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UNITED STATES - CENTRAL AMERICA -

DOMINICAN REPUBLIC FREE TRADE AGREEMENT

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

APRIL 13, 2005

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

CHARLES E. GRASSLEY, Iowa, Chairman

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

RICK SANTORUM, Pennsylvania

BILL FRIST, Tennessee

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

MAX BAUCUS, Montana

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JAMES M. JEFFORDS (I), Vermont

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

KOLAN DAVIS, Staff Director and Chief Counsel

RUSSELL SULLIVAN, Democratic Staff Director

(II)

(III)

C O N T E N T S

OPENING STATEMENTS

Page

Grassley, Hon. Charles E., a U.S. Senator from Iowa, chairman, Committee

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

Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 3

ADMINISTRATION WITNESS

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

of the President, Washington, DC ...................................................................... 5

PUBLIC WITNESSES

Edwards, Lochiel, president, Montana Grain Growers Association, Big Sandy,

MT ......................................................................................................................... 27

Harris, Terry, chairman, Western Hemisphere Trade Committee, USA Rice

Federation, Stuttgart, AR .................................................................................... 29

Roney, Jack, director of economics and policy analysis, American Sugar Alliance, Arlington, VA .............................................................................................. 31

Berlind, Mark, executive vice president, Global Corporate Affairs, Kraft

Foods, Incorporated, Northfield, IL .................................................................... 33

Castellani, John, president, Business Roundtable, Washington, DC .................. 39

Crisco, Keith, president, Asheboro Elastics Corporation, Asheboro, NC ............ 41

Forkan, Patricia A., president, Humane Society International, Gaithersburg,

MD ......................................................................................................................... 42

Levinson, Mark, chief economist and director of policy, UNITE HERE!, New

York, NY ............................................................................................................... 44

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Allgeier, Hon. Peter F.:

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

Prepared statement .......................................................................................... 49

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

Baucus, Hon. Max:

Opening statement ........................................................................................... 3

Berlind, Mark:

Testimony .......................................................................................................... 33

Prepared statement .......................................................................................... 69

Bunning, Hon. Jim:

Prepared statement .......................................................................................... 74

Castellani, John:

Testimony .......................................................................................................... 39

Prepared statement .......................................................................................... 75

Responses to questions from committee members ......................................... 83

Crapo, Hon. Mike:

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

Crisco, Keith:

Testimony .......................................................................................................... 41

Prepared statement .......................................................................................... 87

Responses to questions from committee members ......................................... 92

Edwards, Lochiel:

Testimony .......................................................................................................... 27

Prepared statement .......................................................................................... 94

Page

IV

Forkan, Patricia A.:

Testimony .......................................................................................................... 42

Prepared statement .......................................................................................... 97

Responses to questions from committee members ......................................... 103

Grassley, Hon. Charles E.:

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

Harris, Terry:

Testimony .......................................................................................................... 29

Prepared statement .......................................................................................... 105

Levinson, Mark:

Testimony .......................................................................................................... 44

Prepared statement .......................................................................................... 114

Responses to questions from committee members ......................................... 126

Roney, Jack:

Testimony .......................................................................................................... 31

Prepared statement .......................................................................................... 128

Santorum, Hon. Rick:

Prepared statement .......................................................................................... 146

COMMUNICATIONS

Advanced Medical Technology Association (AdvaMed) ........................................ 147

American Apparel and Footwear Association ........................................................ 150

American Farm Bureau Federation ....................................................................... 161

Camara Nacional de la Industria Textil (Canaintex) ........................................... 210

Carter, Jimmy, former President of the United States ........................................ 216

Chamber of Commerce of the United States of America and the Association

of American Chambers of Commerce in Latin America (AACCLA) ................. 217

Coalition of Service Industries ............................................................................... 225

Council of the Americas .......................................................................................... 232

du Pont, Hon. Pete ................................................................................................... 233

8th Day Center for Justice ...................................................................................... 236

Former Secretaries of Agriculture .......................................................................... 244

Grocery Manufacturers of America ........................................................................ 245

International Sugar Policy Coordinating Commission of the Dominican Republic ..................................................................................................................... 250

Motion Picture Association of America, Incorporated .......................................... 260

National Corn Growers Association ....................................................................... 264

Oxfam America ........................................................................................................ 266

Pan-American Health Organization ....................................................................... 274

Retail Industry Leaders Association ...................................................................... 280

Steinberg, David J. .................................................................................................. 285

Sweetener Users Association .................................................................................. 286

United States Hispanic Chamber of Commerce .................................................... 292

Western Organization of Resource Councils (WORC) .......................................... 294

(1)

UNITED STATES - CENTRAL AMERICA -

DOMINICAN REPUBLIC FREE TRADE AGREEMENT

WEDNESDAY, APRIL 13, 2005

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10:05 a.m., in

room SD–628, Dirksen Senate Office Building, Hon. Charles E.

Grassley (chairman of the committee) presiding.

Also present: Senators Snowe, Thomas, Bunning, Crapo, Baucus,

Conrad, Jeffords, Bingaman, and Wyden.

OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S.

SENATOR FROM IOWA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. Good morning, everybody.

We have just been informed that throughout the course of this

meeting there are going to be some votes. So what Senator Baucus

and I do is try to keep the hearing going, and we take turns going

back and forth to vote. So, we will be alternating the gavel between

Senator Baucus and me during those votes.

I welcome everybody to today’s hearing on the U.S.-Central

America Free Trade Agreement. I especially want to welcome our

witnesses, many of whom have traveled some distance to be here.

I believe we also have the ambassadors of Costa Rica, El Salvador, Nicaragua, Honduras, Guatemala, and the Dominican Republic here as well, so we welcome you, too.

Twenty years ago, Congress voted for military assistance to aid

some of our Central American neighbors’ battle against Communist

insurrection. Over the years, Congress has voted in other ways

time and again for foreign aid to help build stable democracies in

the region of Central America. Congress has voted again and again

for certain unilateral trade benefits for countries to the south.

Now, CAFTA. With that, Congress has the opportunity to vote

some help for our farmers and for American workers. With CAFTA,

Congress can vote for our exporters and the jobs that are created

as a result of exporting. Today, most imports from that region

enter the American market duty-free. In contrast, our exports face

the myriad of tariff and non-tariff trade barriers from those countries.

That has been the status quo for a long period of time, and, if

we do nothing, that status quo holds. So I think, simply put, a vote

2

against CAFTA is a vote for the status quo. It is a vote to maintain

unilateral trade, keep our trade barriers to our exports to those

countries very high.

It seems to me that this issue before us makes common sense,

and a vote against it would defy logic. Make no mistake: these tariff barriers to our exports are real. We have some examples here

in front of us, that model Caterpillar off-road loader below.

Under the status quo, an off-road loader exported to Costa Rica

would pay 14 percent tariffs. That is equal to $140,000 on our exports. With CAFTA, the tariff goes to zero immediately. So, that

should be good news for Caterpillar workers who make this vehicle

in Illinois.

Under the status quo, microchips produced in New Mexico or Oregon face a 10 percent tariff. With CAFTA, that tariff barrier is

eliminated. Under the status quo, remanufactured auto parts cannot even get into the Central American market. Under this agreement, we will be able to export these manufactured goods into that

Central American market.

This means new opportunities for such companies as Cardin Industries and their workers in Philadelphia, Pennsylvania. Under

the status quo, DVDs produced across the country must pay tariffs

of up to 20 percent before they can be sold to consumers in the region. With CAFTA, they become duty-free.

The story is similar for U.S. agriculture. Today, over 99 percent

of the food and agricultural products that we import from the region come in to our country duty-free. Meanwhile, our food and agricultural exports are hit with an average of an 11-percent tariff

going into those countries, with some tariffs ranging as high as

even 150 percent on those agricultural products.

CAFTA levels the playing field. It takes 1-way trade and makes

it a 2-way street. It tears down unfair barriers to our agricultural

exports and gives our farmers a chance to compete in a growing

and vibrant market of over 40 million consumers.

Again, these barriers are very real. Pork producers in my home

State of Iowa face import tariffs from 15 to 40 percent. Upon full

implementation of CAFTA, Iowa producers will be able to export

pork products like those below duty- and quota-free.

Today, rice producers from across the South must overcome inquota tariff rates from 15 to 60 percent. These tariffs are phased

out and eventually eliminated under CAFTA. Prohibited tariffs of

up to 40 percent lock our beef exports out of South American exports. CAFTA provides immediately duty-free, quota-free access for

high-quality U.S. beef, with the eventual elimination of all tariffs

on U.S. beef.

Value-added agricultural products such as the breakfast cereals

demonstrated will see tariffs reduced from 32 percent to zero immediately, providing new opportunities for workers in Modesto,

California or Jonesboro, Arkansas that produce this product.

The fact is, virtually every major agricultural producer in the

country will benefit from the passage of this agreement, including

dairy from Vermont, poultry from Mississippi, apples from Oregon

and New York, barley from Montana, frozen french fries from

Maine, nuts from New Mexico, dried beans from Wyoming.

3

All in all, the American Farm Bureau Federation estimates net

gain to U.S. agriculture of nearly $1.5 billion upon full implementation. The agreement also opens the service market to U.S. service

exports. Key sectors of opportunity include telecommunications,

banking, insurance distribution, audio-visual and entertainment,

energy transport, and construction.

Our high-tech sector stands to benefit as well. As part of the

agreement, the Dominican Republic, Guatemala, Honduras, and

Nicaragua will join the information technology agreement and

eliminate tariffs on imports of high-technology products, thereby

saving U.S. exporters more than $75 million annually in import duties.

But the agreement goes far beyond reducing import tariffs, putting into place strong investment protections, anti-corruption provisions, intellectual property rights protections, and strong provisions

on labor and the environment. The agreement is a solid win for the

U.S. economy and a solid win for our neighbors to the south.

So, trying to further clarify the situation where we are, the alternative to this agreement is nothing but status quo. It is unilateral

access to our markets and nothing for our exporters. I do not think

that the status quo is good enough for our farmers and workers.

I do not think Congress should vote to keep barriers to our exports into those countries as high as they have been. That is really

what this vote on CAFTA really boils down to, a vote for unilateral

trade and the status quo or a vote to reduce export barriers for our

farmers and workers.

I am confident that, after careful consideration of the benefits of

this agreement, starting with our witnesses today, Congress will

vote for the American farmer and worker and approve this historic

trade agreement.

I thank you for coming and look forward to your testimony.

I call on my colleague, Senator Baucus.

OPENING STATEMENT OF HON. MAX BAUCUS,

A U.S. SENATOR FROM MONTANA

Senator BAUCUS. Thank you, Mr. Chairman.

This morning we begin our consideration of the U.S.-Dominican

Republic-Central America Free Trade Agreement. Like all the recent free trade agreements this committee has considered, this one

includes important benefits for United States farmers, ranchers,

workers, and businesses. With that said, I still have serious concerns about this agreement.

My State is an agricultural State, so a good trade deal for Montana is one that benefits Montana agriculture. But some of the

farmers and ranchers of my State tell me they have misgivings

about this agreement. I hope that we can explore those concerns

during today’s hearing.

Now, I am not someone who runs away from difficult challenges.

You do not get results by running away. You get results by rolling

up your sleeves and trying to work things through. That is the approach I try to bring to all the issues we face in the Senate, and

it is the approach that I plan to bring to this agreement.

I want to thank Ambassador Zoellick and his team for their willingness to work with me to address some of my concerns about this

4

agreement. Over the past 2 years, we have worked closely together

and made some important progress.

And I appreciate the willingness of Ambassador Allgeier and the

staff of the Office of the U.S. Trade Representative to continue

working with me to develop the legislation to implement this agreement. I am looking forward to sitting down with you, Mr. Allgeier,

to see if we can make this agreement work for Montana, and I am

not convinced that we are there yet.

I also, regrettably, want to express my disappointment with the

lack of leadership coming from the White House on this agreement.

I have been in Congress for more than 30 years. During that time,

I have been involved in a lot of tough trade fights. I worked with

President Reagan on the Trade Act of 1988.

In the early 1990s, I worked closely with the first President Bush

to defeat an effort to remove China’s normal trade relations status.

I also worked with President Clinton to pass NAFTA. I believe

that NAFTA was, and continues to be, a good agreement for Montana and for the United States. But it never would have passed if

President Clinton had not spent months meeting personally with

dozens of members of Congress, traveling around the country promoting the agreement, and speaking on television and radio to urge

its approval.

Trade is a difficult issue. Even in the best of circumstances,

trade agreements are a tough sell back home. Without significant

Presidential leadership, it is very hard for members to support

them.

By all accounts, the agreement we have before us today is the

most divisive trade measure to come before Congress since NAFTA.

I would expect to see a significant effort by the President to push

the agreement, but have not seen it yet.

In fact, I am unaware of any event that the President has participated in to urge passage of this agreement, I do not believe that

he has lobbied Congress on the agreement, and he has certainly

never raised the issue with me.

We all know what an effort from this White House looks like. We

have seen it on taxes and we are seeing it now on Social Security.

When they want to do something, they know how to do it. When

this White House wants to get something done, it certainly knows

how to go about trying to get something done: Social Security, 60

States, 60 days is an example.

I have seen nothing to suggest this agreement is in any way a

priority for this White House. Quite the contrary. A few weeks ago,

President Bush introduced Congressman Rob Portman as his nominee to be the U.S. Trade Representative. Rob is a great choice and

I look forward to working with him. But in his statement noting

the challenges Rob will face, the President failed even to mention

this agreement.

In my judgment, without Presidential leadership this agreement

is going to face a very steep uphill battle. I also want to make a

note about the process. Back in 1974, Congress and the executive

branch set up a cooperative process for implementing trade agreements. These fast-track procedures have served us well for 30

years.

5

Lately, I have noticed a trend toward cutting corners. The administration pushes for trade agreements to move through Congress faster each time. Now, that might be fine when the agreements enjoy broad support and no one objects, but when they are

controversial we need to leave time for full debate.

The debate over CAFTA will set the tone for Congressional consideration of many pending trade agreements and influence the

course of the Doha Round. Most importantly, it will set the tone

in Congress when trade promotion authority expires in 2007.

I want to thank Ambassador Allgeier and all the other witnesses

testifying here today. I especially want to thank the Montanan on

the panel, Mr. Lochiel Edwards, for traveling here to represent the

views of the Montana Grain Growers. I look forward to hearing all

of your testimony this morning.

I thank you again, Mr. Chairman.

The CHAIRMAN. Thank you.

Now, Mr. Allgeier, Acting U.S. Trade Representative, we thank

you for your years of work that you have been doing, and now

thank you for taking over since Ambassador Zoellick has left.

Would you proceed, please?

