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NAFTA AT TWENTY: ACCOMPLISHMENTS,

CHALLENGES, AND THE WAY FORWARD

HEARING

BEFORE THE

SUBCOMMITTEE ON 

THE WESTERN HEMISPHERE

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRTEENTH CONGRESS

SECOND SESSION

JANUARY 15, 2014

Serial No. 113–112

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ or

http://www.gpo.gov/fdsys/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

EDWARD R. ROYCE, California, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

MATT SALMON, Arizona 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

ADAM KINZINGER, Illinois 

MO BROOKS, Alabama 

TOM COTTON, Arkansas 

PAUL COOK, California 

GEORGE HOLDING, North Carolina 

RANDY K. WEBER SR., Texas 

SCOTT PERRY, Pennsylvania 

STEVE STOCKMAN, Texas 

RON DESANTIS, Florida 

TREY RADEL, Florida 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

LUKE MESSER, Indiana 

ELIOT L. ENGEL, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

BRIAN HIGGINS, New York 

KAREN BASS, California 

WILLIAM KEATING, Massachusetts 

DAVID CICILLINE, Rhode Island 

ALAN GRAYSON, Florida 

JUAN VARGAS, California 

BRADLEY S. SCHNEIDER, Illinois 

JOSEPH P. KENNEDY III, Massachusetts 

AMI BERA, California 

ALAN S. LOWENTHAL, California 

GRACE MENG, New York 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

JOAQUIN CASTRO, Texas

AMY PORTER, Chief of Staff THOMAS SHEEHY, Staff Director

JASON STEINBAUM, Democratic Staff Director 

SUBCOMMITTEE ON THE WESTERN HEMISPHERE

MATT SALMON, Arizona, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

MICHAEL T. MCCAUL, Texas 

JEFF DUNCAN, South Carolina 

RON DESANTIS, Florida 

TREY RADEL, Florida 

ALBIO SIRES, New Jersey 

GREGORY W. MEEKS, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

THEODORE E. DEUTCH, Florida 

ALAN GRAYSON, Florida 

(III)

C O N T E N T S 

Page

WITNESSES 

The Honorable Carla A. Hills, chairman and chief executive officer, Hills 

& Company International Consultants .............................................................. 8

The Honorable David Dreier, chairman, Annenberg-Dreier Commission at 

Sunnylands ........................................................................................................... 15

Mr. Eric Farnsworth, vice president, Council of the Americas and Americas 

Society ................................................................................................................... 30

Mr. Mark T. Elliot, executive vice president, Global Intellectual Property 

Center, U.S. Chamber of Commerce ................................................................... 38

Duncan Wood, Ph.D., director, Mexico Institute, Woodrow Wilson International Center for Scholars ............................................................................... 49

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Carla A. Hills: Prepared statement .............................................. 10

The Honorable David Dreier: Prepared statement ............................................... 18

Mr. Eric Farnsworth: Prepared statement ............................................................ 33

Mr. Mark T. Elliot: Prepared statement ................................................................ 40

Duncan Wood, Ph.D.: Prepared statement ............................................................ 51

APPENDIX 

Hearing notice .......................................................................................................... 62

Hearing minutes ...................................................................................................... 63

The Honorable Matt Salmon, a Representative in Congress from the State 

of Arizona, and chairman, Subcommittee on the Western Hemisphere: Material submitted for the record ............................................................................ 64

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NAFTA AT TWENTY: ACCOMPLISHMENTS, 

CHALLENGES, AND THE WAY FORWARD 

WEDNESDAY, JANUARY 15, 2014

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON THE WESTERN HEMISPHERE,

COMMITTEE ON FOREIGN AFFAIRS,

Washington, DC. 

The subcommittee met, pursuant to notice, at 2:36 p.m., in room 

2172, Rayburn House Office Building, Hon. Matt Salmon (chairman of the subcommittee) presiding. 

Mr. SALMON. A quorum being present, the subcommittee will 

come to order. 

I will start by recognizing myself and the ranking member to 

present our opening statements. And without objection, the members of the subcommittee can submit their opening remarks for the 

record. 

Now I yield myself as much time as I may consume to present 

my opening statement. 

Good afternoon, and welcome to this hearing to evaluate the 

North American Free Trade Agreement. About 20 years ago, we 

passed this I think wonderful piece of legislation and entered into 

this agreement, and just last month, the subcommittee held a hearing in my home State of Arizona on our commercial relationship 

with Mexico and what we can do to better facilitate the flow of 

commerce along our southern border. 

So today’s hearing on NAFTA is an appropriate follow up to that 

hearing, this time looking more broadly at our trade and investment relationships with both Canada and Mexico, the strengths 

and the weaknesses of NAFTA with 20 years behind us, and what 

needs to be done now to improve upon this agreement. 

I want to thank Chairman Royce for his leadership. I believe he 

will be joining us at the hearing today. We had a little vote that 

interrupted everything on the floor. I apologize to our panelists. 

Mr. DREIER. On the rule, I noticed. 

Mr. SALMON. On the rule, yes, and you know how important that 

is, the former Rules chairman. 

It seems clear to me that America’s leadership in promoting free 

trade policies has been a vital part of American prosperity. The 

level of competition created by free trade policies has been the impetus for remarkable innovation. While leading to the opening of 

exciting new markets around the world, at home this has allowed 

the American people to access more varied goods and services at 

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lower prices, while creating jobs, a practical and positive effect for 

free trade that benefits every American. 

American leadership in promoting free trade agreements globally 

has been instrumental in the spread of economic freedom and the 

rule of law worldwide and has spurred unprecedented economic 

growth in the developing world. Indeed, free trade has proven to 

be the most important tool of U.S. foreign policy seeking to promote 

individual liberty and economic freedom around the world. The 

world isn’t entirely free yet, but the message of economic freedom 

and the power of entrepreneurship is being spread to far away corners of the globe thanks to American leadership and free trade. 

Twenty years ago, NAFTA was a truly groundbreaking agreement, becoming the first regional trade agreement between two developed countries and a developing country. 

There was a lot of controversy surrounding NAFTA then, and 

even today, it would be misleading to conclude that NAFTA was a 

perfect agreement. No trade agreement ever is. What it did do, 

though, was to integrate the U.S., Canadian, and Mexican economies, resulting in what today is a $19 trillion regional market. 

Indeed, figures from the United States Chamber of Commerce 

suggest that a combined total of 14 million U.S. jobs depend on 

trade with Mexico and Canada. Canada is the United States’ largest export market and our most important supplier of energy. 

Meanwhile, it is worth noting that Mexico imports more U.S. goods 

than all of Latin America combined and more than Brazil, China, 

India, and Russia combined. 

NAFTA reduced and eventually eliminated trade barriers, leading to a generation of impressive growth in trade and investment 

among the three countries. This resulted in production sharing 

made possible by proximity between the three economies by integrating and strengthening supply chains in key industries. What 

this means for the United States is that imports from Mexico contain 40 percent U.S. content and imports from Canada contain 25 

percent U.S. content. By way of comparison, imports from China 

contain only 4 percent U.S. content. 

Despite the reassuring promising numbers, we will likely hear 

from some of our witnesses, now that NAFTA is 20 years old and 

all grown up, we have an obligation to take a critical look at the 

agreement and find ways to make it even better. 

I have always been a firm believer in free trade and positive effects of truly free trade. That is exactly why right now, as negotiations are underway to liberalize trade through Transatlantic Trade 

and Investment Partnership, TTIP, and the Trans-Pacific Partnership, TPP, is exactly the right time to look at NAFTA, figure out 

where it helped U.S. businesses and commercial interests and the 

interests of American consumers and families, and where the 

agreement may have failed us. 

As we learned during our field hearing on trade facilitation with 

Mexico, 20 years into NAFTA should be the time we recommit our 

resources to border infrastructure by identifying new approaches to 

financing and commercial partnerships so we can make the investments necessary to make cross-border commerce more efficient and 

streamlined without neglecting legitimate security concerns. The 

U.S. should partner with and press Mexico to continue addressing 

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the insecurity that plagues Mexico while reforming and updating 

its judicial system. 

While NAFTA certainly improved our commercial relationship 

with both Canada and Mexico, the treaty needs to be able to address 21st century trade challenges. One of these challenges is intellectual property rights protection issues that persist with our 

Canadian neighbors. In 2013, the USTR designated Canada as a 

watch list country on its special 301 report. This is a pending issue 

between our Nations, and I hope we can resolve it soon to ensure 

that individuals and companies have transparent legal avenues to 

ensure ownership and profits for their innovations. 

Further, it is important to note that there is only political support for these trade and investment agreements as long as people 

follow the rules, and the rights of innovators and investors are protected. It is notable that the North American energy independence 

and security was conspicuously absent from original NAFTA negotiations. At the time, Mexico had a constitutionally closed energy 

regime, making its inclusion impossible. 

Today Mexico is engaged in implementing serious energy reform 

that will open its energy sector to foreign investment through a 

constitutional amendment they are—in fact, they recently passed, 

promising to increase Mexican oil production and make North 

American energy independence a reality. 

Sadly, today, the roadblock to realizing energy security and independence in North America has been put up by the Obama administration right here in the United States. I once again call on the 

administration to finally approve the Keystone XL pipeline, which 

would be a job creator and an important part of our energy security 

for this country. Continued obstruction not only threatens the environment as less secure modes of transportation are utilized, but it 

sends a negative message to our Canadian partners and allies. 

I want to thank Ambassador Carla Hills and my friend former 

Congressman David Dreier for testifying on our first panel, and 

Mr. Eric Farnsworth, Mark Elliot, and Dr. Duncan Wood for joining us on the second panel to discuss the North American Free 

Trade Agreement, the accomplishments, the challenges, and the 

way forward. 

I look forward to a productive hearing. 

I would now recognize the chairman of the full committee if that 

is all right with you? 

Mr. ROYCE. No, I think we should go to Mr. Sires. 

Mr. SALMON. Okay. Let’s go to Mr. Sires then. 

Mr. SIRES. Thank you, Mr. Chairman. 

Good afternoon, and thank you to our witnesses for being here 

today. 

It has been 20 years since the North American Free Trade Agreement between the United States, Mexico, and Canada came into 

force. The trade agreement was a staggering scope and spurred vigorous and contentious debates in each country and houses of government. Proponents predicted the creation of countless U.S. jobs 

alongside the deterrence of foreign undocumented immigrants. Opponents, on the other hand, foresaw the opposite. The agreement 

aimed to eliminate virtually all tariffs on trade between partner 

4

countries over a 15-year period. In the process, NAFTA created the 

largest trade bloc in the world of its kind. 

Ultimately, although the agreement has served as a template for 

subsequent trade agreements, NAFTA has not lived up to the entirety of expectation espoused by its advocates, nor has it resulted 

in the catastrophic losses predicted by its opponents. 

