media industries cannot survive without strong protections 

and enforcement of those protections. The value of our products is undermined with 

every case of piracy that goes unchecked. We believe that this FTA sets a high bar 

for IP protections that should be a part of any future trade agreements that the 

United States negotiates. 

98 

DR–CAFTA includes strong intellectual property rights provisions that will allow 

our industry to continue to grow and prosper, as well as recognizing emerging technologies and the impact that these technologies can have on our businesses. Improved intellectual property rights protection has been an important part of past 

FTAs and the DR–CAFTA continues that success. 

Protecting intellectual property rights is at the heart of our business. In this regard, the DR–CAFTA has critically important provisions in it to safeguard our content from piracy. Specifically, DR–CAFTA includes TRIPs-plus provisions that will 

ensure that products in the digital economy receive world-class IP protection. The 

DR–CAFTA countries have agreed to implement the WIPO Internet Treaties, as 

well as to establish strong anti-circumvention provisions to prohibit tampering with 

technologies that are designed to prevent piracy and unauthorized distribution over 

the internet. In addition, the agreement includes provisions ensuring that copyright 

owners have the exclusive right to make their works available online and protects 

copyrighted works for extended terms, in line with current international trends. 

Importantly, the FTA also strengthens IP enforcement, which is the only way to 

maintain the integrity of an IP system. The DR–CAFTA countries have agreed to 

increase criminal and civil remedies against the unlawful decoding of encrypted satellite TV signals and criminalize end-user piracy, providing strong deterrence 

against piracy and counterfeiting. The agreement also requires the DR–CAFTA 

countries to authorize the seizure, forfeiture and destruction of pirated products and 

the equipment used to produce them, as well as providing for enforcement against 

pirates of goods-in-transit, to deter violators from using ports or free trade zones to 

traffic in pirated products. These strong measures will provide content providers, 

such as the companies of Time Warner, with the increased protection and enforcement needed to safeguard our investments and the U.S. jobs that are supported 

through the sales and distribution of our products. In fact, we are already seeing 

benefits from the DR–CAFTA negotiation as illustrated by the August 5, 2004 side 

letter to the agreement which provides a strong commitment to eliminate the longstanding and serious problem of broadcast piracy in the Dominican Republic. We 

thank you, Congressman Rangel, for your help with this important advancement. 

Time Warner’s top trade policy priority is ensuring protection of our intellectual 

property through strengthened laws and strong enforcement measures. In addition, 

Time Warner believes that all entertainment and high-tech products should have 

full market access, zero tariffs and that all electronic transmissions should enter all 

countries duty-free. The DR–CAFTA meets these goals, which is why Time Warner 

strongly supports the passage of the agreement. We believe that the agreement represents valuable opportunities for our businesses and our employees to continue to 

compete and prosper in the world economy. 

Thank you. 

f 

Chairman THOMAS. Thank you, Mr. Presser. Mr. Trumka. 

STATEMENT OF RICHARD L. TRUMKA, SECRETARY-TREASURER, AMERICAN FEDERATION OF LABOR-CONGRESS OF INDUSTRIAL ORGANIZATIONS 

Mr. TRUMKA. Mr. Chairman, before I start my statement could 

I also submit for the record this report entitled, ‘‘The Real Record 

on Workers Rights in Central America.’’ It is a compilation of information on each one of the Central American countries dealing with 

the workers rights in those countries. 

Chairman THOMAS. Is it a work product of your organization? 

Mr. TRUMKA. It is indeed. 

Chairman THOMAS. Without objection. 

[The information is being retained in Committee files.] 

Mr. TRUMKA. Thank you very much, sir. Thank you, Mr. Chairman, and Members of the Committee. Thank you for holding this 

important hearing and inviting me to testify today on behalf of 13 

million working Americans, men and women represented by the 

AFL–CIO (American Federation of Labor-Congress of Industrial 

Organizations). Given the composition of this panel, I have a greatVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00102 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
99 

er appreciation for Custer at Little Big Horn. The American labor 

movement recognizes the urgent challenges of poverty and underdevelopment in Central America and the Dominican Republic. 

Many of our members come to the United States from this region. 

Many maintain close ties with family and friends there, send remittances home and return periodically to visit the lands of their 

birth. We work closely with unions and civil society organizations 

throughout the area. So, we too feel a special obligation to help 

these countries grow and to prosper. At the same time, we are 

acutely aware of the challenges that we face in our own economy 

and labor market. 

Our trade deficit hit a record-shattering $617 billion last year. 

We have lost close to 3 million manufacturing jobs in the last 4 

years, and average wages are barely keeping pace with inflation, 

despite healthy productivity growth. Together, record trade and 

budget deficits, unsustainable levels of consumer debt and stagnant 

wages, paint a picture of an economy living beyond its means, dangerously unstable in a volatile global economy. Unfortunately, DR– 

CAFTA is not the answer to the challenges faced in Central America or the United States. On the contrary, it represents a failed 

model that will likely exacerbate poverty and inequality in Central 

America, while further eroding good jobs and wages at home. At 

the same time, its excessive protections for multinational corporations would undermine the ability of governments to protect public 

health, strong communities and the environment. Mr. Chairman, 

Members of the Committee, we ask you to reject DR–CAFTA and 

urge the Administration to renegotiate this deeply flawed deal. 

Some have argued that DR–CAFTA is the only way to lift Central America out of poverty. We need only examine NAFTA’s dismal track record to dispel this myth. Since NAFTA was implemented 11 years ago, real wages in Mexico have actually fallen. 

The number of people in poverty has grown and the number of people migrating illegally to the United States to seek work has doubled. The DR–CAFTA is likely to have similar impacts on Central 

America. Furthermore, for industrial employment to be a reliable 

route out of poverty workers must earn decent wages, have the 

right to form independent unions and enjoy basic work protections 

and labor rights. Few workers in Central America today can exercise their internationally recognized rights to form unions and bargain collectively. Anti-union violence is common, and employers 

routinely fire workers attempting to exercise these rights, while 

governments fail to act. Far from addressing or rectifying these 

concerns, DR–CAFTA actually weakens the labor rights conditions 

included in current trade programs, leaving Central American and 

Dominican workers more vulnerable than ever. 

Nor will DR–CAFTA improve U.S. competitiveness or create 

high-paying jobs at home. NAFTA was supposed to open markets 

for America’s goods and services, creating high-paying jobs at home 

and prosperity abroad. Instead in 11 years the U.S. trade deficit 

with Canada and Mexico ballooned to 12 times its pre-NAFTA size, 

reaching $111 billion in 2004, and imports from NAFTA partners 

grew more than $100 billion faster than our exports to them, displacing workers in industries as diverse as aircraft, auto, apparel, 

and consumer electronics. Like NAFTA, the attraction of Central 

100 

America for multinational corporations is not its consumer market, 

but its low paid and very vulnerable work force. 

Central America needs a trade regime that will improve compliance with fundamental workers rights. The DR–CAFTA fails this 

test. Rather than tie additional market access to required improvements in workers’ rights, DR–CAFTA does exactly the opposite. 

While granting expanded and permanent market access to Central 

American countries, DR–CAFTA actually weakens the labor rights 

conditions these countries are required to fulfill under current 

trade agreements. This failure is particularly egregious in a Central American context. In countries where labor laws fall far short 

of minimum international standards, where governments have a 

record of indifference toward workers’ rights and hostility toward 

trade unions, the only tool that has proven successful in improving 

workers’ rights has been the threat of withdrawal of trade benefits. 

Members of the Committee, I will close with these thoughts. The 

U.S. economy continues to break records, but not in ways that help 

working people. The all-time high U.S. trade deficit is not an abstract issue. It shows up every day as working men and women see 

their plants close, are asked to train their overseas replacements, 

or are asked to swallow wage and benefit cutbacks that affect their 

families’ lives in hundreds of ways. Entire communities suffer the 

consequences of failed trade agreements. We urge Congress to reject DR–CAFTA and to begin work on just economic and social relationships with Central America and the Dominican Republic. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Trumka follows:] 

Statement of Richard L. Trumka, Secretary-Treasurer, American 

Federation of Labor-Congress of Industrial Organizations 

Mr. Chairman and members of the committee, thank you for holding this important hearing and for inviting me to testify today on behalf of the thirteen million 

working men and women represented by the AFL–CIO. 

The American labor movement recognizes the urgent challenges of poverty and 

underdevelopment in Central America and the Dominican Republic. Many of our 

members came to the United States from this region. Many maintain close contact 

with family and friends there, send remittances home, and return periodically to 

visit the lands of their birth. We work closely with unions and civil society organizations throughout the area. So we too, feel a special obligation to help these countries 

grow and prosper. 

At the same time, we are acutely aware of the challenges we face in our own economy and labor market. Our trade deficit hit a record-shattering $617 billion last 

year, we have lost close to three million manufacturing jobs in the last four years, 

and average wages are barely keeping pace with inflation—despite healthy productivity growth. Offshore outsourcing of white-collar jobs is increasingly impacting 

highly educated, highly skilled workers—leading to rising unemployment rates for 

engineers and college graduates. Together, record trade and budget deficits, 

unsustainable levels of consumer debt, and stagnant wages paint a picture of an 

economy living beyond its means, dangerously unstable in a volatile global environment. 

Unfortunately, CAFTA is not the answer to the challenges faced in Central America or the United States. On the contrary, it represents a failed model that will likely exacerbate poverty and inequality in Central America, while further eroding good 

jobs and wages at home. At the same time, its excessive protections for multinational corporations would undermine the ability of governments to protect public 

health, strong communities, and the environment. 

Mr. Chairman, members of the committee, we ask you to reject CAFTA and urge 

the Administration to renegotiate this deeply flawed deal. 

101 

1Kate Bronfenbrenner, ‘‘The Effects of Plant Closing or Threat of Plant Closing on the Right 

of Workers to Organize,’’ Dallas, Texas: North American Commission for Labor Cooperation; 

1997. Kate Bronfenbrenner, ‘‘Uneasy Terrain: The Impact of Capital Mobility On Workers, 

Wages, and Union Organizing,’’ Commissioned research paper for the U.S. Trade Deficit Review 

Commission; 2000. 

CAFTA As Solution To Poverty? 

To sell CAFTA to a skeptical Congress, some make the desperate argument that 

CAFTA is the only way to lift Central America out of poverty. We need only examine NAFTA’s dismal track record to dispel this myth. Since NAFTA was implemented eleven years ago, real wages in Mexico have actually fallen, the number of 

people in poverty has grown, and the number of people migrating illegally to the 

United States to seek work has doubled. Trade liberalization in agriculture displaced nearly a million rural small farmers, swamping the fewer jobs created in the 

export processing sectors. Many in Mexico who supported NAFTA eleven years ago 

have now turned into ardent opponents. 

CAFTA is likely to have similar impacts in Central America, especially since 

CAFTA does not dramatically increase access to the U.S. market for the Dominican 

Republic and Central America. The key impact on the rural poor—the majority of 

the population in many of the countries—will be increased competition with much 

more efficient U.S. agribusiness. 

For industrial employment to be a reliable route out of poverty, workers must 

earn decent wages, have the right to form independent unions, and enjoy basic 

workplace protections and labor rights. Few workers in Central America today can 

exercise their internationally recognized rights to form unions and bargain collectively. Anti-union violence is common, and employers routinely fire workers attempting to exercise these rights, while governments fail to act. Far from addressing 

or rectifying these concerns, CAFTA actually weakens the labor rights conditions included in current U.S. trade programs, leaving Central American and Dominican 

workers more vulnerable than ever. I will address CAFTA’s inadequate labor rights 

provisions in more detail later in this testimony. 

CAFTA As A Boost to U.S. Competitiveness and Jobs? 

During the debate over NAFTA, proponents argued that with the American market already more open to Mexican products, our workers and producers would come 

out on top if all trade barriers were eliminated. Today, the same argument is being 

used to sell CAFTA. 

However, our experience under NAFTA demonstrates that the opposite is likely 

to occur. As Republican Senator Olympia Snowe said last week in the Senate Finance Committee hearing on CAFTA, NAFTA has cost U.S. workers nearly one million jobs and job opportunities (based on the deterioration in our trade balance with 

our NAFTA partners). 

NAFTA was supposed to open markets for American goods and services, creating 

high-paying jobs at home and prosperity abroad. Instead, in eleven years, the U.S. 

trade deficit with Canada and Mexico ballooned to twelve times its pre-NAFTA size, 

reaching $111 billion in 2004. Imports from our NAFTA partners grew more than 

$100 billion faster than our exports to them, displacing workers in industries as diverse as aircraft, autos, apparel, and consumer electronics. This occurred because 

U.S. companies did not take advantage of the easier access to the Mexican market 

to export finished consumer goods to Mexico; instead, they shifted production out 

of the United States to Mexico, exporting parts and capital goods and importing finished products. The net impact of these production shifts was a loss of good jobs 

in the United States. 

Those workers whose jobs were not eliminated also suffered. Employers used the 

leverage of their new mobility and rights under NAFTA to crush union organizing 

drives and win concessions at the bargaining table, driving down wages and working conditions for American workers. According to researchers at Cornell University, 

the incidence of employers’ threats to close and relocate factories grew under 

NAFTA. And these intimidation tactics are very effective: workers are half as likely 

to succeed in organizing a union when their employers threaten to move jobs 

abroad.1

NAFTA simply did not deliver stronger net exports or a competitive advantage for 

U.S.-based companies and workers, and there is little reason to believe that CAFTA 

will be any different. Like NAFTA, the attraction of Central America for multinational corporations is not its consumer market, but its low-paid and very vulnerable workforce. 

CAFTA Provisions Favor Multinational Corporations Over Workers, Communities, 

and National Governments 

102 

2Such reports include: ‘‘Fundamental Principles and Rights at Work: A Labour Law Study— 

Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua,’’ International Labor Organization, 

2003; ‘‘Fundamental Principles and Rights at Work: A Labour Law Study—Dominican Republic,’’ International Labor Organization, 2004; ‘‘2004 Country Reports on Human Rights Practices,’’ U.S. Department of State, 2005; ‘‘2004 Annual Survey of Violations of Trade Union 

Rights,’’ International Confederation of Free Trade Unions, 2004; and ‘‘Deliberate Indifference: 

El Salvador’s Failure to Protect Workers’ Rights,’’ Human Rights Watch, 2003. A summary of 

these reports is available in ‘‘The Real Record on Workers’ Rights in Central America,’’ AFL– 

CIO, April 2005. 

CAFTA strengthens protections for multinational corporations, forcing changes in 

intellectual property protection regimes that threaten public health, giving corporations new rights to sue governments over regulations they deem too costly or inconvenient, and limiting the ability of future legislators to place conditions on government procurement. This hurts Central America’s prospects for future development, 

just as it weakens state legislators and erodes wages and jobs here at home. 

The lopsided tilt toward corporate interests helps to explain why CAFTA is so unpopular, both here in the United States and throughout Central America. A recent 

poll by Americans for Fair Trade found widespread opposition to CAFTA, with 74% 

of respondents saying they would oppose the pact if it caused job losses, even if it 

also reduced consumer prices. In Central America, tens of thousands of workers, 

farmers, small-business owners, and other activists have taken to the streets to 

voice their vehement opposition to the deal and to the lack of transparency in the 

negotiation process. 

The Bush Administration and Central American governments have prioritized 

multinational corporate interests at the expense of ordinary citizens. Right now in 

Guatemala, the rights of people who need inexpensive medications are being traded 

away in favor of CAFTA’s business interests. Pharmaceutical companies have already pressured Guatemala to stop allowing inexpensive drugs in stores. CAFTA 

imposes a five-to-ten year waiting period on generic drugs. The humanitarian organization, Doctors Without Borders, has said that these provisions in CAFTA could 

make newer medicines unaffordable. 

CAFTA’s Workers’ Rights Provisions Unacceptably Weak 

At the same time, despite the overwhelming evidence that Central America’s 

workers are routinely abused, CAFTA spectacularly fails to address this problem. 

CAFTA’s single enforceable workers’ rights provision requires only that countries 

enforce their own labor laws—laws that Human Rights Watch, the International 

Labor Organization and even our own State Department have documented as failing 

to meet international standards. And CAFTA contains no enforceable provision preventing countries from weakening or even eliminating their labor laws entirely. 

Not one country included in the CAFTA comes close to meeting a minimum 

threshold of respect for the ILO’s core labor standards: freedom of association, the 

right to organize and bargain collectively, and freedom from child labor, forced 

labor, and discrimination. In Central America, maquiladora employers pay a workforce made up disproportionately of young women poverty wages to labor for long 

hours in unsafe conditions. When these workers try to organize to try to win a voice 

at work, they face intimidation, threats, dismissal, and blacklisting. 

Labor laws in Central America uniformly fail to protect basic workers’ rights, and 

deficiencies in the laws have been repeatedly criticized by the International Labor 

Organization (ILO), the U.S. State Department, and independent human rights organization for many years.2 Despite this criticism, these flaws persist today. The 

ILO, in its 2003 and 2004 reports on Central American labor laws, identified no 

fewer than 27 key deficiencies in the laws with respect to freedom of association and 

the right to organize and bargain collectively. Amazingly, the U.S. Trade Representative and Central American countries continue to cite these reports as evidence that 

laws in the region largely meet ILO standards—a gross mischaracterization of the 

reports themselves. And even these reports, with all the deficiencies they identify, 

omit some flaws that the ILO itself had identified with regard to these countries 

in earlier observations because of the reports’ limited scope. 

A review of the ILO reports and other ILO observations, along with U.S. State 

Department reports and independent analyses by human rights groups, reveals a 

wide array of loopholes, gaps, and deficiencies in labor laws in the region. On issues 

including penalties for anti-union discrimination, employer interference with workers’ organizations, obstacles to union registration, restrictions on the right to organize above the enterprise level, restrictions on the rights of temporary employees, 

onerous requirements for trade union leadership, limits on the activities of federations and confederations, and limits on the right to strike, labor laws throughout 

the region fail to meet the minimum standards enumerated by ILO core convenVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00106 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
103 

tions. The only country to actually reform any of its laws in these areas during the 

CAFTA negotiation process was Nicaragua; but some gaps in the law remain even 

there. In every other country major deficiencies identified by the ILO remain on the 

books today. In fact, some countries have actively weakened their labor laws during 

the CAFTA negotiations: Guatemala’s Constitutional Court overturned key elements 

of major labor law reforms, while the Costa Rican government introduced legislation 

to weaken worker protections. 

Employers take advantage of these weaknesses in the labor law to harass, intimidate, and fire workers who dare to organize an independent union. Employers refuse 

to bargain with legitimate worker representatives, and have most strikes declared 

illegal. Even where employers are flagrantly in violation of the law, they enjoy near 

total impunity in many of these countries. The result is a climate of fear, insecurity, 

and even physical danger for workers in the region who try to exercise their most 

basic rights on the job. 

As violation after violation of workers’ rights accumulate, and as governments 

refuse to improve their laws or enforce those that do exist, the very institutions of 

independent trade unions and collective bargaining founder. Trade union density in 

Central American countries is minimal: 7 percent in Honduras, 5 in El Salvador, 

3 in Guatemala. In El Salvador, no independent trade unions have been registered 

in the past four years. The most recent denial came this year, when the Ministry 

of Labor found that port workers did not meet the legally required minimum number to form a union, as a result of the fact that their employer had fired most of 

the founding members of the union in direct retaliation for their organizing activities. 

There are only two collective bargaining agreements in force in Guatemala’s 

maquiladoras—zero in El Salvador’s. In Costa Rica from 1999 to 2004, for every employer that negotiated a collective bargaining agreement with a legitimate trade 

union, more than fourteen employers negotiated direct arrangements with employerdominated solidarity associations. In Guatemala, 45 incidents of threats against 

trade unionists were reported to the government in 2004—only one conviction was 

achieved. 

In the face of these inadequate labor laws, CAFTA only requires that countries 

enforce the labor laws they happen to have. Obligations to improve one’s labor laws, 

to meet ILO standards, and not to derogate from or waive laws in the future are 

all completely unenforceable under CAFTA. Thus a country can maintain its laws 

far below ILO standards, weaken its laws even further in the future, and face no 

consequences under CAFTA. As the discussion above demonstrates, this is not just 

a theoretical possibility in Central America—it is the reality that workers live with 

every day. 

CAFTA Labor Provisions A Step Back From Jordan FTA and GSP 

CAFTA’s failure to include an enforceable requirement that labor laws meet ILO 

standards represents a step backwards from the labor rights provisions of the U.S.- 

Jordan Free Trade Agreement. The Jordan agreement enjoyed broad support from 

labor unions in the U.S. and Jordan, and passed the U.S. Congress unanimously in 

2001. The Jordan agreement allows each one of its labor rights obligations to be 

brought up under the agreement’s dispute settlement and enforcement mechanism, 

including provisions committing countries to meet ILO standards. In contrast, 

CAFTA excludes the vast majority of its labor rights obligations from the accord’s 

dispute settlement and enforcement mechanisms, and only the requirement that 

countries enforce their own labor laws is subject to dispute settlement and enforcement. 

CAFTA also backtracks from the Jordan agreement by giving labor rights secondclass status within the agreement’s dispute settlement and enforcement apparatus. 

In the Jordan FTA, the dispute settlement and enforcement measures that apply 

to the agreement’s labor provisions are identical to those that apply to the agreement’s commercial provisions, and can include fines or sanctions. Under CAFTA, 

only violations of the agreement’s commercial provisions can lead to sanctions or punitive fines sufficient to compensate the harm caused by the violation. Violations of 

the agreement’s labor obligation must be remedied through the assessment of a nonpunitive fine, and that fine is capped at $15 million regardless of the harm caused 

by the violation. 

Perhaps most disturbing is the fact that CAFTA’s rules on workers’ rights are actually weaker than the current labor conditions that apply to Central American 

countries under our unilateral trade preference programs, the Generalized System 

of Preferences (GSP) and the Caribbean Basin Initiative (CBI). CAFTA’s labor chapter backtracks from the labor standards in GSP and CBI, and the agreement eliminates enforcement tools currently available in the unilateral programs. 

104 

• The GSP requires countries to have taken or be ‘‘taking steps to afford internationally recognized worker rights,’’ while the CBI instructs the president to 

consider ‘‘the extent to which the country provides internationally recognized 

worker rights’’ when granting preferential market access under the program. 

These rules enable workers to complain about the inadequacy of national labor 

laws, not just about the government’s failure to enforce the law. CAFTA, on the 

other hand, only requires countries to enforce the labor laws they happen to 

have, no matter how weak those laws are now or become in the future. 

• The GSP includes a public petition process for the removal of trade benefits. 

The AFL–CIO and other labor rights advocates have used the process, in conjunction with unions in Central America, to bring public pressure on Central 

American governments to improve labor rights. Even when the U.S. government 

exercises its discretion to reject meritorious GSP petitions, the public forum provided by the petition process can help focus public attention on workers’ rights 

abuses and pressure governments to reform. CAFTA contains no direct petition 

process for workers—enforcement can only happen through government-to-government disputes. 

• The GSP and CBI directly condition market access on respect for international 

labor rights. While preferential benefits are rarely withdrawn under the programs, the credible threat of reduced trade benefits has successfully changed 

government behavior. In addition, petitioners have been able to tailor request 

for withdrawal to specific sectors and producers responsible for workers’ rights 

violations, helping to create a specific incentive for employers to respect workers’ rights. CAFTA, on the other hand, makes it extremely difficult to withdraw 

trade benefits for workers’ right violations. Even if a government has been 

found in violation of CAFTA’s labor provisions, it can continue to enjoy full market access under the agreement as long as it pays a small, capped fine to finance labor enforcement activities. The fine in no way penalizes producers for 

violations of workers’ rights, and exerts little pressure on governments, who can 

reduce their labor budgets by an amount equal to the fine and avoid spending 

the fine on projects with political sensitivity such as labor law reform. 

The only tool that has helped create the political will to reform labor laws in Central America in the past is our unilateral system of trade preferences. While the 

labor rights provisions of these programs are not perfect, they have led to some improvements in labor rights in the region. In fact, nearly every labor law reform that 

has taken place in Central America over the past fifteen years has been the direct 

result of a threat to withdraw trade benefits under our preference programs. 

Even the United States Trade Representative (USTR) touts the reforms that have 

been made to Central American labor laws as a result of GSP petitions. USTR argues that the reforms demonstrate Central American governments’ commitment to 

workers’ rights, and thus argue for approval of CAFTA. Quite to the contrary, the 

reforms demonstrate that governments in the region rarely undertake labor law improvements without outside pressure—pressure that will no longer be applied if 

CAFTA is ratified. 

• The U.S. government accepted a GSP workers’ rights petition against Costa 

Rica for review in 1993, and Costa Rica reformed its labor laws later that year. 

• The Dominican Republic reformed its labor laws in 1992 in response to a GSP 

petition on workers’ rights. 

• El Salvador was put on continuing GSP review for workers’ rights violations in 

1992, and the government reformed its labor laws in 1994. 

• Guatemala reformed its labor laws in response to the acceptance of a 1992 GSP 

petition, and when their case was reopened for review in response to a 2000 

petition they again reformed their labor laws in 2001. 

• Nicaragua’s GSP benefits were suspended in 1987 for workers’ rights violations, 

and it reformed its labor laws in 1996. 

The GSP process has also been helpful in addressing enforcement and rule-of-law 

problems in the region. Too often, these patterns of violation are the result not just 

of limited resources, but of insufficient political will on the part of Central American 

governments. GSP cases have helped create that political will. As the result of a 

2004 petition on El Salvador, for example, the Salvadoran government finally enforced a reinstatement order for union activists that had been locked out for three 

years. All appeals to national mechanisms in the case had been fruitless, and the 

employer was in outright defiance of a reinstatement order from the nation’s Supreme Court. The last independent union granted legal registration in El Salvador 

was only registered after appeals to the Salvadoran Supreme Court, the ILO, and 

a GSP petition. 

105 

3See ‘‘Labor Movement Declaration Concerning The United States-Central America Free 

Trade Agreement,’’ San Jose, Costa Rica, November 18, 2002. This declaration was signed by 

the labor federations of the United States, Guatemala, Nicaragua, Costa Rica and El Salvador. 

It is reprinted in, ‘‘The Real Record on Workers’ Rights in Central America,’’ AFL–CIO, April 

2005. 

Central American countries need a trade regime that will improve compliance 

with fundamental workers’ rights. As long as independent trade unions are thwarted, collective bargaining avoided, and the right to strike repressed, workers will be 

unable to win a voice at work and negotiate with their employers for decent working 

conditions and wages that reflect the true value of their production. Trade rules 

must ensure that governments protect fundamental workers’ rights, and require 

that the companies who take advantage of the new rights and mobility that trade 

agreements provide be held accountable for their treatment of workers. 

CAFTA fails this test. Rather than tie the incentives that additional market access provides to required improvements in workers’ rights, CAFTA does exactly the 

opposite. While granting expanded and permanent market access to Central American countries, CAFTA actually reduces the labor rights conditions those countries 

are required to fulfill under current trade programs. This failure is particularly 

egregious in the Central American context—in countries where labor laws fall far 

short of minimum international standards, where governments have a record of indifference towards workers’ rights and hostility towards trade unions, and where 

the only tool that has proven successful in improving workers’ rights has been the 

threat of the withdrawal of trade benefits. 

It is time for policymakers to take an honest look at our trade policy and the impact it has had on workers and communities at home and abroad, and start revising 

the rules that govern trade. The American labor movement, along with our brothers 

and sisters in Central America, has made substantive and thoughtful proposals on 

what changes need to be made to our trade policies.3 We recognize that trade has 

the potential to spur growth and create jobs—but to deliver on these promises, we 

need to get the rules right. Unfortunately, CAFTA negotiators ignored our proposals. 

As a result, we are forced to oppose CAFTA. We are working together with 

unions, environmentalists, family farmers, bishops, women’s groups and many others in the U.S. and Central America to stop CAFTA and to build a better way to 

trade. Only by rejecting CAFTA can we begin a real dialogue on the new kinds of 

trade rules we need to create good jobs, stimulate equitable and sustainable economic development, and support strong democratic institutions. 

In sum, CAFTA grants multinational companies that ship U.S. jobs overseas the 

following rewards: greater access to the U.S. market, more freedom to violate workers’ rights with impunity, and the ability to challenge government regulations enacted in the public interest. CAFTA’s rules on investment, government procurement, 

intellectual property rights, and services create new rights for multinational corporations, but the agreement actually weakens existing protections for workers’ 

rights, leaving the interests of ordinary working men and women out in the cold. 

Members of the committee, I will close with these thoughts. The U.S. economy 

continues to break records, but not in ways that help working people. The all-time 

high U.S. trade deficit is not an abstract issue; it shows up every day as working 

men and women see their plants close, are asked to train their own overseas replacements or are asked to swallow wage and benefit cutbacks that affect their families’ lives in hundreds of ways. Entire communities suffer the consequences of failed 

trade agreements. We urge the Congress to reject CAFTA and begin work on just 

economic and social relationships with Central America and the Dominican Republic. 

f 

Chairman THOMAS. I thank the gentleman. Mr. Schulingkamp. 

106 

STATEMENT OF DAVID P. SCHULINGKAMP, PRESIDENT, 

BARGELINK, LLC AND MBLX, INC., VICE PRESIDENT, M.G. 

MAHER & CO., PAST CHAIRMAN OF THE BOARD OF COMMISSIONERS, PORT OF NEW ORLEANS, PAST PRESIDENT, NEW 

ORLEANS BOARD OF TRADE, ON BEHALF OF THE PORT OF 

NEW ORLEANS, WORLD TRADE CENTER OF NEW ORLEANS, 

GREATER NEW ORLEANS, INC., AND THE NEW ORLEANS 

BOARD OF TRADE 

Mr. SCHULINGKAMP. Mr. Chairman, Members of the Committee, good afternoon. Thank you for the opportunity to speak before this group. I want to thank, particularly, Congressman William Jefferson and Congressman McCrery for their strong support, 

not only of this proposed DR–CAFTA but for FTAs in general. I am 

speaking on behalf of the Port of New Orleans, the World Trade 

Center, the New Orleans Board of Trade and Greater New Orleans, 

Inc., which is an economic engine group of our Chamber of Commerce. Our constituents are primarily people who are involved in 

the nuts and bolts of servicing customers who buy and sell products 

internationally. New Orleans is a gateway port for much of America. We are the humble servants of many of your constituents who 

manufacture American products throughout the Midwest and even 

throughout the East Coast, as far north as Minneapolis, Chicago, 

St. Louis, Pittsburgh, Kentucky, points in between. We are very attuned to what is going on in trade. 

One of the, perhaps unintended, but beneficial benefits of DR– 

CAFTA, is something that those of us in the transportation industry have noticed. This is that, actually, the United States has a tremendous imbalance with Central America. There are a lot more 

products being imported than exported. That creates higher freight 

rates. It may surprise you to know that there are freight rates existing between Central America and Europe and Central America 

and the Far East which are cheaper than those to the United 

States. That is because of this tremendous imbalance. The more exports that we have to Central America, the more equality that we 

are going to have. We are at a geographic advantage, but at an economic transportation disadvantage, to the European Union, for example, and even to some places in the Far East. 

Clearly, this bill will benefit American manufacturers. Unlike 

many other trade proposals, which have opened up the doors for 

producers in the foreign countries to sell in this country, this act 

undoubtedly creates tremendous opportunities for American manufacturers and producers throughout this country. We would urge 

that this Committee recommend and vote for approval of a DR– 

CAFTA. 

[The prepared statement of Mr. Schulingkamp follows:] 

Statement of David P. Schulingkamp, President of BargeLink, LLC and 

MBLX, Inc., Vice President, M.G. Maher & Co., Past Chairman of the 

Board of Commissioners, Port of New Orleans, Past President, New Orleans Board of Trade, on behalf of the Port of New Orleans, World Trade 

Center of New Orleans, Greater New Orleans, Inc., and the New Orleans 

Board of Trade 

My name is David P. Schulingkamp and I am President of BargeLink, LLC and 

MBLX, Inc., Vice President of M.G. Maher & Co., the past Chairman of the Board 

of Commissioners of the Port of New Orleans and past President of the New Orleans 

Board of Trade. On behalf of the Port of New Orleans, the World Trade Center of 

107 

New Orleans, Greater New Orleans, Inc., and the New Orleans Board of Trade, I 

am honored to appear before you today to highlight the value and benefits that can 

and will be realized through the swift passage and implementation of the Dominican 

Republic-Central American Free Trade Agreement (DR–CAFTA). 

The Port of New Orleans is a vital economic engine for Louisiana, and serves as 

a gateway for the import and export of products throughout the Gulf Coast region 

and inland waterways system. Maritime activity within the Port is responsible for 

more than 107,000 jobs, $2 billion in earnings, and $13 billion in spending in Louisiana. In 2003 alone, the Port handled more than $30.6 billion worth of exports to 

over 200 foreign markets. Through my involvement with the Port of New Orleans, 

the New Orleans Board of Trade, and other business and trade interests, I have 

seen first hand the significant benefits that free and fair trade provides for our national and regional economies. 

It is with those benefits in mind that I strongly urge this Committee to support 

the immediate implementation of DR–CAFTA. Louisiana and other regions of the 

country already depend heavily on trade with our Central American neighbors. As 

reported by the U.S. Department of Commerce, Louisiana’s shipments to DR– 

CAFTA countries of manufactured and non-manufactured merchandise, including 

chemical, petroleum, agricultural and other products, totaled $1.2 billion in 2004. 

These exports from Louisiana to the Dominican Republic, Costa Rica, El Salvador, 

Guatemala, Honduras, and Nicaragua were the 4th largest among the 50 states. 

The DR–CAFTA region is Louisiana’s 2nd largest export market for processed foods 

and its 5th largest market for agricultural crops. With implementation of DR– 

CAFTA, enhanced trade, employment and other opportunities in those markets will 

provide increased and significant benefits to the people of Louisiana and this Nation. Though sugar producers within Louisiana have concerns about DR–CAFTA, it 

is not my intention to debate such claims. Rather, my intention is to discuss the 

wide range of DR–CAFTA benefits that are attainable throughout Louisiana. 

With the approval of DR–CAFTA, more than 80 percent of U.S. exports of consumer and industrial products and 50 percent of agricultural goods to Central 

America and the Dominican Republic will be duty-free immediately, followed by the 

full elimination of tariffs for most products within a few more years. With the elimination of such duties on U.S. exports, the markets for information technology, construction machinery, farm goods, and other products will certainly be enhanced 

throughout the DR–CAFTA region. What this specifically means for Louisiana is 

that: 

• Louisiana’s rice producers will benefit from an increasing duty-free quota and 

the eventual elimination of up-to-60 percent tariffs on out-of-quota rice. • Louisiana is the 3rd largest rice-producing state in the U.S. Louisiana’s cotton 

exports will be duty-free, thus helping to maintain a competitive textile industry in the U.S. 

• Louisiana’s soybean products will become duty-free except to Costa Rica where 

tariffs will be phased out over 15 years. 

• Louisiana’s service providers will enjoy the elimination of substantial trade barriers. 

• Louisiana’s manufacturers and producers of chemical, petroleum, coal, electrical 

equipment, paper, plastics, rubber, processed food, and transportation products 

will benefit from DR–CAFTA’s elimination of tariffs on such goods. Approximately 24 percent of all jobs in Louisiana depend upon petroleum product exports; 1-in-5 jobs in Louisiana’s chemical industry depend on exports. 

Furthermore, as shown by a review of the DR–CAFTA agreement by the U.S. 

Trade Representative, nearly 80 percent of imports into the United States from the 

Dominican Republic and Central American countries already receive duty-free treatment, even though U.S. exports are currently subject to heavy tariffs. It is therefore 

clear to us that the United States has significantly more to gain through the approval of DR–CAFTA. 

A recent study by Dr. James Richardson of Louisiana State University shows 

that— 

The estimated impact of CAFTA on the Louisiana economy varies from new 

business sales of $169.3 million to $338.6 million, household earnings of $38.6 

million to $77.2 million . . . and . . . 1,375 to 2,769 new jobs. CAFTA will have 

a positive impact on business activity, household earnings, and jobs in Louisiana. . . . 

Increased job opportunities—enhanced business development—improved household earnings—better export markets for U.S. goods. This is what CAFTA means 

for the United States. 

108 

Dr. Richardson also highlighted what could be lost without the approval of DR– 

CAFTA. U.S. exports would be placed at continuing disadvantage to those products 

manufactured or produced in countries that otherwise enjoy the benefits of free 

trade agreements with Central American and the Dominican Republic. We cannot 

afford to let slip away the American business and employment opportunities that 

will be derived from the implementation of DR–CAFTA. 

Through my daily involvement on a practical basis with commerce to and from 

the New Orleans region, I closely monitor Central American trade issues. Passage 

of DR–CAFTA will ensure that this trade through Louisiana is more than just a 

one-way street. 

Mr. Chairman, I strongly support your efforts to provide Congressional approval 

of the Dominican Republic-Central American Free Trade Agreement in order to level 

the playing field and enhance export opportunities for U.S. manufactured products. 

We are especially pleased that Congressmen Jim McCrery and William Jefferson of 

Louisiana, who have both worked closely and cooperatively with you over the years 

on free trade, fully support you in your efforts to implement DR–CAFTA. 

Thank you, Mr. Chairman, for standing up for free and open trade to the benefit 

of Louisiana and this Nation. I look forward to responding to any questions that you 

or other Committee members may have. 

f 

Chairman THOMAS. I thank the gentleman. The gentleman 

from Florida, the Subcommittee on Trade chairman wish to inquire? 

Mr. SHAW. Yes, sir, Mr. Chairman, I would. In your testimony 

you talk or you spoke that DR–CAFTA would erode labor standards in Central America and the Dominican Republic, and you also 

said it would affect workers rights. Would you cite me some specifics on that? 

Mr. TRUMKA. Absolutely. In the DR–CAFTA, Article 16, Section 

6, specifically excludes enforceable obligations to recognize and protect the ILO core standards and internationally recognized worker 

rights in domestic and labor laws. The current system of Generalized System of Preferences (GSP) and CBI require that. In addition, DR–CAFTA, Article 16, section 6, Subsection 7 excludes the 

enforceable obligation not to waive or to derogate from labor laws 

in a manner that weakens adherence to internationally recognized 

labor laws that is currently required by GSP and CBI. 

Also, there is no—anti-discrimination laws are not included in 

the group of domestic laws that a country is obligated to enforce. 

So, commitments to the ILO core labor standards, including nondiscrimination, are excluded from dispute, settlement, and enforcement procedures. You would have to read the fine labor laws in Article 16.8 to conclude that. 

In addition, Mr. Chairman, there is no agreement in—— 

Mr. SHAW. Mr. Chairman. Would the witness give me some specific examples? I don’t care if you sit there and read the agreement 

to me and take up my 5 minutes. 

Mr. TRUMKA. Thank you, sir. 

Mr. SHAW. Would you be specific? 

Mr. TRUMKA. There are probably 400 or 500 examples that 

have been submitted for the record. 

Mr. SHAW. You are representing to this Committee that we actually, in some way, through this legislation, require an adherence 

to the labor standards of the country; that we are eroding the 

standards, that we are changing the law in those particular countries? 

109 

Mr. TRUMKA. Yes, I am. This DR–CAFTA will weaken the labor 

standards conditionalities contained in CBI and GSP. 

Mr. SHAW. You are saying that by entering into this agreement 

the Central American countries are agreeing to lower standards 

and they are changing their own law as to labor standards that are 

required to be—— 

Mr. TRUMKA. I am not saying they are required to lower them, 

I am saying they are not required to—— 

Mr. SHAW. Let me—— 

Mr. TRUMPKA: Or to keep them the same. They can reduce or 

eliminate any standard the minute after this is signed, and this 

agreement sanctions that. 

Mr. SHAW. They can do that without DR–CAFTA. 

Mr. TRUMKA. They can’t do it under CBI or GSP. 

Mr. SHAW. Just like we can. 

Mr. TRUMKA. They can’t do it under GSP or CBI because both 

of them require countries to adhere to ILO standards and gives us 

the right to make sure those are done. 

Mr. SHAW. Mr. Trumka, on the second page of your testimony 

you said that DR–CAFTA does not dramatically increase access to 

U.S. markets or the Dominican Republic and Central America. 

How can you say that when we are dropping the tariffs? 

Mr. TRUMKA. I am sorry? 

Mr. SHAW. How can you say that when we are dropping the tariffs? 

Mr. TRUMKA. Well, first of all, I think that most employers 

aren’t interested in Central America’s consumers. They are more 

interested in the wages, the low wages, that could be brought about 

by this. In addition to that, remember, the reduction of tariffs in 

Central America was a voluntary thing. Every section, every time 

that we have made progress in Central America, it was because we 

had the ability to threaten to take away that marketplace. The 

DR–CAFTA will make them a permanent fixture. We won’t have 

that threat. They won’t have labor laws that they can adhere to. 

They can reduce them at any time, and we will actually go backward when it comes to workers rights. 

Mr. SHAW. They can do that anyway. I just don’t understand 

where you are going with your testimony. We have heard witness 

after witness testify that this is going to create jobs in United 

States. We have also heard testimony coming from the other side 

that it was going to increase imports. Now you are telling me that 

it is not going to—that it is going to affect labor rights and the 

workers, and how it is going to increase poverty in that part of the 

world. You have got to go one way or the other with your testimony. 

Mr. TRUMKA. Let me say this to you, sir. It will weaken labor 

rights. We were told the same exact thing when we signed NAFTA; 

that it would create jobs. In fact, it hasn’t. It hasn’t increased the 

standard of living for the Mexican worker. We have lost a lot of 

jobs. I have to say this to you, Mr. Chairman, even Woody Hayes, 

after seeing that running up the middle every time didn’t work, 

changed his offense. What we are doing in trade doesn’t work. We 

need to change. Yes, we need to have a trade agreement with CenVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00113 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
110 

tral America, but this is the wrong set of rules. It will hurt workers 

on both sides of the border. 

Mr. SHAW. What was your position on previous trade agreements, previous FTAs that we have entered into? 

Mr. TRUMKA. We have opposed most of them. Some had fair 

workers rights in them, and we wouldn’t oppose those. We opposed 

NAFTA because it was the same—— 

Mr. SHAW. You heard the Trade Representative testify before 

this Committee that these are the strongest labor requirements 

that we have had in any agreement. I think this is a good agreement for the United States, and it is a good agreement for Central 

America. I yield back. 

Mr. TRUMKA. I take serious issue with that because the Jordanian agreement is much stronger. When it comes to workers 

rights, the GSP and the CBI are both stronger than this agreement. 

Chairman THOMAS. The gentleman’s time has expired. Does the 

gentleman from Michigan wish to inquire? 

Mr. LEVIN. We have heard today, kind of an acceptance that 

labor standards are an important part of the trade equation, but 

there has been, I think, an effort to back off. Mr. Shaw, you asked 

Mr. Trumka a very relevant question, but the truth of the fact is 

that the GSP and the CBI standard incorporates the five ILO core 

labor standards, not enforce your own law. That is a fact. The fact 

is, in terms of enforcement, under CBI and GSP the United States 

can take unilateral action if that isn’t occurring. I favor an agreement where there is no longer unilateral action possible, where it 

becomes a part of a dispute settlement system, but there should be 

no denial that the standard, enforce your own laws and they can 

go backward, is a weaker standard than CBI or GSP and the enforcement mechanism is more restricted. That is a fact. The Jordan 

agreement—Mr. Allgeier is just wrong, in terms of the provisions 

there. 

Another argument that was used today earlier, and to you, Jim, 

and the Ambassador kind of accepted this at first, that we can’t 

force other countries to change their domestic laws. That is—trade 

agreements force countries to change their laws. Mr. Presser, your 

testimony is eloquent on that. I just read from it again. The DR– 

CAFTA countries have agreed to increase criminal and civil remedies against the unlawful decoding of encrypted satellite TV signals and criminalize end user privacy. I support those provisions. 

They require the countries to change their laws. What is true of intellectual property rights is true of tariff by definition. They are 

changing their laws. The question is why a double standard when 

it comes to core labor standards and environmental standards. It 

is the only areas where enforce your laws is used as the standard. 

So, look, we talked about this, income inequality in Latin America is the worst in the world in terms of the continent. It is. Four 

of the 10 most difficult examples are four of the Central American 

nations. The question is, it is not labor standards in terms of whose 

four is whom. Mr. Trumka knows he and I haven’t agreed on every 

trade agreement, but we have had a basic belief that in order for 

trade to help move people up you cannot have agreements that let 

countries move down. So, while there may have been a disagreeVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00114 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
111 

ment about Morocco or Singapore, there has been a basic strong 

feeling among all of us that you have to have, as trade expands, 

a basic standard relating to core labor standards and the environment. That is what is missing here and prevents our having the 

kind of bipartisan effort that there should be. 

I just close with this, an article in the Chicago Tribune of April 

17th from El Salvador, ‘‘Looking to resurrect their wages in this 

sad port town’s happier days, Mr. Velazquez and 40 other dock 

workers tried to set up a labor union last December. Within days 

guards began blocking them from passing through the port gate. 

Soon a list of 41 names were circulated among employers at the 

port and a legal black list.’’ That is not conforming with international core labor standards, and those workers will never become 

part of a middle class as long as they are suppressed. Our workers 

will not compete with people who are suppressed, and there will be 

no middle class on a sizeable dimension in those countries to buy 

the goods that we produce. That is the larger issue here. 

Chairman THOMAS. The gentleman’s time is consumed. The 

Chair understands hyperbole. In fact, if the gentleman from Michigan believes that the Central American countries have the greatest 

discrepancy between wealth at the top level and poverty at the bottom level, I invite the gentleman to visit the subcontinent of India 

which has a caste system which guarantees that there is separation rather than pure economic difference. There are a number of 

African nations, but I understand the point the gentleman is trying 

to make. 

Mr. LEVIN. The largest income inequality of any continent is in 

Latin America. There are 100 million—— 

Chairman THOMAS. If the gentleman is describing Latin America as the concept of South America, Latin America is in North 

America. 

Mr. LEVIN. No, no, that is Central America and North America. 

I said Latin America. 

Chairman THOMAS. Okay. 

Mr. LEVIN. That is, all of South America and Central America 

and part of the Caribbean. The income inequalities in Latin America are the worst in any place. The facts show that. That is why 

this is part of the larger issue. 

Chairman THOMAS. The gentleman is on my time. 

Mr. LEVIN. Okay. 

Chairman THOMAS. For a country to agree to voluntarily accept 

changes in their law, to conclude a trade agreement with another 

country, is not the same thing as having language in the bill that 

changes their laws when they don’t voluntarily want to have it. So, 

the gentleman continues to say that the only trade agreements that 

he apparently is willing to accept are those that force other countries to accept standards that they are willing to voluntarily accept. 

Mr. LEVIN. May I—— 

Chairman THOMAS. No, not right now. Voluntary agreement to 

accept change and a forced structure to require change are two fundamentally different things. 

Mr. LEVIN. Would the gentleman yield? 

Chairman THOMAS. No. The bells have rung. The Chair has 

been patient with people a lot of other times. The Chair didn’t take 

112 

time at the beginning, but based upon what has been said the 

Chair wants to make a couple of points. Mr. Trumka, I don’t mean 

to say this with any disrespect to the labor union movement, but 

would it be unfair of me to ask you to answer the question, do you 

believe that the percentage decline of the AFL–CIO among the 

American work force is based upon corrupt leadership in the 

unions? 

You don’t have to answer that. There are a significant number 

of reasons why that occurs. On any point, there are significant 

number of reasons as to why a factor occurs. To point to a reduction, for example, in a cause or effect in a treaty such as NAFTA 

is to completely ignore reality and not examine the fact that, if 

NAFTA were not in place it wouldn’t drop 5 percent, it would have 

dropped 15 or 20 percent. To choose a negative number as evidence 

that was based upon the circumstances that are there is about as 

fair as the question, I clearly indicated to you, I simply wanted to 

make a point with. I noticed your reaction to the question that I 

asked you. When you constantly use data and statistics to prove a 

point, when in fact it is far more sophisticated than that, it simply 

isn’t very persuasive in making your points. I notice that you 

upheld the CBI as a model for what we perhaps should do in terms 

of labor, or did you support that? 

Mr. TRUMKA. We didn’t hold it up as a model. I said it is 

stronger than DR–CAFTA. 

Chairman THOMAS. Okay. 

Mr. TRUMKA. The DR–CAFTA actually takes away rights that 

are granted to us and corporations and workers there. 

Chairman THOMAS. Has there been any trade agreement, any 

FTA with any country since the TPA agreement has been in place 

that the AFL–CIO has supported? 

Mr. TRUMKA. I am not certain. I think perhaps the Jordanian 

agreement. 

Chairman THOMAS. You don’t know if your organization supported it? 

Mr. TRUMKA. No, I don’t recall. I really don’t. Those provisions 

in that agreement were the strongest to date when it comes to 

labor rights; far stronger than we have right now in DR–CAFTA. 

Chairman THOMAS. Were they in the agreement, or were they 

in a set of letters that were exchanged in association with the 

agreement? 

Mr. TRUMKA. They are in the agreement and they require a 

commitment to meet ILO standards. This agreement does not require that. This agreement only requires countries to enforce their 

own laws. It doesn’t even require them to maintain those laws. 

Chairman THOMAS. I understand it. The question is, if that provision was in this agreement, would the AFL–CIO be supporting 

DR–CAFTA? 

Mr. TRUMKA. We would have to see the agreement. 

Chairman THOMAS. No, no. It is exactly the same as it is with 

that change that the gentleman outlined. 

Mr. TRUMKA. Well, we would have to see the agreement. 

Chairman THOMAS. All you have to do is take the agreement 

as it is and add your provision. 

Mr. TRUMKA. We would find it far more agreeable. 

113 

Chairman THOMAS. I think the question was, would you support it? 

Mr. TRUMKA. I don’t know, you are asking me in theory what 

I support. I don’t know that. I would have to see the rest of the 

agreement. 

Chairman THOMAS. The gentleman has made my point. There 

is absolutely no agreement we can enter into unless there is an absolute—— 

Mr. TRUMKA. That is just an incredible statement. 

Chairman THOMAS. May I please finish my position? What you 

have been asking consistently over the 27 years that I have been 

in Congress is that agreements must be in the bill which require 

other countries to accept outsiders dictating to them what their 

laws are, and how they may carry them out. If a country voluntarily agrees with it, I am in full support of that. 

Mr. TRUMKA. Mr. Chairman, may I respond? 

Chairman THOMAS. To set up a structure which absolutely requires them to be forced to accept standards means there will be 

no agreements with any country. I understand the gentleman’s 

need, and in fact desperation, to attempt to maintain a position on 

union labor, but we are interested in all workers in all countries— 

making sure that all people are benefited. 

Mr. TRUMKA. Mr. Chairman, this specific agreement—— 

Chairman THOMAS. The chairman’s time has expired, and we 

are currently under a vote. There are going to be five votes. There 

is a 15-minute vote currently under way and there will be four 5- 

minute votes. The Chair, in an attempt to try to determine whether 

or not this panel should stay, is there any Member who is going 

to wish to inquire on this panel or should we dismiss this panel 

and be prepared to take up the next panel when the recess has 

ended? 

Mr. BECERRA. Mr. Chairman, I would urge you to allow the 

panel to stay or at least give Mr. Trumka the opportunity to respond to your comments. 

Chairman THOMAS. Does the gentleman from California wish to 

be recognized on this panel? 

Mr. BECERRA. I certainly would like to. 

Chairman THOMAS. The gentleman is recognized. 

Mr. BECERRA. First let me offer the gentleman, Mr. Trumka, 

an opportunity to respond to the chairman’s comments if you like. 

Mr. TRUMKA. I very much would, because the chairman makes 

a point about not wanting to enforce agreements on people that 

don’t agree to them voluntarily. First of all, this agreement does 

precisely that. The DR–CAFTA allows corporations to challenge 

laws that were duly passed in the United States and have them 

thrown out, or it allows corporations in the United States to challenge duly passed laws in any of those Central American countries 

and have them thrown out. In addition to that, I find the Chairman’s point hard to believe. I have negotiated hundreds of agreements, literally hundreds. An agreement depends on a couple of 

things. One is the skill of the negotiator. I assume we have skilled 

negotiators negotiating for us. Two, it is the focus of the determination. Three, it is the leverage that one has. I refuse to believe that 

the leverage of the United States is ineffective in asking any CenVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00117 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
114 

tral American country to change its labor laws to meet ILO standards and give us enforceable law to do that. 

Mr. BECERRA. Let me ask a couple of questions of the panel, 

and I thank the chairman for extending the opportunity to ask the 

questions. First, thank you for your testimony. To Mr. Presser, I 

do agree with you that we need to have these strong enforcement 

mechanisms in place for intellectual property, because we have 

seen around the world how the rights of those who own those intellectual property interests have been violated. So, I agree with you. 

I hope we are able to implement them and we see opportunities 

around the world begin to enforce, especially those that enter into 

these agreements. In the case of the DR–CAFTA countries, let me 

ask this, sir, or any of the panel, would you be supporting DR– 

CAFTA if it didn’t have those stronger protections for intellectual 

property? If we had a provision for DR–CAFTA that said, DR– 

CAFTA countries, enforce your own laws when it comes to intellectual property, would you be supporting the DR–CAFTA agreement? 

Mr. PRESSER. It depends on a number of things. 

Mr. BECERRA. You see, the same standard that the chairman 

used on Mr. Trumka: give me a yes or no. I told you the only 

change I would make; I changed the provisions with regard to intellectual property and said enforce your own domestic laws. 

Mr. PRESSER. Well, I certainly studied the provisions that deal 

with intellectual property much more substantially than I have 

studied anything else. 

Mr. BECERRA. I made it very simple, Mr. Presser. I made it 

very simple. The only disagreement would be with regard to intellectual property, not the provision that says you must have criminal penalty and criminal laws, not the provision that said you can 

have the whole spectrum of economic sanctions imposed on you. 

The only provision would be one that says count the countries in 

DR, enforce your own laws. 

Mr. PRESSER. Well, two things—— 

Mr. BECERRA. Let me just ask you to do what the chairman 

asked Mr. Trumka to do. Answer just that question. 

Chairman THOMAS. If the gentleman would yield briefly, I 

never got an answer. 

Mr. BECERRA. Mr. Chairman, I am not sure if I am going to 

get one. 

Chairman THOMAS. Well, then it will be the same, won’t it? 

Mr. BECERRA. Possibly. Mr. Presser, I apologize for putting you 

on the spot, but I think this points out the difficulties we have with 

the agreement. 

Mr. PRESSER. Certainly, I would like to know in more detail 

what the laws and the DR—— 

Mr. BECERRA. Mr. Presser, you know I could say the same 

thing to you that the chairman jut said to Mr. Trumka. I think I 

got my answer. 

Mr. PRESSER. No, I am sorry Congressman, but I think that it 

is quite—it is a little more complicated. 

Mr. BECERRA. No, no, let us not make it complicated. Let us 

make it simple, forgive me for using what my City of Los Angeles 

thinks is so important. I am using this example of why many of 

us are dumfounded that our own government couldn’t find a way 

115 

to have anything stronger than, enforce your own laws, in the provisions of this agreement, when we came out, as I said before, guns 

blazing, when it came to intellectual property. Somehow we are 

able to protect an intellectual property right better than we can 

protect our men and women who work in this country by saying, 

with regard to intellectual property, countries—count the countries—you can’t sign this agreement; you can’t be part of this, or 

you can certainly play through sanctions if you don’t have criminal 

laws and criminal procedures in place. 

Second, even if you do, we could still go after you and go after 

your bananas, your fruit, your vegetables if we find that you violated intellectual property rights, but when it comes to labor, the 

provisions for women, including the United States, all we say to 

the DR–CAFTA countries is, enforce your own laws. By the way, 

enforce your laws, as Mr. Trumka pointed out, could be that tomorrow you decide to reduce the protections in your labor laws. All we 

can do is say, hey, now enforce those laws. The question is quite 

simple. The reason you and Mr. Trumka wouldn’t answer is because the devil is in the detail. Just as we would not expect any 

consumer to buy a home on a handshake with a realtor or owner 

of a property, we would not expect America to sell its assets and 

its interests on a handshake as well. I yield back. 

Chairman THOMAS. The gentleman’s time has expired. The gentleman from Louisiana. 

Mr. MCCRERY. Thank you, Mr. Chairman. First of all, the 

World Bank did a study which confirms the chairman’s assertion 

that, were it not for NAFTA the per capita GDP in Mexico, which 

is probably the best standard of measurement for living, would 

have been lower. So, I think that is more a point of whether it has 

gone up or down in a nominal sense. Second, I think I understand 

Mr. Becerra’s point and Mr. Levin’s point, but in my mind—and 

when I made the statement earlier that countries would resist the 

United States’ insistence on changing their domestic laws, I added 

the phrase ‘‘outside the trade arena.’’ 

I see intellectual property rights as directly tied to trade; that is, 

protecting the property, protecting the products of people who want 

to shift those products into that country and sell them that property. If they don’t have any protection in that regard, then we are 

going to be reluctant to take advantage of the trade. So, I see that 

tied directly to trade, whereas labor laws, I don’t see directly tied 

to trade. I think that is the distinction, at least that I would make, 

although I understand the points you are trying to make. With 

that, I would yield to the chairman. 

Chairman THOMAS. So that we can have a definitive understanding of the comparison between trade agreements, President 

Clinton, when he sent the Jordan agreement to Congress said ‘‘It 

is important to note that the FTA does not require either country 

to adopt any new laws in these areas, but, rather, includes commitments that each country enforce its own labor and environmental 

laws.’’ That was the Jordanian FTA and DR–CAFTA incorporates 

President Clinton’s statement. Jordan wasn’t better than DR– 

CAFTA, and when you look at the binding dispute settlement 

mechanism, when you look at the monetary assessments in DR– 

CAFTA, and when you look at the robust capacity building mechaVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00119 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
116 

nism in DR–CAFTA, DR–CAFTA is better than the Jordanian 

FTA, and saying it isn’t doesn’t change the circumstances. The 

Committee will stand in recess. The chairman thanks the panel. 

We reconvene 5 minutes after the last vote in this series of votes. 

Mr. TRUMKA. Is the panel held, sir? 

Chairman THOMAS. The next panel will be ready to go when we 

reconvene. 

The Committee stands in recess. 

Mr. TRUMKA. Mr. Chairman, where should I submit this written submission? 

Chairman THOMAS. Right there. 

Mr. TRUMKA. Thank you, sir. 

[Recess.] 

Mr. SHAW. [Presiding.] The hearing will come to order. On this 

panel we have Larry Wooten, who is from Wooten Farming and 

Seed, Currie, North Carolina, President of the North Carolina 

Farm Bureau, Raleigh, North Carolina, here on behalf of the 

AFBF; Bruce Hafenfeld, Hafenfeld Ranch, Weldon, California, First 

Vice President of the California Cattlemen’s Association; Jack 

Roney, the Director of Economics and Policy Analysis of the American Sugar Alliance; Salvatore Ferrara, President of the Ferrara 

Pan Candy Co., Chicago, Illinois, here on behalf of the National 

Confectioners Association; George Shuster, CEO, Cranston Print 

Works, Cranston, Rhode Island, Co-Chairman of AMTAC (the 

American Manufacturing Trade Action Coalition); and Jack 

Ouellette, the President and CEO of the American Textile Co., 

Pittsburgh, Pennsylvania, and member of the Board, American Apparel & Footwear Association. We have all of your full testimony. 

Due to the hour, we would appreciate your proceeding with your 

testimony as quickly as possible. We thank you for your patience 

and staying all day long. With that, I will recognize Mr. Wooten. 

STATEMENT OF LARRY WOOTEN, WOOTEN FARMING AND 

SEED, CURRIE, NORTH CAROLINA, PRESIDENT, NORTH 

CAROLINA FARM BUREAU, RALEIGH, NORTH CAROLINA, ON 

BEHALF OF THE AMERICAN FARM BUREAU FEDERATION 

Mr. WOOTEN. Thank you, Mr. Chairman. Chairman Thomas 

and distinguished Members of the Committee on Ways and Means, 

my name is Larry Wooten. I am President of the North Carolina 

Farm Bureau, and by virtue of this position I am also a member 

of the Board of Directors of the AFBF. As a general farm organization, the AFBF has studied the impact of the DR–CAFTA on all 

sectors of U.S. agriculture, and from our analysis, a copy of which 

accompanies my statement, we conclude that the agreement is a 

win-win opportunity for both U.S. agriculture and for North Carolina. 

Currently, U.S. agriculture faces a $700 million trade deficit with 

this region of the world, and this is largely the result of the GSP 

trade provisions and the CBI, which together allow 99 percent of 

Central American and Dominican Republic agricultural products to 

enter U.S. markets duty free. However, our exports to the region 

are subject to applied tariffs that range from 15 to 43 percent. Mr. 

Chairman, because of these tariffs U.S. agriculture has already 

paid for this agreement. The DR–CAFTA will eliminate these trade 

117 

barriers and provide U.S. agriculture with the same duty free access that DR–CAFTA countries already enjoy in our markets. Many 

of our competitors in the region, like Chile, already receive preferential access from the DR–CAFTA countries. The AFBF analysis 

shows that U.S. agriculture would see increased exports of approximately $1.4 billion annually once the agreement is fully implemented. By evaluating our Nation’s major export commodities, it is 

obvious that the United States will capitalize on Central American 

growth in import of grains, oilseed products, expanding regional demand for livestock imports, and on gains in demand for cotton exports and other products. 

In North Carolina, DR–CAFTA is also a good deal for agriculture. In 2003, North Carolina’s total farm cash receipts equaled 

$6.9 billion. Of that total, $1.3 billion, or about 19 percent, came 

from agricultural exports. If DR–CAFTA is enacted, the AFBF estimates that North Carolina will increase trade to this region by 

nearly $70 million per year by 2024. North Carolina is a major producer of pork, poultry and cotton, as well as a significant producer 

of soybeans. Under DR–CAFTA, North Carolina could expect to increase meat exports to DR–CAFTA nations by $24 million per year 

once the agreement is fully implemented. Poultry, our third largest 

agricultural export, will experience export increases of $42 million 

per year, exports of cotton will increase approximately $1 million 

per year, while soybeans and soybean product exports would grow 

by $770,000 per year. 

While DR–CAFTA benefits U.S. agriculture overall, the U.S. 

sugar sector may see a less than positive impact. As part of the 

agreement, the United States will allow the DR–CAFTA countries 

to export an additional 164,000 tons of sugar annually above their 

current sugar quota to the United States. However, according to 

the AFBF analysis, these additional imports will only impact about 

1.5 percent of domestic sugar production. Despite these negative 

impacts, our trade negotiators were able to secure several protections for the industry. Many of those have been outlined in previous testimony here today. 

It is important to remember that trade is not just about selling. 

There must be give and there must be take. Our trade negotiators 

understand this fact and they work carefully to negotiate the best 

deal possible. If our negotiators had excluded sugar from this 

agreement, other U.S. commodities, including beef, rice, poultry, 

and pork would also have been excluded. Mr. Chairman and Members of the Committee, many farmers and agribusinesses in your 

congressional districts stand to gain from this important agreement, but congressional action regarding this matter will also 

greatly influence the global community. Rejecting this agreement 

will damage our credibility with the WTO and with other nations 

that wish to negotiate FTAs with us. The DR–CAFTA provides 

more gains for agriculture than it does losses. Clearly, a yes vote 

on DR–CAFTA is a yes vote for agriculture. On behalf of the AFBF 

and North Carolina farm families, I urge you to support the DR– 

CAFTA, and I thank you for providing me the opportunity to testify 

here today. 

[The prepared statement of Mr. Wooten follows:] 

118 

Statement of Larry Wooten, Wooten Farming and Seed, Currie, NC, President, North Carolina Farm Bureau, Raleigh, NC, on behalf of the American Farm Bureau Federation 

Good morning, I am Larry Wooten, President of North Carolina Farm Bureau and 

a diversified tobacco and grain producer in Pender County, North Carolina. By virtue of my position, I sit on the Board of Directors for the American Farm Bureau 

Federation. 

As a general agriculture organization, American Farm Bureau Federation has 

studied the impact of this agreement on all sectors of U.S. agriculture, and we 

strongly support Central America-Dominican Republic Free Trade Agreement 

(CAFTA–DR). We have provided as an attachment to this statement a copy of our 

full economic analysis that describes how this agreement will impact our livestock, 

crop and specialty crop sectors as well its effects on our sugar industry. On balance, 

we believe that CAFTA–DR will overwhelmingly be a win-win opportunity for U.S. 

agriculture. 

U.S. agriculture currently faces a $700 million trade deficit with this region of the 

world. While this market holds potential for U.S. agricultural exports, our products 

are faced with high tariffs. At the same time, agricultural products from the six 

Central American nations receive duty-free access to the United States. The General 

System of Preferences (GSP) trade preferences and the Caribbean Basin Initiative 

(CBI) allow 99 percent of agricultural products from the Central American countries 

and the Dominican Republic to enter the United States duty free. It is obvious that 

U.S. agriculture has already paid for the agreement. 

Unless this agreement is passed, U.S. agriculture will continue to face applied tariffs of between 15 and 43 percent. These tariffs put U.S. producers at a disadvantage in a competitive market. The CAFTA–DR, if enacted, will eliminate these barriers. This agreement provides balance by allowing U.S. agriculture the same dutyfree access that CAFTA–DR nations already have to our markets. In fact, many of 

our competitors in the region, such as Chile, already receive preferential access because of their own trade agreements with the Central American countries. When enacted, this agreement would give U.S. producers access equal to or greater than that 

of our competitors. American Farm Bureau Federation analysis shows that U.S. agriculture would see increased agricultural exports in the amount of $1.5 billion by 

the end of full implementation. 

Table 2 

Impact of CAFTA–DR on Member Countries’ Imports of 

U.S. Agricultural Products 

In $1,000 

1999–2001 2024 Imports from U.S. 

Selected Commodity Imports from 

United States 

Without 

CFTA–DR 

With 

CAFTA–DR 

CAFTA–DR 

Difference 

Beef 10,050.4 27,258.2 74,332.7 47,074.5 

Butter 709.6 1,793.7 3,091.5 1,297.8 

Cheese 5,514.1 8,024.4 25,022.7 16,998.4 

Corn 230,721.4 447,558.4 505,932.5 58,374.1 

Cotton 50,558.4 87,729.8 115,331.9 27,602.1 

Pork 11,008.1 95,438.1 203,388.9 107,950.8 

Poultry 17,634.5 114,743.9 292,786.7 178,042.9 

Rice 96,999.0 220,910.4 312,421.1 91,510.7 

Soybean Meal 140,421.3 292,351.5 348,923.6 56,572.0 

Soybean Oil 28,895.3 59,132.4 87,521.9 28,389.6 

Wheat 121,821.0 218,977.3 281,164.2 62,186.9 

119 

Table 2—Continued 

Impact of CAFTA–DR on Member Countries’ Imports of 

U.S. Agricultural Products 

In $1,000 

1999–2001 2024 Imports from U.S. 

Selected Commodity Imports from 

United States 

Without 

CFTA–DR 

With 

CAFTA–DR 

CAFTA–DR 

Difference 

Subtotal 714,333.2 1,573,918.0 2,249,917.8 675,999.8 

Other Selected Commodities 

Fruit 88,768.7 196,738.8 278,281.1 81,542.3 

Sugar & Tropical Product 111,754.7 247,682.9 350,340.0 102,657.1 

Tallow 62,489.3 138,495.7 195,898.0 57,402.3 

Vegetables 69,560.7 154,168.0 218,065.9 63,898.0 

All Other Commodities 587,601.5 1,302,306.9 1,842,073.7 539,766.8 

Total 1,634,508.1 3,613,310.3 5,134,576.5 1,521,266.2 

Note: Assumes constant 1999–2001 prices; hence, value estimates reflect changes in quantities only. 

Looking at the major commodities of export interest to the United States, the 

agreement would put the United States in a strong position to capitalize on: 

• Central American growth in imports of grains and oilseed products, which 

relates to both growing food demand for wheat, rice and vegetable oils and to 

growing livestock demand for feed grains and protein meals. With no wheat and 

limited rice and oilseed production capacity, the region’s dependence on imports 

is likely to grow steadily. The free trade agreement puts the United States in 

a strong ‘‘preferred supplier’’ position to maintain/expand its high market share 

for items such as rice and soybean meal and to build on its lower market share 

for items such as wheat; 

• Expanding regional import demand for livestock products related to growth 

in population and per capita incomes, combined with limited domestic production potential. Rapid growth in tourism should also help to stimulate demand 

for meats in the hotel and restaurant trade, which could be significant on its 

own. Growth in domestic demand for livestock products is likely to outpace production despite significantly larger imports of feed grains and protein meals. 