STATEMENT OF HON. PETER F. ALLGEIER, ACTING U.S. TRADE

REPRESENTATIVE, EXECUTIVE OFFICE OF THE PRESIDENT,

WASHINGTON, DC

Mr. ALLGEIER. Thank you, Mr. Chairman. I would like to thank

you, Senator Baucus, and the other members of the committee for

the opportunity to testify here before you and to respond to your

comments and questions.

We certainly appreciate the work of this committee, not just with

respect to CAFTA, but with respect to the entire trade agenda that

we have, in particular, the leadership that you, Mr. Chairman and

Senator Baucus, have provided and continue to provide.

CAFTA marks the successful culmination of a decades-long

American policy of promoting economic reform and democracy in

Central America. It offers us the best opportunity to strengthen the

economic ties that we already have with these countries and to promote their progress toward economic, political, and social reform.

But CAFTA is not an act of unilateral altruism by the United

States. We have much to gain from this agreement. Collectively,

Central America and the Dominican Republic make up the second

largest U.S. market in Latin America. With exports last year of

$15.7 billion, that exceeds the exports that we had to Russia, India,

and Indonesia combined.

The American Farm Bureau Federation, as you pointed out, Mr.

Chairman, estimates that CAFTA would expand U.S. farm exports

by $1.5 billion a year. That is practically a doubling of our current

agricultural exports. That is with agricultural exports growing at

an 8:1 ratio compared to the growth of our imports of agricultural

products from this region.

The U.S. Chamber of Commerce estimates that U.S. sales to the

region, both agricultural and industrial products, would expand by

more than $3 billion in the first year of CAFTA.

We currently face an uneven playing field. As you pointed out,

Mr. Chairman, we already have free trade with Central America

6

and the Dominican Republic, but it is 1-way free trade. Nearly 80

percent of the imports from Central America and the Dominican

Republic already enter the United States duty-free.

In agriculture, it is more stunning: 99 percent of Central America’s and the Dominican Republic’s farm exports to the United

States enter duty-free. CAFTA will level the playing field for American workers and farmers.

More than 80 percent of consumer and industrial goods from the

United States will become duty-free in CAFTA and the Dominican

Republic on day one of the agreement. More than half of our 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.

But there also will be improved market access for pork, dried

beans, vegetable oil, poultry, rice, corn, and dairy products. That is

why nearly 60 agricultural organizations have stated their strong

support for CAFTA, and you will be hearing from a number of

them today.

In services, the CAFTA countries are opening up their markets,

providing us new opportunities in telecommunications, express delivery, computer and related services, tourism, energy, transport,

construction and engineering, financial services, audio-visual, and

I could go on and on.

It is a trade agreement for the digital age, providing strong intellectual property protection for our providers of software, music,

text, videos, and products covered by patents. There also are strong

anti-corruption measures in government contracting and in other

matters affecting international trade and investment.

Textiles and apparel are an important component of our trade

with the region. Indeed, they are the second largest market for

U.S. fabrics and yarn. CAFTA represents a critical element in our

domestic industry’s ability to compete with Asia.

Without the tariff preferences and rules of origin of CAFTA, apparel companies may well move production to China or elsewhere

in Asia, where they are more than likely to buy inputs from Asian

suppliers.

For example, a T-shirt that is made in Honduras has roughly 50

percent U.S. content; a T-shirt made in China is likely to have little or no U.S. content. So, to keep our customers for U.S. yarn, fabric, and U.S. jobs in that sector, we need to pass CAFTA promptly.

Now, I know there is considerable interest on the part of the

committee on worker rights and labor standards, and we share the

goal of seeing the continuation of real and meaningful improvements of worker rights in the region.

We are focusing our attention and our efforts on the chief problem in this region, and that is the need to improve the enforcement

of domestic labor laws. The Central American countries, and then

subsequently the Dominican Republic, requested a study by the

International Labor Organization of the labor situation in their

countries.

That study demonstrated that the labor laws on the books in

Central America and the Dominican Republic are generally in line

with the core labor standards in the ILO. But let us be clear. The

7

enforcement of labor laws in the region needs more attention and

resources. This has been recognized by the countries themselves.

A week ago, the trade ministers and the labor ministers from

these countries came to Washington and presented us, and you,

with a very candid and complete evaluation of their labor situations, including enforcement. It included recommendations that

they would be following in order to improve the enforcement situation in their countries.

We are approaching this with a 3-part comprehensive strategy.

First, the agreement requires that countries not fail to enforce effectively their labor laws. As the New York Times said in an editorial on November 24th 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.’’

The other thing I would like to add is that the use of those funds

is subject to agreement by the United States, so it is not just that

the funds go back into the treasury of these countries.

The second element in our approach on labor is the countries already have taken numerous concrete steps to improve labor law enforcement, including hiring more labor inspectors, appointing special labor prosecutors, and prosecuting perpetrators of violence

against trade unionists. We are pleased, as I mentioned, that the

labor and trade ministers have identified clearly additional steps

that they will be taking.

Finally, there is a 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.

Our Department of Labor has already committed $7.7 million for

a multi-year effort of technical assistance, and the Congress has

appropriated $20 million for fiscal year 2005 for assistance both on

labor and on environment.

Speaking of environment, we have also broken new ground on

the environmental side. I am particularly pleased that we have

been able to work with Senator Baucus, who has provided leadership to enable us to put innovations in this agreement on environment that we have not had in any previous agreement.

Let me just mention a few of the more important ones. First,

again, working with you, Senator Baucus, we developed the new

public submissions process that will allow the interested public in

these countries, including non-governmental organizations, an opportunity to challenge their party’s failure to enforce environmental

laws and to obtain an independent review of their submissions with

the Secretariat that we have set up in Central America. CAFTA is

the first trade agreement ever to include this kind of a mechanism

in the agreement itself.

Second, there is a parallel environmental cooperation agreement

which will focus on capacity-building efforts in the region. This also

breaks new ground. So, for the first time in this kind of a trade

agreement, and with the environmental component, an environmental cooperation agreement, we will be establishing short-, medium-, and long-term benchmarks for progress. That will be monitored by outside organizations.

8

Finally, we are taking steps to ensure that the capacity-building

efforts are adequately funded. I mentioned the Department of

Labor on the labor side, and I mentioned the $20 million that has

been appropriated and been earmarked for this kind of capacity

building, and we certainly want to work with you, Senator Baucus,

and with others on the committee to ensure that resources continue

to be provided for these efforts on environment and on labor.

At the beginning of the year in January, 10 Central American

environmental, non-governmental organizations sent us a letter indicating their strong support for the environmental package within

this agreement and urged that the agreement be ratified by all of

the countries participating.

Mr. Chairman, the last 20 years have been a difficult road to democracy in this region, but today we have neighbors in Central

America and the Dominican Republic who want to trade in goods,

not guns, across their border, who want to replace chaos with commerce, and, most importantly, who want to use CAFTA as an important tool of reform that will deepen and strengthen their democracies.

Working closely with the Congress, we have negotiated a landmark free trade agreement. We believe that 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 for the benefit of our citizens and

their citizens. CAFTA makes eminent sense for the United States,

it makes eminent sense for Central America and the Dominican

Republic.

Thank you.

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

The CHAIRMAN. Thank you very much. We will take 5-minute

rounds of questioning at this point. The order would be: Grassley,

Baucus, Crapo, Conrad, Thomas, and Bunning, of those that are

here now.

Ambassador Allgeier, do you recall what was the initial request

of CAFTA countries for access to U.S. sugar markets? How did the

final agreement differ from the initial request?

Mr. ALLGEIER. Yes. Initially, the Central Americans, I think, if

you added up their individual countries’ requests, it came to something on the order of 400,000 metric tons of sugar. Of course, they

wanted the duty eventually to go to zero.

Also, there are a number of features that we have in the agreement that certainly were not part of their original request that

they would not have wanted to have, for example, the compensation mechanism that we have in the agreement and also the measures that we have to ensure that other people’s sugar does not get

included in what countries from Central America and the Dominican Republic are sending to us.

The CHAIRMAN. Is there a uniqueness about paying compensation, being available, in lieu of imports?

9

Mr. ALLGEIER. Yes. This is the first agreement and it is the only

product in which we have this compensation mechanism. And perhaps I could just take a half a second to explain it.

What it means is that, if the U.S. decides that we are concerned

about the small flow of sugar that is allowed under this agreement,

we still have a mechanism by which we can, on our own, decide to

compensate them in some other way. How we compensate them is

totally at our discretion. That is not a feature that we have had

for any other product in any other agreement.

The CHAIRMAN. Did the CAFTA countries ask that certain products be excluded from the negotiations, and if so, how would such

an outcome have impacted the final agreement?

Mr. ALLGEIER. Well, they made it very clear from the beginning

that if there were to be any exclusions on our side, that they would

seek exclusions from their side.

Among the products in which one or more of the CAFTA countries would seek exclusions would be practically the list that you

gave earlier, Mr. Chairman: pork, poultry, beef, rice, corn, dried

beans, vegetable oils. All of those products would then have become

subject to a debate and a negotiation about exclusions.

The CHAIRMAN. All right.

Some have called for the renegotiation of CAFTA to remove

sugar from the agreement. If we were to go back and remove sugar

from the agreement, what would be the impact on other free trade

agreements that the United States is currently negotiating?

Mr. ALLGEIER. Well, of course, as I said, the first consequence

would be, if we try to renegotiate sugar, they will try to renegotiate

all these products that we are interested in. In future agreements,

everybody would approach that with their list of exclusions and it

would include products beyond the ones that I mentioned, including wheat and other products that would be of interest to us.

The CHAIRMAN. Would it impact any other free trade negotiations that are going on?

Mr. ALLGEIER. Absolutely. Certainly the Andean countries would

be in there in a nanosecond with their list of potential exclusions,

but we would face that situation also in our negotiations, certainly,

with Thailand and with the South African Customs Union.

The CHAIRMAN. We have heard some arguments that our unilateral trade preference programs contain stronger labor enforcement

provisions than those found in CAFTA. Is that a reasonable assessment?

Mr. ALLGEIER. CAFTA is the most forward-leaning package of

labor provisions and environmental provisions. The thing that I

would really like to emphasize is, with the trade capacity building

and the other features that we have, the cooperation, these elements of our agreement are really focused on solving practical

problems and improving situations on the ground, both with respect to labor and environmental protection.

The CHAIRMAN. Yes. I understand that 71 percent of the CAFTAmade apparel entering the United States is made from U.S. yarn

and fabrics. How important is it for the United States’ textile sector that the CAFTA region remain competitive against China, and

does China use U.S. fabrics or yarn?

10

Mr. ALLGEIER. CAFTA, in my view, is essential for the continued

competitiveness of our textile industry, of our fabric and our yarn.

That is because, of course, the quotas have been removed and we

are already seeing enormous shipments from China and other providers.

In the absence of a quota, the tariff preference that the Central

American products have in our market is their main leg up in competitiveness. Therefore, because they are such heavy importers of

our products, of our inputs of yarn and fabric, it is essential for our

competitiveness as well, vis-a`-vis China. China uses very little, if

any, American inputs. It just is not economical for them.

The CHAIRMAN. All right.

Senator Baucus?

Senator BAUCUS. Thank you, Mr. Chairman.

Mr. Allgeier, as I mentioned in my statement, I sense there is

a vacuum of leadership in the White House on this.

Could you tell me, how many speeches has the President given

on CAFTA, in favor of CAFTA?

Mr. ALLGEIER. I do not have the exact number of speeches that

the President has given, but I certainly would be happy to go back

to the White House speech writers and give you a number on that.

Senator BAUCUS. How many events has he attended in favor of

CAFTA?

Mr. ALLGEIER. Oh, he has attended multiple events. I think one

of the more dramatic ones was when he met at his ranch in

Crawford with Prime Minister Martin of Canada and President Fox

of Mexico, and all three of them talked about the importance of expanding free trade.

Senator BAUCUS. I mean, specifically in CAFTA, attending an

event that is specifically geared toward CAFTA, not a hemispheric

area.

Mr. ALLGEIER. Well, I would be happy to consult with people in

the White House and give you an inventory of events.

Senator BAUCUS. How many meetings has the President had

with members of Congress pushing CAFTA? How many has he met

with?

Mr. ALLGEIER. All right. We will get those numbers for you, Senator.

Senator BAUCUS. Do you know if he has had any?

Mr. ALLGEIER. I do not have the numbers. I will get you that

number.

Senator BAUCUS. All right. I appreciate that. Because I do not

know of any, frankly.

Let me ask a couple of questions on how this sugar mechanism

works. Under what circumstances would the administration enact

this trigger mechanism where CAFTA countries would be compensated rather than allowing them to have an increasing quota?

Mr. ALLGEIER. Well, the beauty of this, from our standpoint, is

that it is totally up to the United States to determine the circumstances. In other words, there is not a mathematical trigger or

any set of conditions that would have to be met.

So as we monitor this agreement and specifically the flow of

sugar from these countries, we will make determinations as to

11

whether we think, in the interest of maintaining the sugar program, we would need to provide compensation in some other form.

Senator BAUCUS. I guess the issue is really this. I have a lot of

producers and they are wondering, under what circumstances

might the administration want to trigger it?

They hear it is pretty wide open, at the discretion of the U.S.

government. They are asking themselves, well, gee, that is good,

but it is also bothersome, it is worrisome, that is, under what circumstances would they?

For example, would you wait until the loan rates are down and

forfeited because the price gets low? Would you wait until, with additional sugar coming into the United States, that the marketing

allotments would not be enforceable any more? They are wondering, what is the deal here?

Mr. ALLGEIER. Right. Well, first of all, we are going to take a

very anticipatory approach to this. It is not the sort of thing that

we are going to wait until something actually happens that threatens the sugar program.

Obviously, we will be consulting with members of Congress who

have an interest in sugar, and we will obviously be consulting with

the industry. We will be working very closely with the Department

of Agriculture. It is very difficult at this point to predict the precise

circumstances under which we would want to make use of this

compensation option.

But, frankly, we negotiated very hard to have this in the system,

in the program, in the agreement, and we did not do that with the

idea of not using it when necessary.

Senator BAUCUS. I guess, again, if you are a producer, you would

rather know, what are the conditions, before I, as a producer, think

this is a good agreement. It is something else to say, we will support the agreement, without knowing in advance what those conditions would be.

That is an obvious point that, clearly, a reasonable producer

would take. I mean, you just do not know under what circumstances, so how can a producer think this is good? Particularly

when they are worried that this is going to set a big precedent.

What is it?

The quota goes up a bit, it goes up 2 percent every year after

that, something like that. But the point is, producers are worried.

They would just like a little more of an understanding of what they

are dealing with.

Like most businessmen, if you know what you are dealing with,

you can work around it or deal with it. But this is very, very uncertain. You do not know whether it is going to be triggered or not,

this new mechanism.