There is no denying that in terms of trade alone, NAFTA has 

achieved impressive indicators. U.S. trade with NAFTA countries 

has more than tripled to over $1 trillion a year. Trade barriers 

have been eliminated, supply chains enhanced, opportunities for investments increased, and mechanisms for trade dispute resolutions 

were established. 

In 1993, the U.S. trade has increased over 500 percent with Mexico and over 190 percent with Canada. The United States is Mexico’s largest trading partner and the largest foreign investor. Mexico, in turn, is the third largest U.S. trading partner after Canada. 

Together, Mexico and Canada accounted for 32 percent of total U.S. 

exports in 2012. These statistics are telling, but they speak little 

of the broader implication least accentuated by the agreement. 

NAFTA was comprehensive but far from complete, let alone 

harmless. For one, labor and environmental provisions were both 

weak and separate from the core of the agreement. Additionally, 

there has been little convergence in terms of economic growth, income disparity, job creation, and regulations, in part because the 

agreement attempted to integrate two advanced, developed countries with a developing country that was ill ready to absorb the collateral damage of trade liberalization. 

This was especially true for Mexico, whose NAFTA advocates 

hoped the agreement would help them export goods, not people, 

when in fact the opposite occurred. As Mexico shifted away from 

agriculture, rural populations were pulled northward because of 

the weak job creation in Mexico and the demand for migrant workers in the United States. 

Meanwhile, in Canada and the United States, job losses were numerous in sectors such as manufacturing, as the new economic 

model exposed firms to greater competition. On the other hand, 

NAFTA cannot take sole responsibility for the various changes in 

trade, labor, environment, or various economic occurrences that 

have taken place amongst partner countries since 1994. 

Unforeseen global events, like the 9/11 terrorist attack and the 

global financial crisis of 2008, played a role. For Canada and the 

U.S., the agreement enhanced an already existing free trade accord, while for Mexico, the agreement provided an international 

treaty mechanism to solidify and expand existing domestic reforms. 

Today, there is talk of revisiting the agreement. The human and 

the economic costs are far too great to ignore this task. Tensions 

remain between border security and trade facilitation that affect 

the flow of goods, services, and people across the border. 

Of particular concern to me and countless New Jersey-based life 

science companies is Canada’s unfortunate record of protecting intellectual properties through its discriminatory use of the so-called 

‘‘promise’’ doctrine. The doctrine stipulates that the utility of a patent must be first demonstrated or predicted at the time of the patent application. This makes it easier for generic companies to chalVerDate 0ct 09 2002 11:33 Mar 13, 2014 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 F:\WORK\_WH\011514\86298 SHIRL
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lenge the usefulness of a patent drug and ultimately launch a parallel generic brand. 

This case is not just a matter of fairness but about more than 

50,000 workers employed by 1,700 New Jersey-based life science 

companies that have invested more than $8.7 billion in research 

and development and created more than 72,000 jobs, spin-off jobs 

in New Jersey, and contributed nearly $27 billion to the New Jersey economy in 2012. That trading is economic reality of 

globalization does not justify ignoring unintended and direct consequences on the environment, workers, and private enterprise. As 

stewards of the world’s largest economy, it is our duty to be mindful of this reality as future agreements come to the forefront. At 

the same time, lesser developed countries must recognize that large 

trade agreements are not substitutes for national development policies. 

Twenty years under NAFTA has made it clear that the agreement was both oversold and greatly underestimated. Furthermore, 

assessing the agreement’s impact as an outright success or failure 

is far too narrow and simplistic. 

I look forward to hearing from our panelists and thank you very 

much. 

Mr. SALMON. Thank you. 

I would like to recognize the chairman of the full committee, Mr. 

Royce. 

Mr. ROYCE. Thank you, Mr. Chairman. 

Chairman Salmon, I just want to thank you for the field hearing 

you held recently and for chairing this today, very successful field 

hearing, and it is a pleasure to see my former colleague, David 

Dreier, who did so much on the issue of advancing trade, along 

with our very successful former Trade Representative. 

Carla, it is good to see you, Ambassador, here with us as well. 

I think there is a great potential for increased trade in this hemisphere. And within North America, I think we could do a lot to 

boost our exports and create jobs here and not only in North America, as a matter of fact, but also in the Pacific as well. We have 

a key destination there for manufacturing goods from the U.S. All 

along that rim of the Pacific, and the Trans-Pacific Partnership 

agreement I think is important to that end. 

I think, and this was the subject of Mr. Salmon’s hearing, but I 

think that requiring better management across our borders is key 

to some of this, and our business group reports that risk management, improvements in infrastructure, a focus on travel and trade 

facilitation, that this can have a sort of symbiotic advantage in advancing not only our economic interests but also protecting our security interests at the same time. I think repairing and upgrading 

ports that have become a little dilapidated, a little deteriorated, 

closing underutilized facilities, extending the hours of overcrowded 

entry points, all of these things can, I think, assist and, frankly, 

are absolutely necessary. 

So, today, the United States is overtaking Russia in terms of our 

capacity at energy production, top oil and gas-producing Nation in 

the world in short order here I think, and Canada and Mexico are 

our top sources of importation of petroleum at this time into the 

U.S., so clearly, the other issue here is greater energy cooperation 

6

with our neighbors, which again, our goal at the end of the day is 

to have the cheapest energy costs in the world and not to have our 

economic competitors have that advantage, and so the affordability 

and availability of natural gas has the potential here of revolutionizing North American manufacturing. As you drop that cost down, 

it is amazing how energy has become in many ways the most important component; energy and labor are the most important components now for light manufacturing, and today, the U.S. I think 

has an opportunity also with Canada. 

Since 2008, the Canadians have been pushing hard on an agreement that has been on the President’s desk for the Keystone XL 

project. The Canadians are not going to wait around forever, and 

they have made it clear to us the pipeline is going to be built; the 

question is whether it goes south or whether it goes west, and if 

it goes west, that oil is going to be shipped to our economic competitor, China. 

They are going to develop that resource one way or the other, 

and I think further delays on the final decision at Keystone will 

probably mean that the U.S. will be the loser in this, and we will 

have lower energy costs eventually coming from our economic competitor, who will be the beneficiary of the fact that we have turned 

down something that economically made all the sense in the world. 

Since I think the ratio is about three-quarters of what we—of 

what Canadians spend with the profits end up to be to buy manufactured goods from the United States. They are on our border. I 

mean, you think about the issues with respect to energy security. 

All of these demands are focused on Mexico and Canada here with 

respect to energy going forward. 

So I thank you all, and again, I thank the chairman for conducting this hearing today. 

Mr. Sires, thank you, too, for your engagement on these issues. 

Mr. SALMON. Thank you. 

The chair will recognize Mr. Meeks for a brief statement. 

Mr. MEEKS. Thank you, Mr. Chairman, and Mr. Ranking Member. 

Over the years, I have worked with many of today’s witnesses on 

finding ways to make pending U.S. trade agreements increasingly 

stronger, and in that regard, my friend and former colleague David 

Dreier was certainly an able partner. It is good to see him and all 

of you here today, and today, I hope we can combine a look back 

at NAFTA with a look ahead at how we might enhance the gains 

and learn from any mistakes. 

A couple of years ago, the Center for Global Development released a paper with the title, ‘‘Why is Opening the U.S. Market to 

Poor Countries So Hard?’’ In posing that question, the CGD highlighted the role that trade has played globally in lifting millions of 

people out of the ranks of poverty. I mention that question on this 

occasion because I want to start by noting a very important but 

often overlooked point in the debate about NAFTA’s success or failure. 

The agreement was between two developed and one developing 

nation at a time when that was not a popular nor easy thing to 

do. If it is still challenging today to get developed nations to enter 

7

into meaningful trade agreements with developing nations, then 

certainly doing so 20 years ago was monumental. 

President Clinton was courageous in championing what he knew 

would be a difficult but important trade deal for America. NAFTA 

was good for Mexico at a time when its economy and democracy 

was tumultuous. The agreement was forward looking for the 

United States. We had a choice. We could have sat back as a Nation and yielded to the controversy and opposition to NAFTA, but 

we chose instead to go ahead of globalization trends. 

So we solidified rules of trade with two critical trading partners 

and in so doing ensured that we would have a fair chance to increase the exporting of U.S. goods and import in ways that would 

enhance our production and international supply chain. 

While there are winners and losers in any trade relationship and 

economic shift, NAFTA did not turn out to be the great job killer 

that opponents expected nor did it do as much as some of the enthusiasts expected. 

Lastly, let me just pivot for a few points that are particularly important to me as a Representative from the State of New York. 

Since 1993, New York exports of merchandise to NAFTA countries 

have grown by 123 percent. Merchandise exports from our State to 

Canada were at $15.4 billion in 2012 alone. These numbers demonstrate why New York is one of the 40 States that hold Mexico 

or Canada as their top trading partner. When I consider the totality of circumstances, I am convinced that both critics and enthusiasts made NAFTA better and continue to force improvements in 

the way we negotiate trade agreements. 

As I see it, TPP and TTIP are important opportunities to build 

upon the lessons of NAFTA, and I look forward to the perspective 

of our panelists, look forward to continuing to work with you, Mr. 

Chairman. 

Mr. SALMON. Thank you, Mr. Meeks. 

Pursuant to committee rule 7, the members of the subcommittee 

will be permitted to submit written statements to be included in 

the official hearing record. 

And without objection, the hearing record will remain open for 

7 days to allow statements, questions, and extraneous materials for 

the record, subject to the length limitation of the rules. 

MR. SALMON. I would like to introduce the first panel. 

Ambassador Hills is chairman and chief executive officer of Hills 

& Company International Consultants. She also served in the Cabinets of President George H.W. Bush as the United States Trade 

Representative and of President Gerald R. Ford as Secretary of the 

Department of Housing and Urban Development. Currently, she 

serves as a member of the Secretary of State’s Foreign Affairs Policy Board. She graduated from Stanford University and obtained 

her law degree from Yale Law School. 

And next I would like to introduce David Dreier. During his more 

than three decades of congressional service, Mr. Dreier was a 

champion of enhanced trade liberalization between the U.S. and all 

of its global partners, but especially its North American neighbors. 

He introduced the first legislation calling for NAFTA and worked 

closely with Presidents Bush and Clinton throughout its negotiation and passage through Congress. He helped make the case for 

8

deepening ties with Canada and Mexico. He formed the House 

Trade Working Group, which not only was instrumental in the passage of NAFTA but continued to be a driving force in ushering 

every subsequent trade agreement through the House, including 

CAFTA and the FTAs with Colombia and Panama. He is the chairman of the Annenberg-Dreier Commission, which seeks to foster 

deeper connections and economic growth in nations of the Pacific 

Rim, including North, Central, and South America, Asia, and the 

greater Pacific. 