The CAFTA–DR would allow the United States to use its cost advantages and 

its wide variety of beef, pork and poultry products to fill a growing share of 

these markets; 

• Gains in cotton import demand related to both increased domestic demand for 

textiles and apparel and import demand for textiles from the United States. The 

six countries’ textile and apparel exports to the United States are duty-free and 

quota-free as of the start of 2004, so long as the products meet CAFTA–DR 

rules of origin. Under the agreement, these six countries will be required to 

make significant investment in manufacturing capacity over the first several 

years of the agreement to take full advantage of this demand, which may support the domestic cotton milling industry until such investments could be made. 

Should this added capacity come into being, and with domestic cotton production at virtually zero, all growth in the countries’ demand for cotton would have 

to be met through imports. The CAFTA–DR would put the United States in a 

position to under price competitors and boost market share; and 

• Gains in other products. The United States exports a diverse basket of farm 

products to the six Central American countries. The commodities noted above 

in the table account for approximately half of the United States total exports. 

Other commodities or commodity groupings of importance include fruits, vegetables, tallow, sugar, tropical products and other processed products. Data on production and trade in these products for the six countries is generally too limited 

to support detailed analysis. Assuming that the same pattern of growth likely 

for grains, fiber, oilseeds and livestock products holds for these other commodities, CAFTA–DR would allow the United States to capture a larger share of 

120 

these expanding markets as well. The added exports in these categories resulting from the agreement would likely exceed another $845 million by 2024. This 

is a conservative estimate of CAFTA–DR’s impact because the six Central 

American countries generally have higher, escalating tariffs on the semi-processed and processed products that make up much of this other products category. 

Additionally, CAFTA–DR is, on balance, a good deal for agriculture in my home state of North Carolina. In 2003, North Carolina’s farm cash receipts were $6.9 billion, and agricultural exports were estimated to be $1.3 billion, putting its reliance 

on agricultural exports at 19 percent. If CAFTA–DR is enacted, the AFBF estimates 

that North Carolina will increase trade to this region by nearly $70 million per year 

by 2024. 

North Carolina is a major producer of pork, poultry and cotton as well a significant producer of soybeans. As the top source of farm cash receipts in the state, pork 

sales rank second nationally. Under the agreement, North Carolina could expect to 

increase meat exports to the CAFTA–DR countries by $24 million per year by full 

implementation. Poultry, being our third largest agricultural export, would see increases in exports of $42 million per year. Exports of cotton would see increased 

sales of about $1 million per year for the state, while soybeans and soybean product 

exports from North Carolina are expected to increase by $770,000 per year by full 

implementation of the agreement. 

Extimated Trade Impact of CAFTA–DR on North Carolina for 

Selected Commodities 

(Values in Million Dollars) 

Commodity 

1999–2001 NC Exports 2024 Imports from NC CAFTA–DR 

Total CAFTA–DR Without 

CAFTA–DR 

With 

CAFTA–DR Difference 

Dairy 2.85 0.06 0.09 0.26 0.17 

Cotton 113.13 2.26 3.85 5.00 1.15 

Feed Grains 37.72 0.75 1.43 1.58 0.14 

Fruits 12.38 0.25 0.54 0.76 0.22 

Meats 158.93 3.18 18.44 42.40 23.97 

Poultry 202.73 4.05 26.36 68.52 42.17 

Soybean & Products 91.64 1.83 3.85 4.62 0.77 

Sugar N/A N/A N/A N/A 0.00 

Rice 0.00 0.00 0.00 0.00 0.00 

Vegetables 17.62 0.35 0.78 1.09 0.31 

Wheat 85.99 1.72 3.10 4.02 0.93 

Total 722.99 14.46 58.43 128.26 69.83 

While there are numerous overall benefits for U.S. agriculture in the agreement, 

the U.S. sugar sector may see a less than positive impact. As a part of the agreement, the United States will allow the CAFTA–DR countries to import an additional 

164,000 short tons of sugar above their current sugar quota. This additional sugar 

will have a minimal impact on the industry as demonstrated in our economic analysis. 

We expect the U.S. sugar industry to experience about an $80.5 million impact 

to an approximate $2.1 billion domestic industry. This additional sugar translates 

into about 1.5 percent of domestic sugar production. In light of the possible, yet 

minimal, negative effects on the sugar industry, our trade negotiators negotiated 

certain protects for the U.S. sugar industry. 

First, the tariff on U.S. sugar is never decreased or eliminated. Any sugar that 

the CAFTA–DR countries would import to the United States above their new sugar 

121 

quotas would still be subject to a high tariff. This tariff would be set at an amount 

that would discourage these countries from shipping any additional sugar over their 

quota to the United States. Second, the countries involved agreed to a compensation 

provision that would allow the United States to shut off any additional imports of 

sugar from this region if those imports are significantly harming our U.S. sugar industry. If activated by the United States, the U.S. government would provide compensation for the lost sugar sales experienced by the CAFTA–DR countries. It is important to note that if sugar had been excluded from the agreement, it could have 

led to other U.S. commodities facing the same type of exclusions from the CAFTA– 

DR country negotiating side. The CAFTA–DR countries had a list of roughly a dozen 

commodities they wished to exclude from the agreement. These products included 

U.S. beef, pork, poultry and rice. 

U.S. agriculture will benefit a great deal from this agreement. Indeed, the gains 

to U.S. agriculture certainly outweigh the losses. In looking at the variety of U.S. 

commodities that would experience positive outcomes because of a Central AmericaDominican Republic Free Trade Agreement, one can only conclude that a ‘‘Yes’’ vote 

on CAFTA–DR is a vote for agriculture and agricultural exports. 

f 

Mr. SHAW. Thank you for sticking with us. Mr. Hafenfeld. 

STATEMENT OF BRUCE HAFENFELD, HAFENFELD RANCH, 

WELDON, CALIFORNIA, FIRST VICE PRESIDENT, CALIFORNIA CATTLEMEN’S ASSOCIATION 

Mr. HAFENFELD. Chairman Thomas, Ranking Member Rangel 

and Members, thank you for the opportunity to testify regarding 

the DR–CAFTA. My name is Bruce Hafenfeld. I am a family rancher from Weldon, California, and I am First Vice President of the 

California Cattlemen’s Association and Director of the NCBA (National Cattlemen’s Beef Association). We represent the beef cattle 

industry, which is the largest single segment of American agriculture today. We strongly believe the future of our industry depends on our ability to compete in a global marketplace. However, 

our trade position was seriously compromised by the December 23, 

2003 discovery of BSE (Bovine Spongiform Encephalopathy) in a 

single imported dairy cow and the closure of 90 percent of our export markets. These prohibitions on the sale of U.S. beef, coupled 

with rising levels of beef imports, transformed what was a $1.2 billion trade surplus in 2003 to a $2.8 billion trade deficit in beef and 

beef products in 2004. 

The U.S. cattle producers believe that the current situation, 

where unfounded trade barriers prevent us from competing on a 

level playingfield in the global marketplace, is absolutely unacceptable. Yet, as our industry works to normalize trade relations and 

reclaim our trade position in beef, we recognize that we must also 

continue efforts to craft and support new bilateral trade agreements which will immediately provide increased market access for 

U.S. beef cattle producers. We firmly believe DR–CAFTA will correct a longstanding inequity in beef trade policy between the 

United States and these six nations, offer additional export opportunities for U.S. beef and ultimately increase the value of the cattle 

raised on my ranch. 

Previous trade agreements approved by Congress provided generous access to the U.S. beef marketplace to DR–CAFTA nations. 

Presently, beef from these countries enters the U.S. duty free. At 

the same time, U.S. beef exporters face applied tariffs ranging from 

15 to 40 percent. In fact, WTO bound tariffs can be applied as high 

122 

as 79 percent. Due to these prohibitive tariffs, U.S. beef export opportunities to these countries are limited. This situation is fundamentally unfair to U.S. cattle producers. The DR–CAFTA moves 

us toward correcting this imbalance. We immediately gain dutyfree, quota-free access for high quality U.S. beef destined for the 

tourism industry, with all remaining tariffs being eliminated within 15 years. NCBA’s analysis of this agreement suggests that the 

United States could triple our beef exports to the region by 2015. 

This opportunity translates into a potential of $1.06 per head benefit to U.S. cattlemen. 

The DR–CAFTA includes minimal country-specific increased access for some of the DR–CAFTA countries. However, this increase 

can only be assessed if the WTO tariff-rate quota is filled, plus an 

agricultural safeguard mechanism protects the U.S. beef industry 

against excessive import surges. Because we do not cede to an 

international body the authority over human and herd health 

issues, we can support this agreement while maintaining our sovereignty. Any trade agreement should include these additional 

measures. 

Therefore, a vote in support of DR–CAFTA is an excellent opportunity for Congress to help level the uneven playingfield that currently exists in U.S. agriculture. It is a vote to provide my fellow 

U.S. cattle producers and I what has already been provided for, by 

Congress to agriculturists, in the DR–CAFTA countries: the ability 

to market agricultural commodities in export markets free of prohibitive trade barriers. Passage of DR–CAFTA will also send a 

positive signal to other trading partners around the world that the 

United States is serious about negotiating meaningful trade agreements which grant more export access for U.S. agriculture commodities than we can give in return. Again, on behalf of the California Cattlemen’s Association, the National Cattlemen’s Beef Association and 56 major agricultural organizations that make up the 

Agriculture Coalition for DR–CAFTA, I wish to thank you for your 

consideration of this agreement and express our appreciation for 

this Committee’s commitment to open markets for U.S. beef cattle 

producers, and American agriculture. We urge swift passage. 

Thank you. 

[The prepared statement of Mr. Hafenfeld follows:] 

Statement of Bruce Hafenfeld, Hafenfeld Ranch, Weldon, CA, First Vice 

President, California Cattleman’s Association 

Chairman Thomas, Ranking Member Rangel, and members of the Committee, 

thank you for the opportunity to testify regarding the Central America—Dominican 

Republic free trade agreement, or CAFTA–DR. My name is Bruce Hafenfeld, and 

I am a rancher from Weldon, California, and the First Vice-President of the California Cattlemen’s Association, a nonprofit, nonpartisan trade association representing our state’s beef cattle producers in legislative and regulatory affairs. I also 

serve on the Board of Directors for the National Cattlemen’s Beef Association, the 

trade association for U.S. beef cattle producers. 

The California Cattlemen’s Association (CCA) and the National Cattlemen’s Beef 

Association (NCBA) strongly believe the future of our industry depends on our ability to compete in the global marketplace. Historically, the U.S. has been the world’s 

top provider of high-quality, grain-fed beef, and our country tends to import lowerquality cuts of beef for use in the restaurant and foodservice industry sectors. Because of the different categories of beef which are imported and exported, and 

thanks to decades of cooperative efforts by the U.S. beef cattle industry and our government, the U.S. has been able to maintain trade surpluses in beef and beef products for many years. By way of example, in 2003 the U.S. imported $2.62 billion 

123 

in beef and beef products and exported $3.86 billion in beef and beef products. This 

trade surplus position contributes in a significant way to the prices received by beef 

cattle producers for their cattle and calves. Our industry economists estimate that 

in a normal year, international trade adds $175 to the value of a finished steer. 

However, our trade surplus position in beef and beef products was seriously compromised by the December 23, 2003 identification of bovine spongiform 

encephalopathy (BSE) in a single imported dairy cow, and the subsequent closure 

of 90 percent of our export markets. These prohibitions on the sale of U.S. beef, coupled with rising levels of beef imports, transformed what was a $1.2 billion trade 

surplus in 2003 to a $2.8 billion trade deficit in beef and beef products in 2004. 

U.S. cattle producers believe that the current situation, where unfounded trade 

barriers prevent us from competing on a level playing field in the global marketplace, is absolutely unacceptable. We are fully committed to removing these barriers 

to trade and regaining our position as the world’s top supplier of high-quality, grainfed beef. Yet as our industry works to normalize trade relations and reclaim our 

trade surplus position in beef and beef products, we recognize that we must also 

continue efforts to craft and support new bilateral trade agreements which will immediately provide increased market access for U.S. beef cattle producers. 

CAFTA–DR is one such agreement. We firmly believe CAFTA–DR will correct a 

longstanding inequity in beef trade policy between the U.S. and these six nations, 

offer additional export opportunities for U.S. beef and beef products, and ultimately 

increase the value of the cattle raised on my ranch. Moreover, CAFTA–DR is unique 

in that America’s beef cattle producers are granting few, if any, concessions in exchange for these increased export opportunities. In fact, we have already been paying for this agreement for several years, without getting the export market access 

we need in return. 

Previous trade agreements approved by Congress provided generous access to the 

U.S. beef marketplace to CAFTA–DR nations. Between the Generalized System of 

Preferences, which has been in place since 1976, and the Caribbean Basin Economic 

Recovery Act, or Caribbean Basin Initiative, Costa Rica, El Salvador, Guatemala, 

Honduras, Nicaragua, and the Dominican Republic all currently enjoy duty-free access to the U.S. marketplace. While these imports are subject to a shared tariff rate 

quota (TRQ) of 64,805 metric tons, this TRQ has never come close to being filled. 

At the same time, U.S. beef exporters face applied tariffs ranging from 15 to 40 

percent when seeking to sell U.S. beef within the countries included in CAFTA–DR. 

In fact, WTO bound tariffs can be applied as high as 79 percent. Due to these prohibitive tariffs, U.S. beef export opportunities to these countries are limited, and not 

surprisingly we have a trade deficit in beef and beef products with these six nations. 

In 2003, the U.S. exported 4.71 thousand metric tons of beef and beef variety meat 

to these countries, valued at $12.36 million, while importing 27.19 thousand metric 

tons, valued at $62 million, according to USDA. It should be noted that all of the 

CAFTA–DR countries have fully reopened to U.S. beef and beef products since the 

closure of our export markets in December 2003. 

This dynamic, in which beef exporters in CAFTA–DR nations have virtually unlimited access to the U.S. beef marketplace, while trade barriers prevent the entry 

of U.S. beef, is fundamentally unfair to U.S. cattle producers. Without any subsidies, 

we produce the highest-quality, safest beef in the world. Yet if we are to remain 

competitive in the increasingly global beef marketplace, we must have agricultural 

trade policies which promote U.S. cattlemen’s export interests. 

CAFTA–DR remedies the current imbalance in trade policy between the U.S. and 

these six nations by immediately providing duty-free, quota-free access for highquality U.S. beef, with all remaining tariffs being eliminated over a period of fifteen 

years. The rapid growth of the tourism industry in CAFTA–DR countries will unquestionably spur increased demand for U.S. beef. Although the quantities traded 

will likely remain small for some period of time, and represent a fraction of total 

U.S. beef production, NCBA’s analysis of this agreement suggests that the U.S. 

could triple our beef and beef product exports to the region by 2015, with only slight 

increases foreseen in beef imports from these six countries. This level of increased 

exports translates into a potential $1.06 per head benefit to U.S. cattlemen, and will 

immediately assist our industry in regaining our trade surplus position in beef and 

beef products. (See Appendix A for NCBA’s economic analysis.) 

The CAFTA–DR does include minimal country specific increased access for some 

of the CAFTA–DR countries. However, this increase can only be accessed if the 

WTO tariff rate quota of 64,805 metric tons is filled. This TRQ has never been filled. 

We believe that minimal country specific assurances are a small price to pay to gain 

immediate duty-free, quota-free access for our high-quality prime and choice cuts of 

beef. 

124 

While market access is always front of mind in these agreements, sanitary and 

phytosanitary issues are also important to beef cattle producers. If we gain market 

access through the agreement, but are then blocked from shipment, the market access negotiations would be in vain. In this agreement, as in the Chile, Australia, 

and Morocco free trade agreements, the CAFTA–DR countries have agreed to accept 

U.S. Department of Agriculture-Food Safety and Inspection Service (USDA–FSIS) 

certification as the qualification to export beef and beef products to the region. This 

is important because USDA–FSIS certification means certainty for exporters that 

federal approval of their plants means the ability to export. The alternative is costly 

and unpredictable re-inspection by each country. Acceptance of USDA–FSIS certification also means more of the cattle me and my neighbors raise will qualify for export. Already, parts of 90 percent of the cattle harvested in the U.S. are destined 

for export. The more cattle that qualify for export translates into increased profits 

for beef cattle producers in the form of higher prices received. 

CAFTA–DR also contains an agricultural safeguard mechanism protecting the 

U.S. beef industry against import surges. While it is unlikely that such a scenario 

would present itself, the U.S. does have the ability to utilize these safeguards in the 

event of excessive surges in imports. We believe that any free trade agreement 

should include these additional measures. 

Therefore, a vote in support of CAFTA–DR is a vote to give U.S. cattle producers 

trade reciprocity and a leveling of the playing field we have long desired with this 

region. It is a vote to provide me and my fellow U.S. beef cattle producers what has 

already been provided by Congress to agriculturalists in CAFTA–DR countries—the 

ability to market agricultural commodities in export markets free of prohibitive 

trade barriers. Passage of CAFTA–DR will also send a positive signal to other trading partners around the world that the U.S. is serious about negotiating meaningful 

trade agreements which grant more export access for U.S. agricultural commodities 

than we give in return. 

Cattlemen and cattlewomen throughout the U.S. know that this is an excellent 

agreement for the U.S. beef cattle industry, and we look forward to the passage of 

this agreement by Congress. It is time for Congress to level the uneven playing field 

that currently exists for U.S. agriculture. Ninety-nine percent of the agricultural 

products the CAFTA–DR countries send to the U.S. currently enter duty-free. 

CAFTA–DR balances that trade relationship. Accordingly 56 major national agricultural organizations also support CAFTA–DR. On April 4, 2005 they sent a letter to 

members of Congress expressing their support. (See Appendix B.) 

Again, on behalf of the California Cattlemen’s Association and the National 

Cattlemen’s Beef Association, I wish to thank you for your consideration of this 

agreement and express our appreciation for this committee’s commitment to opening 

markets for U.S. beef cattle producers and American agriculture. We urge swift passage of this agreement by Congress. I would be happy to answer any questions you 

may have. 

Appendix A: 

What Is CAFTA–DR Likely to Mean for U.S. Beef Producers? 

By Gregg Doud, NCBA Chief Economist 

KEY POINTS 

• Overall U.S. beef and BVM exports to CAFTA–DR nations could TRIPLE by 

2015 to $41 million from the current $12.5 million.The agreement will eliminate 

tariffs on U.S. beef exports to these nations, which currently range anywhere 

from 15 to 40 percent, over a 15-year period, with immediate duty-free access 

for high-quality (prime and choice) U.S. beef.The details of this agreement basically level the playing field for U.S. beef producers. 

• A KEY by-product of the required harmonization of regulations and sanitaryphytosanitary (SPS) standards between these countries prior to entering into 

these negotiations is that beef and cattle trade between these nations will likely 

increase in the coming years. Nicaragua, in particular, seems to be attempting 

to position itself as a dominant beef supplier to the region. 

• CAFTA exports to the U.S. will be directed by U.S. demand for lean (non-fed) 

beef. Constraints will include the overall profitability and (lack of) growth of the 

beef sector in most of these countries. Beef from these countries coming into the 

U.S. marketplace are already subject to a quota and these countries have yet 

to fill this quota, despite current low tariffs on their beef products. 

• A final aspect that is very important to note about this agreement is the inclusion of Foreign Direct Investment (FDI) provisions that will certainly help improve overall economic conditions in the region. In every society, increasing per 

125 

capita incomes result in movement away from other protein sources and toward 

more beef consumption. 

SUMMARY 

The Central American Free Trade Agreement (CAFTA–DR) is between the U.S. 

and Costa Rica, Guatemala, El Salvador, Honduras, Nicaragua and the Dominican 

Republic. For beef, it will eliminate tariffs on U.S. beef exports to these nations, 

which currently range anywhere from 15 to 40 percent, over a 15-year period. Although the quantities traded will likely remain small for some time, this agreement 

levels the playing field for U.S. beef producers and sets a solid precedent, with immediate duty-free access for high-quality (prime and choice) U.S. beef. 

BACKGROUND 

Much of what is stated below is based upon assumptions and projections based 

on various data sources that include the U.S. Department of Agriculture (USDA) 

and the United Nations’ Food and Agriculture Organization (FAO). A solid production and trade data collection history on the Central American beef industry has 

never been a priority simply because of their small size. As a result, the data appears to conflict at times and some macroeconomic measurements are difficult to 

corroborate. 

Here is a country-by-country break down of key factors that will influence beef 

trade: 

Costa Rica 

Easily the country with the most potential for increased demand for ‘‘high value’’ 

U.S. beef because of its red hot tourism industry, Costa Rica is a very promising 

market for the following reasons: 

• It boasts the highest per capita incomes in the region with a current PPP (Purchasing Power Parity) at $9100/person (Source: CIA World Fact Book). This figure is really only good for comparison purposes and it compares to a $9000/capita PPP for Mexico. 

• A solid beef variety meat (BVM) demand base also appears to be developing 

with U.S. exports jumping from 170 metric tons (mt) in 2000 to 671 mt in 2002. 

• It is already the highest per capita beef consumer among the CAFTA countries, 

and it appears to be at least double any other country, including Nicaragua. 

• It will be adding another 700,000 citizens between 2005 and 2015 with four of 

Costa Rica’s projected 5 million people residing in urban areas by 2015. (Globally, urban citizens and their generally higher per capita incomes tend to be 

bigger buyers of relatively higher value U.S. beef cuts.) 

• The domestic cattle industry appears to be struggling possibly due to macroeconomic factors within the country. 

• This may also be due to increased competition from its neighbors. Guatemala 

and Nicaragua are providing about half of Costa Rica’s beef imports. 

• However, the trade data suggests that the U.S. has the ability to compete on 

price. 

• U.S. exports could go from the current $2.6 million to around $6.3 million by 

2015. Additional growth in Costa Rica’s tourism industry could certainly boost 

this projection considerably, not only through increased hotel and restaurant 

consumption but also because it would undoubtedly increase per capita incomes. 

• The tariff reduction schedule is back-loaded suggesting we could see an additional surge in growth occur from 2015 to 2020. 

Dominican Republic 

The DR has the second highest PPP in the region at $6000/person. 

• Its urban population will also grow considerably—up one million to 8.4 million 

urban citizens out of an expected 10.1 million by 2015. 

• Possibly problematic is a much lower per capita beef consumption figure than 

Costa Rica. (They have more of a Caribbean style diet.) 

• This low consumption figure may also be due, in part, to the DR’s 40 percent 

tariff on beef imports. 

• The DR market also appears to be very price sensitive. U.S. market share has 

struggled significantly recently as U.S. beef prices have risen. This is likely due 

to the price of U.S. beef relative to other sources of animal protein (poultry). 

• A goal in this market would appear to be the ability to retain earlier success 

at this recent high(er) price plateau. As such, tariff reduction could be of significant assistance for U.S. beef in this market. 

126 

• Immediate help will come from a 1,100 mt tariff rate quota (TRQ) that will provide duty free access for Prime and Choice beef and a 220 mt TRQ for duty free 

beef trimmings. • The DR does not export beef; in fact, very recently the domestic beef industry 

appears to be experiencing significant hardship. • Like Costa Rica, its potential ability to draw U.S. tourists is tremendous but 

this potential is still largely undiscovered. The future for high quality U.S. beef 

demand is exciting but virtually impossible to forecast. • U.S. exports have the potential to go from $4.3 to $6.0 million by 2015 but this 

figure could be significantly underestimated as tariff reduction in the ‘‘out’’ 

years (beyond 2015) enhances the competitive nature of U.S. beef in the Dominican Republic. 

El Salvador 

Continuing down the PPP ladder in the region, El Salvador’s current PPP is $4800/capita. However, an unusual factor to consider is that there is a significant 

Salvadorian community in the U.S. that funnels U.S. dollars back into El Salvador. 

In fact, by one account, this apparently could amount to as much as 40 percent of 

the El Salvador annual GDP. This unusual influence and its ability to grow may 

be a key driver for beef consumption. 

• Its urban population will jump by one million from 2005 to 2015 with 6.5 million of an estimated 7.56 million citizens projected to be living in El Salvador’s 

cities by 2015. • Per capita beef consumption is lower than Costa Rica and the DR and this decline would appear to be running in tandem with lower per capita incomes. • The domestic beef industry appears very stagnant with little to no exports in 

recent years. • El Salvador has not been a BVM (offal) market but tariffs on offal are phased 

out over five years. There is also a (duty-free) TRQ of 105 mt for ‘‘other’’ beef 

cuts. • U.S. beef export potential appears fairly limited. It also looks like the cuts that 

have been exported are, relatively speaking, of very low value (approx. $1/lb). 

Currently, beef imports appear to be coming from neighboring CAFTA countries 

(Nicaragua, Guatemala and even a little from Honduras). • El Salvador could well develop into a significant beef importer in the region but 

this beef is much more likely to come from its neighbors (mostly Nicaragua) 

rather than the U.S. • This could be exacerbated if El Salvador struggles to improve its infrastructure 

(processing industries) relative to its neighbors. This infrastructure is believed 

to have the ability to be very competitive in the region, but extremely burdensome government oversight and regulation are severely restricting its ability to 

prosper at the present time. 

• In terms of value, El Salvador is actually the fourth largest market in Central 

and South America for U.S. pork. This suggests that the U.S. could become a 

significant supplier of beef to El Salvador if U.S. pork exports to the country 

are used as an example. 

• Furthermore, it is also important to note that the ‘‘dollarized’’ Salvadorian economy presents U.S. suppliers with an advantage. 

• While the U.S. exports only about $0.25 million in beef to El Salvador today, 

this could be a market worth $16.5 million for the U.S. by 2015. This assumes 

that the reduction in El Salvador’s tariff from the current 30 percent (one of 

the highest in the region) would make U.S. beef much more price competitive. 

Guatemala 

• PPP $4100/person. 

• Its overall and urban population expected to grow tremendously from 13 million 

people to 16 million by 2015 with 10.2 of those 16 million living in cities versus 

only 7.5 million today. 

• Guatemala is attempting to increase its tourism market. It has initiatives in 

place to promote tourism that highlight its cultural past and ecotourism. This 

will further increase its demand for quality meat products such as U.S. beef, 

which makes it a growing opportunity for the U.S. beef industry. 

• The Guatemalan economy is showing signs of life as the effects of NAFTA finally trickle into southern Mexico and points south. 

• Its domestic beef industry appears solid and its exports of live cattle to Southern Mexico have been growing (despite SPS issues that restrict this trade). 

• One-half of Guatemala’s beef imports are currently coming from Nicaragua and 

25 percent from Costa Rica with Panama and Honduras also selling some beef 

127 

into Guatemala. Look for this to continue as historically, the value of U.S. cuts 

into Guatemala is significantly higher than that of other countries and the U.S. 

(downward) trend in exports reflects the price sensitivity of this market. • On the other hand, tariff reduction by way of a (1,060 mt) tariff rate quota 

(TRQ) for ‘‘other’’ beef cuts should immediately facilitate a better competitive 

U.S. position in this market. • Guatemala is also a significant market for U.S. BVM and it should continue to 

grow unabated with the immediate duty-free access CAFTA–DR provides. • Competition from other sources of animal protein would appear to be fierce but 

per capita beef consumption is low. Improving per capita incomes over time 

should expand beef demand just as has occurred in Mexico over the last decade. • The increase in Guatemala’s population as well as its proximity to Mexico 

should spur economic growth and catapults them from a $3.9 to $8.8 million 

market for U.S. beef and beef variety meats by 2015. 

Honduras 

• In order for U.S. beef exports to have any significant chance of improvement 

in this market, the PPP for this economy must improve well beyond today’s 

$2600/capita. • Honduras will add about 1.5 million citizens between now and 2015 with about 

half of that increase headed to the city. Its current population is 7.3 million. • Slightly encouraging is that per capita consumption appears to be similar to the 

Dominican Republic and higher than that of Guatemala and El Salvador. • It looks like Honduras is exporting some beef to its neighbors but its production 

has apparently shrunk dramatically during the past 2–3 years, possibly putting 

the future of such exports in jeopardy. • This has been a very good BVM market for the U.S. and this may be where 

a sizable chuck of the future growth occurs as all tariffs on offal are phased out 

over five years. Again, this is a market for relatively low value cuts from the 

U.S. possibly making it tough for the U.S. to gain a foothold versus CAFTA beef 

for the foreseeable future. • Growth potential for U.S. beef/BVM by 2015: from $0.9 to $2.2 million. 

Nicaragua 

• On paper, the Nicaraguan beef industry has grown 35 percent in about six 

years and all indications are that they will become the dominant beef exporter 

to others in the region. They’ve also nearly doubled their beef exports to the 

U.S. between 2001 and 2004. • While there is some speculation that they could also become an exporter of live 

cattle, there appears to be limited evidence of this despite tremendous economic 

incentives during the past couple of years to do just that. It appears that Nicaragua wants to become a beef exporter versus a cattle exporter. • Holding them back is clearly their economy. Their PPP of only $2300/person is 

the lowest in Central America. Raising the standard of living in this mainly 

rural based economy would certainly create several benefits. For example, their 

per capita beef consumption appears to be only half of Costa Rica despite every 

indication that this is likely the least cost source of animal protein in the country. 

• The U.S. isn’t likely to find much success exporting high-value beef to Nicaragua but they appear to be importing an increasing amount of U.S. variety 

meats. Tariffs on offal are phased out over five years. 

• The Nicaraguan population will jump from 5.7 to 7.0 million folks by 2015 with 

an additional 1.2 million headed for life in the city—for a total of 5.6 million 

urban dwellers by 2015. 

• This is a country with tremendous potential for growth if it could ever get its 

economic house in order. The word ‘‘potential’’ applies mostly because its will 

be coming from such a long way back. 

Appendix B: 

April 4, 2005 

Dear Representative: 

The undersigned groups representing the U.S. food and agricultural community 

urge your support for the Free Trade Agreement with Central American and the Dominican Republic (CAFTA–DR). CAFTA–DR is a home run for American agriculture. We are giving up very little to gain very much. Normally in trade agreements, each party expects the concessions it receives to balance the concessions it 

grants. Uniquely in CAFTA–DR, the agriculture agreement is tilted steeply in the 

direction of the United States. 

128 

Previous trade arrangements approved by Congress gave generous access to the 

U.S. market for food and agriculture exports from these six nations but provided 

no reciprocal benefits to U.S. food and agriculture exports to those same six markets. Between the Generalized System of Preferences, which has been in place since 

1976, and the Caribbean Basin Economic Recovery Act, or Caribbean Basin Initiative (CBI), which has been in place since 1983, U.S. tariffs on most of the food and 

agricultural products imported from the CAFTA–DR countries are already zero. 

On a trade-weighted basis, over 99 percent of the food and agriculture products 

we import from the region enter duty-free. On the other hand, the food and agriculture tariffs our products must overcome in the CAFTA–DR countries exceed 11 

percent on average, but can range as high as 150 percent or more on sensitive products. This does not include the highly restrictive tariff-rate quotas many of our products face. The result is that we have an agriculture trade deficit with these six nations. In 2004, U.S. imports from these countries exceeded our exports to the region 

by over three quarters of a billion dollars. 

So, a vote for CAFTA–DR is a vote to give American farmers trade reciprocity. 

It is also a vote to keep our food and agriculture exports competitive with products 

from other countries. Our market share in the CAFTA–DR nations has fallen from 

54 percent in 1995 to around 40 percent because of preferential arrangements negotiated by these six countries with our competitors. The implementation of CAFTA– 

DR will remedy this problem. 

Congress last voted to extend the unilateral benefits under GSP and CBI to these 

countries and others as part of the Trade Act of 2002. The most recent stand-alone 

vote on a CBI conference report in 2000 demonstrates the willingness of Congress 

to provide trade benefits to an important region of the world. In the Senate, CBI 

passed by a vote of 77–19 with 4 abstentions; in the House, it was approved by a 

vote of 309–110 with 16 abstentions. The undersigned organizations, representing 

the vast majority of U.S. agriculture, are simply requesting that Congress provide 

to American farmers what it has already provided to farmers in the CAFTA–DR 

countries—improved market access for their exports. 

Sincerely, 

Altria Group, Inc.

American Bakers Association

American Farm Bureau Federation

American Feed Industry Association

American Frozen Food Institute

American Meat Institute

American Potato Trade Alliance

American Soybean Association

Animal Health Institute

Biotechnology Industry Organization

Blue Diamond Growers

Bunge North America, Inc.

California Canning Peach Commission

California Table Grape Commission

Cargill, Incorporated

Corn Refiners Association

CropLife America

Elanco

Food Products Association

Grocery Manufacturers of America

International Dairy Foods Association

Louis Dreyfus Corporation

National Association of Wheat Growers

National Cattlemen’s Beef Association

National Chicken Council

National Confectioners Association

National Corn Growers Association

National Grain and Feed Association

National Grain Sorghum Producers

National Grain Trade Council

National Grange

National Milk Producers Federation

National Oilseed Processors Association

National Pork Producers Council

National Potato Council

National Renderers Association

National Turkey Federation

129 

North American Export Grain Association

North American Millers’ Association

Northwest Horticultural Council

Pet Food Institute

Sweetener Users Association

The Distilled Spirits Council

The Fertilizer Institute

U.S. Dairy Export Council

United Egg Producers

United States Dry Bean Council

U.S. Apple Association

U.S. Hide, Skin and Leather Association

U.S. Meat Export Federation

U.S. Wheat Associates

USA Poultry and Egg Export Council

USA Rice Federation

Washington State Potato Commission

Western Growers Association

Wheat Export Trade Education Committee

f 

Mr. SHAW. Thank you. Mr. Roney. 

STATEMENT OF JACK RONEY, DIRECTOR OF ECONOMICS AND 

POLICY ANALYSIS, AMERICAN SUGAR ALLIANCE 

Mr. RONEY. Thank you, Mr. Chairman. I am Jack Roney, Staff 

Economist for the American Sugar Alliance. I have the privilege of 

speaking today on behalf of 146,000 American farmers, workers, 

and their families who grow, process, and refine sugar beets and 

sugar cane in 19 States. The proposed DR–CAFTA threatens American sugar jobs in all 19 of these States. By the government’s own 

estimates, sugar job losses from the DR–CAFTA would be far 

greater than in any other sectors. The same ITC study also questions the overall value of the DR–CAFTA to our economy. The ITC 

concluded that the DR–CAFTA will increase the U.S. trade deficit 

with that region, not reduce it. Our sugar growers and processors 

are among the most efficient in the world. Like other American 

farmers, we would welcome the opportunity to compete globally on 

a level playingfield, free of government intervention. Like other 

American farmers, we can compete against foreign farmers. We 

cannot compete against foreign government subsidies. 

The world sugar market is the world’s most distorted commodity 

market. A vast global array of subsidies encourages overproduction 

and dumping. We support correcting this distorted dump market 

through genuine global sugar trade globalization. There is a right 

way and a wrong way to attack global sugar subsidies. The right 

way is through the WTO, with all countries at the table, and all 

subsidies on the table. The wrong way is with bilateral and regional FTAs, where markets are wrenched open without addressing 

any foreign subsidies. Virtually every FTA ever completed around 

the world excludes import access mandates for sugar. Only the 

United States has ever guaranteed access to its sugar market in an 

FTA, in the NAFTA and the DR–CAFTA, and these agreements 

are mired in controversy. Sugar must be reserved for the WTO, 

where genuine trade liberalization can occur. 

As Congressmen from sugar producing regions know, if the DR– 

CAFTA passes, it will have devastating effects on sugar jobs in 

130 

their States. Our farmers know their industry and their policy well. 

We have examined the DR–CAFTA provisions soberly and carefully. We regard the DR–CAFTA as a life or death issue. American 

farmers and workers who will lose their jobs are insulted by DR– 

CAFTA proponents who trivialize the potential harm from this 

agreement with cutesy, misleading depictions of additional access 

in teaspoons or packets per consumer per day. We are already one 

of the world’s most open sugar markets. Past trade agreement concessions force us to import upward of 1.5 million tons of sugar per 

year from 41 countries duty-free. This makes us the world’s fourth 

largest net importer. The DR–CAFTA countries are already our 

biggest duty free supplier, accounting for one-fourth of our imports. 

Unfortunately, our market is already oversupplied. Every additional ton of sugar we are forced to import from foreign countries 

is one ton less that struggling American sugar farmers will be able 

to sell in their own market. Import more foreign sugar, export more 

American jobs. 

The DR–CAFTA poses serious short-term and long-term dangers 

to American sugar farmers and workers. In the short-term, the 

DR–CAFTA sugar market access concessions, on top of import commitments the U.S. has already made in the WTO and NAFTA, will 

prevent the USDA from administering a no-cost sugar policy as 

Congress directed it to in the 2002 farm bill. The DR–CAFTA will 

further oversupply the U.S. market. The additional concessions will 

trigger off the market allotment program that permits USDA to restrict domestic sugar sales and balance the market. U.S. sugar producers are currently holding more than half a million tons off the 

market and storing it at their own expense. Absent marketing allotments, this surplus sugar will cascade onto the market and destroy the price. Contrary to the misleading claims of DR–CAFTA 

proponents, there is no cushion, no additional share of the U.S. 

market, that Congress intended to make available in FTAs. The 

difference between recent actual imports and the 1.5 million ton 

marketing allotment trigger has already been allocated to Mexico 

under the NAFTA. The Administration is ignoring the NAFTA to 

promote the DR–CAFTA. In the long term, the DR–CAFTA is the 

tip of the FTA iceberg. Behind the DR–CAFTA countries, 21 other 

sugar exporting countries are lined up like planes on a tarmac 

waiting to do their deal with the United States. No doubt they expect no less than the concessions already granted to the DR– 

CAFTA countries. Combined, these 21 countries export over 25 million tons of sugar per year, nearly triple the U.S. sugar consumption. Obviously, the present DR–CAFTA concessions would make it 

impossible for the U.S. sugar industry to survive future agreements. 

In conclusion, Mr. Chairman, the DR–CAFTA will cost thousands 

of American sugar farmers and workers their jobs. The certain dangers of the DR–CAFTA to the U.S. economy far outweigh the marginal possible benefits. We respectfully urge that this Committee 

reject the DR–CAFTA and focus U.S. trade liberalization efforts instead on the WTO, where there is genuine potential for progress. 

Thank you. 

[The prepared statement of Mr. Roney follows:] 

131 

Statement of Jack Roney, Director of Economics and Policy Analysis, 

American Sugar Alliance 

The American Sugar Alliance is grateful for the opportunity to provide testimony 

for this important hearing. The ASA represents the 146,000 American farmers, 

workers, and their families in 19 states, engaged directly and indirectly in the growing, processing and refining of sugarbeets and sugarcane. The U.S. sugar industry 

generates nearly $10 billion in annual economic activity. 

Background on U.S. and World Sugar Markets 

In some states, sugar is the most important cash crop, or among the most important. Sugar accounts for 44% of crop receipts in Louisiana, 37% in Wyoming, 24% 

in Hawaii, and 10–20% in Idaho, Minnesota, Florida, North Dakota, Montana, and 

Michigan. 

American sugar growers and processors are among the most efficient in the world, 

and, like other American farmers, we would welcome the opportunity to compete 

globally on a level playing field, free of government intervention (Chart 1). Like 

other American farmers, we can compete against foreign farmers, but we cannot 

compete against foreign government subsidies and predatory trading practices. 

The world sugar market is the world’s most distorted commodity market, because 

of a vast, global array of subsidies. Subsidized growers overproduce and dump their 

surpluses on the world market for whatever price it will bring. As a result of all 

this dumping, the so-called world sugar price has averaged barely half the world 

average cost of producing sugar for the past 20 years (Chart 2). The ASA supports 

correcting this distorted dump market through genuine global sugar trade liberalization. 

Only Path to Sugar Trade Liberalization: WTO 

There is a right way and a wrong way to achieve global sugar trade liberalization. 

• The right way: The World Trade Organization (WTO)—all countries at the 

table; all programs and all subsidies on the table. The ASA has supported sugar 

trade liberalization in the WTO since the initiation of the Uruguay Round of 

the GATT in 1986. 

• The wrong way: Bilateral and regional free trade agreements (FTAs), where 

markets are wrenched open without addressing any foreign subsidies. The Administration has rightfully declared it will not address any support programs 

or subsidies in FTAs. Yet it has effectively negotiated away the U.S. sugar support program in the CAFTA. 

Virtually every FTA ever completed around the world excludes import-access mandates for sugar. Sugar import mandates are excluded from the U.S.-Canada portion 

of the NAFTA; from the Mercosur agreement among four South American sugar 

producing countries, including Brazil; from the European Union’s (EU) trade agreements with South Africa, with Japan, and now with Mercosur; from Mexico’s FTAs 

with other Latin American countries and with Japan; from Japan’s pending agreements with Thailand and with the Philippines. Sugar was excluded from the U.S.- 

Australia FTA, which USTR touted as a ‘‘state of the art’’ agreement that gained 

the U.S. immediate duty-free access for 99% of its exports to Australia, and which 

Congress passed easily. 

The only exceptions: Sugar market-access mandates were included in the U.S.- 

Mexico portion of the NAFTA, and those provisions have been mired in controversy 

ever since, and in the CAFTA, whose fate in the Congress is highly uncertain. 

The ASA’s recommendation to the Administration has been long-standing and unambiguous: Reserve sugar negotiations for the WTO, where genuine trade liberalization can occur. 

CAFTA Dangers to U.S. Sugar, U.S. Economy, WTP Process 

The U.S. sugar industry adamantly opposes the CAFTA and respectfully suggests 

that this Committee do the same. The potential benefits for the U.S. economy simply do not outweigh the definite risks. The possible benefits are tiny: The entire 

GDP of the six countries is about the same as New Haven, Connecticut’s. At serious 

risk are American jobs in sugar and a host of other sectors. 

• The government’s own analysis, by the International Trade Commission (ITC), 

predicts that at the end of the 15-year implementation period, the U.S. trade 

deficit with the CAFTA region will have increased, not fallen, to $2.4 billion. 

(‘‘U.S.-Central America-DominicanRepublic Free Trade Agreement: Potential 

Economywide and Selected Sectoral Effects,’’ Investigation No. TA–2104–13, 

August 2004.) Other ITC findings from the same study: 

132 

• Job losses in the sugar sector will be 38 times greater than job loss in the 

next most harmed sector, textiles. ITC also predicted American job losses in 

electronic equipment, transport equipment, oil, gas, coal and other minerals. • The U.S. already has 100% duty-free access for wheat exports to the CAFTA 

countries. • The U.S. already accounts for 94% of the small CAFTA market’s grain imports; and 95% of soybean imports. • The U.S. gets immediate tariff-free access only for prime and choice cuts of 

beef. With 40% of the CAFTA population earning less than $2 per day, the 

demand for such expensive cuts of beef cannot be great. 

• FTAs such as the CAFTA distract from, and harm, the progress toward genuine 

trade liberalization in the WTO. 

For example, after the CAFTA countries have spent years negotiating special 

access to the United States, the world’s biggest market, why should these countries cooperate in Geneva to provide the same access to the U.S. for the rest 

of the world? 

The FTA approach risks fragmenting the world economy into to a matrix of 

trading blocs, each with its own tariff wall around it to protect the subsidies 

within. Only in the WTO can we address both the tariff walls and the subsidies 

within. • Opposition to the CAFTA is widespread. 

The American public correctly perceives that CAFTA dangers outweigh the 

risks. Polls indicate a majority of Americans opposes the CAFTA, including pluralities of Republicans, Democrats, and Hispanics. 

Opposition extends to labor, environmental, textile, human rights, and faithbased organizations, both here and in the CAFTA countries. 

Some national farm groups oppose CAFTA, some others are split. American 

farmers have grown understandably skeptical that the promises of trade agreements and other efforts to expand U.S. exports far exceed actual performance. 

In 1996, the U.S. achieved a record agricultural trade surplus of $27.3 billion. 

In 2004, 11 years into the NAFTA, 10 years into the Uruguay Round Agreement 

on Agriculture, and 9 years after the 1996 Freedom to Farm Bill reduced commodity prices to encourage more exports, our ag trade surplus has plummeted 

to zero (Chart 3) —despite the weaker dollar that made our exports more competitive. Our ag imports have skyrocketed under these agreements; our exports 

have been essentially flat. 

The CAFTA promises more of the same, particularly in the near term. U.S. 

import concessions are frontloaded—concentrated in the early years of the 

agreement—and CAFTA-country import concessions are backloaded, to the final 

stages of the 15-year implementation period. 

As the Congressmen from sugar-producing states know, if the CAFTA passes, it 

will have devastating effects on the U.S. sugar industry. Our farmers know their 

industry and their policy well, and have examined the CAFTA provisions soberly 

and carefully. We regard the CAFTA as a fully genuine, life-or-death issue. Our 

farmers, whose livelihoods are at stake, are insulted when USTR trivializes the potential harm from this agreement with cutesy, misleading estimates such as the 

amount of additional access in teaspoons per consumer or production per day. 

We are already one the world’s most open sugar markets. Past trade-agreement 

concessions have made us the world’s fourth largest net importer. We are required, 

under WTO concessions, to import 1.256 million short tons of sugar per year from 

41 countries, essentially duty free, whether we need the sugar or not. The six 

CAFTA countries are already our largest duty free supplier, accounting for 27% of 

our WTO-required imports. In addition, we are required under the NAFTA to import 

up to 276,000 short tons per year of Mexican surplus sugar production, again, 

whether we need the sugar or not. 

Unfortunately, U.S. sugar consumption has declined in recent years, rather than 

grown. As a result, every additional ton of sugar we are forced to import from foreign countries is one ton less that struggling American sugar farmers will be able 

to produce or sell in their own market. 

U.S. sugar policy is unique. It is the only U.S. commodity policy designed to operate at no cost to taxpayers. During this time of enormous federal budget pressures, 

American sugar farmers are proud to have a program with no budgetary costs 

(Chart 4). 

Congress in the 2002 Farm Bill provided an inventory management approach for 

sugar and a mandate for the Administration to operate the program at no cost by 

avoiding sugar loan forfeitures. The Administration has two tools to balance the domestic market: the WTO-legal tariff-rate import quota and domestic marketing alVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00136 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
133 

lotments. Basically, USDA forecasts U.S. sugar consumption, subtracts required 

WTO and NAFTA imports, and sets the remainder as the American sugar producers’ share of their own market. With a large part of our market guaranteed to 

foreign suppliers, American sugar farmers—taxpayers, businessmen, and cooperative owners—must line up behind the foreign farmers for access to their own U.S. 

market. If we produce more sugar than our marketing allotment, our producers 

store the excess at their own expense, not the government’s expense, until that sugar 

is needed. 

Congress stipulated that if imports exceed 1.532 million short tons—the sum of 

the WTO commitment of 1.256 million short tons and the NAFTA/Mexico commitment of up to 276,000 short tons—USDA would lose its authority to administer marketing allotments and sustain no-cost sugar-program operation. In effect, the Congress was saying: Though American sugar producers are among the world’s most efficient, we have already ceded to foreign producers over 1.5 million short tons of the 

U.S. market. Let’s reserve the remainder of the U.S. market for American farmers, 

rather than giving our market away, piecemeal, to foreign producers in FTAs 

(Charts 5, 6). 

American sugar producers are currently storing at their own expense about 

600,000 tons of surplus sugar, and many are reducing acreage, idling or shutting 

down mills—many of them farmer owned—to absorb the oversupply. Sugar prices 

have been flat or depressed for some time—the raw cane sugar support price has 

been the same 18 cents per pound for 20 years now, since 1985; prices in 2004 averaged 11% lower than in 2003 (Charts 7, 8). Unlike other program crops, sugar farmers receive no income support from the government to compensate for low market 

prices. This allows scarce federal dollars to be directed toward assisting farmers of 

export crops. 

Sugar farmers, meanwhile, are making wrenching adjustments to survive, or just 

going out of business. Fully a third of all U.S. beet and cane mills and refineries 

have closed just since 1996, 30 plants in total (Chart 9). 

As independent beet processors and cane refiners have gone out of business, beet 

and cane farmers, desperate to retain outlets for their beets and raw cane sugar, 

have organized cooperatively to purchase those operations. Beet farmers now own 

94% of U.S. beet processing capacity and cane farmers own 57% of U.S. cane refining capacity (Chart 10). 

This vertical integration has helped to increase efficiency, but growers have literally mortgaged the farm to stay afloat and are deeply in debt. Since sugar farmers 

derive 100% of their return from the marketplace and none from government payments, they are more dependent on, and more vulnerable to, market forces than 

other farmers. Sugar farmers are generally unable to switch to other crops because 

of their commitment to supplying beets and cane to the processing mills they now 

own. This makes sugar farmers all the more vulnerable to the type of market disruption the CAFTA would be likely to cause. 

Sugar farmers based their investment decisions on the promise in the 2002 Farm 

Bill of volume and price levels that would enable them to remain in business and 

repay their loans. The CAFTA, and other FTAs, now threaten to break that promise. 

Low, Steady U.S. Consumer Prices for Sugar 

The low producer prices for sugar over the past several years have been a hardship for sugar farmers and caused considerable job loss as mills have closed. Unfortunately, consumers have seen no benefit from the low producer prices for sugar. 

Though wholesale sugar prices in 2004 averaged 11% lower than the previous year 

and 20% less than in 1996, consumer prices for sugar in the grocery store have risen 

modestly; and, sweetened product prices have continued a steady rise, at least with 

the overall rate of inflation (Chart 11). 

Nonetheless, American consumers are getting a great deal on the sugar they purchase, with low, steady prices. U.S. retail sugar prices are essentially unchanged 

since the early 1990’s. And new figures from LMC International show that the foreign developed-country retail sugar price averages 30% higher than the United 

States.’ EU average prices are 35% higher than the United States’, and retail sugar 

prices in Australia and Canada, which claim to be exposed to world dump market 

sugar, are virtually the same as prices here (Chart 13). (‘‘Retail and Wholesale 

Prices of Sugar around the World,’’ LMC International Ltd, Oxford, England, April 

2005.) 

Taking into account developing countries, and varying income levels, LMC discovered that sugar here is about the most affordable in the world. In terms of minutes 

of work to purchase one pound of sugar, only tiny Singapore is lower; the world average is four times higher than the U.S. And, our expenditure on sugar as a percent 

134 

of per capita income is the lowest in both the developed and the developing world 

(Charts 13, 14). 

World Average Wholesale Prices are Double Dump Market Levels 

In the same survey, LMC also examined wholesale refined prices and found that 

the global average is 22 cents per pound—double the world dump market average 

price for 2004—and about the same as the United States’. This reinforces the meaninglessness of the world dump price. Globally, the vast majority of sugar is sold in 

domestic markets at price levels that are, on average, double the world dump market price and similar to the United States’ (Chart 15). 

It is worth noting that LMC found wholesale prices in Mexico to be 5 cents higher 

than the United States’ 23 cents per pound, and Canada’s price to be just 2 cents 

lower. This contradicts notions that U.S. candy manufacturers are moving to these 

countries for lower sugar prices. Other factors are far more important in those decisions. For example, the same candy company that paid average wages in Chicago 

of more than $14 per hour now pays an average of 56 cents per hour in Juarez, 

Mexico (Chart 16). 

CAFTA: Short and Long-term Dangers to U.S. Sugr Market 

Despite the fact that our market is already oversupplied, and despite the fact that 

the six CAFTA countries already supply more than a fourth of our guaranteed dutyfree imports, the proposed CAFTA more than doubles the five Central American 

countries’ duty-free access to the U.S. market, an increase of 111%. With an additional, smaller concession to the Dominican Republic, additional imports would total 

120,000 short tons in the first year, growing to 169,000 short tons per year in year 

15, and an additional 2,910 short tons per year forever after (Chart 17). 

The CAFTA poses serious short-term and long-term dangers to the U.S. sugar industry. 

1. In the short term, the CAFTA sugar market-access concessions—on top of import commitments the U.S. has made already in the WTO, to 41 countries, and 

in the NAFTA, to Mexico—will prevent the USDA from administering a no-cost 

U.S. sugar policy, as Congress directed it to in the 2002 Farm Bill, and will 

badly further oversupply the U.S. sugar market. 

The additional concessions will trigger off the marketing allotment program 

that permits USDA to restrict domestic sugar sales and balance the market. 

Absent marketing allotments, surplus U.S. sugar—the 600,000 tons producers 

are currently holding off the market and storing it at their own expense— 

would cascade onto the market and destroy the price. 

• Contrary to USTR’s misleading claims, there is no ‘‘cushion’’—no amount of 

additional import access Congress intended to make available in FTAs. The 

difference between recent actual imports and the 1.532-million-ton trigger 

has already been allocated to Mexico under the NAFTA. Mexico has not recently had the surplus sugar available to send to the U.S. But surplus Mexican sugar may soon become available again, with improved crops and with 

the successful conclusion of sweetener-trade discussions with Mexico that 

Members of Congress from sugar and corn states strongly support. 

We find it disturbing that USTR would ignore commitments made in past 

agreements in order to promote new agreements. 

2. In the longer term, the CAFTA is the tip of the FTA iceberg. 

Behind the CAFTA countries, 21 other sugar-exporting countries are lined 

up, like planes on a tarmac, waiting to do their deal with the U.S. and, no 

doubt, expecting no less access than already granted to the CAFTA countries. 

Combined, these 21 countries export over 25 million tons of sugar per year, 

nearly triple U.S. sugar consumption. Obviously, the precedent the CAFTA concession would set will make it impossible for the U.S. sugar industry to survive 

future agreements (Charts 18, 19). 

The U.S. is pushing to complete the Panama, the Andean, and the Thailand 

FTAs this year. The South Africa Customs Union FTA and the Free Trade 

Area of the Americas are on hold, but still very much on the Administration’s 

FTA agenda. All these involve major sugar producers and exporters. 

Conclusion 

In conclusion, Mister Chairman, the dangers of the CAFTA to the U.S. economy 

outweigh the risks. We respectfully urge that this Committee reject the CAFTA, and 

focus U.S. trade liberalization efforts instead on the WTO, where there is a genuine 

potential for progress. 

135 

The CAFTA would devastate the U.S. sugar industry. We are, therefore, expending all possible resources and energy to urge Congress to defeat this ill-conceived 

agreement. 

Thank you. 

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146 

Mr. SHAW. Thank you for your testimony. Mr. Ferrara. 

STATEMENT OF SALVATORE FERRARA, PRESIDENT, FERRARA 

PAN CANDY COMPANY, CHICAGO, ILLINOIS, ON BEHALF OF 

THE NATIONAL CONFECTIONERS ASSOCIATION 

Mr. FERRARA. Chairman Shaw, Members, I am Salvatore Ferrara, II, President and CEO of Ferrara Pan Candy Co., 

headquartered in Chicago, Illinois. I am here today to ask Congress 

to approve the FTA between the Dominican Republic and the five 

Central American countries. This agreement deserves Congress’ 

strongest support because it will deliver solid economic benefits to 

the United States. Almost $3 billion in increased export sales to 

the region are projected because it upholds the important principle 

that trade agreements negotiated by our country should be comprehensive. No product or sector should be excluded if we are to get 

the best deal for the American people. My grandfather came here 

from Italy in the late 1800s and started Ferrara Pan Candy Co. in 

Chicago in 1908. It remains family-owned today. We manufacture 

approximately 200 popular sugar and chocolate confectionery products. We employ approximately 1,000 people worldwide, 500 now in 

the United States, and generate employment for an estimated 

1,500 additional people in the service and distribution sectors within the Chicago area. The greatest contemporary challenge in my industry has been the introduction of the U.S. Sugar Program in the 

eighties and the consequent increase in price of sugar, our principal raw material, to levels double and triple world prices. 

It is estimated that as many as 26,500 jobs have been sacrificed 

in the food processing sector since 1997 owing to the high price of 

sugar imposed by the program. The New York Times reported that 

confectionery employment in Chicago alone declined from 13,600 in 

1995 to 7,000 in 2004. My company went from about 1,000 U.S. 

employees to under 500 during this same time period. The loss of 

food processing and confectionery manufacturing does not happen 

in isolation. It has significant adverse consequences for U.S. farmers who supply key ingredients to the industry such as sugar, corn, 

dairy, peanuts and almonds, and for the industrial and service sectors that support the industry. 

Congress and the Administration play an important role in keeping American business competitive. Trade agreements such as DR– 

CAFTA create millions of new customers. They remove tariffs and 

non-tariff barriers to U.S. exports, and in some cases create market 

access where none existed before. These agreements can also help 

lowerer the cost of raw materials available to domestic manufacturers. In this agreement, some 80 percent of the tariffs on U.S. exports of consumer and industrial goods, as well as 50 percent of the 

tariffs on agricultural exports to the region, will go to zero immediately. When DR–CAFTA is fully implemented, U.S. processed 

food exports to the region could increase by as much as 84 percent, 

with an estimated value of $662 million. Furthermore, according to 

a study just released by the National Association of Manufacturers, 

the elimination of tariffs will not only increase overall exports to 

the region, but will help U.S. exports remain competitive against 

China and other low cost Asian providers by eliminating tariffs on 

U.S. origin goods. As Congress is keenly aware, China is a major 

147 

challenger to the global and regional trade areas, including the 

Americas. If DR–CAFTA fails, other countries will very likely step 

up to the plate and negotiate agreements with these Central American countries. 

Some would have you reject this agreement because a very small 

quantity of sugar is included, equivalent to 1 percent of the U.S. 

supply. They claim plunging prices will cause irrevocable damage. 

According to the ITC, the impact on domestic sugar would be less 

than one-quarter of one cent. The facts are that the U.S. sugar producers will not be harmed, and U.S. agriculture and manufacturing 

will benefit substantially. Sacrificing the American confectionery 

and food manufacturing industry in order to exempt one commodity 

is not a sustainable strategy, and will not result in increasing manufacturing jobs in America. 

There are FTAs in the process of negotiation, and each one is an 

opportunity. The ongoing WTO negotiations will be our principal 

opportunity to open markets globally and address foreign governments’ subsidy practices, which disadvantage U.S. farm exports. 

The DR–CAFTA is the first test of whether or not the United 

States is prepared to deal with everything on the table, and, in 

doing so, get the best results for the American economy. I urge you 

to not let us fail this test and to enact the DR–CAFTA agreement 

without any changes to the sugar provision. Thank you. 

[The prepared statement of Mr. Ferrara follows:] 

Statement of Sal Ferrara, President, Ferrara Pan Candy Company, 

Chicago, IL, on behalf of the National Confectioners Association 

Chairman Thomas, Ranking Member Rangel, Members of the Committee. 

I am Salvatore Ferrara, President of Ferrara Pan Candy Company based in Chicago, Illinois. I am here to represent my own Company and the United States confectionery industry; and to stand with the many companies and associations from 

business and agriculture who are asking Congress to approve the free trade agreement with the Dominican Republic and the five Central American countries. This 

Agreement deserves Congress’s strong support because it will deliver solid economic 

benefits to the United States—almost $3 billion in increased export sales to the region are projected—and because it upholds the important principle that trade agreements negotiated by our country should be comprehensive. No product or sector 

should be excluded if we are to get the best deal for America. 

My grandfather came from Italy to the United States in the late 1800’s and started the Ferrara Pan Candy Company in Chicago in 1908. It remains family owned 

today. We manufacture approximately 200 popular sugar and chocolate confectionery products. We employ 1,000 people total worldwide—500 now in the U.S.— 

and generate employment for an estimated 1,500 additional people in the services 

and distribution sectors in the Chicago area. 

Survival has not been easy. The greatest contemporary challenge has been the introduction of the U.S. sugar program in the 1980’s and consequent increase in the 

price of sugar—our principle raw material—to levels double and triple the world 

price. It is difficult to remain competitive either domestically or globally under this 

circumstance. It is estimated that as many as 26,500 jobs have been sacrificed in 

the food processing sector since 1997 owing to the high price of sugar imposed by 

the program. The New York Times reported that confectionery employment in Chicago alone declined from 13,600 in 1995 to 7,000 in 2004. My own company went 

from over a thousand U.S. employees to under 500 during that same time period. 

The loss of food processing and confectionery manufacturing does not happen in isolation. It has significant adverse consequences for U.S. farmers who supply key ingredients to the industry such as sugar, corn, dairy, peanuts, and almonds; and for 

the industrial and service sectors that support the industry. 

I have been involved in business all my life and fully understand the challenge 

of staying competitive. In the long term it means better products, better service, and 

keen attention to delivering value to the consumer. However, Congress and the Administration also play an important role in keeping American business competitive. 

148 

Trade agreements such as CAFTA–DR create millions of new customers. They remove tariff and non-tariff barriers to U.S. exports and in some cases create market 

access where none existed before. These agreements can also help make lower cost 

raw materials available to domestic manufacturers, including in the food industry, 

and this is vitally important in a price competitive global environment. 

In this Agreement some 80% of the tariffs on U.S. exports of consumer and industrial goods, and 50% of the tariffs on agricultural exports to the region will go to 

zero immediately. The elimination of tariffs is important to business because high 

tariffs make products such as processed foods and confectionery unaffordable for 

consumers especially in developing countries. When the CAFTA–DR is fully implemented, U.S. processed food exports to the region could increase by as much as 84% 

with an estimated value of $662 million. 

Furthermore, according to a study just released by the National Association of 

Manufacturers, the elimination of tariffs will not only increase overall exports to the 

region but will help U.S. exports remain competitive against China and other low 

cost Asian producers by eliminating tariffs on U.S. origin goods. As Congress is 

keenly aware, China is a major challenger in the global and regional trade arenas 

including the Americas. 

The process of negotiating these agreements also provides a rare opportunity, and 

critical leverage, for eliminating non-tariff barriers in foreign markets. Non-tariff 

barriers are more subtle than tariffs but in some cases more damaging to U.S. exports. Trade agreements have shown themselves to be the most effective tools we 

have to dismantle long standing barriers. 

Some would have you reject this agreement because a very small quantity of 

sugar is included equivalent to about 1% of the U.S. supply. They claim plunging 

prices and irrevocable damage. According to the International Trade Commission, 

the impact on the domestic sugar price would be less than one quarter of one cent. 

The facts are that U.S. sugar producers will not be harmed and U.S. agriculture 

and manufacturing will benefit substantially. 

I respectfully encourage an offensive rather than defensive approach to all trade 

agreements. One that focuses on opening new markets, creating new customers, and 

helping make our domestic industries more competitive. Sacrificing the American 

confectionery and food manufacturing industry in order to exempt one commodity 

is not a sustainable strategy and will not result in increased manufacturing jobs in 

America. 

There are more free trade agreements in the process of negotiation and each one 

is an opportunity. The ongoing World Trade Organization negotiations will be our 

principal opportunity to open markets globally and address foreign government subsidy practices which disadvantage U.S. farm exports. The CAFTA–DR is the first 

test of whether or not the United States is prepared to deal with everything on the 

table and in doing so get the best results for the overall U.S. economy. I urge you 

not to let us fail this test and to enact the CAFTA–DR Agreement without any 

changes to the sugar provision. 

Thank you. 

f 

Mr. SHAW. Thank you. Mr. Shuster. 

STATEMENT OF GEORGE SHUSTER, CHIEF EXECUTIVE OFFICER, CRANSTON PRINT WORKS, CRANSTON, RHODE ISLAND, 

AND CO-CHAIRMAN, AMERICAN MANUFACTURING TRADE 

ACTION COALITION 

Mr. SHUSTER. Thank you. I am the CEO of Cranston Print 

Works, the Nation’s oldest textile company. I am also Co-Chair of 

AMTAC. The American Manufacturing Trade Action Coalition was 

founded by domestic manufacturers who are committed to manufacturing here in the United States. We strongly opposes DR– 

CAFTA because it replicates and even worsens the flawed trade 

policy model of NAFTA. In fact, 85 percent of the language of DR– 

CAFTA is the same as NAFTA, and the other 15 percent is worse. 

This model involves the granting of free access to the U.S. market 

for producers that use low wage labor and poor environmental 

standards to undercut U.S. domestic manufacturers. In return, 

149 

U.S. domestic manufacturers gain access to markets that are a 

fraction of the U.S. market. The DR–CAFTA consumers only represent 1.86 percent of the U.S. economy. The results of this failed 

model are predictable. The DR–CAFTA, like NAFTA, will exacerbate the huge U.S. trade deficit. The United States has gone from 

a $1.6 billion surplus with Mexico in 1993 to a stunning $48 billion 

deficit last year. In addition, DR–CAFTA is riddled with loopholes 

that allow duty-free treatment for assembly of component parts 

from every corner of the globe. The textile provisions in DR– 

CAFTA are even worse than the NAFTA model. These loopholes include Tariff Preference Levels (TPL), accumulation and even suspension of rule of origin requirements altogether in certain key categories. 

The DR–CAFTA loopholes allow countries such as China to ship 

500 to 700 million square meters of fabric for assembly in Central 

America that then enters the United States duty free annually. 

These loopholes were included despite repeated requests by a 

united U.S. textile industry not to do so. One hundred and forty 

one Members of Congress echoed this message in a letter to the 

President dated September 17, 2003. Astonishingly, certain proponents of this agreement argue that the U.S. textile industry 

needs DR–CAFTA in order to compete with China. China possesses 

numerous cost advantages. The combination of these assets with 

China’s rampant use of predatory trade practices only makes China 

more capable of exploiting the loopholes that DR–CAFTA will give 

it. Thus, China is going to be one of the largest beneficiaries of the 

agreement, while giving up nothing in return. Even if all these 

loopholes were closed, a U.S.-Central American production platform 

will not be the magic answer. Look at Mexico. When quotas were 

removed for 29 textile and apparel categories in 2002, Chinese exports to the United States surged dramatically and exports from 

Mexico fell sharply. Despite having an FTA and land bridge with 

the United States, Mexico lost 75 percent of its share of the U.S. 

market to the Chinese in categories released from quota. Meanwhile, China’s share of the U.S. market increased almost tenfold. 

NAFTA did nothing to stop it. Consequently, if the United States 

does not confront China’s predatory trade practices directly, DR– 

CAFTA will become a moot issue as China overruns the U.S. market. That is bad for the United States and bad for Central Americans and DR–CAFTA will only exacerbate the problem. Do not be 

misled: Voting for DR–CAFTA is a vote for China and a vote 

against American manufacturing. 

Some proposed solutions: first and most important, we must reverse the current trade policy, by which all the governmentally imposed conditions of trade are designed to punish U.S. exports relative to imports. The average U.S. tariff is 1.6 percent, hardly protectionist, but our exports face an average of 40 percent. This distortion is replicated in all the other governmentally imposed conditions of trade, whether non-tariff barriers, regulation, subsidies, 

State sponsorship, currency manipulation, tax policy and so on. 

The cumulative impact of these components of our trade policy is 

devastating. It all goes back to the basic Econ-101 guns and butter 

lecture. If society taxes butter at 40 percent and guns at 1.6, a 

misallocation of societal resources will result; too many guns, not 

150 

enough butter. So, our enormous trade deficit is no surprise. To 

those who claim ‘‘it is the inevitable result of globalization,’’ I say, 

no, no, no! It is a self-inflicted wound. U.S. trade policy is not free 

trade, which is a two-way concept. It is, rather, import maximization, and DR–CAFTA is yet another way to make sure we have 

more imports. 

Second, the United States should focus only on trade agreements 

with countries that actually produce finished U.S. goods, such as 

Great Britain or Italy. Third, the United States must insist that all 

future trade agreements share the benefits only between the contracting parties and not give any more back-door avenues to the 

U.S. market through sieve-like trade deals. Fourth, the United 

States must tackle the China problem head on. My written testimony summarizes some of the necessary steps. Fifth, Congress 

must assert its constitutional authority over trade policy. Instead 

of embracing this responsibility, Congress has severely diluted it by 

passing laws designed to place trade policy in the hands of the executive branch. Finally, Congress should require an independent 

trade impact study prior to the consideration of all proposed trade 

legislation. Such a study should produce a trade deficit impact 

statement so that Congress would know in advance whether the 

proposed trade deal would lessen the strayed deficit or make it 

worse. Thank you. 