Mr. ALLGEIER. Well, I think one reason, actually, that there is a

degree of uncertainty, is that this is a unique step that we have

taken to provide assurance to an industry that has sensitivities

that we have mechanisms under our control, not that we have to

negotiate with the other side again, to respond promptly in anticipation of any problems.

So, we are certainly prepared to work with you, with the Department of Agriculture, with the sugar industry to keep a close eye on

12

the situation and, if we need to use this compensation mechanism,

to do so.

Senator BAUCUS. Some of the beef producers are concerned that

this will be kind of a back door for Brazil, transshipment of some

kind through CAFTA countries. On that point, I might ask, when

in the world is the administration going to finally act on, and not

keep extending, the suggestion that Brazil is violating intellectual

property rights?

A petition was filed with USTR, and USTR just keeps on extending, extending, extending. There is a feeling among many Americans that USTR is not really standing up to fight and protect U.S.

intellectual property rights in Brazil.

Mr. ALLGEIER. Let me assure you that we have devoted enormous efforts and attention working with our industry, particularly

our copyright industries, on the problem of piracy, which is very,

very significant in Brazil.

Our recent decision to extend a period of time to work with

Brazil is a decision that has been endorsed by the copyright industries because they recognize, their people on the ground in Brazil

recognize, that there have been some promising steps.

Has it solved the problem? Absolutely not. Will these promising

steps result in a dramatic change? We will have to see. But we are

working with the Brazilians, and most importantly with our industries, to turn that situation around.

Senator BAUCUS. I appreciate that.

Next on the list here is Senator Crapo.

Senator CRAPO. Thank you very much.

Ambassador Allgeier, I appreciate your coming today and the opportunity to visit with you. As you know, I am one of those who

has strong concerns about the sugar provisions in the agreement.

First, it is my understanding that we have nearly 200 bilateral

agreements, either bilateral or regional free trade agreements,

throughout the world.

The first question I have to you is, how many of those included

sugar import mandates? I will just give you an indication. My understanding is that only two of them do, and that would be NAFTA

and CAFTA, and those are highly controversial agreements.

What I am getting at with this question is, if I am correct about

that, why would we not be better off negotiating sugar in the context of the WTO where we can deal with it on a global basis rather

than having it come up selectively in these types of trade agreements?

Mr. ALLGEIER. First of all, in terms of, worldwide, the number

of free trade agreements that other countries have, I do not know

to what degree they include sugar. Certainly in our agreements, we

look at it case by case. We are very, very careful on sensitive products, even certainly beyond sugar.

The problem of excluding a product that is sensitive, excluding

it entirely, is then the other country will insist on excluding products that are important to us.

Now, in the case of sugar, we have taken extraordinary steps to

respond to the sensitivity of the industry. Number one, the amount

that is allowed to come in under the quota, the additional amount,

13

is extremely small. It is minuscule. In fact, we do have a chart

here.

Senator CRAPO. Well, because my time is limited, I want to get

into the compensation mechanism that you were probably leading

up to talking about there.

Mr. ALLGEIER. All right.

Senator CRAPO. I want to follow up a little bit on the questions

that Senator Baucus raised.

It seems to me that the discretion that the United States has,

it is good to know that they have that discretion. As I understand

you, the United States, in its discretion, can decide to implement

the compensation program if it determines that the sugar program

in the United States is jeopardized. Is that correct?

Mr. ALLGEIER. We can do it whenever we want.

Senator CRAPO. Whenever we want.

Mr. ALLGEIER. Yes, to tell you the truth.

Senator CRAPO. Kind of following the line of questioning that

Senator Baucus raised, the sugar industry, in my opinion, has presented a pretty solid case that the threat is there instantaneously

once the agreement is signed. If the administration does not believe

that, then what would cause them to believe that the program is

in jeopardy?

Mr. ALLGEIER. Well, we certainly do not believe that the provisions of CAFTA put our sugar program in jeopardy. I mean, we

never would have included the elements in there that we did if we

really thought that was a fear. The amount of sugar that is in this

agreement is much smaller than the annual fluctuations in sugar

imports into this country.

Senator CRAPO. Just to briefly get into it, with the 109,000 tons

that are included in this agreement, added to that which is already

authorized under NAFTA, plus the sugar that we import already

under the WTO requirements, when you start adding all the other

agreements and requirements that we have together, it equals

about 1.6 million tons of sugar imports.

That number is critical because, once we import 1.53 million tons

of sugar, all domestically stored sugar is released into the market.

That is another million tons. It is this cumulative impact that we

see as devastating. For some reason, we cannot get an acknowledgement of that threat.

Mr. ALLGEIER. Well, throughout these negotiations we work very,

very closely with the Department of Agriculture. Of course, they

have a very strong interest in ensuring that the program is not disrupted.

So, working with them, we are convinced that the volumes that

we have put in here, and then taking into account the protections

that we have incorporated, that it does not lead to the impact that

you were suggesting.

Senator CRAPO. What about, assuming that the United States

did decide to implement the mechanism. What is the amount and

what is the form of the payment that would be made?

Mr. ALLGEIER. The amount is totally up to us. It could cover the

entire amount of sugar that we have authorized within this agreement. The form also is entirely up to us. Obviously, we will consult

the industry.

14

Senator CRAPO. And the participating nation would have no right

to challenge the amount we determined?

Mr. ALLGEIER. Correct.

Senator CRAPO. So the United States could simply pick a really

low rate of compensation and declare it, and then prohibit the importation of any additional sugar?

Mr. ALLGEIER. We can do that. Obviously, this is very, very important, to talk about the protections for sugar. But we do need to

remember that over 90 percent of cash receipts to agriculture are

in other products. We need also to be sure that we have access for

them.

So, that is the reason that we do not exclude a product entirely

from this agreement. We are making no change whatsoever in the

tariff above the quota on sugar, no change at all.

Senator CRAPO. I understand that.

Mr. ALLGEIER. That is over 100 percent.

The CHAIRMAN. Can we move on?

Senator CRAPO. I did not see the clock had expired. I am sorry,

Mr. Chairman.

The CHAIRMAN. That is all right, Senator.

Now, Senator Conrad. And Senator Bingaman came in without

our knowing it, so he will go after Senator Conrad. Then we have

Senators Thomas, Bunning, and Snowe. It is my fault. I missed

him.

So, Senator Conrad, then Senator Bingaman.

Senator CONRAD. Thank you, Mr. Chairman.

Welcome, Mr. Ambassador.

Mr. ALLGEIER. Thank you.

Senator CONRAD. You will excuse me if I become increasingly

skeptical as I hear additional claims that the latest trade agreement is another great success for United States trade policy.

It reminds me a little of a story that we heard from Germany toward the end of World War II when a German general reported

that he knew they were in trouble when they kept reporting the

victories closer to Berlin. Here we have another set of claims about

the great success of these negotiations.

Let me say, I voted for WTO. I voted for the opening to China.

I opposed the so-called Canadian Free Trade Agreement, and I opposed NAFTA because I was very skeptical of how those agreements would affect my State.

But now when I look back and just check the record, just take

out all the hype and all the discussions of how great these successes have been and look at the record, here it is on this chart,

which shows our growing trade deficits over the past 15 years.

With NAFTA in 1994, the trade deficit was large, but manageable.

Then in 1995, we implemented the WTO agreement. Still, the

deficit was large, but manageable. Then China PNTR in 2001, another great success. Look at where we have gone now. The trade

deficit just keeps growing. Now you are reporting another great victory in this agreement.

The trade deficit last year was $618 billion. $618 billion. Now we

have one of the most prominent investors in the United States betting against the U.S. dollar because of these massive trade deficits.

15

Now we are told, well, things are getting better because the dollar

is going down in value.

Let us see what happened this most recent month. Here is the

report from this morning’s paper: ‘‘Trade Gap Hits Yet Another

Record. Despite a weaker dollar, February imports exceed exports

by $61 billion.’’ If this is a success, I would hate to see a failure. NAFTA. We had a $2 billion trade surplus when we negotiated

NAFTA. We were told this was going to be a great thing. Now the

trade deficit with Mexico is $45 billion. I do not know how anybody

labels that a success.

Now you come to us and you tell us, well, we have another great

success, just ratify CAFTA. This agreement, as I read it, would

devastate a whole industry. Let me show you why. Let us put up

the chart. The sugar industry would face another almost 100,000

metric tons of additional sugar coming into this market.

That is not what is devastating. What is devastating is, if that

same template is applied to the other agreements that you have

under negotiation—South Africa, Thailand, and the Andean countries, which, Mr. Ambassador, you have already mentioned—if you

apply the same precedent that would be established in this agreement to those agreements, then you would have almost 500,000

metric tons of additional sugar coming into this country.

I have held a hearing on this matter in North Dakota with economists of every stripe, and every single one of them testified that

if we had an additional 500,000 tons coming into this country in

sugar it would collapse the price here below the redemption price

and destroy the U.S. sugar program. The U.S. sugar industry in

this country has 146,000 employees. So as I see it, you just negotiated away another industry here.

Now, my question is this. The CAFTA promotional materials say

that 80 percent of the goods in the CAFTA countries already enter

duty-free here, but that they have higher tariffs against our goods,

suggesting that this is a great opportunity for us.

In that very favorable negotiating environment, how did USTR

manage to negotiate an agreement that our own International

Trade Commission says will increase the trade deficit with that region by over $100 million? In that very favorable environment, how

did we come back with an agreement that digs the hole deeper?

Mr. ALLGEIER. First of all, there are several aspects to your comments, Senator Conrad. First, as you point out, there is a huge disparity in the degree of duty-free market access that we have to

those countries compared to what they have to ours. In agriculture,

it is particularly dramatic.

Senator CONRAD. You are saying again what the promotional materials say. I have read the promotional materials. Tell me, how do

you come back with an agreement that makes the trade deficit

worse with that region, according to our own International Trade

Commission?

Mr. ALLGEIER. We disagree that leveling the playing field, a playing field that is so uneven, as it is today, is going to lead to that

kind of an outcome.

Senator CONRAD. But is that not what the ITC says? Does our

own International Trade Commission not say, in a very favorable

environment, our Trade Representative has come back with an

16

agreement that makes the trade deficit worse? Is that not what

they have reported?

Mr. ALLGEIER. The ITC looks at a part of the trade agreement.

They look at the merchandise trade in a rather static model, so it

does not take into account the dynamic effects, it does not take into

account the sorts of improved access that we have, and services.

Senator CONRAD. Well, sir, are you saying that this would improve our trade position? Would this lessen that trade deficit with

the region?

Mr. ALLGEIER. I think that when one levels the playing field,

when we have half of the market access duty-free into that region

that they have here, that that will contribute to an improved balance of trade with that region. I do not see how else——

Senator CONRAD. Did you make the same projection with respect

to NAFTA? Were you one of those who told us this was going to

be a great success, a trade agreement that, when we made it, we

had a $2 billion trade surplus, and now we have a $45 billion trade

deficit? Were you one of those who said that was a good deal?

The CHAIRMAN. After you answer that, I will call on Senator

Bingaman.

Mr. ALLGEIER. All right.

I certainly believe that NAFTA has been a good deal for the

United States, for Mexico, and for Canada.

Senator CONRAD. I thank you, Mr. Ambassador.

Let me just say, we have a profound disagreement about what

constitutes success.

The CHAIRMAN. Senator Bingaman?

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

Let me follow up on the same issue that Senator Conrad is talking about. I have been concerned that NAFTA has been in effect

now for 10 years this January. It seems to me, there ought to be

some useful lessons to learn out of that. I do not know exactly what

they are, but I am trying to figure it out.

This is what happened to our trade balance with Mexico from

1994 forward, as I see it. This is another version of the same chart

that Senator Conrad was showing. We went from a period of some

surplus, not a great surplus, to a period of dramatic deficit with

Mexico. Now, maybe there are reasons to explain that.

I am concerned, though, that there is a pretty consistently downward line from the time NAFTA took effect with regard to our

trade imbalance with Mexico. I am just concerned. We have another chart here which shows CAFTA, or shows the Central American countries.

It shows that we also have a trade deficit with them. It is not

as bad, of course. It has been going up in the last couple of years.

The situation has been improving, from our perspective.

Are you persuaded that we are not essentially going down the

same road here and signing on to something which will have the

ultimate effect of adding to our trade deficit and further worsening

our trade relationship with that part of the world?

Mr. ALLGEIER. I am absolutely convinced that passage of CAFTA

will make American producers, farmers, and ranchers more competitive in that region. Now, I cannot predict what is going to be

the relative macroeconomic situations of other countries.

17

One of the reasons that our deficit is as large as it is with countries is that we have been fueling the world’s economic growth. Our

growth rates have been higher than Europe, than Japan, and than

other countries. One consequence of that is that our buying power

and consumption is much greater. So, I cannot predict what will

happen to the macroeconomics of other countries.

But what I can say is, in agriculture, for example, the beef tariffs

in these countries are 35 to 79 percent of the bound rates, and we

are going to improve our competitiveness when we eliminate those

tariffs.

When our pork tariffs we face are 35 to 60 percent and we are

providing zero through CBI, I cannot help but believe that our competitiveness is improving. I can go through the list.

Senator BINGAMAN. Well, let me ask you about some of those figures. I am also concerned when I look at the list of our witnesses,

Mr. Chairman. I know this is not the only hearing we are going

to have on CAFTA, I assume. The one group that I do not see represented on the witness list are small farmers in Central America.

In those economies, in many cases, 50 percent of the population is

engaged in agricultural activities. I fear that, as we change the

rules to become more competitive so that we can sell grain, we can

sell corn, we can sell beef, we can sell all of these agricultural staples that people depend upon into those markets, and we can

produce them a lot cheaper than those small farmers can down

there, and we will show them, particularly with the subsidies we

provide to agriculture in this country.

We can flood those markets with agricultural goods. I am concerned that the dislocation of their agricultural sector is going to

have very significant adverse consequences, not necessarily economic, between the two countries.

But we are debating over there on the Senate floor right now immigration-related proposals. Everyone says, why do these people

want to leave those countries? A lot of the people who come to my

State as illegal immigrants come from Central America, not just

from Mexico.

I am just thinking that we may be adopting a policy here that

is good for agriculture in this country and that is terrible for agriculture in those countries, and terrible for our own immigration

policies. What is your reaction to that?

Mr. ALLGEIER. Well, Senator, we obviously, in addition to trying

to negotiate an agreement that is going to be very beneficial for the

United States, feel that we have negotiated an agreement that is

going to be very pro-development for these countries.

So, for example, in areas where they have this very high sensitivity in certain crops that are primarily produced by poor farmers,

we have, for example, in white corn, which is a product that a lot

of campesinos in these countries produce, we are working with a

tariff rate quota.