And so, with that, I would like to recognize Ambassador Hills. 

But before I do recognize you, I am going to explain the lighting 

system in front of you. You will each have 5 minutes to present 

your oral statement. When you begin, the light will turn green. 

When you have a minute left, the light will turn yellow. When your 

time has expired, the light will turn red. I ask that you conclude 

your testimony once the red light comes on. 

After our witnesses testify, all members will have 5 minutes to 

ask questions, and I urge my colleagues to stick to the 5-minute 

rule to ensure that all members get the opportunity to ask questions. 

Ambassador. 

STATEMENT OF THE HONORABLE CARLA A. HILLS, CHAIRMAN 

AND CHIEF EXECUTIVE OFFICER, HILLS & COMPANY INTERNATIONAL CONSULTANTS 

Ambassador HILLS. Thank you, Mr. Chairman, and thanks, 

members of the committee. 

It is an honor for me to appear before you and particularly with 

David Dreier, former chairman of the House Rules Committee and 

one of the greats who served this body. His efforts were instrumental in securing the approval of the North American Free Trade 

Agreement, the NAFTA, and as noted, it was the first comprehensive free trade agreement to join developing and developed countries. It achieved broader and deeper market openings than any 

prior trade agreement negotiated anywhere in the world, and as a 

result, economic activity among the three nations exploded. 

Today, Canada is America’s single largest export market. More 

than 8 million jobs depend upon our exports to Canada. And Mexico is our second single largest export market, and some 6 million 

U.S. jobs depend on our trade with Mexico. 

Over the past two decades, a highly efficient and integrated supply chain has developed among the three North American economies. More than $2 billion worth of goods and services cross our 

northern border every single day and while roughly $1 billion per 

day crosses our southern border. 

Specialization has boosted productivity in all three economies. 

We not only sell things to each other, we make things together, and 

quite remarkably for every dollar of goods that our two neighbors 

sell to us, there are 25 cents worth of U.S. Inputs in the Canadian 

goods and 40 cents in the Mexican goods. By way of comparison, 

with respect to our imports from China, that is 4 cents. 

And most of those who have complained about the NAFTA focus 

on Mexico, but the economic data proves that having Mexico as a 

NAFTA partner has served U.S. interests extremely well. Last 

9

year, roughly 14 percent of our total exports went to Mexico, and 

as the chairman pointed out, that is more than all of our sales to 

the rest of Latin America. NAFTA, our exports to Mexico have 

grown two times faster than our trade to the rest of the world, and 

that is true of Canada as well. 

Although some contend that the NAFTA has depressed wages, a 

recent study by economists at Yale and our Federal Reserve concluded that wages, when adjusted for inflation, have actually risen 

as a result of the NAFTA in all three countries, and it is widely 

agreed that the NAFTA’s market opening increased jobs connected 

to exports, which pay between 15 and 20 percent more than jobs 

that are purely domestically focused. With 116 million consumers and a purchasing power of over $1 

trillion, Mexico offers significant opportunity to U.S. entrepreneurs, 

large and small, but smaller enterprises in particular benefit from 

Mexico’s proximity and openness to our trade because Mexico purchases about 11 percent of the exports from small- and mediumsized businesses, which account for more than half of our Nation’s 

job creation. 

In short, the NAFTA has made our region one of the most competitive in the world, but the rest of the world has not stood still. 

Increasingly, trade agreements where the United States is not a 

party give entrepreneurs from other countries preferential access to 

key markets that our entrepreneurs don’t have, and there are a 

number of actions that we could take, the building on the NAFTA 

platform, that would create new commercial opportunity, cut costs, 

and create jobs, and let me mention quickly just three. 

First, the Trans-Pacific Partnership. In 2012, Mexico and Canada 

joined the United States and eight other nations to negotiate the 

TPP to link Asia and Pacific. There are eight bilateral trade agreements between the three NAFTA governments and the other TPP 

participants that were negotiated after we negotiated the NAFTA. 

Their differences in rules of origin and custom procedures add costs 

to our trade which could be dealt with in the TPP. 

Second, the Pacific Alliance is an ongoing trade negotiation initiated by Mexico, Peru, Colombia, and Chile in 2011. Last year, 

Costa Rica gained approval to join. Mexico and Canada are observers along with seven other nations. Canada and the United States, 

having them join the alliance could eliminate costly regulatory differences among the three nations. 

And thirdly, a North American-European trade agreement. Last 

year, the United States and the European Union’s 28 states 

launched a Transatlantic Trade and Investment Partnership. Our 

average tariffs are quite low. The real potential for boosting economic growth will come from reducing the maze of regulatory 

standards covering a long list of goods and services. Enlarging this 

agreement to include our two neighbors, which already have separate trade agreements with the European Union, would greatly reduce costs and complexity of trade. Of course, the infrastructure is 

a very big issue. The United States could address that. 

I am grateful to the chairman and members of the committee for 

the opportunity to share my thoughts on the NAFTA and moving 

forward and how we can build upon it, and so I thank you and look 

forward to your questions. 

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[The prepared statement of Ambassador Hills follows:]


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Mr. SALMON. Mr. Dreier. 

STATEMENT OF THE HONORABLE DAVID DREIER, CHAIRMAN, 

ANNENBERG-DREIER COMMISSION AT SUNNYLANDS 

Mr. DREIER. Thank you very much, Mr. Chairman. 

I was talking to one of our great diplomats yesterday who, when 

I said I was going to be testifying with Carla Hills before your subcommittee, Mr. Chairman, he described her as a force of nature, 

and not long ago, I was talking to someone else about Carla Hills, 

and this woman said she is a national treasure. 

You didn’t have everything in that introduction. She was the first 

woman to be the Secretary of Housing and Urban Development, 

the fourth woman to serve in a President’s Cabinet, and she has 

roots in California, which even though I no longer represent California, I am always pleased to be in her presence. And I will say 

that when I think back about my involvement, I was little more 

than a foot soldier in the George H.W. Bush, Carla Hills, Bill Clinton, Mickey Kantor struggle to make sure that we succeeded with 

the North American Free Trade Agreement. 

It is particularly poignant for me, Mr. Chairman, to be here, and 

I will say that I don’t have too many regrets of my service, but one 

of them was that I wasn’t able to serve with you again. I campaigned with you in the last election, I know, but I worked closely 

with you on this issue of trade, and I know you feel passionately 

and strongly about it, and I appreciate that, but I am sorry we 

weren’t able to serve together. 

I also have to say that it is great to see Mr. Sires. As I said in 

the anteroom, we worked very closely on the Colombia-U.S. Free 

Trade Agreement, and I appreciated his activism and support 

there, and also I want to say that I appreciate the concerns he 

raised in his opening statement as well. 

And Gregory Meeks has been my partner in crime for a long period of time on virtually every trade agreement, and he has stepped 

up, often facing criticism within his party, and he has done it because he knows and believes it is the right thing to do. 

And I have to say to Mr. Duncan and Mr. DeSantis and Mr. 

Radel, it is nice to see you all, and I hope very much that you will 

focus attention on this issue because it is so important. 

I have to say, Mr. Chairman, this is the first time that I have 

been back to the U.S. Capitol since January 2nd of last year, which 

is when I had the opportunity to manage the floor debate for the 

special rule on the fiscal cliff legislation, and by virtue of being the 

floor manager, I took the opportunity to offer some advice, and that 

is why it is particularly poignant for me to be invited to be here 

on this occasion, because in the last speech that I gave on January 

2nd, the day before Ambassador Hills’ birthday, I will say that I 

talked about the need for bipartisanship, and I talked about the 

issue of trade as creating a very unique and important opportunity 

for us to do just that. 

And that is why I am very gratified to see that while we had this 

bipartisan effort put together with President George H.W. Bush 

and President Clinton, and as I said Ambassador Hills and Ambassador Mickey Kantor and others within both administrations who 

16

worked very strongly on this, I am particularly pleased to see that 

we are today working for a broader bipartisan effort on this. 

And I want to congratulate Chairman Royce for the very strong 

statement that he made in support of something that we have yet 

to discuss, and that is trade promotion authority. It seems to me 

that as we look at the imperative of moving ahead with all of these 

agreements, it is going to be absolutely essential that we give the 

President of the United States the opportunity to negotiate. Now, 

I know there is some who have raised concern about trade promotion authority, believing that somehow this transfer of power to 

the President. 

When Carla Hills was United States Trade Representative, I will 

tell you that during the negotiations of the North American Free 

Trade Agreement, she did because she understood the imperative 

of consulting with the United States Congress, and she did that 

consistently, and other USTRs have done that as well. Why? Because they know that this institution has the power to vote yes or 

no on those agreements. 

And so I do believe that moving ahead with TPA and maintaining the right that the Congress has to defeat a bad agreement is 

clearly there, although I believe that virtually any opportunity that 

we can reduce the barriers to the free flow of goods, services, capital information, ideas, and people is a very important thing for us 

to do. 

As you mentioned, Mr. Chairman, for the last year, I have had 

the opportunity to chair a commission. I am happy that Ambassador Hills serves on the advisory board along with Mack McLarty 

and Jon Huntsman and Henry Kissinger and Madeleine Albright 

of our commission, which really grew from the vision that Ambassador Walter Annenberg had. 

When Ambassador Hills was negotiating the North American 

Free Trade Agreement in the late 1980s and early 1990s, Ambassador Annenberg was sitting at his home at Sunnylands, and he 

was talking about the fact that the future is around the Pacific. 

Mr. Chairman, nearly two-thirds of the global GDP and nearly twothirds of the global population is around the Pacific, and by virtue 

of that, I truly believe and you as a westerner understand that, as 

opposed to these guys from Jersey and New York, understand full 

well that that is in fact the wave of the future. 

We have a tendency here in New York and Washington to focus 

across the Atlantic. We have a wide range of entities that do that, 

and it is true TTIP will in fact be the largest free trade agreement 

in the history of the world, but I suspect that TTP may be completed before it, and until TTIP is put into place, the Trans-Pacific 

Partnership, now that Japan is part of that, will be the largest free 

trading bloc in the history of the world. 

It seems to me that that vision that was put forth by Walter 

Annenberg is one that was very, very prescient, and I am pleased 

to be utilizing his estate at Sunnylands for a wide range of meetings. The Presidents of China and the United States met there last 

summer, and I am hoping very much that we will be able to do 

things like include leaders within the Pacific Alliance there, and so 

I have lots of things that I could go through. 

17

I want to talk about the changes that have taken place in Mexico. One figure I was just given yesterday is did you know that as 

we look at the new Mexico, yes, poverty and the disparity in income levels is a very important thing, but Mexico now is part of 

a very important partnership on the Learjet, Canada, United 

States, and Mexico, all countries involved in that process, and 

guess what? Mexico last year graduated more engineers than the 

United States of America did, and so this perception of Mexico is 

one that needs to change. And I think that as we mark this 20th 

anniversary, Mr. Chairman, it is very, very important for us to do 

everything we can to focus on how we can address these concerns. 