[The prepared statement of Mr. Shuster follows:] 

Statement of George Shuster, Chief Executive Officer, Cranston Print 

Works, Cranston, RI, and Co-Chairman, American Manufacturing Trade 

Action Coalition 

Mr. Chairman and Members of the House Ways & Means committee: 

Thank you for this opportunity to testify at this important hearing. My name is 

George Shuster, and I am the Chief Executive Officer of Cranston Print Works, located in Cranston, Rhode Island. Cranston Print Works is the oldest textile company in the United States, originally established in 1824 as cotton printing plant 

founded by Rhode Island governor, William Sprague. Today, Cranston Print Works 

is a high quality printer of all types of fabrics with various end-uses. We employ 

the most technologically advanced printing production techniques, which have 

earned Cranston Print Works the reputation of being one of the finest fabric printing companies in the world. 

In addition, I serve as a Co-Chairman of the American Manufacturing Trade Action Coalition (AMTAC). AMTAC is a trade association founded by domestic manufacturers who are committed to manufacturing here in the United States. Our objective is to seek the establishment of trade policy and other measures designed to stabilize the U.S. industrial base and thus preserve and create American manufacturing jobs. AMTAC represents a wide range of industrial sectors including, tool and 

die, chemical, furniture, mold makers, metal products, packaging products, corrugated containers, lumber and luggage producers. Additionally, a significant component of AMTAC’s membership consists of producers from the yarn, fabric, dyeing 

and finishing, and apparel sectors. 

AMTAC strongly opposes the Central American Free Trade Agreement (CAFTA). 

Our opposition is based on the view that CAFTA replicates the flawed trade policy 

model of the NAFTA, Singapore, Chile and Morocco trade agreements. This model 

involves the granting of free access to the U.S. market for producers that use pennies-an-hour wages, low labor standards, and low environmental standards to undercut U.S. domestic manufacturers. In return, U.S. domestic manufacturers gain 

access to markets that are a fraction of the value of the U.S. market. CAFTA consumers, for example, only represent 1.86 percent of the U.S. economy and have virtually no ability to purchase finished goods made in countries that pay high wages 

and have strong environmental, labor, safety, and health standards. 

The results of this failed model are clearly predictable. CAFTA will exacerbate the 

already astronomical U.S. trade deficit. One need only study the impact of NAFTA, 

which is virtually identical to CAFTA, to determine the outcome. 

151 

In the early 1990’s, NAFTA was sold to the American public as a vehicle to substantially increase the minor U.S. trade surplus with Mexico which would in turn 

help to sustain and create millions of high-paying manufacturing jobs in our country. Assertions like the bold claim made below by the Institute for International Economics in October 1993 were common: 

‘‘. . . with NAFTA, U.S. export will continue to outstrip Mexican exports 

to the United States, leading to a U.S. trade surplus with Mexico of about 

$7 billion annually by 1995 . . . rising to $9 billion to $2 billion between the 

years 200 and 2010.’’ 

Mr. Chairman, eleven years after adoption of NAFTA the facts demonstrate that 

nothing could be further from the truth. The U.S. has gone from a $1.6 billion surplus with Mexico in 1993 to a stunning $48 billion deficit last year. From surpluses 

before NAFTA, we have gone to continuous deficits since. Over this period, hundreds of U.S. factories have closed and relocated south of the border in order to take 

advantage of the low production costs in Mexico, while still enjoying free access to 

the valuable U.S. market. Even more troubling, the U.S. department of Labor reports that 1.8 million workers have filed for Trade Adjustment Assistance as result 

of NAFTA. 

Today, proponents of CAFTA are purveying the same snake oil. The U.S. Chamber of Commerce claims substantial economic gains from CAFTA. But in the fine 

print of the study, the U.S. Chamber admits that it bases it conclusions on the assumption that exports from CAFTA countries will not increase to the United States! 

This assumption is preposterous, as U.S. imports have increased from all countries 

with which we have free trade agreements. 

CAFTA’s main purpose is clear: make it easier for U.S. companies to outsource 

high-paying manufacturing and service sector jobs offshore by guaranteeing investment rights and access to the U.S. import market. In addition, CAFTA rule-of-origin 

requirements are riddled with loopholes that allow U.S. duty free treatment for the 

assembly of component parts from every corner of the globe. The textile provisions 

in CAFTA illustrate this point perfectly and, in fact, to that extent, are even worse 

than the NAFTA model. 

CAFTA LOOPHOLES 

CAFTA destroys the existing incentives that have created the system where large 

amounts of American yarn, fabric and components are used in the production of apparel in CAFTA countries. 

It does this in two ways. First of all, CAFTA changes the ‘‘rule of origin’’ from 

what is currently in use under the existing preferential trade agreement with the 

region—the Caribbean Basin Trade Partnership Act (CBTPA). CBTPA requires 

(with one exception) the use of American yarn, fabric and components in order for 

apparel from CBTPA countries to be imported into the U.S. tax-free. This requirement is why $4.2 billion in trade has developed between American textile firms and 

CAFTA apparel makers. It has become the key export market for U.S textile and 

apparel makers. However, CAFTA eliminates the American only requirement 

and allows for American or Central American yarn, fabric and components to be 

used in garments accorded tax-free importation into the U.S. This is not only a provision for legal non-U.S. inputs, but also a tempting invitation for illegal transshipments. 

In addition to changing the rule of origin, CAFTA also contains numerous loopholes that will benefit countries that were not parties to the negotiation and did not 

have to give any type of concession in order to gain the benefits conferred under 

the CAFTA. The most likely beneficiary of this is the Chinese textile industry. 

When the Central American Free Trade Agreement (CAFTA) was being negotiated, the U.S. textile and apparel industry adopted a unified platform urging the 

Administration to negotiate a CAFTA with NO loopholes that would allow for nonregional yarn and fabric. 

The industry sent a letter to the President on July 7, 2003 urging him to reject 

any loopholes that would permit foreign suppliers to benefit at the expense of domestic manufacturers. Furthermore, 141 members of Congress echoed this message 

in a letter to the President dated September 17, 2003. However, the U.S. government agreed to a large number of loopholes in the yarn-forward rule of origin. These 

loopholes will benefit Mexican, Canadian and Asian (likely Chinese) textile businesses and their workers at the expense of workers in the United States. 

Consequently, CAFTA is riddled with loopholes that will kill U.S. jobs. The chart 

below outlines these loopholes and the number of U.S. factories that will likely close 

as a result. 

152 

Loopholes Amount 

1. Cumulation—Mexican and Canadian fabrics may be used for woven trousers (a Mexican & Canadian TPL):—also contains a 

growth factor that is NOT dependent on 

growth of U.S. exports-also allows other FTA 

countries to latch on 

100 million square meters-could go up to 200 

million square meters.

2. Non-U.S. or CAFTA yarn and fabric allowed for brassieres, woven boxers and woven 

nightwear 

In 2004, 937 million square meters of dutyfree brassieres, underwear, and nightwear 

entered the U.S. under CBTPA.

3. Non-U.S. or CAFTA yarn and fabric for 

Nicaragua apparel. 

100 million square meters.

4. De minimus level raised from 7 to 10 percent 25 million square meters.

5. Retroactive duty breaks to Jan. 2004 for 

importers and retailers 

Encourages movement from U.S. yarns and 

fabric to regional or foreign yarns and fabric 

in 2004 and beyond.

6. Certain fabrics—pocketings, waistbands, 

interlinings and trim can be sourced form any 

country. 

Eliminates incentive to use U.S. pocketing 

and other components. In 2004, 175 million 

square meters of these components were used 

under CBTPA.

Total damaged caused by loopholes/ 

side deals 

Initial impact: 500–700+ million square 

meters.

Especially noteworthy is the second loophole listed above which would allow Chinese and other third-party yarn and fabric for brassieres, woven boxer shorts and 

woven nightwear. This renders useless the special China textile safeguard that the 

Administration imposed last year on these very products and is considering re-imposing this year! Thus Chinese yarns and fabrics may legally displace U.S. yarns and 

fabrics in the production of garments in the CAFTA countries and those garments 

can still be imported into the U.S. duty-free! 

To summarize, some 500 to 700 million square meters equivalent of yarn, fabric 

and components can be sourced from countries outside the CAFTA—U.S. region. 

Therefore, non-signatory countries like China gain duty-free access to the American 

market without giving up a reciprocal benefit. It will also mean lost contracts for 

U.S. businesses, closure of at least 10–15 U.S. textile facilities in the near term, and 

the loss of thousands of American jobs. 

China and CAFTA 

Certain proponents of this agreement argue that the U.S. textile industry needs 

CAFTA in order to compete with China. In other words, the only way to prevent 

a monopolization of the U.S. market by the onslaught of Chinese textile imports is 

to marry it with low-wage production platforms like those in the CAFTA countries. 

This will provide a ‘‘regional bulwark’’ against the Chinese. 

I wish this were the case and that counteracting China was as simple as passing 

CAFTA. Unfortunately, believing that CAFTA will help this hemisphere combat 

China requires one to ignore the lessons of the past as well as current realities of 

trade. 

In the previous section of my testimony, I clearly identified the various loopholes 

included in the agreement that enable China to ship components to the CAFTA 

countries for assembly. It is illogical to argue that CAFTA will keep China in check 

when China is going to be one of the largest beneficiaries of the agreement while 

giving up nothing in return. 

But even if all these loopholes were closed, it is still nonsensical to purport that 

some formulation of a U.S./Central American production platform will be the magic 

combination of technology and low-wages to compete with the Chinese juggernaut. 

Obviously, China possesses numerous advantages such as low labor costs, a large 

workforce, natural resources, etc. However, combining these inherent advantages 

with its rampant use of predatory trade practices is what really makes China 

unstoppable. 

153 

1 2004 Report to Congress of the U.S.-China Economic and Security Review Commission, June 

2004. The report is available online at http://www.uscc.gov/researchreports/2004/ 

04annual.report.pdf. 

In its 2004 Report to Congress, the U.S.-China Economic and Security Review Commission stated: 

China is continuing to attract massive levels of foreign direct investment 

(FDI), including $57 billion in 2003. Its policies to attract FDI have been 

supplemented by industrial policies aimed at developing national productive capacity in selected ‘‘pillar’’ industries. These policies support Chinese 

corporations through a wide range of measures that include tariffs, limitations on access to domestic marketing channels, requirements for technology transfer, government selection of partners for major international 

joint ventures, preferential loans from state banks, subsidized credit, privileged access to listings on national and international stock markets, discriminatory tax relief, privileged access to land, and direct support for 

R&D from the government budget. Such policies give Chinese industry an 

unfair competitive advantage, thereby contributing to erosion of the U.S. 

manufacturing base. Many of these policies are not permitted under World 

Trade Organization (WTO) and U.S. trade rules.1

We have already seen that China’s absolute advantages outweigh preferential 

trading arrangements and close proximity once before with Mexico and NAFTA. We 

do not have to speculate about this. 

When quotas were removed under the Uruguay Round agreement for 29 textile 

and apparel categories in 2002, Chinese exports to the United States surged dramatically, and exports from Mexico fell sharply. 

Exports from Mexico to the U.S. in these de-controlled categories have fallen by 

45 million square meters over the last three years, with Mexican exports dropping 

from 85 million square meters to 40 million square meters. Mexican market share 

declined from 8 percent in 2001 to 2 percent in Nov. 2004. At the same time, China 

moved from a ten percent share to a 73 percent share. 

Obviously, Mexico has a free trade agreement with the U.S. Mexico is in the position that the CAFTA countries will be in if CAFTA is approved. Yet despite having 

a free trade agreement and land bridge with the U.S., Mexico lost seventy-five percent of its share of the U.S. market to the Chinese in categories released from quota. 

China has clearly monopolized trade in those categories, and NAFTA did nothing 

to stop it. 

Furthermore, since NAFTA, the Mexican total merchandize trade deficit with 

China has gone from $342 million in 1993, the year NAFTA was passed, to $14 billion in 2004. Over the same time period the U.S. merchandize trade deficit with 

China went from $23 billion to $162 billion. NAFTA has functioned as a back door 

for Chinese goods to enter the United States, as 98% of Mexico’s maquiladora exports go to the U.S., and the maquiladora trade balance with China has gone from 

roughly even in 1993 to a $12 billion deficit in 2005. 

154 

NAFTA has left Mexico and the U.S. defenseless against China’s massive economic growth. Why would CAFTA, a free trade agreement modeled after NAFTA, 

lead to a reversal of this trend? 

So what is the answer to China? 

In order to realistically address the China crisis, the U.S. must deal with China’s 

pervasive and predatory trade practices directly. China’s under valuation of its currency by approximately 40%, the $45 billion in non-performing loans it forgave in 

January of 2004, its subsidy in the form of lax intellectual property rights enforcement, and the countless other ways it subsidizes its industries need real solutions. 

Consequently, if the U.S. does not confront China directly, CAFTA will become 

a moot issue as China overruns the U.S. market, taking business away from the 

U.S. and Central American industries. Allowing China to monopolize the U.S. market is bad for the U.S. and bad for Central Americans, and CAFTA will only exacerbate the problem. 


Insert offset folio 23918a.020
155 

Do not be misled. Voting FOR CAFTA is a vote FOR CHINA and a vote AGAINST 

American manufacturing! 

CONCLUSION 

In conclusion, it is clear that CAFTA replicates the flawed policy model that has 

lead to millions of job losses, crippled key manufacturing sectors such as the U.S. 

textile industry, and badly damaged the U.S. economy. 

Instead of perpetuating this flawed model, Congress should insist on policies that 

prevent the outsourcing of high-paying jobs, the destruction of America’s industrial 

base and the exporting of America’s strongest long-term wealth creating assets. 

In that regard, I would propose the following steps: 

In order to get our exploding trade deficit under control, we should only focus on 

trade agreements with countries that can actually purchase finished U.S. goods, 

such as Great Britain or Italy. Accordingly, Congress should defeat CAFTA and any 

other proposed free trade agreements with countries that will simply serve as low 

cost export platforms to the U.S. market. 

Second, the U.S. must insist that all future trade agreements share the benefits 

only between the contracting parties. This means precluding the inclusion of loopholes like TPLs, single transformation, and exemptions for so called ‘‘non-essential’’ 

fabrics or components. China’s manufacturing sector already has enough advantages 

with the backing of its government’s massive illegal subsidy schemes. Congress does 

not need to give China any more back-door avenues to the U.S. market through 

sieve-like trade deals such as CAFTA. 

Third, the U.S. must tackle the China problem head on. Pass legislation making 

it easier to file anti-dumping and countervailing duty lawsuits against non-market 

economies. Halt any efforts to kill the Byrd Amendment. Pass legislation that directs the U.S. government to hire more officials to monitor and litigate violations 

of trade agreements and intellectual property agreements. Stop the exportation of 

critical military industrial sectors like electronics, soft ware production, textiles and 

machine tooling. Put pressure on the Administration to impose safeguards on Chinese imports of textile and apparel products. 

Fourth, Congress must reassert its authority over trade policy. The Founding Fathers gave Congress the sole authority to regulate foreign trade for a reason. Congress, and specifically the U.S. House of Representatives is the branch of government designed to be closest, and therefore most responsive, to the people. Instead 

of embracing this responsibility, Congress has severely diluted it by passing Trade 

Promotion Authority (TPA), Permanent Normal Trade Relations (PNTR) status for 

China and other laws designed to consolidate authority to place trade policy in the 

hands of the Executive Branch. As a result, on critical issues such as CAFTA, the 

legislation cannot be amended and it is considered under an expedited timeframe 

that no other legislative policy initiatives enjoy. This leverage must be reversed. 

Congress should withdraw both TPA and PNTR for China and reassert its rightful 

authority over the Executive Branch in trade policy matters. 

Finally, Congress should require an independent trade impact study prior to the 

consideration of all proposed trade agreements and major trade bills. Do we expect 

the Executive Branch, which authored the concept and the text of CAFTA to give 

an objective view of its projected benefits? Congress must have an independent 

source of information to determine basic issues such as whether a proposed agreement is going to benefit U.S. producers or whether it will increase or diminish the 

trade deficit. 

While these are not all of the changes needed to rectify the flawed trade policies 

responsible for America our nearly $4 trillion trade deficit since 1990, they do represent a good start. 

Thank you again for this opportunity to testify today and for your consideration 

of my views. 

f 

Mr. SHAW. Thank you. Mr. Ouellette. 

STATEMENT OF JACK OUELLETTE, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AMERICAN TEXTILE COMPANY, PITTSBURGH, PENNSYLVANIA, AND MEMBER OF THE BOARD, 

AMERICAN APPAREL FOOTWEAR ASSOCIATION 

Mr. OUELLETTE. Mr. Shaw and Members of the Committee, 

thank you for your endurance today. My name is Jack Ouellette. 

156 

I am President and CEO of American Textile Co., and I am also 

a Board member of the American Apparel and Footwear Association. Our company is located in Pittsburgh, Pennsylvania, and we 

sell mattress protectors, pillow protectors and pillows to the largest 

retailers in this country. I would like to talk to you about two 

points today, the first one being how we were able to create U.S. 

jobs and still continue sourcing in El Salvador; and, second, to talk 

about why DR–CAFTA is important to American textile companies 

and companies like ours. 

A little bit of background. We are an 80-year-old company. Seventy of those years we were a manufacturer in Pittsburgh and we 

wanted to remain a manufacturer. However, in the late eighties 

our market share began to erode, so we decided to really emphasize 

products crafted with pride in the USA. Unfortunately, our buyers 

and the consumers didn’t respond, our prices were too high, so in 

the mid-nineties we started to look beyond Pittsburgh for another 

solution and we decided to have our cutting and sewing done in El 

Salvador. The results have been remarkable. Today, we are the 

largest supplier of mattress covers and pillow covers in this country. Our company is growing again. We have replaced sewing jobs 

with higher paying jobs in areas such as product development, 

warehouse management, production planning and marketing and 

sales analysis. Here is a great visible byproduct of what has happened: We built a $7 million office and distribution center on top 

of an old steel mill, a brownfield site. The land was owned by Andrew Carnegie, who conveyed it to J.P. Morgan. We are making it 

productive land again. We are also part of the economic redevelopment of that particular community. 

Why is DR–CAFTA important to American textile? We prefer to 

manufacture in the USA. It is just a heck of a lot easier, but we 

also have to be very brutally honest with ourselves, and that model 

doesn’t work anymore. We have a strong desire to remain in the 

Americas, and DR–CAFTA helps in several ways. First, duties on 

our products would be eliminated—and, by the way, we still pay 

duties on our products coming up from Central America. Our prices 

will be more competitive, and we are going to be able to keep our 

advantage of speed to market because of Central America’s proximity to Pittsburgh. So, I ask, what happens if DR–CAFTA passes? 

How will we respond? We will buy more fabric made in the United 

States, or made from U.S. yarns, and that will preserve jobs in Alabama and North Carolina, for example. We will continue to do 

business in Central America and the duty savings that we realize 

will be re-invested in our business, and here is how that will work. 

We will take U.S. fabric, or fabric made from U.S. yarns, have 

them cut and sewn into pillow shells. Those pillow shells will be 

sent back up to the United States where they will be filled, sewn, 

packaged, warehoused and ultimately shipped from our Pittsburgh 

location. We have already invested half a million dollars in that effort, and we would like to see our Central American partners grow 

with us in that regard. 

If DR–CAFTA does not pass, here is what we see. We will gradually move away from Central America. We will source fabrics, regardless of their origin. We know that there is India, Pakistan, 

China as possible resources. The infrastructure we created in CenVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00160 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
157 

tral America will decline; that is, weavers, packagers, cutters, sewers. Those jobs will not come back to the United States; they are 

just going to go to other venues. I would like to ask for your support of DR–CAFTA for three primary reasons. The first one, it can 

preserve and create jobs in the United States. Second, it makes the 

Americas more globally competitive. Finally, it promotes democracy 

and economic development in countries just south of our border, 

and I think that is a very positive thing for our country. Thank 

you. 

[The prepared statement of Mr. Ouellette follows:] 

Statement of Jack Ouellette, President and Chief Executive Officer, American Textile Company, Pittsburgh, PA, and member of the Board, American Apparel & Footwear Association 

Mr. Chairman, members of the Committee. Thank you for the opportunity to talk 

with you today. My name is Jack Ouellette, President and CEO of American Textile 

Company and a member of the Board of the American Apparel & Footwear Association (AAFA). Our textile business is located in the heart of the rust belt in Pittsburgh, PA. We supply mattress covers, pillow covers and pillows to the most of this 

country’s largest retailers. 

My comments will focus on two ideas: 

1. How contracting in Central America has created jobs in the U.S. 

2. Why CAFTA–DR is important to the future of our company and others like ours. 

BACKGROUND 

American Textile is an 80 year old, privately held business. The first 70 years of 

our history were devoted to cutting, sewing and packaging textile bedding products. 

One of our big initiatives in the 1980’s was to emphasize products that were ‘‘Crafted With Pride in the USA’’. Neither our customers nor consumers responded positively. Our prices were too high and our products were viewed as a commodity. Others could produce similar products more cheaply. Our market share began to erode. 

In the early 1990’s we forced ourselves to look beyond Pittsburgh and to adapt to 

changes in the world economy. We embarked on three important initiatives that 

saved our business from obscurity: 

1. We began importing vinyl mattress covers and pillow covers from China, the 

worlds low cost producer of vinyl sheeting. 

2. We began sewing cloth covers in El Salvador to take advantage of labor rates 

that were globally competitive in a country only a 4-day boat trip from the U.S. 

3. We partnered with 3M Company to utilize a high tech fabric that we made into 

unique allergen barrier bedding. 

A SUCCESS STORY 

The results have been remarkable and representative of what is good for this 

country. 

1. Today we are the largest supplier of mattress and pillow covers to U.S. 

retailers. 

2. We are the largest U.S. importer of vinyl bedding products 

3. Our company revenues have increased on average 11% per year over the last 

5 years 

4. U.S. sewing jobs have been replaced with higher paying U.S. jobs such as: 

a. product development 

b. computer programming 

c. marketing 

d. production planning 

e. purchasing 

f. sales analysis 

g. manufacturing controls 

h. warehouse management 

5. Two years ago we built a new $7 million headquarters and distribution center 

just outside of Pittsburgh. And the new construction has a unique history. 

a. It is built on top of an old U.S. Steel plant. 

b. The first land owner on the deed was Andrew Carnegie who conveyed the 

property to JP Morgan. 

158 

c. We are part of the revitalization of brown field sites in Pittsburgh. 

d. We are contributing to the economic redevelopment of an area once depressed from the loss of steel making jobs. 

WHY IS CAFTA IMPORTANT? 

We would prefer manufacturing in the USA because it is easier. However, being 

brutally honest with ourselves, we realize that sewing jobs will not come back to 

this country. We are part of a much larger global economy, one in which the government becomes our partner in making trade agreements. We are obviously not opposed to trading with China. But we do have a strong desire to keep as much trade 

in this hemisphere. CAFTA helps us accomplish that goal in several ways: 

1. Duties ranging from 7% to 12 % will be eliminated 

2 Our prices will be more competitive with those from Asia 

3. We will keep our speed to market advantage vs.Asia 

4. Our investments in this hemisphere will be maintained. 

WHAT DOES CAFTA MEAN FOR THE TEXTILE AND APPAREL INDUSTRY 

IN GENERAL? 

U.S. textile companies are already dependent upon CAFTA countries. In 2004, 

25% of all U.S. fabric exports and 40% of all U.S. yarn exports went to CAFTA countries. Between 1999 and 2004, U.S. yarns and fabric exports to the region grew by 

$2 billion—accounting for nearly all of the $2.4 billion U.S. yarn and fabric export 

growth to all markets. 

CAFTA creates fresh incentives to use U.S. yarn and U.S. fabric because the existing program will be made: 

1. Permanent. 

2. Reciprocal 

3. Broader (to cover products such as the ones we make) 

4. More flexible 

5. Simpler. 

WHAT WILL WE DO IF CAFTA PASSES? 

1. We will buy more U.S. fabric made with U.S. yarns because the agreement 

incentivizes us to do so. 

a. his creates jobs for our textile suppliers in Alabama and North Carolina, 

and elsewhere. 

2. Our business will grow in the U.S. and in Central America. 

a. This preserves and grows job opportunities in both areas. 

3. We will reinvest duty savings into our latest initiative: making bed pillows in 

the U.S. Here is how that will work: 

a. Pillows are too expensive to import from Asia. 

b. We have already invested $500,000 in pillow making equipment. 

c. Pillow shells will be made in El Salvador generally from fabrics made from 

U.S. yarns. 

d. Pillows will be made in, and shipped from, Pittsburgh. 

e. Pillow sewing, filling, packaging and machine maintenance jobs will be created in the U.S. 

WHAT WILL HAPPEN IF CAFTA DOES NOT PASS? 

1. We will gradually move away from Central America and source from Asia and 

other low cost countries. 

2. We will source fabric regardless of fabric and yarn origin. 

3. Our infrastructure (investments) in Central America will begin to shrink. We 

purchase the following type goods and services in the United States and Central America today: 

a. Fabric woven in North Carolina and Alabama. 

b. Fabric woven in Guatemala from cotton, poly cotton and 100% polyester 

c. Zippers 

d. Thread 

e. Packaging supplies 

f. Cutting, sewing and packaging services 

4. But please note, these jobs will not come back to the U.S., they will go to other 

parts of the world 

CONCLUSION 

On behalf of American Textile and other companies like ours, I ask for your support of CAFTA for the following reasons: 

1. It will preserve and create jobs in the U.S. 

159 

2. Jobs will remain in this hemisphere. Strong free trade in this hemisphere creates security and social benefits of interest to the U.S. 

3. In the process we will be improving the lives of thousands of people in Central 

America. We travel there often and have seen the difference we have made. 

f 

Mr. SHAW. Thank you. I want to thank all the panel members 

for their testimony. As can be expected, and as planned, we have 

different views, so, the study and the information that we have can 

be balanced coming to this Committee. Mr. Shuster, I assume you 

have been here all day, you were listening to the Trade Representative and his testimony, and the testimony, up until you started 

your testimony, was that the cut and sew shops and those in Central America that would develop as Mr. Ouellette has talked about 

is going to attract raw material textiles from the United States 

which otherwise would be coming from cut and sew shops in China, 

which would have no interest in buying American textiles. I am 

trying to close the gap between you and the information that we 

received from the gentlemen to your left as well as from the Trade 

Representative. Could you just sum up your observations there? 

Mr. SHUSTER. Yes. It is a question of the net impact. The problem is that DR–CAFTA has so many loopholes in it, and if you 

combine that with the intelligence that I am sure that you see 

daily about what China is doing in the region, you realize that 

there is going to be a substitution effect. In other words, it is true 

that in the Caribbean area already, because of the CBI, there is a 

use of U.S. fabrics, but it is going to be less as a result of this 

agreement, because there weren’t the loopholes before, and now 

there are the loopholes. That is why, basically earlier today there 

was some, of what I think, is somewhat sloppy math, or, let’s call 

it plausible, but wrong conclusions. Just because tariffs will go 

down that doesn’t mean that our textile exports will go up, because 

of the substitution effect. What we are going to find—we were told 

that NAFTA was going to be on net a major plus. It has turned 

out to be a major negative. So, I would be very leery of promises 

made in advance of these agreements. I would try to figure out 

what is really going to happen. I am telling you our analysis of 

what is going to happen is China will be the major beneficiary. 

One other slight thing you should know, because it is often hidden, once you allow, as these loopholes do, fabrics from other countries to be used, it creates an incredibly different transshipment opportunity than before. In other words, China, if you say only U.S. 

fabric can be used, as the situation is now to get duty free treatment, it is much more difficult to hide transshipments. If you say 

other countries’ fabric can be used, now you can allow things to 

start getting mixed up, and pretty soon you have developed large 

transshipment platforms so that China can have duty free access 

to the U.S. market. We are terribly afraid, in fact convinced, that 

is what is going to happen in fact. I hope that explains the history. 

Mr. SHAW. Yes, but the history has a lot of speculation in it too, 

but we all speculate. We know that. 

Mr. SHUSTER. Absolutely. 

Mr. SHAW. Mr. Roney, I want to talk to you a little bit about 

sugar. I am having problems with your testimony as to the loss of 

160 

jobs. As you are aware, the agreement itself provides that the U.S. 

Government can buy the sugar rather than letting it come into this 

country. Now, the sugar that you sell, and in your testimony you 

said that you have an overproduction right now and there is a surplus, under the subsidy that your industry receives by way of price 

supports, the Federal Government has purchased a lot of sugar in 

the last few years, or has paid for a lot of sugar. 

Mr. RONEY. No, sir. 

Mr. SHAW. You have not? 

Mr. RONEY. No, sir. We have been balancing the market by 

storing the sugar out of our own expense. The 2002 farm bill set 

up a no-cost policy for sugar farmers. We are deriving all of our income from the marketplace; we receive no income supports or subsidies. When we produce more sugar than the market needs, we 

store that at our own expense. The government is not storing that 

sugar. 

Mr. SHAW. You haven’t received any consideration for it, you 

say? It is still your sugar, it hasn’t been purchased from you? 

Mr. RONEY. We are holding about 600,000 tons off the market 

right now, just about 5 percent of the market, and storing that at 

our own expense. 

Mr. SHAW. How long can you do that? 

Mr. RONEY. It is expensive and it is difficult for us to do it, but 

what we fear with the DR–CAFTA is that an additional 100,000 

tons that we need to bring in will trigger off the market allotment 

program that Congress set up and that 600,000 tons would then 

come onto the market. So, we are looking in the short run at a 

massive effect on our market. Of course, in the long run, the precedent this would set for all the FTAs lined up behind the DR– 

CAFTA would make us vulnerable to literally millions of tons of 

foreign sugar. 

Mr. SHAW. You did mention that the ITC—and I understand the 

ITC determined that the worst case scenario for the domestic sugar 

industry is that the DR–CAFTA could cause a decrease in the price 

of sugar by one-fifth of one penny per pound. If sugar processors 

get price support loans from the government at 18 cents per pound 

for raw cane sugar and roughly 23 cents per pound for refined beet 

sugar, how can such a small drop in domestic price be so devastating to the domestic sugar industry and cause the wide unemployment that you spoke of in your testimony? 

Mr. RONEY. The ITC study is an interesting one, Mr. Chairman, 

because they underestimated the effect on sugar. They forgot to 

take into account that we have already committed about a quarter 

of a million tons of access to Mexico, and they thought that the 

DR–CAFTA sugar could come in under this supposed cushion 

below the amount that would trigger off the marketing allotment. 

Even though they underestimated that effect enormously, they 

came up with a job loss for sugar that was 38 times greater than 

job losses in the next most harmed sector, and that was textiles. 

The ITC, of course, also found, overall, after the 15-year implementation period, that the DR–CAFTA would increase our trade 

deficit with that region rather than decrease it, even though they 

far underestimated the effect on sugar. 

161 

Mr. SHAW. Mr. Ferrara, would you care to comment on the gentleman’s answer? 

Mr. FERRARA. Yes. First of all, I would like to state that the 

reality of the situation is that the jobs that are at risk, versus the 

jobs that are being protected by the sugar program, those jobs at 

risk outweigh those jobs by at least eight to one, by at least eight 

to one. So, if you talk about losing a farm job, I can tell you that 

in my small company, in the last 4 or 5 years, I have moved 500 

of my employees over the borders simply because of the sugar program. It had nothing to do with labor, contrary to what sugar 

might tell you. The purely economic reason is sugar. Second, Americans are paying approximately $2 billion more for sugar than they 

should be and carrying the burden of the sugar program. Last, the 

non-sugar farmers as well as ranchers who really depend on a lot 

of exports can really be harmed, really be harmed if we begin to 

exclude certain commodities within trade agreements. We would be 

limiting their ability to have access to other markets simply because we exclude sugar, so let’s exclude beef. I don’t think the gentleman two seats to my right would like that. 

I might note in Mr. Roney’s presentation, I have a copy of it here, 

that he does state, and I have to find it, here it is, ‘‘In some States 

sugar is the most important cash crop or among the most. Sugar 

accounts for 44 percent of the receipts in Louisiana, 37 percent in 

Wyoming, 24 percent in Hawaii and 10 to 20 percent in Idaho, 

Minnesota, Florida, North Dakota, Montana and Michigan.’’ My response to that, and I will take just the last group of States, Idaho, 

Minnesota, Florida, North Dakota, Montana and Michigan, that 

only tells me that 80 to 90 percent of the balance of crops are nonsugar, and I would think that we would want to give them the consideration of free trade and open markets by not protecting just 

sugar. 

Mr. SHAW. Yes, I know that. We did find out, and this was 

asked, I specifically asked it—sugar does get special treatment in 

DR–CAFTA, and I think to expand this would be a terrible mistake. I think too, Mr. Roney, I would say if the sugar industry 

brings down this trade agreement, I think there could be a terrible 

backlash. I think that sugar has been more than treated fairly in 

this regard, and I am very disappointed. When I heard that the 

agreement had been made, I was somewhat stunned by the generosity shown. However, that being stunned was outweighed by 

how stunned I was when I found that sugar was working strongly 

against DR–CAFTA all over the Hill after receiving this special 

treatment. Mr. Rangel? 

Mr. RANGEL. I pass. 

Mr. SHAW. Mr. Rangel passes. Mr. Brady? 

Mr. BRADY. Pass. 

Mr. SHAW. Mr. Levin. 

Mr. LEVIN. Maybe I should pass. Everybody has been so patient. 

Just very quickly, Mr. Roney, your position is that, if, through the 

WTO, all subsidies were eliminated, we could compete in sugar? 

Mr. RONEY. Yes, sir. 

Mr. LEVIN. Even though your chart shows, I think, that sugar 

cane, the cost of production was 26th, right? 

162 

Mr. RONEY. Our cost of production is below the world average. 

We have made some terrific gains through technology to get our 

costs down, despite the fact we are competing against developing 

countries which have much lower labor and environmental standards. Our view is that absent subsidies, that the world price would 

rise to reflect the actual cost of producing sugar, and since our 

costs are below the world average then we could compete on that 

level playing field. Of course, we can’t get there; agreements like 

DR–CAFTA wrench our market open without addressing any subsidies anywhere. 

Mr. LEVIN. Just quickly, Mr. Ouellette, under the apparel and 

textile agreement, the main advantage to you would be the elimination of the tariff? 

Mr. OUELLETTE. Elimination of the tariff is important, but also 

the speed to market is very important to us. 

Mr. LEVIN. Meaning? 

Mr. OUELLETTE. The fact that Central America is close to us. 

Mr. LEVIN. In terms of changes that DR–CAFTA would bring 

about, the main benefit would be the reduction of the tariff? 

Mr. OUELLETTE. That is the main benefit, yes, sir. 

Mr. LEVIN. There would be no benefit as to where you would 

source material? 

Mr. OUELLETTE. I don’t understand your question, sir. 

Mr. LEVIN. Well, there are provisions within this agreement 

that would allow sourcing from outside of the United States. You 

would not take advantage of any of those provisions? 

Mr. OUELLETTE. Yes, sir. What we would do is use, for example, Guatemalan weavers, but we would encourage them to use 

U.S. yarns. 

Mr. LEVIN. You would not expect any change in your sourcing 

from the United States as a result of DR–CAFTA and shift it to 

any place in Asia? 

Mr. OUELLETTE. No, sir. I think that it is going to encourage 

us to buy even more fabric from the United States. 

Mr. LEVIN. All right. You have plants where? 

Mr. OUELLETTE. In El Salvador. 

Mr. LEVIN. Under what name? 

Mr. OUELLETTE. Hilsal, H-I-L-S-A-L, located in San Salvador, 

just outside. 

Mr. LEVIN. Thank you. 

Mr. BRADY. [Presiding.] The gentleman from Wisconsin. 

Mr. RYAN. I will pass, only just to say for one minute—I guess 

I won’t pass—to the representative from the sugar industry that, 

I, too, am surprised at your opposition to this. The concessions that 

were made, I think, are very generous, and I think it is going to 

hurt your cause in the long run. I pass. 

Mr. RONEY. May I comment, sir? I would just say the U.S. 

sugar industry did not invite this negotiation. We did not suggest 

to the government that we do a series of FTAs with sugar exporting countries. Since 1986, at the start of the Uruguay round of the 

WTO, we have asked for genuine global reduction of sugar subsidies around the world through the WTO system, and we have 

also noted that sugar has been excluded from virtually every bilateral FTA done around the world. It was excluded from the U.S.- 

163 

Canada portion of NAFTA, it was excluded from the U.S.-Australia 

FTA that was just done last year, and that the USTR touts as one 

of the best trade agreements we have ever done. They gave up 

nothing to achieve that. Many FTAs have been done this way. Now, 

that has been the rule rather than the exception, and all that we 

ask, and we testified repeatedly to this extent to the Administration, was that they treat sugar in the DR–CAFTA as it has been 

treated in virtually every FTA that has been done around the 

world, reserve sugar for negotiation in the WTO, because it is the 

most uniquely distorted market in the world. That is the unfortunate circumstance we are in. As I said to Mr. Levin, we are competitive by world standards, but the world market for sugar is extremely distorted and does not reflect the cost of producing sugar. 

Mr. RYAN. I guess as a person who represents a State with another unique agricultural products, dairy, which is distorted in 

some sense all around the world, dairy was included in the Australia agreement. We got good concessions for dairy in the Australia agreement and dairy ended up supporting the Australian 

agreement because of it. I think you can make the point that other 

specialty commodities have been included and dealt with in these 

trade agreements. So, I think there is a difference of opinion on 

this issue. I will just yield back the balance of my time. 

Mr. BRADY. Thank you. The gentleman from North Dakota. 

Mr. POMEROY. I thank the chairman. Let’s pursue this inquiry 

a little more, led off by my friend from Wisconsin, because I think 

as the Administration dismissively holds up a little sugar packet 

and says ‘‘This is all the consequence to U.S. sugar,’’ they are being 

very dismissive about what is indeed a very serious threat to U.S. 

sugar. Mr. Roney, as an economist representing the sugar industry, 

perhaps you can help us understand the rather fragile nature of 

price today versus cost of production, which, literally, is the critical 

relationship in terms of determining whether we are going to have 

a U.S. sugar production capacity or not. 

In our part of the world, say the gentleman from Chicago alluding to the fact that is of small consequence, perhaps, to the economic contribution made by candy makers, a 1998 North Dakota 

State University study found the total economic impact of sugar 

beet production and processing in North Dakota and Minnesota to 

make a $2.3 billion contribution just in that part of the country 

alone. So, I think that we are talking about something very significant indeed. If you take, Mr. Roney, the amount that DR–CAFTA 

would allow in and the exposure under NAFTA, where is your price 

going to be relative to cost of production? Give us the long answer 

in terms of how this all works. 

Mr. RONEY. Well, Mr. Pomeroy, the U.S. sugar industry has 

been operating on the brink of bankruptcy for a number of years. 

Our prices last year, for example, were down 11 percent from the 

year before. Just since 1996, 30 of our beet and cane mills and refineries have shut down. That is one-third of all the mills and refineries that we had operating in 1996. We have been forced to 

close less efficient operations and concentrate production in the 

most efficient areas. Some areas have gone out of production completely, at tremendous job loss in those areas. So, we have been operating on the brink of survival for quite some time. That is why 

164 

we are so sensitive to an increase in supply. Our market has shown 

over time to be very sensitive to supply increases. 

In the year 2000, before we had the market allotment program 

that we have now, our market was oversupplied by about 400,000 

tons because of our import requirements, and that depressed our 

price by 30 percent that year. It was a complete disaster, and that 

began, really exacerbated, the exit of companies from our industry. 

So, that is why we are so sensitive on the price front. 

Mr. POMEROY. A 400,000-ton increase knocked the price down 

a third? 

Mr. RONEY. Yes. 

Mr. POMEROY. You indicated DR–CAFTA is an additional 

100,000 tons coming in. 

Mr. RONEY. With the DR–CAFTA, what we are looking at is the 

100,000 tons causing a cascade of sugar currently blocked from the 

market and held by the producers at their own expense. Given that 

we are holding back from the market now between 500,000 and 

600,000 tons of sugar, that 100,000 tons of DR–CAFTA sugar 

quickly becomes a half a million tons, and that would be a price 

disaster for us in the near term. In the long term then, of course, 

we are looking at 21 sugar exporting companies lined up. 

Mr. POMEROY. Even aside from that, because some would say 

that is just hypothetical, although as I questioned the gentleman 

from USTR, he refused to take sugar off the table in future bilateral rounds. They did not promise that this would not be under negotiation. Leave that as it may, what have we got out there with 

NAFTA which has already been negotiated? 

Mr. RONEY. One thing that the Administration has somewhat 

ignored is that we have committed to import up to a quarter of a 

million tons from Mexico each year of Mexico’s surplus sugar production, again whether we need that sugar or not. Now, it happens 

that in the last couple of years, Mexico has had some short crops; 

they haven’t had the sugar to send to us. We understand they are 

having a better crop this year and it is likely they will have sugar 

surpluses to send to us again, and that will further exacerbate our 

sensitivity to the DR–CAFTA sugar. 

Mr. POMEROY. Your own words, the Administration is ignoring 

the NAFTA to promote the DR–CAFTA. I would observe that gives 

us the shafta. A couple of things I want to put into evidence. I 

want in the record of this hearing the North Dakota Farm Bureau 

positions, which are absolutely, adamantly opposed to the agreement, and I would just offer that for evidence at this time. I yield 

back, Mr. Chairman. Thank you. 

Mr. BRADY. Without objection. 

[The information follows:] 

165 

North Dakota Farm Bureau 

4023 State St. 

P.O. Box 2793 

Bismarck, ND 58502 

December 9, 2003 

Ambassador Robert B. Zoellick 

U.S. Trade Representative 

Office of the U.S. Trade Representative 

Room 209–A 

600 17th Street, NW 

Washington, DC 20508 

Dear Ambassador Zoellick: 

North Dakota Farm Bureau represents the interests of more than 26,000 farm 

families in the state of North Dakota. International trade is extremely important 

to our agricultural economy because more than 40 percent of our diverse production 

enters the export market. We have supported the current and past Administrations 

in their attempts to open world markets through negotiating bilateral, multilateral 

and worldwide trade agreements. We encourage international trade agreements that 

are balanced, open international markets to U.S. agricultural products, provide for 

minimal production distorting supports, while eliminating export subsidies and single desk exporters. We also believe U.S. negotiators must demand that other countries honor existing trade agreements prior to signing new trade agreements. We 

applaud the Bush Administration for defending these U.S. trading principals around 

the world. 

We are concerned, however, with the direction the Administration is apparently 

taking on CAFTA and FT AA negotiations. Administration officials have stated that 

every commodity is on the table and that there will be no exclusions. Our trading 

partners have often demanded exclusions for market-sensitive products when negotiating trade agreements. By doing so, many U.S. agricultural products have been 

excluded from trade agreements, causing market distortions and managed— not 

free and fair— trade. 

Our principle concern with the Administration’s position involves sugar. Sugar 

contributes $21 billion a year to the economy of the United States. It is an extremely fragile commodity in that small import surges will have dire impacts on the 

domestic sugar industry. CAFTA countries, for example, account for nearly two million metric tons of available sugar for export. The Administration has announced 

its intent to negotiate FT As with several major sugar-producing and exporting 

countries that export a total of 27 million metric tons of sugar— three times the 

total U.S. consumption. Economic impacts to this sector of the economy could be potentially devastating. 

We fully agree that reform of sugar policy is necessary. However, true reform of 

distortions presently occurring in the world sugar market must be addressed under 

the auspices of the WTO. Bilateral and multilateral trade agreements, such as 

CAFTA, do nothing to reform the subsidy or market distortions of the world sugar 

industry. Furthermore, FT As leave the U.S. and other bilateral trading partners 

vulnerable to subsidies from outside the trade agreement area. Nor do proposed bilateral and multilateral agreements encompass many of the major sugar-producing 

countries that have huge market and trade distorting policies and programs in 

place. 

True reform of other countries’ trade distorting policies should properly occur as 

part of the World Trade Organization. We respectfully request the Administration 

seriously consider the devastating consequences relatively minor changes in U.S. 

sugar import policy may have because of CAFTA and other FTAs. Not only will the 

sugar industry be negatively impacted, but other sectors of the economy such as the 

com production and sweetener industry, will be as well. 

Sincerely, 

Eric Aasmundstad 

President 

North Dakota Farm Bureau Focus: May 1, 2004—Vol. 5, Issue 5 

NDFB supports state’s sugar growers, not CAFTA 

Despite the endorsement of American Farm Bureau Federation, North Dakota 

Farm Bureau cannot support the Central American Free Trade Agreement (CAFTA) 

because of the negative impact it will have on North Dakota sugar growers. 

166 

‘‘The sugar industry is the economic cornerstone of several counties in North Dakota,’’ said NDFB President Eric Aasmundstad. ‘‘We can’t ignore the negative economic impact this agreement will have on our sugar-growing members and the 

state’s economy.’’ 

The decision by the NDFB Board of Directors means the state organization has 

officially dissented from AFBF policy. 

‘‘North Dakota Farm Bureau has and will continue to be a loyal and vocal supporter of the policies of the American Farm Bureau Federation,’’ Aasmundstad said. 

‘‘Yet, we must dissent in this instance because it is in the best interest of our sugargrowing members and our state Farm Bureau.’’ 

A 1998 report by NDSU researchers Dean Bangsund and Larry Leistritz places 

the total economic impact of sugarbeet production and processing in North Dakota 

and Minnesota at $2.3 billion. The report also notes that for every dollar the sugarbeet industry spent in the two states, $1.79 in additional business activity was generated. 

Sugar is also an extremely fragile commodity because small import surges can 

have a significant impact on the domestic sugar industry. Aasmundstad said economists have warned that increased foreign imports of less than 500,000 tons could 

collapse U.S. sugar prices. 

An AFBF economic analysis of CAFTA’s impact on each state projects North Dakota will see a zero net effect. Gains in wheat, soybean and feed grain trade, however, are offset by a single commodity—sugar. 

‘‘The analysis shows the negative impact to North Dakota’s sugar producers at 

more than $7 million,’’ Aasmundstad said. ‘‘Any way you look at it, that’s too much 

for one commodity to bear.’’ 

Aasmundstad said reform of sugar policy is necessary, however, true reform of 

distortions occurring in the world sugar market must be addressed under the World 

Trade Organization. Bilateral and regional trade agreements like CAFTA leave the 

United States vulnerable to subsidies from those outside the trade agreement area. 

f 

Mr. BRADY. As long as you will sum up fasta, that will work 

fine. The gentlewoman from Pennsylvania is recognized. 

Ms. HART. Okay. May I increase the quality now? No jokes. 

First, I want to ask Mr. Ferrara, I am from Pennsylvania and we 

make those [indicating a Hershey candy kiss]. We have heard from 

the folks, obviously, in that industry, in your industry, and unfortunately we have lost a number of jobs with some of the smaller confectionery companies in the last 10 years. I served in the State 

Senate, and it seemed every year another one was going out of 

business. Can you address for me, just a kind of little overview of 

what you think the policy, the current sugar policy, has done as far 

as the number of jobs lost in your industry versus how many jobs 

it saved? 

Mr. FERRARA. I would like to start by adding that, in addition 

to my own products, I do contract manufacture for the largest manufacturers and distributors in our industry, some of which come 

from your State. I will say that, in recent years all, of the growth 

in that segment of my business has only come at my facilities outside of the United States. So, those are new job opportunities that 

might have gone to Pennsylvania, but instead are in Brampton, 

Ontario. I have not really picked up any new contract manufacturing business within the State, my State facilities, because the 

non-Ferrara Pan Candy Co. products that I make, they insisted I 

go over the borders to save on the price of sugar. 

Ms. HART. Before you go on, that is the reason you said the new 

jobs are in Ontario, for one reason? 

Mr. FERRARA. Sugar. It is purely sugar. The products I make 

over the borders are very high in sugar content. There is always 

167 

an argument that labor is the reason that candy manufacturers are 

going over the borders. That is absolutely false, absolutely false. 

Labor represents, of my cost of manufacturing, cost of goods, in the 

area of 4 to 5 to 6 percent, depending on the type of product it is. 

However, sugar can represent as much as 50 to 60 percent of that 

cost. I did not go over the borders to save on labor, I went over the 

borders to save on sugar. I used to use about 2.5 million to 3 million pounds of sugar a week in the United States. By moving about 

half of that production over the borders, if you simply multiply 10 

to 15 cents, sometimes 20 cents a pound based on world price compared to U.S. price, the numbers are very, very significant. I don’t 

like the fact that I have two work forces, multiple work forces, multiple overhead structures in different countries, but the sugar alone 

is what drives that. It is hard to put a number on the number of 

jobs that have been lost. I do know that statistics show that there 

are actually approximately 52,000 workers in the sugar industry as 

far as growers and refiners. In the related industries, there is a 

minimum, the lowest figure I see is 420,000 people, which again 

gets back to the 8 to 1 ratio. How many of those jobs have gone 

over the borders? I can guarantee you it is more than the entire 

employment of the sugar industry. 

Ms. HART. Thank you for that, I appreciate that. I wanted to 

thank you, Jack Ouellette, for coming here. Jack is a constituent, 

and we have met on some of these issues before. Just another issue 

that I know a couple of my colleagues have touched on, but I think 

it is important because a lot my colleagues from the South especially, who have had very high numbers of jobs lost in the textile 

industry, are talking about their concerns about this particular 

issue and this particular agreement. Can you tell me—obviously 

markets have changed—could you tell me, we have lost a lot of 

these textile and apparel jobs; how might that loss have been 

avoided? What should we have done differently? 

Mr. OUELLETTE. That is a fairly difficult question to answer. 

I can only tell you that the one thing we have learned is as we 

have taken a more global perspective on our business, that government definitely becomes an important partner in what we do, and 

certainly having trade legislation that benefits companies to make 

it easier to do business is probably the biggest thing. 

Ms. HART. Is most of it access to markets, would you say, or is 

it a combination? 

Mr. OUELLETTE. I think it is a combination. 

Ms. HART. I yield back, Mr. Chairman. 

Mr. BRADY. Thank you. The gentlewoman from Ohio is recognized for questions. 

Ms. TUBBS JONES. Thank you, Mr. Chairman. I want to continue down that questionline with you, Mr. Ouellette. In order to 

have trade agreements that work, you have to have enforcement 

tools that are available to you, and that are in fact used in order 

for those trade agreements to really be successful. Would you agree 

with that, sir? 

Mr. OUELLETTE. Yes. 

Ms. TUBBS JONES. Okay. The gentleman from—I want to ask 

Mr. Ferrara, the manufacturer of candies, when did—I am assumVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00171 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
168 

ing back when your father or your grandfather was operating the 

candy company he was buying U.S. sugar? 

Mr. FERRARA. My grandfather started the company in 1908. We 

have always bought U.S. sugar until I went over the borders. 

Ms. TUBBS JONES. When was that? 

Mr. FERRARA. It first opened up 10, 12 years ago. 

Ms. TUBBS JONES. Mr. Roney, is that correct? When did the 

cost of sugar come to the level such that people, manufacturers of 

candy in America, decided they should go buy sugar somewhere 

else? What was the basic cause of that? 

Mr. RONEY. Congresswoman, I don’t really understand. I am 

not buying sugar the way Mr. Ferrara is, but we have looked at 

national average price data. We just saw work that was done in 

2004 and found that, in Mexico, sugar prices, wholesale prices, that 

is, the price the candy makers pay for their sugar, averaged 28 

cents per pound during the year. That is 5 cents higher than the 

U.S. price of 23 cents per pound. In Canada—Mr. Ferrara mentioned Canada—the sugar prices there were 21 cents a pound. That 

is just a couple of cents lower than U.S. prices. On the other hand, 

labor costs—and this comparison was Chicago with Juarez—labor 

costs at a candy plant in Chicago were over $14 per hour. That is 

just the wage per hour—no benefits—and Juarez was 56 cents an 

hour. Canada, the wage structure was a good 20 percent lower, 

plus health insurance was essentially free from the government. 

Energy costs were lower. There is quite a long list of other factors 

that we believe played a greater role in candy makers’ decisions 

than sugar. 

I would also note that we have never—even as these companies 

have relocated to these areas with lower labor costs and supposedly 

lower sugar costs—we have never noticed the price of the product 

to a consumer coming down. Candy prices have continued upward 

with the rate of inflation consistently over the last 20 years, while 

sugar prices have been flat or declining over most of that time. 

Ms. TUBBS JONES. Mr. Shuster, is it a fair statement that 

AMTAC would be concerned about the labor environment of their 

workers, no matter what country they are in? 

Mr. SHUSTER. Absolutely. As I mentioned, I think that the answer to our trade policy is that we have got to look at all the governmentally imposed conditions of trade, top to bottom, that give 

other countries the ability to undercut the United States. That definitely includes environmental standards, it includes labor standards, it includes tax policy, it includes tariffs, it includes non-tariff 

barriers, and so forth, and so forth, and so forth. We constantly get 

outnegotiated, outmaneuvered because we don’t pay attention to 

these absolutely vital components of cost. 

Ms. TUBBS JONES. What about you, Mr. Wooten? You have 

been kind of quiet. I guess we have been focused on sugar a little 

more. What is your position with regard to labor standards and 

other countries, as well as in the United States, as part of trade 

agreements? 

Mr. WOOTEN. Well, I represent farmers. Our farmers have 

studied this issue extensively, and, on balance, this DR–CAFTA 

will be good for American farmers. 

169 

Ms. TUBBS JONES. I am not asking about whether DR–CAFTA 

is good. I am asking you about labor standards and the enforcement of them in any agreement, in countries, other countries, and 

in our own country. 

Mr. WOOTEN. Well, I think—I don’t think we can force our 

labor standards, or force a country to adopt labor standards as part 

of a trade agreement here. 

Ms. TUBBS JONES. Well, what do you think we ought to force 

them to do in their own country? Maybe my question isn’t clear. 

My question to you, sir, is that, within the trade agreements there 

are conditions and labor standards that countries are required to 

meet in order to be part of a trade agreement. You agree with that, 

sir, right? 

Mr. WOOTEN. Yes. 

Ms. TUBBS JONES. I am asking you, as part of that trade 

agreement, do you support that, in terms of improving the standard of work for people in other countries? 

Mr. WOOTEN. I think we ought to improve the standard, but we 

can’t control what happens in another country, Congresswoman. 

We can’t dictate what—— 

Ms. TUBBS JONES. Well, people will disagree with on you that, 

Mr. Wooten. You are entitled to your position. Sir, Mr. Hafenfeld, 

is that it? Correct? 

Mr. BRADY. Excuse me. The gentlelady’s time has expired. 

Ms. TUBBS JONES. Mr. Hafenfeld, I was trying to give you a 

chance to say something since you have been sitting here all afternoon. I apologize. My time is expired. Gentlemen, thank you so 

much for coming out this afternoon. 

Mr. BRADY. Thank you. I would like to thank the panel for 

being here today. Trade agreements are complex. It is real helpful 

to get the input from folks on the ground rather than in theory, 

and we appreciate very much your testimony. Appreciate it. At this 

time, we would like to bring forward Members of Congress who 

have indicated an interest in testifying on the DR–CAFTA. On behalf of Chairman Thomas and the Ranking Member, we would like 

to welcome the Members of Congress to the final panel on the DR– 

CAFTA. I am pleased to—I would like to place in the record statements, testimony, from Chairman Mike Oxley and Chairman 

Debra Pryce in support of the DR–CAFTA trade agreement. 

[The prepared statements of Mr. Oxley and Ms. Pryce follow:] 

Chairman Thomas and Ranking Member Rangel, thank you for the opportunity 

to testify on the Central American Free Trade Agreement or CAFTA. This is an important agreement between the United States and six countries that are key to our 

economic and national security: El Salvador, Costa Rica, Honduras, Nicaragua, Guatemala, and the Dominican Republic. We know that this is a highly complex agreement and we want to commend this Committee for all of its hard work in fostering 

free trade around the world. 

As Chairman of the Financial Services Committee and Chairman of the Subcommittee on Domestic and International Monetary Policy, Trade and Technology 

of the Financial Services Committee, we submit this statement to support free trade 

in financial services. U.S. firms often face restrictions in their ability to operate globally. The concept of national treatment, where foreign firms are treated like domestic 

firms, is not the norm in all Central American nations. As a result, U.S. banks, insurance providers, and securities dealers are often subject to non-transparent and 

discriminatory regulations which inhibit their ability to compete in these markets. 

The CAFTA agreement goes a long way to remedy many of these problems. 

170 

Services industries account for nearly 80 percent of U.S. employment as well as 

GDP. This includes lawyers, architects, engineers, doctors and, of course, financial 

service providers. Over the past 10 years, U.S. services exports nearly doubled to $270 

billion. Trade in financial services accounts for a high percentage of U.S. services exports. 

We often hear about the trade deficit that the U.S. has with other nations. What 

we don’t hear about is that in case of trade in services, we actually have a surplus. 

Our nation leads the world in financial services innovation. This agreement will help 

extend that surplus and promote state-of-the art financial services globally. 

The CAFTA agreement will allow U.S. financial firms to access these countries 

on a fair footing with their local counterparts. It will promote transparency in the 

rules that govern how these enterprises are supervised. Without CAFTA, the financial services sector will be limited in its ability to enter these markets, will have 

restrictions on the ability to establish branch offices, and the regulations overseeing 

the operations of these institutions will be written behind closed doors. 

CAFTA will require national treatment and MFN treatment, prohibit quantitative 

restrictions on market access of financial institutions, and bar restrictions on the 

nationality of senior management. 

Now, we know that the financial services markets in the CAFTA countries are 

not going to be major revenue generators for U.S. financial firms in the short-run. 

However, these are long-term strategic growth markets for our financial firms. Our 

economic prosperity will be strengthened if trade barriers between our Nations are 

eliminated. 

Economic prosperity in the region, which will foster economic security in the 

hemisphere, will also grow as competition in the financial services sector within 

CAFTA countries expands the availability of capital to fund new ventures. Over 

time, it will also yield a wide range of benefits, including more customers for our 

firms and more efficient markets within our hemisphere. Improved access to sophisticated financial services, backed by sound regulation, will enable these markets to 

grow to become buyers of other U.S. products. Without the development of these financial markets, manufacturers will be less likely to cultivate customers in this region. 

The Financial Services Committee has taken a leadership role in ensuring strong 

financial services provisions in this agreement, as well as the Chile and Singapore 

agreements. In December of 2003, the Committee wrote Ambassador Zoellick urging 

him not to accept a trade agreement that permitted Costa Rica to retain the government’s monopoly on insurance. The CAFTA agreement now includes provisions permitting U.S. firms to provide insurance products in Costa Rica. We would like to 

submit a copy of this letter for the record. 

In closing, we strongly urge the Members of this Committee to support the 

CAFTA Agreement. It will foster economic security in our hemisphere and will promote the exchange of goods and services between our countries. 

f 

Mr. BRADY. We are going to go to Members in order, although 

Congressman Burton has asked for first time in order to catch an 

earlier commitment. So, I would like to recognize for 5 minutes the 

gentleman from Indiana, Mr. Burton. 

STATEMENT OF THE HONORABLE DAN BURTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF INDIANA 

Mr. BURTON: Well, thank you, Mr. Chairman. I certainly won’t 

take the full 5 minutes. I want to apologize to my good friend, 

Marcy Kaptur, because we have a difference of opinion on this particular piece of legislation than we have had in the past. I was an 

opponent of the NAFTA Agreement, and I was an opponent of the 

General Agreement on Tariffs and Trade (GATT). However, on the 

DR–CAFTA agreement and on the Andean FTA, I think there is 

additional circumstances that the Congress of the United States 

ought to weigh when they are making their decision, and I hope 

it will take these things into consideration as well. 

171 

President Ronald Reagan, when he was in the White House, 

came up with the Reagan doctrine, so to speak, and that was to 

push for democracy throughout the Western Hemisphere. He was 

very successful as President in stopping a lot of the tyrannical regimes that were running governments in our hemisphere, and he 

was a fighter for freedom, and he was taken to task many times 

for that. However, because of the Reagan doctrine, every single 

country in our hemisphere has democratically elected leaders, with 

the exception of Fidel Castro. One of the problems that we have 

now is we have in countries like Venezuela the possibility that you 

would see a return to some forms of government that might not be 

democratic in nature. I think that Central America and Latin 

America are—not a tinderbox, but close to that kind of a situation 

as far as the collapse of democracies. I think it is very, very important that we do whatever is necessary to make sure that those 

fledgling democracies in Central and Latin America continue to 

flourish. One of the ways to do it is to work with them in economic 

terms. We need to make sure that we have good trade agreements 

so that they can start moving away from poverty and into countries 

that have a middle class that will want to see democracies continue 

to flourish. 

I am very concerned about it right now. I am the chairman of 

the Subcommittee on the Western Hemisphere of the Committee on 

International Relations. We have been looking at what is going on 

in Ecuador, where the President was removed from office just yesterday; in Venezuela, where we see the new leader down there buying 100,000 AK–47s and tanks and other forms of weaponry, which 

lead us to believe that he may have things in mind that aren’t consistent with long-term democratic institutions. So, in addition to 

the economic ramifications of this FTA we are talking about, the 

DR–CAFTA and the Andean FTA, I think it is extremely important 

that we also weigh the long-term issues of democracy in our hemisphere, and what that means for the United States of America as 

far as our national security is concerned. We are concerned about 

terrorism. We are concerned about tyrants taking power in various 

countries throughout the world. This is our backyard. Latin America is our backyard. Central America is our backyard. 

In addition to what I just stated, we also have the problem of a 

massive influx of illegal aliens should these countries not do well 

economically. So, I think it is extremely important that DR–CAFTA 

do pass. It is a stance that I have not taken in the past. I was concerned about the loss of jobs, loss of industry and all those sorts 

of things, but I think right now the most important thing that we 

have to deal with is stability in our hemisphere, and that is why 

I support the DR–CAFTA and the NAFTA Agreements. Thank you, 

Mr. Chairman. 

Mr. BRADY. Thank you, sir. Appreciate your testimony. Chairman Dreier, the gentleman from California. 

f 

172 

STATEMENT OF THE HONORABLE DAVID DREIER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. DREIER: Thank you very much, Chairman Brady and Mr. 

Rangel and Mr. Levin and Mr. Ryan, Mr. Larson, Ms. Tubbs Jones. 

Let me say that it is an honor to be here; and it is an honor to 

be here with my colleague, Dan Burton, who just spoke very eloquently about this issue. I was thinking about what he said in referring to the struggles that we have brought about, and so I immediately remembered back to November of 1979, when Ronald 

Reagan announced his candidacy for President. In that, he envisaged this accord where we can see the free flow of goods, services, 

ideas and capital among all the Americas. Mr. Brady, you have 

done an absolutely phenomenal job in providing leadership on this 

very important part of that goal as we get toward the FTAA. 

We have done a wide range of bilateral agreements over the past 

several years. This opportunity to take Charlie’s very dear Dominican Republic and link it up with the Central American nations to 

finally create an opportunity for us to have access to those markets 

is very important. We all know that these countries involved have 

access to the U.S. consumer market today. This agreement is about 

a chance for the U.S. workers to gain access into these markets. 

The U.S. economy today—the $11 trillion economy that we have 

today is as strong as it is in large part due to the fact that the 

world has access to our consumer market. I believe that if you look 

at the statements that have been made by the presidents of the 

countries affected here, their trade ministers, business leaders, people across the board in these countries, one of the things that they 

regularly tell us is that, if we want to lock in democratization, the 

building of the rule of law, which, frankly, is in jeopardy, and Mr. 

Burton was just alluding to a bit of that, in some of these countries, the single most important thing that we can do for people 

who are struggling to move up that economic ladder in these countries would be for us to make sure that we pass the DR–CAFTA. 

For the life of me, I really have a difficult time understanding 

how anyone, anyone in the United States of America could oppose 

the DR–CAFTA. Why, again? These countries have access to us 

today, and we are simply seeking a chance to get into those markets. Along with that, Mr. Chairman, what is it that this agreement does? It focuses on some of the very important issues that are 

regularly raised as concerns here in the United States. Intellectual 

property is a key issue. Private property rights are very important 

under the rule of law. That is what we have got here. This agreement helps us address that issue. Worker and environmental 

rights, worker rights and environmental issues are also very, very 

important. We dramatically enhance that in this agreement. So, it 

seems to me that if we look at where we are today, the opportunity 

that exists for us to put into place a strong multilateral agreement 

and to build this strength in the hemisphere, we would be wise to 

pursue this goal. 

China is a great competitor of ours. We are seeing competition 

with the European Union. If you look at the fact that we now already have, in yarn and fabric, this great rapport between the 

United States and the Central American countries and the DominiVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00176 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
173 

can Republic, I believe we are in a position where we will be able 

to—with the implementation of the DR–CAFTA agreement—we 

will be able to better compete with the Pacific rim and other parts 

of the world. So, I hope very much that you will report this out just 

as expeditiously as possible. I have the honor to serve on the House 

Committee on Rules. I look to welcome any of the Members of your 

Committee before the Committee on Rules when you come, and we 

will look forward to a great victory on the House floor for workers 

and businesses alike. Thank you very much, Mr. Chairman. 

Mr. BRADY. Thank you, Chairman Dreier. Thank you for your 

comments and testimony. The Committee recognizes the gentlelady 

from Ohio, Ms. Kaptur. 

f 

STATEMENT OF THE HONORABLE MARCY KAPTUR, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO 

Ms. KAPTUR: Thank you, Chairman Brady and Ranking Member Rangel, especially to you for making this opportunity for the 

Members available. Congressmen Levin and Larson and my dear 

sister from Ohio, Stephanie Tubbs Jones, and Mr. Ryan, thank you 

for being here so very late in the day. Let me just say that I have 

full testimony I will submit for the record, along with a NAFTA at 

10 Years report that was assembled by the Members and make 

that a full part of your hearing. 

Mr. BRADY. Without objection. 

Ms. KAPTUR: I thank you. 

[The information is being retained in the Committee files.] 

Ms. KAPTUR: I regret we only each have 5 minutes. I represent 

680,000 people in a State of 11 million that have been adversely 

affected by NAFTA; and my fundamental question this afternoon 

is, if a trade agreement like NAFTA is not working in America’s 

interests as promised, why replicate and expand it? Millions of ordinary people have been hurt. I am going to ask my capable associate, Jennifer Goedke, to put up the trade deficit numbers for our 

Nation as a whole first and then the—which, by the way, the deficit last year overall totaled nearly—well over a half a trillion dollars, and is getting worse every year. Then the Mexico and Canadian components of that, which are summarized very briefly in the 

handout that we have provided. This is when Mexico—Every year 

since NAFTA was signed, unlike its proponents claimed, we did not 

have surplus. We had deficits, growing deficits, and more job losses 

from the United States. My State of Ohio is one of the biggest losers, with over 40,000 jobs directly related to losses; the Canadian 

figures are similarly in the negative. So, my advice to the Committee is reevaluate what is really going on, and then renegotiate. 

Don’t expand. It seems our Nation has been ignoring the millions 

of ordinary people who have been hurt, dislocated, unemployed and 

uprooted across the Americas due to this trade agreement. Our Nation seems to be willing to enforce anti-dumping provisions for 

goods but nothing to prevent the dumping of the peoples of the 

Americas when they lose their jobs, their farms and their hopes. 

Too often under these trade regimes workers and farmers have 

been treated like chattel, victims of great economic injustices 

174 

caused by powerful market forces unleashed by these trade agreements. One by one, we have seen our industries fall. Furniture is 

the latest one, and this year may be the first year in which America’s agricultural imports exceed our exports. This has not happened before. This is the reality that we are living in. 

This DR–CAFTA agreement is an expansion of NAFTA. Eightyfive percent of its provisions are directly from the NAFTA original 

accord. Let me just also give you a visual image of what has happened in one of the major industries in my region, the automotive 

industry. Here is a graph of what happened after NAFTA. Yes, 

there was trade, but it was backward. Mexico turned into the export platform we said it would be, with business after business, 

supplier after supplier relocating. This doesn’t happen in the automotive arena only, but also in steel and in medicines. Every single 

sector has been heavily affected. Now I would like to submit for the 

record a report we did. Several Members went down to Mexico at 

NAFTA’s 10th anniversary and met with the people of Mexico. We 

produced a comprehensive report, and I would like my associate to 

place up there just one of the photos of some of the villages that 

we went to. My testimony verifies that not only have we lost jobs 

but the Mexican people’s incomes have been cut. Over a 1.5 million 

peasant farmers have been uprooted. It is the source of the immigration into this country. It is a continental sacrilege, what is going 

on. People have died at our border. They have died in trucks coming across the border. 