We are not bringing the out-of-quota tariff down to zero on those

products, and similarly in Costa Rica with sensitive products. In

other products that are sensitive to them and their development,

we are putting in very long staging periods.

But the other side of this is that they will also have access to

various inputs, feed grains, for example, that will enable them to

18

more effectively, more productively, produce other products, including meat products. This is what we have seen has happened in

Mexico, for example.

Obviously, there is going to be movement from the rural areas

to the cities, regardless of whether we do CAFTA. But with

CAFTA, we are providing them with additional opportunities so

that they can deal with those movements of their people. But we

have tried to be very sensitive to the development considerations

here.

Senator BINGAMAN. My time is up. Thank you, Mr. Chairman.

The CHAIRMAN. Now, Senator Thomas?

Senator THOMAS. Thank you, Mr. Chairman.

Thank you for being here. These are difficult issues. Of course,

very clearly, we are in a world where trade moves around all the

time. We cannot avoid that, so we need to make it as successful

as we can for ourselves. I am sorry, sometimes, that we passed the

law calling it ‘‘free trade.’’ I think we are not looking at free trade,

we are looking at fair trade. That seems to be the difference.

As we focus on this part of the world in terms of the economy,

is this a good market? What kind of impact is this going to have

on our total trade?

Mr. ALLGEIER. Well, it is a good market. As I mentioned, these

are small countries but they are very good markets. Together, they

are our second-largest market, second only to Mexico, in Latin

America.

Senator THOMAS. Not in the world.

Mr. ALLGEIER. Well, I mean, when you see that we sell more to

these countries compared to Russia, India, and Indonesia combined, I think it is rather dramatic. They purchase probably twothirds of their imports from the United States. So, as their economies grow and we have improved access, that is only going to get

better, from our point of view.

Senator THOMAS. I have observed, as I have gone to WTO meetings and others, that mostly the smaller countries basically look at

agriculture, and that is where they get their exports. They are not

great purchasers. But in any event, obviously, not every agreement

is going to be popular. I have 5 pages of opposition here. Why do

you think there is that kind of resistance to this plan?

Mr. ALLGEIER. Well, I must say, that is really difficult to understand, because we have had more than 60 agricultural groups that

have come out publicly and endorsed this agreement. It runs from

the Cattleman’s Association to——

Senator THOMAS. I am talking about the 5 pages of opposition,

which also represent many agricultural groups.

Mr. ALLGEIER. Well, I do not know that it is many, frankly.

Senator THOMAS. I will have to show you.

Mr. ALLGEIER. I can only think of one that is left out of this list,

to tell you the truth, Senator.

Senator THOMAS. Would you like to see the list?

Mr. ALLGEIER. Well, sure. We can exchange lists.

Senator THOMAS. Farmer’s Union. Many of them.

Mr. ALLGEIER. Well, we can exchange the lists.

Senator THOMAS. Well, the point is, there is a great deal of opposition and most of it does, obviously, center around sugar, because

19

that is the obvious one. We’ve had discussions on sugar, and it was

left out of Australia.

I think it also has to do with the potential of coming up with

something with Brazil, which is going to be quite different in terms

of production. I am interested, too, when you talk about cash to offset this. Actually, the farm bill mandates the sugar program will

be operated at no cost to the U.S. taxpayers. What we have done,

is to seek to hold down production. It is a unique commodity. Apparently, you are going to change it and pay people not to produce.

Is that right?

Mr. ALLGEIER. Well, another advantage of the compensation

mechanism is that it does not have to be a cash transfer. We can

do it through some other means.

Senator THOMAS. That will not cost anything? Of course it will

cost something. There is no other way to do it.

Mr. ALLGEIER. Well, if we provide them with another commodity,

that commodity taken out of a stockpile, perhaps. But there does

not necessarily need to be a financial transfer out of the U.S.

Treasury or out of the sugar program.

Senator THOMAS. Well, I would be happy to hear how you do

that, if it amounts to anything, because I do not see how it can possibly be that way.

Some of the livestock people are interested, as we go forward, in

the potential for more imports of beef, for example, in getting something done on country of origin. Have you all been supportive of

that idea?

Mr. ALLGEIER. I am sorry. Could you repeat that, please, Senator?

Senator THOMAS. Country of origin.

Mr. ALLGEIER. You mean labeling here in the United States?

Senator THOMAS. Yes. When these products come in, that people

will be able to determine whether they are buying domestic products are not.

Mr. ALLGEIER. Well, that is not part of this agreement, no. I

mean, that would be a separate Congressional——

Senator THOMAS. Of course not. I am asking if you think that is

an idea, and if that is something that makes some sense.

Mr. ALLGEIER. I think that would be something to ask the Department of Agriculture, frankly. USTR does not have a role in

that.

Senator THOMAS. You do not have a thought, of course?

Mr. ALLGEIER. I am not an expert in this field, Senator.

Senator THOMAS. Well, these are some of the things that are

there, and I am anxious to see us have a program. But I do think

the precedent that is set in terms of sugar is clearly going to be

difficult. What are you going to do with Brazil?

Mr. ALLGEIER. Well, we are not negotiating an agreement with

Brazil at the time.

Senator THOMAS. I know that. But you are going to. That is the

next one that is on your list, and you have talked about it a number of times. I was in Argentina, and that is where the real issues

are going to come with trade, with Argentina and Brazil. That will

make this program look like a tiny one.

20

Mr. ALLGEIER. Well, we are not in a position to negotiate those

sorts of terms with Brazil and Argentina. Obviously, in any other

negotiations we will consult closely with Congress, including those

who represent sensitive industries.

Senator THOMAS. My point is, you set a precedent when you do

it here. I think you have to give some thought to how this is going

to impact the future. I hope we can do something to work the problem out. I am for trade, but I do think you have to listen to some

of the things that are coming up and not just ignore them.

Mr. ALLGEIER. Well, we do this. For example, Senator Conrad

wrote us a letter, saying that we should not alter the sugar tariff

that is above the quota, and we did not. We left that in place.

On other products, we listened very closely to people, especially,

I would note, people who very much want to get improved access

into this market and are on this list of 60 farm groups, including

the Farm Bureau, and everybody from dairy, to poultry, to rice who

endorsed this agreement. So, we have tried to listen very closely,

and we will continue to work with them.

Senator THOMAS. I understand. But I am saying that you cannot

deny there is a good deal of opposition on the other side, and we

are trying to find a balance of those things. So, thank you.

Mr. ALLGEIER. Right.

The CHAIRMAN. Senator Bunning?

Senator BUNNING. Mr. Chairman, I would like to enter an opening statement into the record.

The CHAIRMAN. Yes. That statement will be included in the

record.

[The prepared statement of Senator Bunning appears in the appendix.]

Senator BUNNING. I would like to talk about textiles.

Mr. ALLGEIER. All right.

Senator BUNNING. I understand that, in contrast to the current

rules that govern trade between the United States and the CAFTA

region, the CAFTA agreement requires only that the component

that imparts the tariff classification of the good be made from originating fabrics. I understand that the CBPTA, for instance, requires

that all fabric components be made of U.S. fabric or be made from

U.S. yarn.

Can you specifically address the essential characteristic component aspect of the rule in the CAFTA agreement with regards to

textiles and tariff preference levels for Nicaragua and Costa Rica?

Mr. ALLGEIER. Well, first of all, the basic rule is the ‘‘yarn-forward rule of origin,’’ that the yarn and the fabric must be originating from one of the members in the agreement, including the

United States.

That is the rule, by the way, that our industry requested that we

incorporate into CAFTA. So, we have done that, and that rule applies both to Costa Rica and to Nicaragua, and to the other countries.

In the case of Nicaragua, they have a temporary, transitional

provision. They are allowed a very small amount of fabric from outside the region, but that is purely as a transitional provision.

Senator BUNNING. Transshipped, or otherwise?

21

Mr. ALLGEIER. No, not transhipped. It is a tariff preference level

that would be monitored.

Senator BUNNING. In regards to Nicaraguan yarn?

Mr. ALLGEIER. Only Nicaragua has this transition. The overall

rule, and the rule that will apply after the transition for Nicaragua, is that it must be this yarn-forward rule that we worked

with the industry on and that they requested. You prevent the

transshipment, obviously.

Senator BUNNING. Well, we will see.

I understand that the United States’ industry filed a safeguard

petition last week with respect to bras coming into this country

from China, an item which I have been told has seen a 35 percent

increase in the level of Chinese imports during the first quarter of

2005.

Can you address the single transformation rule in the CAFTA

agreement which would apply to bras, among other things?

Mr. ALLGEIER. Well, first of all, Senator, let me say that we are,

with the Department of Commerce and the other Departments,

paying very close attention to the changes in imports that we are

receiving as a result of the change in the quota situation, and specifically from China.

I think, as you know, the administration, already on its own, has

initiated investigations in three very important categories of imports from China. And, as you pointed out, there are petitions that

we are looking at for other products.

But I can assure you that the rules of origin that we have incorporated into CAFTA, and some very specific rules about monitoring

and enforcement to avoid transshipment, to prevent transshipment,

are extremely strong and we expect them to operate effectively.

Senator BUNNING. As you know, there are going to be some

changes proposed on the floor of the U.S. Senate in regards to

trade with China.

Mr. ALLGEIER. Yes.

Senator BUNNING. In August of 2004, the ITC stated that, ‘‘The

CAFTA agreement could encourage CAFTA apparel manufacturers

to use third country yarns and fabrics instead of U.S. materials.’’

Do you agree with this assessment?

Mr. ALLGEIER. No. We have been very, very careful to ensure

that the kind of partnership that is in place now with the countries

of Central America and the Dominican Republic continues under

CAFTA, with even strengthened rules on enforcement.

Senator BUNNING. How are you going to enforce it?

Mr. ALLGEIER. Well, we will enforce it through the normal Customs procedures. Of course, Customs fraud is a Federal crime.

Senator BUNNING. I know it is a Federal crime. But if it is

profitable——

Mr. ALLGEIER. People will try. But these countries have had to

sign onto provisions that they will apply within their own countries

to strengthen the enforcement and to prevent transshipment. It is

not in their interests to have transshipment, because then the benefits of this agreement will certainly be questioned by us.

Senator BUNNING. Well, because they will not be buying from us.

That is the big difference.

22

Mr. ALLGEIER. Well, we are not going to let it get to that stage.

They want to be part of this partnership with the United States.

It is the only way that they, and we, can compete. Well, I would

not say it is the only way, but it is a critical element in their ability

to compete, and our ability to compete, using fabric and yarn from

the United States.

Senator BUNNING. I have some other questions. If I do not get

to ask you them, I am going to submit them to you in writing.

Mr. ALLGEIER. I would welcome them. Thank you, Senator.

Senator BUNNING. Thank you.

The CHAIRMAN. Now, Senator Snowe, then Senator Wyden, and

then Senator Jeffords.

Senator SNOWE. Thank you, Mr. Chairman.

I think there is an element of trust and confidence that is missing with our trade agreements. You mentioned earlier monitoring

and enforcement. Those are key words. That has been sorely lacking, unfortunately, not just with this administration, previous administrations as well. I served both in the House, and now, of

course, in the Senate, and I have opposed trade agreements. I have

supported some.

Regrettably, I do not see a change in disposition on the part of

our government officials to aggressively enforce agreements. That

is why you are hearing so much concern here today. Because, while

you could say, well, we are the winners, we are going to win, a lot

of people have lost. We have lost a million jobs since NAFTA. That

is an agreement I did not support.

We have lost a million jobs. We have seen what China has done

on the economic landscape. What is our government doing? What

are our officials doing? We have a $660 billion trade deficit overall,

the largest, of course, with China. It is unprecedented. We know

the concerns that Senator Bunning just raised.

He just raised concerns about the potential for transshipments

from China. That is a serious concern. But we do not know what

our government is doing to enforce these agreements. That is the

point. That is why you have lost trust with respect to these agreements, because so many jobs have been lost.

Certainly, Maine has been an example of that, with manufacturing, textile and apparel. We have been devastated over the last

4 years. It has been alarming, and that is true across the country.

So, while we can talk about, we have Customs officials, they will

enforce the agreements, they will catch fraudulent shipments, we

have monitoring and enforcement compliance provisions in these

agreements, what is happening to suggest that we have been effective and successful? What are we doing with China?

Why should we believe the fact that we are going to have an

agreement that will be upheld and that we will not have China engaging in transshipment and fraudulent provisions that undercut

our ability to be competitive? That is the issue here.

I cite that because I think that we have to come to terms with

the issue of enforcement, and becoming tough and enforcing these

agreements. Yes, they are fair agreements, but it is not fair for one

side. We are obviously seeing it in the display of the trade deficits.

I think it is manifested in that figure, not in totality, but certainly a good measure of it. That is the problem. That is the probVerDate 11-MAY-2000 17:00 Mar 23, 2006 Jkt 095484 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 26286.000 SFINANC2 PsN: SFINANC2
23

lem that we are facing. Just, I have lost confidence in the ability

of our government to enforce these agreements.

Mr. ALLGEIER. Senator, certainly I agree with you that enforcement is an essential part of our trade agenda. We cannot just go

out and negotiate agreements and then go off and negotiate another one and not pay attention to the countries’ abiding by our

previous agreements. I assure you, we are very aggressive in how

we deal with our trading partners.

For example, we are very aggressive in filing cases in the WTO,

but that is not our only way of enforcing. With respect to China,

of course, I think the United States is the only country so far that

has taken them to dispute settlement in the WTO.

But also, we have worked with domestic industries to solve problems. The semiconductor industry, for example, had a problem with

China that we worked on. We did not have to go to dispute settlement.

But we take very seriously our responsibility to enforce agreements that we have negotiated. We are happy to work with you

and your constituents in any instances where you feel that a trading partner is not abiding by a trade agreement with us.

Senator SNOWE. Well, I think you understand the concerns, and

the breadth of concerns that have been expressed here, but also in

the Senate recently with China manipulating its own currency.

Mr. ALLGEIER. Yes.

Senator SNOWE. It is our workers and our companies that are at

a serious detriment. That is the issue here. That is fundamentally

the issue. We talk about it and we talk about it, but we have to

see aggressive enforcement and we have to see a demonstration of

that. That is the point here.

The potential for fraud from China and this transshipment problem, I think, undercuts our ability. We have a deficit with each of

these countries, as I understand it. Is that not correct?

Mr. ALLGEIER. With the CAFTA countries, we have an overall

deficit of about $2 billion.

Senator SNOWE. Yes. So that is the point. All right. So again, are

we going to widen that deficit?

Mr. ALLGEIER. Well, we are trying to correct it by getting a level

playing field. But we are happy to work with you and your constituents on enforcement, wherever it occurs.

Senator SNOWE. Thank you.

Thank you, Mr. Chairman.

The CHAIRMAN. Senator Wyden?

