U.S. GOVERNMENT PUBLISHING OFFICE

33–481 WASHINGTON : 2019

MODERNIZATION OF THE NORTH 

AMERICAN FREE TRADE AGREEMENT (NAFTA) 

HEARING 

BEFORE THE

SUBCOMMITTEE ON TRADE 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

JULY 18, 2017 

Serial No. 115–TR01 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

KEVIN BRADY, Texas, Chairman 

SAM JOHNSON, Texas 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

PETER J. ROSKAM, Illinois 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

MIKE KELLY, Pennsylvania 

JIM RENACCI, Ohio 

PAT MEEHAN, Pennsylvania 

KRISTI NOEM, South Dakota 

GEORGE HOLDING, North Carolina 

JASON SMITH, Missouri 

TOM RICE, South Carolina 

DAVID SCHWEIKERT, Arizona 

JACKIE WALORSKI, Indiana 

CARLOS CURBELO, Florida 

MIKE BISHOP, Michigan 

RICHARD E. NEAL, Massachusetts 

SANDER M. LEVIN, Michigan 

JOHN LEWIS, Georgia 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

BRIAN HIGGINS, New York 

TERRI SEWELL, Alabama 

SUZAN DELBENE, Washington 

JUDY CHU, California 

DAVID STEWART, Staff Director 

BRANDON CASEY, Minority Chief Counsel 

SUBCOMMITTEE ON TRADE 

DAVID G. REICHERT, Washington, Chairman 

DEVIN NUNES, California 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

MIKE KELLY, Pennsylvania 

PAT MEEHAN, Pennsylvania 

TOM REED, New York 

KRISTI NOEM, South Dakota 

GEORGE HOLDING, North Carolina 

TOM RICE, South Carolina 

BILL PASCRELL, JR., New Jersey 

RON KIND, Wisconsin 

LLOYD DOGGETT, Texas 

SANDER M. LEVIN, Michigan 

DANNY DAVIS, Illinois 

BRIAN HIGGINS, New York 


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C O N T E N T S 

Page 

Advisory of July 18, 2017 announcing the hearing ............................................... 2 

WITNESSES 

Panel One 

Tom Linebarger, Chairman and Chief Executive Officer, Cummins, Incorporated .................................................................................................................. 7 

Patrick J. Ottensmeyer, Chief Executive Officer, Kansas City Southern ........... 15 

Dennis Arriola, Executive Vice President—Corporate Strategy and External 

Affairs, Sempra Energy ....................................................................................... 37 

Celeste Drake, Trade and Globalization Policy Specialist, AFL–CIO ................. 43 

Panel Two 

Jason Perdue, President of the York County, Nebraska Farm Bureau, Testifying on Behalf of: Steve Nelson, President, Nebraska Farm Bureau ............ 117 

Christine Bliss, President, Coalition of Services Industries ................................ 104 

Stan Ryan, Chief Executive Officer and President, Darigold, Incorporated ....... 88 

Althea Erickson, Senior Director—Global Advocacy and Policy, Etsy, Incorporated .................................................................................................................. 113 

Susan Helper, Frank Tracy Carlton Professor of Economics, Case Western 

Reserve University ............................................................................................... 122 

QUESTIONS AND ANSWERS FOR THE RECORD 

Questions from Representative Brian Higgins of New York to Ms. Celeste 

Drake ..................................................................................................................... 147 

Questions from Representative Lynn Jenkins of Kansas to Mr. Patrick J. 

Ottensmeyer ......................................................................................................... 150 

Questions from Representative Lynn Jenkins of Kansas to Mr. Jason Perdue . 152 

SUBMISSIONS FOR THE RECORD 

American Automobile Policy Council, statement .................................................. 153 

U.S.-Mexico Chamber of Commerce, statement .................................................... 155 

San Diego Regional Chamber, statement .............................................................. 159 

San Antonio Chamber of Commerce, statement ................................................... 161 

QVC, Incorporated, statement ................................................................................ 165 

Pacific NorthWest Economic Region, statement ................................................... 169 

National Foreign Trade Council, statement .......................................................... 175 

MetLife, Incorporated, statement ........................................................................... 183 