The answer to the problems of NAFTA is more NAFTA. 

Thank you very much. 

Mr. SALMON. Thank you very much, Mr. Dreier. 

[The prepared statement of Mr. Dreier follows:]

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Mr. SALMON. Ambassador Hills, I received a surprisingly large 

number of calls from many organizations and companies expressing 

concerns with Canada’s inconsistent IPR protection and enforcement. 

As you may know, last year, Canada remained on USTR’s watch 

list because many American companies still face legal uncertainty 

during the administrative process to obtain IPR protection. How 

can we confront the issue, and how can we ensure that our trading 

partner doesn’t institutionalize bureaucratic barriers for our companies? 

I am also concerned that some of the worst offenders of IPR violations globally would be India and China, and how do we stress 

to them the importance of fixing those problems if a developed nation such as Canada continues to deal with our IPR issues in the 

manner that it does? I am a strong supporter of NAFTA, but I 

think this is an issue we have got to address because it is hurting 

a lot of our companies that are doing business in Canada. 

Ambassador HILLS. I agree that intellectual property protection 

is absolutely essential. We are on the up scale in terms of our production, but even in great families, you have differences, and we 

do have differences with Canada, as they do with us. 

The remedy is to sit down and work through it. It is certainly 

made easier by reason of having a trade agreement that sets out 

the rules so that you have a mechanism of addressing and getting 

a solution to the rules, so we have a lot of positive, many, many 

more positive with our first largest trading partner or single largest, and some negatives, and they have a few complaints about us. 

Mr. SALMON. I am sure that is true. I think we would like to explore any and all opportunities because I think globally it is more 

important than just our bilateral relationship. I think it portends 

to influence a lot of our other relationships on IPR with other nations. 

Mr. Dreier, did you want to comment on that? 

Mr. DREIER. Well, the only thing I would add to that is we have 

a process in place to deal with this, and that was really part of this 

whole negotiation. And, you know, when you are dealing with countries and businesses that want to remain on the cutting edge, there 

is going to be a lot of competition, and they are going to do everything they possibly can to ensure that that takes place. 

Ambassador Hills is absolutely right, the imperative of focusing 

on the rights of property is a very, very important thing, and I will 

say she and I were just discussing earlier today that as nations become more innovative and creative, and as they develop patents 

themselves, and we were talking about the fact that in China, we 

are seeing a dramatic increase in the number of patents being created. As that kind of intellectual property is developed there, you 

are going to see a greater degree of responsibility take place. 

Mr. SALMON. It seems like, I mean, in a nutshell, what is happening is, and I have heard it probably more associated with some 

of our pharmaceutical companies that go over there, and the generic companies appeal the process, saying that they haven’t really 

lived up to everything they promised to deliver, and so the patents 

should be invalidated and they should be able to go ahead and 

come in and take over those patents in the generic form. 

22

As I have talked to some of my friends from Canada, they say, 

well, that is going through the courts. But I think there are two 

opportunities maybe that we are going to have to look at. One is 

I think Canada could address it through their legislative process, 

to make sure that that is clarified and that IPR protection is paramount to them as it is to us; and, then, secondly, there is always 

the possibility of, we hate to do it, but filing a claim. I don’t want 

to rule that out. 

One last question, and that is dealing with energy. I am as excited as I can be to see what is happening in Mexico right now and 

them making the constitutional changes to allow investment from 

foreign oil companies and foreign partners, and I think it is going 

to do dramatic things to provide energy for the entire continent. 

But one of the things that kind of seems stymied still is the XL 

pipeline, and I know that our friends from Canada are very, very 

concerned about the length of time where we have been dragging 

our feet. Any thoughts from either of you on, you know, what we 

should do to move forward on that, the XL pipeline itself? 

Mr. DREIER. Well, I am on record when I served here. Clearly, 

I am very supportive of proceeding with the XL pipeline, and for 

all the reasons that have been stated, to me it is very obvious and 

apparent. And I think it is also something that can help us in our 

relationship with Canada. 

As you know, Mr. Chairman, next month, Prime Minister Harper 

will be meeting with Presidents Obama and Pen ̃ a Nieto, and I 

think that this will clearly be a topic of discussion, I suspect, and 

I also want to say that as we look at this overall issue, I want to 

congratulate Secretary Kerry for the very strong speech that he delivered at the Organization of American States recently in which 

he talked about this expansion of our trade relationship within this 

hemisphere. I think it is an important and a very positive sign of 

this administration’s desire to move forward on it, and I hope that 

the XL pipeline will be part of that process. 

Mr. SALMON. Thank you. 

The chair recognizes Mr. Sires. 

Mr. SIRES. Thank you, Mr. Chairman. 

You know, intellectual property is one of the big issues for me. 

Obviously, coming from a pharmaceutical State like New Jersey, 

you know, we consider ourselves the medicine capital of America, 

so many jobs. 

But it seems like the barrier in Canada is just one. We seem to 

get—China hacks into our computers, tries to steal our property. 

Russia does the same thing, all these other countries. It seems that 

our companies here in this country are bombarded with people trying to steal our research. 

And then you come to a friend, which I consider Canada to be, 

and then we have this barrier, which seems very silly, on pharmaceuticals when it has been proven already to be useful and they 

come up with generics. I don’t know if the courts are ever going to 

solve this. I think we have to take, I don’t know, firmer steps to 

get them moving in the direction where they can set some standards so we can really put this beside us and go on to the next issue 

because one of the issues that I have with the South Korean trade 

23

agreement was the intellectual properties, you know, of our companies. 

So I was just wondering with NAFTA, what are some of the 

things that we could improve on that maybe we didn’t look at in 

terms of intellectual property and other factors? What did we miss 

in this? 

Mr. DREIER. Let me, before Ambassador Hills, let me just defend 

her a little bit and let’s look at the time frame of this. We are 

marking the 20th anniversary. Think about where we as a world 

were 20 years ago. Where was the Internet 20 years ago? I read 

Eric Farnsworth’s testimony. He underscores that in his remarks. 

It was virtually nonexistent. 

Now, obviously the pharmaceutical industry existed, but the 

kinds of advances that have been made in the last two decades 

have been monumental as well, and I think that it is important to 

note, to say that things were missed or there were mistakes that 

were made, most of this has been what has taken place in the two 

decades that have followed the passage and implementation of the 

North American Free Trade Agreement. 

And I think one of the important things that needs to be done 

as we look at negotiations for the future, and I have argued this 

for the Trans-Pacific Partnership, is to have a degree of fluidity 

and flexibility so that as other countries are able to meet certain 

guidelines and standards, that they can become part of these agreements as well, and so I think that one of the important things that 

needs to be done is not be too rigid within the structure. So I just 

say that partially in defense of Ambassador Hills. 

Mr. SIRES. You know, when I say that I mean because I want 

it to move forward and be better. 

Mr. DREIER. Right. Absolutely. 

Mr. SIRES. You know, I don’t want it to just——

Mr. DREIER. Right. 

Ambassador HILLS. Well, let me say that the agreement at the 

time provided the highest level of patent, trademark, copyright, 

trade secret protection that had been negotiated anywhere, and as 

David Dreier has just stated, a lot of change has taken place. So 

we can enhance those rules through the mechanism of the TransPacific Partnership, for example, we have got three mega agreements that we could address and strengthen the rules, but why not 

sit down at the leaders meeting with Canada and talk about how 

this erodes the partnership? 

And I do believe that our northern and southern neighbors would 

like to join, for example, the Transatlantic agreement, but if we 

have differences that create friction, it will be difficult to pull that 

off, and so talking about it, working your way through it, and trying to get the rules to cover good intellectual property of pharmaceuticals, which is primarily the problem in Canada, I think it can 

be done, but it can’t be ignored. 

Mr. DREIER. Let me just add, if I could, that I think that Ambassador Hills raises a very important point, and that is, my personal 

view as we look at TTIP, the Transatlantic Trade Investment Partnership, that the idea of doing a U.S.-European Union free trade 

agreement is a nice start, but by virtue of the fact that we have 

had so much success with the North American Free Trade AgreeVerDate 0ct 09 2002 11:33 Mar 13, 2014 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 F:\WORK\_WH\011514\86298 SHIRL
24

ment, I am one who believes that the idea of making this a 

NAFTA–EU free trade agreement would actually be much more 

beneficial to both our country and to the hemisphere and the global 

economy as well, and so I would hope very much that we would 

have the chance to move forward in that area. 

Ambassador HILLS. I fully agree with this. I think we actually 

will diminish our gains if we don’t do that, and that is because we 

are unique in North America. As I said, we not only sell things to 

one another, we make things together, and our markets are so 

interlinked that 40 cents of every product that we import is U.S. 

content. 

If we have different rules of origin with Europe, this simply 

won’t work. It will destroy the NAFTA platform that has given us 

so much and the statistics that the chairman mentioned about the 

gains that we have already achieved. So this is an imperative that 

I hope Congress takes a good hard look at it. 

Mr. SIRES. Well, I don’t want to beat up on Canada too much, 

but the chairman and I are working on a bill to extend the amount 

of time Canadians can stay in this country from 6 to 8 months. So 

we will work on that. 

Mr. SALMON. Thank you. 

The chair recognizes Mr. Radel. 

Mr. RADEL. Thank you, Mr. Chair. 

Regardless of some of the positions I have found my own self in 

life, I have always been the eternal optimist, and as we look at 

NAFTA and some of the very real effects that it has had on people 

and their jobs, there have been incredibly positive things that have 

come, big picture things that both Democrats and Republicans cannot deny and can agree on to move forward. National security, just 

an easy one. When you have got a good working relationship with 

people, you are going to have a solid relationship to move forward 

and not have any stresses or strenuous relationship moving forward. 

The other issue here, too, as we talk about countries, even more 

specifically south of us, is the hot topic of immigration. No one can 

deny, one of the best ways to solve an illegal immigration problem 

in the United States is to make sure men and women coming from 

other countries can put food on their kids’ plate, and the best way 

to do that is to be able to provide economic security, jobs, and that 

is exactly what we have been able to do for years with this, and 

I commend you both for your work on this. 

Just some general questions. What more can we, what more can 

the Federal Government cap do to help facilitate shared manufacturing production? 

Ambassador, you put it right. We make things together. What 

more can we do to provide more of that certainty and stability to 

keep this and to move forward in more free trade around the 

world? 

Ambassador HILLS. It has already been mentioned that the infrastructure going north and south is poor, and sometimes a truck 

bringing that component part that we need to be globally competitive is held up at the border, not for just an hour but sometimes 

many hours. And they come to the border, and as you know, they 

have to unload, get a lorry, take it across the border, put it on, so 

25

it has three trucks in effect that have to carry this component that 

our manufacturers are waiting for. 