Senator WYDEN. Thank you very much, Mr. Chairman. I commend you and Senator Baucus for getting us started on this effort.

I am one of the few people here who is willing to call themselves

a free trader. I will tell you that, as a free trader, I am still very

troubled by the fact that trade policy seems, in the last few years,

to have been transformed from an opportunity to open foreign markets to our products into a vehicle for special interest policies.

I am going to talk to you in just a minute about one that concerns me very much. I think the agreement, as it stands now, is

a huge giveaway to brand-name pharmaceutical firms. I am going

to ask you about that shortly.

24

But, first, I want to talk about something I heard just 10 days

or so ago at home, and that involves the sugar situation. In our

area, 300 workers at Amalgamated Sugar were just certified as eligible for trade adjustment assistance.

We have 80 sugar beet farms, 100 sugar beet seed farms, most

of the beet farms in eastern Oregon. A layoff of 300 people in a

small part of the rural west is enormous. That is happening, even

before CAFTA. What kind of assurance can you give those sugar

beet growers in Oregon who are expecting somebody who is protrade to stand up for them?

Mr. ALLGEIER. Well, first of all, let me say that we have worked

very, very hard to provide new markets for agricultural interests.

Of course, in the case of Oregon, things like apples and pears are

extremely important.

Senator WYDEN. The question is about sugar, sir.

Mr. ALLGEIER. No. I am going to get to that. I will. But we have

a 2-pronged approach: a) to open up as many markets as possible;

b) to be extremely sensitive where we have products such as sugar.

That is why, in this chart here, you can barely see the amount

of sugar, the percentage of sugar that would come in, if the CAFTA

countries used the full measure of sugar that they are provided in

this agreement. You can barely see it on that chart.

And there are the other protections that I have mentioned before,

that we are not increasing the out-of-quota tariff at all, we have

the compensation mechanism. We are taking very strong measures

to ensure that countries do not substitute someone else’s sugar for

their sugar.

Senator WYDEN. Well, I am going to send Oregon sugar beet

growers around to visit with you, because I certainly do not think

that is the case.

Mr. ALLGEIER. I would be happy to.

Senator WYDEN. Let me turn to the question of the pharmaceuticals. In 2002, the General Accounting Office found that essentially people with a public health background had been locked out

of your Trade Advisory Committee process.

As far as I can tell, there is huge dominance by brand-name

pharmaceutical manufacturers. My understanding is that something like over two-thirds of the representatives are brand-name

people.

But my question to you, in particular, is about this outrageous

way in which you give the brand-name people even more protection

under CAFTA. The way it works is, most companies, of course,

seek market approval for drugs here in the United States.

A company gets approval in the United States, and under U.S.

law, gets 5 years of protection of this data in CAFTA countries. At

the very end of the 5 years, the brand-name company then

hopscotches to one CAFTA country and gets, at least, an additional

5 years of market exclusivity simply by hopscotching somewhere

else and seeking approval in that market.

So, because the language of the agreement is so favorable to

these brand-name companies and is so murky, it might even be

possible for a brand-name drug company to essentially hopscotch

all over the world, getting 5 more years here, and 5 more years

25

there, and who knows how many years of exclusivity they are going

to get.

Now, what could possibly be in the public interest about something like that?

Mr. ALLGEIER. Two things. First of all, we have not done anything in CAFTA to alter the provisions that countries have under

the TRIPS agreement with respect to access to medicines. In other

words, we have not changed the period under which there is protection of data.

What we have done in this agreement is conscientiously follow

the guidance that we have been given in trade promotion authority,

which is to provide a balance between the protection for innovation—which, if you look at the Jordan Agreement, some 40 new

drugs have been introduced into Jordan since that agreement—but

to balance that with the legitimate need of governments to meet

the public health needs of their countries, including, specifically,

access to medicines.

So, we have followed scrupulously that balanced guidance that

we have from TPA and incorporated that into CAFTA.

Senator WYDEN. I will just tell you that we have looked at several of the agreements, for example, Australia and NAFTA, and

there is no question in our mind that there is more protection for

brand-name companies in this. I am going to furnish that to you

in writing. But throughout this administration, the brand-name

folks have done awfully well, and that has not been in our interests

in this country or overseas. This agreement takes it to new lengths.

I will just tell you, I am one of the people that you have to get

support from to have any chance of passing this. I have voted for

all of the major trade agreements in the past and have the welts

on my back to show for it.

Unless you do something about the egregious favoritism for these

special interests that is in this agreement, I will not be able to go

along. So, I look forward to working with you.

I would like to be in the camp that has supported free trade, and

have worked closely with Senator Baucus, in particular, and Senator Grassley on this. But you have a ways to go to convince me

this time.

Thank you, Mr. Chairman.

Mr. ALLGEIER. Thank you. I would welcome the opportunity, Senator Wyden, to sit down with you to talk about agriculture, and

also about pharmaceuticals, at a time that is convenient for you.

The CHAIRMAN. Senator Jeffords?

Senator JEFFORDS. I am pleased to be with you. I have heard

from these very well-informed witnesses about the benefits of

CAFTA to both the United States and the countries in Central

America.

I am concerned, however, about the assumptions that underlie

this agreement. Traditionally, enforcement in the Central American countries of the labor laws, environmental laws, and even

commercial code has been uneven.

Some of the CAFTA countries are doing a very respectable job of

enforcing the laws on their books, and others are not, however. For

example, respect for the international labor law standards was the

26

subject of an investigation by the ILO in 2003, and by the Department of Labor this year.

Significant questions remain as to the ability of these countries

to enforce rules on their own books. I do not see how we can enter

into a complicated and comprehensive treaty if we do not have confidence in the underlying systems which we are joining in a close

economic relationship.

Mr. Ambassador, I would like your comments on this concern.

Mr. ALLGEIER. Yes. It is a legitimate concern, Senator. In fact,

one of the biggest advantages or benefits, both to us and to these

countries, is what we introduced through this agreement in terms

of improving the rule of law and good governance, transparency,

and non-discrimination in the legal and regulatory systems of these

countries.

It is actually something that their leaders want. They see

CAFTA as a way of making irreversible the kinds of reforms that

they are trying to make in their legal system, whether it is in commercial law or in labor law.

I think that a good illustration of their commitment is this report

that the trade ministers and the labor ministers put together, with

assistance from the Inter-American Development Bank, and building on that ILO investigation or that study, identifying very candidly the weaknesses in their systems and the steps that they are

committed to take, in cooperation with us, to improve their systems.

They do not like the fact that they do not have the same sort of

rule of law that we have here, so CAFTA is a very important vehicle for moving them in that direction and reinforcing their inclinations and their comments in that.

Senator JEFFORDS. When entering into a trade agreement between economies of such unequal size, there is always a concern on

the part of the smaller economies that some of their industries will

not be able to compete when faced with the economies of scale in

the United States.

Small farmers, for example, in many Central American countries

are worried about the ability to survive the onslaught of American

agricultural products. I would appreciate your comments on this

concern.

Mr. ALLGEIER. All right. Speaking generally—and I will get to

agriculture in a minute—less and less is the situation one in which

industry A is located entirely in one country, industry B in another.

More and more, it is a question, as you know, of a global network

in which certain components come from country A, and others from

country B and country C, and then they are assembled.

What these countries gain, and what they hope to gain, is to be

more of a part of that international network, which is, of course,

very strongly centered in the United States. So, they see enormous

benefits of being part of a global network.

Obviously, they have sensitivities, and we have treated those

sensitivities both in agriculture and on the industrial side by

longer transition periods, and so forth.

Senator JEFFORDS. Thank you.

The CHAIRMAN. Thank you very much.

Thank you, Mr. Allgeier.

27

We will call the second panel now. I appreciate very much your

participation. Be cognizant of the fact that there will be questions

submitted for answer in writing, and try to answer those as fully

as you can.

Mr. ALLGEIER. Thank you. Thank you very much, Mr. Chairman

and Senator Baucus.

The CHAIRMAN. Our next panel is Mr. Edwards, president of the

Montana Grain Growers Association, Big Sandy, MT; Mr. Harris,

chairman of the Western Hemisphere Trade Committee, USA Rice

Federation, Stuttgart, AR; Mr. Jack Roney, director of Economics

and Policy Analysis, the American Sugar Alliance, Arlington, VA;

and Mr. Mark Berlind, executive vice president, Global Corporate

Affairs, Kraft Foods, Northfield, IL.

We will take you in the order that you were introduced, so Mr.

Edwards, Harris, Roney, and Berlind.

You will not have to ask for your longer statements to be put in

the record. They will be automatically included, if you submit

them. So, now I look forward to your 5-minute summary.

Mr. Edwards?

STATEMENT OF LOCHIEL EDWARDS, PRESIDENT, MONTANA

GRAIN GROWERS ASSOCIATION, BIG SANDY, MT

Mr. EDWARDS. Yes. Good morning, Chairman Grassley and members of the committee. For the record, my name is Lochiel Edwards. I farm on the prairies of Montana with my brother, sister,

and my children. We grow high-quality wheat and barley for the

domestic market, as well as for many nations around the world.

Today I am representing the Wheat Export Trade Education

Committee, which handles trade policy for the wheat industry, and

also the National Association of Wheat Growers, the U.S. Wheat

Associates, which is a trade promotion organization of the wheat

industry, and the National Barley Growers Association, as well as

my passion, which is the Montana Grain Growers Association.

That is a long list, but simply summarized, that means I represent my wheat- and barley-producing neighbors back home.

Exports are critical to our industry. Domestic use of wheat absorbs only half of America’s production. As you can imagine, our

success or failure hinges on access to world markets.

Ninety-five percent of the world’s consumers live beyond our borders. This obviously represents and presents a market opportunity,

of which CAFTA is an important part, to the wheat and barley industries.

Wheat and barley currently have little or no tariff applied in

these CAFTA-DR countries, but WTO rules allow for the imposition

of duties from 60 percent to well over 100 percent. A 6- to 14-percent tariff is currently applied on wheat flour, but tariffs up to 135

percent are currently allowed.

This is our interest in this agreement. To establish long-term

markets, we must compete with aggressive countries like Canada,

Australia, Argentina, and, of course, the European Union. These

countries, and others, are negotiating agreements around the

world, and in this region as well.

The Caribbean Basin initiative and other market preferences

currently give NAFTA countries duty-free access to the United

28

States for virtually all agricultural products, and as you know,

sugar being a notable exception to that.

The CAFTA agreement levels this playing field, providing the

U.S. exporters market access that is better than, or at least equal

to, the access of those competitors I mentioned, and any other competitors.

Back home in Montana, a world-class malting plant is being completed this spring which will give our barley producers a new outlet

for their grain. While Coors Brewing and Anheuser-Busch will likely use much of the barley malt from this new facility, the Central

American market is exactly what is needed to complete demand for

malt. This market is at least 60,000 metric tons in the region,

which translates to 90,000 tons of barley annually.

This is significant, and is a market now served by Canada and

the European Union, not the United States. International Malt

Company, the owner of the plant, will surely be working to develop

competitive freight to Central America out of the Pacific Northwest, and the Gulf Coast as well. This CAFTA agreement is important to projects such as this.

There are some trade-offs in this agreement due to the protections written in on behalf of the U.S. domestic sugar market. We

believe a long phase-in of free trade and the exemption of white

corn from complete tariff elimination, to name a couple, are disappointing precedents to set for our trade negotiators.

However, the agreement is positive for U.S. agriculture and retains the 100-plus percent tariff on over-quota imports of sugar into

the United States, as well as other sugar protections which should

be adequate to satisfy all parties.

It is important that no commodities are excluded from this agreement, and we congratulate the negotiators for this. We strongly oppose the amendment of trade agreements to exclude select commodities, an action which would set a poor precedent for the negotiation of trade agreements with additional Central American nations.

This market has been dismissed by some as a small economy, but

in these countries we have 40 million consumers with rising incomes and a desire for the products we produce.

Our market is already largely open to agricultural imports from

their countries, so this agreement will result in very little added

competition here at home. It is in our best interests to forge this

relationship. Trade agreements have a way of taking time to bear

fruit, but a good example is our trade with Mexico, which is on the

verge of becoming our fourth-largest customer for U.S. wheat.

Trade with Central America has a larger value as well. Those we

trade with will form societal attitudes of partnership with our

country. Rising standards of living and political stability result

from increased commercial activity. I propose that this is the preferable avenue to achieving these goals in our neighborhood.

The United States’ market is already open to imports from these

countries. Although gradually, in some cases, CAFTA-DR ensures

the trade will be on a 2-way street. This is good for our Nation and

is good for the people of Central America.

29

This is the right thing at the right time. We ask your support

and approval of this agreement, and I thank you for this opportunity to present the views of the wheat and barley producers.

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

The CHAIRMAN. Thank you.

Now, Mr. Harris?

STATEMENT OF TERRY HARRIS, CHAIRMAN, WESTERN HEMISPHERE TRADE COMMITTEE, USA RICE FEDERATION,

STUTTGART, AR

Mr. HARRIS. Thank you, Mr. Chairman. I am here today on behalf of the USA Rice Federation, and we very much appreciate you

holding this hearing about CAFTA-DR.

The USA Rice Federation represents U.S. rice growers, millers,

exporters, and allied industries such as brokers and transportation

firms throughout the U.S. I serve as the chairman of the Federation’s Western Hemisphere Promotion Subcommittee. My testimony

today has been endorsed by the U.S. Rice Producers Association.

In addition, this testimony has also been endorsed by the Agriculture Coalition for CAFTA-DR, a group made up of 56 agricultural and related organizations that support this agreement. A letter of support signed by these 56 groups is attached to my written

statement.

On a day-to-day basis, I serve as vice president for Latin America and the Middle East, in the Rice Export Division of Riceland

Foods, the largest rice and soybean farming cooperative in the

world. We are headquartered in Arkansas, with more than 9,000

farmer members and about 2,000 employees.

The CAFTA countries—Costa Rica, El Salvador, Guatemala,

Honduras, Nicaragua, plus the Dominican Republic—represent one

of the top five regional markets for U.S. rice exports. U.S. rice exports to these countries in 2004 were over 714,000 tons, or about

17 percent of total U.S. rice exports for the year. The value of this

market in 2004 was $184 million.

Despite the large demand for U.S. rice, though, negotiations over

rice were long and very difficult with each of the countries. Rice is

one of the most sensitive agricultural commodities for the Central

American and Dominican Republic negotiators, and this sensitivity

is reflected in a long transition period, which is 18 to 20 years, for

free trade in rice.

While our industry sought a much shorter move to free trade, we

do believe the negotiators got the best agreement possible. Our negotiators did not give in to demands that rice be excluded, and the

comprehensive agreement they negotiated was central for achieving

market access gains for U.S. rice producers, millers, and exporters.