Motor & Equipment Manufacturers Association, statement ............................... 187 

Kevin L. Faulconer, Mayor of San Diego, statement ............................................ 191 

Chief Executives of American Companies, statement .......................................... 192 

Florida Fruit & Vegetable Association, statement ............................................... 196 

Distilled Spirits Council, statement ....................................................................... 205 

Consumer Technology Association, statement ...................................................... 215 

Citigroup, statement ................................................................................................ 223 

Chubb Limited, statement ...................................................................................... 225 

Auto Alliance, statement ......................................................................................... 230 

The American Petroleum Institute, statement ..................................................... 235 

American Phoenix Trade Advisory Services PLLC, statement ............................ 238 

TechPolicyDaily, statement .................................................................................... 248 

USKI Washington Review, statement .................................................................... 250 

AdvaMed, statement ................................................................................................ 251 

Acuity Brands, statement ....................................................................................... 258 

American Chemistry Council, statement ............................................................... 263 

American Coatings Association, statement ........................................................... 269 


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MODERNIZATION OF THE NORTH 

AMERICAN FREE TRADE AGREEMENT 

(NAFTA) 

TUESDAY, JULY 18, 2017 

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

The Subcommitteee met, pursuant to notice, at 10:02 a.m., in 

Room 1100, Longworth House Office Building, the Honorable Dave 

Reichert [Chairman of the Subcommittee] presiding. 

[The advisory announcing the hearing follows:] 


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@ 

WAYS AND MEANS 

CHA IRMAN KEVIN BRADY 

Chairman Reichert Announces Hearing on Modernization of the 

North American Free Trade Agreement (NAFT A) 

House Ways and Means Trade Subcommittee Chairman Dave Reichen (R-WA) announced today that 

the Subcommittee will hold a hearing on "Modernization of the Nonh American Free Trade Agreement 

{NAFT A)." The hearing will focus on how high-standard and ambitious trade agreements that when 

thoroughly implemented and fully enforced can open much-needed markets to U.S. agriculture exports 

and benefit rural and urban America. The bearing will take place on T uesday, J uly 18, 2017, in 

room IJOO of the Longworth Bouse Office Building, beginning at 10:00 AM. 

In view of the limited time to hear witnesses, oral testimony at this hearing will be from invited 

witnesses only. However, any individua l or organization may submit a written statement for 

consideration bv the Conun ittee and for inclusion in the orin ted record of the hearine. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit written comments for the hearing 

record must follow the appropriate link on the hearing page of the Committee website and complete the 

infonnational fom1s. From the Committee homepage, htlp://waysandmeans.house.gov, select 

"Hearings." Select the hearing for which you would like to make a submission, and click on the link 

entitled, "Click here to provide a submission for the record." Once you have followed the online 

instructions, subntit all requested infonnation. A TI ACH your submission as a Word document, in 

compliance with the fom1atting requirements listed below, by the close of business on T uesday, July 

25, 2017. For questions, or if you encounte r technical problems, please call (202) 225-3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the oflicial bearing record. As always. 

submissions will be included in the record according to the discre tion of the Committee. The 

Cmmuittee will not alter the content of your submission, but we reserve the right to fonnat it according 

to our guidelines. Any submission provided to the Committee by a witness, any materia ls submined for 

the printed record, and any written comments in response to a request for written comments must 

conform to the guidelines listed below. Any submission not in compliance with these guidelines will 

not be printed. but will be ma inta ined in the Committee files for review and use by the Committee. 
3 

f 

Chairman REICHERT. Well, good morning. The Subcommittee 

will come to order. Welcome to the Ways and Means Trade Subcommittee hearing on modernization of the North American Free 

Trade Agreement. 

Before hearing from our witnesses, I am going to take the time 

to make just a couple of points. Since its entry into force in 1994, 

the North American Free Trade Agreement, or NAFTA, has transformed the United States and North American economy. It has reduced barriers to our exports, and allowed American businesses to 

sell goods and services more freely and competitively to markets 

around the world. NAFTA has given us a huge advantage in creating an integrated production base and supply chain. 