This is a cost in terms of time. This is a cost in terms of money, 

and that makes us less competitive for those markets that don’t 

have that extra cost. Because of Mexico and Canada’s proximity to 

us, that makes us more competitive so that when lower cost countries in Asia, for example, seek to compete, they have a transportation cost. We are adding a transportation complexity cost that 

could be avoided. So we ought to give some thought to that, have 

a real plan for how we address it. 

We perhaps, at least in my view, have been remiss on how we 

have handled the trucking issue with Mexico, and if we expect 

other nations to adhere to agreements, then, of course, we must, 

too. 

Mr. DREIER. Let me just add to that. Thank you, Mr. Radel. 

The Economist had an interesting piece on NAFTA 20 in which 

they pointed, as we all do, with great regularity at September 11th 

of 2001. Very, very sadly what happened on September 11th played 

a big role in undermining the ability to deal with the immigration 

issue. It exacerbated the tension at our borders, and I think that, 

obviously, border security is critically important, and it is something that needs to be addressed. And I always argued when I was 

privileged to serve in this House that the number one responsibility of the Federal Government is our Nation’s security. So we 

can’t forget that. 

We also know that with these agreements, it is important for us 

to realize the fact that infrastructure has to be improved. I was 

very concerned about the trucking issue, as Ambassador Hills has 

said, and I think that we need to do everything that we can to 

make it as easy as possible for this free flow of goods, services, capital, information, ideas, and people to take place. We have so many 

opportunities to work together. 

We all in our freshman economics class in college learned the 

economic theory of comparative advantage. Comparative advantage 

says we do what we do best, and The Economist underscored the 

bombardier Learjet example of Pratt and Whitney designing the 

aircraft here, the assembling taking place in Wichita, and in 

Quertaro, Mexico, we saw manufacturing take place obviously at a 

company that is now owned by Canada. 

The only thing done outside of this hemisphere is done in Ireland, and that is the wing manufacture. The market itself is going 

to play a role in determining what Canada, the United States, and 

Mexico will do, and I have a great deal of confidence in it. 

Mr. RADEL. I agree 100 percent. 

With my time winding down, I would just once again thank you 

both so much. 

And thank you, Mr. Chair, for calling this. 

Mr. SALMON. Thank you. 

The chair recognizes Mr. Meeks. 

Mr. MEEKS. Thank you, Mr. Chairman. 

I enjoyed listening to you and couldn’t agree more on many of the 

points that you have raised. You know, as we enter into negotiations for TPA, which we have to figure out in a bipartisan way to 

pass, and then dealing with TPP and TTIP, all very important. 

26

Oftentimes, I ask, you know, we see other nations are entering 

into trade agreements, and I think as the Ambassador indicated, 

we need to get in the game and negotiate and have our own trade 

agreements or be a part of it like TPP, which I think would elevate 

standards, our standards, because if we stay on the sideline and let 

them negotiate with China, for example, or others, then you could 

expect that those standards will be lower and not the high standards that we set in our trade agreements. 

So I think it becomes tremendously important for us. Basically, 

and I think it is exactly what Mr. Dreier has indicated, the fact 

that 20 years ago so much has changed, there has been so much—

the economy and technology is so different today than it was 20 

years ago, and the world is so much smaller today than it was 20 

years ago, it becomes that much more important for us to engage. 

That being said, we have got to figure out here how to make sure 

that we do it in a bipartisan way and understand that, actually, 

when you look at most of the trade agreements, it changes our 

trade deficit. Our trade deficit goes down because markets that had 

not been open to us, where we could not sell our goods that were 

made in America, now are open so that we can sell those goods to 

those individuals. That is where in fact the majority of the buyers 

are. So if we are going to expand, it has to be outside of the borders 

of the United States of America. And that is why that is so important. 

So all that to say now, in trying to do a bipartisan deal and trying to work collectively together, there was a ground—what I believe was a groundbreaking trade compromise known as the May 

10th agreement in which we—there was significant update and 

change for I believe the better, a better way that we negotiate 

trade pacts. 

So my first question to you, do you think that the May 10th deal 

addresses many of the concerns that some, rightly or wrongly, you 

know, when people talked about NAFTA because you still hear 

NAFTA as if it was something that was drafted yesterday and not 

something that you could build upon, but do you think that it addressed some of those concerns? 

And how can we build upon that, which I think that will help 

us go into the direction of this shouldn’t be an issue, this shouldn’t 

be a Democrat or Republican issue. This is an issue that is important for the United States whether you are Democrat or Republican. 

Ambassador HILLS. I agree with you that trade is absolutely 

vital. 

If you look at what is the fuel for our economic growth today, 

trade is essential, and the trade promotion authority is extremely 

important. It is not only important because of the division in our 

Government where you have power over trade and finance, but the 

President has negotiating power. 

Our trading partners don’t want to sit at the table with us and 

put their tough political issues on the table unless they know that 

the agreement is fairly going to be voted up or down. If the agreement is not a good one, vote it down, but if the agreement is one 

that you think is good, don’t unravel it with amendments that are 

going to destroy the agreement, and the prospect of that means 

27

that you don’t get as high a quality of agreement as you otherwise 

would get. 

But how do we deal with the changes? Yes, globalization has absolutely transformed the world. I mean, I suspect that you didn’t 

use a computer in 1989. There are so many things that we didn’t 

do and didn’t have 20 years ago. 

How do we build on the NAFTA? Well, we have a wonderful opportunity with, for example, the Trans-Pacific Partnership. We 

don’t have to reopen NAFTA. Our two neighbors are sitting at the 

table with us. And whatever we agree to in the Trans-Pacific Partnership that changes, upgrades, adds to the NAFTA will be the 

governing document. 

So we really want to get on with this and get a really good AsiaPacific agreement. And my hope is that we can achieve the promise 

that we made that we would have an agreement that covered all 

of Asia-Pacific, all of APEC, all the 21 economies. But this is a first 

step, and we should make it a good one. 

Mr. DREIER. And I suspect that the May 10th concerns that were 

raised will clearly be part of the TPP negotiating process. And that 

will, as the Ambassador has said, be the vehicle that will allow 

many of these concerns that Mr. Sires and that others have raised 

to effectively be dealt with. 

Mr. MEEKS. I am out of time, I know, but if I had time, I would 

ask you about Trade Adjustment Assistance and whether you think 

that would fall in. I think it is important because some—we have 

lost, I believe, more jobs because of technological advances than we 

have because of trade. But I am out of time, and so I will leave 

that for another time. 

Mr. DREIER. It has expired, but I will say that I do believe that, 

as we proceed in a bipartisan way, that Trade Adjustment Assistance will continue to need to be part of the process itself. 

Ambassador HILLS. And I think it is actually helpful, because we 

know that trade creates growth generally, but there are some dislocations. And for our Nation, it is very good to have Trade Adjustment Assistance. 

Mr. SALMON. Thank you. 

The chair recognizes Mr. Duncan. 

Mr. DUNCAN. Thank you, Mr. Chairman. 

And, Mr. Dreier, welcome back to Congress. 

Mr. DREIER. Thank you very much. 

Mr. DUNCAN. You are missed, your leadership is missed, your 

composure in difficult issues is missed. And you were a role model 

for a lot of us to follow in how you handled yourself as a Congressman. So, again, I say welcome back. 

There are a lot of issues with trade. I met with the members of 

Parliament that are part of a transatlantic group on terrorism last 

year, and we discussed TTIP. And they were very interested in seeing that trade agreement move forward at some point. 

They raised some concerns about agricultural products from the 

U.S. and Europe. I think that is a challenge that we are going to 

have to address. If you want to touch on that, we will get to that 

in a second. 

And then I would like to talk about energy, primarily. This may 

be for Mr. Farnsworth more than this panel. But with what Mexico 

28

is seeing with their energy sector, with the denationalization of the 

energy sector and Pemex and more competitiveness down there in 

future years, how do you think the NAFTA countries will benefit 

from more energy resources here in North America? And how does 

that apply to trade? 

And then the last thing I will mention is with TPP. And I have 

to support the textile industry in South Carolina. What we saw 

with the Korean Free Trade Agreement, the reason I voted against 

it was the fact it felt likes textiles were sort of thrown to the 

wolves there at the end of the negotiations at the end of the Bush 

administration and were treated unfairly with Korea. So we are 

very cognizant of what is going on with Vietnam and with dumping 

and countries of origin with regard to textiles. 

And then the last thing I would touch on is, we need to make 

sure that, with MTBs, we have companies like Michelin and 

Bridgestone that have certain raw materials that are vital to the 

production of tires in South Carolina, and a lot of times they have 

to get a miscellaneous tariff benefit changed in order to get those 

raw materials in so that those jobs can be kept in South Carolina 

and not sent to Brazil or Asia, where the resources may be a little 

more plentiful. 

So those three things: Energy primarily, the textile issue, MTBs, 

and also agricultural products. If you all just want to touch on 

those, and I will just open it up for you. 

Ambassador? 

Ambassador HILLS. Well, we certainly should address the agricultural issues. We have 90 percent of our subsidies going to five 

commodities: Corn, wheat, soy, cotton, and rice. And if nothing goes 

to string beans or apples—and you hear about all the health foods 

in the world, but with our economy in the financial state it is in 

and the commodity prices being relatively generous, it would be 

very well that we would be able to address this issue. And Europe, 

for the same reason, it could move on these issues. 

That ability to talk about agriculture would get us services put 

by other countries on the table, where we have tremendous competitive advantage. But if you have nothing to put on the table, you 

are going to get nothing given to you on the table. 

And so agriculture is absolutely key. When I said we have relatively low tariffs with Europe on products, agriculture is the exception. Agriculture, textiles, glassware, footwear, you take those 

out and our average tariffs is about 3 percent. You put those things 

in and you have dislocations. 

And as far as energy goes, you know, inviting Mexico in the TTIP 

would provide President Pen ̃ a an umbrella to talk about a major 

trade agreement that would help him move forward on his economic reforms that we want him to make. He has put through the 

energy constitution. He still has to get legislation, he still has to 

have regulation. We want him to move forward and liberalize telecommunications. If he were part of the team negotiating to make 

North America more competitive, it would make all the difference 

in the world. 

And that is what Salinas did with the NAFTA. He used that as 

an umbrella and said, well, folks, look at what I am getting, so 

please stay with me; I want this trade agreement, and you will get 

29

something for it. I think that this should be part of our strategic 

thinking. 