The U.S. rice industry is one of the most open segments of U.S.

agriculture. Each year, 40 to 50 percent of the U.S. crop is exported, and imports make up 10 to 12 percent of domestic consumption. Import duties are nearly non-existent.

Exports are critical to the economic health of the industry and

the rural communities that our producers and millers serve. We

must continue to insist that other countries provide similar access

30

into their markets. The CAFTA-DR agreement helps us to achieve

this goal.

The CAFTA-DR agreement will improve our existing access in

this large market, reduce high import duties, eliminate tariff discrimination against certain forms of rice, and provide preferential

duty treatment not available to any other supplier.

Currently, the CAFTA-DR countries charge duties between 35 to

90 percent on U.S. rice under WTO bindings. More significantly,

countries in the region frequently apply these import duties in a

discriminatory fashion that denies us consistent and meaningful

access for U.S.-milled rice.

The CAFTA-DR agreement addresses such discrimination by preserving the existing access of paddy rice, or unmilled rice, and providing for immediate, guaranteed market access for brown and

fully milled rice. Tariff rate quotas will be established in all countries.

In effect, U.S. rice exports will face duties significantly below

what the CAFTA-DR countries could charge under their WTO

bindings. This benefit begins when the agreement is implemented

and continues through the transition to free trade.

The American Farm Bureau Federation concluded last year in an

economic analysis of CAFTA-DR that full implementation of the

agreement would boost the value of rice exports to the region by

over $90 million annually. U.S. rice exports for the current marketing year are projected by USDA to be over 3.3 million tons on

a milled basis.

On a value basis, U.S. rice exports will once again likely exceed

$1 billion in 2004–2005. We have seen substantial benefits from

multilateral trading agreements.

Without NAFTA, our exports to Mexico would be far below current levels. Without the Uruguay Round agreement on agriculture,

the Japanese market would remain closed to all U.S. rice. These

two countries represent one-third of the value of U.S. rice exports.

Likewise, our market success in the EU, Korea, and Taiwan are

directly correlated to the access disciplines in the Uruguay Round.

These markets represented 10 percent of U.S. rice exports in 2004–

2005. We are confident that U.S. rice sales to the CAFTA-DR countries will also be strengthened by this new agreement.

We know that neither CAFTA-DR, nor any trade agreement, will

solve all of our problems. However, trade agreements, in conjunction with consistent enforcement by our trade officials of non-tariff

barriers, have immensely improved our competitive position in foreign markets.

CAFTA-DR also addresses the most prevalent type of non-tariff

trade barriers, that dealing with sanitary and phytosanitary measures. An SPS committee is established to expedite resolution of

technical issues.

I actually received a call just yesterday. There is a vessel with

U.S. rice being held at the port in the Dominican Republic right

now due to a phytosanitary issue that we feel is not based on

science, and is simply harassment of the people exporting to that

country.

While we understand that other sectors of agriculture believe

otherwise, the benefits of this trade agreement to the rice industry,

31

as well as to many, many other sectors of U.S. agriculture, are

critically important. We believe that the administration has negotiated an agreement that does strengthen U.S. agriculture.

The U.S. rice industry urges this committee and Congress to support the benefits of expanded trade to U.S. agriculture, and the

consumers in Central America and the Dominican Republic.

In conclusion, Mr. Chairman, CAFTA-DR means opportunity,

growth, and choice, both for U.S. rice producers, millers, and exporters, and also for the consumers in Central America and the Dominican Republic.

Thank you.

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

The CHAIRMAN. Mr. Roney?

STATEMENT OF JACK RONEY, DIRECTOR OF ECONOMICS AND

POLICY ANALYSIS, AMERICAN SUGAR ALLIANCE, ARLINGTON, VA

Mr. RONEY. Thank you, Mr. Chairman, for the opportunity to testify. 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 sugarcane in 19 States.

As Senators Baucus, Conrad, Thomas, Wyden, Smith, Schumer

and Crapo are aware, the proposed CAFTA threatens American

sugar jobs in their 6 States, and 13 other sugar States. By the government’s own estimates, sugar job losses from CAFTA will be far

greater than any other sector’s.

The same International Trade Commission study which Senator

Conrad referred to earlier also questions the overall value of

CAFTA to our economy. The ITC concluded that 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 playing field, free of government intervention. Like other American farmers, we can compete against foreign farmers, but we cannot compete against foreign government subsidies.

The world’s 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

dumped market through genuine global sugar trade liberalization.

There is a right way and a wrong way to attack global sugar subsidies. The right way, the WTO: all countries at the table, all programs, all subsidies on the table. The wrong way: 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 NAFTA and

CAFTA, and these agreements are mired in controversy. Sugar

must be reserved for the WTO, where genuine trade liberalization

can occur.

As the Senators from sugar-producing States know, if CAFTA

passes, it will have devastating effects on sugar jobs in their

32

States. Our farmers know their industry and their policy well. We

have examined the CAFTA provisions soberly and carefully.

We regard CAFTA as a life-or-death issue. American farmers and

workers who will lose their jobs are insulted by CAFTA proponents

who trivialize the potential harm from this agreement with cutesy,

misleading depictions of additional access and teaspoons per consumer of production per day.

We are already one of the world’s most open sugar markets. Past

trade agreement concessions force us to import upwards of 1.5 million tons of sugar per year from 41 countries duty-free. This makes

us the world’s fourth-largest net importer of sugar. The CAFTA

countries and the DR are already our biggest duty-free supplier, accounting for a fourth of all of our imports.

Unfortunately, our market is already over-supplied. Every additional ton of sugar we are forced to import from foreign countries

is 1 ton less that struggling American sugar farmers will be able

to sell in their own market: import more foreign sugar, export more

American jobs.

CAFTA poses serious short-term and long-term dangers to American sugar farmers and workers. In the short term, the CAFTA

sugar market access concessions, on top of import concessions 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 do in the 2002 Farm Bill.

CAFTA will further over-supply 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.

U.S. sugar producers are currently holding more than a half million tons off our market and storing it at our own expense. Absent

marketing allotments, this surplus sugar would cascade onto the

market and destroy our price.

Contrary to misleading claims of CAFTA proponents, there is no

cushion, no additional share of the U.S. market that Congress intended to make available in the FTAs.

The difference between recent actual imports and the 1.5-millionton marketing allotment trigger has already been allocated to Mexico under NAFTA. The administration is ignoring NAFTA to promote CAFTA.

In the long term, 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.

No doubt, they expect no less than the concessions already granted

to the CAFTA countries.

Combined, these 21 countries export over 25 million tons of sugar

per year, nearly triple U.S. consumption. Obviously, the precedent

the CAFTA concessions set will make it impossible for the U.S.

sugar industry to survive future agreements.

In conclusion, Mr. Chairman, CAFTA will cost thousands of

American sugar farmers and workers their jobs. The dangers of

CAFTA to the U.S. economy outweigh the benefits. We respectfully

urge that this committee reject CAFTA and focus U.S. trade liberalization efforts instead on the WTO, where there is genuine potential for progress.

33

Thank you.

The CHAIRMAN. Thank you.

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

The CHAIRMAN. Now, Mr. Berlind?

STATEMENT OF MARK BERLIND, EXECUTIVE VICE PRESIDENT, GLOBAL CORPORATE AFFAIRS, KRAFT FOODS, INCORPORATED, NORTHFIELD, IL

Mr. BERLIND. Mr. Chairman, members of the committee, I am

Mark Berlind, with Kraft Foods. Thank you very much for inviting

me to testify with you this morning.

Trade is an issue of vital importance to Kraft, our 50,000 U.S.-

based employees, other U.S. food manufacturers, and the thousands of American farmers who supply high-quality raw materials

to our industry.

We urge this committee and this Congress to support implementation of CAFTA-DR. We are convinced that this agreement will

benefit our company, customers, employees, stakeholders, and the

many farmers and others who supply us.

Kraft is heavily engaged in world trade and painfully familiar

with the global web of barriers that frustrate movement of agricultural and food products. On a worldwide basis, we buy $7 billion

worth of agricultural commodities annually, about half of which are

bought right here in the U.S. for use in our American manufacturing facilities.

The U.S. is currently Kraft’s largest market, but given demographic realities, we know that our industry’s future growth is inextricably linked to its ability to export. Ninety-five percent of the

world’s consumers live outside the United States. Looking forward,

one of the primary engines of our growth will simply have to be external.

There are over 40 million consumers living in the six CAFTA-DR

countries. With relatively young populations, moderate population

growth, rising incomes, and improved diets, the demand there for

U.S. processed food is expanding and has the potential to expand

far more rapidly as trade barriers come down.

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. There are other added

import charges that lift the effective DR tariff rate to about 33 percent.

Some food products of special interest to Kraft, like processed

cheese and cream cheese, 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 15 years. Certain products, such as breakfast cereals, cookies,

and pet food would receive immediate duty-free treatment.

This represents clear opportunities for Kraft products as diverse

as Post breakfast cereals, Oreo cookies, and Milk Bone pet foods.

As Chairman Grassley pointed out at the beginning, CAFTA will

level the playing field. Currently, food products can come in from

those countries without any tariffs whatsoever.

We are the only ones who have to pay tariffs to send it going the

other way. So, we see this as an opportunity and an incentive to

34

be able to make more products in the United States using American workers and American ingredients.

The total value of shipments of Kraft products from the U.S. into

the six CAFTA-DR countries was $10.6 million last year, and it

cost us about $2.3 million in tariffs just to enter those goods.

Ultimately, the greatest benefit to Kraft from tariff reductions

may come in those cheese categories that I mentioned. Cheese is

one of our core businesses and a sector of the CAFTA-DR market

where we now face almost insurmountable barriers.

One of the most important features of this 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 limited access to lower-priced Central American and DR sugar, but in an exceedingly modest way

that fully recognizes the sensitivity of this commodity in our country.

No products should be excluded from free trade agreements to

which the U.S. is a party. We are convinced that 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.

In the case of CAFTA, we would expect that an attempt to renegotiate sugar would erode benefits for other U.S. agricultural

commodities and cause the entire delicately balanced agreement to

unravel.

As a country that enjoys the world’s strongest economy, our message to other countries simply cannot be that we are only interested in free trade in those goods and services for which we maintain a competitive advantage.

If there were to be a decision subsequent to this hearing to upset

the delicate balance that the negotiators reached in forging this

agreement by taking any specific commodity off the table, we would

have a very difficult time continuing to support the pact.

Kraft is a strong supporter of trade liberalization and a vigorous

advocate for high-standard, comprehensive trade agreements. We

believe such agreements create opportunity and are good for our

company and our country.

Again, we urge you to approve legislation that will implement

CAFTA-DR. Thank you very much for your attention. I would be

happy to answer any questions that you have.

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

The CHAIRMAN. We will have 5-minute rounds, as we have in the

past.

Mr. Edwards, you state in your testimony that Mexico would

soon become the fourth-largest customer of U.S.-produced wheat, so

your industry is apparently benefitting from trade with Mexico.

Yet, some contend that U.S. agriculture has prospered little

under trade with Mexico and that, accordingly, U.S. farmers and

ranchers would benefit little from the trade with CAFTA countries.

Your comment on that?

35

Mr. EDWARDS. Yes, Chairman Grassley. One of the big difficulties out in the countryside with agriculture is change. Change is

difficult for anyone, anywhere, but it is difficult for agriculture

when you cannot plan and know what is in the future.

I mean, a changing Farm Bill, changing weather, for that matter,

changing patterns of trade, they are difficult for our people. In

some ways, that is our most difficult barrier toward acceptance of

trade agreements. If you look at the numbers from the NAFTA

agreement, they look pretty good, really, for agriculture.

There are local problems, and Montana is at the heart of some

of those local problems, with trade with Canada, for instance. But

when you look at the overall numbers, you see that there is a net

gain to trade for agriculture and for our people, but there are individual victims at any given time as trade shifts.

The CHAIRMAN. Mr. Edwards, also, what do you believe the impact would be if the United States failed to implement CAFTA, and

how would such an outcome affect the trade agenda for your wheat

growers?

Mr. EDWARDS. Well, currently, as I stated, and as is commonly

known, there are few tariffs supplied into the Central American

countries. Costa Rica is the only one, and it is 1 percent.

What this does to our agenda is give the wheat industry the inability to plan its trade agenda. We have some very aggressive

neighbors. I hate to name names, but Canada is very pointed in

undercutting U.S. wheat exports, and they are good at it, partly because they have a single-desk State trading enterprise.

That kind of competition is not for the faint-hearted, and it is not

for those who are subject to the whim of a country to slap a tariff

on where there was none before. It takes foresight and planning to

forge the economic ties, the planning, the relationships it takes to

have trading customers. So, essentially it puts us on an uncertain

field with these countries.

The CHAIRMAN. All right.

Mr. Roney, CAFTA provides many accommodations for the sugar

industry: tariff rate quotas on sugar imports for the CAFTA countries will remain in place under the agreement; significantly, the

U.S. over-quota tariffs, which are generally prohibitive, will remain

intact under CAFTA; increased access for CAFTA countries during

the first year of the agreement will total a little more than 1 day’s

worth of production of sugar in the United States and will amount

to approximately 1.2 percent of the U.S. sugar production; and

after 15 years imports will increase only to about 1.7 percent of

U.S. consumption. Only in that surplus, exporting countries in the

region will obtain increased access to the United States.

Our International Trade Commission has found that a cushion

does indeed exist between the trigger level of imports that would

suspend marketing allocations and projected imports under the

CAFTA agreement. The International Trade Commission estimates

that it would take about 60 years following implementation of the

agreement for the cushion to be exceeded.

We talked about the compensation agreement. Do you believe

that the United States could have negotiated this agreement in any

way, besides excluding sugar, that would have been acceptable to

the U.S. sugar industry?

36

Mr. RONEY. Mr. Chairman, the concessions, as they currently

stand, would devastate our industry. In the short term, the extra

100,000 tons of access that we granted to the CAFTA countries

would trigger off our marketing allotments and cause a cascade of

blocked stocks we are now holding off the market, onto the market.

In the long term—and Senator Conrad’s chart, I think, depicted

this very well—we are setting a precedent that would result, even

if we did nothing more for the subsequent countries than we have

done for the CAFTA countries, that it would result in a half million

more tons on our market.

The same ITC study that you cited, Mr. Chairman, also concluded that the job losses in the sugar sector would be 28 times

greater than the next most harmed sector, textiles.

So, even though the ITC got it wrong about the cushion—we

have met with them and corrected them on that—and under-estimated the effect on sugar, they still found the effect on sugar to

be the worst of any sector that they studied.

The CHAIRMAN. So I think the answer to my question is no.

Senator Baucus?

Senator BAUCUS. Thank you, Mr. Chairman.