For example, we have improved our competitive edge against 

China, because we can take advantage of our trading partners’ role 

in the production process. We have done so while creating jobs here 

in the United States across all three economic sectors: agriculture, 

services, and manufacturing. 

NAFTA has benefitted my home state of Washington, in particular. Our businesses have exported more than $134 billion in 

goods to Canada and Mexico since 1994, supporting jobs in communities around Washington State. 

Because of the elimination of Mexico’s 20 percent tariff on apples 

and pears through NAFTA, our exports of these products increased 

by 70 percent to Mexico. Now, each year, 15 percent of Washington 

State’s apples and pears are destined for Canada and Mexico. 

Moreover, consumers across Washington and the country are able 

to save costs when they purchase goods from Canada and Mexico. 

Despite its success, NAFTA was negotiated more than two decades ago, when the economic landscape looked very different. In 

1994, the digital economy was in its infancy. Mexico had yet to undertake significant legal and regulatory reforms. And the North 

American supply chain had not yet fully developed. Today’s challenges require new rules, not only to reduce tariffs on our exports, 

but to remove non-tariff barriers, as well. 


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4 

And I am pleased that the Administration’s NAFTA-negotiating 

objectives, which were released yesterday, set a high and ambitious 

bar to address many of these challenges head on. Red tape and 

burdensome customs procedures, the expansion of forced localization requirements, and the restrictions on the flow of cross-border 

data, and inadequate rules governing e-commerce and—are just 

some of the problems Washington’s businesses are facing in today’s 

digital economy. 

Our farmers and ranchers are fighting against the adoption of 

arbitrary sanitary and pseudo-sanitary restrictions not based on 

science and the use of graphic indicators as a form of protectionism. For our dairy producers, we must address Canada’s dairy 

policies, including the national ingredient strategy, which constrain 

our producers from exporting to Canada and around the world. 

The need for modern trade rules is clear, particularly in light of 

our withdrawal from TPP earlier this year. We must continue to 

lead in setting the high standards needed for today’s economy. 

Today we will hear directly from U.S. companies across all sectors about the specific issues they face, how NAFTA has worked for 

them, and how NAFTA can be improved to grow American exports 

and create more jobs here at home. We will explore important 

questions like how NAFTA can better address distortions created 

by state-owned enterprises. 

How can we help our technology sector continue to thrive and 

lead the world in innovation? 

What challenges do small businesses face because of overly-burdensome customs procedures or outdated de minimi thresholds? 

How do we ensure that Mexico applies the benefits of the information technology agreement to U.S. producers? 

And we must be sure to enforce new and current rules and provisions through effective dispute settlement provisions, including the 

proven tool of investor-state dispute settlement. 

It is important that we get this right. A modernized NAFTA 

agreement will serve as a template for future agreements with our 

trading partners, particularly in the Asia-Pacific region, where our 

withdrawal from TPP has left an urgent void. 

Finally, it is vital that any transition to an approved NAFTA be 

seamless. Canada and Mexico remain our number one and three 

trading partners, two of our oldest allies. We will break down the 

remaining barriers in Canada and Mexico, but we must also preserve the good that NAFTA has done in enhancing U.S. strength 

and increasing the competitiveness of the North American trading 

block, as a whole, against the rest of the world. When North America wins, America wins. 

Chairman REICHERT. I will now yield to Ranking Member Bill 

Pascrell for his opening statement. 

Mr. PASCRELL. Thank you, Mr. Chairman. It is an honor to 

work with you. We have worked on many other projects together, 

and they have all turned out pretty good. We will see about this 

one. 

[Laughter.] 

Mr. PASCRELL. Before I start, Mr. Chairman, I want to bring 

your attention to the fact that today is Jason Kearns’s last hearing, 

and as chief trade counsel, 11 years of service to this Committee. 


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I want to thank him. He has been appointed to the International 

Trade Commission. So he used us as a stepping stone for that. 

[Laughter.] 

Mr. PASCRELL. And we wish him the best of luck. 

Chairman REICHERT. I would like to add my congratulations, 

too—— 

Mr. PASCRELL. Sure. 

Chairman REICHERT.—Mr. Pascrell. And did he get approval 

from you before he decided to leave? 