Mr. DREIER. Let me just add, I don’t have an opinion on the MTB 

issue as it relates to those. But I will tell you that, Mr. Duncan, 

I feel very strongly about the so-called Pacto, which is the reform 

that President Pen ̃ a Nieto has boldly pursued. And he is working, 

and it has been challenging to bring together the three major political parties in Mexico. But the idea of dealing not only with telecommunications and energy but labor and education and fiscal reform, those five areas, is something that is really groundbreaking. 

I mean, you know, we have talked about the fact that I, you 

know, hung around this place for more than a couple of years. And 

if you go back to the 1980s—and you guys are too young to remember that, but I will tell you that I remember very vividly. It is when 

I started here. And I was younger than you when I started here 

doing that. But I will say that, at that time, the struggles that existed between our two countries were very, very great. And the idea 

of looking at political reform, the five things that I just mentioned 

within the Pacto, the fact that—the Woodrow Wilson study the 

other day pointed to the fact that, going back to the 1980s, the average Mexican family lived in a one-room home; today they live in 

three-room homes. I mean, there are so many advances that have 

been made. 

And I believe that that is going to enure to the benefit of your 

constituents in South Carolina. Why? Because as we see that economy growing—Mr. Sires pointed out correctly, we still have very 

serious poverty problems that exist in Mexico and the United 

States. The displacement Ambassador Hills correctly pointed to is 

why we need Trade Adjustment Assistance. But I believe that as 

we see these economies grow, they are going to provide a market—

they are going to provide a market for the workers you have in 

your congressional district. And I think that is something that 

needs to be remembered. 

It is not going to be perfect, and it is not going to remain exactly 

as it is. But, I mean, we believe in the marketplace itself. And, you 

know, Ronald Reagan really envisaged this on November 6th of 

1979 when he announced his candidacy for President. 1979, Ronald 

Reagan, in that announcement, said that he envisaged an accord 

of trade among all the Americas. This was part of the Reagan vision that was then implemented by the Bush-Hills team and then 

passed through the Congress by the Clinton-Kantor team. 

And I will say that I think this is going to be a real winner for 

your constituents as we move ahead with it. 

Mr. DUNCAN. Thank you for that. And I appreciate the testimony. 

I yield back. 

Mr. SALMON. Thank you very much. 

That concludes the questions. We would love to thank our distinguished first panel. 

Mr. DREIER. Thanks very much. It was a great honor to be able 

to be back and see you guys. 

Ambassador HILLS. Great pleasure to join you. 

Mr. SALMON. Thank you very much. 

30

I would like to change the panels now and have the second panel 

be seated. 

We might let the second panel know, we have been notified that 

our vote on the omnibus budget, or appropriations bill, excuse me, 

is going to take place. It was supposed to be sometime in the last 

15 minutes. So if it buzzes and we have to leave, please be patient. 

We will be back. It is the last vote of the day, and quite an important one. 

So, with that, we will go ahead and dispense with introductions 

just to save time. I ask for unanimous consent to go ahead and do 

that. Without objection, and we will go ahead and start with you, 

Mr. Farnsworth. 

STATEMENT OF MR. ERIC FARNSWORTH, VICE PRESIDENT, 

COUNCIL OF THE AMERICAS AND AMERICAS SOCIETY 

Mr. FARNSWORTH. Well, thank you very much, Mr. Chairman. 

Good afternoon to you, to the members of the subcommittee, Mr. 

Sires. It is a real honor to have the opportunity to appear before 

you again this afternoon. 

And I do want to reemphasize the fact that this is a continuation, as well, of the field hearing from Tucson, which was a real 

success. And it is a particular pleasure, as well, to join other witnesses today of such prominence and stature. 

If I may, let me give you what I believe to be the bottom line 

first: NAFTA was first and foremost an agreement designed to increase trade and investment among its three parties, promote 

North American economic integration, and support a vision of open 

market democracy for Mexico, providing that Nation with a clear 

path toward political and economic modernization. 

On all three priorities, NAFTA has succeeded. As we have already heard, since 1993 U.S. trade in goods and services with Canada and Mexico has increased from $370 billion a year to over $1 

trillion today. Annual trade between the United States and Canada 

has more than doubled; with Mexico, it has more than quadrupled. 

More than 40 U.S. States count either Mexico or Canada as their 

top export destination. 

Perhaps more importantly even than those statistics, however, 

NAFTA institutionalized a vision for North America that would 

have been impossible absent significant political and economic reforms in Mexico, and NAFTA both catalyzed such reforms and has 

also benefited from them. 

Trade agreements are not just about trade and investment. They 

are also critical, if often overlooked, tools of U.S. foreign policy. Unquestionably, NAFTA has directly supported Mexico’s democratic 

transformation over the past 20 years, thus contributing to the true 

partnership that now exists between our two countries. In fact, we 

are allies in a way that 20 years ago it was almost inconceivable 

to even consider. 

It has empowered new constituencies in Mexico and a growing 

middle class that has demanded and received an increasingly clear 

political voice. And as we see Mexico’s economy generate new opportunities, coupled with the slowdown of the U.S. economy, net 

migration flows from Mexico have become virtually zero, reducing 

the temperature on this bilateral irritant. A full accounting of 

31

NAFTA’s impact, therefore, cannot overlook these very important 

issues. 

Since NAFTA was implemented, however, the world has changed 

dramatically. As a result, the agreement should be modernized, I 

believe, to expand North American competitiveness. Three trends 

show why. 

First, production models have changed, and we have already 

heard a little bit about that this afternoon. Our three countries 

don’t just trade products together, we now design and make these 

products together. And that is to our benefit. The statistic has already been used; let me use it again. Every dollar from U.S. imports from Mexico includes some 40 percent of U.S. content; from 

Canada, it is some 25 percent. So North America is now the production platform. 

Second, in 1994, there was barely an Internet, as Mr. Dreier 

said. Nobody had a clue how radically electronic communications 

would fundamentally alter business models. More broadly, incredible technological advances have transformed virtually every sector 

in the past 2 decades, from energy, which we have heard about, to 

health care, which we have heard about, to financial services. The 

list goes on and on. Industries that were not even contemplated by 

original negotiators are now significant engines of growth. 

Third, there is a noticeable change in trade patterns within 

North America demarcated by 9/11, at which point the border 

thickened and commercial activities understandably took a second 

seat to security. Still, as NAFTA-facilitated trade has increased, infrastructure has generally languished. 

Our strategic opportunity, therefore, is to capitalize on our increasingly unified North American economic space and dynamism, 

particularly as Mexico advances along its reform agenda. An agenda for progress that we might consider, then, would include several 

elements, in some areas addressing challenges stemming from the 

original agreement, and in others taking note of changes in the 

North American production model and finding ways to facilitate 

and enhance such activities. 

As a first step, we need to find a way to get the greatest efficiencies from the agreement as it currently exists, from trucking 

regulations to intellectual property protections, to customs and regulatory harmonization, to border infrastructure. These are not easy 

issues. Some have been with us since the agreement was concluded. Some require additional funding. 

At the same time, were the original agreement to be negotiated 

today, it likely would not look the same. For example, it would 

have to incorporate the incredible advances in energy that are 

making North America self-sufficient, improving our terms of 

trade, while igniting a manufacturing reconnaissance. It would 

highlight and promote the rapid growth in services in newer industries, like biotech, that has occurred in the past generation, including the information technology revolution and cloud computing. It 

might incorporate some categories of labor mobility. It would seek 

ways to safely increase border throughput as a strategic economic 

issue for the entire United States, not just border States. And it 

would attempt to find effective ways to address rule-of-law issues, 

as former President Zedillo has written recently, or perhaps MexiVerDate 0ct 09 2002 11:33 Mar 13, 2014 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 F:\WORK\_WH\011514\86298 SHIRL
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co’s most vexing challenge. We have talked a little bit about Canada; it also applies to Mexico. 

More broadly, the NAFTA bloc should be viewed as the basis for 

a more strategic trade policy generally. Mexican and Canadian 

entry into TPP was critical, and we have talked about that already. 

Now, to take advantage of economies of scale, we should also negotiate, together with Mexico and Canada, the free-trade agreement 

with the European Union. And, similarly—and I don’t think we 

have talked about this quite yet today—an early economic association among North American and Pacific Alliance nations, which include Mexico, Colombia, Peru, and Chile, would be both timely and 

appropriate. 

The upcoming leaders’ meeting that we have talked about in 

Mexico will offer an opportunity to take stock of North America 

and to begin a process that builds on NAFTA while even updating 

it further. The leaders should commit to annual trilateral meetings, 

designating a senior official to promote progress in the interim. 

They should commit to a process that includes the private sector, 

whereby the unrealized gains from NAFTA can be identified and 

addressed and those lessons learned from the agreement can be directly applied elsewhere. And they should begin a dialogue with 

the leaders of the Pacific Alliance and other nations in the hemisphere that will advance discussions on hemispheric economic integration, even as the Summit of the Americas has lost its primary 

economic focus. 

Given changed circumstances both within North America and 

outside the region in larger emerging markets, such as China and 

India and others, it is time to have another look to determine 

where further progress can be made. 

Mr. Chairman, I really want to thank you again for this opportunity. I have appreciated it. I look forward to your questions. Mr. 

Sires, thank you very much. 

Mr. SALMON. Thank you, Mr. Farnsworth. 

[The prepared statement of Mr. Farnsworth follows:]

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Mr. SALMON. Mr. Elliot. 

STATEMENT OF MR. MARK T. ELLIOT, EXECUTIVE VICE PRESIDENT, GLOBAL INTELLECTUAL PROPERTY CENTER, U.S. 

CHAMBER OF COMMERCE 

Mr. ELLIOT. Thank you, Chairman Salmon and Ranking Member 

Sires. The U.S. Chamber of Commerce appreciates your leadership 

and the opportunity to testify on IP matters associated with 

NAFTA today. 

From the outset, I would like to state that the NAFTA has succeeded spectacularly in boosting cross-border trade, economic 

growth, and creating good jobs. It has proven to be one of the most 

effective and beneficial trade agreements in U.S. history. As we celebrate the triumph of NAFTA on its 20th anniversary, the U.S. 

Chamber of Commerce calls upon elected officials and business 

leaders in Canada, Mexico, and the United States to build upon 

this foundation in the years ahead. 

One area where particular focus is needed is that of intellectual 

property. At the time of signing, NAFTA included IP language that 

was of a high standard. However, since the agreement was signed, 

20 years has passed, and this level of intellectual property protection now represents a very low bar by 2014 standards. 

In the past 2 years, we have highlighted industry concerns with 

the Canadian and Mexican IP environments through the USTR 

Special 301 process. In 2012, the U.S. Chamber of Commerce released an international IP index, which was the first-ever comprehensive review of national IP environments, covering 11 key 

markets. The United States and the United Kingdom and Australia 

all performed well in this regard. On the other hand, Mexico and 

Canada were more closely linked to Russia, Malaysia, and China. 