Lochi, I just have a couple of questions for you. Thanks very

much for coming.

Mr. EDWARDS. You are welcome.

Senator BAUCUS. It is a long way to come, from Montana to

Washington, DC.

I guess the basic question I am going to ask you is, what do you

say to our sugar farmers at home? I understand how the grain

growers think it helps grain growers. But I think one can probably

understand how this agreement does not exactly warm the cockles

of the hearts of sugar producers, especially with the points that

have just been raised, namely, it is the precedential effect, it is the

camel’s nose under the tent, and will these other South American

countries not insist and demand on getting the same treatment on

their FTAs that Central American countries are getting under

CAFTA? What can you tell them? What do you say to them?

Mr. EDWARDS. Senator Baucus, we have the luxury at Montana

Grain Growers, of course, representing wheat and barley, and we

understand that is a luxury. What we will be saying to our sugar

farmers—we have cross-over there.

I mean, some of our sugar farmers grow wheat and barley. Many

of them do. You know the agriculture in Montana. It is homogenous. Beef people raise a little wheat on the side, and vice versa.

It is difficult.

I think what we say to the sugar growers in Montana is that it

appears to us at Montana Grain Growers that there is a concerted

effort in this agreement by the USDA to have in place a means to

compensate the damage, whatever that damage is. We, of course,

cannot guarantee that that will be carried out or enacted, but there

is a promise to do so, a promise to control or limit the damage

there.

As far as the camel’s nose under the tent problem, I think that

problem is coming anyway. Two sides of this issue are uncomfortable with the precedent, but I think the camel’s nose is under the

tent and I think this needs to get settled for farm bill purposes and

37

for other trade agreements, and I think the WTO negotiations are

going to be just as difficult.

Sugar is going to have to take a look at its program and find the

solution. I do not know what the solution is. I am sympathetic, but

I am sworn to represent the second- and third-largest agricultural

industries in Montana, which is grains. That is my responsibility.

Senator BAUCUS. Thank you. That is not an easy question to answer.

Mr. EDWARDS. No.

Senator BAUCUS. I deeply appreciate it. It is just one that I think

a lot of us in Montana are struggling with, and I appreciate your

help.

Thank you, Mr. Chairman.

The CHAIRMAN. Now, Senator Conrad?

Senator CONRAD. Thank you, Mr. Chairman.

I would say, first, to Mr. Edwards, my grain growers have

reached a different conclusion. My grain growers see very little

benefit from this agreement, but they see a potential substantial

down side. Here is the conclusion they have reached. We really face

no tariff barriers for wheat and barley going into CAFTA countries.

You are correct, there are no barriers in any of the countries, except Costa Rica, where it is 1 percent. So, there are really non-existent tariff barriers. We have 90 percent of the market, so there

is really very little to be gained. On the other hand, I have held

formal hearings, I have had economists of every stripe come before

those hearings and testify that, in their judgment, this will take us

to 500,000 tons of additional sugar imports based on the precedent

being set, and that that will collapse the U.S. sugar price.

We will go into redemption, and that will ultimately kill the U.S.

sugar industry. Those acres will migrate over into other commodities, weakening them. So, our grain growers have reached a different conclusion than yours, and I respect those differences.

With the limited time I have, I would like to turn to Mr. Roney,

because I saw the chart that our friends from USTR put up. The

chart suggests virtually no impact on the domestic sugar industry.

Put up my chart that shows the countries that are being negotiated. Now, I have tried to ascertain through hearings where the

truth lies here. This is what conclusion I come to. CAFTA will permit another 97,000 metric tons into the United States. The Dominican agreement would allow another 10,000.

If that precise precedent applies to the other treaties being negotiated, namely South Africa, Thailand, and the Andean countries—

I do not count Free Trade of the Americas here at all, I do not

count the additional access from Mexico at all, I just take those

treaties that are being negotiated right now and what this percent

would mean when applied to them: 499,000 metric tons of additional supply coming into this country.

Every single economist that I had testify—and I did not just

have industry economists, I called on the best economists at our

State university to testify—said, without question, that level of additional import would collapse sugar prices in this country.

So, Mr. Roney, you are here representing the Sugar Alliance.

What do you say?

38

Mr. RONEY. Well, Senator, I could not agree with you more. This

is why we regard CAFTA as a life-or-death issue for our industry.

In the short run, that 100,000 tons triggers off marketing allotments.

We are holding 600,000 tons of sugar off the market now at our

own expense to try to balance the market. But Congress designed

a program that did not allow for, or encourage, additional FTA concessions.

Congress, in the 2002 Farm Bill, gave sugar not only the only nocost sugar policy, but looked at our efficiency, looked at our market

and said, well, this is unique. We are efficient producers, but we

are guaranteeing to foreign producers 1.5 million tons of guaranteed access at the U.S. price.

Congress essentially said, enough is enough. Let us reserve the

rest of this market, at least under the 2002 Farm Bill, for efficient

American producers. So, that additional access makes this the

fourth-largest importer in the world and we are already granting

to these CAFTA countries duty-free access for a fourth of all our

imports. So, we have given already, in that regard.

In the long term, of course, besides the jeopardy to the sugar program in the short run, as you very well cited, the precedent for

these additional FTAs—and you have barely mentioned the FTAA;

of course, Brazil is by far the world’s largest sugar exporter and

they export amounts of sugar that are triple our production, Brazil

alone—has the potential, if this precedent continues and carries

forward beyond this half million tons that you cite and we send

this to Brazil, then it is a complete disaster for the sugar economy,

and, I would argue, much of the rest of U.S. agriculture would have

to be concerned about subsidized Brazilian exports coming in.

One other quick note is that there are 2.5 million acres of sugarcane and sugar beets, and one has to wonder the effect on other

commodities if the sugar industry goes out of business and that

acreage shifts to other crops that are already in surplus.

Senator CONRAD. Well, I know what it would mean in my State.

Those are some of the most productive acres anywhere in the country and those acres would migrate into other commodities. They

would have to. That would weaken the prices for those commodities.

In many ways, we are a chain that is only as strong as our weakest link. When you start trading away entire commodities in these

trade agreements, you are headed for big trouble, in my judgment.

I must also say to our friends from the Trade office who are still

here, I thought the chart that they put up was one of the most misleading charts ever brought before this committee. It had nice colors, but it is absolutely misleading. To show a chart, a pie chart

that shows just a sliver going to Costa Rica, it is true in a very

narrow sense, but it does not communicate the larger reality.

The larger reality is that this additional amount of sugar coming

from Costa Rica, and the precedent it sets for the other agreements

being negotiated, would collapse the price in this country. It is just

as clear as it can be.

The notion that there is this cushion does not stand up to much

scrutiny, because the notion that there is 256,000 tons out there

39

that is available as a cushion is swept away by what has already

been committed to Mexico and in CAFTA. The cushion is gone.

How about the other free trade agreements that are being negotiated? Where is the cushion for them? The cushion is gone, when

you consider commitments already made in NAFTA and the commitments that would be in CAFTA.

So their argument about a cushion, and there is no harm to the

sugar industry, is about as false and misleading a testimony as I

have ever heard before this committee.

I thank the Chairman.

The CHAIRMAN. I thank this panel.

I call, now, Mr. John Castellani, president of the Business

Roundtable; Mr. Keith Crisco, president of Asheboro Elastics Corporation; Ms. Patricia Forkan, president, Humane Society International; and Mr. Mark Levinson, chief economist and director of

policy, UNITE HERE!

In the case of this panel, we will submit your entire statement

for the record, if you submit it. Then we would ask you to likewise

summarize in 5 minutes. Make sure your microphone is on, and

pull it close to you.

Mr. Castellani?

STATEMENT OF JOHN CASTELLANI, PRESIDENT,

BUSINESS ROUNDTABLE, WASHINGTON, DC

Mr. CASTELLANI. Thank you, Mr. Chairman, Senator Baucus, and

other members of the committee. I am John Castellani. I am president of the Business Roundtable, and I am pleased to appear before

you this afternoon to express the Roundtable’s support for the U.S.-

Dominican Republic-Central America Free Trade Agreement.

The Business Roundtable members are the CEOs of America’s

leading corporations, and we have a combined workforce of more

than 10 million employees in the United States. We have been

long-time supporters of U.S. efforts to reduce barriers to trade.

We have appeared before Congress in support of the free trade

agreements with Australia, Chile, Singapore, and Jordan, and in

support of normalized trade relations with China.

Our support for trade liberalization is consistent, because we

know how important liberalized trade is to U.S. economic growth

overall, to our companies, and their employees, in particular.

I am here today to say that the approval of DR-CAFTA will be

one of the most important trade policy decisions Congress can

make this year. DR-CAFTA is more than just another trade agreement. It is a symbol of continued U.S. support and engagement in

opening international markets. I want to focus on just a few key

points about the importance of this agreement and why it should

be approved.

First, approval of DR-CAFTA is vital to signaling continuing U.S.

support for hemispheric and global trade negotiations and maintaining continued leadership in these negotiations.

Second, this FTA is important to American businesses and their

workers. The agreement will provide groundbreaking provisions to

level the playing field for U.S. companies and improve access to a

market that is already the second largest in Latin America for U.S.

exports.

40

Third, this agreement is beneficial to the Dominican Republic

and to the countries of Central America. By improving access to

U.S. markets on a reciprocal basis, it will improve their economies

and help protect their democracies.

Finally, DR-CAFTA includes unprecedented protections for labor

and the environment, promising the benefits to both workers and

the environment that are proven to accompany economic growth.

For the past 20 years, the United States has enjoyed a unique

economic relationship with the Dominican Republic and Central

America. The Caribbean Basin Initiative opened U.S. markets to

goods from the region to improve economic conditions in an impoverished region in America’s backyard, but it did not open those

markets to U.S. goods and services.

The theory behind the CBI was that, by building stronger economies, the U.S. could help bring political stability to a region where

Marxism, military dictatorships, and civil wars were once common.

On this, CBI has been a success. As a result of the continued and

bipartisan support, CBI has given the economies of the region a

boost. They have developed more diversified economies with competitive manufacturing sectors, and exports to the United States

have grown from $3 billion in 1987 to $17 billion in 2004.

With this success, we believe that the time has come to change

the CBI’s 1-way street by opening DR-CAFTA markets to U.S.

goods. This agreement not only establishes a healthy 2-way trading

relationship between the United States, Guatemala, Honduras,

Costa Rica, Nicaragua, El Salvador, and the Dominican Republic,

but it will also lock in economic progress in the political reforms

that CBI began.

We believe the benefits of DR-CAFTA will spread to virtually all

sectors of the U.S. economy. Key U.S. exports will immediately receive duty-free treatment, including information technology, construction and agricultural equipment, paper, and medical and scientific equipment.

The agreement will immediately reduce restrictions on 80 percent of U.S. industrial exports and more than 50 percent of agricultural exports to the region, and that will benefit a wide array of

U.S. industries, including manufacturing, consumer goods, agriculture, and processed foods.

The agreement also opens the services sector to U.S. companies

by going beyond the multilateral services agreement negotiated in

the Uruguay Round. This opens the DR-CAFTA market to American financial services and telecommunications companies, all of

whom support this agreement.

But beyond opening the markets, DR-CAFTA will help U.S. businesses and workers by improving the protections afforded by international trade rules, including the protection of intellectual property rights and the protection from unfair treatment for companies

investing in the region.

DR-CAFTA deserves Congressional support, whether it is based

on economic or foreign policy grounds. It is a sound trade agreement that will benefit the broad U.S. economy, foreign policy, and

security interests now and for the years to come.

41

I thank you, Mr. Chairman. I appreciate the opportunity to express the support of the Business Roundtable on the importance of

this trade agreement.

The CHAIRMAN. Thank you.

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

The CHAIRMAN. Now, Mr. Crisco?

STATEMENT OF KEITH CRISCO, PRESIDENT, ASHEBORO

ELASTICS CORPORATION, ASHEBORO, NC

Mr. CRISCO. My name is Keith Crisco. I am the president of

Asheboro Elastics, and I live in Asheboro, North Carolina. I am

also a member of the board of directors of the American Apparel

and Footwear Association, the National Textile Association, and

the American Apparel Producers Network, which is a group of Caribbean and U.S. contractors for garments.

Asheboro Elastics is a manufacturer of narrow elastic fabric for

the apparel, home furnishing, and industrial markets. These are

examples of our products. We make waistbands for people like

Fruit of the Loom, Hane’s, VF Corporation (Lee and Wrangler

jeans), Kellwood, Oshkosh children’s wear. Simply stated, our job

is to hold your underwear up. If we fail, you normally know it.

[Laughter.]

With me today are my wife, Jane Crisco, and Penny Davidson;

both are co-workers with me at Asheboro Elastics. I would like for

them to stand up, if they would.

Jane and I started Asheboro Elastics from zero in 1986. That is

zero: no plants, no employees, no customers, no equipment. We now

have approximately 200 employees in North Carolina, we have 4

plants, and we have 11 distribution points in the Caribbean and

Mexico.

Last year, we shipped over 500 million yards of elastic. That, sir,

is enough to stretch around the world 27 times at the equator. I

might add, that is before it is stretched.

We are now a leader in our industry. Penny is here today because she is an example of a person in our company whose job depends on our aggressive sales in the DR-CAFTA area. Yes, she has

a real job. Her job is in the plant. She is an hourly employee. She

pre-loops elastic waistbands in different sizes. Again, that job is dependent on CAFTA sales.

By the way, it is Penny’s first trip to Washington in her life, so

she is real nervous, and she and Jane both are here. They do not

have a formal statement, but they are willing to answer any questions.

I have been saying for months that a vote against CAFTA is a

vote for China. Let me explain why. If DR-CAFTA is not passed,

the U.S. customers we have will move their offshore garment

sourcing to China.

Asheboro Elastics has been successful and has grown jobs in

North Carolina by supplying DR-CAFTA countries. China will be

much more difficult. Plus, we will not be employing people in the

U.S. if we supply China by doing manufacturing there.

Number two. The passage of DR-CAFTA and associated increases

in apparel sourcing in this region will not only result in increased

42

employment in the Carolinas, but will create increased opportunities of employment by our company in the DR-CAFTA region.

Number three. DR-CAFTA countries need this bill to assure continued economic growth. We forget the situation in these countries

just 15 to 20 years ago when economic stability was not in hand.

CAFTA represents the next step in the evolution of this trade relationship. It will transform the current 1-way temporary preference program into a comprehensive and permanent 2-way partnership.

In doing so, it will create the economic platform in which U.S.-

Dominican-Central America companies, including Asheboro Elastics, can compete in the future. Without CAFTA, this economic

partnership falters.

Increased pressure from China, particularly on the textile and

apparel industry, which has emerged as a key element of this partnership, will lead to job losses and other economic disruption in

Central America, the Dominican Republic, and the United States.