Mr. PASCRELL. Absolutely not. 

[Laughter.] 

Chairman REICHERT. Congratulations, Jason. 

Mr. PASCRELL. Mr. Chairman, I have a different way of looking 

at this than what I just heard from you, with all due respect. 

And on behalf of the Trade Subcommittee’s Democrats, I want to 

thank our chairman for calling this important and much-needed 

hearing on the renegotiation of NAFTA. 

I was—want to thank the witnesses for participating, sharing 

their thoughtful views on what the renegotiation of NAFTA should 

accomplish. I had a chance to talk to a few of you before, and you 

got some great witnesses here. 

It is especially helpful to hear these views, given, in my estimation, the lack of clarity and vision from the Administration thus 

far on what a new NAFTA should look like and should include. 

On June 27th, I testified during the USTR’s public comment period on the Administration—was putting together their negotiating 

objectives at the time. In my testimony I laid out several key priorities to improve outcomes for American families—and I am sure 

that is what everybody in this room is all about—that I think are 

important for any NAFTA renegotiation to focus on. 

And to me, and to Donald Trump, we saw on the campaign trail 

in Wisconsin, Ohio, and Pennsylvania the number-one priority has 

to be jobs and wages here in the United States. 

Well, the Administration published a summary of its negotiating 

objectives through the USTR just yesterday, with little specificity, 

no evidence or indication that they will bring jobs or wage growth 

to the United States. After waffling and contradicting themselves 

throughout the process, we finally have some milquetoast objectives that look like a recycled version of the same old, same old. 

During the campaign, Mr. Trump declared NAFTA ‘‘a disaster.’’ 

He has pointed out that in his words, ‘‘Our jobs are being sucked 

out of our economy’’ in places like Pennsylvania, Ohio, Florida, upstate New York, because our jobs have fled to Mexico and other 

places. That is what he said. He pledged to bring those jobs back, 

and to renegotiate NAFTA to make it a great trade deal. And we 

are all hopeful about that. 

But the negotiating objectives released yesterday recycle many of 

the same policies he railed against in the TPP, an agreement the 

President made a big show out of pulling out of during his first 

week in office. When you go back to that first week in office and 

you see what he said and what occurred after that, well—anyway, 

credit word is due [sic]. 

The Administration proposal would make strides on the issues of 

countervailing duties, which is a good thing, and the treatment of 


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state-owned enterprises, which is a good thing. But those are on 

the margins. The biggest issues impacting jobs and wages in the 

United States are low wages in Mexico and lax labor laws. Currency manipulation abroad and the lack of meaningful enforcement 

are nowhere to be found in these objectives. 

So where are the jobs, and where are the higher wages this 

President promised? I see nothing to indicate that these objectives 

will improve the standard of living in Pittsburgh or Pueblo. 

So, I have introduced legislation, the Jobs and Trade 

Competitives Act of 2017, and I believe stand in sharp contrast to 

the Administration’s weak attempt at trade reform. H.R. 2756 

would crack down on cheating in trade—it is going on; reward insourcing, instead of off-shoring American jobs—absolutely still 

going on; meaningfully combat currency manipulation and make it 

easier for small businesses and manufacturers to bring cases 

against countries that flout the laws and the rules. 

We need—we should talk about how NAFTA can be modernized 

and updated, since it is being renegotiated anyway. But let’s not 

fool ourselves, Mr. Chairman. The real questions we need to be 

asking are the following. 

How do we change the terms of NAFTA to create a—new and 

good-paying jobs? 

How do we change—I am almost done—how do we change the 

terms of NAFTA to raise wages and standards of living in the 

United States? 

How do we change the terms of NAFTA to ensure the benefits 

of trade are shared with working people and middle-class families 

of America? 

And how do we change the terms of NAFTA to ensure the American economy is healthy, vibrant, and sustainable? 

So, I look forward to hearing every one of their testimony, and 

asking these questions about how we make NAFTA, in the President’s word, ‘‘great trade agreement.’’ 

And I thank you, Mr. Chairman. 