What is the source of that? The source is what is happening inside of Mexico today. We were actually in La Scala, down in southeastern Mexico, meeting with these farmers, talking about how 

NAFTA had impacted them. What NAFTA has done to the continent and what DR–CAFTA will do, it will create more surplus 

pools of labor of people who are disenfranchised at home, who have 

nothing else to do but to flee north and to try to come somewhere 

where they can eke out a living. It is truly a cruel regimen. I know 

that my time is about expired, but let me just say that many of 

these families have very few options in regions like my own. Many 

of the people that we have met with there—we met with one villager who had come up—I never had an experience where I asked 

a man how old his children were and he couldn’t answer me. Then 

I asked him the name of his youngest child, and the name of the 

child. The child was ill and had lived for about a month and a half. 

The child had no name because the family was illiterate. I had 

never had that experience in my life. We have to pay attention to 

what we are doing in the Americas. I would urge this Committee 

to re-evaluate and renegotiate. I thank you very much for receiving 

us. 

[The prepared statement of Ms. Kaptur follows:] 

Testimony of Congresswoman Marcy Kaptur On the Proposed Central 

American Free Trade Agreement NAFTA Expansion For the House Ways 

and Means Committee 

Chairman Thomas, Ranking Member Rangel, and distinguished Members of the 

Committee: 

My fundamental question is: if a trade agreement like NAFTA is not working in 

America’s interests as promised, why replicate and expand it? Millions of ordinary 

people have been hurt, dislocated, unemployed and uprooted due to this trade agreement. Why then has our Nation been willing to enforce ‘‘anti-dumping provisions’’ 

175 

on goods, but nothing to prevent the ‘‘dumping of the people of the Americas’’ when 

they lose their jobs, their farms, their hopes? Too often workers and farmers are 

treated like chattel, victims of great economic injustices caused by powerful market 

forces unleashed by these trade regimes. 

Americans watched as their jobs disappeared as formerly healthy industries—like 

auto, furniture, airline, textile, steel, high-tech, vegetable—fall one by one. As one 

auto plant worker from Mexico told me, ‘‘ Poor countries are like crabs in a bucket. 

Every time one country starts to climb out of the bucket, another one pulls it back 

down.’’ Or as Mexican Congressman Victor Suarez said, ‘‘ We want good trade, not 

free trade.’’ 

The Central American Free Trade Agreement (CAFTA), signed in May 2004, 

would expand the economic model established in the North American Free Trade 

Agreement (NAFTA) to five Central American countries (Guatemala, El Salvador, 

Honduras, Costa Rica and Nicaragua) and the Dominican Republic. If approved, 

CAFTA, like NAFTA, would require its signatory countries to conform their domestic policies and practices to a broad array of non-trade dictates, for example 

regarding the regulation of service sector companies and foreign investors’ operations in other economic sectors operating within a signatory nation’s territory. It 

would require signatories to provide certain patent medicine and seed protections 

that have been criticized by health and consumer groups worldwide as undermining 

consumers’ access to these essential ‘goods’—such as generic drugs. It even sets constraints on how countries and other political entities may spend their own tax revenues. In addition, CAFTA contains the same model of interconnected trade rules 

and foreign investor protections that together create incentives that motivate business operations seek out the most profitable sites and processes for production, even 

if these are often contrary to the public interest. 

An analysis of CAFTA’s provisions reveals that it replicated NAFTA’s provisions 

to a high degree—often with identical language. Thus, there is much that we can 

learn from the 11-year record of NAFTA, which CAFTA would expand to additional 

nations. 

1. CAFTA NAFTA Expansion is an Outsourcing Agreement and Expansion 

of the Export Platform: Eleven-Year Record Demonstrates that the NAFTA 

Model Lowered Living Standards on Both Sides of the Border 


Insert offset folio 23918a.021
176 

1 Robert E. Scott, ‘‘The High Price of ‘Free’ Trade: NAFTA’s Failure has cost the United States 

jobs across the nation,’’ Economic Policy Institute Briefing Paper, Nov. 2003. 2This number refers to manufacturing job loss since the most recent manufacturing employment peak in 1998 of 17.6 million, relative to the 2003 number of 14.6 million. See Josh Bivens, 

Robert Scott, and Christian Weller, ‘‘Mending manufacturing:Reversing poor policy decisions is 

the only way to end current crisis,’’ Economic Policy Institute Briefing Paper #144, Sept. 2003. 3 Lawrence Mishel, Jared Bernstein, and Sylvia Allegretto, The State of Working America 

2004/05, (Washington, DC: Cornell University Press, 2004), at 69 and 145. 4Lawrence Mishel, Jared Bernstein, and Sylvia Allegretto, The State of Working America 

2004/05, (Washington, DC: Cornell University Press, 2004), at 154. 5 Nouriel Roubini and Brad Setser, ‘‘The U.S. as a Net Debtor: The Sustainability of U.S. External Imbalances,’’ New York University Briefing Paper, Nov. 2004. 6 U.S. Census Numbers. 

Figures don’t lie: since 1994, the United States has lost nearly 1 million jobs on 

net due to NAFTA trade,1 with one in six U.S. manufacturing jobs being eliminated 

during the NAFTA decade.2 Ohio has been of the largest job losers with more than 

46,000 good jobs lost due to NAFTA. U.S. income and wage inequality have gone 

up markedly, with the ratio of both income and wages of the top 5 percent of the 

income and wage distribution growing nearly 10 percent since NAFTA alone as compared with the bottom 20 percent.3 The U.S. real median wage has scarcely risen 

above its 1970 level, resulting in declining or stagnant standards of living for the 

nearly 70 percent of the U.S. population that does not have a college degree.4 During the NAFTA era, the U.S. trade deficit has risen to historic levels, and approaches 6 percent of national income—a figure widely agreed to be unsustainable, 

putting the U.S. economy at risk of lowered income growth.5 Though we were promised a trade surplus by NAFTA’s advocates the reverse is true. The U.S. trade balance with NAFTA countries alone went from a mild surplus with Mexico and mild 

deficit with Canada to a ballooning deficit with the two countries exceeding $110 

billion in 2004.6

177 


Insert offset folio 23918a.022
178 

7 John Audley, Sandra Polaski, Demetrios G. Papademetriou, and Scott Vaughan, ‘‘NAFTA’s 

Promise and Reality: Lessons from Mexico for the Hemisphere,’’ Carnegie Endowment for International Peace Report, Nov. 19, 2003. 8 Carlos Salas, ‘‘Highlights of Current Labor Market Conditions in Mexico,’’ Global Policy Network Country Brief, April 2003. 9Sanjaya Lall, Manuel Albaladejo, Mauricio Mesquita Moreira, ‘‘Latin American Industrial 

Competetitveness and the Challenge of Globalization,’’ Inter-American Development Bank 

Ocassional Paper SITI 05, June 2004. 

$1 Billion in trade deficit = 20,000 lost jobs 

For our neighbors in Mexico, the economic outcomes of eleven years of NAFTA 

are not brighter. Indeed, their sorry plight is a continental tragedy of sacrilegious 

proportion. Over 1.5 million Mexican campesino farmers lost their livelihoods to the 

dumping of commodities such as corn as a result of NAFTA’s agricultural rules,7

while the Mexican minimum wage has lost 20 percent of its value in real terms, 

and the median industrial wage 10 percent of its value.8 The jobs that were temporarily created in the country’s maquiladora sector in NAFTA’s initial years, as 

plants relocated from the United States, are increasingly relocating and losing market share to lower wage countries such as China.9 It is no surprise illegal immigrants are streaming across our border. With no agricultural adjustment promises 

in NAFTA, they have no options. 

In both countries, the increased ability of companies to nearly effortlessly relocate 

production to lower wage countries—(as NAFTA’s investor protections forbid the 

policies a country like Mexico might otherwise use to root foreign direct investment 

for development)—has tilted the playingfield against the majority of the working 

population who are finding it ever more difficult to obtain and maintain quality emVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00182 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918

Insert offset folio 23918a.023
179 

10Kate Bronfenbrenner, ‘‘The Effects of Plant Closing or Threat of Plant Closing on the Right 

of Workers to Organize,’’ North American Commission for Labor Cooperation Report, 1997. 11 19 U.S.C. § 3802(3), Chapter 24, ‘‘Bipartisan Trade Promotion Authority: Trade Negotiating 

Objectives.’’ 12 Award, Before the Arbitral Tribunal constituted Under Chapter 11 of the North American 

Free Trade Agreement, Metalclad Corporation v. the United Mexican States, International Centre for Settlement of Investment Disputes (Additional Facility), Aug. 25, 2000. 

ployment. Meanwhile, studies commissioned by the U.S. Government show that as 

many as 62 percent of U.S. union drives face employer threats to relocate, with over 

10 percent of such threats specifically referring to a relocation to Mexico. The actual 

factory shut-down rate following successful union certifications tripled in the years 

after NAFTA relative to the years before.10

2. Contradicting Congress’ Demand that Trade Pacts Give Foreign Investors ‘‘No Greater Rights’’ within the U.S. than Available to U.S. Citizens, 

CAFTA Extends NAFTA’s Special Protections for Foreign Investors that Expose U.S. Taxpayer Funds to Claims in Closed Trade Tribunals 

The changes described above in the NAFTA country labor markets are supported 

by the granting in NAFTA and CAFTA of special rights and privileges to foreign 

investors from one signatory country operating in another. In NAFTA, these rights 

are contained in Chapter 11, which also provides for foreign investors’ private enforcement of these new privileges through so-called investor-state dispute resolution, 

a controversial mechanism also included in CAFTA. The investor-state system allows corporations to sue governments for cash compensation before closed trade tribunals for claims based on signatory countries’ policies that may or may not have 

a demonstrable economic impact on their expected future earnings. The provisions 

afford foreign investors operating in the United States greater rights than those 

available to U.S. citizens and businesses under the U.S. Constitution as interpreted 

by the U.S. Supreme Court. Thus far, 42 cases have been brought before the NAFTA 

investor-state tribunals, 11 have been finalized, and some $35 million in taxpayer 

funds have been granted to five corporations that have succeeded with their claims. 

An additional $28 billion has been claimed from investors in all three NAFTA nations in cases attacking the most basic functions of government. The U.S. Government’s legal costs for the defense of just such recent case topped $3 million, and 

seven cases against the United States are currently in active arbitration. 

While ostensibly, NAFTA’s investor protections were designed to ensure compensation if property is nationalized by a NAFTA government, only one of the 42 

known NAFTA ‘‘Chapter 11’’ cases filed to date involve expropriation. Instead, investors have challenged domestic court rulings, water rights, local and state environmental policies, municipal contracts, tax policy, controlled substances rules, antigambling policies, emergency efforts to halt the spread of mad cow disease, and even 

provision of public postal services. 

Given that these extraordinary investor rights and their private enforcement had 

not been part of any previous U.S. trade agreement, and that many Members of 

Congress did not understand these implications at the time when NAFTA was enacted in 1993, the record of NAFTA’s Chapter 11 has generated enormous controversy. Thus in order to obtain a congressional delegation of Fast Track Trade Authority in 2002, the Administration offered to address Congress’ concerns. Fast 

Track thus specified that in future U.S. trade agreements, foreign investors should 

not have ‘‘greater substantive rights with respect to investment protections than 

United States investors in the United States.’’ 11

Unfortunately, the executive branch negotiators failed to meet Congress’ requirements. In CAFTA’s Chapter 10 foreign investor protections and investor-state mechanism actually amplify many of the problems Congress identified with NAFTA. 

• CAFTA Would Allow Compensation to Foreign Investors in ‘‘Regulatory 

Takings’’ and ‘‘Minimum Standard of Treatment’’ Cases not Permitted 

by U.S. Law: CAFTA includes the NAFTA language that requires foreign investors be compensated for ‘‘indirect expropriation.’’ This provision has been the 

basis for an array of cases that would not be permitted under U.S. law, including regulatory takings cases. In one such case, Metalclad Corporation obtained 

$16 million from the Mexican Treasury after being denied a permit to expand 

a toxic waste facility until it cleaned up existing contamination.12 Several additional CAFTA provisions promote regulatory takings cases not allowed under 

U.S. law. For instance, the Supreme Court has ruled that ‘‘mere diminution in 

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180 

13 Concrete Pipe and Products v. Construction Laborers Pension Trust, 508 U.S. 602, Jun. 14, 

1993, at 615. 14 Interim Award by Arbitral Tribunal, In the Matter of an Arbitration Under Chapter 11 of 

the North American Free Trade Agreement between Pope & Talbot Inc. and the government 

of Canada, United Nations Commission on International Trade Law, Jun. 26, 2000, at 37; 

Award, Before the Arbitral Tribunal constituted Under Chapter 11 of the North American Free 

Trade Agreement, Metalclad Corporation v. the United Mexican States, International Centre for 

Settlement of Investment Disputes (Additional Facility), Aug. 25, 2000, at 28. The Metalclad 

panel stated that expropriation under NAFTA ‘‘includes not only open, deliberate and acknowledged takings of property such as outright seizure or formal or obligatory transfer of title in 

favor of the host state, but also covert or incidental interference with the use of property which 

has the effect of depriving the owner in whole or in significant part of the reasonably to-beexpected economic benefit of the property.’’ 15 Award, Before the Arbitral Tribunal constituted Under Chapter 11 of the North American 

Free Trade Agreement, Metalclad Corporation v. the United Mexican States, International Centre for Settlement of Investment Disputes (Additional Facility), Aug. 25, 2000, at 33. 16 Central America Free Trade Agreement, Final Version, Aug. 5, 2004, Annex 10–C, at 4(b). 

ing’’ 13 and that the entire property must be affected permanently. In contrast, 

NAFTA Chapter 11 tribunals have found that a government action need only 

cause ‘‘significant’’ or ‘‘substantial’’ impairment of an investment’s value to qualify as a taking.14 For instance, the Metalclad tribunal held that ‘‘expropriation 

under NAFTA includes not only open, deliberate and acknowledged takings of 

property—but also covert or incidental interference with the use of property 

which has the effect of depriving the owners in whole or significantpart, of the 

use or reasonably to-be-expected economic benefit of property.’’ 15 USTR failed 

to remedy this problem in CAFTA. 

To make matters worse, CAFTA allows such claims regarding types of property 

not subject to takings action under U.S. law. U.S. law deems public interest policies 

governing personal property (property other than land) to be legitimate exercises of 

police powers and exempt from takings claims. In contrast, CAFTA’s broad definition of what categories of property are subject to compensation claims includes an 

array of non-real estate property such as assumption of risk and also bonds, loans, 

stocks, and intellectual property rights. 

In response to criticism that investment rules in CAFTA allow for broad regulatory takings claims, the USTR will likely point to CAFTA, Annex 10–C, which 

reads: ‘‘Except in rare circumstances, nondiscriminatory regulatory actions by a 

Party that are designed and applied to protect legitimate public welfare objectives, 

such as public health, safety, and the environment, do not constitute indirect expropriations.’’ 16 Unfortunately, this language has precisely the opposite effect claimed. 

This language enshrines the right of foreign investors to challenge a wide array of 

public health and safety regulations not be subject to U.S. taking claims. U.S. law 

safeguards all public interest regulations governing personal property, yet this language reiterates that such policies are subject to CAFTA challenge. Moreover, the 

U.S. Government would have no capacity to affect whether such cases are brought 

only in ‘‘rare’’ circumstances. Foreign investors decide whether to file these cases. 

(And, the U.S. legal defense cost for just one such case, Methenex’s attack on California’s ban on the gasoline additive MTBE, has already cost $3 million in U.S. taxpayer funds.) Further, the ultimate decision whether or not to grant compensation 

in such challenges remains with investor-state tribunals on a case-by-case basis. 

Moreover, when deciding such cases, tribunals will reference other specific provisions of CAFTA that directly conflicts with the Annex’s general language. There 

have been numerous NAFTA cases involving toxic substances, including Phillip 

Morris’ threat against a proposed Canadian tobacco control law, and Canadian 

cattlemen’s NAFTA challenge of U.S. actions to prevent entry into the U.S. of mad 

cow disease. To avoid future such cases and to bring CAFTA into conformity with 

U.S. takings law, the scope of property subject to such claims in CAFTA needed to 

have been limited to real estate and the ‘‘indirect expropriation’’ language needed 

to have been eliminated, or at least defined in the context of U.S. takings standards 

that require that virtually all of a property’s value must be taken permanently to 

obtain compensation. 

• CAFTA Would Allow Compensation to Foreign Investors in Cases in 

which U.S. Law Only Permits Injunctive Relief: Under U.S. law, both foreign and domestic firms can sue under the Due Process or Equal Protection 

Clauses of the Constitution for injunctive relief, but they are not allowed to sue 

for monetary relief. Under NAFTA’s investment rules—and under CAFTA were 

it to be approved—foreign investors are empowered to sue for monetary relief 

on similar grounds. CAFTA extends this NAFTA problem by allowing foreign 

investors to obtain taxpayer compensation not only for claims of expropriation, 

181 

17Lucas v. South Carolina Coastal Council, 505 U.S. 1003, at 1015–19 (1992). 

but also based on national treatment (non-discrimination) and ‘‘fair and equitable treatment’’ claims—which are the trade agreement equivalent to Due 

Process or Equal Protection Clauses claims in U.S. law. • CAFTA Would Eviscerate the Long-established Principle that governments Can Remedy a ‘‘Nuisance’’ without Compensating Polluters: The 

expansive definition in CAFTA of what sorts of foreign investments are subject 

to compensation covers government actions to prevent a public nuisance. Given 

the record of the related NAFTA provisions, this element of CAFTA is likely to 

generate further claims by chemical companies attempting to combat environmental regulation. Under NAFTA, foreign investors are demanding compensation for California’s ban of the gasoline additive MTBE which has been found 

to be polluting scarce water resources in the state and for California’s open pit 

mining reclamation law. Yet, under the U.S. Supreme Court holding in Lucas 

v. South Carolina Coastal Council, pollution that harms public or other properties is a nuisance that can be regulated by states without compensation.17

USTR failed to remedy this problem in CAFTA. • CAFTA Would Empower Foreign Investors to Overcome the Long-established Sovereign Immunity Shield to Pursue U.S. Taxpayer Compensation In Property Claims from which U.S. Residents and Companies Are 

Barred: NAFTA panels have explicitly refused to dismiss investor challenges 

when governments have raised sovereign immunity as a defense in investorstate challenges—apparently allowing firms to sue governments at any level regarding any issue for any amount of money. Indeed, in these cases, investorstate tribunals have accepted the argument raised by some foreign investors 

that Congress waived federal sovereign immunity when it passed NAFTA. 

USTR failed to remedy this problem in CAFTA with explicit language clarifying 

that sovereign immunity was not waived, thus providing an open door for future 

such challenges. 

3. CAFTA Would Forbid Congressional, States’ Anti-Offshoring Policies 

that Require government Contract Work be Done by U.S. Workers; Forbids 

Environmental, Other Procurement Rules 

CAFTA’s rules on government procurement apply to an array of federal government agencies as well as the states that are listed as ‘‘covered entities’’ in Chapter 

9, Annex 9.12 (b) (i). In September 2003, the United States Trade Representative 

sent a letter to all 50 Governors, requesting that they commit their states to be 

bound by the procurement provisions in all bilateral and regional trade pacts under 

negotiation, including CAFTA. The letter touted the potential for U.S. suppliers to 

bid on foreign government contracts, but failed to mention the requirements the procurement chapters CAFTA and other agreements imposed on states. Initially, twenty-eight states were listed as bound in the CAFTA text. However, since then, state 

officials have become much more aware of the implications that binding state procurement policy to CAFTA’s rules would have on their ability to determine what 

procurement policies are in the best interests of the state, including policies that 

use state purchasing power to further social, environmental, and economic development goals. 

As a result, a majority of U.S. states (30) have rejected CAFTA’s government procurement rules and decided it is not in their best interest to be bound. In 2004, 

seven Governors (from Iowa, Kansas, Maine, Minnesota, Missouri, Oregon, and 

Pennsylvania) rescinded their previous commitments on behalf of their states to be 

bound to CAFTA’s procurement rules. Other states (Montana, Nevada, Wisconsin, 

and Virginia) declined the USTR’s request outright. Governors of states that remain 

bound by CAFTA, including Texas and Washington, have requested that additional 

reservations be taken. (Only some of those requests have been incorporated into the 

CAFTA text. Washington’s request was rejected in an August 13, 2004 letter from 

Ambassador Zoellick to Washington Governor Gary Locke.) In early 2005, the National Conference of State Legislatures wrote to the USTR, requesting that the 

USTR respond to the myriad concerns of state legislators. The Intergovernmental 

Policy Advisory Committee (IGPAC) issued recommendations in August 2004 that 

state legislative leaders be carbon copied on all requests sent to Governors, as state 

legislators to date have been cut out of the consultation process, despite the fact 

that in most states, the Legislative Branch has the authority to set state procurement policy. The USTR explicitly denied that request, and sent another letter to 

Governors requesting that they sign on to the procurement provisions of free trade 

agreements with Panama and Andean countries. Most recently, in April 2005, the 

Maryland General Assembly passed legislation over Governor Ehrlich’s veto which 

182 

18 Alan Guebert, ‘‘State Ag Directors Whack CAFTA, White House,’’ Aberdeen News, March 

11, 2005. 19 Jorge Arrizurieta, ‘‘A needed precursor to FTAA,’’ Florida Sun Sentinel, March 11, 2005 

stipulated that it was the authority of the legislature, not the Governor, to sign on 

to the government procurement rules in trade pacts. The bill also declared invalid 

previous expressions of consent made by Governors, including Governor Ehrlich’s 

letter offering to bind Maryland to CAFTA’s procurement provisions. 

State officials’ concerns stem from the restrictions that CAFTA’s rules impose on 

their ability to maintain existing and adopt new procurement policies in the public 

interest. CAFTA’s procurement chapter prohibits many common purchasing policies, 

seriously weakening governments’ flexibility to use procurement as policy tool to 

promote economic development, environmental sustainability, and human rights. 

These rules also apply to federal government procurement policies: 

• Requirements that Government Work Be Performed in the United States 

by U.S. Workers Are Prohibited: If CAFTA were approved, Federal and state 

governments would be required to treat companies located in the six CAFTA 

countries identically to U.S. domestic companies when governments seek to procure goods and services. This means neither Congress nor state governments 

could give preference to domestic or local firms or require that to obtain government contracts, firms must employ U.S. workers (CAFTA Article 9.2). • SWEAT-FREE, RECYCLED CONTENT, RENEWABLE SOURCE AND OTHER LABOR AND

ENVIRONMENTAL CRITERIA BANNED: CAFTA requires that ‘‘a procuring entity 

shall not prepare, adopt or apply any technical specification describing a good 

or service with the purpose or the effect of creating unnecessary obstacles to 

trade’’ and that technical specifications are limited to ‘‘performance requirements rather than design or descriptive characteristics.’’ These constraints 

mean that procurement policies that set criteria for how a good is made or how 

a service is provided are prohibited—putting preferences for recycled content or 

renewable energy, ‘‘green’’ building requirements, and bans on goods made with 

the worst forms of child or slave labor at risk as ‘‘barriers to trade’’ (CAFTA 

Article 9.7). • Consideration of Bidding Firms’ Labor, Tax, Environmental, Human 

Rights Records Forbidden: CAFTA limits what sorts of qualifications may be 

required of companies seeking to supply a good or service to a government. Conditions for participation in bidding are limited to ‘‘those that are essential to 

ensure that the supplier has the legal, technical and financial abilities to fulfill 

the requirements and technical specifications of the procurement.’’ CAFTA’s 

limits on the requirements that can be imposed on contractors prohibit conditions such as prevailing wage and living wage requirements, as well as consideration of suppliers’ environmental or labor track records (CAFTA Article 9.8). 

4. Opposition to CAFTA NAFTA Expansion Wide and Varied, Having 

Grown Since NAFTA 

As successive Administrations have failed to reverse the damage and demonstrated, significant problems of NAFTA’s foreign investor protection model, opposition has grown in all quarters. The Association of State Supreme Court Justices, 

U.S. League of Cities, National Conference of State Legislatures, National Association of Counties, and National Association of Towns and Townships all have expressed concerns about the investment provisions of CAFTA. 

Concerns about CAFTA’s foreign investor protection by these typically pro ‘free 

trade’ associations of state and local officials, groups that are concerned about our 

Nation’s system of federalism and the integrity of our domestic courts, has been 

joined by outright opposition to CAFTA from other unexpected quarters, suggesting 

the degree to which this agreement signed a year ago is seen not to serve the U.S. 

national interest. The National Association of State Departments of Agriculture, for 

one, concerned about CAFTA’s agricultural provisions called on Congress to oppose 

CAFTA.18 These and other agricultural groups are concerned about declining farm 

revenue even as volumes of food trade increased under NAFTA, and that the United 

States is about to become a net food importer. Furthermore, these groups take to 

heart the claims of pro-CAFTA forces, who continually repeat that CAFTA is a stepping stone to a proposed broader Free Trade Area of the Americas (FTAA).19 Many 

U.S. economic sectors views of CAFTA are tied to their analysis of how competition 

with Brazil in a NAFTA expansion from Alaska to Tierra del Fuego would affect 

their export capacity in beef, soy, citrus, sugar and ethanol. 

Many other groups have also expressed opposition to CAFTA NAFTA expansion. 

Human Rights Watch has produced analyses of the failure of Central American 

labor law and enforcement practices to meet the minimal International Labor OrgaVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00186 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
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20Michael Bochenek, ‘‘Turning A Blind Eye: Hazardous Child Labor in El Salvador’s Sugarcane Cultivation,’’ Human Rights Watch Report, June 2004; ‘‘Pregnancy-Based Sex Discrimination in the Dominican Republic’s Free Trade Zones: Implications for the U.S.-Central America 

Free Trade Agreement (CAFTA),’’ Human Rights Watch Briefing Paper, April 2004; Carol Pier, 

‘‘Deliberate Indifference: El Salvador’s Failure to Protect Workers’ Rights—implications for 

CAFTA,’’ Human Rights Watch Report, Dec. 2003; Judith Sunderland, ‘‘From The Household To 

The Factory: Sex Discrimination in the Guatemalan Labor Force,’’ Human Rights Watch Report, 

Jan. 2002. 21 U.S. Department of State, ‘‘Report on El Salvador,’’ 2001 Country Reports on Human Rights 

Practices. 22 ‘‘Another America is Possible: The Impact of NAFTA on the U.S. Latino Community and 

Lessons for Future Trade Agreements,’’ LCLAA and Public Citizen, Aug. 2004 23 Angus Reid Global Scan, ‘‘Guatemalans Decry CAFTA Deal With U.S.,’’ April 2005 24Karen Hansen-Kuhn, ‘‘Central Americans Speak Out Against DR–CAFTA: Major Issues and 

Mobilizations,’’ Alliance for Responsible Trade, Mar. 2005, at 10. 25 Rep. Charles B. Rangel, ‘‘Rep. Rangel Reacts to Reported ‘Threat’ from Administration Official to CAFTA Countries,’’ Press Statement, March 22, 2005. 26Sergio de Leon, ‘‘Police, protestors clash ahead of Guatemala-U.S. free trade vote,’’ Associated Press, Mar. 9, 2005. 

nization core labor standards,20 an analysis that has been confirmed by the U.S. Department of State’s annual human rights reports.21

And U.S. Latino organizations who supported NAFTA, from the nation’s largest 

and oldest Hispanic civil rights organization the League of United Latin American 

Citizens to an array of immigrant rights groups representing Central Americans in 

the United States, have also indicated their opposition the current terms of the 

agreement, concerned that trade-related job loss disproportionately affects U.S. 

Latinos and that CAFTA’s negative repercussions for Central America are foretold 

by NAFTA’s negative results in Mexico.22

5. Central American Public Opposition to CAFTA NAFTA Expansion Is 

Based on NAFTA’s Record of Destroying the livelihoods of 1.5 Million Mexican Small Farmers and U.S. Heavy-Handed Tactics Forcing Price-Raising 

Medicine Policies, Essential Service Privatizations 

Lawmakers concerned about the implications of the so-called ‘‘Arab Street’’ in the 

Middle East should also pay attention to the passionate CAFTA opposition on the 

‘‘Latin Street’’ of Central America. Nearly one out of every 25 El Salvadorans have 

publicly rallied against CAFTA in the past several years, and polls indicate that a 

majority of citizens in Guatemala and elsewhere oppose the terms of CAFTA.23 In 

Honduras, Guatemala and Nicaragua, massive protests have also occurred against 

CAFTA, while it is unclear if Costa Rica’s congress will approve the deal.24

Officials from the U.S. Trade Representative’s office have taken to threatening 

Costa Rica that if the democratically elected Congress there determines the pact is 

not in their nation’s interest and rejects it, the United States will remove that nation’s existing terms of access to the U.S. market provided under the Caribbean 

Basin Initiative (CBI). These threats continue today despite the March 2005 letter 

by Ways and Means Committee Ranking Member Charles Rangel (D–NY) calling 

upon the Administration to desist these misleading pronouncements. As Rep. Rangel’s letter pointed out, CBI is a ‘‘congressionally mandated program [whose] benefits are guaranteed on a permanent basis, unless the Congress amends current U.S. 

law.’’ The representative said he would oppose such an amendment of U.S. law, 

characterizing the Administration’s remarks as ‘‘thinly veiled blackmail.’’ 25

Regardless of the Administration’s bullying and disrespectful treatment of some 

CAFTA countries, certainly Congress would be concerned with the underlying cause 

of such passionate opposition to CAFTA in Central America—opposition whose protests have been met with increasing violence by governments. This includes the 

murder by military troops in Guatemala of two Mayan protestors—an act of military 

violence by the army explicitly forbidden in the 1996 peace accords.26

The causes of opposition include CAFTA’s service sector rules, which would require these nations to privatize and deregulate numerous essential services such as 

energy and other utilities, health care and more, as well as foreign investor protections, which would create a new set of rights for foreign investors to acquire ownership over natural resources and land and pharmaceutical patent requirements, including extended data exclusion terms, which would hurt poor people’s access to 

medicines and take Central American governments’ abilities to respond to public 

health crises such as HIV–AIDS. Fury about these severe threats has been exacerbated by the Administration’s heavy handed tactics, for instance in pressuring GuaVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00187 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
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27 Catherine Elton, ‘‘Activists Fear Free Trade Act Will Restrict Access to AIDS Drugs in Central America,’’ Voice of America, April 2005. 28 ‘‘The Real Record on Workers’ Rights in Central America,’’ AFL–CIO, Apr. 2005. 29 U.S. Chamber of Commerce, ‘‘Chamber Hails Economic, Job Benefits of DR–CAFTA,’’ Issue 

Briefing, Feb. 2005. 30Todd Tucker, ‘‘Fool Me Twice? Chamber of Commerce Distorts NAFTA Record, Hides 

CAFTA Costs,’’ Public Citizen, Mar. 2005. 31 Rossella Brevetti, ‘‘Ambassadors from Central America, Dominican Republic Urge Action on 

FTA,’’ BNA No. 27, Feb. 10, 2004. See also, Martin Vaughan, ‘‘Pro-CAFTA Business Alliance 

Lobbying House Members,’’ Congress Daily PM, Jan. 25, 2005. 32Kristi Ellis, ‘‘China’s First Qtr Surge,’’ Women’s Wear Daily, April 4, 2005. 33Paul Magnusson, ‘‘This Trade Pact Won’t Sail Through,’’ Business Week, March 28, 2005. 

temala to rescind a law that would have improved access to generic, life-saving 

medicines or in threatening Costa Rica with removal of CBI benefits.27

Now major Central American political parties, Catholic bishops, the Central 

American Council of Churches and other mainstream, important Central American 

interests have come out against CAFTA as a threat to the region. In addition, eighteen of the most democratic, independent and representative union federations 

throughout Central America representing workers in the private and public sector, 

including in export-oriented manufacturing and agriculture, have demanded stronger workers rights than those provided under CAFTA.28 They have noted that the 

existing CBI arrangement affords concerned citizens with the International Labor 

Organization core rights and with the greater ability to improve Central American 

labor law than the proposed CAFTA’s rollback CBI labor provisions. 

6. Given the NAFTA Record and Growing Central American Public Opposition, CAFTA Supporters Resort to Increasingly Dubious Arguments . . . Given this broadscale U.S. and Central American opposition to a NAFTA expansion, pro-CAFTA forces have increasingly resorted to disconnected arguments and 

exaggerated and misrepresentative claims about the agreement. For instance, the 

U.S. Chamber of Commerce has produced a flawed study projecting U.S. economic 

gains from a Central America agreement. But to obtain that conclusion, the Chamber had to assume that—contrary to the history of every trade agreement the 

United States has signed—the United States would receive no new imports from the 

CAFTA countries if the pact went into effect.29 The study’s methodology additionally 

implies that over 80 percent of the Honduran economy would have to absorbed by 

U.S. exports by 2013, a potentially socially and economically destabilizing outcome 

if true.30

Despite this projection that Central American countries would not gain from a 

CAFTA, pro-CAFTA forces have simultaneously asserted that CAFTA would save 

the U.S. and Central American textile industries from the end of the global textile 

and apparel quota system.31 Here too, their claims are wildly misleading, since experts from the U.S. International Trade Commission to the Organization for Economic Cooperation and Development (OECD) have demonstrated that China enjoys 

a significant technological, wage and input cost advantage over the Central American countries. This means that, with or without a CAFTA, the expiration of the 

Multi Fiber Arrangement quota system will result in Central America losing a great 

deal of its current production and employment in the textile and apparel industry. 

The notion that CAFTA would affect this situation is beyond bizarre. Already 

under CBI, CAFTA countries’ textile and apparel exports enter the United States 

duty free. CAFTA provides no additional benefit for entry. Indeed, CAFTA loosens 

the CBI rules of origin, meaning more Chinese goods could enter through CAFTA 

countries if CAFTA were implemented than are now permitted. 

Already, apparel imports from China jumped amount in the first quarter, and by 

as much as 1,521 percent in some customs categories.32 While Congress may seek 

to address this flood of cheap Chinese imports, this is a separate problem than 

CAFTA and would require a separate solution. The debate around CAFTA is not 

a question of ‘‘whether U.S. workers would rather lose their jobs to China or to Central America,’’ as Carlos Sequeira, Nicaragua’s chief CAFTA negotiator put it.33

Congress should instead focus on the flaws of CAFTA, which would loosen CBI’s requirement that U.S. inputs be used to enjoy duty-free access to the U.S. market and 

undermine CBI’s labor rights protections, while still not proffering to the dying Central American industry any access benefits that they do not already enjoy through 

CBI. 

Conclusion 

The bottom line in Congress’ consideration of CAFTA should be whether extending the seriously flawed NAFTA model will help us create a brighter future for our 

185 

children and grandchildren, and those of our continent. Even considering only the 

well-documented NAFTA record of huge middle-class job loss in the U.S. and growing trade deficits undermining the livelihoods of 1.5 million Mexican farmers, suppressing real median wages in the United States and Mexico, replacing living wage 

jobs with cheap wage jobs with no benefits—gutting the U.S. manufacturing base, 

coinciding with record-low prices paid farmers for the food they produce in all three 

countries even while consumer prices increased, and exposing some 42 domestic environmental, health, zoning and laws and regulations to attack in closed investorstate tribunals and the payment of some $35 million in taxpayer funds to foreign 

investors for the lost NAFTA-guaranteed profits they lost, it seems quite clear the 

answer is no. If one adds to the NAFTA evidence the problems caused by the 

CAFTA provisions that go beyond even what NAFTA requires—for instance in the 

foreign investor protections chapter or regarding drug patents—the answer becomes 

only clearer. 

Congress should oppose this agreement simply on the basis of its intellectual 

property rules which are certain to undermine affordable access to essential medicines for poor consumers in the Central America. Scandalous provisions of CAFTA 

NAFTA expansion are life and death matters: generic versions of the cocktail of 

anti-retroviral drugs essential to extending the lives of those infected with HIV cost 

several hundred dollars for a yearlong course while the brand name patented 

version of the same drugs cost $5,000 per year. If the CAFTA drug patent rules 

would go into effect in the Central American countries and the Dominican Republic, 

many people now able to have access to these life saving HIV–AIDS medicines and 

also drugs vital to fighting tuberculosis and other diseases will not have access to 

these medicines—either because they cannot afford to purchase them or because 

their government health agencies cannot afford them to provide to their public. 

Thus given CAFTA NAFTA expansion’s potential extension of the failures of 

NAFTA to people in six additional nations and the damage to U.S. residents that 

further extension of this model would pose, we urge Congress to oppose NAFTA’s 

expansion to Central America and beyond. 

DR–CAFTA 

Country 2004 Trade 

Deficit Population GDP Per Capita Income Top Sectors 

Costa Rica ¥$29 

million 

3,956,507 $35.34 billion $9,100 agriculture: 8.5% 

industry: 29.4% 

services: 62.1% 

Dominican 

Republic 

¥$185 

million 

8,833,634 $52.71 billion $6,000 agriculture: 10.7% 

industry: 31.5% 

services: 57.8% 

El Salvador ¥$184 

million 

6,587,541 $30.99 billion $4,800 agriculture: 9.4% 

industry: 31.2% 

services: 59.3% 

Guatemala ¥$606 

million 

14,280,596 $56.5 billion $4,100 agriculture: 22.5% 

industry: 18.9% 

services: 58.5% 

Honduras ¥$564 

million 

6,823,568 $17.55 billion $2,600 agriculture: 12.8% 

industry: 31.9% 

services: 55.3% 

Nicaragua ¥$398 

million 

5,359,759 $11.6 billion $2,300 agriculture: 28.9% 

industry: 25.4% 

services: 45.7% 

NAFTA 

Country 2004 Trade 

Deficit Population GDP Per Capita Income Top Sectors 

Canada ¥$65 billion 32,507,874 $958.7 billion $29,800 agriculture: 2.2% 

industry: 29.2% 

services: 68.6% 

186 

Country 2004 Trade 

Deficit Population GDP Per Capita Income Top Sectors 

Mexico ¥$45 billion 104,959,594 $941.2 billion $9,000 agriculture: 4% 

industry: 26.4% 

services: 69.6% 

United 

States 

n/a 293,027,571 $10.99 trillion $37,800 agriculture: 1.4% 

industry: 26.2% 

f 

services: 72.5% 

Mr. BRADY. Thank you very much. The Committee recognizes 

the gentleman from Oregon, Mr. DeFazio, for his remarks. 

STATEMENT OF THE HONORABLE PETER DEFAZIO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON 

Mr. DEFAZIO: I thank the Chair. I thank the Members of the 

Committee, particularly the Ranking Member, for facilitating this 

Members’ panel on this very important subject which will have 

very constrained debate without amendment on the floor of the 

House, something that is vitally important to the American people. 

I would just like the Committee to reflect a bit on some of the testimony they have heard. Mr. Dreier, who, of course I am sorry he 

had to leave—I don’t want to talk behind his back, but I remember 

he gave the same speech about NAFTA. It was going to bring great 

prosperity to America. It was going to give American companies access to the Mexican markets, and he predicted that we would run 

trade surpluses and we would create jobs in America. Well, he 

couldn’t have been more wrong, could he? It has created a large 

and growing deficit with Mexico, and it has seen the export of hundreds of thousands of U.S. jobs to Mexico, U.S. capital to Mexico, 

and it has not improved the plight of the Mexican people who are 

working in sweatshops and unsafe conditions. I have been to the 

maquiladora area. The environmental degradation there and the 

human suffering and the exploitation is extraordinary. 

So, what you have is losers on both sides of the border American 

workers and Mexican workers; a failed model which has provided 

an export platform for U.S. capital to access exploitable cheaper 

labor and lack of environmental enforcement. Now we want to replicate that further down into Latin America because perhaps we 

can find even cheaper labor and more exploitable people down 

there. Again, it is not about exporting goods to Central America. 

If the countries in question here devoted every penny of their economy to only consuming U.S. goods, they didn’t buy a thing at home, 

didn’t eat anything at home, nothing, everything came from the 

United States of America, it would constitute about 5 days of the 

American economy. Obviously that is not going to happen. We are 

already running a trade deficit with Central America. We know 

that this will accelerate that trade deficit. 

Mr. Dreier talked about how great it will be if our textile companies could move their machines to Central America instead of having to ship them all the way to China or have to invest in new machines in China and how that would somehow be a benefit to the 

Americas or to America itself in its contest with China. The averVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00190 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
187 

age hourly earning of U.S. production workers, $16.01. The average 

hourly wage for Honduran workers, 90 cents. They are going to be 

buying a lot of U.S.-manufactured goods from our country. The 

number of DR–CAFTA countries found to be in compliance with 

basic ILO standards, zero. There are no enforceable labor standards in this bill. It is just like the head feint we had with NAFTA 

which gave a bunch of our weak-kneed colleagues an opportunity 

to vote for it under pressure from the Clinton Administration. They 

said, oh, ‘‘we got labor, and we got the environment.’’ They are just 

non-enforceable side agreements. We are going to have the same 

thing here, unenforceable labor standards; this will do nothing to 

improve the plight of exploited labor in that area. 

This is not a partisan issue. It is a bipartisan failure. Bill Clinton 

delivered NAFTA, which would have been difficult for a Republican 

president to deliver with a Democratic Congress, much to his discredit. Those of us who opposed it predicted much of what has happened, but, in a sense, we were all wrong. It is even worse than 

we thought. Last month, the United States of America ran a $62 

billion 1 month record trade deficit. That is going to be over $700 

billion that we are going to borrow from overseas. The dollar continues to decline. We are hemorrhaging jobs in our economic base, 

and what are we going to do? More of the same with this agreement. How many times are we going to listen to the siren song of, 

all we want to do is open up these impoverished countries to become consumers of expensive, sophisticated, U.S.-manufactured 

products, when in reality it is all about making them a platform 

to export back into the United States of America, using their exploitable labor and their weaker standard. 

So, I would hope that the Committee will not rubber-stamp this 

legislation and that we will begin to bring about a change in trade 

policy which will benefit all of the people of the United States of 

America. We can become a world leader. Instead of leading the race 

to the bottom in environmental and labor standards, let’s set up a 

higher floor, and move it upward and bring the rest of the world 

up to our standards, instead of lowering ourselves and our workers 

to theirs. Thank you, Mr. Chairman. 

Mr. BRADY. I would note the gentleman finished 5 minutes to 

the second. Well done. Well timed. The Committee recognizes the 

gentleman from Minnesota, Mr. Peterson. 

f 

STATEMENT OF THE HONORABLE COLLIN PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA 

Mr. PETERSON: Thank you, Mr. Chairman, and thank the 

Ranking Member and other Members for hanging in there today. 

While we are here today, the Secretary of Agriculture is visiting 

the Red River Valley of Minnesota and North Dakota, the largest 

sugar-producing place in the United States; he is trying to address 

their concerns about DR–CAFTA. The feedback that I have received so far from those farmers, they are telling me, he still 

doesn’t seem to get it. As others have said, we have given all these 

glowing promises about what was going to happen, but the reality 

188 

of what is going on here, for the first time in 46 years, this year, 

we are going to be running an even balance in agriculture trade, 

or maybe even a deficit. Back in 1996, we had a $27 billion surplus 

in agriculture. This year, it is going to be zero. If we keep going 

in this direction, we are going to be in the hole big time. 

During the NAFTA debate, the Administration official promised 

us that we were going to add all these jobs, 170,000. It has been 

said we lost, the first 10 years here, 880,000 jobs. This is not surprising if you consider the agriculture sector alone, the statistics 

show that our trade deficit with Canada and Mexico in agriculture 

has tripled from $5.2 billion to $14.6 billion. Now part of the problem, I think, and part of the reason that this agreement is in trouble—back in the old days, every agriculture Member of the Committee supported these trade agreements. Today, they don’t have a 

majority; and the reason is they won’t enforce these agreements 

after they—first of all, they are negotiating them in a bad way, and 

then they won’t enforce them. 

So, we have got the situation with Brazil and the cotton case. We 

had the side letter. We had NAFTA to get sugar support, and it 

turned out not to be worth the paper it was written on. So, they 

assured us in the NAFTA with the side letter that U.S. sugar growers would be protected because Mexico would remain to be a deficit 

sugar producer, as they had been in the 5 years leading up to 

NAFTA. When the Mexican market opened up, what happened? 

U.S. high fructose corn syrup went into Mexico, into the soft drink 

industry, and they substituted that for sugar, and Mexico began to 

export all that sugar into the United States. Now if any of you 

have examined the sugar market, it is not a real market. It is a 

dump market created by the Europeans and the Brazilians, to 

some extent. Nobody can produce sugar in the world for six and a 

half cents. We have gotten ourselves into a situation now where we 

are looking down the barrel of the gun in Mexico where in 2008, 

potentially, we could have 5 million tons of sugar come into the 

United States without any way to stop it. We have been trying to 

negotiate this thing out for the last 3 years, and we aren’t, frankly, 

getting anyplace. We aren’t getting any help. 

Then you go up to Canada. We have got the potato situation that 

has been going on since way back when we had the U.S.-Canada 

FTA, where we have got a situation up there where the fresh potatoes from Canada—we can’t export to Canada unless we get a special ministerial exemption, which basically makes it impossible. 

The long and the short of it is they have got a supply management 

system for potatoes in Canada. They keep our potatoes out. They 

can bring their potatoes in. What do we do about it? Nothing. We 

can’t get our people to stand behind us and to get rid of this obvious distortion of what the trade agreement was supposed to be 

about. So, because we—and I could go on and on with other examples. 

So, this DR–CAFTA is going to be the same as what we have got 

under NAFTA. There are a lot of us in agriculture that are very 

concerned about where this thing is heading. They told us, well, 

the problem is these trade agreements would work if we just—the 

value of the dollar is too strong, and once the value of the dollar 

comes down then everything is going to be fine. Well, what hapVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00192 Fmt 6633 Sfmt 6602 E:\HR\OC\23918.XXX 23918
189 

pened? The value of the dollar collapsed; and for the first time in 

the history of—well, in 50 years, we are probably going to run a 

trade deficit in agriculture in this country. I think people need to 

wake up, and I think we need to defeat this agreement. Send it 

back to the drawing board and come up with something that works 

for the American people. 

Mr. BRADY. Thanks. Appreciate your testimony. The Committee 

recognizes the gentleman from California, Mr. Lungren. 

f 

STATEMENT OF THE HONORABLE DAN LUNGREN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. LUNGREN: Thank you, Mr. Chairman, Ranking Member 

and other Members who are here. First of all, thank you for allowing me to appear before you, and all of us to appear before you. 

I am one of those lucky enough to be selected to go to Rome this 

weekend, and this puts me in the proper mood because this room 

has cathedral-like properties. As someone who has never been on 

the Committee on Ways and Means, it is a real pleasure to be able 

to appear before you in this august setting. When I was in Congress some years ago, I recall a Member saying something which 

wasn’t original with him but which was important nonetheless, and 

it was something like this: If goods and services do not cross national boundaries, armies certainly will. The suggestion was that 

through history we have seen that tariffs and other trade barriers 

presented in certain ways caused instability in regions and instability in many places around the world. This was brought very 

closely home, to me, when I was visited by several representatives 

of the Central American countries with which we are negotiating 

this agreement. Because I have been absent from this body for 16 

years—I was here 26—a period of time of 10 years between 26 and 

16 years ago, and at that time we weren’t talking about DR– 

CAFTA, we weren’t talking about NAFTA, we weren’t talking 

about trade, we weren’t talking about agriculture. We were talking 

about guns and bullets. 

We were talking about the effort the United States was sustaining to try and fight a Communist threat that was supported by 

the then existing Soviet Union, and I had to convey to the people 

that visited me that was a far greater joy that I engaged in that 

conversation with them today than 10 to 20 years ago when we 

were talking about unstable situations in Central America. This is 

a consequence of those actions that we took back then. This is a 

further development of our relationship with that part of our own 

hemisphere. This is an opportunity for us to try and engage in 

meaningful trade negotiations which allow not a perfect solution to 

our side but a reasonable opportunity for us to establish the trade 

relationship between ourselves and the countries involved. Does it 

solve every labor problem? No, it doesn’t. I was trying to find out 

how I would be informed as to how this House should act, and so 

I looked up some material with respect to one of the most recent 

trade agreements approved by this Congress, and that was last 

190 

year, I believe, or the year 2004; that is, the Morocco-U.S. agreement. 

I looked at the key labor issues. There it was: discrimination, or 

child labor, or forced labor, or the ILO core conventions, or the freedom of association, or the right to collective bargaining, or the right 

to strike. In every one of those categories the labor laws of the Central American countries and the Dominican Republic that are covered by DR–CAFTA are at least as good as if not superior to those 

of the Kingdom of Morocco. So, at least it gives me pause to believe 

that, upon reflection, that if the Congress believed that those were 

adequate protections that advanced the labor situations in that 

country, not perfectly, not to the total standards of the United 

States, but advanced from where they are, that it very well may 

be the case that that is what we find here. With respect to agriculture—and we have just heard from the gentleman to my right 

reflections on agriculture in his State, I might say that, as far as 

California agriculture is concerned, every representative of California agriculture that I have spoken with recommends the approval of this agreement. They specifically say that this would 

allow them an opportunity for a growing market and one that 

would be of benefit to California agriculture and, therefore, American agriculture. 

So, Mr. Chairman and Members, I would just say—I was trying 

to give you at least a view of someone who has been away from 

here for a period of time to see the tremendous change we have in 

the relationship of the United States to the Central American countries that are signatories to this DR–CAFTA agreement. Thank 

you, Mr. Chairman. 

Mr. BRADY. Thank you, sir. Appreciate the testimony. We will 

soon recognize the gentleman from Louisiana as the final testifier 

in a long 8-hour hearing. At this time—that was quite an entrance 

for the Cajun Congressman; that was a good one—the Committee 

recognizes the gentleman from Louisiana, Cajun Charlie Melancon. 

f 

STATEMENT OF THE HONORABLE CHARLIE MELANCON, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF LOUISIANA 

Mr. MELANCON: You are pretty good. I will give you credit. You 

have been practicing, apparently. Thank you, Mr. Chairman and 

Members of the Committee. I appreciate the opportunity to be here 

today. Let me start by saying, and somewhat reiterating, maybe in 

a different form, former Presidential Candidate Perot during the 

campaign that he unsuccessfully ran for president in made a statement that has come to be reality; NAFTA would be that great sucking sound from south of the border taking our jobs away. It has occurred, and it is occurring. To duplicate that with the DR–CAFTA 

would be wrong. It would be wrong for the people that have businesses, the people that have jobs. It is going, and it is not stopping. 

If you have ever been to Guatemala in a sugar cane field, it is 

really an experience that will—I am not sure exactly how to explain seeing a 6-year-old boy cutting sugar cane with his father and 

has soot from head to toe and he makes several cents a day, but 

191 

he needs to because the household income in Guatemala—this was 

4 years ago—was $675 a year. Surely, they are not going to buy 

a Dell computer. I doubt very seriously they are going to call 

Omaha Steaks and order any. I can’t imagine anything else that 

they would need from this country that they could afford. 

I come from a sugar background. On my father’s side, I am a 

fourth generation person that has been involved in sugar; on my 

mother’s side, three generations. Farmers, mill managers, overseers even, that have made their living in the sugar industry. My 

sisters and I owe our education and everything that we have that 

our parents were able to give us to an industry that has been in 

Louisiana for 225 years. Now people will talk about the benefits 

and do they outweigh the downsides. Well, during the NAFTA, the 

people at the Port of New Orleans spoke of the 45,000 new jobs 

that would come to that port; 2,200 arrived. During the DR– 

CAFTA, Mr. Zoellick talked about the 63,000 jobs that would be 

coming to the Port of New Orleans; and if it replicates what occurred during the NAFTA, we are going to be in sad shape. Yet in 

Louisiana alone, in the sugar industry, we have 27,000 people 

working. So, we are going to give that up on a hyper chance that 

we are going to get some more jobs? I don’t think so. 

When you look at the DR–CAFTA agreement in sugar alone and 

you realize what Mr. Zoellick negotiated by himself for this entire 

country and the fact that the circumvention allowed— because we, 

as Congressmen, who are able to represent our people in every 

way, shape and form domestically have no control over these negotiated agreements, other than to vote them up or to vote them 

down, that has taken away the rights of the people in this body to 

speak through their representatives in this body. When you look at 

this entire industry of sugar and you look at the NAFTA and you 

look at the bilateral agreements, you will find that in the NAFTA, 

contrary to what I have heard in the negotiations during DR– 

CAFTA or any other negotiated treaty, the Canadians had the option to not participate in the NAFTA. Explain that. 

Yet sugar, which is very important to this country, was the first 

commodity that was rationed and the last one taken off the ration 

list. It is going to be a sad day for me if I have to go to the sugar 

people in my district and tell them and their bankers that the 

500,000 acres is going to go to scrub brush or back to wetlands, 

that those sugar mills that they have invested in, and kept running 

for 225 years, they can dismantle and sell for a penny on a dollar 

to South America. There is a lot more I would like to say, but my 

time has run out. Thank you, sir. 

Mr. BRADY. Thank you. We appreciate the testimony. We will 

finish our last round of questions. The Committee recognizes the 

Ranking Member from New York. 

Mr. RANGEL. Thank you, Mr. Chairman. I was just thinking as 

I heard this eloquent testimony for and against, that the DR– 

CAFTA—wouldn’t it be a wonderful thing if we all felt that Members of the House of Representatives understood the subject as well 

as you do and that they would not be forced for political reasons 

to vote yes or no or that the Chairman believes that this bill is 

ready for voting and promised the President that he will pass it by 

one or two votes. Wouldn’t it be a wonderful thing if we understood 

192 

the complexities of the bill, the impacts it would have on our Congressional Districts, to know what is in it, to know what is not in 

it, and to be able to caucus as Democrats and Republicans to see 

what is best for our Nation as a whole. Tragically, Mr. Lungren, 

Democrats were excluded from participating in what the USTR was 

putting together. I don’t feel that badly about it because I don’t 

think many Republicans were involved in having input in the bill 

as well. As you have seen in the papers, they go in the back room, 

they decide what they want to do, and then there is the package. 

I am convinced that you will not be able to find anything concerning labor laws in this package. They refer to it, the USTR and 

the Ambassador, saying that they have incorporated ILO language 

in it, but if they did—that is all we Democrats were asking for, to 

have an opportunity to put some basic minimum standards there. 

There is no American that believes that we should not be concerned about the welfare of the people in these countries. Communism and terrorism cannot thrive if the people are working, but 

there is no indication that anyone is concerned. We just had a witness that you probably heard on the previous panel saying we can’t 

force people to have labor laws. We can’t tell them what to do. 

Well, they—we darn sure tell them what to do with intellectual 

property, and they found some way to tell us what to do with our 

tax laws without having sanctions on us. So, the whole idea of forcing people to do anything, it is negotiation, it is working it out. As 

a matter of fact, most of the foreigners, trade ministers, they were 

anxious to have some standards in the agreement; and it was we 

who told them not to put it in. 

So, I don’t know what opportunity you are going to have to find 

out what is in the bill, or whether it is going to be just pressure 

to vote up or down. It is a sad day in the Congress when, on international issues, we no longer vote as Americans but we vote party 

line. I hope the day will come soon, when we have enough respect 

for each other, and feel so solid about our positions that we are not 

afraid to share our views. I regret that you have had to stay so long 

in order to share your views, and I regret even further that you 

may not have much more opportunity to have input with what is 

in this package. I assure you that whenever we are meeting, or 

wherever we are meeting, I will see that messages get out to Republicans and Democrats to share your views with us. We are on 

this Committee to do just that, to listen to Members and to try to 

bring to the floor something that is good for America and good for 

the Members. So, thank you, Mr. Chairman, for giving me this opportunity. 

Mr. BRADY. Thank you, the gentleman from New York. At this 

time, I would like to thank the panelists for testifying. I would just 

share with you, I am a junior Member of this Committee, and on 

this trade agreement I had the opportunity to—was invited and 

able to attend each negotiating round—the opportunity to read the 

draft text, still have the opportunity during a mock makeup to 

make the points that I would like to make in this. I think it has 

been a very open process. These trade agreements are difficult, and 

I know we all have different views from our constituencies back 

home. I think these are—these agreements, you can get in as deep 

or as shallow as you choose. We still have an opportunity—because 

193 

of the law we passed in TPA, we still have an opportunity before 

this comes to us to have our voices known. With that, I would like 

to thank the panel for being here today; and this hearing is adjourned. 

[Whereupon, at 6:23 p.m., the hearing was adjourned.] 

[Questions submitted from the Honorable Lloyd Doggett to Ambassador Peter F. Allgeier, and his responses follow:] 

Question: Under CAFTA–DR, can a subsidiary of a U.S. corporation bring 

an investor-state claim against the United States? 

Answer: 

• One of the purposes of the denial of benefits article is to protect against the 

situation you have outlined in your first question. It covers the situation in 

which a U.S. company establishes an affiliate in the territory of another 

CAFTA–DR Party but does not carry out substantial business activities there— 

that is, it establishes an affiliate that is merely a ‘‘shell’’. • The denial of benefits article allows the United States to deny the benefits of 

the FTA to that shell enterprise in the event that it, in turn, establishes an investment in the United States. • Equally important, because the shell enterprise has no rights against the 

United States under the FTA, it cannot force the United States to defend claims 

under the FT A’s investor-State arbitration provisions. By contrast, the enterprise could force the United States to defend claims in a U.S. court. In that respect, the FT A grants fewer rights to the shell enterprise than does U.S. statutory law. • It is possible for a U.S. enterprise to establish an affiliate in the territory of 

another CAFTA–DR Party and for the affiliate to engage/in substantial business 

activity there. If that affiliate in turn establishes an investment in the United. 

States, the United States may not deny the benefits of the CAFTA–DR Agreement to it. 

Question: Are there clearly defined standards for determining whether, 

for the purposes of Article 10.12(2) of CAFTA–DR, a subsidiary of a United 

States corporation has ‘‘substantial business activities’’ in a CAFTA country? 

Answer: 

• The CAFTA–DR Agreement does not define the term ‘‘substantial business activities,’’ because the meaning of that term is necessarily fact-dependent. It 

would be difficult, if not impossible, to come up with a generic definition suitable for all business arrangements in all sectors. • The fact-dependent nature of an inquiry into the existence of substantial business activity is well recognized in U.S. corporate and tax law. • The fact that ‘‘substantial business activities’’ is not explicitly defined in our 

free trade agreements likely discourages potentially costly efforts to circumvent 

the intended scope of the benefits afforded under those agreements. 

f 

[Submissions for the record follow:] 

Statement of Meena Khandpur, Advanced Medical Technology Association 

The members of AdvaMed join other companies in their strong endorsement of the 

U.S.-Dominican Republic-Central American Free Trade Agreement (CAFTA). This 

FTA will benefit the United States economy, the economies of our friends in the Dominican Republic and Central America, and our member companies that export and 

produce in this region. 

AdvaMed represents over 1300 of the world’s leading medical technology 

innovators and manufacturers of medical devices, diagnostic products and medical 

information systems. Our members manufacture nearly 90% of the $83.4 billion in 

health care technology products purchased annually in the U.S., and nearly 50% of 

the $175 billion in medical technology products purchased globally. Exports in medical devices and diagnostics totaled $22.4 billion in 2003, but imports have increased 

to $22 billion—indicating a new trend towards a negative trade balance for the first 

time in over 15 years. 

The medical technology industry is fueled by intensive competition and the innovative energy of small companies—firms that drive very rapid innovation cycles 

194 

among products, in many cases leading new product iterations every 18 months. Accordingly, our U.S. industry succeeds most in fair, transparent, global markets 

where products can be adopted on their merits. 

Global Challenges 

Innovative medical technologies offer an important solution for nations that face 

serious health care budget constraints and the demands of aging populations. Advanced medical technology can not only save and improve patients’ lives, but also 

lower health care costs, improve the efficiency of the health care delivery system, 

and improve productivity by allowing people to return to work sooner. 

To deliver this value to patients, our industry invests heavily in research and development (R&D), and U.S. industry is a global leader in medical technology R&D. 

The level of R&D spending in the medical device and diagnostics industry, as a percentage of its sales, more than doubled during the 1990s, increasing from 5.4% in 

1990, to 8.4% in 1995, to 12.9% in 1998. In absolute terms, R&D spending has increased 20% on a cumulative annual basis since 1990. This level of spending is on 

par with spending by the pharmaceutical industry and more than three times the 

overall U.S. average. 

However, patients benefit little from this R&D investment when regulatory policies and payment systems for medical technology are complex, non-transparent, or 

overly burdensome, causing significantly delays in patient access. They can also 

serve as non-tariff barriers, preventing U.S. products from reaching patients in need 

of innovative health care treatments. 

Utilize Regional Forums to Eliminate Taqriff and Nontariff Barriers to 

Trade that Unnecessarily Increase the Cost of Health Care 

AdvaMed supports international trade initiatives, including bilateral, regional and 

global trade negotiations, such as the Free Trade Area of the Americas (FTAA) and 

the Doha Development Agenda in the World Trade Organization (WTO). We encourage Congressional and Administration efforts to eliminate significant tariff and nontariff barriers to trade for medical technology maintained by many countries, particularly developing countries. Such barriers represent a self-imposed and unnecessary tax that substantially increases the cost of health care to their own citizens 

and delays the introduction of new, cost-effective, medically beneficial treatments. 

For example, the medical technology sector continues to face tariffs in Latin America of 15–20% in Mercosur countries and 9–12% in Peru and Colombia. 

We strongly endorse the Administration’s effort to gain Congressional approval for 

legislation implementing the CAFTA. Under this free trade agreement, our trading 

partners in the Dominican Republic and Central America will grant U.S. exports of 

medical devices duty-free treatment upon entry into force. This would immediately 

eliminate tariffs of around 10–15% applied to medical devices in these nations. 

Since the United States already grants imports of almost all products from these 

countries duty-free entry under the Caribbean Basin Initiative, we view the CAFTA 

as a way to level the playing field for U.S. exports. 

Congressional approval of CAFTA legislation would pave the way for progress on 

other international trade agreements. Under the WTO negotiations, AdvaMed, 

working with other trade associations, is seeking the elimination of tariffs on medical devices and other related health-care products. The result would be substantially expanded access for our products in many developing countries, where tariffs 

are still quite high. Lowering tariffs on health-care related products would reduce 

the cost of those products to patients in developing countries and improve their access to products that enhance, prolong, and save lives. 

International trade agreements, such as CAFTA, provide a vehicle for Administration negotiators to address other trade-related issues. FTAs create a council which 

generally allows the parties to raise a range of trade-related issues. AdvaMed believes the USTR, Department of Commerce and Congress should monitor regulatory, 

technology assessment and reimbursement policies in foreign health care systems 

and push for the creation or maintenance of transparent assessment processes and 

the opportunity for industry participation in decision making. We look to the Administration and Congress to actively oppose excessive regulation, government price 

controls and arbitrary, across-the-board reimbursement cuts imposed on foreign 

medical devices and diagnostics. The councils established by a free trade agreement 

could provide a forum to address these types of issues, which are usually not explicitly contained in the FTA themselves. 

Conclusion 

AdvaMed appreciates the shared commitment by the President and the Congress 

to expand international trade opportunities and encourage global trade liberalization. We look to the President and his Administration to aggressively combat barVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00198 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
195 

riers to trade throughout the globe, and support the adoption of the U.S.-Dominican 

Republic-Central American Free Trade Agreement. AdvaMed is fully prepared to 

work with the President, the office of the USTR, the Department of Commerce, and 

the Congress to monitor, enforce and advance regional, multilateral, and bilateral 

trade agreements—including those with our current key trading partners. 

f 

Statement of Jack R. Ouellett, American Textile Company, Duquesne, 

Pennsylvania 

INTRODUCTION 

Mr. Chairman, members of the Committee. Thank you for the opportunity to talk 

with you today. 

My name is Jack Ouellette, President and CEO of American Textile Company and 

a member of the Board of the American Apparel & Footwear Association (AAFA). 

Our textile business is located in the heart of the rust belt in Pittsburgh, PA. We 

supply mattress covers, pillow covers and pillows to the most of this country’s largest retailers. 

My comments will focus on two ideas: 

1. How contracting in Central America has created jobs in the U.S. 

2. Why CAFTA–DR is important to the future of our company and others like 

ours 

BACKGROUND 

American Textile is an 80 year old, privately held business. The first 70 years of 

our history were devoted to cutting, sewing and packaging textile bedding products. 

One of our big initiatives in the 1980’s was to emphasize products that were ‘‘Crafted With Pride in the USA’’. Neither our customers nor consumers responded positively. Our prices were too high and our products were viewed as a commodity. Others could produce similar products more cheaply. Our market share began to erode. 

In the early 1990’s we forced ourselves to look beyond Pittsburgh and to adapt to 

changes in the world economy. We embarked on three important initiatives that 

saved our business from obscurity: 

1. We began importing vinyl mattress covers and pillow covers from China, the 

worlds low cost producer of vinyl sheeting. 

2. We began sewing cloth covers in El Salvador to take advantage of labor rates 

that were globally competitive in a country only a 4-day boat trip from the U.S. 

3. We partnered with 3M Company to utilize a high tech fabric that we made into 

unique allergen barrier bedding. 

A SUCCESS STORY 

The results have been remarkable and representative of what is good for this 

country. 

1. Today we are the largest supplier of mattress and pillow covers to U.S. retailers. 

2. We are the largest U.S. importer of vinyl bedding products 

3. Our company revenues have increased on average 11% per year over the last 

5 years 

4. U.S. sewing jobs have been replaced with higher paying U.S. jobs such as: 

a. product development 

b. computer programming 

c. marketing 

d. production planning 

e. purchasing 

f. sales analysis 

g. manufacturing controls 

h. warehouse management 

5. Two years ago we built a new $7 million headquarters and distribution center 

just outside of Pittsburgh. And the new construction has a unique history. 

a. It is built on top of an old U.S. Steel plant.The first land owner on the deed 

was Andrew Carnegie who conveyed the property to JP Morgan. 

b. We are part of the revitalization of brown field sites in Pittsburgh. 

c. We are contributing to the economic redevelopment of an area once depressed from the loss of steel making jobs. 

196 

WHY IS CAFTA IMPORTANT? 

We would prefer manufacturing in the USA because it is easier. However, being 

brutally honest with ourselves, we realize that sewing jobs will not come back to 

this country. We are part of a much larger global economy, one in which the government becomes our partner in making trade agreements. We are obviously not opposed to trading with China. But we do have a strong desire to keep as much trade 

in this hemisphere. CAFTA helps us accomplish that goal in several ways: 

1. Duties ranging from 7% to 12 % will be eliminated 

2. Our prices will be more competitive with those from Asia 

3. We will keep our speed to market advantage vs. Asia 

4. Our investments in this hemisphere will be maintained. 

WHAT DOES CAFTA MEAN FOR THE TEXTILE AND APPAREL INDUSTRY 

IN GENERAL? 

U.S. textile companies are already dependent upon CAFTA countries. In 2004, 

25% of all U.S. fabric exports and 40% of all U.S. yarn exports went to CAFTA countries. Between 1999 and 2004, U.S. yarns and fabric exports to the region grew by 

$2 billion—accounting for nearly all of the $2.4 billion U.S. yarn and fabric export 

growth to all markets. 

CAFTA creates fresh incentives to use U.S. yarn and U.S. fabric because the existing program will be made: 

1. Permanent. 

2. Reciprocal 

3. Broader (to cover products such as the ones we make) 

4. More flexible 

5. Simpler. 

WHAT WILL WE DO IF CAFTA PASSES? 

1. We will buy more U.S. fabric made with U.S. yarns because the agreement 

incentivizes us to do so. 

a. This creates jobs for our textile suppliers in Alabama and North Carolina, 

and elsewhere. 

2. Our business will grow in the U.S. and in Central America 

a. This preserves and grows job opportunities in both areas. 