Again, a vote against CAFTA is a vote for China.

As Central America and the Dominican Republic lose their competitiveness without CAFTA, they lose the ability to purchase U.S.

goods and services, which harms companies like ours.

Moreover, economic disruption in Central America fosters instability in that region, which in turn undermines the fragile democratic institutions we have worked so hard to create in our own

backyard.

Our company has grown in these times since NAFTA, in the last

several years, and created new jobs in North Carolina. If CAFTA

is not passed, and with the new environment created by the elimination of quotas on goods shipped from China, we will most likely

not enjoy additional growth and, in fact, may reduce employment.

Congress must approve CAFTA as soon as possible. This is the best

way to keep U.S. textile jobs in the U.S. This is a non-partisan effort and it must be done.

Thank you for this opportunity.

The CHAIRMAN. Thank you.

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

The CHAIRMAN. Now, Ms. Forkan?

STATEMENT OF PATRICIA A. FORKAN, PRESIDENT, HUMANE

SOCIETY INTERNATIONAL, GAITHERSBURG, MD

Ms. FORKAN. Thank you. Thank you, Mr. Chairman and other

members of the Senate Finance Committee. My name is Patricia

Forkan. I am president of Humane Society International. I certainly appreciate the opportunity to testify today on the Dominican

Republic-Central America Free Trade Agreement.

I might add, it is a long and unusual route that brings me before

this committee today, because when I began my career 30 years

ago on behalf of animals, I worked on Law of the Sea, the International Whaling Commission, Tuna-Dolphin, Shrimp-Turtle, and a

number of other things regarding humane treatment of animals.

I happened to have been in the streets of Seattle, along with

hundreds of other folks, many in sea turtle outfits which we helped

create, protesting the over-reaching—at least in our opinion—of the

WTO into U.S. environmental and animal protection laws, so it can

43

be safely said neither I, nor my organization, has ever been accused

of being free traders or globalization supporters.

However, unlike organizations that seem to want to only criticize

and complain, Humane Society International also recognizes when

we think the U.S. has actually done something positive, in this

case, the environmental provisions of DR-CAFTA.

Humane Society International is the international affiliate of the

Humane Society of the United States. We were founded in 1954

and we are, today, the largest animal protection organization in the

U.S., with over 8.5 million constituents, and we have a growing,

significant global presence.

We have been involved in international trade policy for over 15

years, and a member of the Trade and Environment Policy Advisory Committee, TEPAC, since 1998.

HSI became involved in DR-CAFTA through my membership on

TEPAC. In late 2002, we volunteered to be part of a capacity-building committee of TEPAC to explore ways in which groups could address the environmental and economic needs of the Central American countries.

We saw an opportunity to work with countries that were willing

to improve their environment and their national policies to protect

species and habitat, while at the same time promoting economic development.

We have been working specifically in Central America since January, 2003, with the assistance of a matching grant from USAID.

We have partners in each of the Central American countries on a

number of trade capacity-building projects, and I would like to

share some examples with you today.

For example, Organic Cacao Project. We are working with small

Central American cacao farmers—chocolate—to reduce production

costs, improve land management, improve efficiency, and this all,

of course, helps to provide habitat for migratory birds and other

wildlife.

Sustainable agriculture. We are working with the livestock and

pork associations in Central America to make their industries

safer, more environmentally friendly, and, of course, in furtherance

of our mission, more humane.

CITES. We have been working with the CITES Secretariat and

the Central American governments on improved regional and national enforcement of CITES. We heard this morning that there is

a lack of enforcement. Well, we are there training them, giving

them the capacity to do enforcement.

Then we have been doing outreach events. We have been organizing, along with the Central Americans, trade and environment

events to improve civil society participation and transparency

throughout the region.

We think the DR-CAFTA environment chapter is more complete

than those of previous agreements. We believe the parties have

many obligations to effectively enforce their environmental laws

and to strive to improve their environmental laws and policies.

Although some criticize DR-CAFTA on the basis it does not go

far enough, I question this because there is clear language in Article 17.2 that the parties undertake to effectively enforce their laws.

44

As I understand it, that also includes multilateral environmental

agreements, MEAs, ratified by the parties. So CITES has to be effectively enforced as a result of the CAFTA agreement.

Another important aspect of the environmental chapter is that it

allows public submission. There is a mechanism that allows groups

in Central America or the United States to take their governments

to task for failure to effectively enforce environmental laws. These

provisions empower Central American and Dominican civil society

to have a voice in their countries’ environment policies, programs

and regimes.

I want to take a moment to publicly recognize and commend Senator Max Baucus for his leadership in developing these innovative

provisions with USTR and DR-CAFTA. We thank you.

In addition, we believe the inclusion of the provisions requiring

each country to set up a national advisory committee that is to provide advice and guidance is also very important, as well as the environmental cooperation agreement, which is very important.

So, we support the far-reaching and innovative environmental

provisions of DR-CAFTA. We support the continuing partnership

and assistance for environment protections represented by the environmental cooperation agreement, and we have the greatest respect and admiration for our Central American partners and

friends, and therefore do support the environmental chapter and

the environmental cooperation agreement of CAFTA.

We do, however, recognize, as we all should, that we share this

hemisphere. We share a history and we share a future. Let us ensure that it is a bright one for all of us.

Thank you very much for the opportunity to testify.

The CHAIRMAN. Thank you, Ms. Forkan.

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

The CHAIRMAN. Now, Mr. Levinson?

STATEMENT OF MARK LEVINSON, CHIEF ECONOMIST AND

DIRECTOR OF POLICY, UNITE HERE!, NEW YORK, NY

Mr. LEVINSON. Chairman Grassley, members of the committee,

my name is Mark Levinson. I am the chief economist of UNITE

HERE!, a union of 450,000 workers in the apparel, textile, laundry,

distribution and hotel industries.

Every time Congress is faced with a new trade agreement, promoters promise that it will stimulate growth, create good jobs, lead

to development. Unfortunately, the result has often been exactly

the opposite. CAFTA, rather than recognizing and addressing the

flaws in these prior trade deals, simply expands upon them.

The most likely result of passing this CAFTA, an agreement

based on the failed models of the past, is a deteriorating trade balance and more jobs lost in the U.S., in Central America, and the

Caribbean, continued repression of worker rights, intractable poverty, and inequality.

We cannot continue to apply the same prescription and hope for

a different result. It is time for policy makers 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.

45

The rules of CAFTA, like NAFTA, upon which it is based, make

large corporations more mobile, and at the same time less accountable to local communities and governments. These rules dramatically shift the balance of power away from democratically elected

governments and toward private companies.

They also increase the bargaining power of employers vis-a`-vis

their own workers. While companies gain powerful new rights, the

basic human rights of workers are largely unprotected. As a result,

companies are able to pit workers against one another in a desperate race to the bottom in wages and working conditions.

Labor laws in Central America uniformly fail to protect basic

worker rights, and deficiencies in these laws have been repeatedly

criticized by the ILO, the U.S. State Department, and independent

human rights organizations for many years.

Despite this criticism, these flaws persist today. 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.

Employers take advantage of these weaknesses in the labor laws

to harass, intimidate, and fire workers who dare to organize an

independent union. Employers refuse to bargain with legitimate

worker representatives, and most strikes are declared illegal.

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. In El Salvador, no independent trade unions have

been registered in the past 4 years. There are only two collective

bargaining agreements enforced in Guatemala’s maquillas, zero in

El Salvador’s.

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 already have. Obligations to improve one’s laws to meet ILO standards, to not derogate

from or waive laws in the future, are all completely unenforceable

under CAFTA.

CAFTA’s failure to include an enforceable requirement that labor

laws meet ILO standards represents a step backwards from the

Labor Rights provisions in the U.S.-Jordan Free Trade Agreement.

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.

CAFTA also backtracks from the Jordan agreement by giving

labor rights second-class status within the agreement’s dispute settlement and enforcement apparatus. In the Jordan Free Trade

Agreement, the dispute settlement and enforcement measures that

apply to the labor provisions are identical to those that apply to the

commercial provisions and can include fines or sanctions. Under

CAFTA, only violations of the agreement’s commercial provisions

can lead to sanctions or fines sufficient enough to compensate the

harm caused by the violation.

46

Perhaps most disturbing is the fact that CAFTA’s rules on worker 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 and

the Caribbean Basin Initiatives.

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.

Let me say a word about the apparel and textile industry. These

industries in the United States are in crisis. The first 90 days of

this year, these industries have lost over 17,000 workers. That is

almost 200 workers a day. That is in a recovery.

It is our view that CAFTA will make this worse by allowing big

loopholes in CAFTA that allow the use of foreign fabric to be used

by producers in the region, and then have the goods imported dutyand quota-free into the United States.

In conclusion, along with many allies throughout the region,

workers, environmentalists, people of faith, hundreds of civil society organizations, we are urging that CAFTA be rejected. Only

then can we begin to construct a new way to trade that recognizes

the failures of the current model and finds solutions for working

families in all countries involved.

Thank you very much.

The CHAIRMAN. Thank you, Mr. Levinson.

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

The CHAIRMAN. I am going to let Senator Baucus go first, because he has another obligation.

Senator BAUCUS. Thank you very much, Mr. Chairman. I deeply

appreciate that.

Let me ask you, Mr. Crisco or Mr. Castellani, this question.

Clearly, times change. Therein lies the tension. On the one hand,

we want to adapt to the future. On the other hand, it is just difficult at times.

As the world gets more complicated, it sometimes gets even more

difficult, especially for people who are less mobile employees, the

salary people who just do not have the ability that some higher income people have, or some businesses have, as they work in the

United States, as well as other countries.

Second, it is also clear that other countries are very aggressive

in their operations in trying to get an advantage, say, in Central

America or South America. The European community, for example,

is one. I know Canada has to some degree, too. China is becoming

very involved worldwide, and it is astounding where China shows

up now in the world.

But, yet, here we are, faced with this potential agreement, and

the question is whether to accept it or reject it. Many concerns I

think have been raised today which I think are real.

One, is the sugar industry. They feel that they are not getting

a good deal out of this, whereas, other sectors in the United States’

economy think they are getting a good deal out of this.

Second, as I have listened to all of this, the major concern is insufficient U.S. enforcement or adherence to these agreements. That

47

is, making sure that these other countries live up to these agreements.

Now, I appreciate the work of Ms. Forkan and others who are involved in capacity building, particularly in the area of labor and

the environment. I think all of that is very important and helpful.

But my question is this. What would happen, in your judgment,

if this Congress did not accept this agreement because it felt that,

given all the reasons for supporting it, it just is not quite there yet?

Sometimes it is important to say ‘‘no’’ in order to get a better ‘‘yes.’’

It is a matter of judgment.

What would happen if this Congress said this just is not good

enough? Obviously, the reaction of some is going to be, well, gee,

go back and try to help put in different provisions that are better

from the U.S. point of view.

The problem is, the argument will be, well, other countries will

say, well, if you want those changes, we want these changes. Nothing is free. It is not a 1-way street. Both sides negotiate an agreement.

But yet, if that were to happen, that is still in the context of

what is best for these countries and what is best in the United

States.

I mean, are the agreements that these countries have with the

European Union, for example, such that they will just thumb their

noses at the United States, or are there provisions that make our

renegotiation—a potential renegotiation—competitive? I know it is

a very difficult question to answer, but I think it is one that we

need to ask.

Mr. CRISCO. That is a very difficult question, I agree. But it is

very important that I convey to you the importance of timing of

this agreement. You have seen the statistics from China in the first

2 months. In fact, retailers in the United States are making

sourcing decisions right now. Their decisions are leaning towards

Asia all over, including China.

The CAFTA agreement. I was more involved than I should have

been for my little company in trying to get this agreement. But the

truth is, it is not perfect. We, the textile industry, got 90 percent

of what we asked for. We probably will not get that batting average

in any renegotiation.

If we wait 2 years, if we renegotiate, I cannot believe we will get

as good a deal. But if we get as good a deal, if we get a better deal

in 2 years, the sourcing decisions that are made by retailers in this

country will decimate, in my judgment, the apparel industry there,

and they are our customers.

We just do not have time to go back to the drawing boards and

go through all these countries and renegotiate this agreement, because there is a dynamic thing going on now. Timing is critical that

we pass this CAFTA agreement.

I am getting out of my field. I am not an expert in sugar. I tend

to eat quite a bit of it, as you probably can gather. But you mentioned 190,000 people employed in that industry. That is a large industry. We have 600,000 people in the apparel and textile industry.

We have lost 600,000. We lost 17,000 this year already.

If everything goes to China, we might sell some in China, but we

are not going to sell very much. If we pass CAFTA, China may

48

come into the Caribbean and they may be a competitor there. But

I have a shot.

I will not sell every piece of elastic in the Caribbean, but I have

a shot. I do not have a shot in Asia. I will increase employment

in North Carolina and I may increase employment there, but it is

better for me down there.

Senator BAUCUS. Do you want to respond to that, Mr. Castellani?

Mr. CASTELLANI. Yes, Senator. First and foremost, following up

on what Mr. Crisco has given as an example within his industry,

others will take our place. In fact, as you well know, if you look

at the number of free trade agreements around the world, we still

are participants in very few compared to the large number that are

out there.

More importantly, it will continue to exacerbate the trade deficit.

It is interesting in the discussions earlier about the balance of

trade. The large percentage of that imbalance comes from trade

with countries with whom we have no free trade agreement.

As we engage in free trade and free trade agreements, we are

better able to bring the trade deficit into balance because we have

access to those markets. So, we would be very concerned about

that.

Third, I think we would send a signal around to the world that

we are not interested in continuing to open markets, not just on

a bilateral basis, but on a multilateral basis that we are trying to

achieve through the Doha Round at the WTO.

So, we think that failure to pass this particular piece of legislation for this trade agreement would, indeed, be very negative and

very detrimental.

Senator BAUCUS. I appreciate that. I do not know, you guys are

the experts, but presumably the CAFTA countries are quite concerned about China. Presumably, they, therefore, would want to

come to the negotiating table, if this were not approved, pretty

quickly again because of the concern with China.

I am just wondering, just for information, why it would necessarily take 2 years to renegotiate another agreement. Why could

it not be done much more quickly?

Mr. CASTELLANI. You would have to ask the trade negotiators,

from my perspective. I think it would send a very bad signal. The

countries who are involved in it would have to question whether or

not it would be worth the effort to go through the process again not

to have it approved.

Senator BAUCUS. Well, that is just an interesting question.

Thank you very much, Mr. Chairman. I appreciate it.

The CHAIRMAN. Because of time and votes coming up, I am going

to have to submit my questions for answer in writing.

Thank you all very much.

[The questions appear in the appendix.]

[Whereupon, at 12:48 p.m., the hearing was concluded.]

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