Chairman REICHERT. Thank you, Mr. Pascrell. And I want to 

thank the witnesses all for being here today. Your testimony will 

be invaluable, as we move this process forward. All good questions 

that Mr. Pascrell has posed, and some of those questions will be 

posed to you, as to how we might be able to accomplish those 

things. 

And today we have two panels of distinguished witnesses, and I 

will introduce the first panel of four witnesses. 

Now, the first witness is Mr. Tom Linebarger, chairman and 

chief executive officer of Cummins, Incorporated. 

Our second witness is Mr. Patrick Ottensmeyer, president and 

chief executive officer of Kansas City Southern. 

Our third witness is Mr. Dennis Arriola, executive vice president 

for corporate strategy and external affairs of Sempra Energy. 

Our fourth witness is Ms. Celeste Drake, trade globalization policy specialist of the AFL–CIO. 

We welcome all of you and look forward to your testimony today. 

Before recognizing our witnesses, let me note that our time is 

limited, so please limit your testimony to five minutes. And your 

written statement will be made a part of the record. 


ralbany on LAP520R082 with HEARINGS
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Members should keep their questions to five minutes, please. 

And, Mr. Linebarger, you are recognized for your statement. 

STATEMENT OF TOM LINEBARGER, CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, CUMMINS, INCORPORATED 

Mr. LINEBARGER. It is a great honor to be before you today to 

discuss the importance of the North American Free Trade Agreement and the effort to modernize it. 

My name is Tom Linebarger, I am the chairman and CEO of 

Cummins, Incorporated, as well as the international engagement 

committee chair of the Business Roundtable. 

I believe trade expansion and NAFTA are good policy, and my 

support for both has grown even stronger over my career at 

Cummins. As CEO, I am charged with providing opportunities for 

the employees of Cummins, an Indiana-based company that employs 25,000 people in the United States. 

For our employees and our communities, international trade has 

been the single most important contributor to growth and hiring 

for nearly two decades. Currently, 95 percent of the world’s consumers reside outside of the United States. And for Cummins to 

continue to be successful and add new jobs, it is imperative that 

we are able to access these consumers with high quality and competitively-priced products. 

NAFTA and our other free trade agreements have allowed us to 

do just that. One example is the engines we manufacture in Columbus, Indiana for Chrysler’s Dodge Ram truck. Once we manufacture the engine, it is then exported to Mexico, where Chrysler finishes assembly, and then it is imported back into the U.S. for sale. 

The Ram is cost-effective and successful because of NAFTA. Its robust sales have contributed to significant growth and job creation 

for Cummins. At the Columbus, Indiana plant where we build the 

Ram, we have added nearly 100 jobs in the last few years. 

The story of the Ram’s journey is not unique to Cummins. For 

all goods imported from Mexico and the United States, approximately 40 percent of the content originated in the United States. 

Seymour, Indiana is another example of how trade supports 

American cities and towns. Seymour is our global high-horsepower 

engine headquarters. It is also a small town of less than 20,000 

people about an hour-and-a-half south of Indianapolis. And while 

many rural towns are struggling, Seymour is thriving. We have invested more than $300 million to renovate the plant, and we have 

added a cutting-edge technical center there. We now have more 

than 1,300 employees in this community, nearly doubling the number based there just 5 years ago. 

We were able to add jobs and make these investments almost exclusively because of our ability to access international markets. We 

directly export 65 percent of the products made in that plant, and 

another 20 percent are shipped to our plant in Fridley, Minnesota, 

where they are made into power generators and then exported. In 

total, 85 percent of the products made in Seymour are exported, 85 

percent. 

To me, it is simple. When we can trade, we add jobs and invest 

in American communities. Since NAFTA’s bipartisan passage and 

enactment in 1994, overall trade has increased between the United 


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States, Canada, and Mexico. U.S.-manufactured goods exported to 

Canada and Mexico have more than tripled over that period. And 

for Cummins, the two largest importers of our products are now 

Canada and Mexico. 

Prior to the agreement, Mexico was one of the most protectionist 

countries in the world, with automotive imports in New Mexico facing tariffs as high as 20 percent. Mexico also had non-tariff barriers like local content requirements of 80 percent, which all but 

mandated that our production take place within the country’s borders. NAFTA brought down these trade barriers and allowed us to 

avoid duplication of our manufacturing capacity and in our supply 

chain, allowing us to manufacture more in our high-volume U.S. 

plants and purchase more from our 2,500 suppliers based in the 

U.S. 