3. We will reinvest duty savings into our latest initiative: making bed pillows in 

the U.S. Here is how that will work: 

a. Pillows are too expensive to import from Asia. 

b. We have already invested $500,000 in pillow making equipment. 

c. Pillow shells will be made in El Salvador generally from fabrics made from 

U.S. yarns. 

d. Pillows will be made in, and shipped from, Pittsburgh 

e. Pillow sewing, filling, packaging and machine maintenance jobs will be created in the U.S. 

WHAT WILL HAPPEN IF CAFTA DOES NOT PASS? 

1. We will gradually move away from Central America and source from Asia and 

other low cost countries. 

2. We will source fabric regardless of fabric and yarn origin. 

3. Our infrastructure (investments) in Central America will begin to shrink. We 

purchase the following type goods and services in the United States and Central America today: 

a. Fabric woven in North Carolina and Alabama. 

b. Fabric woven in Guatemala from cotton, poly cotton and 100% polyester 

c. Zippers 

d. Thread 

e. Packaging supplies 

f. Cutting, sewing and packaging services 

g. But please note, these jobs will not come back to the U.S., they will go to 

other parts of the world 

CONCLUSION 

On behalf of American Textile and other companies like ours, I ask for your support of CAFTA for the following reasons: 

1. It will preserve and create jobs in the U.S. 

2. Jobs will remain in this hemisphere. Strong free trade in this hemisphere creates security and social benefits of interest to the U.S. 

197 

3. In the process we will be improving the lives of thousands of people in Central 

America. We travel there often and have seen the difference we have made. 

f 

Statement of the Honorable Sherrod Brown, a Representative in Congress 

from the State of Ohio 

Members who vote for CAFTA must accept responsibility for its impact on HIV/ 

AIDS patients in CAFTA nations. 

Many of these people are chronically ill now, but will be terminally ill if CAFTA 

is ratified. That’s because CAFTA will dramatically reduce access to generic AIDS 

drugs. 

Costa Rica alone faces AIDS drug costs so steep that available funds will provide 

medicine for only 18% of the patients who are being treated today. 

Most people in CAFTA nations can’t afford to pay brand-name drug prices for one 

day, much less for more than 20 years. Most CAFTA nations are struggling to fight 

AIDS, TB, and Malaria with resources stretched whisper thin. 

But CAFTA responds by denying these struggling neighbors the benefits of competition in the prescription drug market. 

Let me quickly run through the specific drug industry concessions. 

Much like U.S. law, CAFTA provides for two forms of patent extension. The first 

one permits extensions based on delays in the patent examination process. The second one permits extensions based on delays in the drug approval process. 

However, while U.S. law places limits on these extensions, CAFTA does not. 

In the U.S., the extension only applies to the active ingredient of a new drug and 

only permits the extension of the term of a single patent, not multiple patents. In 

contrast, CAFTA allows extensions for any and all patents covering a drug, without 

any time limits. 

Here’s the second concession: Because both brand-name drugs and their generic 

alternatives can be assessed using the same safety and efficacy data, U.S. law permits generic manufacturers to draw from the brand company’s data when they seek 

approval for a generic alternative. 

However, to reward brand companies for compiling the data, U.S. law grants 

these companies a five-year window in which generic drug manufacturers cannot 

use the data to gain marketing approval. 

CAFTA provides brand companies with ‘‘at least five years’’ of data exclusivity, 

opening the door to longer delays in access to affordable medicines. 

Here’s the third concession: Under NAFTA, when a drugmaker first gains approval for a new drug, the clock starts on a five-year period in which the drugmaker 

has exclusive rights to market that product. 

The same five years applies regardless of when other countries approve the drug. 

If, for example, Mexico approves a drug two years after the U.S. does, then the 

drugmaker would receive three years of exclusivity in Mexico. 

Under CAFTA, drugmakers receive five years of exclusivity in each country that 

approves a drug. In other words, under NAFTA, the five years of exclusivity starts 

for all trading partners when a drug is approved in any country, whereas under 

CAFTA it restarts in each country with approval in that country. 

Finally, under U.S. law, a brand-name drug company can delay FDA approval of 

a generic alternative by asserting that one of its patents would be infringed if the 

generic is marketed. 

Under CAFTA, a generic drug cannot be approved unless that country’s FDA can 

prove that no patent is being infringed. How’s that for bureaucracy? 

You’ve got to hand it to the big drug companies. They did an end-run around U.S. 

laws and positioned themselves to rake in billions in windfall profits, and they used 

an unrelated trade agreement to do it. 

But CAFTA proponents will also need to take responsibility for the agreement’s 

impact on U.S. citizens, because CAFTA will not only inflate drug costs in Latin 

America—it will inflate U.S. drug prices, too. 

Once the U.S. endorses additional drug industry favors in other countries, it’s only 

a matter of time before we are forced to adopt those rules here. After all, how could 

we argue that pharmaceutical industry protections should be weaker here than in 

trading partner countries? 

Competition from generic drugs saves U.S. consumers, businesses and governments more than $10 billion each year. 

The greater the delay in generic competition, the more that employer-sponsored 

health plans, the federal government, and American consumers will pay. 

198 

Prescription drug costs are already unsustainable. Blocking competition in the 

drug market can only make them worse. 

Let me conclude with a quick note on side agreements. As Acting USTR Allgeier 

noted earlier today, there is a side agreement on the signatories’ right to fight AIDS, 

TB and Malaria epidemics. 

But side agreements have no legal effect. And this particular side agreement is 

frankly ludicrous. 

Its premise is that these nations will somehow be able to effectively respond to 

public health crises when CAFTA itself robs them of the most effective tools to respond. 

For the side agreement to have any meaning, it would have to void CAFTA’s 

pharmaceutical intellectual property protections. It doesn’t do that. The side agreement isn’t fooling anybody. 

The drug industry concessions in CAFTA are indefensible. 

They are also meaningless, because CAFTA is still just a piece of paper. 

If enough members of Congress vote in the best interests of their constituents, or 

simply vote their conscience, that’s all CAFTA ever will ever be. 

f 

Statement of Robert Holleyman, Business Software Alliance 

Chairman Thomas, Congressman Rangel, and Members of the Committee, the 

Business Software Alliance (BSA) appreciates the opportunity to express the strong 

support of its members for Congressional implementation of the U.S.-Central America Free Trade Agreement (CAFTA). 

BSA represents the world’s leading developers of software, hardware and e-commerce technologies. As one of the leading contributors to the U.S. balance of trade, 

U.S. information technology (IT) and software makers have contributed a trade surplus of $24.3 billion in 2002. As a leading engine of global economic growth, the industry contributed a trillion dollars to the global economy in 2002. In the U.S. alone, 

the IT industry contributed $405 billion to the U.S. economy, creating 2.6 million 

jobs and generating $342 billion in tax revenues in 2002. 

Exports account for over 50 percent of revenues for most of the leading commercial software makers in the U.S., including the majority of BSA members. If we are 

to continue the positive contributions of this industry to the U.S. economy, it is critical that free trade agreements (FTAs) establish the highest standards of intellectual property protection. It is also critical that FTAs provide an open trading environment that promotes barrier free e-commerce and growth of the information technology services sector, and require open, transparent, and merit-based government 

procurement. 

The CAFTA accomplishes these goals, which is why BSA and its member companies strongly and unequivocally support the agreement. The CAFTA significantly 

advances the establishment of strong intellectual property protection and barrier 

free e-commerce in the region and we commend the Administration and Congress 

for these achievements. 

The six trading partners covered by the CAFTA constitute the second largest export market in Latin America (behind Mexico), and the sixth largest growth market 

for exports of American goods and services in the world. The CAFTA will deliver 

tangible benefits to industries, like ours, that depend on export income. More importantly, the CAFTA fosters respect for the rule of law, a commitment to open markets, and protection of intellectual property in a region that just a short time ago 

was plagued by civil unrest. Today, the region is home to vibrant democracies, growing economies and an expanding middle class. We have the highest praise for Congress’ leadership in making the negotiation of this agreement possible through the 

approval of Trade Promotion Authority, and for former USTR Robert Zoellick and 

his team for bringing the negotiation of this agreement to so successful a conclusion. 

High Standards for Intellectual Property (IP) Protection 

For the software industry, strong IP protection is essential in fostering continued 

innovation and investment. Copyright infringements and software piracy cost the industry more than $28 billion in lost revenues last year. To promote strong IP protection in a digital world, it is essential that our trading partners establish the level 

of copyright protection that complies with WTO Trade Related Intellectual Property 

Rights Agreement (TRIPS) and the WIPO Copyright Treaty (WCT). It is also essential that our trading partners fully enforce these obligations. 

199 

The CAFTA, like that Australia and Singapore FTAs before it, sets out one of the 

highest standards of intellectual property (IP) protection and enforcement for copyrights yet achieved in a bilateral or multilateral agreement. The agreement addresses the critical need for strong IP protections in a digital trade environment by incorporating the obligations set out in the WCT. 

Some of the highlights of the IP provisions include: 

• Protection for temporary reproductions. This treatment is critical in a 

networked world where copyrighted materials can be fully exploited without a 

user ever making a permanent copy. • Balanced ISP liability provisions. As in the U.S. Digital Millennium Copyright Act, copyright owners retain their rights in an online environment, while 

Internet service providers enjoy limits on liability for infringement outside of 

their control. • Protection of technological measures. Where technological measures are 

used to prevent copyright infringement, those who circumvent these measures 

will be liable for damages and penalties. • Detailed enforcement provisions. The agreement details civil and criminal 

procedures and remedies designed to create a strong deterrence against piracy, 

including statutory damages to deter further infringement and civil ex-parte 

measures to preserve evidence of infringement. Critically, the agreement also 

provides strong criminal penalties against the most pervasive form of software 

piracy—corporate and enterprise end user piracy. • Government legalization of software. The agreement requires that governments lead by example by using only legitimate and licensed software. 

Barrier-Free E-Commerce 

With Internet usage worldwide topping 900 million people in 2004, e-commerce 

represents an important and growing part of global trade. The promotion of barrierfree cross-border e-commerce is a critical element in expanding access to global markets. The trade treatment of software delivered electronically is one of the most important issues facing the software industry. It is essential that software delivered 

electronically receive the same benefits and concessions as software traded on a 

physical medium. 

We are quickly moving to a world where online transmission is a predominant 

means by which software is delivered to customers. According to our CEOs, by the 

end of this year 66 percent of all software is expected to be distributed online. By 

eliminating the need to ship physical media, this will allow software providers to 

deliver the newest, most up-to-date software to consumers in all corners of the 

globe, more quickly and at lower cost than was ever conceived possible. 

The e-commerce chapter in the CAFTA recognizes a category of ‘‘digital products’’ 

(which includes computer programs), and applies familiar trade concepts to this new 

category. This is critical as it recognizes the evolution and development of digital 

products during the last twenty years, and addresses the need for predictability in 

the trade treatment of digital products. 

Among the specific provisions of the CAFTA e-commerce chapter are duty-free importation and exportation of digital products by means of cross-border transmissions, and broad national treatment for like digital products. These provisions 

promote nondiscriminatory and barrier free e-commerce that is so essential in promoting the growth and development of the IT industry. 

With respect to the physical delivery of digital products customs duties are to be 

applied on the basis of the value of the carrier medium. This provision is essential 

as valuation on content results in highly subjective assessments of projected revenues. 

The parties also agreed to cooperate in numerous policy areas related to e-commerce, further advancing the work on e-commerce with our trading partners. 

Liberalized Trade in Information Technology (IT) Services 

During the past decade, a vast array of new e-commerce and information technology services have been developed including data storage and management, web 

hosting, and software implementation services. Given the increasing trend for technology users to purchase information technology solutions as a combination of goods 

and services, full liberalization in this area is more important now then ever. 

It is thus critical that our trading partners provide full market access and national treatment in information technology services including those that are delivered electronically. It is also important that no barriers are created for the new and 

evolving information technology services. 

All parties to the CAFTA agreed to provide full market access and national treatment on services. The agreement adopted a negative list approach, which means 

200 

1Ferranti, D., G. Perry, W. Foster, D. Lederman, A. Valdez, ‘‘Beyond the City: The Rural Contribution to Development,’’ (Washinton D.C.:World Bank, 2005). 2Oxfam International, ‘‘A raw deal for rice under DR–CAFTA,’’ November 2003, (5), http:// 

www.oxfam.org.uk/what_we_do/issues/trade/downloads/bp68_rice.pdf 

that new services will be covered by these obligations unless specific reservations 

were listed in an annex to the agreement. We commend this approach, and we are 

pleased to note that none of the six trading partners covered by the CAFTA have 

scheduled any commercially significant reservations affecting information technology services. 

Opening of Government Procurement Markets 

Around the world, governments are among the largest consumers of IT products 

and services. Opening government procurement markets to foreign trade, and ensuring that government procurement is conducted fairly and openly, is a priority for 

our industry. 

The CAFTA chapter on government procurement applies national treatment rules 

to substantial numbers of government purchases both at the central and sub-central 

government level. It includes obligations to apply fair and transparent procedures 

in the procurement process. In addition, it requires that purchases be merit-based 

and technology-neutral. These elements are essential to IT industry access to important government procurement markets. 

In conclusion, the CAFTA promotes strong intellectual property rights protection, 

barrier free e-commerce, full liberalization of trade in information technology services with and among our trading partners in the region, and fair and open government procurement. We commend these achievements, and we urge Congress to approve and implement the agreement. 

f 

Statement of Harley Shaiken, Center for Latin American Studies, 

Berkeley, California 

Economic integration offers the possibility to expand trade, spur development, and 

strengthen democracy in the Dominican Republic and Central America. For the peoples of the region the stakes could not be higher. These countries have been trapped 

between anemic economic growth and corrosive inequality. The result has been a 

quagmire of poverty, social dislocation, and shattered dreams for millions. If these 

countries can break out of this trap, not only do their citizens look towards a better 

future, but the people of the United States benefit as well. At the very least, more 

prosperous economies translate into a higher demand for U.S.-produced goods and 

a healthier trading relationship. 

The standard by which to judge this agreement is straightforward: does the Dominican Republic—Central America Free Trade Agreement (DR–CAFTA) promote 

development and democracy, or does it create a small circle of wealthy winners and 

a far larger group of impoverished losers? Expanded trade has the potential to propel the former, but this agreement delivers the later. The result threatens rather 

than benefits U.S. workers. It’s not that the train is moving too slowly, it’s that DR– 

CAFTA is running in the wrong direction. 

Plaguing the agreement is an unfortunate, unnecessary tradeoff: DR–CAFTA 

opens trade while locking in the labor status quo or worse. For citizens of Central 

America and the Dominican Republic, the tradeoff represents a squandered opportunity; for U.S. workers and their communities, it means an assault on wages and 

working conditions; for firms it may mean easier access to markets tomorrow but 

diminished markets in the coming years. This is not an inherent problem of more 

open trade but rather the result of a poorly conceived managed trade agreement. 

DR–CAFTA provides strong language and tough penalties in all areas related to investment at times riding roughshod over the six countries but abandons labor rights 

largely to rhetoric and good intentions. 

In other areas tough provisions favor special interests at the expense of the Central American countries and the Dominican Republic. Consider agriculture. The 

rural population ranges from 34 percent in the Dominican Republic to 60 percent 

in Guatemala.1 How are small farmers supposed to compete with heavily subsidized 

U.S. exports? Due to subsidies for rice production, the U.S. exported paddy rice to 

Central America at a price that was 18–20 percent lower than its cost of production.2 In pharmaceuticals, Professor Angelina Godoy has found that ‘‘the intellectual-property provisions in CAFTA actually extend the length of time during which 

201 

3 Angelina Godoy, ‘‘What makes free trade free?’’ Seattle Times, April 14, 2005, http:// 

seattletimes.nwsource.com/html/opinion/2002240604_nocafta14.html; and Amnesty International, ‘‘Guatemala, Memorandum to the Government of Guatemala: Amnesty International’s 

concerns regarding the current human rights situation,’’ (Washington, D.C.: Amnesty International, April 20, 2005), http://web.amnesty.org/library/Index/ENGAMR340142005 4 Elizabeth Becker, ‘‘Amid a Trade Deal, A Debate Over Labor,’’ New York Times, April 6, 

2004. 5Perry, G., F. Ferreira, and M. Walton, ‘‘Different Lives, Inequality in Latin America and the 

Caribbean,’’ in Inequality in Latin America: Breaking with History, 51 (Washington D.C.: World 

Bank, 2004), 6 Jeffery Passel, ‘‘Estimates of the Size and Characteristics of the Undocumented Population,’’ 

(Washington D.C.: Pew Hispanic Center, March 21, 2005), http://pewhispanic.org/files/reports/ 

44.pdf 7Karen Brooks, ‘‘Migrant Plan Vital to Central America,’’ Star Telegram Border Bureau, January 19, 2004. 

the major pharmaceutical companies’ products are guaranteed sole access to markets’’ which, in her view as well as that of many other observers such as Amnesty 

International, ‘‘just may be a death sentence for many in the Dominican Republic 

and Central America.’’ 3 Many Latin Americans are likely to view provisions such 

as these as indicating that the U.S. is more serious about strong-arming weaker 

neighbors than sustainable economic integration. 

Let’s be clear from the start. This is not a debate about ‘‘free trade’’ versus ‘‘protectionism.’’ Instead, the challenge is defining free trade for the twenty-first century. 

The right trade agreement could both encourage growth and move towards a more 

broadly shared prosperity, defining what one might call ‘‘smart trade.’’ To do this, 

comparative advantage must be defined by innovation rather than repression. Labor 

standards are vital for protecting workers, but they also can help expand purchasing 

power, build healthier markets, and lay the basis for more robust trade. 

Why are labor rights so important? In Central America and the Dominican Republic working conditions range from bad to appalling. Workers face everything 

from rampant discrimination against older people and pregnant women to physical 

abuse, lack of bathroom breaks, and no overtime pay. ‘‘It makes me angry when 

they say we have good laws for workers’ rights,’’ said Marina del Carmen Leiva, a 

32-year-old seamstress and mother. ‘‘In four years I won’t have a job because factories don’t want us after we turn 35 years of age and then what will I do?’’ In the 

meantime, the pressure on the job is so intense, she reports, that to avoid slowing 

production she and her co-workers are denied even a drink of water.4 The employer 

lays down the law and impunity rules. Wages are determined by economic power 

not productivity, leaving many workers and their families anchored to the bottom. 

What options do workers have to break this cycle? One of the few is the ability to 

join a union and bargain collectively. 

What then is wrong with the labor provisions in DR–CAFTA? They send a clear 

message to the governments involved: the current situation on labor rights is acceptable and even fewer rights for workers will do. The agreement lays out lofty labor 

rights goals and then backs them up with weak, convoluted language and meager 

resources. Moreover, these inadequate provisions replace language that has had a 

modest positive impact. Consequently, firms willing to travel the low road will define competitiveness, cutting off those who want to do the right thing. 

The economic dimensions of this trade agreement are not large by U.S. standards. 

The combined economic output of the six DR–CAFTA countries is roughly equal to 

that of metropolitan San Jose, CA and these countries only accounted for about 1.5 

percent of U.S. trade in 2003. Why then is this debate so important? 

First, the region has geopolitical importance to the United States and the rest of 

the world. As we saw in the 1980’s, extreme wealth combined with raw poverty is 

a volatile mixture.5 Historically it has translated into a few exercising a monopoly 

over political power and cycles of social upheaval followed by violent repression. 

Strengthening worker rights builds civil society and supports democratic governance, reinforcing long-term stability. 

Second, the shortcomings of this trade agreement could spur far more undocumented immigration. A lack of opportunity at home leaves few options for increasing 

numbers of people. Today, an estimated 11 million undocumented immigrants reside 

in the United States, nearly 81 percent of them from Latin America.6 Some estimates place the number from Central America at 1.5 million.7

Third, healthier economies and improved conditions for Central American workers 

are in the immediate interest of U.S. workers. A free trade agreement puts workers 

in Tegucigalpa, Honduras, and in Charlotte, North Carolina in the same labor market. If textile workers in Tegucigalpa suffer today, textile workers in Charlotte will 

feel it tomorrow and so will others in the area. The challenge is to harmonize upVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00205 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
202 

8 Amnesty International, ‘‘Guatemala, Memorandum to the Government of Guatemala: 

Amnesty International’s concerns regarding the current human rights situation,’’ (Washington, 

D.C.: Amnesty International, April 20, 2005), http: / / web.amnesty.org / library / Index / 

ENGAMR340142005 9 Ibid, 9. 

10See: U.S. State Department Bureau of Democracy, Human Rights, and Labor, ‘‘Country Reports on Human Rights Practices 2004,’’ for Costa Rica, Dominican Republic, El Salvador, Guatemala and Nicaragua, February 29, 2005, http://www.state.gov/g/drl/rls/hrrpt/2004/c14138.htm; 

Human Rights Watch, ‘‘Deliberate Indifference: El Salvador’s Failure to Protect Workers’ 

Rights,’’ vol. 15, no. 5, December 2003, http://www.hrw.org/reports/2003/elsalvador1203/; Human 

Rights Watch, ‘‘CAFTA’s Weak Labor Rights Protections: Why the Present Accord Should be Opposed,’’ March 2004, http://hrw.org/english/docs/2004/03/09/cafta90days.pdf; ILO, ‘‘Fundamental 

Principals and Rights at Work: A Labour Law Study,’’ (Geneva, International Labour Office, 

2003), http://www.ilo.org/public/english/dialogue/download/cafta.pdf 11Leonard Silk, ‘‘Worrying Over Weakened Unions,’’ New York Times, December 13, 1991. 12 U.S. State Department, Bureau of Democracy, Human Rights, and Labor, ‘‘Guatemala 

Country Report on Human Rights Practices 2004,’’ February 29, 2005, http://www.state.gov/g/ 

drl/rls/hrrpt/2004/41762.htm 

wards rather than downwards and this requires strong language and enforcement 

in a trade agreement. 

Finally, DR–CAFTA represents an important precedent in shaping future trade 

agreements. What happens here is the prelude to the Free Trade Agreement of the 

Americas and will prove influential in determining the ways in which countries integrate into the global economy. This agreement rewards narrow financial interests 

in the short term and sacrifices broader purchasing power in the long term. 

In this testimony, I plan to explore five themes: contemporary labor issues, labor 

laws and their enforcement, the promotion of reform, the global context, and finally 

‘‘smart trade.’’ 

Contemporary labor issues 

For millions throughout Central America and the Dominican Republic, the issue 

of labor rights is not an abstraction, but an urgent need. Consider the larger political context of this agreement. Strong, unyielding oligarchies have defined most of 

these economies for centuries. Several of these countries remain in the shadow of 

vicious civil wars in which state-sponsored violence and impunity ruled supreme. 

The rule of law remains tenuous and civil society subject to threat. In its most recent report on Guatemala, the largest economy in the region, Amnesty International 

stated that ‘‘it remains concerned at the apparent lack of political will of the present 

government to take concrete and effective action to eliminate impunity and to ensure the rule of law prevails in Guatemala.’’ 8 The report found that ‘‘clandestine 

and illegal armed groups still operate with impunity in Guatemala’’ and that these 

groups are linked not just to organized crime, but to the police, army, and state institutions.9

Although labor laws differ among these six countries, there is little serious debate 

among scholars as to the situation on the ground. The issue is not simply selective 

abuses but a systematic denial of the right to freely join a union or the right to bargain collectively. Numerous reports from the ILO, Human Rights Watch, the United 

Nations, and the United States Department of State confirm the seriousness of the 

problems.10

Why is it so important that workers have the right to join or reject a union without coercion? First, collective bargaining can address abuses on the job and link 

wages to productivity. Former Secretary of State George Schultz, who early in his 

career was a labor-management arbitrator, maintained that in ‘‘a healthy workplace, it is very important that there be some system of checks and balances.’’ 

Second, independent unions strengthen civil society, particularly important in a 

climate of impunity. George Schultz could not have been clearer when he said 

‘‘unions and democracy go together.’’ 11

When it comes to making the choice on whether or not to join a union, however, 

workers currently risk dismissal, blacklist, violence, and even death. The results are 

readily apparent in the low union density. In Guatemala less than 3 percent of the 

workforce belongs to a union.12 In El Salvador, no independent trade unions have 

been formed in the last four years. 

The low trade union density is only the tip of the iceberg. The unions that do exist 

tend to be fragmented, weak, and isolated. Effective collective bargaining has become a rarity rather than the norm. Table 1 provides data on the percentage of 

workers covered by collective bargaining agreements in four of the six DR–CAFTA 

countries for which data is available. The coverage ranges from 1.4 percent in Nicaragua to 4.3 percent in El Salvador, not exactly a critical mass for effective collective 

bargaining. 

203 

13 International Labor Organization, ‘‘Fundamental ILO Conventions,’’ http://www.ilo.org/public/english/standards/norm/whatare/fundam/index.htm 14 United States Trade Representative, ‘‘The Dominican Republic-Central America Free Trade 

Agreement,’’ August, 5, 2004, http://www.ustr.gov/Trade_Agreements/Bilateral/DR-CAFTA/DRCAFTA_Final_Texts/Section_Index.html 15 International Labor Rights Fund, ‘‘An Examination of Six Basic Labor Rights—Executive 

Summary of Reports on Honduras, Costa Rica, Nicaragua, El Salvador and Guatemala,’’ based 

on a study by Asociacion Servicios de Promocion Laboral (ASEPROLA), April 5, 2005, http:// 

www.laborrights.org/ 16 Ibid. 

Table 1. Collective agreement coverage rate 

Country Year Rate 

(%) 

Costa Rica* 2001 2.4 

El Salvador 2003 4.3 

Honduras 2003 1.4 

Nicaragua 2003 1.5 

* Most recent data available 

Source: International Labour Organization Decent Work Indicators Database http://www.oit.or.cr/estad/td/ 

indexe.php 

Labor laws and their enforcement 

A trade agreement should stimulate positive change, not ratify the status quo or 

worse. What type of labor standards might be rigorous enough to improve the conditions of work yet flexible enough to recognize different levels of development? One 

model is the five core labor standards developed by the International Labor Organization (ILO).13 Particularly critical are the first two: the right of association (Convention 87) and the right to organize and bargain collectively (Convention 98). The 

recognition and enforcement of these rights allows workers some say in their economic futures; their violation further marginalizes workers. 

Although DR–CAFTA pays rhetorical homage to these standards, the approach it 

uses throws them overboard. The agreement calls for each country to enforce its existing labor codes, no matter how inadequate or distant from the ILO standards. 

The agreement recognizes ‘‘the right of each Party to establish its own domestic 

labor standards, and to adopt or modify accordingly its labor laws.’’ It then goes on 

to state that ‘‘each Party shall strive to ensure that its laws provide for labor standards consistent with the internationally recognized labor rights . . . and shall strive 

to improve those standards in that light.’’14 ‘‘Strive to ensure’’ and ‘‘strive to improve’’? This is the kind of language many would like to see on April 15 when they 

have to pay their taxes since it is virtually unenforceable. A standard based on effort is hardly a serious standard. 

Instead of ‘‘striving to ensure’’ international standards are met, the agreement 

could commit to upholding them and provide clear penalties if they are not upheld. 

The domestic laws often read as if they are designed to thwart the formation of 

unions, and slipshod enforcement hardly improves the situation. Companies wanting 

to avoid unions can do just about anything; workers seeking to join unions face 

threats and intimidation. Protection against anti-union bias is akin to snow in San 

Francisco; it happens but not frequently. ‘‘In practice, labor laws on the books in 

Central America are not sufficient to deter employers from violations,’’ an International Labor Rights Fund (ILRF) study found.15 Byzantine regulations tend to tie 

unions into knots, laying out registration procedures that are more maze than procedure. In Honduras, the ILRF found ‘‘obstacles and delays in union registration 

constitute a violation of ILO Convention 87 on the right to associate’’.16 Laws encourage employer interference in union affairs, restrictions prohibit anything above 

an enterprise union, rights for temporary workers are truncated, and public workers 

often are prohibited from organizing. Finally, there are severe limits on the right 

to strike. Weak as labor rights are, the track record hardly inspires confidence that 

they won’t be ratcheted downwards in response to globalization. 

Consider El Salvador. The government-appointed Human Rights Ombudsman told 

the Washington Post in late 2004 that both industry and the government have ‘‘an 

204 

17Kevin Sullivan, ‘‘Slaying of U.S. Labor Organizer Opens Old Wounds in El Salvador,’’ Washington Post, December 2, 2004. 18 Human Rights Watch, ‘‘Deliberate Indifference: El Salvador’s Failure to Protect Workers’ 

Rights,’’ vol. 15, no. 5 (2), December 2003, http://www.hrw.org/reports/2003/elsalvador1203/ 19 Ibid, 11. 20 U.S. State Department, Bureau of Democracy, Human Rights, and Labor, ‘‘Guatemala 

Country Report on Human Rights Practices 2004,’’ February 29, 2005, http://www.state.gov/g/ 

drl/rls/hrrpt/2004/41762.htm 21 International Federation of Free Trade Unions, ‘‘Annual Survey of Violations of Trade 

Union Rights 2003,’’ (Brussels: IFCTU, 2003), 89. 22 AFL–CIO, ‘‘The Real Record on Workers’ Rights in Central America,’’(Washington 

D.C.:AFL–CIO, April 2005), http://www.aflcio.org/issuespolitics/globaleconomy/upload/ 

CAFTABook.pdf 23Kimberly Ann Elliot, ‘‘Preferences for Workers? Worker Rights and the U.S. Generalized 

System of Preferences,’’ speech given at the conference on ‘‘Globalization and Inequality,’’ Calvin 

College, Grand Rapids, Michigan, May 28–30, (9). 

explicit intent to destroy unions.’’ 17 A recent Human Rights Watch report concluded 

that the country’s laws ‘‘do not adequately protect workers against anti-union suspensions or dismissals, thereby undermining the right to freedom of association and 

to form and join trade unions.’’ 18 The report documents that ‘‘employers routinely 

fire union affiliates and pay the small fine for ridding their facilities of trade unionists,’’ a practice that is widespread in the other countries as well.19

Enforcement is squeezed by impunity and corruption; ineptitude and fear. In Guatemala, the U.S. State Department concluded in its 2005 human rights report that 

‘‘Workers had little confidence that the responsible executive and judicial institutions would effectively protect or defend their rights if violated.’’ The report stated 

that ‘‘the weakness of labor inspectors, the failures of the judicial system, poverty, 

the legacy of violent repression of labor activists during the internal conflict, the climate of impunity, and the long-standing hostility between the business establishment and independent and self-governing labor associations all constrained the exercise of worker rights.’’ 20 The document also pointed out that ‘‘the prevailing business culture ignores labor contracts because, in practice, they are largely unenforceable due to the weak, cumbersome and corrupt legal system . . . [the system] perpetuates the violence that workers face if they attempt to exercise their rights.’’ In 

Costa Rica, the International Federation of Free Trade Unions found diminished collective bargaining stemming from a lack of protection for union organizing.21 The 

labor courts provide little remedy. 

The promotion of reform 

There is little dispute that labor conditions are bad today; the real question is will 

DR–CAFTA make them better? In fact, it will make them worse. What makes the 

DR–CAFTA approach particularly problematic is that it replaces the modest existing protections for labor rights embedded in two unilateral trade preference programs: the Generalized System of Preferences (GSP) and the Caribbean Basin Initiative (CBI). Much of the halting, modest reform that has taken place in the region 

over the last 15 years stems from the pressure brought through these programs. For 

example, El Salvador was put on GSP review for abusing worker rights in 1992 and 

labor law reform followed within two years.22 More broadly, Kimberly Ann Elliott 

found that ‘‘the U.S. experience in applying worker rights conditionality to trade 

benefits under the GSP suggests that external pressure can be helpful in improving 

treatment of workers in developing countries and that linkage of trade and worker 

rights need not devolve into simple protectionism.’’23 Without external pressure, it 

is very naive to expect any substantive change. Rather than learn from this experience, DR–CAFTA ignores it. 

What impetus is supposed to change destructive practices this deeply rooted? The 

core problem is one of political will, not lack of technical resources. The most powerful incentive for change is conditioning U.S. ratification on domestic labor law reform. Unfortunately, that horse has already left the barn. Some proponents argue 

expanded trade will result in more democratic rights. Burgeoning trade does not 

seem to have done much in Mexico—especially in the export sector—in the first decade of NAFTA. Cross border trade between the U.S. and Mexico has tripled yet the 

number of independent unions remains in single digits. This approach certainly was 

not the path that the U.S. itself followed 70 years ago. Instead, the U.S. passed legislation such as the Wagner Act and the Fair Labor Standards Act in the midst of 

the Great Depression, hardly the most opportune moment, as a foundation for future progress. The rights workers won in the 1930s and 1940s propelled economic 

growth for decades to come and laid the basis for the middle class today. 

Realistically, powerful elites retain a strong hold on the DR–CAFTA economies. 

If expanded trade simply translates to expanded income for these elites, a small 

205 

24 J.F. Hornbeck, ‘‘Report for Congress on the Dominican Republic-Central America-United 

States Free Trade Agreement (DR–CAFTA),’’ (Washington D.C.: Congressional Research Service, 

April 5, 2005), http://guatemala.usembassy.gov/wwwfcrscafta2e.pdf 25Daniel P. Erikson, ‘‘Central America’’s Free Trade Gamble,’’ World Policy Journal, Winter 

2004/2005, 19. 26 Ambassador Peter F. Allgeir, ‘‘Statement before the Committee on Finance, United States 

Senate—The U.S.-Central America-Dominican Republic Free Trade Agreement,’’ Washington 

D.C., April 13, 2005. 27 Bruce Stokes, ‘‘Will Free Trade Help Nicaragua?,’’ National Journal, June, 5, 2004, 1790. 28 Bishop Alvaro Ramazzini Imeri, letter to the Members of the United States Congress, 

Washington, D.C., May 28, 2004. 

number of wealthy families may become wealthier and happier, but little will be 

passed along to the majority of the people of these countries. The growth of the middle class will be thwarted and, ironically, the potential market for U.S. goods dampened. By the same token, the pressure will correspondingly increases on the wages 

and working conditions for U.S. workers. The goal should be to harmonize standards 

upwards not the other way around. 

Global context 

Trade among the DR–CAFTA countries takes place in a tough global context. Are 

strong labor standards possible in a world in which China is emerging as a defining 

manufacturing power? Put differently, how can the countries of this region compete 

with China if they emphasize worker rights? This question itself highlights a central 

choice in the global economy: the high road versus the low road to competitiveness. 

For these six countries the high road would involve competing based on innovation, 

response time, efficiency, and geographical proximity to the U.S. Competitive success could translate into both higher profits and higher wages. 

‘‘Low cost labor,’’ a Congressional Research Service (CRS) report maintained, ‘‘is 

not the only or even the most important factor driving competitiveness. Studies suggest that the economic and social networks that developed between U.S. and Central 

American firms effectively created a comparative advantage for the region in apparel exporting that has held up even with the entry of China in the market.’’ 24

What is this comparative advantage based on? ‘‘This relationship was made possible 

by the proximity of production, operational efficiencies, and quick turn around times 

for meeting increasingly shortened deadlines demanded of large retailers.’’ The CRS 

may be overly optimistic on how sustainable this advantage proves to be, but in conjunction with other policy measures it could contribute to a high road alternative. 

The low road emphasizes the lowest possible wages and intensified working conditions. Over 60 percent of DR–CAFTA exports to the United States are in apparel, 

a sector known for maquiladora export plants, rock bottom wages, and fierce competitiveness.25 Although tempting for many firms in the short run, the problem with 

the low road is that China already occupies most of the lanes. No amount of wage 

cutting will effectively compete with China, which is building a far better infrastructure and, has a far larger domestic market, and access to state-of-the-art technologies. Central America needs a long term strategy that provides its’ labor force 

with more education, fosters effective innovation, and builds on its geographical 

proximity to the U.S. market. Instead, DR–CAFTA encourages wage cutting tomorrow, possibly boosting profits next quarter, but ensuring a frontal collision with 

China next year or the year after. Not only is the low road damaging; it won’t work 

in the global economy today. 

Smart trade 

Ambassador Peter F. Allgeier, Acting United States Trade Representative, has referred to DR–CAFTA ‘‘as an important tool of reform that will help deepen and 

strengthen democracy.’’ 26 While the goal is worthy, the reality falls far short. The 

pressures were such that the DR–CAFTA countries had little choice but to sign. As 

a consultant for the Nicaraguan government, himself a former trade official for Mexico, put it ‘‘I advised them to sign whatever the United States put in front of 

them.’’ 27 This entire process has caused severe strains and protests in civil society 

throughout Central America. Alvaro Ramazzini Imeri, Bishop of the Dioceses of San 

Marcos (Guatemala’s third poorest province) and president of the Episcopal secretariat of Central America (SEDAC), commented last May that ‘‘Guatemalan society 

is not suitably informed about the content and consequences of CAFTA. The negotiations that took place did not take into account the great majority of poor people 

in the country, who are represented in popular and rural organizations.’’ 28 Reflecting the gap between the ratification process for DR–CAFTA and popular sentiment 

is the fact that legislatures often had to pass the agreement in the dead of night. 

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29Matthew Kennis, ‘‘Despite Ratification Anti-CAFTA protests Continue in Guatemala,’’ IRC 

Americas Program, (Silver City, NM: International Relations Center, April 13, 2005), http:// 

www.americaspolicy.org/pdf/commentary/0504guatcafta.pdf 30 Rodrigo Carazo Odio, letter to the Members of the United States Congress, Washington, 

D.C., May 27, 2004. 31 Carol Pier, ‘‘The Right Way to Trade,’’ Washington Post, August 1, 2003. 

cally because protests were expected. The Guatemala Congress approved CAFTA in 

emergency session and under exceptional circumstances also because of anticipated 

protests. It passed by a lopsided vote of 126–12 on March 10; a Gallup poll carried 

out two weeks later (March 14–23) found that 65 percent of those polled felt that 

the agreement would harm the country.29

When it came to the issue of labor rights, tough negotiating dissolved into acceptance of the status quo. The danger, according to former President of Costa Rica 

Rodrigo Carazo Odio, is that ‘‘corporations take advantage of cheap labor, operating 

in enclaves with limited links to the national economy, trapping the region in a spiral of low salaries, low aggregate value and lack of compliance with basic labor 

standards, such as the freedom of association and the right to collective negotiation.’’ 30

The ability for citizens of any society to assemble freely and act collectively when 

they so desire is a fundamental democratic right. Without this right, you can have 

fair elections, but you do not have democracy. In fact, for democracy to flourish in 

this region so ravaged by social upheaval and war, one needs to strengthen, not 

weaken civil society. The ILO embeds these principles into its five core labor rights. 

For DR–CAFTA to work, labor rights need to be strengthened considerably in a fundamental arena: the decision an ordinary worker might take as to whether or not 

he or she chooses to join a union. The checks and balances that unions provide are 

essential in the workplace, but are even more central in sustaining fledgling democracies. 

We need to reframe the debate on the issues of labor rights and development. It 

is not a question of free trade versus protectionism, but rather ‘‘smart trade’’ versus 

‘‘polarizing trade.’’ Smart trade recognizes rights, spurs economic growth with equity, and promotes democracy; polarizing trade might spur trade in the short run 

but the benefits go to the winners’ circle while the number of losers grows far larger. 

Democracy itself could be a casualty. 

Smart trade requires four provisions: 

1. Upward harmonization of domestic labor law to match the core ILO conventions as the goal of a three-year phase-in period. The granting of trade and investment benefits would follow agreed upon reform in a country’s labor law.31

2. The ILO five core labor rights embedded in the core agreement, subject to 

strong enforcement provisions and penalties. 

3. A development fund targeted for infrastructure and education. This fund would 

reinforce competitiveness in the six countries and place them on the ‘‘high 

road.’’ 

4. Expanded adjustment assistance for U.S. workers negatively impacted by 

trade. This assistance should also be proactive in industries threatened by 

trade. 

No trade agreement can solve all the problems of development and globalization, 

but it should point in the right direction. A trade agreement that fosters prosperity 

and promotes democracy is possible and essential for the region and for the United 

States. Smart trade lays the basis for growing incomes and markets in Central 

America and the Dominican Republic and expanded U.S. exports and jobs. It begins 

to define a better model for integrating into the global economy. Unfortunately, that 

model is not this DR–CAFTA. 

f 

Statement of Joseph E. Brenner and Ellen R. Shaffer, Center for Policy 

Analysis on Trade and Health, San Francisco, California 

EXECUTIVE SUMMARY 

The Intellectual Property (IP) provisions of the Dominican Republic—Central 

America Free Trade Agreement (CAFTA) would delay competition from generic 

medicines, helping to prop up high prices for brand name pharmaceuticals in the 

U.S., and effectively denying access to life-saving drugs in some of the poorest nations in the Americas. CAFTA IP provisions that would discourage generic competiVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00210 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
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tion include extended terms for patents and for data exclusivity, and linkage, which 

are further discussed below. They also present barriers to compulsory licensing. 

These provisions contradict Congress’ objectives in the Trade Act of 2002 to balance its interest in strengthening intellectual property rules with its interest in assuring access to affordable drugs. They reflect the published views of the U.S. Trade 

Representative’s Advisory Committee on Intellectual Property Rights. Seven of 15 

members of this Committee are affiliated with the pharmaceutical industry. There 

are no representatives of organizations concerned with the effects of trade on health. 

Addenda to this testimony document the IP Committee’s comments and membership. 

CAFTA would establish rules for trade among seven nations: the U.S., Costa Rica, 

El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic. The 

rules apply to both the U.S. and to Central American countries. A side letter to the 

agreement on public health does not protect access to medicines. 

How CAFTA Delays Affordable Prescription Drugs In The U.S. And Central 

America 

CAFTA’s IP rules extend two types of intellectual property rights that brand 

name companies now use to maintain monopoly control on the sale of prescription 

drugs: 1) Patents; and 2) Clinical trial test data. Generic competitors need to refer 

to these data to get regulatory approval for marketing. CAFTA’s data exclusivity 

rules present an insurmountable barrier to a third key policy, compulsory licensing. 

The rules increase pricing protections for brand-name drugs and delay competition by affordable generics. They would cause years of delay in providing access to 

affordable versions of new life-saving drugs by: 

• Extending patent terms. 

• Establishing periods of ‘‘marketing exclusivity’’ for brand name drugs, beyond 

current U.S. law. During this time, generic copies could not be approved for sale 

even if the brand name drug’s patent has already expired. 

• Requiring drug regulatory agencies to enforce the many independent patents 

claimed for each brand name drug. 

The result would be to: 

• Compromise access to affordable drugs in the U.S. if U.S. law is ‘‘harmonized’’ 

to match the drug regulatory rules in CAFTA and other agreements. 

• Severely handicap the thriving generic industry in Guatemala and Costa Rica, 

and deter investment in new generics. 

• Impede issuance of ‘‘compulsory licenses’’ that enable governments to authorize generic drug production, or compel lower prices by brand name drug companies. Countries can issue a compulsory license to compel generic production of 

a patented drug, in order to make the drug more widely available at an affordable price. In most cases, a government’s credible threat to issue a compulsory 

license has induced brand-name companies to drastically lower their prices. 

Bayer lowered its price for Cipro after the U.S. threatened to issue a compulsory license for Cipro during the anthrax scare, for example. Under CAFTA, it 

is possible that countries could still overcome the originator company’s patent 

right. But CAFTA’s ‘‘data exclusivity’’ provisions present an insurmountable 

barrier to generic company access to the originator company’s clinical trial data, 

and thus are a barrier to compulsory licensing. 

Generic competition drastically reduces drug prices. According to Doctors Without 

Borders, generic competition led to a dramatic drop in cost for antiretroviral drugs 

for HIV/AIDS in Guatemala. In the first half of 2000, the lowest cost of treatment 

was $10,439 per year per person for brand-name drugs and $2,767 for generics. In 

less than a year, the price dropped to $727 for brand-name drugs and $201 for 

generics. 

USTR Advisory Committees Are Dominated by the Pharmaceutical Industry, 

and Lack Public Health Views 

The Trade Promotion Authority Act of 2002 (PL 107–210; 19 USC 3802, Sec. 

2102.(b)(4)(C), Trade Negotiating Objectives) calls on the U.S. Trade Representative 

(USTR) to balance Congress’ interests in strengthening intellectual property rules, 

and in assuring access to affordable drugs. It calls for the U.S. to respect the World 

Trade Organization’s Doha Declaration, which recognizes that trade agreements 

must support a nation’s ‘‘right to protect public health and, in particular, to promote 

access to medicines for all.’’ The USTR’s Advisory Committees are an important conduit for views from the concerned public, and could help balance these interests. 

However, there are no representatives for the public’s health or for access to mediVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00211 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
208 

cines on any of the USTR’s Advisory Committees, including those that address intellectual property negotiations. Seven of 15 members of the Industry Trade Advisory 

Committee on Intellectual Property Rights (ITAC 15) are affiliated with the pharmaceutical industry. There are no representatives of organizations concerned with 

the impact of trade agreements on the health of individuals, communities, and vulnerable populations. 

These advisory committees routinely advocate intellectual property provisions that 

delay and deny access to affordable drugs in the U.S. and abroad, while extending 

pharmaceutical company rights beyond U.S. patent law and the WTO TRIPS Agreement (Agreement on Trade-Related Aspects of Intellectual Property). They are referred to as ‘‘TRIPS–Plus’’ rules. There has been opposition to these policies in the 

U.S. and in our trading partners. Because there is no public health representation 

on the advisory committees, and trade negotiations are secret until the agreements 

are completed, this opposition has been expressed only after it has been too late to 

influence the agreement. Better representation during the process would contribute 

to more effective outcomes. 

CAFTA Side Letter Does Not Assure Access to Medicines 

A side letter to CAFTA, ‘‘Understanding Regarding Certain Public Health Measures,’’ does not protect access to affordable prescription drugs, including generics. 

As documented elsewhere by CPATH (www.cpath.org), the side letter’s language 

leaves important loopholes about which government measures to provide medicines 

would be considered sufficiently ‘‘necessary’’ or urgent. Language that protects access to medicines should be unambiguous, should conform entirely with the spirit 

and letter of the World Trade Organization’s Doha Declaration on the TRIPS Agreement and Public Health, and should be included in the main text of the agreement. 

IP provisions that could restrict access to affordable medicines should not be included in regional and bilateral trade agreements. 

SPECIFIC CAFTA PROVISIONS THAT DELAY ACCESS TO AFFORDABLE 

MEDICINES 

Extending Patents 

1. CAFTA would cover plants as patentable. Patents of plants may directly 

impact the economic livelihood and health of local farmers who have traditionally 

depended on their knowledge of and access to medicinal and nutritional plants. 

Under CAFTA they may be required to pay transnational corporations that patent 

plants. Patenting of plants is not required by TRIPS. 

CAFTA Provision: Article 15.9: 2. Nothing in this Chapter shall be construed 

to prevent a Party from excluding inventions from patentability as set out in Articles 27.2 and 27.3 of the TRIPS Agreement. Notwithstanding the foregoing, any 

Party that does not provide patent protection for plants by the date of 

entry into force of this Agreement shall undertake all reasonable efforts to 

make such patent protection available. Any Party that provides patent protection for plants or animals on or after the date of entry into force of this 

Agreement shall maintain such protection. 

2. CAFTA gives very limited rights to provide exceptions to patents. The 

Bolar Amendment in the U.S. authorizes generic companies to prepare for marketing approval in advance of the expiration of a patent, so that generic products 

may be available when the patent expires. Under CAFTA’s weak language, a country ‘‘may provide’’ exceptions, suggesting it also may not, particularly if there is continuing pressure from U.S. not to do so. 

CAFTA Provision: Article 15.9: Patents. 

15.9.3. A Party may provide limited exceptions to the exclusive rights conferred 

by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties. 

3. Export of a generic appears to be prohibited, even if a patent has expired. U.S. law explicitly permits the export of a generic pharmaceutical product 

once the patent has expired regardless of the existence of marketing exclusivity. 

CAFTA Provision: Article 15.9: Patents. 

15.9.5. Consistent with paragraph 3, if a Party permits a third person to use the 

subject matter of a subsisting patent to generate information necessary to support 

an application for marketing approval of a pharmaceutical or agricultural chemical 

product, that Party shall provide that any product produced under such authority 

shall not be made, used, or sold in the territory of that Party other than for purposes related to generating information to meet requirements for approval to market 

the product once the patent expires, and if the Party permits exportation, the prodVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00212 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
209 

uct shall only be exported outside the territory of that Party for purposes 

of meeting marketing approval requirements of that Party. 

4. CAFTA extends patents by up to 5 years from the date of filing a patent 

application in a country (beyond the 20 year patent term) for unjustified delays that 

may occur during the process of granting a patent. This could extend patents after 

the patent has expired in U.S. 

This provision is independent from and cumulative to a related provision that re- quires extension of length of patent term for an indeterminate period, to 

compensate a patent holder for unreasonable reduction of patent term due 

to market approval process. ‘‘Unreasonable’’ is not defined. No clear criteria exist 

for determining the extension. No maximum period for the patent extension is specified. The clock can start after the patent expires in U.S. 

In current U.S. law, patent extensions attributable to delays in marketing 

approval of a drug cannot be greater than 5 years. 

CAFTA Provisions. Article 15.96. (a) Each Party, at the request of the patent 

owner, shall adjust the term of a patent to compensate for unreasonable delays that 

occur in granting the patent. For purposes of this paragraph, an unreasonable delay 

shall at least include a delay in the issuance of the patent of more than five years 

from the date of filing of the application in the territory of the Party, or three years 

after a request for examination of the application has been made, whichever is later, 

provided that periods attributable to actions of the patent applicant need not be included in the determination of such delays. 

15.9.6 (b) With respect to any pharmaceutical product that is covered by a patent, 

each Party shall make available a restoration of the patent term to compensate the 

patent owner for unreasonable curtailment of the effective patent term resulting 

from the marketing approval process related to the first commercial marketing of the product in that Party. 

Data Exclusivity/Marketing Exclusivity 

Generics manufacturers must be able to refer to the originator company’s clinical 

trial data, presented to regulatory authorities to establish that the drug is safe and 

effective. Once the originator’s drug is approved, a generic company only needs to 

show that its product is biologically equivalent, meaning that it works the same way 

in the human body as the originator’s drug. If it cannot refer to the approval of the 

originator drug, it cannot obtain approval for marketing. A combination of CAFTA 

rules delay generic companies’ ability to rely on originators’ approvals. 

1. No approval will be given to a generics manufacturer to use test data 

for marketing a generic product for at least 5 years for pharmaceutical 

products and 10 years for agricultural chemical products from the first approval of the patented drug in that country. 

Problems: 

Delay in marketing. If generic companies cannot rely on approvals based on 

pharmaceutical data from the brand drugs, they will effectively be barred from the 

market for years. Repeating the safety and efficacy tests required to obtain marketing approval would be costly, and expose human subjects to unnecessary and 

therefore unethical risk. 

Multiple delays for indeterminate times. CAFTA prohibits generic companies 

from preparing generic drugs for marketing until at least 5 years—possibly an 

undefined longer term—for pharmaceutical products after approval is given to 

the originator drug company in the new country. The clock can therefore start after 

the patent expires in the U.S. These provisions also apply even when there is no 

patent in effect in a country. 

These provisions go beyond U.S. law. Market/data exclusivity provisions of 

Hatch-Waxman cannot exceed 5 years. 

Under TRIPS 39.3, test data can be protected only when national authorities require their presentation as a condition of marketing approval. Countries must protect undisclosed pharmaceutical test data from ‘‘unfair’’ commercial use. If a country 

accepts reference to approval given in a foreign country, there is no obligation to 

protect test data. 

De facto barrier to compulsory licensing. This is a de facto prohibition of 

compulsory licensing for at least 5 years for pharmaceutical products. This is because there is no provision for issuing a compulsory license (CL) to override data 

protection. Such a CL can only be issued to override a patent, which is a separate 

right. 

Countries can issue a ‘‘compulsory license’’ to compel generic production of a patented drug, in order to make the drug more widely available at an affordable price. 

210 

In most cases, a government’s credible threat to issue a compulsory license has induced brand-name companies to drastically lower their prices. Bayer lowered its 

price for Cipro after the U.S. threatened to issue a compulsory license for Cipro during the anthrax scare, for example. Under CAFTA, it is possible that countries could 

still overcome the originator company’s patent right. But CAFTA’s ‘‘data exclusivity’’ provisions present an insurmountable barrier to a generic company’s ability to refer to the originator company’s clinical trial data for 

marketing approval, and thus are a barrier to compulsory licensing. 

CAFTA Provision: Article 15.10: Measures Related to Certain Regulated Products. 1. (a) If a Party requires, as a condition of approving the marketing of a new 

pharmaceutical or agricultural chemical product, the submission of undisclosed data 

concerning safety or efficacy, the Party shall not permit third persons, without the 

consent of the person who provided the information, to market a product on the 

basis of (1) the information, or (2) the approval granted to theperson who submitted 

the information for at least five years for pharmaceutical products and ten years for 

agricultural chemical products from the date of approval in the Party. 

Question for USTR: CAFTA would delay competition by generic drug companies 

by many years, and prevent governments from issuing or threatening to issue compulsory licenses. How does this benefit consumers of drugs in the U.S. and other 

CAFTA countries? Why does it contradict the Doha Declaration, which authorizes 

governments to protect public health and access to medicines? 

2. CAFTA extends the protection of test data beyond the signatories to 

the CAFTA agreement. It prevents reliance on test data which was previously 

presented to any foreign country in the world (‘‘another territory’’). It prevents reliance on prior approval of a drug in any foreign country, for at least 5 years for pharmaceutical products and 10 years for agricultural chemical products. The protection 

starts from the date that the patent holder seeks approval of the drug in a CAFTA 

country. 

For example, a brand name company may have a product on the market in the 

U.S., but not in Guatemala. Guatemala could not authorize generic versions of the 

product for at least 5 years from a future date when the brand name company seeks 

approval in Guatemala. A country can require that the innovator company request 

approval within 5 years after obtaining marketing approval in another country, but 

does not have to do so. If a brand name company seeks marketing approval in Guatemala, for example, in the fifth year, this would delay authorization of a generic 

product for 10 years total (5 years due to marketing approval in the U.S., plus an 

additional 5 years after marketing approval is sought in Guatemala). 

These provisions may also apply even if the patent holder has no patent or marketing approval in a CAFTA country. 

These provisions also create barriers to compulsory licensing during emergencies. As noted above, during the anthrax scare in the U.S., the threat by HHS 

to issue a compulsory license for the antibiotic Cipro induced Bayer, the manufacturer, to drastically reduce its price. Under CAFTA a generic licensee could not use 

the safety and efficacy data from Bayer or rely on its previous regulatory approval, 

but also would not have had time to repeat Bayer’s clinical trials. 

CAFTA Provision: 15.10.1(b) If a Party permits, as a condition of approving 

the marketing of a new pharmaceutical or agricultural chemical product, third persons to submit evidence concerning the safety or efficacy of a product that was previously approved in another territory, such as evidence of prior marketing approval, 

the Party shall not permit third persons, without the consent of the person who previously obtained such approval in the other territory, to obtain authorization or to 

market a product on the basis of 

(1) evidence of prior marketing approval in the other territory, or 

(2) information concerning safety or efficacy that was previously submitted to obtain marketing approval in the other territory, 

for at least five years for pharmaceutical products and ten years for agricultural 

chemical products from the date approval was granted in the Party’s territory to the 

person who received approval in the other territory. In order to receive protection 

under this subparagraph, a Party may require that the person providing the information in the other territory seek approval in the territory of the Party within five 

years after obtaining marketing approval in the other territory. 

3. New Product. A new product does not have to contain a new chemical entity. 

Under TRIPS, data protection applies to new chemical entity, not to an undefined 

new product.Test data protection does not apply to second uses, new formulations 

or changes in doses. Under TRIPS, a country can require a drug company seeking 

test data protection to prove that this is the result of a substantial investment. 

211 

CAFTA Provision. 15.10.1. (c) For purposes of this paragraph, a new product is 

one that does not contain a chemical entity that has been previously approved in 

the territory of the Party. 

Linkage 

CAFTA links the registration of drugs with the existence of a patent for a pharmaceutical product. The terms ‘‘shall implement measures . . . to prevent’’ requires 

the country’s drug regulatory agency, which is responsible for ensuring safety and 

efficacy, to take on the additional responsibility of legal enforcement of existing patents. There are typically many patents associated with a single drug, administered 

by a patent office. Neither the U.S. nor Central American countries have the administrative capacity to coordinate patent office functions with drug regulatory authorities. 

In the U.S., the FDA informs patent holders through the so-called ‘‘Orange Book’’ 

about requests made by third parties regarding the same drug. The patent holder 

bears the responsibility to ensure that its intellectual property right is not violated. 

The patent holder can take the case to court to stop an application for registering 

a generic drug. 

CAFTA Provision: 15.10.2. Where a Party permits, as a condition of approving 

the marketing of a pharmaceutical product, persons, other than the person originally submitting safety or efficacy information, to rely on evidence or information 

concerning the safety and efficacy of a product that was previously approved, such 

as evidence of prior marketing approval in the territory of a Party or in another 

country, that Party: 

15.10.2. (a) shall implement measures in its marketing approval process to prevent 

such other persons from marketing a product covered by a patent claiming the previously approved product or its approved use during the term of that patent, unless 

by consent or acquiescence of the patent owner; and (b) shall provide that the patent 

owner shall be informed of the request and the identity of any such other person 

who requests approval to enter the market during the term of a patent identified 

as claiming the approved product or its approved use. 

CONCLUSION 

CAFTA presents numerous new obstacles to competition by generic drug companies. These provisions in many cases exceed the requirements of TRIPS and U.S. 

law. CAFTA would delay access to life-saving generic drugs by many years, and contribute to additional deaths from HIV/AIDS and other conditions. The legal architecture established by CAFTA will maintain higher drug prices in the U.S. 

CAFTA fails to respect Congress’ negotiating objective to implement the Doha 

Declaration on public health and access to medicines. Instead, it advances monopoly 

rights for pharmaceutical companies that maintain high drug prices. It reflects the 

opinions of the USTR advisory committees, which include numerous pharmaceutical 

company representatives, and no representatives of public health. 

ADDENDUM I: USTR ADVISORY COMMITTEE REPORTS ON CAFTA UNDERMINE ACCESS TO AFFORDABLE MEDICINES 

The Industry Functional Advisory Committee on Intellectual Property Rights for 

Trade Policy Matters (IFAC–3) was the predecessor to the present Industry Trade 

Advisory Committee on Intellectual Property (ITAC 15). Like ITAC–15, IFAC–3 had 

numerous pharmaceutical company representatives, and no representatives of public 

health. It consistently advised the USTR to advance negotiating positions that 

strengthen IP rights for pharmaceutical companies, beyond TRIPS rules. 

The March 2004 Report of the Industry Functional Advisory Committee on Intellectual Property Rights for Trade Policy Matters (IFAC–3) regarding Intellectual 

Property Provisions in the U.S.-Central America Free Trade Agreement stated: 

‘‘CAFTA takes into account the significant legal and technological developments 

that have taken place since the TRIPS and NAFTA agreements—to establish clear 

precedents in most key areas of IP protection for future FTA negotiations.’’ (p.4) 

‘‘IFAC–3 views the TRIPS Agreement as reflecting minimum international 

norms of intellectual property protection that most countries should already have 

in place. The role of the FTAs is to clarify, where necessary, those obligations and to improve upon them by enhancing the level of intellectual 

property protection in the negotiating partner.’’ (p.5) 

‘‘The patent section of CAFTA provides a number of clarifications and improvements to the protection standards articulated in the TRIPS Agreement. Once implemented, these standards will improve the effectiveness of patent protection in the 

CAFTA countries. 

212 

‘‘IFAC–3 notes that CAFTA is the first to be completed with countries that are 

not among the more advanced developing countries, indeed some with relative low 

per capita incomes. That these countries found it in their interest to significantly 

increase their levels of IPR protection beyond that required by TRIPS is testament 

to the principle that high levels of protection benefit indigenous creators and inventors in the same manner as they do in developed countries.’’ (p.4) 

In fact, the TRIPS-Plus provisions of CAFTA do not represent U.S. policy, 

or the best interests of the people of the U.S., Central America and the 

Dominican Republic. 

1. Central Americans cannot afford drugs now and CAFTA will make the 

problem worse. The vast majority of Salvadorans and Guatemalans cannot afford 

brand name drugs. Many people do not have health insurance and must pay for 

medicines out-of-pocket. Guatemala has one of the highest rates of HIV/AIDS in the 

region and the population suffers from many diseases, both those associated with 

poverty as well as those, such as cancer and diabetes, common in the developed 

world. Guatemala and Costa Rica have a relatively thriving generics industry for 

pharmaceuticals, the main source of medicines in those countries. The Guatemalan 

generic drug industry adamantly asserts that CAFTA will undermine their operations and deprive more Guatemalans of access to drugs. 

2. Guatemalans did not willingly accept CAFTA provisions related to IP 

and health. Guatemalan law on data exclusivity (DE) has changed several times 

since 2000. Most recently, last November, law 9–2003 imposing DE was repealed, 

by vote of an overwhelming majority of the Guatemalan Congress, even though 

CAFTA requires such data exclusivity rules. In December 2004, a new law went into 

effect that is compliant with TRIPS and has a very limited protection of test data 

against commercial theft or fraud. 

On January 9, the U.S. Embassy issued a statement suggesting that Guatemala’s 

action on DE could mean that not one single member of the U.S. Congress would 

vote in favor of CAFTA. (This misleading statement was subsequently contradicted 

by several members of Congress.) The statement insisted that Guatemala revert to 

the CAFTA standard, which, again, exceeds what TRIPS requires. Guatemala subsequently passed yet another new law which the U.S. has declared is compliant with 

CAFTA. 

3. Costa Rica did not willingly accept CAFTA provisions related to IP and 

health. The official Costa Rican position is that IP and health services should not 

be included in CAFTA. Costa Rica agreed to include these issues as a trade off for 

other perceived economic benefits. 

4. When health deteriorates in Central America, the U.S. is affected. A 

high proportion of immigrants to the U.S. come from Central America. The vast majority of immigrants are young and healthy when they arrive in the U.S. They pay 

taxes that contribute in part to the expense of U.S. health services. Nevertheless, 

when their health deteriorates due to lack of medicines, they are more likely to experience illness while in the U.S. 

ADDENDUM II: Members of the USTR Advisory Committee on Intellectual 

Property Rights 

Industry Trade Advisory Committee on Intellectual Property 

Rights—ITAC 15 

Chairman 

Mr. Eric H. Smith Ms. Mary A. Irace.

President Vice President, Trade and Export Finance.

International Intellectual Property Alliance National Foreign Trade Council, Inc.

Vice-Chairman 

Mr. Jacques J. Gorlin Jeffrey P. Kushan, Esq.—P.

President Trade Counsel.

The Gorlin Group Sidley, Austin, Brown & Wood LLP.

Representing Biotechnology Industry 

Organization.

Ms. Catherine P. Bennett—P Shira Perlmutter, Esq.

Vice President, Federal Tax and Trade Policy Vice President and Associate General.

Pfizer, Inc. Counsel, Intellectual Property Policy.

Time Warner Inc.

213 

Industry Trade Advisory Committee on Intellectual Property 

Rights—ITAC 15—Continued 

Hope H. Camp, Jr., Esq.—P Mr. Timothy P. Trainer.

Consultant President.

Law Offices of Hope H. Camp, Jr., P.C. International AntiCounterfeiting Coalition.

Representing Eli Lilly and Company 

Susan K. Finston, Esq.—P Neil I. Turkewitz, Esq.

Associate Vice President for Intellectual 

Property 

Executive Vice President, International 

Recording Industry Association of America.

Pharmaceutical Research and Manufacturers 

of America 

Morton David Goldberg, Esq.—P Mr. Herbert C. Wamsley—P.

Partner Executive Director.

Cowan, Liebowitz & Latman, P.C. Intellectual Property Owners Association.

Mr. Francis (Frank) Z. Hellwig, Esq.—A Ms. Deborah E. Wiley.

Senior Associate, General Counsel Senior Vice President, Corporate.

Anheuser-Busch Companies, Inc. Communications.

John Wiley and Sons, Inc..

Association of American Publishers, Inc.

Dr. Joseph Anthony Imler—P 

Director, Public Policy 

Merck & Company, Inc. 

Total Members = 15 

Key: P = Associated with the Pharmaceutical Industry; A = Associated with the Alcohol Industry 

Total Industry Representation Related to Public Health and Health Care: Pharmaceutical Industry, 7; Alcohol Industry, 1. 

f 

Statement of Kathleen McNeely, Center of Concern, on behalf of the 

U.S. Gender and Trade Network 

The Center of Concern, on behalf of the U.S. Gender and Trade Network urges 

the House Ways and Means Committee to oppose CAFTA and not introduce implementing legislation. There is no good reason to support CAFTA at this time. It is 

an undemocratic agreement that was negotiated in secret and did not include the 

meaningful participation and support of a broad cross-section of civil society in the 

U.S. CAFTA does not promote fair trade and sustainable development policies designed to reduce poverty by benefiting women, who are the vast majority of the poor 

throughout the region, and enable them to lift themselves and their families out of 

poverty. CAFTA is largely a political agreement, a near identical replica of the 

flawed NAFTA, being used to build momentum for a Free Trade Area of the Americas. It does not represent any real economic benefit to U.S. business so what is the 

hurry in signing before we get it right? The push for an up/down vote without a 

long-term vision for sustainable development between the U.S., Central America 

and the Dominican Republic is particularly troubling given the following flaws in 

the agreement: 

• CAFTA investment provisions replicate NAFTA Chapter 11 and will undermine 

national sovereignty and local democratic processes by allowing foreign corporations to challenge legitimate state regulation of the environment, economic development, etc. 

• CAFTA fails to include adequate measures to ensure environmental improvement throughout the region and to correct the serious labor rights abuses existing in Central America, the Dominican Republic and the U.S, particularly with 

respect to women worker’s rights. 

• CAFTA’s rules on government procurement could threaten the right and authority of state and local officials to decide the conditions under which state tax 

dollars as spent. Currently 16 U.S. states have committed, in varying degrees, 

to be bound by these rules. AFTA’s rules on agriculture, like those in NAFTA, 

214 

1Women’s Edge Coalition, 2003. 

2 Breaking Boundaries II—Women and the Free Trade Area of the Americas: Understanding 

the Connections, USGTN, September 2003, p. 5. 

privilege agribusinesses that promote export-led food production, threatening 

small farmers and rural economies across the region. 

• CAFTA’s chapter on intellectual-property rights [IPR] threatens the health and 

well-being of persons in the region by restricting production and access to generic, life-saving medicines. 

Given that there is no role for Representatives to change the agreement, 

we urge the House Ways and Means Committee to oppose CAFTA and 

not introduce implementing legislation. 

Dear Member of Congress in the United States and Central America: 

We write to you as representatives of women’s organizations and social movements in Central America and the United States to express our concerns about the 

U.S.-Central American Free Trade Agreement (CAFTA). We support fair trade and 

sustainable development policies. If trade is to succeed in reducing poverty, it must 

benefit women, who are the vast majority of the poor throughout the region, and 

enable them to lift themselves and their families out of poverty. 

CAFTA does not do this. Experience with NAFTA has demonstrated that this 

model of free trade does not benefit poor women. Ten years of NAFTA has resulted 

in increased poverty, job loss, and loss of affordable services for women in the 

United States, Canada and Mexico. A recent study showed that in Mexico, poverty 

for female-headed households increased by 50 percent since NAFTA was implemented.1 We oppose the extension of that model to Central America. Furthermore, 

we understand that the process for negotiating CAFTA has been undemocratic. The 

CAFTA text was not released until it was completed and there has been no meaningful national debate on this agreement in the United States or in Central America. We are specifically concerned with the content of CAFTA that would: 

• Promote the privatization of essential public goods and services. Privatization often leads to price hikes. Women would have to make up for increases 

in prices of these services in order to ensure adequate health, education and 

food conditions for themselves and their families, increasing their workday 

within and outside of the home. 

• Increase unemployment in both Central America and the United States, 

especially that of women. It is not true that CAFTA would generate socially 

sustainable jobs for women. In the United States, the NAFTA experience shows 

that job losses were concentrated among industries employing women and minorities.2 In Mexico, while women gained new jobs in export-agriculture, these 

jobs did not lift women and their families out of poverty. 

In Central America, the reductions in the State and the bankruptcy of small and 

medium-scale companies that would result from CAFTA would mean that women 

are thrown out of the formal labor force and forced to join the informal sector without any kind of labor protections. 