In Mexico, we have seen some forward progression in recent 

years. The business community has been working well with the 

Mexican Government. In contrast, Canada’s relatively low score results in wide-ranging IP problems and a distinct lack of action from 

the Canadian Government. It is fair to say that industry is more 

concerned with the IP environment in Canada than in Mexico. And 

I would like to provide a few specific examples of some of the Canadian issues. 

Firstly, WTO TRIPS and NAFTA require patents to be granted 

for inventions that are new, non-obvious, and useful. This is also 

known as patent utility. Over the past 8 years, the Canadian 

courts have used this clause to revoke more than 20 pharmaceutical patents for what they call ‘‘lack of utility or usefulness.’’ 

They have justified doing so by requiring evidence that is wholly 

inappropriate for judicial review or patent approvals. In one instance, an innovative pharmaceutical company lost $500 million in 

revenue. This trend is not happening anywhere else in the world. 

Secondly, and unlike other countries, Canada has yet to provide 

ex officio authority to its customs officials to seize counterfeit and 

pirated products at the border. 

Thirdly, the business community is concerned with the ongoing 

and substantial illicit trafficking of goods across the U.S.-Canadian 

border. Counterfeiting and piracy in Canada are worth approximately $20 billion to $30 billion annually. This includes sporting 

39

goods, medicines, consumer electronics, automotive parts. The list 

is endless. Many of these counterfeits originate from China, and 

the criminal organizations see Canada as the easiest entry point 

into North America. 

Fourthly, if a pharmaceutical patent is successfully challenged by 

a generic manufacturer, the patent holder has no administrative 

right of appeal. However, if the patent holder is successful in defending the patent, the generic manufacturer is entitled to administrative appeal. This practice is discriminatory against the innovative companies. 

Lastly, Canada has failed to ratify the WIPO Copyright and the 

WIPO Performances and Phonograms Treaties, resulting in Canada falling below global standards of copyright. 

As mentioned, 2014 will present many opportunities for the 

United States, Canada, and Mexico to further improve their IP environments. As the committee is well aware, the TPP is being negotiated between 12 countries, and it is essential that it include a robust IP chapter. We would also encourage the Canadian Government to work closely with the business community to address specific IP issues within and outside the TPP and NAFTA frameworks 

and to raise their IP standards to levels consistent with the United 

States, the U.K., and Australia. 

Thank you once again for the opportunity to testify. 

Mr. SALMON. Thank you. 

[The prepared statement of Mr. Elliot follows:]

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Mr. SALMON. Dr. Wood. 

STATEMENT OF DUNCAN WOOD, PH.D., DIRECTOR, MEXICO INSTITUTE, WOODROW WILSON INTERNATIONAL CENTER FOR 

SCHOLARS 

Mr. WOOD. Thank you, Mr. Chairman. Great pleasure to be here. 

I always like to say that I am the perfect NAFTA citizen. I lived 

and was educated in Canada. I then moved to Mexico to work for 

17 years. I then have moved here to the United States. I have a 

Canadian ex-wife, not because of any intellectual property dispute 

that we had. My children were born in Mexico but live in Canada. 

And I am now married to American and am living and working 

here. But I am a citizen of none of the three countries. So I guess 

that makes me the perfect person to comment. 

A lot has been said about the success of NAFTA. I would like to 

talk about the potential of the North American region and what we 

need to do to realize that potential. 

I think that we see four main factors in the potential for North 

America. The fully integrated production platform is something 

that we have talked about at great length already, and I think we 

need to emphasize that. It is very, very important to see that we 

are unique in the world in the way that industry in the three countries works together. 

The second factor has already been mentioned, energy. North 

America’s incredible energy abundance, from the massive hydroelectric resources and oil sands of Canada to the huge oil and gas 

reserves of the Gulf of Mexico, shale gas and tight oil fields on 

shore, and the world-class wind, solar, and geothermal resources of 

Mexico and the United States, means that the region’s energy security is guaranteed for the foreseeable future. 

But it is the cost of energy that gives us the real advantage in 

the world. The shale gas revolution has meant that gas prices and, 

therefore, the cost of electricity are incredibly low by international 

standards, conferring a huge boost to the cost-efficiency of North 

American manufacturing. 

The third factor is human capital. North America has a demographic profile that gives it a significant long-term advantage over 

Europe, China, and Japan. The openness of Canada and the United 

States to immigration has allowed these countries to maintain a 

steady supply of young people who provide a workforce that satisfy 

labor needs. 

Mexico’s traditionally higher fertility rate has meant that it has 

been a source country for many of these young people, but its 

changing demographic pattern now means that it will produce less 

migrants than in years gone by. So we have to take advantage of 

the demographic bonus while it exists. The challenge is how do we 

invest in the region’s young people. 

The final factor is the internal market. We have 460 million people in the North American economic space, and their spending 

power combined exceeds that of any other nation or region. Total 

North American GDP will rise from $19 trillion today to over $50 

trillion by 2050, when the regional population is forecast to top 630 

million and Mexico is projected to be one of the world’s five largest 

economies. 

50

Mexico, with its relatively young population, a rising middle 

class, and with economic growth rates expected to surpass those in 

Canada and the United States, will generate the lion’s share of 

North American growth. This will ensure that the domestic market 

in North America remains the most important in the world, even 

after Chinese GDP outgrows that of the United States. 

So what do we need to do to guarantee the economic future? 

First, we need to modernize and deepen North American integration. As has been mentioned here, NAFTA was a first-generation 

trade agreement signed in another era. We need to update it to 

take into consideration all of the new products that have been mentioned here. We need to strengthen our already considerable attributes if the region is going to be able to compete against other 

countries and regions of the world. Harmonizing regulations and 

standards, introducing agreements on services, and coordinating 

economic policy more closely will do just that. 

Second, we must invest in our people to ensure that employers 

have the human talent they need to remain competitive. We need 

to give them the freedom to move in the region. 

Third, we need to invest in our borders, in both infrastructure 

and in procedures, to ensure that integrated production processes 

in the region are efficient, agile, and competitive. 

Fourth, we need to invest in energy infrastructure so that we 

create a fully integrated North American energy market that will 

ensure supply and keep prices low. 

Finally, we need to think about how a strong North America can 

best engage with the rest of the world. 

The potential of the TPP is considerable, but the negotiations 

must take into consideration the interests, strengths, and weaknesses of all three NAFTA partners. This means that we have to 

think not only about those who win from openness and free trade 

but also those who lose. How do we compensate those who lose 

their jobs or whose businesses cannot compete in a globalized economy? Though it is a thorny issue, this question must be answered 

adequately if we are to maintain political support for free markets, 

trade, and investment. 

I am an optimist on this one, and I agree with Fred Bergsten, 

who has estimated that the benefits to the U.S. economy of 50 

years of free trade equal around $1 trillion in annual GDP and that 

the benefits outweigh the cost by about 20 to 1. 

Now is the moment for the United States, Mexico, and Canada 

to celebrate open regionalism and to take the necessary measures 

to make sure that our shared regional economy is strong enough 

to compete on the world stage. The TPP is one path, but we must 

recognize that there are also encouraging signs at last from the 

World Trade Organization after 12 years of stagnation. If we take 

the necessary measures, we cannot only enjoy a more prosperous 

future but also offer an example that the rest of the world may follow. 

Thank you very much. 

Mr. SALMON. Thank you very much. 

[The prepared statement of Mr. Wood follows:]

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Mr. SALMON. I am going to recess the subcommittee so that we 

can go vote on the floor, and we will be back to ask questions. 

Thank you. 

[Recess.] 

Mr. SALMON. We will reconvene the subcommittee. And I would 

like to start off the questioning first with Mr. Farnsworth. 

How has NAFTA affected the trade balance between the three 

countries? How do energy imports affect the trade balance? And 

will Mexico’s energy reforms have implications for the trade in energy? 

Mr. FARNSWORTH. Well, thank you, sir, for the opportunity. 

The trade balance is a factor of many things, not just NAFTA. 

And so a lot of times people say, well, after we passed NAFTA, the 

trade balance changed overnight almost, it seemed, in 1994. That 

was a result of the peso crisis, et cetera. So, at one level, it is a 

difficult linkage to make. What NAFTA did was it opened up both 

economies to each other. 

Clearly, energy is actually a part of that. And one of the things 

that we often hear in terms of NAFTA as a criticism is that the 

U.S. trade balance with Mexico has changed into the negative. A 

lot of that has to do with the fact that, frankly, we are importing 

energy from Mexico. We are also importing a lot, obviously, from 

Canada, which is our number-one supplier of energy. And so those 

energy relationships would occur with or without NAFTA. So I 

think we just have to be a little bit careful there in that context. 

But as energy reforms go through in Mexico, we think this is a 

game-changer for several reasons. Number one is because—we 

have talked a little bit about the cost of energy. Energy right now 

in Mexico, electricity in particular, is really expensive. And from a 

manufacturing perspective, that is a very important input. As the 

cost of energy decreases, manufacturing is going to be a lot more 

competitive, and that builds into the entire idea we have all been 

talking about about North America as a production platform. But 

you are also going to have huge opportunities for U.S. investors, for 

the first time since 1938, to have the opportunity, perhaps, to work 

directly with the Mexican energy sector. 

And you are also going to have opportunities for U.S. technology 

and U.S. capital to be deployed. And this is really important because, particularly in the context of natural gas, which Mexico has 

an awful lot of but hasn’t been able to develop because they haven’t 

had the technology and capital, these are, in some ways, environmentally sensitive issues, and you have to have best practices, you 

have to have cutting-edge technology, you have to know what you 

are doing, or else you can really make a mess of things. That is 

U.S. technology. The U.S. is in the lead here. And so to deploy that 

technology in the Mexican energy sector we think is a very good 

thing. 

So that is going to contribute very directly to the trade balance 

because, frankly, those are exports. Also, I have to say that will 

also contribute to Canada’s trade balance. Those will be exports 

from Canada, too. Canada has a very robust energy sector. 

I would very quickly also just align myself with your comments 

about the XL Pipeline. I think that is a very important thing. 

56

And I also want to congratulate Congress, in fact, as well, on 

moving forward with the transboundary hydrocarbon agreement 

with Mexico. 

Mr. SALMON. Thank you very much. 

Mr. Elliot, as I mentioned earlier, I have some grave concerns 

about some of the IP infractions in Canada. And you focused a 

large part of your testimony on the same issue. I find it very disconcerting that they have appeared on USTR’s watchlist that singles out countries where IPR is inconsistent. Really consistently, 

for the last 20 years, they have been on that list. 

What is the best mechanism for us to try to address it? To me, 

it is a very, very serious concern. And if we are going to look at 

new trade agreements, maybe that is where they should be raised. 

Or should they be maybe raised through the existing trade agreement? What are your thoughts? Because I am not going to let it 

go. 