Today Cummins, Incorporated sells nearly $600 million worth of 

products in New Mexico’s market each year, of which 80 percent 

is manufactured in the United States. We are also the largest engine provider for the on-highway heavy-duty truck market in Mexico. All of these engines are manufactured in our plant in Jamestown, New York. 

It is clear that NAFTA has been a positive force, but we should 

embrace the opportunity to modernize this 23-year-old agreement. 

Improvements could be made by incorporating trade, investment, 

and related regulatory reforms, promoting digital commerce and 

cross-border data flows, ensuring fair competition with foreign, 

state-owned enterprises, and protecting U.S. intellectual property 

rights. 

We also believe that NAFTA’s environmental labor standards 

must be strengthened. 

Mr. Chairman and Members of the Committee, my overwhelming 

support for trade and NAFTA comes from the difference that I 

have seen that it makes for Cummins, our suppliers, our employees, and their families. Thank you for the opportunity to speak 

with you today. 

Chairman REICHERT. Thank you. 

[The prepared statement of Mr. Linebarger follows:] 


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Wt·itten Sta tement by 

N. Thomas Linebarget· 

Chairman & Chief Executive Officet· 

Cummins Inc. 

Rouse Committee on Ways and Means Subcommittee on Trade 

U.S. House of Rept·esentatives 

" Modemization of the Not·th American Free Trade Agreement" 

July 18,2017 

Good Morning, Chairman Reichert, Ranking Member Pascrell, and distinguished members of the 

Subcommittee. It is a great honor to appear before you today to discuss the importance of the 

North American Free Trade Agreement and efforts to preserve and modernize it. 

My name is Tom Linebarger and I am Chainnan and CEO of Cummins Inc. I also serve as Chair 

of the International Engagement Committee for the BusiJJess Roundtable. 

Bac~round 

Cummins Inc. is a nearly one hundred year old company founded and headquartered i.n 

Columbus, Indiana. Since 1919, we've become the largest independent producer of diesel 

engines m the world and we've done this through constant technological im1ovation and by 

bringing our customers the right power solution at the right time for each unique application. 

We also manufactme highly complex componems like turbochargers, fuel systems, ulters and 

aftertreatment systems - all of which has enabled us to build high-perfonning and clean products 

able to meet emission standards anywhere in the world. 

We provide power for a wide range of products mcluding small passenger trucks, tractor-trailers 

that move goods across the country, pick-up and delivery trucks, to transit and school buses. You 

will also und our products in refuse trucks, mining equipment, oil-and gas operations, passenger 

trains, tug boats, and mobile power systems that support our military to critical baclmp power 

systems that keep data centers and hospitals up and running 24 - 7. 

We also provide power to National Landmarks that many of us sec every day, like Wrigley Field 

and the Statue of Liberty. 

We have more than 55,000 employees globally and operate in over 190 countries throughout the 

world. In the United States, we have manufacturing facilities in Indiana, Minnesota, New York, 
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North Carolina, South Carolina, Tennessee, and Wisconsin. In addition to our manufacturing 

operations in the United States, we also own all of our distributor branches with locations in 

almost every state. 

Im ortance of Trade to Cummins and the Business Communi 

I believe trade expansion, in general, and NAFT A are good policy. However, my support for 

both has grown even stronger over my career at Cummins. As CEO, I am charged with providing 

opportunities for the employees of Cummin.s and to help strengthen the communities in which 

we live and work. For our employees and our communities, international trade has been the 

single most important contributor to growth and hiring at Cummins for nearly two decades. In 

the past four years alone, we 've created about 8,000 jobs in the United States, despite very 

challenging economic conditions over that entire span. 

I appear in front of you today to share my perspective on NAFT A, to emphasize the positive 

impact that trade and trade agreements have on American businesses and workers and to offer 

my thoughts on potential areas of modernization. 