• Lead to a decrease in respect for labor laws. CAFTA would consolidate a 

model of maquiladora development in Central America that treats women as 

cheap labor, without ensuring decent working conditions or protecting women’s 

rights. 

• Not resolve the challenge of mass migration out of the region and the 

serious problems that immigrants face in host societies. CAFTA deals exclusively with the free movement of goods and services, not persons. There is 

nothing in CAFTA that would resolve the grave labor conditions suffered by the 

hundreds of thousands of Central American women working in the United 

States. 

• Destroy local farm economies. With its focus on production for export instead of farming for the local economy, CAFTA would destroy family farms, 

which supply domestic markets and which employ and support the majority of 

women throughout Central America. Poor farmers will also face an uphill battle 

competing with highly subsidized U.S. products. 

We are not against trade or against development in Central America. The conditions and rules presented by CAFTA would, however, generate far-reaching negative 

impacts on economies and societies in both regions and further threaten the well 

215 

being of women, families, and communities across the region. Given that there is 

no role for Congress to change the agreement, we urge you to oppose this agreement 

should it come before Congress for approval. 

Sincerely, 

This letter was written by the Asociacio ́n de Mujeres por la Dignidad y la Vida, 

Las Dignas, together with members of the U.S. Gender and Trade Network 

(USGTN). 

Additional Sign-ons in support of this letter: 

B 

U.S. Gender and Trade Network (USGTN)

AFL–CIO

Alliance for Responsible Trade (ART)

California Coalition for Fair Trade and Human Rights

Center of Concern

CISPES

Citizens Trade Campaign

Code Pink: Women for Peace

Congregation Justice Committee, Sisters of the Holy Cross, Notre Dame, IN

Congregation of St. Joseph, Cleveland

Congregation of St. Joseph Justice Office, Cleveland

Development Group for Alternative Policies (DGAP)

Ecumenical Program on Central America and the Caribbean (EPICA)

Global Exchange

Holy Cross International Justice Office

Institute Justice Team, Sisters of Mercy of the Americas

IntercommunityCenter for Justice and Peace

International Labor Rights Fund (ILRF)

Leadership Conference of Women Religious

OFM Justice, Peace and Integrity of Creation Council—English Speaking Conference (OFM–JPIC–ESC)

Maryknoll Office for Global Concerns

Medical Mission Sisters: Alliance for Justice

Mexico Solidarity Network

Migration and PolicyResourceCenter, OccidentalCollege

National Organization for Women (NOW)

NETWORK: A National Catholic Social Justice Lobby

Nicaragua Network

Quixote Center/Quest for Peace

SHARE

Sisters of Mercy Institute Team

STITCH

Sweatshop Watch

Tennessee Economic Renewal Network

United for a Fair Economy

Washington Office on Latin America (WOLA)

Women’s Edge Coalition

El Salvador 

Asociacio ́n de Mujeres por la Dignidad y la Vida (Las Dignas)

Asociacio ́n de Mujeres Me ́lida Anaya Montes (Las Me ́lidas)

Centro de Estudios sobre Inversion y Comercio de El Salvador (CEICOM)

Centro para la Defensa de Consumidores (CDC)

Concertacio ́n de Mujeres Salvadoren ̃ as. Integrada por: FUNSALPRODESE, 

CRIPDES,

Fundacio ́n Redes entre otras.

Insituto de Desarrollo de la Mujer (IMU)

Marcha Mundial capı ́tulo El Salvador. Integrada por: Comite ́ 25 de noviembre, 

MSM, CORAMS

Movimiento Salvadoren ̃ o de Mujeres (MS)

Movimiento Salvadoren ̃ o de Mujeres (MSM)

Red de Accio ́n Ciudadana frente al Comercio e Inversio ́n (Sinti Techan)

Tiempos Nuevos Teatros (TNT)

Unio ́n Nacional Ecolo ́gica Salvadoren ̃ a (UNES) 

Honduras 

Bloque Popular de Honduras

Centro de Derechos de Mujeres—CDM

Centro de Estudios de la Mujer de Honduras—CEM–H 

216 

Guatemala 

Agrupacio ́n de Mujeres Tierra Viva de Guatemala

Coordinadora Nacional de Organizaciones Campesinas—CNOC—de Guatemala 

Nicaragua 

Centro de Estudios Internacionales (CEI)

Mujer y Comunidad (COMPA) de Nicaragua 

Costa Rica 

Agenda Cantonal de Mujeres Desamparaden ̃ as (ACAMUDE)

Alianza de Mujeres Costarricenses

Asociacı ́n de Servicios de Promocio ́n Laboral (ASEPROLA)

Consejo de los 12 Puntos de Costa Rica

Encuentro Popular 

Me ́xico 

Coordinadora Diocesana de Mujeres (CODIMUJ)

Red Nacional de Ge ́nero y Economı ́a 

Peru 

Red Latinoamericana de Mujeres Transformando la Economia (REMTE)

Grupo Genero y Economia—Peru 

f 

Statement of Robert Vastine, Coalition of Service Industries 

INTRODUCTION 

The Coalition of Service Industries (CSI) is pleased to have this opportunity to 

submit comments for the record on the U.S.-DR–CAFTA Free Trade Agreement. 

CSI strongly supports the U.S.-DR–CAFTA trade agreement, and we hope that 

Congress will approve it promptly. The Agreement provides for meaningful liberalization of trade and investment in services between the United States and the DR– 

CAFTA countries, and will open up new markets and opportunities for U.S. companies across a range of service industries. It will also demonstrate to other developing 

countries, in this hemisphere and elsewhere, that commitments to liberalization and 

internal economic reform are necessary for economic development, higher standards 

of living, and global competitiveness. 

The Agreement does not meet industry objectives in all respects; for example, the 

lack of temporary entry provisions. Notwithstanding, both the United States and the 

Central American nations stand to gain significantly from this Agreement, and it 

unquestionably merits Congressional approval. 

BACKGROUND: THE IMPORTANCE OF SERVICES TO THE U.S. ECONOMY 

The DR–CAFTA Agreement and its merits should be viewed against the role services play in the U.S. economy. Services account for the overwhelming share of U.S. 

employment and economic output, and a large and growing share of our foreign 

trade. As Congressmen Kolbe and Cardin pointed out in a March 18, 2005 Dear Colleague letter, services ‘‘are key to the future growth of the American Economy.’’ 

Services jobs represent approximately 80% of all non-farm, non-government workers in the U.S. Between 1993 and the 2003, the service sector added 17 million new 

U.S. jobs, and of the 19.2 million new American jobs forecast to be created by 2012, 

90% will be in the service sector. Moreover, the service sector generates 78% of U.S. 

private sector GDP. Efficient, high-quality services are crucial inputs into the production of virtually all products. The price and quality of services influences the 

costs and productivity of all sectors, including manufacturing and agriculture. 

The magnitude of U.S. services trade is under-appreciated. Last year, U.S. 

crossborder exports of services were $338 billion, up from $307 billion the previous 

year, and represented about 40% of the value of U.S. merchandise exports. The $49 

billion services trade surplus that the U.S. ran last year partially offset our merchandise trade deficit. An even larger share of U.S. services trade is delivered 

through the foreign affiliates of U.S. parent companies. In 2002, the services sales 

of U.S. foreign affiliates worldwide reached slightly over $400 billion. These foreign 

operations are crucial to U.S. companies’ competitiveness in global markets. Thus, 

expanded market access under DR–CAFTA will help U.S. companies become even 

more competitive in the global marketplace. 

217 

The U.S. is extremely competitive across the range of services sectors, from banking and financial services to insurance, computer and related services, entertainment and audio visual services, express delivery, architecture and engineering, and 

others. The liberalization of these areas, as provided for in the Agreement, thus 

plays to a U.S. strong suit. 

During negotiations, every effort was made to ensure that CAFTA’s services coverage was comprehensive, with minimal reservations taken. Under CAFTA, services 

trade and investment will be liberalized on a ‘‘negative list’’ basis, which requires 

that a country list in detail the activities which will be excluded from liberalization. 

This approach is absolutely crucial to ensuring truly comprehensive coverage. The 

negative list has the further major advantage that new services are automatically 

free, which is particularly important in the services sector where new services are 

regularly being created. This was a significant achievement on the part of U.S. negotiators, given the reluctance of the CAFTA countries to negotiate on that basis 

at the outset of the talks. Moreover, important concessions have been obtained in 

the context of political controversy in some of the CAFTA countries. For example, 

the liberalization of insurance and telecommunications services in Costa Rica were 

particularly sensitive issues in that country. 

The agreement contains important provisions for services-related investment, regulatory transparency, and for trade in key service sectors. These are discussed 

below. 

CSI represents the interests of the dynamic American service economy, which employs 80% of the U.S. workforce and generates a similar proportion of national economic output. CSI was formed in 1982 to ensure that U.S. trade in services, once 

considered outside the scope of U.S. trade negotiations, would become a central goal 

of future trade liberalization initiatives. CSI has been actively engaged in, and a 

strong supporter of, services negotiations in the WTO, as well as in our regional and 

bilateral free trade agreements, including the DR–CAFTA Agreement. 

The broad range and diversity of the U.S. service economy is reflected in CSI’s 

membership, which includes major international companies from the banking, insurance, telecommunications, information technology, travel and tourism, transportation, and diversified management service sectors. CSI members conduct business 

in more than 100 countries, have global sales of about $800 billion, and employment 

of about 2.3 million. 

INVESTMENT 

The Agreement will help promote a secure and predictable legal framework for 

U.S. investors in Central America and the Dominican Republic. Such provisions are 

particularly important to service providers, for whom a local presence is often required to supply services. 

The Agreement reduces barriers to U.S. investment. It assures U.S. investors 

greater opportunities to establish, acquire and operate investments in each of the 

Central American countries in all sectors. Such investors are to be accorded equal 

treatment with local investors and may not be subjected to special or discriminatory 

requirements for the use of local inputs, export obligations, or to extend licenses to 

local companies. Rights to manage and direct such investments with personnel other 

than from the host country are also provided. 

The Agreement ensures the protection of U.S. investment. It includes a broad definition of investment, the guarantee of prompt, adequate and effective compensation 

for expropriation, fair and equitable treatment, full protection and security, the free 

transfer of capital, no performance requirements, as well as the national treatment 

and most-favored nation provisions. Very importantly, the Agreement includes the 

investor-state dispute settlement mechanism that is vital to afford U.S. investors 

the opportunity to ensure that their investments are protected against arbitrary, 

discriminatory and unfair government actions. 

At the same time, the Agreement protects the legitimate exercise of each government’s regulatory authority to protect ‘‘public welfare objectives, such as public 

health, safety, and the environment.’’ 

TRANSPARENCY 

The Agreement provides for a high standard of transparency in administrative, 

licensing, and adjudicatory proceedings. Transparency in regulatory processes is absolutely essential for services industries, because they generally are the most highly 

regulated. A government’s regulations governing financial services, energy services, 

and professional services, for example, can vitiate or nullify trade agreements that 

would otherwise provide full market access and national treatment. 

The overarching provisions in the introductory chapter on transparency require 

the essentials: the designation of a contact point for inquiries, the requirement for 

218 

prompt publication; the requirement that ‘‘to the extent possible’’ measures that 

each Party proposes to adopt are published in advance, and that persons of both 

Parties have a reasonable opportunity to comment. Further, the chapter provides 

that parties at interest to proceedings receive reasonable notice of such proceedings, 

and that they are allowed to present their case prior to final administrative actions. 

Each Party must establish independent tribunals or procedures for prompt review 

of administrative actions, and has the right to a decision based on evidence. The 

provisions in the cross border services chapter provide further assurance that administrative decisions related to licensing are prompt and fair. This chapter also 

provides for the Parties to reach agreements mutually recognizing their qualifications and standards for professional practice. The transparency provisions set out 

in the financial services chapter are consistent with the other transparency provisions in the Agreement but are tailored to the needs of this sector. 

BENEFITS FOR KEY SERVICE SECTORS 

The CAFTA–DR Agreement is comprehensive and provides for new liberalization 

and market access across a broad range of service industries. Some of Agreement’s 

benefits for key sectors are listed below. 

Dealer Protection: The Agreement addresses restrictions on distribution in Central America created through restrictive dealer protection regimes. Such regimes 

have placed substantial burdens on the distribution of U.S. exports to the region by 

locking U.S. companies into inefficient, exclusive and effectively permanent relationships, oftentimes regardless of the performance of the local dealer. The Agreement 

will allow U.S. exporters and their dealers freedom to contract the terms of their 

relationships. These provisions will substantially help promote more efficient and 

improved distribution for U.S. companies within the region. 

Accounting Services: The Agreement provides for U.S. accountants to obtain local 

qualifications and licenses on a reciprocal basis. 

Architecture: The Agreement’s provisions on the development of professional 

standards, and temporary licensing and review, provide for equity and reciprocity 

in this sector. Further provisions provide access to the Central American markets 

while promoting capacity building within the profession. 

Asset Management Services The Agreement provides legal certainty that U.S. 

asset management firms will be afforded national treatment, non-discrimination and 

the right of establishment. It also permits cross-border provision of portfolio management services by asset managers of mutual funds. The financial services transparency commitments in the agreement also would benefit the asset management 

industry. 

Audiovisual Services: The Agreement provides for strong intellectual property protections, and strengthened enforcement. The FTA demonstrates that a trade agreement can harmonize two important objectives—trade liberalization and the promotion of cultural diversity. It avoids the ‘‘cultural exceptions’’ approach, while demonstrating that a trade agreement has sufficient flexibility to take into account 

countries’ cultural promotion interests. The Agreement includes important provisions to ensure market access for U.S. films and television programs over a variety 

of media including cable, satellite, and the Internet. It provides for zero tariffs on 

audio visual products, reaffirms that customs duties are based on the value of carrier media and not the value of the movie or other content. It provides commitments 

to non-discriminatory treatment of digital products including DVDs and CDs, and 

agreement not to impose customs duties on such products. 

Computer and Related Services: The Agreement ensures full market access and 

national treatment for computer and related services. The Agreement covers all 

modes of delivery, including electronic delivery. The ‘‘negative list’’ approach ensures 

that rapidly evolving computer services, driven by continual advances in technology, 

will automatically be covered by the Agreement. 

Electronic Commerce: The Agreement includes important language on electronic 

commerce. As with previous FTAs, the Agreement establishes the concept of ‘‘digital 

products’’; prevents the application of customs duties on electronically-delivered digital products; assures the non-discriminatory treatment of digital products; addresses the valuation of physically delivered digital products; and provides commitments 

to cooperate on electronic commerce policy. 

Energy Services: The Agreement’s provisions on regulatory transparency and investment provide a framework that can provide opportunities for U.S. energy services firms and facilitate the provision of energy services between the United States 

and Central America. 

Express Delivery Services: The Agreement includes important provisions for the 

sector, including an appropriate definition of express delivery services (EDS). The 

Agreement recognizes EDS as a unique service sector and contains important comVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00222 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
219 

1 Chapter 15, available at http://www.ustr.gov/Trade_Agreements/Bilateral/CAFTA/CAFTADR_Final_Texts/Section_Index.html 

mitments to maintain market access for the industry and to facilitate customs clearance, which is critical to the efficient operation of express carriers. The Agreement 

includes significant language proscribing monopoly abuse by postal administrations 

when they compete in the supply of express delivery services. 

Financial Services (other than insurance and asset management): The Agreement 

contains important provisions relating to branching, pension management and regulatory transparency. 

Healthcare Services: the Agreement breaks new ground concerning the temporary 

licensing of physicians and surgeons that will be helpful for U.S. hospitals engaged 

in international medical care to gain market presence. 

Insurance: The Agreement’s insurance commitments are comprehensive and provide good treatment for insurance. While these countries already have fairly open 

insurance markets, in most cases these insurance commitments are significant improvements over current WTO obligations. Perhaps most significantly, Costa Rica’s 

insurance sector, which is currently dominated by a monopoly, will be opened for 

the first time under this agreement. All major aspects of insurance are covered, including life, non-life, reinsurance, intermediation and services auxiliary to insurance. Similarly, key cross border insurance products and services are covered (marine, aviation and transport (MAT), reinsurance and intermediation). 

Legal Services: The Agreement preserves the ability of U.S. lawyers to serve as 

foreign legal consultants or otherwise to provide advice and assistance respecting 

the law they are authorized to practice in the United States. 

Telecommunications: The Agreement includes new international cost-oriented 

interconnection obligations for fixed traffic (although mobile services, unfortunately, 

are excluded from this obligation). The Agreement also contains commitments to 

provide access to and use of telecommunications networks, and commitments for 

fixed services, including competitive safeguards, interconnection, universal service, 

licensing, independent regulator, and allocation of scarce resources. ‘‘WTO–Plus’’ obligations are incurred for major suppliers with respect to resale, provisioning of 

leased circuits and collocation. The Agreement includes new market access commitments, including cross-border obligations. 

Vessel Repair: the Agreement provides for the elimination of the 50% U.S. tariff 

on vessel repairs performed in the Central American countries, thus eliminating a 

significant burden on U.S. shipping companies that require repair work when servicing foreign markets. 

CONCLUSION 

The DR–CAFTA Agreement provides for substantial new market access for a 

broad range of U.S. services industries to a growing market of nearly 45 million consumers. It thus opens up significant new opportunities for U.S. services trade and 

investment, and deserves prompt approval by the Congress. 

f 

Statement of Rachel Cohen, Doctors Without Borders/Me ́decins Sans 

Frontiere`s, New York, New York 

Introduction 

Doctors Without Borders/Me ́decins Sans Frontiere`s (MSF) is pleased to submit 

this testimony to the Committee on Ways and Means of the House of Representatives about the potential negative consequences of intellectual property (IP) provisions in the United States-Dominican Republic-Central America Free Trade Agreement (DR–CAFTA) on access to essential medicines in the concerned countries. 

MSF is deeply concerned that provisions in the Chapter on Intellectual Property 

in DR–CAFTA 1 will lead to devastating consequences in terms of access to medicines for millions of people in the region with HIV/AIDS and other diseases. MSF 

is also concerned that this trade agreement, among others already signed or currently being negotiated, undermines the right and obligation of countries to protect 

public health and promote access to medicines for all, in accordance with the World 

Trade Organization (WTO) Ministerial Declaration on the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) and Public Health (‘‘Doha Declaration’’), which the U.S. adopted along with all other WTO members in November 

220 

2Paragraph 4 of the Declaration states ‘‘We agree that the TRIPS Agreement does not and 

should not prevent members from taking measures to protect public health. Accordingly, while 

reiterating our commitment to the TRIPS Agreement, we affirm that the Agreement can and 

should be interpreted and implemented in a manner supportive of WTO members’ right to protect public health and, in particular, to promote access to medicines for all.’’ 3To view the full Declaration, see http://www.wto.org/english/thewto_e/mWhinist_e/min01_e/ 

mindecl_trips_e.htm 4 It is important to note that USTR ‘‘side letters’’ about DR–CAFTA and public health—which 

are not legally enforceable and do not supercede the (contradictory) language in DR–CAFTA— 

make dangerous attempts to restrict the scope of diseases and cannot be seen as providing any 

assurance for countries to make use of TRIPS safeguards. 

2001.2 The Doha Declaration clearly recognized concerns about the effects of patents 

on prices and stated unambiguously that TRIPS can and should be interpreted and 

implemented in a manner ‘‘supportive of WTO members’ right to protect public 

health and, in particular, to promote access to medicines for all.’’ 3

MSF has called repeatedly on the Office of the United States Trade Representative (USTR) to ensure that the Doha Declaration remains a ceiling for trade negotiations on IP as they relate to public health technologies. Because of the clearly stated 

negotiating objectives of the U.S., however, we have been forced to go one step further in recommending that IP be excluded from bilateral and regional trade agreements altogether. The WTO TRIPS Agreement already establishes more than sufficient standards for IP protection in WTO member states. 

Specifically, MSF has raised concerns about the following IP provisions in various 

FTAs: 

• New obstacles related to pharmaceutical test data, which will delay the registration of generic medicines (‘‘data exclusivity’’) and render compulsory licensing ineffective; • Rules that will confer abusive powers to regulatory authorities to enforce patents (‘‘linkage’’); and • Extensions of patent terms on pharmaceuticals beyond the 20-years required in 

TRIPS. 

Each of these provisions, which are elaborated upon below, appear in DR–CAFTA 

and threaten to hamper generic competition—the only reliable mechanism for ensuring lower drug prices—and therefore restrict access to affordable medicines in the 

Central American region.4

We urge members of this Committee in the strongest possible terms to take every 

necessary measure to ensure that the health and lives of millions of people in the 

Central American region are not jeopardized because of DR–CAFTA. 

Background: MSF 

Doctors Without Borders/Me ́decins Sans Frontiere`s (MSF) is an international 

independent medical humanitarian organization that delivers emergency aid to people affected by armed conflict, epidemics, natural and man-made disasters, and exclusion from health care in more than 70 countries. Through longer-term programs, 

MSF treats patients with infectious diseases such as HIV/AIDS, tuberculosis, malaria, and other neglected diseases, and provides medical and psychological care to 

marginalized groups such as street children. The organization was awarded the 

1999 Nobel Peace Prize. MSF currently has field operations in two of the countries 

affected by DR–CAFTA—Guatemala and Honduras. 

In Guatemala, MSF provides antiretroviral (ARV) treatment for more than 1,600 

people with HIV/AIDS in Guatemala City, Coatepeque, and Puerto Barrios, as well 

as psychological support and medical care for street children in Guatemala City. In 

Honduras, MSF is providing ARV treatment for approximately 300 people with HIV/ 

AIDS in Tela, as well as care for street children and victims of urban violence in 

Tegucigalpa. 

Spotlight on ‘‘data exclusivity’’ and HIV/AIDS in Guatemala 

Brief Summary of ‘‘Data Exclusivity’’ in Guatemala 

There are many troubling IP provisions in DR–CAFTA, but of particular concern 

is the U.S. Administration’s attempt to push countries to accept new obstacles related to pharmaceutical test data (so called ‘‘data exclusivity’’), which will delay the 

availability of generic medicines. 

Guatemala is a case in point. 

Under extreme pressure from the U.S. Administration, Guatemala went back and 

forth from 2003 to 2005 between proposed legislation that guarantees multinational 

pharmaceutical companies monopoly-like exclusivity on the Guatemalan market and 

amendments that would have maintained some degree of public health protection. 

221 

5 Because the originator has five years of data exclusivity from the first date of approval in 

another country, and then receives another five years of protection from the date of approval 

in Guatemala, for a total of up to 10 years. 

In March 2005, despite strong opposition from civil society groups in Guatemala, the 

Guatemalan Congress eventually passed an amendment that provides at minimum 

of five years of data exclusivity and cleared the way for ratification of DR–CAFTA. 

MSF is concerned that the new law, which is considered a first step in the implementation of DR–CAFTA in Guatemala, will prevent the Department of Regulation 

and Control of Pharmaceutical Products from granting marketing approval to generic medicines in Guatemala for five to 10 years,5 thereby giving a market monopoly to originator drug manufacturers and preventing access to affordable medicines 

for five to 10 years in the country (see below for a more lengthy explanation of data 

exclusivity). 

In a worst case scenario, the new legislation will prevent generic medicines from 

entering the Guatemalan market during the period of exclusivity even if the originator medicine is not marketed in Guatemala. This means that patients may have 

no access at all to some medicines for five years—even exorbitantly priced originator 

versions. While this provision is, for the moment, only in place in Guatemala, DR– 

CAFTA would force all parties to the agreement to implement similar laws at the 

national level. 

HIV/AIDS in Guatemala 

According to the World Health Organization (WHO) and UNAIDS, more than 

78,000 Guatemalans are currently living with HIV/AIDS, and annual AIDS-related 

deaths totaled 5,800 in 2003. Approximately 13,500 of all those living with HIV/ 

AIDS now are in urgent need of antiretroviral (ARV) treatment. Yet only 3,600 Guatemalans were receiving it as of December 2004. 

MSF has been providing ARVs to Guatemalans since 2001 and is currently treating more than 1,600 people living with HIV/AIDS in hospitals and clinics in Guatemala City, Coatepeque, and Puerto Barrios. Our clinical outcomes parallel those 

found in the U.S. and other industrialized countries. 

Most of the patients in MSF’s treatment programs are receiving generic medicines, which allows MSF to treat the largest possible number of people. MSF currently pays as little as $350 per person per year for the most commonly prescribed 

World Health Organization-recommended first-line regimens. Generic competition 

on the Guatemalan market has brought down the prices of originator ARVs, and the 

Guatemalan government is slowly moving from purchasing only originator ARVs to 

including generic suppliers in the national tender. 

Still, Guatemala’s social security system has spent significantly more on ARVs— 

in some cases more than 20 times more than MSF—because it has procured mostly 

originator drugs. For example, whereas MSF pays $216 per person per year for a 

generic version of the ‘‘back-bone’’ double combination of AZT+3TC, Guatemala’s social security system paid $4,818 (open tender 2004) for the same combination from 

the originator, GlaxoSmithKline. This is 22 times more than what MSF pays. 

Guatemala has the opportunity to expand access to ARV treatment significantly, 

particularly because of a $40 million grant from the Global Fund to Fight AIDS, 

Tuberculosis and Malaria. In fact, there is no reason that Guatemalan authorities 

should not be able to ensure universal access to ARV treatment. But if the government is paying 20 times more—or even two times more—for ARVs, only a small 

fraction of those in need will be treated. Treating fewer people means condemning 

others to premature death. 

If current data exclusivity provisions had been in effect prior to 2001, generic 

ARVs would not have been marketed in Guatemala and MSF would not have been 

able to access generics. This would have limited our ability to expand access to 

treatment and demonstrate the feasibility of delivering ARV treatment. In order for 

the Guatemalan government to expand access to ARV treatment for all those in 

need, it will need to retain the right to procure affordable generic AIDS medicines. 

DR–CAFTA threatens the ability of Guatemala to do so. 

The Example of Atazanavir 

In November 2004, the Congress of Guatemala repealed Decree 9–2003, which 

provided for five-year data exclusivity. In December, the Congress replaced Decree 

9–2003 with Decree 34–2004, which passed by an important majority. This was seen 

by Guatemalan civil society groups, MSF, and others as a positive step forward, and 

a critical moment for the government to commit to ensuring treatment for greater 

numbers of people with HIV/AIDS in Guatemala. (As explained above, data exclusivity was again enacted in Guatemala in March 2005.) In the roughly 18 months 

222 

6 In some countries, a WHO-recommended first-line fixed-dose combination (e.g. d4T/3TC/ NVP) is now available for as little as $140 per patient per year (Clinton Foundation price) because of robust international generic competition. The same combination is available in Western 

countries as originator companies’ separate products at $8,773 per patient per year (the only 

country for which prices are publicly available is Australia and this price was calculated based 

on the schedule of Pharmaceutical Benefits for Approved Pharmacists and Medical Practitioners, 

May 2004; exchange rate used for conversion 1 Australian $ = 0.72213 U.S. $). This means that 

the price in developing countries for WHO-recommended first-line therapy is 98% lower than 

what the same combination costs in Western countries. 

during which Decree 9–2003 was in effect in Guatemala, 25 medicines received 

‘‘data exclusivity’’ protection under the law. Among those medicines affected is the 

ARV atazananir. Atazanavir is a protease inhibitor, which is a key part of secondline therapy for people with HIV/AIDS once they experience treatment failure on 

their first-line regimen, and is used widely, in the U.S., Europe, and Brazil. 

Today, the U.S. price of atazanavir is more than US$10,000 per person per year— 

there is no differential price for developing countries and it must be combined with 

at least two additional ARVs. There is no generic version of atazanavir available on 

the world market because it is a relatively new drug, but based on experience with 

other ARVs, it is possible that the price could drop by approximately 95% with robust generic competition.6

If a more affordable generic version of atazanavir is developed, however, it will 

not be able to enter the Guatemalan market until 2009 (given that the original 

atazanavir of Bristol-Myers Squibb was registered in Guatemala in February 2004). 

This means that BMS will have a monopoly during the entire period of exclusivity 

(at least five years) and, free from competition, will be able to charge whatever the 

market will bear—far more than what the average Guatemalan will be able to afford. It is therefore unlikely that the vast majority of Guatemalans who will need 

this medicine will be able to access it. 

This is just one example of what could happen to all new medicines entering the Guatemalan market—not only AIDS drugs—now that a U.S.-style 

data exclusivity law has been implemented. If DR–CAFTA is fully enacted 

in all countries, similar problems will be encountered in Costa Rica, El Salvador, Honduras, Nicaragua, and Dominican Republic. Newer medicines 

will be crucial to the longer-term survival of people with HIV/AIDS and 

other illnesses. 

Brief analysis of IP provisions in DR–CAFTA & implications for access to 

medicines 

1. Exclusive rights over pharmaceutical test data (‘‘data exclusivity’’) 

Even when a drug is not under patent, ‘‘data exclusivity’’ will create a new patentlike monopoly by blocking the registration of generic medicines. Data exclusivity 

prevents a national drug regulatory authority from using data provided by an originator company to authorize the use of an equivalent generic version of the same 

drug, thereby providing a de facto monopoly for the original manufacturer. 

At present: To register a medicine with a national drug regulatory authority 

(NDRA), an applicant has to show that its medicine is safe, effective and of quality. 

It is the first applicant who must show clinical trial data to prove the drug’s safety 

and efficacy. 

When generic manufacturers seek registration (or ‘‘marketing approval’’) of generic versions of medicines, they only have to show that the drugs are of quality 

and therapeutically equivalent to the original version—in other words, they function 

the same way as the original medicine. The generic company does not have to submit new safety and efficacy data. 

The NDRA can rely on the safety and efficacy data submitted by the originator 

producer to register the generic medicine. Under these conditions, the introduction 

of generics to the market is accelerated and facilitated. 

In DR–CAFTA: Provisions in DR–CAFTA establish and expand ‘‘exclusive rights’’ 

over pharmaceutical test data provided by originator companies to prevent an 

NDRA from using that data to register a therapeutically equivalent generic version 

of the drug. The exclusivity would last for at least five years from the time the originator drug is first registered in the country. During this period, if another company 

wants to register a generic version of the drug, it would have to generate and submit its own test data. 

Further, provisions in DR–CAFTA provide for what could be described as ‘‘data 

exclusivity-plus’’: if the original manufacturer has not registered the drug in the 

country, then the data exclusivity period would start running from the date of approval in the other country (ie. usually the United States). 

223 

If accepted, ‘‘data exclusivity’’ provisions apply regardless of whether or not a drug 

is patented. 

Likely impact: These provisions will keep generic versions of originator drugs 

that have already been registered out of a country during the period of data exclusivity (ie. five to 10 years). The requirement for a company to generate its own test 

data will likely discourage generic manufacturers from seeking registration for their 

drugs. It may even make it impossible, especially for domestic firms in developing 

countries, given the costs of test data and low margins of generics production. 

The main effect of this provision will be on drugs which are not under patent, 

as the generic manufacturer will still be unable to use the originator’s test data to 

obtain registration. In such an instance, data exclusivity acts as a de facto patent, 

preventing competition. 

This impact is heightened since the data exclusivity applies from the date of approval in the U.S. as it means that a brand-name originator drug does not even 

have to be registered (and thus available) in the country for generic competitors to 

be blocked from entry. This could lead to a complete lack of availability of essential 

medicines (either generic or originator versions) if originator companies decide for 

whatever reason not to market a drug in a given country. 

The requirement to re-test a drug already proven to be safe and effective is medically unethical, because it forces a number of patients to take part in clinical trials 

which are not necessary, and requires some to take placebos in order to compare 

outcomes with the actual drug and therefore forego a proven treatment. It will also 

increase the cost of the generic medicine. 

Whereas patent barriers can be overcome through compulsory licensing or government use, there is no legal ‘‘remedy’’ for data exclusivity. Further, data exclusivity 

could effectively block compulsory licenses. Even if a company is given authority to 

produce a generic drug under a compulsory license, it still needs to register the drug 

with the NDRA. Data exclusivity would prevent such registration for the period of 

exclusivity, and thereby prevent the use of a compulsory license during that time. 

TRIPS compatibility: Nowhere does TRIPS state that countries should provide 

exclusive rights to the originator of the data for a given period. Rather, TRIPS simply refers generally to the need to protect ‘‘undisclosed test or other data’’ from ‘‘unfair commercial use’’ and ‘‘disclosure’’ (Art. 39.3), without answering the question of 

how such protection should occur. The language in the TRIPS Agreement makes it 

clear that countries can determine what constitutes ‘‘unfair’’ and that there are multiple approaches that countries can take to satisfy this mandate. Indeed, during negotiations on the TRIPS Agreement, prior to 1994, negotiators rejected the option 

to include stronger ‘‘data exclusivity’’ provisions in the TRIPS Agreement, as originally proposed by the United States. 

2. Abusive powers to national drug regulatory authorities (NDRAs) to enforce patents 

The U.S. has devised a new role for national drug regulatory authorities in DR– 

CAFTA through negotiating provisions that require these NDRAs to act as ‘‘enforcers’’ of drug patents. They will be prevented from registering a generic version of 

a drug that is under patent in the country unless the patent holder gives consent— 

even if the generic has been proved to be safe, effective, and of quality. Linking a 

drug’s registration (also known as its ‘‘marketing approval’’) to its patent status is 

an underhanded way of preventing generic competition. 

At present: A drug’s patent status and its registration status are two separate 

things. In principle, two different bodies look after the two different areas of competency: patent offices assess whether a drug is innovative and novel enough to be 

patented, and NDRAs assess whether a drug is of quality, safe and effective enough 

to be used by the population they are responsible for. 

When assessing whether a generic drug should be registered, a NDRA pays no 

attention to whether or not a patent may be infringed, as this is simply not their 

job—just as it is not the job of the patent office to assess the quality, safety and 

efficacy of a drug. It is up to the patent owner itself to sue an infringer before a 

court—a practice which ensures that the validity of a patent can be publicly questioned and held up to scrutiny before it is enforced. 

In DR–CAFTA; Provisions in DR–CAFTA will prevent NDRAs from registering 

a generic version of a drug that is under patent. Under these conditions, registration 

would not be granted to a generic manufacturer before the patent expires. If a drug 

is not registered, it cannot be legally used in a country. 

Likely impacta: These provisions amount to an outright ban on generic versions 

of patented medicines, by preventing their registration if there is a patent in force. 

The NDRA becomes the enforcer of a company’s private patent rights. 

224 

7 NDRAs could also enforce patents in other ways that could threaten public health: for example, a patent on a salt or a polymorph of a given product may also be used to block registration 

even if the active ingredient is off-patent. 8To view the full Declaration, see http://www.wto.org/english/thewto_e/mWhinist_e/min01_e/ 

mindecl_trips_e.htm 

This is of considerable advantage to the patent holder. Rather than the company 

having to sue through the courts to enforce its patent, the job is done behind the 

scenes and without publicity by the NDRA. 

It is also more likely that patents that have been awarded improperly will be 

wrongfully enforced. The NDRA will be obliged to enforce a patent monopoly, even 

though it does not have the power of a court to judge whether a patent has been 

properly awarded or not.7

Further, the linking of patent status and drug registration could undermine the 

possible use of compulsory licences. A company given authority to produce a generic 

drug under compulsory licence (ie. without the patent holder’s consent) still needs 

to register that drug with the NDRA. But if the NDRA is not allowed to register 

generics until the patent expires, the compulsory licence is effectively useless. 

TRIPS compatibility: Nowhere in the WTO’s Agreement on Trade-Related Intellectual Property Rights (or TRIPS Agreement) is there any reference to an obligation to link patent protection and drug registration. On the contrary, the Preamble 

recognises that intellectual property rights are ‘‘private rights’’—meaning that it is 

up to patent holders to enforce their rights, not NDRAs. 

3. Extensions of patent terms beyond the 20-year TRIPS requirement 

There is no more straight-forward way to extend a company’s monopoly over a 

drug than to extend the life of the drug’s patent—but the impact on patients’ access 

to that drug could be dire. 

At present: Patents on drugs in most countries last for 20 years from the date 

of filing. The originator company usually applies for a patent at the stage of basic 

research, well before the company even applies for drug registration. The process 

of drug registration usually takes two-three years. The process of patent granting 

can also take two-three years. 

In DR–CAFTA: Provisions in DR–CAFTA seek to ‘‘compensate’’ drug companies 

for any ‘‘unreasonable’’ time a national drug regulatory authority takes to examine 

an application for registration, or a patent office takes to examine a patent application. The life of the patent would be extended by the length of ‘‘unreasonable’’ time 

the authority takes to approve the respective applications. 

Likely impact: The extra years added to the patent are extra years in which the 

patent holder can maintain a monopoly position and continue to charge artificially 

high prices for the drug, free from generic competition. There would be considerable 

questions over what is considered ‘‘reasonable’’, especially given the resource constraints on NDRAs and patent offices in developing countries. 

TRIPS compatibility: Nowhere in the TRIPS Agreement is any reference made 

to an obligation to extend patent life to ‘‘compensate’’ for ‘‘unreasonable’’ delays in 

granting registration or patent approval. Indeed, countries rejected such proposals 

when originally negotiating the TRIPS Agreement. 

Conclusion 

Over three years ago, 142 countries, including the U.S., negotiated and adopted 

the Doha Declaration, firmly placing public health needs above commercial interests 

and offering much needed clarifications about key flexibilities in the TRIPS Agreement related to public health. Today, these flexibilities are being threatened by bilateral and regional trade agreements such as DR–CAFTA. 

The WTO TRIPS Agreement already establishes more than sufficient standards 

for IP protection in WTO member states. The promise of Doha is that the TRIPS 

Agreement can and should be interpreted and implemented in a manner ‘‘supportive 

of WTO members’ right to protect public health and, in particular, to promote access 

to medicines for all.’’ 8 DR–CAFTA threatens to make it impossible for the concerned 

countries to exercise the rights reaffirmed in Doha. 

If DR–CAFTA is fully enacted, IP provisions may block the use of affordable generic medicines, which will be a catastrophe for our patients and millions of others 

in the region with HIV/AIDS and other diseases. 

As a medical humanitarian organization, we cannot accept the subordination of 

the health needs of our patients and millions of others to U.S. trade interests. 

f 

225 

1 United States International Trade Commission, Investigations No. TA 2104–13. USITC Publication 3717, August 2004. 

[BY PERMISSION OF THE CHAIRMAN:] 

Statement of Farabundo Martı ́ National Liberation Party, San Salvador, 

El Salvador 

The Farabundo Martı ́ National Liberation Party (FMLN) of El Salvador, Central 

America, as the majority party in Congress, we write to you respectfully at this time 

to inform you about our position on the ratification of the Free Trade Agreement 

between El Salvador and the United States (DR–CAFTA). 

Free trade agreements contain many aspects that go beyond import-export issues 

to include a wide variety of topics such as investment, intellectual property rights, 

governmental purchases, services, competition policies, telecommunications, and the 

financial sector, worker rights, environmental issues among others. 

For small countries who subscribe to them, these agreements end up defining the 

framework for public policies. Regulations established in the chapters on intellectual 

property rights and investments, government purchases, and trade in services, 

which infringe on the sovereign jurisdiction of the State, by promoting the privatization of public services through concessions. 

If States are unable to define national economic policy and control strategic services, they will 

face serious limitations in their ability to assure the economic, social, and cultural 

rights of the great majority of the population of which 80% of households are in different levels of poverty. 

With the ratification of these agreements by our countries’ legislative branches, 

the agreements become the law of the land. El Salvador is then faced with an allencompassing instrument that legalizes the privileges of transnational corporations 

and turns them into rights. As this occurs the basic rights of workers, women, children and elders will be lost. 

The FMLN rejects the mercantilist logic of the ‘‘free trade’’ agreements. A critical 

analysis of the CAFTA texts reveals the many negative impacts of the agreement, 

which would have on the daily life of the people and ecosystems of our countries— 

especially on women and impoverished families—as national sovereignty is eroded, 

legal frameworks are corrupted, and the neo-liberal nature of public policy is reinforced. 

Defining free trade agreements as a synonym for economic growth, job creation, 

environmental protection, and wellbeing of the people is nothing but demagoguery 

aimed at generating a favorable opinion and the acceptance of neo-liberal policies. 

In fact, these policies cause a greater concentration of income and the wealth into 

the hands of transnational corporations and the wealthiest people of our lands. At 

this time, only 1 out of 3 people in El Salvador are permanently salaried employees. 

Given the projections from the United States, DR–CAFTA will massively increase 

the exportation in agriculture products which implies only for El Salvador, that in 

the first fourteen years of the agreement we will lose 400,000 permanent jobs only 

in the agricultural and textile industry.1 This will further increase poverty in El 

Salvador and all Central America and the Dominican Republic, therefore, democracy 

and political stability will continue to weaken and at the same time the migration 

will augment profusely from El Salvador and Central America. This has been proven with Nafta. 

The following is a summary of the principle reasons why we reject DR–CAFTA 

and why we ask the representatives of the United States Congress to do the same. 

1. The Mirage of Free Trade. Free trade is not possible within a context where 

a country like the United States relies on subsidized and protectionist measures for its own economy (especially to protect against imported agricultural 

products) while at the same time forcing other countries to open their economies indiscriminately to U.S. exports and capital. 

2. Unrecognized Asymmetries. There is an unwillingness to recognize the 

asymmetries that exist in our economies and businesses—especially micro, 

small, and medium-sized businesses—that operate at low levels of efficiency 

and are unable to compete. These asymmetries exist because of the lack of an 

effective policy of incentives, innovations, training, and access to financial services. They are heightened by deteriorating infrastructure and by constant and 

226 

2For concise clarity in the Asymmetries, refer to the graph annexed at the end of document 

substantial increases in the rates of telephone and electric services provided by 

transnational monopolies.2

3. Impediments to Migration. DR–CAFTA facilitates only the movement of 

‘‘business people’’ who work in large corporations, yet it does not incorporate 

or recognize the fundamental labor rights in El Salvador and Central America. 

This is a direct violation of the Salvador Constitution. 

4. Weakening of the State’s Social Obligations. The State is increasingly 

abandoning its obligation to assure the economic and social wellbeing of all of 

its inhabitants, favoring instead the interests of transnational corporations and 

foreign investment in new laws on tariffs, competition, labor rights, environment, quality of services and taxes, among others. 

5. Exclusionary and Anti-democratic Negotiations. Negotiations for these agreements are carried out in quasi-secret conditions, outside the control of citizens. 

The ratification of DR–CAFTA in El Salvador was done without the consensus 

of the Salvadoran people. Refusal to contemplate a serious debate within Congress lead to the lack of substantial research and evaluation on DR–CAFTA 

and it’s effect on the political, social, and economic impact in the country. Sectors that represent micro, small, and medium-sized businesses have been excluded from trade negotiations, as have workers, consumers, professionals, and 

other representatives of civil society. In the case of the uprising in Guatemala 

the population opposed openly DR–CAFTA and the response of the government 

was a repressive answer which concluded in violence. The similarity in the approval of DR–CAFTA in Guatemala, Honduras and El Salvador goes to show 

the anti democratic process to impose DR–CAFTA in Central America. 

6. No Assessment of Real Impact. None of the Central American countries has 

undertaken studies to evaluate the economic, social, environmental, and cultural impacts of CAFTA, to forecast the net balance in terms of jobs created 

and lost in the various sectors of the economy, or to measure the environmental, social, and cultural impacts of new investments. 

7. The Privatization of Public Goods and Services. This agreement creates 

ideal conditions for transnational corporations to become the owners of the remaining public enterprises and opens the door for services like water, security, 

health, education, museums, parks, highways, ports, and airports to become 

private monopolies or oligopolies. 

8. The Consolidation of the Maquila Development Model. Maquilas generate miserable and unjust conditions of employment, especially for young 

women, and corporations that take advantage of permissive legislation to abuse 

the rights of workers. Within the maquila model, the ability to compete depends on cheap labor and the use of contaminating and extractive technologies 

that help to lower production costs even further. So, even this sector has not 

adequately incorporated in DR–CAFTA the protection of Maquilas permanent 

future within the countries of Central America. The projections of the CBI 

countries will lose a market equivalent of 6.3 billion dollars with a massive loss 

of employment that only for El Salvador will imply 60,000 losses of permanent 

jobs. This is the result of the open market of the textile and garment industry 

from China. 

9. The Legalization of Bio-piracy and the Looting of Natural Resources. 

A permissive framework is established for transnational companies that work 

in biogenetics, biotechnology, the food industry, or chemicals and pharmaceuticals. Doors are further opened for our people to be victimized once again 

by the extraction of their natural resources, which now include plant species, 

micro-organisms, and traditional knowledge that could be ‘‘patented’’ by 

transnational corporations. 

10. A Coup de Grace to Agriculture and a Threat to Food Security. The 

elimination of tariffs as well as the invasion of agricultural goods subsidized 

in the United States will bankrupt local producers and cause irreversible 

damage to our capacity to produce our own food. The region will then become 

simply a market that trades basic goods for commercial reasons, even as the 

quality of the imported food (genetically modified) may seriously threaten the 

health of consumers. 

11. A Violation of the Constitution. Constitutionally established jurisdictions 

of the executive, legislative and judicial branches are being undermined in 

order to pass laws and policies compatible with DR–CAFTA. National territory is also undermined, as sovereignty up to 200 miles from shore would not 

be recognized. The Legislative Assembly has also been forced to ratify the 

agreements without the due deliberation required of this body. Finally, corVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00230 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
227 

1The complete CAFTA text is available at http://www.interaction.org/library/detail.php? 

id=2605 

porations are given the right to sue governments if government actions damage in some way their ability to make a profit. Citizens of our countries do 

not even have this right. 

12. Lack of access to Generic Medicine. There is a duplicitous conflict which 

results in the protection of the interest of the large biochemical corporations 

and the denial and lack of healthcare of the population in El Salvador and 

Central America. 

For these reasons, we oppose the passage of the Dominican Republic—Central 

America Free Trade Agreement (DR–CAFTA), and manifest the following: 

First: We call on the Salvadoran population and the people of Central America 

to increase their struggle against the governments’ willingness to turn the country 

over to powerful corporations. We call on them to strengthen the articulation of 

their organizing efforts and to present alternative proposals elaborated by civil society, with the participation of actors from various territories and sectors, in order to 

promote a true process of social integration among our peoples. 

Second: We propose the participatory construction of an alternative Central 

American integration plan (including Belize and Panama) that would promote unity; 

improve the quality of life of our peoples; guarantee full respect for human rights; 

guarantee sustainability in harmony with the ecosystem and with our multicultural, 

multi-lingual societies; and strengthen the sovereignty of our country. We stand 

firmly in favor of the integration of Central America with all of the peoples of the 

Caribbean and Latin America which DR–CAFTA denies. 

Third: We invite social and labor organizations of the United States—where more 

than two million of our brothers and sisters reside—to work with us to create an 

agreement an agreement for development which includes technical cooperation and 

a positive social and economic integration with the United States that emphasizes 

full respect for human rights; the free migration of persons; socio-environmental 

sustainability; fair trade; investments that transfer clean technologies and production processes; the cancellation of the foreign debt; and the payment of the ecological 

debt, in order to achieve a democratic, sustainable, and just society in Central 

America. 

Fourth: We ask all legislators to vote NO on DR–CAFTA and to work instead 

for the rights and interests of all people and for a regional integration that is just, 

sustainable, and mutually supportive. 

Fifth: In El Salvador DR–CAFTA was approved without any respect for our judicial process which violates our constitution. DR–CAFTA clearly violates the countries constitution and we have presented a law suit to the Supreme Court in El Salvador to declare DR–CAFTA unconstitutional. Congress Representatives were not 

allowed to debate the contents of DR–CAFTA and the President of the National 

Congress declared ‘‘although he wasn’t knowledgeable about DR–CAFTA he was 

going to allow approval of DR–CAFTA’’. 

San Salvador, April 11, 2005 

Diputado Salvador Arias, member of the Ad—Hoc DR–CAFTA Commission; Permanent Economic and Agricultural Commission and Permanent Finance Commission Member of the Steering Committee of the FMLN Fraccion 

f 

Statement of Maria Riley, Interfaith Working Group on Trade and 

Investment 

CAFTA Does Not Measure Up! 

Fair trade agreements are possible, and if accompanied with aid and investment, can play n important role in promoting development within the 

context of a more just society. Based on the following analysis the final 

CAFTA text, we join with American Friends Service Committee (AFSC) in 

concluding that, on balance, the CAFTA agreement does not serve the interests of justice and the common good. 

This document measures the proposed Central American Free Trade Agreement 

(CAFTA) 1 against the principles that are central to the Interfaith Statement on 

International Trade and Investment by the Interfaith Working Group in Trade and 

228 

2Full text available at: http://www.tradejusticeusa.org/about/eng-prin.htm 

3 Human Rights Watch. (2003) El Salvador: Government Ignores Widespread Labor Abuse 

CAFTA Must Include Strong Protection for Workers’ Rights. Dec. http://www.hrw.org/press/2003/ 

12/elsalvador120403.htm 

Investment (IWG).2 Critical provisions in the content of the final CAFTA text reveal 

that it does not advance the goals of a more just, sustainable and prosperous human 

society. 

BACKGROUND 

AFSC and other organizations in the IWG have worked for many decades in Central America and in the U.S. on issues that concern this region. Our work has been 

that of witness and listening to those with whom we work, providing them with the 

opportunity to speak to a wider audience and being present on their behalf when 

they cannot. In this work, we regularly provide information and analysis of complex 

economic justice issues and advocate with our partners for just economic policies. 

Given the failure of World Trade Organization (WTO) Ministerial talks in Seattle 

(1999) and Cancun (2003) to come to agreement, the U.S. government is now actively pursuing regional and bilateral trade agreements modeled on the North 

American Free Trade Agreement (NAFTA). After ten years, the accumulated evidence surrounding the NAFTA demonstrates that many dire predictions made by 

its opponents were not borne out. But on the other hand, it was clearly not the panacea some thought it would be. A growing number of experts are questioning whether the NAFTA model is the best template for future trade and investment agreements as many negative impacts are uncovered—most severely felt by small farmers 

and the poor. Since the CAFTA extends the harmful aspects of 

NAFTA rather than correcting them, the chances for fair, sustainable development in the region will be diminished. 

Even in the face of the emerging criticism of this model, U.S. policy has been to 

attempt to expand NAFTA to all 34 countries in the Western Hemisphere, excluding 

Cuba, in the Free Trade Area of the Americas (FTAA) agreement. But their efforts 

have met severe resistance. Brazil, Argentina, Venezuela and Bolivia are unwilling 

to accept the U.S. demand for a comprehensive FTAA agreement like NAFTA, and 

have instead been negotiating for a more flexible model that allows countries to opt 

in or out of different parts of the agreement. Not at all pleased with this strategy, 

the U.S. is now focused on passing the CAFTA in hopes of isolating Brazil and pressuring them to change their tactics. 

The CAFTA text was released to the public for the first time on January 28, 2004, 

two years after the start of negotiations. Although CAFTA has been ready to go to 

Congress since President Bush signed the agreement on May 28, 2004, supporters 

have held back due to a lack of votes needed to get it passed. 

Thanks to ‘‘Fast Track’’, Congress can only vote yes or no without amending the 

trade agreement. If CAFTA passes Congress in its current form, it will harm the 

most vulnerable in Central America, will be more comprehensive and intrusive upon 

national sovereignty than the NAFTA agreement, and if ratified, will become the 

model for future U.S. regional trade agreements. 

Visit www.afsc.org/trade-matters or www.tradejusticeusa.org for more resources 

on CAFTA 

EVALUATING CAFTA AGAINST THE INTERFAITH PRINCIPLES 

Below is an evaluation of the new CAFTA text against the principles from the 

Interfaith Statement on International Trade and Investment by the IWG and adopted by the AFSC Board in 2001. For each principle, one or two examples are provided 

to demonstrate how the CAFTA agreement is in violation. 

1) International trade and investment systems should respect and support the dignity of the human person, the integrity of creation, and our 

common humanity. 

We observe: 

In order to attract manufacturing jobs from multinational corporations, the 

human person and integrity of creation has been systematically violated as Central 

American countries allow practices that breach internationally recognized labor and 

environmental standards. A recent report by Human Rights Watch found workers 

in El Salvador export processing factories are often denied overtime pay, deprived 

by employers of their social security contributions, and systematically denied their 

right to freedom of association.3 CAFTA’s chapter 16 on labor only requires countries to effectively enforce their own labor laws, regardless of the fact that many 

229 

4The ILO core labor standards include the rights to freedom of association, collective bargaining, the elimination of forced labor, the abolition of child labor, and the elimination of discrimination. 5 U.S. Central American Free Trade Agreement, Art. 20.17. 

6This analysis came in part from Weissman, Robert. (2004) Dying for Drugs: How CAFTA 

Will Undermine Access to Essential Medicines. Essential Action, March. 7Growth has slowed to 1% on a per capita basis (from 3.2% during 1948–73), income disparities between the U.S. and Mexico has grown by 10.6%, and real wages have been falling at a 

rate of 0.2% a year. Stiglitz, Joseph. (2004) The Broken Promise of NAFTA. The New York 

Times, Op-Ed. Jan. 6 8Galian, Carlos. (2004) CAFTA: The Nail in the Coffin of Central American Agriculture. 

Oxfam International, March. 

are far below the International Labor Organization (ILO) core labor standards.4

Fines are the penalty mechanism used when parties cannot resolve the dispute over 

a country that failed to enforce its own labor laws.5 But this is likely to be ineffective because penalties are levied on governments of the countries where the violations occur, not the companies that violate. In fact, the fines that the governments 

pay would actually be paid back to themselves to fund ‘‘appropriate’’ labor initiatives. And nothing stops governments from shifting the amount equal to the fine out 

of the labor budget into the budget that paid the fine, effectively canceling out the 

fine. 

Also a threat to common humanity, CAFTA’s Intellectual Property Rights rules 

in Chapter 15 would grant exclusivity on medical test data to pharmaceutical companies for five years. This would have the effect of establishing a five-year patent 

monopoly and a ban on generic production of certain medicines.6 This would be the 

case even if the patent term have expired and even if countries have issued compulsory licenses that would otherwise allow them to produce and sell generics while 

a product is patented—making it difficult for Central American governments to obtain cheaper drugs to meet their public health needs. 

2) International trade and investment activities should advance the common good and be evaluated in the light of their impact on those who are 

most vulnerable. 

We observe: 

The final CAFTA agreement is closely modeled after the NAFTA and will have 

similar impacts on the poor and vulnerable. Although the agreement helped provide 

employment opportunities and improved standards of living for some, NAFTA has 

not fully measured up to the principle of advancing the common good. Nobel Laureate economist Joseph Stiglitz has described NAFTA’s impact on Mexico since the 

agreement passed ten years ago: poor Mexican farmers have faced an uphill battle 

in their effort to compete with highly subsidized American corn, local small-sized 

enterprises have lost access to credit from foreign-owned banks, growth has slowed, 

income disparities between the U.S. and Mexico grew and real wages have fallen.7

In an analysis of the CAFTA text by Oxfam International,8 they found that many 

Central American producers of basic grains, such as corn, rice, beans and sorghum, 

as well as poultry, pig, cow and dairy farmers, will be forced out of business by the 

flood of cheap subsidized goods coming from the U.S. The only products that will 

continue to receive protection under CAFTA are white corn in Central America, 

fresh onions and potatoes in Costa Rica, and sugar in the U.S. Because of the importation of highly subsidized U.S. yellow corn, prices in the region will likely suffer 

a dramatic drop, seriously affecting producers. As happened in Mexico, subsistence 

and small farmers will migrate off their lands to the already overcrowded urban 

centers experiencing high levels of unemployment. 

3) International trade and investment policies and decisions should be 

transparent and should involve the meaningful participation of the most 

vulnerable stakeholders. 

We observe: 

The negotiating text of CAFTA was never available to civil society until the negotiations were completed. Without creating negotiating mechanisms that include the 

participation of all who are affected, we cannot expect the outcomes to benefit them. 

In the U.S., Congress approved Trade Promotion Authority (TPA) also known as 

‘fast track’. This legislation gives the executive branch the power to negotiate trade 

agreements and leaves Congress with two options: vote yes or no. As a result, Congress cannot respond to constituents and influence or amend the agreement. 

230 

9 U.S. Central American Free Trade Agreement, Annex 9.1 Section G 

10Olson, Dennis. (2004) Central America Free Trade Agreement: Implications for Farmers in 

Both the U.S. and Central America. Institute for Agriculture and Trade Policy/ART, March. 11 U.S. Central American Free Trade Agreement, Art. 15.1 

4) International trade and investment systems should respect the legitimate role of government, in collaboration with divil society, to set policies 

regarding the development and welfare of its people. 

We observe: 

The CAFTA would prevent government procurement processes that give preferences to local firms in granting contracts—making criteria other than price and 

quality ‘unnecessary barriers to trade’. This means that the use of government contracts to promote gender equity, social justice and respect for human rights would 

be prohibited. For example, living wage legislation, which mandates that a municipality can only hire suppliers that pay their employees a living wage—higher than 

minimum wage and determined locally—would be undermined. Although the U.S. 

negotiated an exception for procurement policies on behalf of its own small and minority businesses—and Costa Rica and Nicaragua did the same for small, medium 

and micro enterprises—El Salvador, Guatemala and Honduras filed no such exceptions.9

The U.S. pushed for an investment agreement in the CAFTA that prohibits performance requirements intended to influence the behavior of foreign investors. As 

a result, governments cannot mandate that a foreign company buy a certain percentage of its inputs from a domestic producer or hire a certain percentage of local 

people. Historically, this was a common tool used by now developed countries to 

spur the growth of local industries. 

5) International trade and investment systems should safeguard the global commons and respect the right of local communities to protect and 

sustainably development their natural resources. 

We observe: 

The CAFTA rules in Chapter 15 on Intellectual Property Rights could be used to 

weaken national or international health and environmental standards. According to 

an analysis of the text done by the Institute for Agriculture and Trade Policy 10

CAFTA would require Central American countries to adopt the U.S. model of corporate patenting rights including ratification of the Union for the Protection of New 

Varieties of Plants (UPOV) of 1991.11 The UPOV allows for patents on plants that 

trump farmers’ traditional rights to save their own seeds. This would essentially 

permit multinational biotech corporations to sue farmers for patent violations, even 

when using their own seeds if crops become contaminated by pollen drift or distribution systems. 

CONCLUSION 

Guided by the principles of the Interfaith Statement on International Trade and 

Investment, fair trade in the Western Hemisphere is an achievable goal. With these 

principles incorporated into trade agreements, they could foster a more just, sustainable, and prosperous human society. In its current form, the CAFTA does not measure up to the principles articulated by the Interfaith Working Group on Trade and 

Investment (IWG) and adopted by the board of AFSC in 2001. For this reason, the 

IWG and AFSC take a stance against the CAFTA agreement in its current form. 

The following members of the Interfaith Working Group on Trade and Investment 

submit the attached testimony to the House Way and Means Committee Hearing on 

the Implementation of the Dominican Republic-Central America Free Trade Agreement (DR–CAFTA): 

American Friends Service Committee

Africa Faith and Justice Network

Center of Concern

Church World Service

Columban Missionaries Justice, Peace and Integrity of Creation Office

Congregation of St. Joseph, Cleveland

Congregation Sisters of St. Agnes Leadership Team

EPICA—Ecumenical Program in Central America

International Jesuit Network for Development

Leadership Conference of Women Religious

Maryknoll Office for Global Concerns

231 

Maryknoll Affiliates

Medical Mission Sisters: Alliance for Justice

Mennonite Central Committee U.S. Washington Office

Missionary Oblates of Mary Immaculate

Presbyterian Church USA, Washington Office

Sisters of Charity of Saint Augustine

Sisters of the Holy Cross Congregation Justice Committee

United Church of Christ—Justice and Witness Office

United Methodist Church, General Board of Church and Society

Women’s Division, Global Ministries, United Methodist Church

Washington Office on Africa

Witness for Peace

f 

Statement of Trina Tocco, International Labor Rights Fund 

The International Labor Rights Fund (ILRF) would like to thank the Committee 

on Ways and Means, U.S. House of Representatives for the opportunity to present 

testimony related to the Central America Free Trade Agreement (CAFTA). ILRF is 

deeply concerned about ongoing labor rights violations in Central America. We believe the agreement will force the developing nations of Central America to compete 

against one another to attract limited new U.S. investment by offering low wages 

and foregoing enforcement of labor and environmental laws. 

A strong and enforceable labor chapter might have served to mitigate this ‘‘race 

to the bottom.’’ However, as currently written, the CAFTA labor chapter will not 

serve to deter labor rights abuses, nor will it effectively deter national governments 

from downgrading their existing labor laws. Thus, as currently written, CAFTA can 

only lead to further degeneration of the labor rights situation in Central America, 

with no effective mechanism available to counteract downward pressures. 

Analysis of the CAFTA Labor Chapter Enforcement Mechanisms 

Although the CAFTA labor chapter refers to the ILO Declaration on Fundamental 

Principles and Rights at Work, the agreement does not bind any of its Parties to 

ensuring that internationally recognized worker rights are incorporated into national laws, or that they are properly enforced. The language of the agreement is 

merely aspirational, directing parties to strive to improve their laws, but providing 

no effective reward or sanction for countries in this regard. Indeed there is no language in the agreement that would prevent or sanction countries from reforming 

their laws in such a manner as to abrogate the internationally recognized worker 

rights. 

The agreement is thus a step backward from the earlier trade arrangements with 

each country under the Generalized System of Preferences (GSP) program. While 

imperfect, at least the GSP program does require beneficiaries to be able to demonstrate that they are taking steps to ensure that workers enjoy the internationally 

recognized rights to associate and bargain collectively, to abolish child labor, to abolish forced labor and to provide the right to decent wages and working conditions. 

In contrast, CAFTA merely requires countries to be enforcing their existing laws, 

however inadequate those laws may be. 

Given the history of the Central America region, we find it disingenous to suggest 

that these countries can be entrusted with enforcement of their own labor laws. 

ILRF and its partners throughout the region have conducted extensive research on 

labor law implementation in Central America, dating back to the late 1980s. During 

the past two decades ILRF has used this research to support GSP petitions related 

to Honduras, El Salvador, Costa Rica and Guatemala. ILRF and its partners conducted new research on labor law enforcement in the region in 2003 and 2004, and 

found evidence of systematic failures to enforce labor laws in all Central American 

countries. The systematic problems identified included a lack of political will at the 

highest levels, corrupt and inefficient labor ministries and courts, and intimidation 

and harassment of workers who attempted to utilize legal channels to protect their 

rights. The language of the CAFTA labor chapter, which, as we have mentioned, is 

largely aspirational, ignores the realities of legal enforcement in these countries. 

The single enforceable provision of the chapter, on labor law enforcement, does 

not give us reason to believe that governments will improve in this regard. The 

process for invoking a review of a country’s compliance is too weak, opaque and limited to create real change in labor law enforcement. The CAFTA labor chapter effectively sets the fox to guard the henhouse, by creating a review process that can only 

232 

be invoked by another government that is party to the agreement. Specifically, a 

review of one country’s labor law enforcement can only be triggered if another 

CAFTA country files a request for such a review. Given that there is an extremely 

poor pattern of law enforcement throughout the region, it is extremely unlikely that 

any one country would file a complaint against another, for fear of retaliation. In 

short the very mechanism of the CAFTA labor chapter creates the preconditions for 

a conspiracy of silence among all parties to the agreement on the issue of labor law 

enforcement. 

Civil society actors, in particular workers and their representative organizations 

have no means by which to affect this process. The process can only be triggered 

by a national government, and there is no mechanism created by which a civil society organization can petition its government to initiate such a review. Moreover, the 

agreement does not even provide the general public with information about the outcome of a review, should one ever take place. Thus there is no way that the general 

public in any of the CAFTA countries can ever know whether or not the review process, if ever invoked, actually resulted in any meaningful dialogue on the issues identified. 

In contrast, the existing GSP provides for a public review process. Any individual 

or organization can utilize this process, which is comparatively transparent and accessible, by filing a submission to the Office of the U.S. Trade Representative. 

Throughout the past two decades a handful of organizations, including ILRF, the 

AFL–CIO, and Human Rights Watch have researched and filed lengthy petitions 

documenting labor rights abuses in GSP recipient countries. Although not all of 

these cases were successful, nevertheless, the cases obliged both the U.S. Administration and regimes in the targeted countries to respond, point by point, to allegations of abuse. In Malaysia in 1991, an ILRF petition succeeded in convincing the 

Malaysian government to recognize union rights in the electronics sector. A 1996 

AFL–CIO petition on Thailand succeeded in pushing the Thai government to recognize the right of state enterprise workers to form trade unions. A 1997 petition 

against Cambodia, filed separately by both the AFL–CIO and ILRF, persuaded the 

Cambodian government to ratify a new Labor Code. This process, while admittedly 

limited in effectiveness, is at least superior to the CAFTA process in its relative 

public accessibility and transparency. The fact that the existing GSP process will 

be replaced by the weaker CAFTA review mechanism will create further disincentives for the CAFTA governments regarding improvement of their labor laws and 

labor law implementation. 

Failure to Guarantee Non-Discrimination 

While the CAFTA labor chapter references the ILO Declaration on Fundamental 

Principles and Rights at Work, it fails to include any obligation of governments, 

even aspirational, with regard to the right to a workplace free from discrimination. 

This right is universally recognized as a core labor right and defined in ILO Conventions No. 100 and 111. We note that a large percentage of the workers expected to 

find employment in export-oriented sectors, such as the maquila industry, are 

women. Our research and that of our allies has found that these women workers 

are subject to discrimination through, among other problems, pregnancy testing as 

a precondition for employment, sexual harassment on the job, and non-provision of 

maternity leave benefits. In most instances they have limited legal recourse, and 

often are subject to social and economic pressures that make it in reality impossible 

to claim what legal protections they may have on paper. 

We urge Congress to insist that CAFTA and any future trade agreements reference the essential right to a workplace free from discrimination. Such a clause 

would help bring the attention of developing countries throughout the world to the 

plight and problems of vulnerable women workers. 

Downward Pressure on Labor Laws and Legal Enforcement in Central 

America 

In December 2004, ILRF and ASEPROLA, a Costa Rican labor rights NGO, cofiled GSP petitions against five Central American countries. We found that, despite 

the U.S. Trade Representative’s public claims to the contrary, even during the period of CAFTA negotiations, Central American countries, preparing for competition 

with one another for limited U.S. investment, were taking steps to downgrade their 

labor laws. USTR has not yet responded to the request for review of these countries’ 

GSP privileges, and if CAFTA is ratified, then no such review will ever take place. 

We note below some instances, documented in these petitions, of legal reforms that 

would weaken worker protections in the region. 

Costa Rica: During the CAFTA negotiations, the Costa Rican government has 

taken steps to weaken existing national labor protections. In early 2004 the governVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00236 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
233 

ment introduced a project to reform the country’s labor code. In particular, proposed 

legislation would modify working hours through a year-long calendar of work shifts 

and the weekly accumulation of working hours, eliminating the standard eight-hour 

workday. The proposed legislation would also eliminate the rights to mixed and absolute overtime hours, as it would allow employers to increase work hours at times 

of high demand, and lessen work hours in times of low demand. When introducing 

this legislation to the Costa Rican parliament, the government argued that such 

flexibilization of working hours and overtime rules was necessary in order to allow 

Costa Rica to remain competitive with the other Central American countries once 

the CAFTA was ratified. Public pressure on the Costa Rican government resulted 

in some modifications to the proposed legislation, which has not yet been introduced 

to the legislature. 

El Salvador: The emergency law for economic reactivation (LERE), which was introduced to the Assembly in 1999, has continued during the period of CAFTA negotiations to work its way through the legislative process in El Salvador. If approved, 

LERE would modify salaries and working shifts, and increase the allowed length 

of a trial period for new workers and the use of fixed-term contracts. These changes 

affect benefits currently guaranteed by labor law, including vacations and social security. The current Labor Code includes indefinite contracts and a 30-day test period (during which time the contract can be terminated). LERE would make fixedterm contracts and 180-day test periods the norm, which means that the social security payments for these workers are not made for almost 6 months. This drastically 

increases job instability, making it easier for employers to make workers work overtime without extra pay, and to dismiss workers without paying penalties or benefits. 