Thank you. 

Mr. ELLIOT. Sure. And thank you, Chairman Salmon, for not letting it go. It is a very important issue to the business community. 

I think there are a couple of parts to this. If you break out the 

patent utility piece itself, you know, there are a number of different 

ways you can tackle that one. If the Canadian Government don’t 

see an obligation through NAFTA to fix it, then certainly you 

would imagine there is an obligation through the EU-Canada 

CETA agreement to fix it. If not, there will certainly be through 

the TPP. And if not, you know, it has been spelled out over a number of years through the Special 301 process; it is quite clear what 

the problem is. 

The frustrating aspect of this is that in the U.S., Europe, and 

Canada the law is virtually the same. There is just a very minor 

clause in there which makes the difference. And in the U.S. and 

Europe, it is defining the area as capable of industrial application. 

And the Canadian law says ‘‘lack of utility.’’ There are the differences in the wording of the legislation. It is a relatively easy fix. 

My view is that, you know, there are a number of different mechanisms here to put some pressure on the Canadian Government to 

act on this. I would hope that the Canadian Government would see 

the need to address it for their own purposes, and, quite simply, 

it is the right thing to do. 

Mr. SALMON. I find it kind of incredulous that some of these Canadian generic companies would want to offer a product that has 

no utility. 

Mr. ELLIOT. Yes, indeed. I mean, part of the irony here is, of 

course, if the court finds that the patent has no utility, then of 

course the generic entrant enters the market, proving of course 

there was utility after all. 

Mr. SALMON. Mr. Sires. 

Mr. SIRES. I guess that is how they keep the cost of medicine 

down. 

You know, in your statement, Mr. Elliot, you said that China 

sends the counterfeit through Canada, through here. And how 

much was it that you estimate a year that comes to the United 

States through Canada? 

57

Mr. ELLIOT. There is somewhere between $20 billion and $30 billion a year in the counterfeit business running through Canada at 

the moment. 

Mr. SIRES. And that just gets passed on to us? 

Mr. ELLIOT. Not all of it. Not all of it. Some of that would. Some 

would remain in Canada. 

Mr. SIRES. Yeah, obviously. 

Mr. ELLIOT. Yeah. 

Mr. SIRES. But a lot of it comes to us. 

Mr. ELLIOT. That is correct. 

Mr. SIRES. What about our border checks or anything like that? 

That doesn’t come into play? 

Mr. ELLIOT. Yeah. There are a couple of aspects on this. I mean, 

I think there is an issue around the counterfeits entering Canada, 

and I think that is the ex officio issue here, where the law enforcement people don’t have the authority without a court order to seize 

goods coming through. 

There was a former Canadian Ambassador to the United States 

who wrote that it is more difficult to transport a used mattress 

across the border on top of your car than a truckload of counterfeit 

products into the U.S. And there is some truth in that. Look, and 

some of this is, of course, not solely on Canada. 

Mr. SIRES. Right. 

Mr. ELLIOT. There is an issue here on the U.S. side. 

But part of the frustration here, I think, is that, to some extent, 

the Canadian Government is not inspecting some of the materials 

coming from China that they believe are en route to the U.S. And 

then, of course, when it enters the U.S., the U.S. authorities are 

perhaps not applying the same sort of attention to it, feeling that 

it is coming from Canada and, therefore, not requiring the same 

level of attention as it would if it were coming directly from China. 

Mr. SIRES. Dr. Wood, how do labor and environment provisions 

in recent free-trade agreements and reportedly in the TPP differ 

from those of NAFTA? 

Mr. WOOD. Thank you. 

I think we are in a crucial moment in the TPP negotiations, 

where we are seeing the pushback on certain environmental and 

labor negotiations. 

We were fortunate enough within NAFTA to be able to create 

these side agreements that actually did help to raise standards, in 

Mexico in particular. We also developed an institution at the border, the North American Development Bank, that sought to develop 

the border region in an environmentally safe way to improve drinking water, paving. Now they are moving on into renewable energy 

and emissions, which are very, very important features of industrialization. 

That was something which was added into the NAFTA sort of 

after the fact, after the negotiations, but it became a crucial element. And I think we probably could do a lot more on that in 

NAFTA. 

What I am concerned about with TPP is that we need to make 

sure that those standards remain high. And as the piece that was 

published in the New York Times this morning highlighted, at the 

moment it seems as though the United States is backing off from 

58

an insistence on high environmental and labor standards in that 

agreement. 

It is an issue that is important not just in the sense of protecting 

jobs here but also in making sure that the development of those 

countries—because, ultimately, that is what we are looking for. We 

are looking for the development of those markets around the Pacific Basin as an outlet for U.S. goods. Their development needs to 

be sustainable in every sense of the word. 

And so I think that is the concern that needs to be there front 

and center. It needs to be an issue that U.S. negotiators have a 

strong stance on. 

Mr. SIRES. Thank you. 

Mr. Farnsworth, how come we have such large deficits with some 

of these countries and we have this trade agreement? 

Mr. FARNSWORTH. Well, again, sir, it is a really good question because it is asked all the time. And the deficit itself is an accounting 

mechanism that isn’t necessarily linked directly to trade agreements or not. I mean, this is a much broader number, if you will, 

and it is the flip side of investment numbers, et cetera, et cetera, 

as you would note from economics. 

But, having said that, what trade agreements have done, and it 

was said in the previous panel, is opened foreign markets that 

were previously closed to the United States in a way that is done 

on a reciprocal basis. And this is oftentimes really important because the United States has generally given unilateral trade preferences to our trade partners traditionally. And the trade agreements, actually, what they do is they give us equal access to those 

foreign markets that we haven’t had in the past. 

And so, if we want to increase our exports, we have to find ways 

to open new markets. And that is precisely what we have seen, at 

least in the Western Hemisphere, where I know the stories much 

better, in terms of bilateral agreements with Chile, the bilateral 

agreements with Peru, the bilateral agreement with Colombia, 

with CAFTA, the Central American countries. And it is also what 

we have seen in terms of NAFTA. 

Now, the issue with Mexico right after the agreement went into 

force was—again, I mentioned it very briefly—but the peso devaluation, which changed the terms of trade. But that wasn’t specifically related to NAFTA. In fact, it was NAFTA that locked Mexico 

in to a course of activity that prevented them from doing things 

that they might have done previously, as they did in the 1980s, to 

close their markets. And what NAFTA did is they kept those markets open. And as a direct result, Mexico returned to global capital 

markets in a matter of months, whereas during the crisis of the 

1980s it took them years to get back. 

So, in fact, NAFTA was a framework that really helped contain 

the damage but also gave Mexico a ladder to get out of it. Now, 

that doesn’t guarantee that every policy action every country takes 

is going to be favorable or not have negative consequences or, 

frankly, that the trade agreement is going to be able to ameliorate 

every bad thing that happens. But that is one way to look at some 

of these issues, and I think a very helpful way. 

Mr. SIRES. Our latest trade agreement with Colombia, how is 

that working? Anyone want to——

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Mr. WOOD. Yeah. I mean, the information that I have on the 

trade agreement with Colombia is that it is working quite well for 

the United States but not so well for Colombian exporters. They 

haven’t been able to take advantage of the terms of that agreement 

in the same way as the United States has. And it is——

Mr. SIRES. They also signed a trade agreement with Canada, right, totaling $7 billion? 

Mr. WOOD. I believe they did, yes. 

Mr. SIRES. They have. So——

Mr. WOOD. But I think that one thing is that we are at the fortunate point of view or perspective of 20 years of NAFTA. We can 

look back. The free-trade agreement with Colombia is still relatively new. They take time to mature. And I think adopting a 

longer-term historical perspective is crucial in this question. 

Just as with your question to Eric Farnsworth just now. Mexico 

is on this development path where ultimately their terms of trade 

are going to change. They will start to import a lot more from the 

United States, just as they have done already. We have seen the 

transformation of the Mexican economy. So they import a lot more 

than they used to. And trade matters a lot more to Mexico than 

it did 20 years ago. Back then, trade as a percentage of GDP was 

at 30 percent. Now we are looking at 70 percent of GDP related 

to trade. That is a huge transformation for the country. 

Mr. FARNSWORTH. If I can make just a very quick comment on 

Colombia to add to what Duncan was saying. 

The real winner in terms of the Colombia trade agreement has 

been the United States, because, again, this was an agreement 

that—Colombia had unilateral free market access into the United 

States through the original Andean Trade Preference Act from 

1991. That was later extended and expanded into the ATPDEA in 

the year 2000. But that was always unilateral access that the Colombians enjoyed into the United States. What the U.S. didn’t have 

was reciprocal access into Colombia, and that is what the FTA has 

granted us. 

Now, the Colombian FTA has only been in operation for a short 

period of time. And it always gives me a chuckle when you hear 

the opponents of trade agreements particularly talk about difficulties in, for example, the Colombian agriculture sector and they 

blame the trade agreement with the United States. But the terms 

of implementation of the agriculture provisions in the trade agreement haven’t gone into effect yet because they have been 

backloaded in terms of transition periods, just like we did with 

NAFTA, over a 15-year period. So you get all these complaints 

sometimes about agreements, when, in fact, the agreement isn’t 

even operative in those sectors. 

So Colombia, I think, is a country that we are going to see increasing dynamism. And what the exciting thing has been for that 

particular country is they are actually seeing the trade agreements 

with Canada and the United States and now with the Pacific Alliance and some of the interesting things they are doing in the Pacific not as the endpoint but as the beginning point, the access 

point to the global economy that then allows them to take the domestic reforms they need to on labor rights and on the environment and on education, on innovation, all the things we know so 

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well, and use the trade agreement as really a spur to those broader 

national development goals. 

And, ultimately, I think that is where the people of Colombia 

want to go, and I think that is where the United States would want 

them to go, as well. 

Mr. SIRES. And the South Korea trade agreement, how is that 

doing? 

Mr. FARNSWORTH. I am not an expert there, I am sorry. 

Mr. SIRES. Okay. 

Anybody? 

Okay. Well, I guess we can end it on that. 

Mr. SALMON. All right. 

Well, that concludes our questions. We would really like to thank 

the second panel very much for taking your time. And sorry about 

the hiatus that we just had to endure, but thank you very, very 

much. 

I don’t have any other comments or questions. I am actually 

very, very encouraged that NAFTA has been a very, very phenomenal success and a success that we can build upon with other 

FTAs. So thank you very much. 

And this hearing is concluded. 

[Whereupon, at 4:40 p.m., the subcommittee was adjourned.] 

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A P P E N D I X 

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MATERIAL SUBMITTED FOR THE RECORD BY THE HONORABLE MATT SALMON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ARIZONA, AND CHAIRMAN, SUBCOMMITTEE ON THE WESTERN HEMISPHERE


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