El Salvador is also considering new legislative measures that would weaken existing 

health and safety regulations. 

Panama: There is some evidence that Panama has continued to weaken its labor 

law regime during the past two years when it has been involved with trade negotiations with the U.S. (While not a CAFTA country, Panama has been negotiating a 

separate bilateral agreement with the U.S., with discussions regarding the possibility that Panama would ‘dock on’ to CAFTA). In February 2002, a new regulation 

was passed that provides incentives to companies to hire ‘‘young workers’’ between 

the ages of 18 and 25. The incentives include temporary exoneration from certain 

legal protections for these workers. In particular, the regulations suspend the protections of certain articles of the Labor Code for such workers, in particular the protections for maternity benefits. Other reforms are in progress, although they have 

not yet been presented to the Panamanian parliament. These include an initiative 

to modify the Labor Code to eliminate minimum wages altogether, and a proposal 

to reform the country’s social security benefits to increase the retirement age, 

quotas, and years of contribution to the system. The proposed social security reforms 

are expected to be presented to the Panamanian parliament in early 2005. 

Honduras: In its petition, ILRF and ASEPROLA noted that the USTR has failed 

to implement the terms of a Memorandum of Understanding negotiated with the 

Honduran government as a result of a 1995 GSP complaint. The MOU, if implemented would have resulted in important changes to Honduran labor law and its 

labor inspections system. Rather, the CAFTA negotiations have tacitly discouraged 

the Honduran government from implementing those commitments and created perverse incentives for labor law reform. Currently, the Honduran Ministry of Labor, 

working with employers’ groups, is promoting a project to modify the labor law with 

reforms that would generalize fixed-term contracts. It would also make the payment 

for severance payable only on an annual basis so that it would not be possible to 

create special funds with these monies. A policy of freezing salaries continues, and 

Honduran employers are increasingly delaying negotiations with workers. 

Guatemala: In 2003, USTR accepted for review GSP petitions filed by ILRF and 

by the AFL–CIO to review Guatemala’s country eligibility based on its failure to uphold internationally recognized worker rights. These petitions cited the judicial impunity with regard to threats and violence against trade unionists in Guatemala, 

the systematic failure of the government to enforce existing labor laws, and the need 

for further reforms to the country’s labor laws in order to bring it into full compliance with international standards. The new ILRF/ASEPROLA petition states that 

the review has failed to bring about meaningful progress in these three areas. The 

labor code reforms passed in 2001 did not bring Guatemala’s labor practices up to 

acceptable standards, and some of these reforms have been reversed by Guatemala’s 

Constitutional Courts. A number of promised legislative reforms have never materialized. 

234 

A Better Alternative 

ILRF strongly urges that any new trade agreement with Central America contain 

a strong, transparent and enforceable labor rights mechanism. Sustained economic 

development will elude a vast majority of the populations of the Central American 

countries without such a mechanism. 

The key elements of a workable enforcement mechanism to apply upon the failure 

of a national enforcement system can be easily stated. First and foremost, any enforcement process must be democratic and transparent. A major criticism of the 

WTO enforcement panels is that they are closed to the public and operate in secrecy. CAFTA replicates this secretive model. All processes involving enforcement 

must be fully transparent, including a written public record of all proceedings and 

open hearings. There also needs to be a clear appeals process. 

Second, access to the enforcement process must be available to all interested parties, not just the government signatories to the trade agreement. The key constituency here is the workers themselves, most of whom are not currently represented 

by a trade union. They must have direct access to an enforcement process. Also, 

other stakeholders, such as NGOs and labor organisations, must have access to the 

process. 

Third, the enforcement process must make a distinction between violations that 

are attributable to private actors, including multinationals, and therefore require 

remedies more in the line of penalties, and those that are attributable to governments, and might be better addressed by trade sanctions. Penalties directed at companies, with the cooperation of the host government, will resolve most problems. 

This also leaves problem solving within the firm control of the individual governments and allows them to act to prevent any protectionist use of the enforcement 

process. If a country ultimately refuses to enforce its own laws, as per the commitment made in its own laws and the international standards, there must be a system 

of penalties to encourage compliance, with the ultimate sanction being exclusion 

from the benefits of the trade agreement. 

Finally, in keeping with the ILO standards, a model labor clause in CAFTA or 

any other trade agreement must include language recognizing the right of workers 

to a workplace free from discrimination, as defined by ILO Conventions No. 100 

and 111. 

f 

Statement of Mark Berlind, Kraft Foods, Inc., Northfield, Illinois 

Mr. Chairman, Members of the Committee, I am Mark Berlind, Executive Vice 

President, Global Corporate Affairs, Kraft Foods, Inc. Thank you for allowing me 

to submit this statement on the U.S.-Central America-Dominican Republic Free 

Trade Agreement (CAFTA–DR). Trade is an issue of vital importance to Kraft, our 

50,000 U.S.-based employees, our stakeholders, other U.S. food manufacturers, and 

thousands of American farmers who supply high quality raw materials to the U.S. 

food processing industry. 

Kraft Foods, which recently celebrated its one hundredth anniversary, traces its 

origin back to the days when James L. Kraft rented a horse and wagon and started 

selling cheese in Chicago. The company he founded and built is now the largest 

branded food company in the U.S. and the second largest in the world. Last year, 

Kraft reported net revenues of over $32 billion from sales in 155 countries. 

The Chicago area is still our home, and America remains our biggest market. 

Kraft products can be found in 99% of American households. In addition to our flagship cheese brands, we take pride in producing and marketing many other iconic 

food and beverage brands, including Ritz crackers, Post cereals, Maxwell House coffee, DiGiorno pizza, Oreo cookies, Planters nuts, and Oscar Mayer meat products. 

Kraft is essentially in the business of transforming raw or semi-processed farm 

commodities into consumer-ready products. On a global basis, Kraft buys $7 billion 

worth of agricultural commodities annually. We are one of the world’s largest buyers 

of dairy products, sugar, meats, coffee, oils, and nuts. We also purchase large quantities of wheat, rice, corn, and soy and other crops. 

Last year, for use in our U.S. manufacturing facilities, we bought $3.6 billion 

worth of farm commodities. This included $1.3 billion worth of dairy products, nearly half a billion dollars worth of pork, and almost one quarter of a billion dollars 

worth of sugar. 

We believe that the growth and success of Kraft and the strength of our brands 

is directly linked to the emphasis we place on providing consumers with high qualVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00238 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
235 

ity, good-tasting, convenient and fun products at the right price. This involves a constant challenge to provide better products to our customers at the best value. 

The 50 U.S. states are currently Kraft’s largest market. Given U.S. demographic 

realities, however, future growth for Kraft—as well as for the entire U.S. food and 

agriculture complex—is inextricably tied to our ability to access export markets. Mr. 

Chairman, as you and most other farm state Members know, 95 percent of the 

world’s consumers live outside the U.S. That is where future growth will take place. 

Kraft and Entire U.S. Food Industry Would Benefit from Access to CAFTA–DR 

Markets 

There are about 46 million consumers living in the six CAFTA–DR countries 

(Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic). With moderate population growth, rising incomes, and improved diets, demand for U.S. processed foods is expanding. 

For U.S. food and agricultural producers, in particular, population age and growth 

are among important indicators of market potential. For comparison purposes, the 

median age of the U.S. population is 36 years, and rising. Median ages for our six 

prospective CAFTA–DR partners are dramatically younger, ranging from 18.4 years 

in Guatemala to 25.7 years in Costa Rica. And, while the U.S. population is growing 

at a rate of less than one percent (.92%) annually, rates for the six countries range 

from 1.33 percent for the Dominican Republic to 2.61 percent for Guatemala. These 

numbers have striking implications for projected levels of food consumption inside 

the U.S. vs. within the six CAFTA–DR countries over the foreseeable future. 

In general, U.S. exports of processed food products already capture roughly one 

quarter of total food imports into the six countries, and U.S. brands—including a 

number of well-known Kraft brands—are popular throughout the region. Already, 

exports of many processed food products are growing faster than other agricultural 

products. We are convinced CAFTA–DR would make Kraft products even more competitive, and more popular, in the region. 

Cereals, Cookies, Soups, Pet Food Would Benefit from Immediate Tariff Relief 

Food, beverages, and consumer products currently face an average ad valorem tariff of 15 percent in the five CAFTA countries and 20 percent in the Dominican Republic (DR). Some food products like processed cheese and cream cheese—products 

of special interest to Kraft—face tariffs that range up to 66 percent in some CAFTA 

countries. Under the Agreement, tariffs on U.S. exports of most food and beverage 

products would be reduced to zero over fifteen years. Certain products, such as 

breakfast cereals, cookies, and pet food products would receive immediate duty free 

treatment. This means Kraft would benefit immediately on products like our Post 

breakfast cereals, Oreo cookies, and Milk Bone pet foods. 

The DR is currently the largest market of the six for Kraft products. And, that 

market could be much larger if it were not constrained by the most daunting tariffs 

we face in the region. During 2004, Kraft shipped nearly 700 tons of food products, 

worth $1.7 million, to the DR. This included 192 tons of Kraft Mayonnaise, 65 tons 

of Oreos and Chips Ahoy cookies, and 62 tons of Kraft Macaroni and Cheese. While 

the DR technically maintains a tariff of 20 percent on most food products, other 

added import charges lift the total effective rate to 33 percent. Consequently, it cost 

Kraft over a half million dollars in tariffs to enter the products we shipped to the 

DR in 2004. Much of this cost would be passed forward to the DR consumer. Because it is fundamental that the higher the price, the less the consumer buys, there 

is no question that the present 33 percent effective DR tariff retards sales of Kraft 

and other imported U.S. food products. Elimination of tariffs would boost sales and 

could encourage the introduction of new product lines. 

Others have already stressed that the U.S. charges no tariffs on nearly all of the 

food and agriculture products received from the CAFTA–DR countries. From Kraft’s 

perspective, CAFTA–DR would simply level the playing field, and create a more equitable trading relationship. 

Solid Prospects for Export Growth in Processed Foods 

A recent study by the Grocery Manufacturers of America (GMA) estimated that 

the potential savings to the processed food industry from the tariff reductions and 

tariff-rate quota expansions provided for under CAFTA–DR would be nearly $8.8 

million in the first year of the Agreement. This figure grows to nearly $28 million 

annually upon full implementation of the Agreement. Upon elimination of tariffs, 

food exports could, according to this study, increase from $359 million to $662 million—an 84% increase over current exports to the region, according to the GMA 

study. 

During 2004, the value of shipments of Kraft consumer products from the U.S. 

into the six CAFTA–DR countries totaled $10.6 million. Well over $2 million in tarVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00239 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
236 

iffs were paid to enter these goods. Full implementation of the Agreement would, 

of course, eliminate tariffs on all of our sales to the region. While we expect significantly increased sales associated with implementation of the Agreement, we have 

not projected expected growth in sales of Kraft products. Ultimately, the greatest 

benefits to Kraft may come in cheese categories—a sector of the CAFTA–DR market 

where we now often face insurmountable barriers. The GMA growth forecast could 

very well be conservative. 

Agreement Should Remain Comprehensive—No Exclusions 

One of the most important features of the Agreement for Kraft and for the entire 

U.S. processed food industry is its comprehensiveness. All products are included in 

the Agreement, including sugar, a key ingredient for Kraft and for many food and 

beverage manufacturers. The Agreement provides for increased access to lowerpriced Central American and DR sugar, but in a very modest way that fully recognizes the sensitivity of this commodity in our country. 

Kraft is a strong supporter of trade liberalization and a vigorous advocate for this 

and most other trade agreements. We believe such agreements create opportunity 

and are good for our employees, our stakeholders, our industry, and our country. 

The food industry believes that no products should be excluded from FTA’s negotiated between the U.S. and other countries. We—and most of the U.S. food industry—did not support the U.S.-Australia FTA because sugar was excluded. We’re convinced that—as the Australian experience proved—the exclusion of any single commodity from free trade agreements because of our import sensitivities provides our 

trading partners with an excuse to take their import sensitive issues off the table 

as well. This downward spiral in ambition jeopardizes the very benefits that our 

economy derives from free trade. In the case of CAFTA, we would expect that an 

attempt to re-negotiate sugar would, at a minimum, erode benefits for other U.S. 

agricultural commodities, possibly dairy and poultry, but more likely this would 

cause the entire delicately balanced Agreement to unravel. 

As a country that enjoys the world’s strongest economy, our message to other 

countries simply can’t be that we’re only interested in free trade in those goods and 

services for which we maintain a competitive advantage. I am here today to express 

Kraft’s strong endorsement of this Agreement in its entirety, even though some benefits for U.S. exporters will literally take years to be realized. However, if there 

were to be a decision subsequent to this hearing that upsets the delicate balance 

that the negotiators reached in order to forge an agreement by taking specific commodities off the table—including nullification of the current sugar provisions—Kraft 

would have a very difficult time continuing to support this pact. 

As I noted earlier, Kraft is a major buyer and user of sugar. Since a penny change 

in the U.S. per pound price of sugar means $8 million annually to Kraft, we regard 

ourselves as a major stakeholder in the sugar program debate. We recognize the 

need to preserve a viable domestic sugar industry. The current support scheme, 

however, essentially imposes a regressive tax on U.S. consumers of sugar-containing 

products. According to U.S. submissions to the WTO, the tax transfers a trade-distorting subsidy of over $1 billion annually to U.S. sugar growers. This is money that 

comes directly out of consumers’ pockets. 

Kraft favors safety net assistance to agricultural producers, including sugar. 

There is broad agreement that CAFTA–DR, provides more protection for sugar than 

for any other commodity, while at the same time adhering to the principle that 

every commodity needs to be addressed—even if minimally—in free trade agreements. The overall compromise that the negotiators reached on these difficult issues 

needs to be preserved. 

CAFTA–DR, like all trade agreements, is fundamentally a political agreement. As 

all of you know, political agreements involve compromise and are rarely perfect from 

all perspectives. While Kraft supports this Agreement, there are elements of the 

pact we, too, wish were different. For example, it would take 20 years for CAFTA 

tariffs on cheese and other dairy goods—products of keen interest to Kraft—to reach 

zero. Twenty years is the longest tariff phase-out period in the entire Agreement 

and the longest tariff phase-out the U.S. has accepted in any trade agreement. On 

the import side, the increases for sugar are very small and the over-quota tariff on 

sugar is never eliminated—another feature of this Agreement unique to sugar. 

Though not perfect, we regard this as a good Agreement for us on balance, and we 

are determined to do all we can to advocate that it is implemented as negotiated. 

Critical Non-Commercial Considerations 

While we believe that there are adequate commercial reasons to approve this 

agreement, there are additional factors that should be considered in evaluating this 

issue. As I noted earlier, Kraft is already active in these countries. Not only do we 

237 

have customers in these markets, we have employees and shareholders in the region. We are aware that business and industry leaders in these countries are eagerly looking forward to forging a new and stronger trade relationship with the U.S. 

Kraft believes that CAFTA–DR would strengthen our mutual competitiveness, enhance political stability and contribute to the security of the entire North American 

continent. 

Leaders of these six nations appear to be fully committed to economic development, including the dismantlement of trade barriers. If the United States is unwilling to support and partner with them, the reality is that they would find other 

eager partners, ceding these key and growing markets to others and further 

disadvantaging U.S. businesses, employees, ranchers and farmers. 

Finally, we believe that Congress should seriously consider the effect of its decision regarding CAFTA–DR on the credibility of U.S. negotiators. Failure of Congress 

to approve legislation to implement CAFTA–DR would dash the credibility of our 

trade negotiators and cast a chill over all ongoing U.S. trade negotiations. The perception of our trading partners would be that commitments made by U.S. negotiators cannot be trusted and that the U.S. is abandoning the leadership position 

it has held on trade since the end of World War II. 

Kraft strongly supports CAFTA–DR. We urge the Committee and the Congress to 

vote for legislation that would implement this critically important agreement. 

f 

Statement of Gabriela Lemus, League of United Latin American Citizens 

Thank you for the opportunity to share my organization’s views on the proposed 

Central America Free Trade Agreement (CAFTA). I submit my statement for the 

record. 

With approximately 115,000 members throughout the United States and Puerto 

Rico, the League of United Latin American Citizens (LULAC) is the largest and oldest Hispanic Organization in the United States. LULAC advances the economic condition, educational attainment, political influence, health and civil rights of Hispanic 

Americans through community-based programs operating at more than 700 LULAC 

councils nationwide. The organization involves and serves all Hispanic nationality 

groups. 

LULAC strongly supports enhanced economic opportunities for Hispanic Americans, and we have been supporters of trade agreements in the past, including the 

North American Free Trade Agreement (NAFTA) over a decade ago. Today, however, we oppose the expansion of NAFTA to five additional Central American countries and the Dominican Republic through CAFTA. 

Eleven years ago, we were promised that NAFTA would offer economic gains for 

U.S. Latinos and development for Mexico, that NAFTA side agreements would help 

raise labor and environmental standards on both sides of the border, and that substantial funds would be provided for U.S.-Mexico border clean-up efforts. 

None of these promises have been kept. Instead, Hispanics have been disproportionately negatively impacted by these trade agreements. All told, nearly a million 

U.S. jobs have been lost in the United States due to NAFTA trade. The tragedy for 

Hispanics is that, according to a Government Accountability Office study, in some 

years as many as half of the workers displaced by NAFTA trade have been Hispanics, as Hispanics have consistently accounted for more of the Trade Adjustment 

Assistance certifications than their share of the U.S. population. Moreover, Hispanics have shared in the experience of most U.S. working families in seeing the 

median real wage scarcely grow since the 1970s, while productivity has grown over 

80 percent and income inequality has skyrocketed. 

The deterioration of economic opportunity has extended to the other side of the 

border as well. In Mexico, 1.5 million farmers have been thrown off of their land 

as a result of NAFTA trade, while the Mexican minimum wage has lost nearly a 

fifth of its value and industrial wages a tenth of theirs. Mexicans’ income growth 

has been particularly disappointing, not even a third of what they had prior to their 

period of trade liberalization. The real tragedy for development is that if the Mexican economy had continued to grow at its historic pace, Mexicans would have doubled their living standard by now and enjoyed near European living standards. 

CAFTA would replicate the same anti-development model. 

At a minimum, LULAC and others that supported NAFTA were promised that 

any damage that might come about as a result of the agreement would be mitigated 

by the pact’s labor and environmental side agreements. But these side agreements 

were left severely under funded and were never given real enforcement power. In 

238 

short, they lacked the teeth to truly help improve and ensure the quality of life on 

both sides of the border. 

The results of the San Diego-Tijuana Environmental Health Coalition’s (EHC) 

landmark case concerning the Mexican government’s refusal to clean up toxic waste 

left by an abandoned Tijuana factory, Metales y Derivados, is instructive. EHC’s 

claim was processed and won through the adjudication procedures of the North 

American Commission for Environmental Cooperation (NACEC), which was created 

by NAFTA’s environmental side agreement.However, despite the ruling, the NAFTA 

side agreement commission could not compel the cleanup of the more than 7,000 

tons of toxic waste, which still lie exposed to the elements just a mile from the U.S. 

border. There have been a series of cases under NAFTA’s investment rules in which 

corporations have been awarded cash compensation from governments based on 

claims of violations of their NAFTA-granted investor rights. In contrast, the only 

outcome of EHC’s citizens-claim was a report from the commission acknowledging 

that there had been a violation, with no other result or penalty. 

Other examples of NAFTA failure abound. The North American Commission on 

Labor Cooperation (NACLC), the tri-national NAFTA body that was supposed to ensure that countries enforced their own labor laws, never received its full funding. 

In fact, out of the $2 million a year in U.S. contributions that was authorized to 

be appropriated in the NAFTA implementing legislation, only a third was ever actually disbursed. This is a real tragedy given that even the authorized amount was 

woefully insufficient. Furthermore, the labor side agreement had such a cumbersome process for getting a review of labor rights violations that, as of today, 30 

submissions has been made under the labor agreement, none of which have made 

it past the earliest stages of review, report and intergovernmental consultation. Not 

a single illegally fired worker has been reinstated, not a single independent union 

has been established and bargained collectively, and not a single workplace hazard 

has been corrected as a result of NAFTA and the NACLC. 

Things were not much better for the NAFTA promises made for the border envi- ronment. Estimates for clean-up on the U.S.-Mexico border range from $8 to 21 billion, or six times the entire capital of the North American Development Bank 

(NADBank), established as a part of the NAFTA implementing legislation. But even 

the minimal promise was not kept. In fact, the U.S. Treasury Department reports 

that the NADBank had only directly loaned $23.5 million in low-interest loans to 

finance projects over its first seven years of operation, and disbursed only $11 million of that money—or less than 0.4 percent of its lending capacity— in large part 

because of the inability of impoverished border communities to afford the high interest rates and user fees. 

The promise that NADBank would dedicate ten percent of its capital to helping 

communities adjust to trade was also dramatically broken, as the bank’s domestic 

adjustment window has made direct loans totaling only $7.84 million, or just over 

two percent of the $300 million envisaged. 

It is this history of failure to achieve the minimum of what was promised that 

informs LULAC’s opposition to CAFTA. These unsuccessful policies have led to a 

doubling of undocumented migration to the United States from Mexico since NAFTA 

was enacted, and increased U.S. border policing and militarization that have led to 

more than 2,700 deaths from failed border crossings in desperate attempts to seek 

the American dream. We are concerned that CAFTA will preclude and prevent real 

and much needed economic and social development. 

In this regard, one ought to notice CAFTA’s enhanced monopoly protection for 

brand name pharmaceuticals, a provision which led the U.S. Administration to directly pressure Guatemala to rescind a public health law expanding access to generic, low cost medicines. For many of the Central American countries, who experience relatively high rates of infant mortality and exposure to infectious diseases, 

such a provision is morally unacceptable. 

We are also concerned that the welfare of women, children and their families will 

be worsened under a CAFTA. Human Rights Watch has amply documented the 

labor standards of Central American countries, which fail to meet ILO standards 

and include instances of child labor on sugar plantations and the abuse of pregnant 

women in the export processing zones. LULAC has consistently spoken out against 

the abuses against women in the maquila industry on the U.S.-Mexico border, 

where violence and even disappearances of women have soared since NAFTA has 

taken place. The toothless labor provisions of CAFTA—like those of NAFTA before 

them—will hinder the efforts of civil and human rights groups to seek meaningful 

solutions to these problems. 

In short, LULAC believes that what Hispanics need is economic opportunity, and 

what Latin America needs is development. There is no evidence that this model of 

trade agreement, nor its side accords, have contributed in any way towards attainVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00242 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
239 

1The ‘‘core’’ industries are those industries whose primary purpose is to produce or distribute 

copyright materials. These industries include newspapers, book publishing, recording, music, 

and periodicals, motion pictures, radio and television broadcasting, and computer software (including business application and entertainment software). 2The ‘‘total’’ industries are composed of four groups called the core, partial, non-dedicated support, and interdependent sectors. 

ing this goal in the past, and there is no reason to think it would do so in the future 

with Central America. The track record is clear: the NAFTA/ CAFTA model has 

failed. 

Finally, much has been made about CAFTA serving as a lifeboat for the Central 

American textile and apparel industry in the face of enhanced Chinese competition 

in following the global quota expiration. We know that the U.S., Mexican and Central American industries have indeed already lost much production to Asia. This 

loss will continue due to China’s cost advantage—even after one accounts for shipping and tariff costs—over other regions. The NAFTA/ CAFTA model does nothing 

to change this reality. It offers a promise which it can never fulfill. 

Central America already has duty-free access to the U.S. market under the Caribbean Basin Initiative (CBI), and in CBI there are stronger incentives to use the U.S. 

inputs that Hispanics in the U.S. textile industry help produce, along with stronger 

mechanisms to force labor standards improvements in Central American countries. 

While some have suggested that the ability of the United States to impose safeguards on Chinese imports offers a relative advantage to the Central American apparel industry, U.S. law allows these to be applied only until 2008. The anti-development bias in the NAFTA/ CAFTA model, however, would last forever. 

After three lost decades in terms of real gains in U.S. family incomes and Latin 

American growth rates, the cause of economic development and civil rights are best 

served without more of the same under CAFTA. 

f 

Statement of Dan Glickman, Motion Picture Association of America 

On behalf of the Motion Picture Association of America (MPAA) and the Entertainment Industry Coalition (EIC), of which MPAA is a member, I would like to 

take this opportunity to thank the committee for holding this hearing on the U.S.- 

Dominican Republic Central America Free Trade Agreement (DR–CAFTA). The DR– 

CAFTA creates new opportunities for America’s entertainment industries and workers in terms of U.S. jobs and exports. This agreement also establishes important 

precedents for future Free Trade Agreements (FTAs) to be negotiated with other 

countries. 

The MPAA is a trade association representing the interests of seven of the largest 

producers and distributors of films, home video entertainment and television programs. Its members are Buena Vista Pictures Distribution; Metro-Goldwyn-Mayer 

Studios Inc.; Paramount Pictures; Sony Pictures Entertainment Inc.; Twentieth 

Century Fox Film Corporation; Universal Studios from Universal City Studios; and 

Warner Bros. Entertainment Inc. 

The EIC is a coalition representing trade associations, guilds, a labor union and 

companies that produce, distribute and exhibit films, recorded music and video 

games. The coalition’s members include the MPAA, the Recording Industry Association of America, the National Association of Theater Owners, Independent Film & 

Television Alliance and the Electronic Software Association. 

Importance of the Copyright Industries to the U.S. Economy 

The copyright industries reach across all fifty states and into almost every corner 

of the globe. The innovation and creative works they produce not only entertain us 

and make our lives easier; they represent an enormous engine of economic growth, 

prosperity and job opportunity. In 2002, the U.S. ‘‘core’’ copyright industries 1 accounted for an estimated 6% of the U.S. gross domestic product ($626.6 billion), and 

employed 4% of U.S. workers in 2002 (5.48 million workers). Between 1997–2002, 

the core copyright industries added workers at an annual rate of 1.33%, exceeding 

that of the U.S. economy as a whole (1.05%) by 27%. Factoring out the difficult economic year of 2002, between 1997–2001, employment in the core copyright industries grew at an annual growth rate of 3.19% per year, a rate more than double the 

annual employment rate achieved by the U.S. economy as a whole (1.39%). 

In 2002, the U.S. ‘‘total’’ copyright industries 2 accounted for an estimated 12% of 

the U.S. gross domestic product ($1.25 trillion) and employed 8.41% of U.S. workers 

240 

(11.47 million workers). This level approaches the total employment levels of the entire health care and social assistance sector (15.3 million) and the entire U.S. manufacturing sector (14.5 million workers in 21 manufacturing industries). 

In 2002, the U.S. copyright industries achieved foreign sales and exports esti- mated at $89.26 billion, leading other major industry sectors such as: chemicals and 

related products, food and live animals, motor vehicles, parts, and accessories, and 

aircraft and associated equipment sectors. 

Protecting the copyright industries and the intellectual property they are based 

upon goes hand in hand with protecting the U.S. economy and job market. To that 

end, the DR–CAFTA provides for better intellectual property (IP) protections and 

more improved market access than the industry has seen in previous agreements. 

Central America and the Dominican Republic are currently pirate markets for the 

MPAA’s member companies; this agreement would go a long way toward establishing legitimate markets and will help set the stage for effective enforcement of 

intellectual property laws. Moreover, the DR–CAFTA will set higher standards of 

IP protections and market access in future trade agreements. 

TRIPS Plus Provisions For IP Protections In The Digital Economy 

The DR–CAFTA builds on the framework of copyright protections provided by the 

World Trade Organization’s agreement on trade related intellectual property. The 

signatories of the DR–CAFTA agree to implement the WIPO Internet Treaties, 

which provide world-class IP standards on treatment of digital copyrighted material, 

upon entry into force of the Free Trade Agreement. This establishes strong anti-circumvention provisions to prohibit tampering with technologies that are designed to 

prevent piracy and unauthorized distribution over the Internet. It also ensures that 

copyright owners have the exclusive right to make their works available online, and 

it provides an expeditious process that allows for copyright owners to engage with 

Internet Service Providers and subscribers to deal with allegedly infringing copyright material on the Internet. In addition, DR–CAFTA protects copyrighted works 

for extended terms, in line with emerging international trends. 

Strengthened IP Enforcement 

The DR–CAFTA offers strengthened intellectual property enforcement in several 

ways. The agreement increases in criminal and civil protection against the unlawful 

decoding and distribution of encrypted satellite TV signals, and it criminalizes enduser piracy, providing strong deterrence against piracy and counterfeiting. It requires both parties to authorize the seizure, forfeit, and destruction of pirated products and the equipment used to produce them and also provides for enforcement 

against goods-in-transit, to deter violators from using ports or free trade zones to 

traffic in pirated products. In addition, it includes agreed criminal standards for 

copyright infringement and stronger remedies and penalties. 

Broadcast Policy 

The members of the MPAA have had a long-standing and serious problem with 

broadcast piracy—the unlicensed and illegal retransmission of broadcast signals— 

in the Dominican Republic. However, an August 5, 2004 side letter to the DR– 

CAFTA agreement already provides a strong commitment to eliminate broadcast piracy by the Government of the Dominican Republic. One favorable judgment against 

a notorious pirate broadcaster was received late last year. 

Zero Tariffs On Entertainment Products 

The Agreement committed to zero tariffs on all movies, music, consumer products, 

software, books and magazines that our companies export into the countries. It also 

reaffirmed that customs duties are based on the value of carrier media and not the 

value of the movie, music, or software contained on the carrier media in order to 

assist in efforts to create global consensus on this customs valuation standard. 

Improved Market Access For Audiovisual Services 

DR–CAFTA demonstrates that a trade agreement can harmonize two important 

objectives—trade liberalization and the promotion of cultural diversity. It avoids the 

‘‘cultural exceptions’’ approach, while demonstrating that a trade agreement has sufficient flexibility to take into account countries’ cultural promotion interests. This 

agreement includes important provisions to ensure market access for U.S. films and 

television programs over a variety of media including cable, satellite, and the Internet. It also has strong investment protections that will benefit theater chains. U.S. 

cinemas are building new multiplexes in Central American countries and the investment protections that they receive in DR–CAFTA will help to protect and promote 

their growth. These multiplexes in turn provide an important base for expanding 

the filmed entertainment market. 

241 

The Agreement also has broad commitments to open services markets (with few 

exceptions) across a range of sectors important to the entertainment industries, including but not limited to computer and related services, telecommunications services, audiovisual services, advertising, and distribution services, such as wholesaling 

and retailing. In addition, there are disciplines that ensure a more competitive telecommunications market including disciplines that require cost-based Internet access 

(through leased circuit services). Such disciplines will be particularly important in 

safeguarding competition against Costa Rican state-owned telecomm company. 

Free Trade In Digital Downloads/E–Commerce 

The Agreement contains groundbreaking commitments on e-commerce, which will 

help stimulate development of advanced telecommunications infrastructure in these 

countries. These commitments will in turn ensure benefits for the filmed entertainment industry under this Agreement far into the future. The DR–CAFTA also includes a commitment to non-discriminatory treatment of digital products including 

DVDs and CDs; and agreement not to impose customs duties on such products. 

Agriculture 

The Chief Executive Officer of the Motion Picture Association of America would 

not generally be expected to opine on issues involving trade in agriculture. But, as 

a former Secretary of Agriculture, I was honored to join five other former Secretaries of Agriculture: Ann Veneman, Mike Espy, Clayton Yeutter, John Block and 

Bob Bergland in a letter released on April 19, 2005, in recognizing the significant 

benefits this Agreement will bring to U.S. farmers, ranches, food and agriculture organizations and in urging members of congress to support this Agreement. A copy 

of our letter is attached. 

Conclusion 

In conclusion, the Motion Picture Association of America has long been appreciative of the leadership shown by the Office of the U.S. Trade Representative in 

negotiating important provisions for good market access and intellectual property 

rights protections in previous FTAs, and we thank them again for their hard work 

on the DR–CAFTA. In turn, Congress has in the past and should again recognize 

the importance of these agreements to the U.S. economy and job market by approving them. On behalf of the MPAA, its member companies, and the members of the 

Entertainment Industry Coalition, I hope that Congress will vote in favor of the 

U.S.-Dominican Republic Free Trade Agreement and the job opportunities, market 

expansion, and strong intellectual property and investment protections it provides 

to the entertainment industry. Thank you. 

Letter from Former Secretaries of Agriculture 

To Members of the U.S. House of Representatives and the U.S. Senate 

Dear Member of Congress: 

As former secretaries of agriculture, we understand the importance of negotiating 

trade deals that minimize the costs and maximize the benefits to U.S. farmers, 

ranchers, and food and agriculture organizations. We support the Free Trade Agreement with Central America and the Dominican Republic (CAFTA–DR) because the 

benefits are very significant and the costs are minimal. We urge you to pass 

CAFTA–DR quickly and without amendment. 

A vote for CAFTA–DR is a vote for fairness and for reciprocal market access. 

Under CAFTA–DR all of our food and farm products will receive duty free treatment 

when the agreement is fully implemented. 

A vote against CAFTA–DR is a vote for one-way trade. Virtually all of what we 

import from the six CAFTA countries now enters the U.S. duty free as a result of 

the Generalized System of Preferences (GSP) and the Caribbean Basin Initiative 

(CBI). Yet, our food and agricultural exports to these six nations are restricted significantly because of high tariffs. As a result of the current one-way trade deal, we 

are running an agricultural trade deficit with these six countries. 

In addition, a formal trade agreement with the United States will help ensure the 

economic stability and growth that the region needs to avoid a return to the civil 

wars, insurgencies, and dictatorships of the recent past. As economic freedom and 

democracy take deeper root, incomes will increase and demand for our food and agriculture products will expand. 

Failure to approve CAFTA–DR will have a devastating effect on U.S. efforts to 

negotiate trade agreements on behalf of U.S. agriculture. The World Trade OrganiVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00245 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
242 

1 CIA World Fact Book. 

zation Doha Development Round would be dealt a serious blow. Other countries 

would be less willing to negotiate with the United States knowing that CAFTA–DR, 

a trade agreement so clearly beneficial to U.S. interests, could be rejected by the 

U.S. Congress. 

The future of American agriculture continues to lay in expanding opportunities 

for our exports in the global marketplace, where 96 percent of the world’s population 

lives. We must not forego these opportunities, especially when the benefits to our 

nation are so unmistakable. 

Ann M. Veneman

Dan Glickman

Mike Espy

Clayton Yeutter

John Block

f 

Bob Bergland

Statement of the Honorable Pete du Pont, National Center for 

Policy Analysis 

Congress is considering the most significant trade liberalization agreement since 

passage of the North American Free Trade Agreement (NAFTA) more than 10 years 

ago. The Central America Free Trade Agreement (CAFTA) was signed last year by 

the United States and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua 

and the Dominican Republic. These six nations make up the second largest market 

for U.S. goods exports in Latin America, behind only Mexico. They purchased $15.1 

billion worth of U.S. exports in 2003, an increase of 11 percent from 2000. Meanwhile, U.S. imports from the region totaled $16.8 billion in 2003, up 4 percent from 

2000, making it the 15th-largest supplier to U.S. consumers and businesses.1

CAFTA is the first major test of the Trade Promotion Authority sought by President Clinton and finally granted to President Bush. It would eliminate tariffs on 

most goods and services and substantially reduce other trade barriers. 

Unfortunately, passage of CAFTA is in doubt. Its defeat would be a setback for 

wider efforts to expand trade and thereby improve economic conditions in poor developing countries. More than 100 Democrats voted for NAFTA, but apparently 

CAFTA does not enjoy similar bipartisan support. There is also weakness among 

some Republicans. 

Both opponents and supporters of freer trade have complaints about CAFTA: Free 

traders are disappointed that it exempts two domestic industries that are protected 

from overseas competition—sugar and textiles—and delays the elimination of some 

trade barriers by a decade or more. Opponents of liberalized trade claim that increasing imports will harm U.S. workers, and some of them claim (somewhat contradictorily) that increased exports from the region will harm workers in those countries. 

Mutual Gains from Trade. Setting aside the objections of rent-seeking economic 

interests that support trade barriers simply because tariffs and regulations limit 

their competitors, opposition to trade liberalization is based on a fundamental misunderstanding about the nature of trade. Both buyer and seller benefit from any exchange, whether it is a purchase from a local convenience store or a worker exchanging his or her labor for a wage. In fact, exchange is the principal way in which 

humans create wealth and raise their living standards. Similarly, the economies of 

both importing and exporting countries benefit from the international exchange of 

goods and services. 

None of us asks of prices charged at the 7-Eleven: ‘‘Is it fair? Is it just?’’ We ask: 

‘‘Is it too high?’’ Or, ‘‘Is it a bargain?’’ And of course, if the price is lower than that 

charged by competing stores, we don’t ask, ‘‘Shouldn’t I pay more?’’ Yet there is a 

presumption among misguided opponents of international trade that unless trade is 

‘‘fair’’ or ‘‘just,’’ someone loses out. None of us says to the clerk at 7-Eleven: ‘‘I will 

not buy your products unless you patronize my business.’’ Yet with respect to international trade, some claim we should only buy from other countries exactly as much 

as they purchase from ours. 

The gains from trade are mutual, but they are seldom equal. In the case of 

CAFTA, because the six developing countries that have entered into the agreement 

with United States are poorer and have more protectionist trade policies than we 

do, they have more at stake. It is true that U.S. producers and workers will benefit 

243 

2World Development Indicators 2004, World Bank. 

3 Alberto F. Ades and Edward L. Glaeser, ‘‘Evidence on Growth, Increasing Returns, and the 

Extent of the Market,’’ Quarterly Journal of Economics, August 1999. 4World Development Indicators 2004, World Bank. 

from lower trade barriers in these six countries, and U.S. consumers will benefit 

from their imports. But it is the poor in developing countries who will benefit the 

most. 

Benefits of Economic Growth. The reduction in trade barriers in the six 

CAFTA countries will benefit the poor in those countries by raising rates of economic growth. Empirical economic research has established that nations that trade 

more enjoy higher rates of economic growth and hence higher living standards, 

measured in per capita gross domestic product. 

Tariff rates in most of the CAFTA partners are two to three times higher than 

in the United States. They already have duty-free access to the U.S. market under 

the Caribbean Basin Trade Partnership Act (CBTPA) program. In fact, most of the 

products on which U.S. tariffs fall to zero immediately under CAFTA are already 

afforded duty-free access under the provisions of the CBTPA. Under CAFTA, however, there will be fewer restrictions and lower compliance costs to qualify for preferential access. The difference between the CBTPA and CAFTA is that CAFTA will 

grant American goods that are currently subject to tariffs duty-free access to Central American markets. On average, 75 percent of the tariff product categories will 

be duty-free for U.S. exports to the region upon enactment of the agreement. 

There is a link between openness to trade and economic growth. According to the 

World Bank, tariff rates in almost all of the CAFTA countries are significantly higher than United States’ average of 2.6 percent.2 Specifically, the most recent data 

available show weighted average tariffs of 10.1 percent in the Dominican Republic, 

5.8 percent in Costa Rica, 6.1 percent in El Salvador, 5.8 percent in Guatemala, 7.3 

percent in Honduras and 2.3 percent in Nicaragua. These countries are also relatively poor, with per capita GDPs (in terms of local purchasing power) ranging 

from $2,200 in Nicaragua to $9,000 in Costa Rica, compared to about $38,000 in the 

United States. 

Larger nations with bigger economies have faster growth than smaller ones because larger economies experience higher growth. This puts smaller economies at 

a disadvantage. However, smaller economies can tap into the economic robustness 

of larger economies through trade. According to economists Alberto F. Ades and Edward L. Glaeser, the initial size of the economy in open, or trading, nations has a 

minimal role in determining the rate of GDP growth.3 The initial size of the economy has a larger role for a relatively closed economy, in which trade accounts for 

less than 22 percent of GDP. Thus, they conclude that contrary to protectionists’ beliefs, free trade benefits poorer nations. 

The CAFTA countries have already made progress due to trade liberalization 

spurred by CBTPA and the democratization that has occurred in these countries. 

Between 1991 and 2001 the average ratio of imports to GDP for the six countries 

rose from 33 percent to 49 percent. Moreover, on a range of social indicators, all 

six countries have made progress. 

According to the World Bank, literacy rates for men and women 15 and older have 

risen significantly in every one of the CAFTA-plus countries since 1980.4 In fact, 

between 1980 and 2001, the average literacy rate in the region increased from 67 

percent to above 80 percent; the percentage of children aged 10 to 14 in the workforce has steadily declined; and the average share of children in the labor force has 

dropped from 17.4 percent in 1980 to 10.0 percent in 2002. Expanding trade with 

the United States would accelerate this progress. 

Conclusion. CAFTA would substantially liberalize trade and investment and encourage further economic liberalization among America’s trade partners. It would 

open economic opportunities for the United States, Central America, and the Dominican Republic and set the stage for economic growth and social development. 

f 

Statement of Craig Updyke, National Electrical Manufacturers Association, 

Arlington, Virginia 

Chairman Thomas, Ranking Member Rangel, Distinguished Members of the Committee, 

Thank you very much for the opportunity to provide this statement in support of 

the Free Trade Agreement with Central America and the Dominican Republic. On 

244 

behalf of the U.S. electrical equipment industry, NEMA calls on the Committee to 

favorably report implementing legislation for the Agreement to the full House of 

Representatives, and strongly urges the full House to approve the legislation as soon 

as possible. 

NEMA is the largest trade association representing the interests of U.S. electrical 

industry manufacturers, whose worldwide annual sales of electrical products exceed 

$130 billion. Our more than 400 member companies manufacture products used in 

the generation, transmission, distribution, control, and use of electricity. These 

products are used in utility, industrial, commercial, institutional and residential installations. The Association’s Medical Products Division represents manufacturers of 

medical diagnostic imaging equipment including MRI, CT, x-ray, ultrasound and nuclear products. 

This Agreement is essentially a one-way, favorable deal for the United States. 

Since these six countries already enjoy ready U.S. market access for items in our 

Association’s product scope, it levels the playing field for manufacturers in our sector by featuring foreign tariff elimination, much of it immediate. In fact, based on 

current annual trade levels, over $1 billion worth of tariffs applied on U.S. exports 

in our sector will be eliminated when the Agreement takes effect. This Agreement 

also promises to reduce non-tariff barriers and benefit joint efforts to eliminate 

counterfeit products. 

NEMA members already enjoy surprising levels of commerce with these nations 

despite their frequently high duties, and our exports stand to expand even further 

under the Agreement: 

• The Dominican Republic is already the U.S. electrical equipment industry’s 

number three export market and trading partner in Latin America and the Caribbean after Mexico and Brazil. 

• The five participating Central American nations (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua) combined already constitute a larger export 

market and trading partner for the U.S. electrical equipment industry than 

Brazil. 

In short, NEMA members believe this Agreement should be allowed to take effect 

as soon as possible and prompt approval of implementing legislation by the House 

is essential. Thank you for your support of this important legislation. 

f 

Statement of Stephanie Weinberg, Oxfam America 

Oxfam is an international development and humanitarian relief agency committed 

to developing lasting solutions to poverty, hunger and social injustice. We work in 

over 120 countries around the globe, including the five Central American countries 

and the Dominican Republic that are party to the free trade agreement with the 

United States, known as DR–CAFTA. 

Oxfam believes that trade can be an important means to achieving sustainable 

development and poverty reduction. Trade and development are intimately linked. 

A global system that has fair trade rules and practices has the potential to lift millions of people out of poverty. For this reason, Oxfam has focused on making global 

trade rules fair and consistent with development goals, as an integral part of our 

work to improve livelihoods and reduce poverty in developing countries. 

Trade agreements present both opportunities and risks, especially when they involve developed and developing countries. The DR–CAFTA is the first such agreement the U.S. has negotiated with some of the poorest countries in the hemisphere, 

two of which have annual per capita incomes below $1,000. The U.S. trading partners in the DR–CAFTA, with a population of 42.5 million, have high levels of poverty and very unequal distributions of income and wealth. They depend heavily on 

agriculture for the livelihood of significant portions of their populations. These countries are ravaged by curable diseases due to poverty and inadequate health-care coverage. They sorely lack public infrastructure and, in several cases, are highly indebted. 

In order for a trade agreement to be fair for these countries and promote their 

development, it must ensure that governments are able to provide for the food security needs of their people. And for an agreement to contribute to their poverty reduction, it must not prevent citizens from being able to access life-saving drugs they 

desperately need to effectively combat contagious diseases like HIV/AIDS or prevalent illnesses like diabetes. Trade agreements inevitably have winners and losers. 

Oxfam believes that those who stand to lose in the DR–CAFTA are the ones who 

245 

are already disadvantaged in these highly unequal societies, where the majority of 

poor people live in rural areas, rely on income from agriculture and must pay for 

medicines out-of-pocket. 

There has been much public debate about what the passage or rejection of the 

DR–CAFTA will mean for the U.S. trade agenda. Oxfam, however, believes that the 

DR–CAFTA must be judged only on the basis of what this particular agreement will 

mean specifically for the seven countries involved. Congress should look carefully at 

the terms of the DR–CAFTA to understand their implications in a region of high 

geo-political importance to our country. On balance, Oxfam believes the agreement, 

in its current form, will do more harm than good. It will threaten the livelihoods 

of millions in Central America and the Dominican Republic and may contribute to 

increased insecurity and instability in that region. 

Oxfam wishes to focus attention on provisions in the DR–CAFTA involving agriculture, intellectual property and investment. As a result of our analysis in these 

areas, Oxfam believes the DR–CAFTA is a bad deal for millions of farmers, workers, 

and consumers in Central America and the Dominican Republic and should therefore be rejected. 

Agriculture 

Agriculture currently comprises between 10 to 23 percent of GDP in the six DR– 

CAFTA trading partners, while it represents less than two percent of GDP in the 

U.S. Nearly a third of employment in these six countries depends on agriculture, 

much of which involves food essentials for consumption in the region, and most of 

these workers are poor and low skilled. 

There are two major reasons why Oxfam believes many farmers in Central America and the Dominican Republic are at significant risk of losing their livelihood 

under DR–CAFTA. Market access rules for agriculture in the agreement deny developing country governments the ability to adopt measures to ensure domestic food 

security and promote rural livelihoods. Under DR–CAFTA, countries must eliminate 

import tariffs on virtually all agricultural goods, including those food essentials that 

are most important for small farmers’ incomes—rice, yellow corn, beans and dairy 

products. 

At the same time, the agreement requires Central American countries and the Dominican Republic to open the door for dumping of highly subsidized U.S. agricultural exports at prices below their cost of production. This situation is not only profoundly unfair, but it risks creating poverty and economic dislocations among the 

5.5 million farmers and farmworkers in the region. 

Although DR–CAFTA provides for longer tariff elimination periods for some basic 

commodities in Central America and the Dominican Republic, duty-free quotas are 

immediately created or expanded beginning in the first year of the agreement. 

These duty-free quotas are nearly equal to current U.S. exports to these markets 

(quotas begin to surpass current U.S. export levels starting in the second year of 

DR–CAFTA) and will immediately drive down prices for local producers. The region’s small farmers—who receive no subsidies, lack access to credit and depend on 

the income from each year’s harvest for their subsistence—will be unable to compete 

with subsidized U.S. exports. And as more local farmers go out of business each 

year, the region’s grain imports in following years are likely to surpass the annual 

quota increases, as occurred in Mexico under NAFTA, making the longer tariff 

phase-out periods irrelevant. 

The case of corn in Mexico under NAFTA is illustrative. An extended 15-year period for tariff elimination was instead reduced to little more than 30 months, and 

real corn prices in Mexico fell more than 70 percent in the first eight years under 

NAFTA, without benefiting Mexican consumers. It is estimated that since NAFTA’s 

passage, 1.7 million Mexican peasants working in the agricultural sector have lost 

their jobs. In addition, 15 million small farmers have lost significant income because 

they could not compete with subsidized U.S. exports, such as corn. Many left their 

land and fled to urban areas. It is no coincidence that the number of Mexicans 

crossing the U.S. border without authorization seeking employment and a better life 

more than doubled between 1990 and 2000—with most of that growth occurring 

after NAFTA went into effect in 1994—and has continued to increase in this decade. 

A similar outcome can be expected under the DR–CAFTA for producers of basic 

grains such as rice. In fact, the experience of the rice sector in Honduras in the 

1990s offers a case study of the likely impact on small farmers in the region. In 

1991, the Honduran government cut tariffs on rice imports to make up for a shortage due to drought, and a flood of imports at harvest time equivalent to the country’s annual consumption left local producers without a market. Rice prices fell by 

more than 28 percent in one year and, as a result, areas under rice cultivation decreased by 35 percent the following year. Over a decade, the number of rice proVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00249 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
246 

ducers dropped from 25,000 to fewer than 2,000, and the jobs generated from rice 

production fell from 150,000 to 11,200. As a result, rice production was reduced by 

86 percent between 1991 and 2002, and the amount of foreign exchange spent on 

rice imports increased 20-fold (from $1 million in 1989 to $20 million in 2003). At 

the same time, the price of rice to consumers rose 140 percent in nominal terms, 

or 12 percent in dollar terms, over the decade. 

The market access rules for agriculture in the DR–CAFTA deny developing country governments the policy flexibilities necessary to promote rural development, protect livelihoods, and provide food security to their citizens. The agreement negates 

the principle governing multilateral trade negotiations for the past 50 years that developing countries are not required to make reciprocal commitments to reduce trade 

barriers if these are inconsistent with their individual development needs. Instead, 

the DR–CAFTA does not incorporate pro-development concepts, such as special and 

differential treatment, and precludes use of flexibilities available to developing countries at the WTO. It does not allow developing countries to use differentiated tariff 

reduction formulae or designate special products eligible for more flexible treatment. 

It prohibits the use of the WTO safeguard, and the safeguard mechanism provided 

under DR–CAFTA is weak and temporary: a price drop could render it useless since 

it is linked to volume instead of prices of imports, and it can only be applied until 

the tariff is completely phased out. 

This will have a devastating impact on the 5.5 million Central Americans who depend on agriculture for their livelihoods. What will the U.S. gain at the expense of 

the loss of livelihoods of small farmers in Central America and the Dominican Republic? According to the U.S. International Trade Commission, U.S. grain exports 

can be expected to expand by 1.2 percent annually once tariffs are fully eliminated 

under DR–CAFTA. Overall, the market access provisions are expected to increase 

U.S. GDP by less than 0.01 percent annually. Considering the cost in terms of increased poverty and social problems for our neighbors, not to mention the potential 

increase in immigration to our borders, the DR–CAFTA is not only a bad deal for 

development in the region, but it provides no appreciable benefits to U.S. citizens. 

Intellectual Property 

The rules on intellectual property in DR–CAFTA are another serious area of concern for Oxfam. All of the Central American countries and the Dominican Republic 

are WTO members and are therefore bound to implement the intellectual property 

provisions in the WTO’s Agreement on Trade-Related Intellectual Property Rights, 

known as ‘‘TRIPS’’. But the DR–CAFTA goes well beyond the existing TRIPS provisions, imposing new so-called TRIPS-plus provisions related to pharmaceuticals. 

Most of these provisions are aimed at delaying the introduction of generic competition, thereby prolonging a patent holder’s monopoly over the marketing of a medicine. When generic drugs cannot enter the market to compete with brand-named 

products, drug prices are higher and fewer people have access to medicines. 

At the heart of intellectual property rights systems is a balance between the 

rights of patent holders and the public interest. In particular, determining the appropriate balance between protections related to pharmaceuticals and public health 

is a complex task still being debated in the United States—for example, the ‘‘drug 

re-importation’’ debate in Congress. Oxfam does not believe that there is one ‘‘size’’ 

of intellectual property protection that fits all, however. The appropriate balance depends upon a variety of factors, such as the level of poverty in a country, the likelihood that protections will generate innovation, and the real-world effects from higher medicine prices resulting from protections. 

Many public health and intellectual property experts have warned that TRIPSplus provisions may undermine public health in poor countries, without generating 

any appreciable gains in innovation. This concern became a major issue at the WTO, 

and the importance of preserving public health was affirmed in the 2001 Doha Declaration on TRIPS and Public Health in 2001 by all WTO members, including the 

United States. The Doha Declaration confirmed that WTO members may use ‘‘flexibilities’’ built into TRIPS to modify intellectual property rules to address public 

health needs, and constitutes a commitment to favor public health over intellectual 

property rights. 

In 2002, Congress endorsed this commitment as part of Trade Promotion Authority, under which DR–CAFTA was negotiated, by instructing the U.S. Trade Representative to respect the Doha Declaration in trade negotiations (Section 

2102(b)(4)(C) of the Trade Act of 2002). Yet USTR has ignored the direction of both 

the WTO and Congress by forcing the governments of Central America and the Dominican Republic to adopt some of the highest levels of intellectual property protections for drugs in the world. This completely undermines the protections for public 

health laid out in the Doha Declaration. Oxfam believes that many of these proviVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00250 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
247 

sions are not suitable for the small, poor developing economies in Central America 

and will result in reduced access to needed medicines and therapies, with no appreciable benefit in innovation or research and development spending. 

Many of the intellectual property provisions in DR–CAFTA tip the balance of intellectual property protections in favor of the short-term commercial interests of 

U.S. pharmaceutical companies, at the expense of public health. These provisions: 

• Extend patent protection beyond the 20-year period required under TRIPS. Contrary to U.S. law, no upper limit is placed on such extensions. Twenty years 

of patent protection is more than an adequate monopoly for patent holders to 

recover investments and generate profits. Extending this monopoly period unfairly favors patent holders to the detriment of the broader public interest in 

accessing affordable medicines. • Require test data protection for periods of up to 10 years. These rules will delay 

for up to 10 years the introduction of generic medicines, even in the absence 

of patent barriers. • Effectively eliminate the ability of Central American countries and the Dominican Republic to use compulsory licensing, a key tool available to governments 

to meet their citizens’ public health needs. Compulsory licenses provide an important safeguard to governments to counterbalance the monopoly rights granted to patent holders. Both developing and developed countries—including the 

United States—have used compulsory licenses or the threat of them to bring 

down medicine prices. 

• Force national drug registration authorities to serve as patent police, which prevents these authorities from granting marketing approval for generic versions 

of drugs until after the patent expires. This could prevent or delay access to affordable generic versions of new medicines, as well as undermine the use of 

compulsory licenses. Furthermore, this goes beyond U.S. law, which places the 

burden on the patent owner to enforce its own rights. DR–CAFTA forces the 

government to bear the cost, expense, and delay of enforcing private patent 

rights. 

When the DR–CAFTA was signed on August 5, 2004, a side letter or ‘‘understanding’’ on intellectual property and public health was included in response to 

criticism that the intellectual property restrictions in the agreement could undermine public health. However, this ‘‘understanding’’ does nothing to allay Oxfam’s 

concerns with these provisions. In reality, it merely states that CAFTA provisions 

‘‘do not affect a Party’s ability to take necessary measures to protect public health 

by promoting access to medicines for all’’ or from ‘‘effective utilization’’ of the WTO 

decision on TRIPS. This clause is virtually meaningless from a legal standpoint because it is just a declaratory statement, similar to a preamble or an objective. It 

is not a legally binding exception to the very clear obligations in the Agreement but 

at best has interpretive value. USTR has studiously avoided describing the ‘‘understanding’’ as a legally binding exception. 

Oxfam believes that TRIPS-plus provisions relating to pharmaceuticals should not 

be included in a trade agreement with Central America and the Dominican Republic. Central America has the second highest death rate from communicable diseases 

in Latin America. Over 165,000 people are living with HIV/AIDS and more than 

30,000 cases of full-blown AIDS have been reported in the region. Resources for public health in the DR–CAFTA countries are extremely limited. Medicines sold at monopoly prices are too costly for these countries to provide through their public health 

systems and too expensive for poor people to pay for out-of-pocket. These countries 

should be able to use the TRIPS public-health safeguards to the fullest to protect 

public health and promote access to medicines for all, as affirmed by the Doha Declaration. 

DR–CAFTA is often described as a ‘‘cutting-edge’’ trade agreement that will serve 

as a model for future trade agreements. Oxfam feels this is a grim prospect. Imposing new intellectual property burdens on developing countries that increase the cost 

of medicines for poor people is a very bad model indeed, particularly looking towards 

the other countries with which the U.S. is currently negotiating trade agreements. 

Investment 

Investment rules in the DR–CAFTA are another important concern for Oxfam in 

this trade agreement. These rules are clear and strong on the rights of foreign investors, but say little about the rights and obligations of governments to ensure that 

investors behave responsibly and that investment serves the public good. Specifically, DR–CAFTA restricts governments’ ability to regulate foreign investment 

through the use of measures such as performance requirements, technology transfers, and capital controls. Oxfam believes that prohibiting pro-development measVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00251 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
248 

ures such as these will reduce the positive impact that investment in the region can 

have and may create large new financial and policy burdens for already overstretched governments. 

In Central America and the Dominican Republic, increased investment is critical 

to achieving sustainable development. Yet several recent studies show that trade 

and investment agreements themselves do not stimulate additional foreign investment. Rather, macroeconomic and political stability, as well as market size, are determining factors. Furthermore, Oxfam believes that the quality—not just quantity—of investment is key in promoting development. Positive incentives to direct 

investment can help distribute wealth and promote economic growth, which can result in improved livelihoods. By setting performance requirements, governments can 

ensure the use of local inputs, which helps create backward linkages to the domestic 

economy. Through technology transfers, governments can help establish valuable 

linkages between foreign and domestic producers. 

However, DR–CAFTA will forbid governments from using local content rules and 

technology transfers. Without the flexibility to utilize these measures, governments 

are powerless to direct investment so that it benefits the rest of the domestic economy. This will lead to a scenario in which a limited number of investors may prosper without contributing more broadly to sustainable growth in the countries where 

they operate. This defies the spirit of the DR–CAFTA agreement, which claims to 

have the development of Central America and the Dominican Republic as one of its 

goals. 

Much of the foreign direct investment recently flowing into the region has been 

directed towards maquiladora factories or export processing zones, mostly for garments manufacturing. While these factories do provide some badly needed jobs, they 

usually contribute little to the overall economy because of the enclave nature of 

their production. Moreover, jobs in these factories are increasingly at risk with the 

removal of global quotas for textiles and apparel. 

Oxfam is also concerned that DR–CAFTA forbids restrictions on the repatriation 

of profits and limits governments’ ability to impose controls on highly speculative 

investments. This means that foreign investors in the region will have unrestricted 

ability to bring capital into and out of countries, while governments will have little 

recourse to deal with economic instability, should investors suddenly pull their 

money out of the country. While a stable business climate is important, so too is 

ensuring that investment contributes to domestic growth and broad-based sustainable development. Unregulated capital flight can have devastating consequences, especially in case of a financial meltdown, such as occurred in Argentina in 2001. 

Also of serious concern is the investor-state dispute settlement mechanism in the 

DR–CAFTA, which, similar to NAFTA, will enable foreign investors to bring suits 

before international arbitral tribunals when they believe their business interests 

have been impaired by government regulatory actions. Investment rules in the DR– 

CAFTA broadly define what constitutes an expropriation and leave open the possibility that these ad-hoc tribunals will interpret social and environmental regulations 

as an ‘‘indirect expropriation.’’ Thus, foreign investors will be able to challenge laws 

or regulations at the national, state or local levels, even if these are enacted for legitimate public interest objectives, including public health, safety, and environmental protection. 

These special international tribunals are neither open to the public nor accountable to democratic processes. They lack the transparency generally afforded by normal judicial proceedings, yet are empowered to order governments to directly compensate investors for regulations that hurt them, regardless of the public good that 

the regulations might serve. Claimants are not required to exhaust domestic judicial 

remedies before bringing investment claims to these international tribunals, thus allowing foreign investors to bypass domestic legal systems. Although the DR–CAFTA 

was intended to strengthen and support democratic institutions in Central America 

and the Dominican Republic, it may actually undermine the judiciaries in the region. 

This dispute settlement mechanism has been used to challenge important regulations that are expressly designed to protect public health, safety, the environment, 

and other public interest objectives that enhance social welfare. To date, over 40 

suits have been filed by corporations under NAFTA’s investment rules in special tribunals, seeking $28 billion in claims from the U.S., Canadian and Mexican governments. If NAFTA is any indication, the investment provisions of DR–CAFTA could 

create large new liabilities for the governments of Central America and the Dominican Republic. Perhaps more problematic is the chilling effect the threat of litigation 

by investors could create on policy-makers interested in generating new environmental, public-health, and pro-development safeguards. 

249 

Highlighting this problem is a bitter dispute between Canadian-owned Glamis 

Gold, Ltd., which is seeking to construct a mine in San Miguel, Guatemala, and the 

local citizens who oppose the project. Backed by the Catholic Church, local residents 

fear that the mining project will wreak havoc on the local environment. They successfully pressured the Guatemalan government to agree to freeze issuance of future 

mining permits. However, under DR–CAFTA, foreign investors will be able to challenge local measures like this one, claiming discrimination as foreign investors. At 

risk will be governments’ ability to provide effective regulation to protect workers, 

health and safety, and the environment. Any agreement that contains investment 

rules that limits governments’ ability to protect the health and well-being of its citizens should be opposed. 

Conclusion 

CAFTA is likely to increase inequality and exacerbate poverty in a region that is 

still struggling to recover from the devastation of wars, hurricanes and droughts. 

Under the Caribbean Basin Initiative (CBI), Congress established trade preferences 

to facilitate the economic development and export diversification of the 

CaribbeanBasin economies. These benefits were permanently extended in 1990, and 

in 2000 the list of products eligible for duty-free access to the U.S. market was expanded, in part in response to the devastation wrought by Hurricane Mitch. Nevertheless, the region continues to suffer from serious problems of poverty and inequality. 

Oxfam believes it is in the interest of the United States to promote economic development in the region, including increased development assistance, institutionbuilding, and increased trade. However, the DR–CAFTA is, at best, a mixed bag. 

The agreement provides very modest and incremental trading opportunities for our 

poorer neighbors, while it imposes major new obligations and restrictions in the 

process. 

In general, Oxfam believes that the U.S. trade negotiation strategy has set the 

wrong priorities. With limited resources, the USTR has pursued numerous smaller 

bilateral and regional trade agreements even while a much bigger, and more important, trade agreement has stalled. For both the U.S. and the world, the WTO Doha 

Round offers potential benefits that are orders of magnitude larger than those in 

free trade agreements with small countries such as DR–CAFTA. While negotiating 

trade agreements at the global level is certainly a messy and cumbersome process, 

the alternative is a very scattered and asymmetrical trading scheme that adds complexity and increases entry costs. This is not good for the U.S., but it is far worse 

for developing countries, many of which are already very marginal players in global 

trade. And while the U.S. is likely to have to make more concessions—particularly 

in agriculture—at the multilateral level, than in bilateral agreements, this is where 

the U.S. can demand concessions from other rich countries like Europe and Japan. 

Investing in, rather than neglecting, the WTO and the Doha Round, will help build 

a more common, rules-based system that provides more opportunity and stability for 

both the U.S. and developing countries. 

The rules set forth in the DR–CAFTA on agriculture, intellectual property, and 

investment add up to a bad deal for farmers, workers, and consumers in Central 

America and the Dominican Republic. Rather than setting out provisions that will 

foster broad-based economic growth and sustainable development, DR–CAFTA will 

put millions of poor people at risk of losing their livelihood. The U.S. should do better if it wants to promote peace, political stability, and economic security in this region that has struggled with poverty and inequality, and the resulting instability, 

for so long. Unfortunately, the DR–CAFTA is wrong way to achieve these goals, 

which is why Oxfam urges Congress to vote no. 

f 

Statement of Hon. Michael G. Oxley, a Representative in Congress from the 

State of Ohio, and Hon. Deborah Pryce, a Representative in Congress 

from the State of Ohio 

Chairman Thomas and Ranking Member Rangel, thank you for the opportunity 

to testify on the Central American Free Trade Agreement or CAFTA. This is an important agreement between the United States and six countries that are key to our 

economic and national security: El Salvador, Costa Rica, Honduras, Nicaragua, Guatemala, and the Dominican Republic. We know that this is a highly complex agreement and we want to commend this Committee for all of its hard work in fostering 

free trade around the world. 

250 

As Chairman of the Financial Services Committee and Chairman of the Subcommittee on Domestic and International Monetary Policy, Trade and Technology 

of the Financial Services Committee, we submit this statement to support free trade 

in financial services. U.S. firms often face restrictions in their ability to operate 

globally. The concept of national treatment, where foreign firms are treated like domestic firms, is not the norm in all Central American nations. As a result, U.S. 

banks, insurance providers, and securities dealers are often subject to non-transparent and discriminatory regulations which inhibit their ability to compete in these 

markets. The CAFTA agreement goes a long way to remedy many of these problems. 

Services industries account for nearly 80 percent of U.S. employment as well as 

GDP. This includes lawyers, architects, engineers, doctors and, of course, financial 

service providers. Over the past 10 years, U.S. services exports nearly doubled to 

$270 billion. Trade in financial services accounts for a high percentage of U.S. services exports. 

We often hear about the trade deficit that the U.S. has with other nations. What 

we don’t hear about is that in case of trade in services, we actually have a surplus. Our nation leads the world in financial services innovation. This agreement will 

help extend that surplus and promote state-of-the art financial services globally. 

The CAFTA agreement will allow U.S. financial firms to access these countries 

on a fair footing with their local counterparts. It will promote transparency in the 

rules that govern how these enterprises are supervised. Without CAFTA, the financial services sector will be limited in its ability to enter these markets, will have 

restrictions on the ability to establish branch offices, and the regulations overseeing 

the operations of these institutions will be written behind closed doors. CAFTA will 

require national treatment and MFN treatment, prohibit quantitative restrictions 

on market access of financial institutions, and bar restrictions on the nationality of 

senior management. 

Now, we know that the financial services markets in the CAFTA countries are 

not going to be major revenue generators for U.S. financial firms in the short-run. 

However, these are long-term strategic growth markets for our financial firms. Our 

economic prosperity will be strengthened if trade barriers between our nations are 

eliminated. 

Economic prosperity in the region, which will foster economic security in the 

hemisphere, will also grow as competition in the financial services sector within 

CAFTA countries expands the availability of capital to fund new ventures. Over 

time, it will also yield a wide range of benefits, including more customers for our 

firms and more efficient markets within our hemisphere. Improved access to sophisticated financial services, backed by sound regulation, will enable these markets to 

grow to become buyers of other U.S. products. Without the development of these financial markets, manufacturers will be less likely to cultivate customers in this region. 

The Financial Services Committee has taken a leadership role in ensuring strong 

financial services provisions in this agreement, as well as the Chile and Singapore 

agreements. In December of 2003, the Committee wrote Ambassador Zoellick urging 

him not to accept a trade agreement that permitted Costa Rica to retain the government’s monopoly on insurance. The CAFTA agreement now includes provisions permitting U.S. firms to provide insurance products in Costa Rica. We would like to 

submit a copy of this letter for the record. 

In closing, we strongly urge the Members of this Committee to support the 

CAFTA Agreement. It will foster economic security in our hemisphere and will promote the exchange of goods and services between our countries. 

Committee on Financial Services 

U.S. House of Representatives 

Washington, DC 20515 

December 16, 2003 

The Honorable Robert B. Zoellick 

United States Trade Representative 

600 17th Street, N.W. 

Washington, DC 20508 

Dear Ambassador Zoellick: 

I want to commend you for entering into negotiations with the Central American 

countries of Honduras, Guatemala, Nicaragua, El Salvador, and Costa Rica. These 

countries are important allies and trading partners of the United States. As you 

know, I serve on the Congressional Oversight Group on trade which was created 

through the landmark Trade Promotion Authority legislation in the 107th Congress. 

251 

In this capacity I have been closely following the Central American Free Trade 

Agreement (CAFTA) negotiations as they relate to trade in financial services. 

I am encouraged that you and your counterparts in the CAFTA countries have 

negotiated several good faith offers to allow access for U.S. financial institutions 

into these markets. Commitments on improved regulatory transparency, as well as 

improved branching rights and the ability to offer multiple business lines, when 

combined with the market access provisions, will increase the availability of capital 

in the CAFTA countries and will foster economic growth. 

I am writing today, however, to express concern regarding the position Costa Rica 

is taking regarding access to its insurance market. Specifically, I understand that 

Costa Rica has been reluctant to include within the CAFTA commitments to provide 

U.S. firms with meaningful access to its insurance sector. I have been briefed on 

the most recent U.S. offer to Costa Rica. I believe that this offer, while quite minimal compared to other offers that have been approved by Costa Rica’s neighbors, 

is an acceptable compromise. This offer will enable Costa Rica to maintain components of its insurance monopoly, including its compulsory business lines which constitute nearly 70% of its total premium volume, through 2015. As a strong advocate 

of free trade, I would prefer full establishment of rights and immediate access to 

all lines of business. I believe that the Costa Rican insurance monopoly goes against 

the very spirit of these trade negotiations. However, I understand that it is important to show flexibility in order to obtain an agreement with this important trading 

partner. 

I am particularly concerned about the situation regarding these financial services 

issues since I understand that Costa Rica may grant access to its telecom monopoly, 

but may not grant the same access to its insurance monopoly. I strongly urge you 

and your negotiating team to ensure that no monopolies are permitted to endure 

in this age of open borders and free trade. I also strongly urge you and your negotiating team to devote equal importance to the financial services matters that remain 

on the table. I would be deeply disappointed if it seemed that elimination of the telecommunications monopoly were achieved only by sacrificing similar progress in a 

key component of the financial services market. 

It is my hope that the CAFTA negotiations would generate a unified agreement 

between the United States and the five Central American countries instead of five 

bilateral agreements, or even worse, excluding one of the countries because it was 

unwilling to open its protected markets. Although I understand that each country 

has a unique position in the global economy and concessions must be made accordingly, I do not believe that maintenance of an insurance monopoly in Costa Rica 

qualifies as a unique economic position that must be maintained. Increased access 

to affordable insurance products will allow Costa Rican businesses to develop and 

expand while reducing risk. 

In a global financial services marketplace, ring-fencing a domestic market is at 

best a misplaced protectionist strategy that will only undermine the local market. 

Without the kind of market access for insurance activities currently under negotiation in the CAFTA, Cost Rica may find itself in a position where its neighbors become the preferred countries for U.S. financial firms to establish and expand their 

businesses. Continued commitment to the insurance monopoly in Costa Rica could 

thus undermine the local economy. It could also undermine Costa Rica’s ability to 

exercise appropriate local prudential supervision of insurance activities as access to 

other insurance providers in nearby countries within the CAFTA could create incentives for local companies and individuals to seek coverage outside the borders of 

Costa Rica. I trust you an your negotiating team will be able to impress these points 

upon your counterparts in Costa Rica. 

Thank you for your hard work on this agreement and I look forward to your reply. 

Yours truly, 

Michael G. Oxley

f 

Chairman 

Statement of Lori Wallach, Public Citizen’s Global Trade Watch 

On behalf of Public Citizen’s 200,000 members, I thank the Committee for the opportunity to share my organization’s views on the proposed Central America Free 

Trade Agreement (CAFTA) NAFTA expansion. Public Citizen is a nonprofit citizen 

research, lobbying and litigation group based in Washington, D.C. with offices Austin, TX and Oakland, CA. Public Citizen, founded in 1971, accepts no government 

nor corporate funds. Global Trade Watch is the division of Public Citizen founded 

252 

1 Robert E. Scott, ‘‘The High Price of ‘Free’ Trade: NAFTA’s Failure has cost the United States 

jobs across the nation,’’ Economic Policy Institute Briefing Paper, Nov. 2003. 2This number refers to manufacturing job loss since the most recent manufacturing employment peak in 1998 of 17.6 million, relative to the 2003 number of 14.6 million. See Josh Bivens, 

Robert Scott, and Christian Weller, ‘‘ Mending manufacturing:Reversing poor policy decisions is 

the only way to end current crisis,’’ Economic Policy Institute Briefing Paper #144, Sept. 2003. 3Lawrence Mishel, Jared Bernstein, and Sylvia Allegretto, The State of Working America 

2004/05, (Washington, DC: Cornell University Press, 2004), at 69 and 145. 4Lawrence Mishel, Jared Bernstein, and Sylvia Allegretto, The State of Working America 

2004/05, (Washington, DC: Cornell University Press, 2004), at 154. 5 Nouriel Roubini and Brad Setser, ‘‘The U.S. as a Net Debtor: The Sustainability of U.S. External Imbalances,’’ New York University Briefing Paper, Nov. 2004. 6 U.S. Census Numbers. 

7 John Audley, Sandra Polaski, Demetrios G. Papademetriou, and Scott Vaughan, ‘‘NAFTA’s 

Promise and Reality: Lessons from Mexico for the Hemisphere,’’ Carnegie Endowment for International Peace Report, Nov. 19, 2003. 8 Carlos Salas, ‘‘Highlights of Current Labor Market Conditions in Mexico,’’ Global Policy Network Country Brief, April 2003. 9Sanjaya Lall, Manuel Albaladejo, Mauricio Mesquita Moreira, ‘‘Latin American Industrial 

Competetitveness and the Challenge of Globalization,’’ Inter-American Development Bank 

OCassional Paper SITI 05, June 2004. 

in 1995 that focuses on government and corporate accountability in the globalization 

and trade arena. 

CAFTA, signed in May 2004, would expand the economic model established in the 

North American Free Trade Agreement (NAFTA) to five Central American countries 

and the Dominican Republic. If approved, CAFTA, like NAFTA, would require its 

signatory countries to conform their domestic policies and practices to a broad array 

of non-trade dictates, for example regarding the regulation of service sector companies and foreign investors’ operations in other economic sectors operating within a 

signatory nation’s territory. It would require signatories to provide certain patent 

medicine and seed protections that have been criticized by health and consumer 

groups worldwide as undermining consumers’ access to these essential ‘goods.’ It 

even sets constraints on how countries and other political entities may spend their 

own tax revenues. In addition, CAFTA contains the same model of interconnected 

trade rules and foreign investor protections that together create incentives that motivate business operations seek out the most profitable sites and processes for production, even if these are often contrary to the public interest. 

An analysis of CAFTA’s provisions reveals that it replicated NAFTA’s provisions 

to a high degree—often with identical language. Thus, there is much that we can 

learn from the 11-year record of NAFTA, which CAFTA would expand to additional 

nations. 

1. CAFTA NAFTA Expansion is an Outsourcing Agreement: Eleven-Year 

Record Demonstrates that the NFATA Model Lowered Living Standards on 

Both Sides of the Border 

Since 1994, the United States has lost nearly 1 million jobs on net due to NAFTA 

trade,1 with one in six U.S. manufacturing jobs being eliminated during the NAFTA 

decade.2 U.S. income and wage inequality have gone up markedly, with the ratio 

of both income and wages of the top five percent of the income and wage distribution growing nearly 10 percent since NAFTA alone as compared with the bottom 20 

percent.3 The U.S. real median wage has scarcely risen above its 1970 level, resulting in declining or stagnant standards of living for the nearly 70 percent of the U.S. 

population that does not have a college degree.4 During the NAFTA era, the U.S. 

trade deficit has risen to historic levels, and approaches six percent of national income—a figure widely agreed to be unsustainable, putting the U.S. economy at risk 

of lowered income growth.5 The U.S. trade balance with NAFTA countries alone 

went from a mild surplus with Mexico and mild deficit with Canada to a ballooning 

deficit with the two countries exceeding $110 billion in 2004.6

For our neighbors in Mexico, the economic outcomes of eleven years of NAFTA 

are not brighter. Over 1.5 million Mexican campesino farmers lost their livelihoods 

to the dumping of commodities such as corn as a result of NAFTA’s agricultural 

rules,7 while the Mexican minimum wage has lost 20 percent of its value in real 

terms, and the median industrial wage 10 percent of its value 8 The jobs that were 

temporarily created in the country’s maquiladora sector in NAFTA’s initial years, 

as plants relocated from the United States, are increasingly relocating and losing 

market share to lower wage countries such as China.9

In both countries, the increased ability of companies to nearly effortlessly relocate 

production to lower wage countries—(as NAFTA’s investor protections forbid the 

policies a country like Mexico might otherwise use to root foreign direct investment 

for development)—has tilted the playing field against the majority of the working 

253 

10Kate Bronfenbrenner, ‘‘The Effects of Plant Closing or Threat of Plant Closing on the Right 

of Workers to Organize,’’ North American Commission for Labor Cooperation Report, 1997. 11 19 U.S.C. § 3802(3), Chapter 24, ‘‘Bipartisan Trade Promotion Authority: Trade Negotiating 

Objectives.’’ 

12 Award, Before the Arbitral Tribunal constituted Under Chapter 11 of the North American 

Free Trade Agreement, Metalclad Corporation v. the United Mexican States, International Centre for Settlement of Investment Disputes (Additional Facility), Aug. 25, 2000. 

population who are finding it ever more difficult to obtain and maintain quality employment. Meanwhile, studies commissioned by the U.S. government show that as 

many as 62 percent of U.S. union drives face employer threats to relocate, with over 

10 percent of such threats specifically referring to a relocation to Mexico. The actual 

factory shut-down rate following successful union certifications tripled in the years 

after NAFTA relative to the years before.10

2. Contradicting Congress’ Demand that Trade Pacts Give Foreign Investors ‘‘No Greater Rights’’ within the U.S. than Available to U.S. Citizens, 

CAFTA Extends NAFTA’s Special Protections for Foreign Investors that Expose U.S. Taxpayer Funds to Claims in Closed Trade Tribunals 

The changes described above in the NAFTA country labor markets are supported 

by the granting in NAFTA and CAFTA of special rights and privileges to foreign 

investors from one signatory country operating in another. In NAFTA, these rights 

are contained in Chapter 11, which also provides for foreign investors’ private enforcement of these new privileges through so-called investor-state dispute resolution, 

a controversial mechanism also included in CAFTA. The investor-state system allows corporations to sue governments for cash compensation before closed trade tribunals for claims based on signatory countries’ policies that may or may not have 

a demonstrable economic impact on their expected future earnings. The provisions 

afford foreign investors operating in the United States greater rights than those 

available to U.S. citizens and businesses under the U.S. Constitution as interpreted 

by the U.S. Supreme Court. Thus far, 42 cases have been brought before the NAFTA 

investor-state tribunals, 11 have been finalized, and some $35 million in taxpayer 

funds have been granted to five corporations that have succeeded with their claims. 

An additional $28 billion has been claimed from investors in all three NAFTA nations in cases attacking the most basic functions of government. The U.S. government’s legal costs for the defense of just such recent case topped $3 million, and 

seven cases against the United States are currently in active arbitration. 

While ostensibly, NAFTA’s investor protections were designed to ensure compensation if property is nationalized by a NAFTA government, only one of the 42 

known NAFTA ‘‘Chapter 11’’ cases filed to date involve expropriation. Instead, investors have challenged domestic court rulings, water rights, local and state environmental policies, municipal contracts, tax policy, controlled substances rules, antigambling policies, emergency efforts to halt the spread of mad cow disease, and even 

provision of public postal services. 

Given that these extraordinary investor rights and their private enforcement had 

not been part of any previous U.S. trade agreement, and that many Members of 

Congress did not understand these implications at the time when NAFTA was enacted in 1993, the record of NAFTA’s Chapter 11 has generated enormous controversy. Thus in order to obtain a congressional delegation of Fast Track Trade Authority in 2002, the Administration offered to address Congress’ concerns. Fast 

Track thus specified that in future U.S. trade agreements, foreign investors should 

not have ‘‘greater substantive rights with respect to investment protections than 

United States investors in the United States.’’ 11

Unfortunately, the Executive Branch negotiators failed to meet Congress’ requirements. In CAFTA’s Chapter 10 foreign investor protections and investor-state mechanism actually amplify many of the problems Congress identified with NAFTA. 

• CAFTA Would Allow Compensation to Foreign Investors in ‘‘Regulatory 

Takings’’ and ‘‘Minimum Standard of Treatment’’ Cases not Permitted 

by U.S. Law: CAFTA includes the NAFTA language that requires foreign investors be compensated for ‘‘indirect expropriation.’’ This provision has been the 

basis for an array of cases that would not be permitted under U.S. law, including regulatory takings cases. In one such case, Metalclad Corporation obtained 

$16 million from the Mexican Treasury after being denied a permit to expand 

a toxic waste facility until it cleaned up existing contamination.12 Several additional CAFTA provisions promote regulatory takings cases not allowed under 

U.S. law. For instance, the Supreme Court has ruled that ‘‘mere diminution in 

the value of property, however serious, is insufficient to demonstrate a takVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00257 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
254 

13 Concrete Pipe and Products v. Construction Laborers Pension Trust, 508 U.S. 602, Jun. 14, 

1993, at 615. 14 Interim Award by Arbitral Tribunal, In the Matter of an Arbitration Under Chapter 11 of 

the North American Free Trade Agreement between Pope & Talbot Inc. and the Government 

of Canada, United Nations Commission on International Trade Law, Jun. 26, 2000, at 37; 

Award, Before the Arbitral Tribunal constituted Under Chapter 11 of the North American Free 

Trade Agreement, Metalclad Corporation v. the United Mexican States, International Centre for 

Settlement of Investment Disputes (Additional Facility), Aug. 25, 2000, at 28. The Metalclad 

panel stated that expropriation under NAFTA ‘‘includes not only open, deliberate and acknowledged takings of property such as outright seizure or formal or obligatory transfer of title in 

favor of the host state, but also covert or incidental interference with the use of property which 

has the effect of depriving the owner in whole or in significant part of the reasonably-to-be-expected economic benefit of the property.’’ 15 Award, Before the Arbitral Tribunal constituted Under Chapter 11 of the North American 

Free Trade Agreement, Metalclad Corporation v. the United Mexican States, International Centre for Settlement of Investment Disputes (Additional Facility), Aug. 25, 2000, at 33. 

16 Central America Free Trade Agreement, Final Version, Aug. 5, 2004, Annex 10–C, at 4(b). 

ing’’ 13 and that the entire property must be affected permanently. In contrast, 

NAFTA Chapter 11 tribunals have found that a government action need only 

cause ‘‘significant’’ or ‘‘substantial’’ impairment of an investment’s value to qualify as a taking.14 For instance, the Metalclad tribunal held that ‘‘expropriation 

under NAFTA includes not only open, deliberate and acknowledged takings of 

property—but also covert or incidental interference with the use of property 

which has the effect of depriving the owners in whole or significantpart, of the 

use or reasonably-to-be-expected economic benefit of property.’’ 15 USTR failed 

to remedy this problem in CAFTA. 

To make matters worse, CAFTA allows such claims regarding types of property 

not subject to takings action under U.S. law. U.S. law deems public interest policies 

governing personal property (property other than land) to be legitimate exercises of 

police powers and exempt from takings claims. In contrast, CAFTA’s broad definition of what categories of property are subject to compensation claims includes an 

array of non-real estate property such as assumption of risk and also bonds, loans, 

stocks, and intellectual property rights. 

In response to criticism that investment rules in CAFTA allow for broad regulatory takings claims, the USTR will likely point to CAFTA, Annex 10–C, which 

reads: ‘‘Except in rare circumstances, nondiscriminatory regulatory actions by a 

Party that are designed and applied to protect legitimate public welfare objectives, 

such as public health, safety, and the environment, do not constitute indirect expropriations.’’ 16 Unfortunately, this language has precisely the opposite effect claimed. 

This language enshrines the right of foreign investors to challenge a wide array of 

public health and safety regulations not be subject to U.S. taking claims. U.S. law 

safeguards all public interest regulations governing personal property, yet this language reiterates that such policies are subject to CAFTA challenge. Moreover, the 

U.S. government would have no capacity to affect whether such cases are brought 

only in ‘‘rare’’ circumstances. Foreign investors decide whether to file these cases. 

(And, the U.S. legal defense cost for just one such case, Methenex’s attack on California’s ban on the gasoline additive MTBE, has already cost $3 million in U.S. taxpayer funds.) Further, the ultimate decision whether or not to grant compensation 

in such challenges remains with investor-state tribunals on a case-by-case basis. 

Moreover, when deciding such cases, tribunals will reference other specific provisions of CAFTA that directly conflicts with the Annex’s general language. There 

have been numerous NAFTA cases involving toxic substances, including Phillip 

Morris’ threat against a proposed Canadian tobacco control law, and Canadian 

cattlemen’s NAFTA challenge of U.S. actions to prevent entry into the U.S. of mad 

cow disease. To avoid future such cases and to bring CAFTA into conformity with 

U.S. takings law, the scope of property subject to such claims in CAFTA needed to 

have been limited to real estate and the ‘‘indirect expropriation’’ language needed 

to have been eliminated, or at least defined in the context of U.S. takings standards 

that require that virtually all of a property’s value must be taken permanently to 

obtain compensation. 

• CAFTA Would Allow Compensation to Foreign Investors in Cases in 

which U.S. Law Only Permits Injunctive Relief: Under U.S. law, both foreign and domestic firms can sue under the Due Process or Equal Protection 

Clauses of the Constitution for injunctive relief, but they are not allowed to sue 

for monetary relief. Under NAFTA’s investment rules—and under CAFTA were 

it to be approved—foreign investors are empowered to sue for monetary relief 

on similar grounds. CAFTA extends this NAFTA problem by allowing foreign 

255 

17Lucas v. South Carolina Coastal Council, 505 U.S. 1003, at 1015–19 (1992). 

investors to obtain taxpayer compensation not only for claims of expropriation, 

but also based on national treatment (non-discrimination) and ‘‘fair and equitable treatment’’ claims—which are the trade agreement equivalent to Due 

Process or Equal Protection Clauses claims in U.S. law. • CAFTA Would Eviscerate the Long-established Principle that Governments Can Remedy a ‘‘Nuisance’’ without Compensating Polluters: The 

expansive definition in CAFTA of what sorts of foreign investments are subject 

to compensation covers government actions to prevent a public nuisance. Given 

the record of the related NAFTA provisions, this element of CAFTA is likely to 

generate further claims by chemical companies attempting to combat environmental regulation. Under NAFTA, foreign investors are demanding compensation for California’s ban of the gasoline additive MTBE which has been found 

to be polluting scarce water resources in the state and for California’s open pit 

mining reclamation law. Yet, under the U.S. Supreme Court holding in Lucas 

v. South Carolina Coastal Council, pollution that harms public or other properties is a nuisance that can be regulated by states without compensation.17

USTR failed to remedy this problem in CAFTA. • CAFTA Would Empower Foreign Investors to Overcome the Long-established Sovereign Immunity Shield to Pursue U.S. Taxpayer Compensation In Property Claims from which U.S. Residents and Companies Are 

Barred: NAFTA panels have explicitly refused to dismiss investor challenges 

when governments have raised sovereign immunity as a defense in investorstate challenges—apparently allowing firms to sue governments at any level regarding any issue for any amount of money. Indeed, in these cases, investorstate tribunals have accepted the argument raised by some foreign investors 

that Congress waived federal sovereign immunity when it passed NAFTA. 

USTR failed to remedy this problem in CAFTA with explicit language clarifying 

that sovereign immunity was not waived, thus providing an open door for future 

such challenges. 

3. CAFTA Would Forbid Congressional, States’ Anti-Offshoring Policies 

that Require Government Contract Work be Done by U.S. Workers; Forbids 

Environmental, Other Procurement Rules 

CAFTA’s rules on government procurement apply to an array of federal government agencies as well as the states that are listed as ‘‘covered entities’’ in Chapter 

9, Annex 9.12 (b) (i). In September 2003, the United States Trade Representative 

sent a letter to all 50 governors, requesting that they commit their states to be 

bound by the procurement provisions in all bilateral and regional trade pacts under 

negotiation, including CAFTA. The letter touted the potential for U.S. suppliers to 

bid on foreign government contracts, but failed to mention the requirements the procurement chapters CAFTA and other agreements imposed on states. Initially, twenty eight states were listed as bound in the CAFTA text. However, since then, state 

officials have become much more aware of the implications that binding state procurement policy to CAFTA’s rules would have on their ability to determine what 

procurement policies are in the best interests of the state, including policies that 

use state purchasing power to further social, environmental, and economic development goals. 

As a result, a majority of U.S. states (30) have rejected CAFTA’s government procurement rules and decided it is not in their best interest to be bound. In 2004, seven 

governors (from Iowa, Kansas, Maine, Minnesota, Missouri, Oregon, and Pennsylvania) rescinded their previous commitments on behalf of their states to be bound 

to CAFTA’s procurement rules. Other states (Montana, Nevada, Wisconsin, and Virginia) declined the USTR’s request outright. Governors of states that remain bound 

by CAFTA, including Texas and Washington, have requested that additional reservations be taken. (Only some of those requests have been incorporated into the 

CAFTA text. Washington’s request was rejected in an August 13, 2004 letter from 

Ambassador Zoellick to Washington Governor Gary Locke.) In early 2005, the National Conference of State Legislatures wrote to the USTR, requesting that the 

USTR respond to the myriad concerns of state legislators. The Intergovernmental 

Policy Advisory Committee (IGPAC) issued recommendations in August 2004 that 

state legislative leaders be carbon copied on all requests sent to governors, as state 

legislators to date have been cut out of the consultation process, despite the fact 

that in most states, the Legislative Branch has the authority to set state procurement policy. The USTR explicitly denied that request, and sent another letter to 

governors requesting that they sign on to the procurement provisions of free trade 

agreements with Panama and Andean countries. Most recently, in April 2005, the 

256 

18 Alan Guebert, ‘‘State Ag Directors Whack CAFTA, White House,’’ Aberdeen News, March 

11, 2005. 19 Jorge Arrizurieta, ‘‘A needed precursor to FTAA,’’ Florida Sun Sentinel, March 11, 2005 

Maryland General Assembly passed legislation over Governor Ehrlich’s veto which 

stipulated that it was the authority of the legislature, not the Governor, to sign on 

to the government procurement rules in trade pacts. The bill also declared invalid 

previous expressions of consent made by governors, including Governor Ehrlich’s letter offering to bind Maryland to CAFTA’s procurement provisions. 

State officials’ concerns stem from the restrictions that CAFTA’s rules impose on 

their ability to maintain existing and adopt new procurement policies in the public 

interest. CAFTA’s procurement chapter prohibits many common purchasing policies, 

seriously weakening governments’ flexibility to use procurement as policy tool to 

promote economic development, environmental sustainability, and human rights. 

These rules also apply to federal government procurement policies: 

• Requirements that Government Work Be Performed in the United States 

by U.S. Workers Are Prohibited: If CAFTA were approved, federal and state 

governments would be required to treat companies located in the six CAFTA 

countries identically to U.S. domestic companies when governments seek to procure goods and services. This means neither Congress nor state governments 

could give preference to domestic or local firms or require that to obtain government contracts, firms must employ U.S. workers (CAFTA Article 9.2). • Sweat-Free, Recycled Content, Renewable Source and Other Labor and 

Environmental Criteria Banned: CAFTA requires that ‘‘a procuring entity 

shall not prepare, adopt or apply any technical specification describing a good 

or service with the purpose or the effect of creating unnecessary obstacles to 

trade’’ and that technical specifications are limited to ‘‘performance requirements rather than design or descriptive characteristics.’’ These constraints 

mean that procurement policies that set criteria for how a good is made or how 

a service is provided are prohibited—putting preferences for recycled content or 

renewable energy, ‘‘green’’ building requirements, and bans on goods made with 

the worst forms of child or slave labor at risk as ‘‘barriers to trade’’ (CAFTA 

Article 9.7). • Consideration of Bidding Firms’ Labor, Tax, Environmental, Human 

Rights Records Forbidden: CAFTA limits what sorts of qualifications may be 

required of companies seeking to supply a good or service to a government. Conditions for participation in bidding are limited to ‘‘those that are essential to 

ensure that the supplier has the legal, technical and financial abilities to fulfill 

the requirements and technical specifications of the procurement.’’ CAFTA’s 

limits on the requirements that can be imposed on contractors prohibit conditions such as prevailing wage and living wage requirements, as well as consideration of suppliers’ environmental or labor track records (CAFTA Article 9.8). 

4. Opposition to CAFTA NAFTA Expansion Wide and Varied, Having 

Grown Since NAFTA 

As successive Administrations have failed to reverse the damage and demonstrated, significant problems of NAFTA’s foreign investor protection model, opposition has grown in all quarters. The Association of State Supreme Court Justices, 

U.S. League of Cities, National Conference of State Legislatures, National Association of Counties, and National Association of Towns and Townships all have expressed concerns about the investment provisions of CAFTA. 

Concerns about CAFTA’s foreign investor protection by these typically pro ‘free 

trade’ associations of state and local officials, groups that are concerned about our 

nation’s system of federalism and the integrity of our domestic courts, has been 

joined by outright opposition to CAFTA from other unexpected quarters, suggesting 

the degree to which this agreement signed a year ago is seen not to serve the U.S. 

national interest. The National Association of State Departments of Agriculture, for 

one, concerned about CAFTA’s agricultural provisions called on Congress to oppose 

CAFTA.18 These and other agricultural groups are concerned about declining farm 

revenue even as volumes of food trade increased under NAFTA, and that the United 

States is about to become a net food importer. Furthermore, these groups take to 

heart the claims of pro-CAFTA forces, who continually repeat that CAFTA is a stepping stone to a proposed broader Free Trade Area of the Americas (FTAA).19 Many 

U.S. economic sectors views of CAFTA are tied to their analysis of how competition 

with Brazil in a NAFTA expansion from Alaska to Tierra del Fuego would affect 

their export capacity in beef, soy, citrus, sugar and ethanol. 

Many other groups have also expressed opposition to CAFTA NAFTA expansion. 

Human Rights Watch has produced analyses of the failure of Central American 

257 

20Michael Bochenek, ‘‘Turning A Blind Eye: Hazardous Child Labor in El Salvador’s Sugarcane Cultivation,’’ Human Rights Watch Report, June 2004; ‘‘ Pregnancy-Based Sex Discrimination in the Dominican Republic’s Free Trade Zones: Implications for the U.S.-Central America 

Free Trade Agreement (CAFTA),’’ Human Rights Watch Briefing Paper, April 2004; Carol Pier, 

‘‘Deliberate Indifference: El Salvador’s Failure to Protect Workers’ Rights—implications for 

CAFTA,’’ Human Rights Watch Report, Dec. 2003; Judith Sunderland, ‘‘From The Household To 

The Factory: Sex Discrimination in the Guatemalan Labor Force,’’ Human Rights Watch Report, 

Jan. 2002. 21 U.S. Department of State, ‘‘Report on El Salvador,’’ 2001 Country Reports on Human Rights 

Practices. 22 ‘‘Another America is Possible: The Impact of NAFTA on the U.S. Latino Community and 

Lessons for Future Trade Agreements,’’ LCLAA and Public Citizen, Aug. 2004 23 Angus Reid Global Scan, ‘‘Guatemalans Decry CAFTA Deal With U.S.,’’ April 2005 24Karen Hansen-Kuhn, ‘‘Central Americans Speak Out Against DR–CAFTA: Major Issues and 

Mobilizations,’’ Alliance for Responsible Trade, Mar. 2005, at 10. 25 Rep. Charles B. Rangel, ‘‘Rep. Rangel Reacts to Reported ‘Threat’ from Administration Official to CAFTA Countries,’’ Press Statement, March 22, 2005. 26Sergio de Leon, ‘‘Police, protestors clash ahead of Guatemala-U.S. free trade vote,’’ Associated Press, Mar. 9, 2005. 

labor law and enforcement practices to meet the minimal International Labor Organization core labor standards,20 an analysis that has been confirmed by the U.S. Department of State’s annual human rights reports.21

And U.S. Latino organizations who supported NAFTA, from the nation’s largest 

and oldest Hispanic civil rights organization the League of United Latin American 

Citizens to an array of immigrant rights groups representing Central Americans in 

the United States, have also indicated their opposition the current terms of the 

agreement, concerned that trade-related job loss disproportionately affects U.S. 

Latinos and that CAFTA’s negative repercussions for Central America are foretold 

by NAFTA’s negative results in Mexico.22

5. Central American Public Opposition to CAFTA NAFTA Expansion Is 

Based on NAFTA;s Record of Destroying the livelihoods of 1.5 Million Mexican Small Farmers and U.S. Heavy-Handed Tactics Forcing Price-Raising 

Medicine Policies, Essential Service Privatizations 

Lawmakers concerned about the implications of the so-called ‘‘Arab Street’’ in the 

Middle East should also pay attention to the passionate CAFTA opposition on the 

‘‘Latin Street’’ of Central America. Nearly one out of every 25 El Salvadorans have 

publicly rallied against CAFTA in the past several years, and polls indicate that a 

majority of citizens in Guatemala and elsewhere oppose the terms of CAFTA.23 In 

Honduras, Guatemala and Nicaragua, massive protests have also occurred against 

CAFTA, while it is unclear if Costa Rica’s congress will approve the deal.24

Officials from the U.S. Trade Representative’s office have taken to threatening 

Costa Rica that if the democratically-elected Congress there determines the pact is 

not in their nation’s interest and rejects it, the United States will remove that nation’s existing terms of access to the U.S. market provided under the Caribbean 

Basin Initiative (CBI). These threats continue today despite the March 2005 letter 

by Ways and Means Committee Ranking Member Charles Rangel (D–NY) calling 

upon the Administration to desist these misleading pronouncements. As Rep. Rangel’s letter pointed out, CBI is a ‘‘congressionally mandated program [whose] benefits are guaranteed on a permanent basis, unless the Congress amends current U.S. 

law.’’ The representative said he would oppose such an amendement of U.S. law, 

characterizing the Administration’s remarks as ‘‘thinly veiled blackmail.’’ 25

Regardless of the Administration’s bullying and disrespectful treatment of some 

CAFTA countries, certainly Congress would be concerned with the underlying cause 

of such passionate opposition to CAFTA in Central America—opposition whose protests have been met with increasing violence by governments. This includes the 

murder by military troops in Guatemala of two Mayan protestors—an act of military 

violence by the army explicitly forbidden in the 1996 peace accords.26

The causes of opposition include CAFTA’s service sector rules, which would require these nations to privatize and deregulate numerous essential services such as 

energy and other utilities, health care and more, as well as foreign investor protections, which would create a new set of rights for foreign investors to acquire ownership over natural resources and land and pharmaceutical patent requirements, including extended data exclusion terms, which would hurt poor people’s access to 

medicines and take Central American governments’ abilities to respond to public 

health crises such as HIV–AIDS. Fury about these severe threats has been exacerbated by the Administration’s heavy handed tactics, for instance in pressuring GuaVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00261 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
258 

27 Catherine Elton, ‘‘Activists Fear Free Trade Act Will Restrict Access to AIDS Drugs in Central America,’’ Voice of America, April 2005. 28 ‘‘The Real Record on Workers’ Rights in Central America,’’ AFL–CIO, Apr. 2005. 29 U.S. Chamber of Commerce, ‘‘Chamber Hails Economic, Job Benefits of DR–CAFTA,’’ Issue 

Briefing, Feb. 2005. 30Todd Tucker, ‘‘Fool Me Twice? Chamber of Commerce Distorts NAFTA Record, Hides 

CAFTA Costs,’’ Public Citizen, Mar. 2005. 31 Rossella Brevetti, ‘‘Ambassadors from Central America, Dominican Republic Urge Action on 

FTA,’’ BNA No. 27, Feb. 10, 2004. See also, Martin Vaughan, ‘‘Pro-CAFTA Business Alliance 

Lobbying House Members,’’ Congress Daily PM, Jan. 25, 2005. 32Kristi Ellis, ‘‘China’s First Qtr Surge,’’ Women’s Wear Daily, April 4, 2005. 33Paul Magnusson, ‘‘This Trade Pact Won’t Sail Through,’’ Business Week, March 28, 2005. 

temala to rescind a law that would have improved access to generic, life-saving 

medicines or in threatening Costa Rica with removal of CBI benefits.27

Now major Central American political parties, Catholic bishops, the Central 

American Council of Churches and other mainstream, important Central American 

interests have come out against CAFTA as a threat to the region. In addition, eighteen of the most democratic, independent and representative union federations 

throughout Central America representing workers in the private and public sector, 

including in export-oriented manufacturing and agriculture, have demanded stronger workers rights than those provided under CAFTA.28 They have noted that the 

existing CBI arrangement affords concerned citizens with the International Labor 

Organization core rights and with the greater ability to improve Central American 

labor law than the proposed CAFTA’s roll-back CBI labor provisions. 

6. Given the NAFTA Record and Growing Central American Public Opposition, CAFTA Supporters Resort to Increasingly Dubious Arguments . . . 

Given this broadscale U.S. and Central American opposition to a NAFTA expansion, pro-CAFTA forces have increasingly resorted to disconnected arguments and 

exaggerated and misrepresentative claims about the agreement. For instance, the 

U.S. Chamber of Commerce has produced a flawed study projecting U.S. economic 

gains from a Central America agreement. But to obtain that conclusion, the Chamber had to assume that—contrary to the history of every trade agreement the 

United States has signed—the United States would receive no new imports from the 

CAFTA countries if the pact went into effect.29 The study’s methodology additionally 

implies that over 80 percent of the Honduran economy would have to absorbed by 

U.S. exports by 2013, a potentially socially and economically destabilizing outcome 

if true.30

Despite this projection that Central American countries would not gain from a 

CAFTA, pro-CAFTA forces have simultaneously asserted that CAFTA would save 

the U.S. and Central American textile industries from the end of the global textile 

and apparel quota system.31 Here too, their claims are wildly misleading, since experts from the U.S. International Trade Commission to the Organization for Economic Cooperation and Development (OECD) have demonstrated that China enjoys 

a significant technological, wage and input cost advantage over the Central American countries. This means that, with or without a CAFTA, the expiration of the 

Multi Fiber Arrangement quota system will result in Central America losing a great 

deal of its current production and employment in the textile and apparel industry. 

The notion that CAFTA would affect this situation is beyond bizarre. Already 

under CBI, CAFTA countries’ textile and apparel exports enter the United States 

duty free. CAFTA provides no additional benefit for entry. Indeed, CAFTA loosens 

the CBI rules of origin, meaning more Chinese goods could enter through CAFTA 

countries if CAFTA were implemented than are now permitted. 

Already, apparel imports from China jumped amount in the first quarter, and by 

as much as 1,521 percent in some customs categories.32 While Congress may seek 

to address this flood of cheap Chinese imports, this is a separate problem than 

CAFTA and would require a separate solution. The debate around CAFTA is not 

a question of ‘‘whether U.S. workers would rather lose their jobs to China or to Central America,’’ as Carlos Sequeira, Nicaragua’s chief CAFTA negotiator put it.33

Congress should instead focus on the flaws of CAFTA, which would loosen CBI’s requirement that U.S. inputs be used to enjoy duty-free access to the U.S. market and 

undermine CBI’s labor rights protections, while still not proffering to the dying Central American industry any access benefits that they do not already enjoy through 

CBI. 

Conclusion 

The bottomline in Congress’ consideration of CAFTA should be whether extending 

the NAFTA model will help us create a brighter future for our children and grandVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00262 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
259 

children. Even considering only the well-documented NAFTA record of undermining 

the livelihoods of 1.5 million Mexican farmers, suppressing real median wages in 

the United States and Mexico, gutting the U.S. manufacturing base, coinciding with 

record-low prices paid farmers for the food they produce in all three countries even 

while consumer prices increased, and exposing some 42 domestic environmental, 

health, zoning and laws and regulations to attack in closed investor-state tribunals 

and the payment of some $35 million in taxpayer funds to foreign investors for the 

lost NAFTA-guaranteed profits they lost, it seems quite clear the answer is no. If 

one adds to the NAFTA evidence the problems caused by the CAFTA provisions that 

go beyond even what NAFTA requires—for instance in the foreign investor protections chapter or regarding drug patents—the answer becomes only clearer. 

As a group that works with consumer organizations around the world, we would 

urge Congress to oppose this agreement simply on the basis of its intellectual property rules which are certain to undermine affordable access to essential medicines 

for poor consumers in the Central America. Many other organizations are submitted 

testimony about these scandalous provisions of CAFTA NAFTA expansion. At issue 

are life or death matters: generic versions of the cocktail of anti-retroviral drugs essential to extending the lives of those infected with HIV cost several hundred dollars 

for a yearlong course while the brand name patented version of the same drugs cost 

$5,000 per year. If the CAFTA drug patent rules would go into effect in the Central 

American countries and the Dominican Republic, many people now able to have access to these life saving HIV–AIDS medicines and also drugs vital to fighting tuberculosis and other deseases will not have access to these medicines—either because 

they cannot afford to purchase them or because their government health agencies 

cannot afford them to provide to their public. 

Thus given CAFTA NAFTA expansion’s potential extension of the failures of 

NAFTA to people in six additional nations and the damage to U.S. residents that 

further extension of this model would pose, we urge Congress to oppose NAFTA’s 

expansion to Central America and beyond. 

f 

Statement of Lori L. Denham, Retail Industry Leaders Association, 

Arlington, Virginia 

On behalf of the Retail Industry Leaders Association, we welcome the opportunity 

to submit written comments for the record for this important hearing on the United 

States-Dominican Republic-Central American Free Trade Agreement (DR–CAFTA), 

now coming before the Congress for implementation. We strongly support the DR– 

CAFTA agreement and urge swift Congressional passage of the implementing legislation. 

By way of background, the Retail Industry Leaders Association (RILA) represents 

the nation’s most successful and innovative retailer and supplier companies—the 

leaders of the retail industry. (As a sector, retail is the second largest industry in 

the U.S., employing 12 percent of the nation’s total workforce and conducting $3.8 

trillion in annual sales. RILA’s retail and product supplier companies operate 

100,000 stores, manufacturing facilities and distribution centers in every congressional district in every state, as well as internationally. They pay billions in federal, 

state and local taxes and collect and remit billions more in sales taxes. They are 

also leading corporate citizens with some of the nation’s most far-reaching community outreach and corporate social responsibility initiatives. 

RILA fully believes that passage of this agreement will: 

• benefit the U.S. economy—producers and consumers alike; 

• strengthen freedom and security in our Hemisphere; 

• improve working conditions; 

• activate critically important textile-apparel-footwear provisions; and 

• enhance the legal framework for retail and distribution services. 

The DR–CAFTA Will Benefit the U.S. Economy—Producers and Consumers 

Alike 

Central America and the Dominican Republic make up the second-largest U.S. export market in Latin America, behind only Mexico. U.S. sales in the region exceed 

$15 billion annually—more than is sold toRussia, India and Indonesia combined— 

a result achieved in the absence of reciprocal trade liberalization. Upon full implementation of the agreement, U.S. goods will be able to enter the participating countries duty free. In fact, 80% of the commercial goods will become duty free once the 

agreement is implemented, with the rest phased out over a ten-year period. This 

260 

will help to significantly increase U.S. exports of farm products, manufactured goods 

and services to the region. According to a report by the International Trade Commission on the economic impact of the agreement, once the agreement is fully implemented, exports will grow by nearly $2.7 billion. 

In addition to increased benefits for U.S. exporters, U.S. importers and their customers will benefit from implementation of the DR–CAFTA as well. Most Central 

American products already enter the United States duty-free, under preference programs such as the Caribbean Basin Trade Partnership Act (CBTPA). Enshrining 

this treatment in an international agreement with reciprocal obligations will provide 

added commercial security as well as a firmer legal basis under WTO rules. This 

aspect of the FTA is in effect a tax cut targeted to those consumers who need it 

most. 

The DR–CAFTA Will Strengthen Freedom and Security in Our Hemisphere 

Within recent memory, conditions in Central America have featured civil war, 

chaos, dictators, and Communist insurgencies. Today, the region is one of fragile democracies that need U.S. support. Elected leaders are embracing freedom and economic reform, fighting corruption, and supporting U.S. anti-narcotics and anti-terrorism efforts. But this positive momentum cannot be taken for granted. Opponents 

of reform in the region remain strong. 

By implementing the DR–CAFTA, the United States can demonstrate its support 

for freedom, democracy, the rule of law, and economic reform in Central America. 

Doing so will bolster U.S. security in various ways. The new economic opportunities 

will reduce the pressures that help produce illegal narcotics activity and illegal immigration. 

The DR–CAFTA Takes the Right Approach on Working Conditions 

America’s retailers are committed to careful supply chain management and high 

ethical standards of corporate conduct in international sourcing. This applies to 

products sourced in not just in Central America, but around the world. Our experience with the DR–CAFTA countries has shown that they share these values and 

high standards, including the field of labor rights. Their constitutions and national 

laws generally provide strong labor protections consistent with the International 

Labor Organization’s four ‘‘core principles.’’ Indeed, labor protections in these countries are largely in line with those in Morocco and Jordan, whose accession to the 

status of ‘‘FTA partner’’ gained overwhelming Congressional approval in recent 

years. 

The DR–CAFTA will promote economic opportunities and growth that are likely 

to become powerful catalysts for improved working conditions in the region. 

Through capacity-building and dispute settlement, the DR–CAFTA will also address 

those circumstances where better enforcement of existing labor laws proves necessary. 

The DR–CAFTA’s Textile-Apparel-Footwear Provisions Will Benefit Consumers and Producers Throughout the Value Chain 

The textile and apparel product category is a hugely important component of U.S.- 

Central American trade, and retailers are committed to finding the best available 

combination of speed-to-market, product price, and quality of products for their consumers. U.S. consumers will benefit from several innovative DR–CAFTA provisions 

promoted by retailers to add needed flexibility to the outdated ‘‘yarn forward’’ rule 

of origin. Moreover, qualifying textile and apparel products are to be afforded immediate U.S. duty free treatment. 

Retailers are also quite interested in the health of regional textile and apparel 

producers—our valued suppliers. The DR–CAFTA is strategically designed to improve their competitive situation at a time when, following the expiration of global 

textile and apparel quotas, they face a formidable challenge from outside the hemisphere, most notably China. The DR–CAFTA will provide regional garment-makers—and their U.S. suppliers of fabric, yarn and other components—a boost in competing with Asian producers and will support an estimated 400,000 jobs in the DR– 

CAFTA countries and 700,000 jobs in the U.S. cotton, yarn, textile and apparel sectors. 

In addition to benefits for textiles and apparel, there are significant benefits for 

footwear imports in the DR–CAFTA. A solid consensus in all segments of footwear 

manufacturing and retailing favors immediate duty-free treatment for footwear 

traded among the DR–CAFTA countries, excluding a few import-sensitive tariff 

lines. By delivering this outcome, the DR–CAFTA lays the groundwork for increased 

trade and investment in the footwear sector, supports retailer strategies designed 

to maintain geographically diverse sourcing options, provides substantial benefits to 

consumers, and poses no risk to U.S. footwear production. 

261 

The DR–CAFTA Enhances the Legal Framework for Retail/Distribution Services 

For the first time in a trade agreement, the DR–CAFTA addresses restrictions on 

distribution created through restrictive dealer protection regimes. Such regimes are 

prevalent in Central America today and have locked U.S. companies and products 

into inefficient, exclusive and effectively permanent relationships with local dealers 

regardless of performance. DR–CAFTA rules would require dealer distribution 

agreements to permit parties to terminate at the end of the contract or renewal period without indemnification. These rules will promote more efficient distribution for 

U.S. companies and products in the DR–CAFTA region. 

The DR–CAFTA, Once Implemented, Can Be Improved Over Time 

No FTA is perfect, and as with other FTAs, experience under the DR–CAFTA may 

reveal opportunities for useful adjustments in areas like rules of origin, accelerated 

tariff phase-out, etc. Some improvements may require the negotiated approval of all 

the DR–CAFTA parties; others may be of the type the United States can make unilaterally. The implementing legislation should establish a flexible and streamlined 

framework for making such adjustments over time, using available tools such as 

proclamation authority and consultation/layover. 

RILA congratulates the Ways and Means Committee for turning its attention to 

this important agreement, and stands ready to assist as the implementation process 

moves forward. If you have any questions, please contact Lori Denham, Senior Vice 

President Policy and Planning or Jonathan Gold, Vice President Global Supply 

Chain Policy. 

f 

Statement of the Honorable Hilda L. Solis, a Representative in Congress 

from the State of California 

Mr. Chairman, thank you for the opportunity to offer my concerns regarding this 

important issue. I strongly oppose the Dominican Republic-Central American Free 

Trade Agreement (DR–CAFTA). 

DR–CAFTA is largely based on the North American Free Trade Agreement 

(NAFTA). By signing DR–CAFTA, the Bush Administration has ignored the mistakes of NAFTA. Ten years ago, NAFTA proponents promised increased wages and 

economic development in the United States, Mexico, and Canada and decreased migration. The agreement has failed on all accounts. 

As in Mexico with NAFTA, DR–CAFTA would cause the loss of family farms and 

lure more workers, most of them women. DR–CAFTA may create jobs of women, but 

the working conditions are unimaginable to the American public. The bulk of these 

jobs are in the Export-Processing Zones, also known as maquiladoras. 

I have visited Mexico and seen firsthand the devastating consequences of NAFTA. 

In the maquiladora zone in Ciudad Juarez and other border cities, wages are low, 

union organizing is suppressed, and industrial pollution jeopardizes the health of 

workers and residents. 

Women that work in the maquiladoras have reported forced pregnancy testing, 

sexual harassment, and physical abuse. DR–CAFTA does not require compliance 

with international labor rights and does not protect women from discrimination. Inadequate free trade agreements, such as NAFTA, not only hurt our women workers, 

but also hurt American workers. 

Over 750,000 jobs in the United States have been lost due to NAFTA and immigration to the United States has only increased. DR–CAFTA will mean more job loss 

and wage decline for American workers. U.S. Latino workers have been disproportionately hurt by NAFTA because they tend to be concentrated in industries such 

as textiles and other manufacturing sectors. 

While Latinos represent 12.6% of the total U.S. workforce, they account for 26% 

of textile and apparel industry workers. In California, Latinos make up an estimated 80% of the California garment industry, which has been especially hard-hit 

by NAFTA’s impact. As a result, Latino workers have been significantly hurt by 

NAFTA. According to the Department of Labor, 47% of individuals that applied for 

NAFTA’s Trade Adjustment Assistance (TAA) program due to lay offs were Latino. 

Americans believe that we should NOT peruse future free trade agreements similar to NAFTA. In fact, the League of United Latin American Citizens, LULAC, the 

oldest and largest Latino organization in the U.S. publicly opposes DR–CAFTA. 

LULAC claims that DR–CAFTA ‘‘falls short of being acceptable’’ and fear that 

262 

1 U.S. International Trade Commission, U.S.-CentralAmerica-DominicanRepublic Free Trade 

Agreement: Potential Economy-Wide and Selected Sectoral Effects, August 2004 at pp. 59–72. 

CAFTA will unleash enormous loses for all workers, in the U.S. and Central America. 

As the only Member of Congress of Central American descent, I understand the 

importance of supporting efforts to promote sustainable development and preservation of the agricultural sector in that region. However, U.S. policy towards Latin 

America should go beyond free trade policies that do little to raise wages and working conditions for the poor. 

Those who oppose DR–CAFTA do so because of the irreparable harm it will have 

to the economy and workers of Central America and the United States. We can not 

allow the failures of NAFTA be reproduced through DR–CAFTA. 

f 

Statement of Jeff Vogt, Washington Office on Latin America 

On May 28, 2004, the United States and the Central American countries (Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica) signed the U.S.-Central 

America Free Trade Agreement (CAFTA) in the Hall of Americas in the Organization of American States. Upon signing the agreement, U.S. Trade Representative 

Robert Zoellick suggested that ‘‘CAFTA will put the U.S. relationship with Central 

America on a more solid, mutual foundation, firmly grounded in our shared commitment to democracy, free markets, free people, and hope.’’ The Washington Office on 

Latin America (WOLA), however, is deeply concerned that DR–CAFTA will only result in free markets without the anticipated freedom and hope for the millions of 

people in the region. In particular, WOLA believes that DR–CAFTA’s provisions on 

agriculture, labor and intellectual property will frustrate, rather than promote development in the region. WOLA therefore urges all members of congress to reject 

DR–CAFTA. 

1. DR–CAFTA Will Increase Rural Unemployment and Jeopardize Food Security 

DR–CAFTA’s likely impact on the Central American rural sector is a cause for 

concern. Under the agreement, the Central American countries will eliminate over 

time tariffs on basic grains, such as rice, beans and corn, products on which the 

lives of millions of people now depend. With ever-greater access to the Central 

American market, U.S. agro-export corporations, which produce and export grains 

at artificially low prices due to government supports, will undercut their Central 

American counterparts, mostly small and family farmers. Dumping cheaper, subsidized grains into the Central American market could lead to a significant loss of 

agricultural jobs, creating greater poverty, hunger and rural emigration. Indeed, a 

2004 U.S. International Trade Commission report on DR–CAFTA projects that Central America will significantly increase imports of basic grains upon implementation 

of the agreement.1 In a region where roughly half of all employment is in agriculture, this will have devastating long-term effects. 

a. The Face of the Central America Rural Sector 

Agriculture still remains the largest source of employment in many Central American countries. In Guatemala, Honduras and Nicaragua, agriculture still remains 

the largest source of employment, engaging 52.5, 43.9 and 43.2% of the economically 

active population respectively. In the U.S., by comparison, only 2% of the labor force 

is employed in the rural sector. In addition, the region is dependent on a few, key 

export crops, which are highly vulnerable to the volatility of international markets. 

In Central America, poverty is concentrated in the rural sector. According to the 

International Fund for Agricultural Development, 64% of Latin America’s rural population lives in poverty, compared to 59.9% in 1980. Official support for the rural 

sector has also declined significantly over the last two decades, and structural adjustment programs in the 1980s and ‘90s have resulted in minimal investment in 

rural infrastructure, financial services and human capital in the region. Not only 

has productivity of Central American farms suffered as a result, but lack of overall 

employment opportunities has been the impetus of outward migration to the U.S. 

b. Potential Impacts and Lessons Learned 

The U.S. steadfastly refused to discuss the issue of subsidies to its own agricultural producers, preferring to discuss this issue at the level of the WTO. In response, the Central American negotiators and producer federations demanded that 

263 

sensitive agricultural crops such as basic grains, dairy and pork be exempt from the 

negotiations until the U.S. eliminates its unfair agricultural subsidies. Again, the 

U.S. refused any exemptions for these products. This forced the Central American 

governments to offer a weaker proposal for special and differential treatment; they 

called for increased market access for some products and the maintenance of high 

tariffs and longer liberalization periods for sensitive agricultural products. Once 

again, the U.S. refused. 

According to the Mesoamerican Initiative for Trade Integration, Central Americans conceded much more than they received in agriculture. By the end of the negotiations, the four remaining Central American countries received a small amount of 

new market access for certain products such as sugar, and a 15 to 20 year liberalization period for several sensitive crops. Farmers, analysts and government negotiators alike recognize that these are very small gains, compared to the blows the 

agricultural sector will sustain under CAFTA. On December 31, 2003 the lead Guatemalan Negotiator Guido Rodas, stated, ‘‘Rice, pork, corn, beer, telecommunications 

and generic medicines are among the losers who will pick up the tab of the CAFTA 

negotiation.’’ 

Some proponents of CAFTA have argued that small-scale farming in Central 

America is a dying industry, and that subsistence farmers are becoming obsolete in 

the global economy. However, far from obsolescence, small and medium-scale agriculture plays multiple, important roles in Central America. Small and medium 

farms create significant rural employment, with backward and forward linkages in 

the rural economy. Local food production is also important for food security and nutrition. Small farmers play an important role as environmental stewards, caring for 

the land, just as agriculture plays an important cultural and historical role in the 

social fabric of Central America. Finally, rural development and opportunities in agriculture help to decrease migratory pressure on cities and the U.S. 

It has been said that trade agreements create winners and losers; there are people 

who benefit from trade liberalization, and those who do not. NAFTA has demonstrated, as will DR–CAFTA if it passes, that the biggest losers in these trade 

deals are in the agricultural sector, especially small and medium farmers and day 

laborers. The experience of NAFTA in the Mexican agricultural sector is illustrative. 

At least 1.5 million Mexican farmers lost their livelihoods to NAFTA. According to 

a Carnegie Endowment for International Peace report published in 2004, approximately 8 million of Mexico’s active labor force worked in the agriculture sector in 

1993; by 2003, it was roughly 6.5 million. The report states, ‘‘Agricultural trade liberalization linked to NAFTA is the signal most significant factor in the loss of agricultural jobs in Mexico.’’ Similarly, a recent report by Oxfam International, entitled 

‘‘A Raw Deal for Rice,’’ predicts that 1.5 million jobs directly and indirectly related 

to the rice sector could be lost upon full implementation of DR–CAFTA. 

As proponents of NAFTA then argued, displaced farmers will simply move to new 

industries, but job creation—particularly in the export processing sector—is being 

eroded as jobs move to new markets in Asia. The situation is even worse now with 

the expiation of the Multi-Fiber Agreement. Without quotas, many small and medium sized producers are likely to close. A 2004 report issued by U.S. AID on the 

garment industry in the Dominican Republic, for example, projects that the garment 

exports to the U.S. will decrease by 25% even after DR–CAFTA is implemented. Although the impact of the phase-out is expected to be softened slightly by CAFTA, 

the agreement is by no means a salvation. 

Congress must view trade agreements and the impact of trade through the lens 

of poverty reduction, and measure the agreements by the extent to which people are 

able to exercise their economic and social rights. Trade is an important factor in any 

economy, but, as studies such as the Carnegie report demonstrate, agricultural liberalization is not good for developing countries that have huge trade asymmetries 

vis-&-vis their trading partners. Like their Mexican counterparts, Central American 

farmers will be unable to compete against highly subsidized production in the U.S. 

and elsewhere in the developed world. This will result in increased poverty, greater 

levels of rural unemployment and more migration—further violating Central Americans economic and social rights. Simply put, CAFTA is not the development strategy 

that the region needs. 

2. The CAFTA Labor Chapter Is Insufficient to Address Systematic Labor 

Violations 

The labor laws of the Central American countries fail in many respects to meet 

the minimum standards set forth in international instruments such as the ILO’s 

Fundamental Declaration of Rights at Work. Moreover, enforcement of labor rights 

is seriously deficient. In some cases, for example, labor ministry personnel encourage or participate in employer abuses of workers’ rights by acting upon illegal reVerDate Aug 31 2005 07:05 Feb 18, 2006 Jkt 023918 PO 00000 Frm 00267 Fmt 6633 Sfmt 6621 E:\HR\OC\23918.XXX 23918
264 

quests that harm workers. In other cases, labor ministry officials use obstructionist 

tactics to avoid granting recognition to unions. The action or inaction of labor courts 

also deny workers their rights, as long delays in court proceedings, at times due to 

judicial collusion with employers or simple incompetence, and non-enforcement of 

court orders result in the effective denial of justice to workers 

The situation of impunity with regard to workers’ exercise of freedom of association and collective bargaining is a serious problem that undermines the rule of law 

and the prospects for social and economic justice throughout Central America. This 

situation can only be addressed by policies that promote democratic, equitable, and 

sustainable development, based on respect for fundamental labor and human rights. 

As explained below, the CAFTA does not contain adequate mechanisms that encourage positive labor law reform or, indeed, discourage retrenchments in existing laws. 

Indeed, the labor chapter does little to even ensure that existing laws are adequately enforced. Because the CAFTA will not encourage social and economic development, as it does not adequately promote respect for the fundamental human 

rights of the people of Central America, CAFTA must be opposed. 

a. DR–CAFTA Does Little to Protect Worker Rights 

At a February 9, 2005 conference hosted by the Center for Strategic and International Studies (CSIS), former U.S. Trade Representative Mickey Kantor rejected 

the DR–CAFTA for its lack of an adequate, enforceable labor clause. ‘‘I think it 

should go back to negotiating table,’’ said Kantor, who found several shortcomings 

with the labor clauses negotiated in various free trade agreements by the current 

USTR. Upon reading Chapter 16, the labor chapter, and with an understanding of 

the labor laws of the region, it is obvious why Mr. Kantor concluded that the DR– 

CAFTA as ‘‘a major step backwards on this issue.’’ 

Under Chapter 16, member states are under absolutely no obligation to meet the 

core labor standards articulated by the International Labor Organization (ILO), or 

the international worker rights standards incorporated into previous, unilateral U.S. 

trade laws. Rather, member states have committed only to ‘‘strive to ensure’’ that 

these principles are protected by local law. Incredibly, member states do not have 

to strive to eliminate discrimination in employment, as that right is explicitly beyond the scope of the agreement. Thus, only a ‘‘fail[ure] to effective enforce [] labor 

laws, through a sustained or recurring course of action or inaction, in a manner effecting trade between the Parties’’ could ever subject a country to a fine. Even then, 

Article 16.2(a) excuses the action or inaction of member state if it is deemed ‘‘a reasonable exercise of discretion’’ or a ‘‘bona fide decision regarding the allocation of 

resources.’’ Thus, the negative ‘‘failure to enforce’’ standard may be denied any force 

of law if a member state can satisfy the ambiguous test of ‘‘reasonableness’’ or show 

that their under-funded Ministries of Labor allocated resources toward some other 

reasonable objective. 

Because local labor laws in many respects fall short of international minimum 

standards, the CAFTA language does nothing more than requires that existing, inadequate practices be continued. Moreover, a member state is under no enforceable 

obligation to maintain those inadequate laws and could weaken those laws further 

to gain an unfair trade advantage. As such, a country may violate international 

labor law and continue to enjoy all of the market access benefits of the trade agreement. The procedures and remedies for addressing violations that do exist under 

CAFTA are completely also inadequate. The labor enforcement procedures cap the 

maximum amount of fines and sanctions available at an unacceptably low level, and 

allow violators to pay fines to themselves with little oversight. These provisions not 

only make the labor chapter’s one limited obligation virtually unenforceable, they 

also differ dramatically from the enforcement procedures and remedies available for 

commercial disputes. 

b. DR–CAFTA is Weaker Than Previous Agreements 

The texts of previous free trade agreements demonstrate that the USTR is capable of negotiating a more rigorous labor clause when it so decides. The labor clause 

negotiated in the U.S.-Jordan Free Trade Agreement is one such example. The 

USTR’s ‘‘fact sheets’’ aside, the U.S.-Jordan Agreement is far superior to DR– 

CAFTA on the issue of labor rights. Under U.S.-Jordan, all labor right obligations, 

not simply the obligation to enforce domestic laws, may be brought under the dispute resolution and enforcement mechanisms. For example, a claim that a state 

party relaxed its laws to attract trade or that it failed to ensure that its domestic 

laws provided protections consistent with international labor standards could be 

brought under Jordan, but not DR–CAFTA. This is a critical distinction. Moreover, 

the dispute resolution mechanism in U.S.-Jordan is the same as the commercial 

mechanism; the same is not true of DR–CAFTA. 

265 

The CAFTA labor chapter is also a step backwards from the Generalized System 

of Preferences (GSP), the only tool that has generated the political leverage to demand the reform of labor laws in Central America. U.S. unilateral trade preference 

programs provide for the withdrawal of trade benefits if steps are not taken to meet 

international labor standards, including steps to reform weak domestic laws. Almost 

every labor law reform that has taken place in Central America over the past fifteen 

years has been the result of the threat to withdraw trade benefits under our preference programs. Indeed, on the merits of petitions submitted by the AFL–CIO and 

the International Labor Rights Fund, Guatemala was put under GSP review in 2002 

for its failure to amend its labor code consistent with international standards, its 

failure to effectively enforce its existing labor code and its failure to investigate the 

murder of numerous trade unionists. This important tool will be lost once the 

CAFTA is enacted. 

c. The White Book Should Not Assuage Concerns 

The much anticipated ‘‘white book,’’ entitled ‘‘The Labor Dimension in Central 

America and the Dominican Republic,’’ does little to assuage WOLA’s well founded 

fear that the governments of Central America and the Dominican Republic will fail 

to adopt, implement and/or enforce internationally recognized worker rights. Indeed, 

the book demonstrates that the Labor Ministers are in denial about their labor laws. 

The white book repeats the often stated myth that the reports authored by the 

International Labor Organization (ILO) in 2003 and 2004 held that the constitutions 

and labor codes of Central America incorporate ILO fundamental rights and principles. This is simply not true. For example, a letter from the House Committee of 

Ways and Means to the U.S. Trade Representative, dated April 5, 2005 identifies 

over twenty instances where, according to reports from the ILO and the State Department, Central American labor laws still fail to comply with international norms 

relating to freedom of association and collective bargaining. Far from being technical 

violations, these substandard laws prevent workers from exercising their basic 

rights. 

Also, while the white book acknowledges some of the most serious problems on 

the issue of enforcement and makes several recommendations to correct them, it is 

worth noting that a number of those reforms have been promised for years and have 

yet to materialize. In other cases, Legislation to reform some of these laws has been 

languishing in the legislature for years for lack of political will. Moreover, it does 

not appear that there are any new funds currently allocated to act upon the report’s 

recommendations. The authors call for a conference of donors to be held within 30 

days to obtain commitments on funding the recommendations and further funding 

for management of the technical assistance. Given the deep cuts in the U.S. international labor affairs budget, it is unlikely that sufficient funds will be allocated. 

d. The Case of Guatemala 

As firmly established by the International Labor Organization, Guatemalan labor 

law simply fails to meet international labor standards. These shortcomings have 

been elaborated numerous times by the ILO’s Committee of Experts on the Application of Conventions and Recommendations (CEACR), by local and international 

trade unions, and by GSP petitioners. Although Guatemala did approve labor reforms in April 2001 (Decree 18–2001), these reforms did not take into account many 

of the ILO’s observations. Moreover, key aspects of those reforms were recently challenged and deemed unconstitutional by the Constitutional Court of Guatemala in 

August 2004. The much-needed additional reforms to the Labor Code, promised by 

the Berger Administration, have still not been enacted. 

Most troubling is that the Constitutional Court divested the General Inspector of 

Labor of its authority to levy administrative fines against labor-law violators in August 2004. Until the labor code is reformed, labor inspectors will be essentially powerless to punish violations of labor rights in Guatemala. Given that the only enforceable clause in the DR–CAFTA is that a country enforced its own laws, Guatemala 

is simply unable to comply with this basic requirement. 

These and other concerns, including continuing violence against trade unionists, 

were raised in a recent GSP petition, filed with the USTR on December 13, 2004. 

The USTR has yet to determine whether to accept the petition. The full petition is 

available at: http://www.wola.org/economic/cafta_gsp_petition_press_release.htm. A 

letter from over 30 members of congress to the U.S. Trade Representative, in support of the GSP petition, is available at: http://www.wola.org/guatemala/ 

gsp_dear_colleague_letter.pdf. 

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3. The Intellectual Property Chapter Goes Beyond TRIPS, Threatening Access to Affordable, Generic Medicines 

International conventions, including the International Covenant on Economic, Social and Cultural Rights (ICESCR), recognize that access to health care is a fundamental human right. For example, Article 12 of the ICESCR obliges states to ‘‘recognize the right of everyone to the enjoyment of the highest attainable standard of 

physical and mental health.’’ Of course, access to affordable medicine is an integral 

part of the right to health care. In the trade context, the TRIPS Agreement, together with the Doha Declaration, requires that intellectual property rules will not 

interfere with promoting access to medicines. DR–CAFTA does not embody the letter or the spirit of these international obligations, frustrating access to affordable 

medicines to millions of people in Central America. 

For example, Chapter 15 of DR–CAFTA appears to set up barriers to compulsory 

licenses, which allow governments to obtain cheaper generic drugs by temporarily 

overriding a pharmaceutical patent. The agreement does so by prohibiting generic 

suppliers of patented drugs from obtaining marketing approval during the lifetime 

of the patent. Thus, governments would be unable to make affordable generic 

equivalents of patented medicines available to its citizens. Also troubling is the requirement that governments recognize exclusivity on test data, which is used by 

drug companies to demonstrate the safety and efficacy of drugs, for five years on 

new pharmaceuticals. This would deny the manufacturers of generic drugs of the 

information necessary to prove the safety or efficacy of their products. 

The USTR’s insistence that Guatemala revoke legislation that sought to ensure 

access to generic medicines—and which was TRIPS consistent—is just one more example where the development needs of Central America were frustrated by overreaching by the USTR. In December 2004, Guatemala had passed a law to increase 

access to affordable, generic medicines. Under that law, local manufacturers of generic medicines could obtain market registration by relying on the tests conducted 

by brand-name manufacturers if they could demonstrate that their drug was equivalent to the brand-name product. The U.S. insisted, however, that the law was inconsistent with DR–CAFTA and demanded that Guatemala revoke the law if it wished 

to remain a party to the agreement. After intense U.S pressure, Guatemala repealed 

the law just days before ratifying DR–CAFTA, effectively putting new, affordable generic drugs out of reach. 

4. Conclusion 

The Washington Office on Latin America recognizes that trade can be mutually 

beneficial for the nations, communities and individuals involved by creating new 

economic opportunities. However, we are concerned that, on balance, this agreement 

does not promote the best interests of Central America, the Dominican Republic or, 

in the long run, the United States. We believe that a bilateral trade relationship 

that promotes economic opportunity and respects fundamental human rights is possible. WOLA therefore urges the U.S. Congress to reject the DR–CAFTA and instead 

to work to support far trade and development initiatives that will stimulate sustainable, equitable economic growth in the region. 

f 

Statement of Reed Kelley, Western Organization of Resource Councils, 

Meeker, Colorado 

WORC is a regional network of seven grassroots community organizations that include 9,500 members and 50 local chapters. WORC helps its member groups succeed 

by providing training and coordinating issue work. 

In the West, farming and ranching is a way of life. The trade of livestock, sugar 

and grain fuels rural communities and provides American families with safe, high 

quality food. 

The proposed Central American Free Trade Agreement (CAFTA) would hurt rural 

America by outsourcing American farmers and ranchers and their way of life. 

CAFTA would clear the way to import foreign food produced under standards that 

do not protect the public health, safety and the environment. The import of these 

cheaply produced, poor quality foods makes it harder for American farmers and 

ranchers to provide safe, high quality food for our families. 

CAFTA would give foreign corporations the ability to challenge local, state, and 

national laws in closed tribunals that are unaccountable to U.S. law. 

CAFTA Chapter 10 contains the same language of the North American Free 

Trade Agreement (NAFTA) Chapter 11. This chapter includes ‘‘investor to state’’ 

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provisions allowing foreign companies to sue local, state and federal governments 

over laws protecting the health and safety of your constituents’ families. Under this 

provision, three unelected bureaucrats determine if corporate profits should take 

precedence over the health and safety of U.S. citizens, preempting the U.S. judicial 

system. CAFTA would open the way for more investor-to-state cases from six more 

countries. The U.S. Trade Representative should not be allowed to negotiate trade 

agreements that undermine your right and ability to enforce the very laws you pass 

to protect human health and safety. 

A recent NAFTA Chapter 11 case directly challenges our ability to protect U.S. 

food safety and to prevent cattle disease in the U.S. cattle herd. A Canadian cattlemen’s organization has sued the U.S. Department of Agriculture (USDA) under 

NAFTA Chapter 11 provisions. The Canadian group claims they are due payment 

for loss of profits because of USDA’s regulations Canadian cattle imports. This case 

is being brought even though the USDA regulations are a direct result of mad cow 

disease in Canada, even though the regulations were put in place to protect the 

health of U.S. consumers and cattle markets. 

U.S. trade agreements should not deny farmers and ranchers access to tools that 

provide American consumers access to safe, high quality food. Trade agreements 

must honor local, state and national governments’ right to protect the public health 

and safety of their citizens. 

WORC calls on the Senate Finance Committee to enact trade policies that expand 

markets for American farmers and ranchers while providing consumers with good 

food choices. 

Relaxing import restrictions is unwise until we implement mandatory country-oforigin labeling. Until then, consumers will not have the opportunity to choose food 

grown and processed in the U.S. over imported food from Central America and the 

Dominican Republic. Mandatory labeling provides a set of comprehensive standards 

that ensure all food is labeled consistently, in a way that is easy for the consumer 

to identify and access. This is also vital for livestock producers who want to differentiate their high quality product from products of other countries. Without implementation of the U.S. mandatory country of origin labeling law for meat and produce, 

these trade agreements short-change our consumers and our producers. 

Congress has a clear choice. You can continue to approve trade agreements that 

undermine U.S. laws and chip away at rural America, or you can enact trade policies that provide more opportunities for our farmers and ranchers, keep high quality, safe food for our families, and honor laws that protect Americans. 

WORC urges the House Ways and Means Committee to choose policies that 

strengthen rural America by rejectingthe Central American Free Trade Agreement. 

Instead, this country should enact trade policies that expand markets for American 

farmers and ranchers while providing consumers with good food choices. 

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