Currently, 95 percent of the world's consumers reside outside the United States. For Cummins to 

continue to be successfu.l, add new jobs, and invest in new technologies; it is imperative that we 

are able to access international markets and consumers with high-quality and competitively 

priced products. 

NAFTA and our other free trade agreements have allowed us to do this and over the past decade 

we have added thousands of new, quality American j obs in cities like Minneapolis, MN, and 

Nashville, TN, and more rural locations like Whitakers, NC, Jamestown, NY, and Seymour, IN 

where we make our products. 

Let's take the RAM truck, for example. Cummins manufactures the engine just outside of 

Columbus, Indiana; exports it to Mexico where Chrysler finishes assembly, and then it is 

imported back into the U.S. for sales in North America and other parts of the world. 

The Ram is cost-effective and successful because ofNAFT A. Its robust sales have contributed to 

significant growth and the addition of great jobs at the Columbus plant where the 6.7L RAM 

engines continue to be manufactured today. And just in the past four years, we 've added nearly 

I 00 jobs at this plant. 

The story of the RAM'sjoumey is not unique to just Cummins. On average, of the goods that are 

imported from Mexico into the United States, 40 percent of the content originated from the 

United States. Cummins alone relies on2,500 direct U.S.-based suppliers like Indiana-based 

Batesville Tool and Die or Illinois-based Camcraft - a supplier I will discuss iJt more detail later. 

Seymour, Indiana is another example of how trade injects an incredible stimulus of jobs and 

economic impact to a small town. Seymour is where our global high-horsepower engine 

headquarters is based. Seymour is a small town of less than 20,000 about an hour and half south 

oflndianapolis in the heart of the Midwest. 

2 
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While many surrounding mral communities are struggling, Seymour is thriving. Seymour has an 

incredibly low unemployment rate of about three and a half percent and job growth is at the same 

rate - three and a half percent. Trade is a key contributor to this success. 

Cummins decided to locate our high-horsepower headquarters in Seymour over other 

international locations including India and the United Kingdom because of our access to a great 

American workforce, our ability to access high quality domestic suppliers and proximity to our 

supply chain. 

Since we made that decision, we have invested more than $300 million to renovate the plant and 

added a state of the art technical center. We now have more than 1,300 employees in this 

community - nearly doubling the number based there five years ago. 

We were able to add jobs and make these investments almost exclusively because of our ability 

to access international markets. We directly export 65 percent of the products made in Seymour, 

Indiana to countries across the world and another 20 percent are shipped to our plant in Fridley, 

Minnesota where they arc made into power generators and then exported. This means about 85 

percent of the products made in Seymour are exported. 

Being able to access the 95 percent of consumers that live outside our borders is also critical if 

we want to remain a technology leader. Cummins invests nearly $700 million annually in 

research and development. We are looking at technologies, like electrification, that will ensure 

we will be around for the next 100 years. We are positioned to lead and win because our broad 

and global customer base gives us the scale advantage to make necessary investments to the 

technologies that will carry us into the future. 

There is no question U.S. jobs are reliant on our ability to access international markets. To me it 

is simple - when we can trade, we add jobs and invest in our American communities. 

And it is not just Cummins and its employees that benefit. TI1is fuels related jobs and economic 

growth and allows our employees to improve the community by getting involved in 

organizations like the Community Education Coalition in Seymour, Indiana to build stronger 

education systems and help to ensure that the next generation will have the skills needed for the 

jobs of tomorrow. A modernized NAFTA and other free trade agreements make success stories 

like this possible. 

NAFTA b•·eaks down barriers to create markets for U.S. manufactured wds 

Since NAFTA 's bipartisan passage and enactment in 1994, overall trade has increased between 

all three countries, with U.S. manufactured goods exports to Canada and Mexico more than 

tripling over that period. The two largest importers of Cummins products are Canada and 

Mexico. 

Prior to the agreement, Mexico was one of the most protectionist countries in the world, with 

automotive imports into Mexico facing tariffs as high as 20 percent. Mexico also had non-tariff 

barriers, like local content requirements of 80 percent, whjch all but mandated that our 

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production take place within the country's borders. Additionally, importation of parts faced 

extremely high duties and we were required to export I 07 percent of our imports value to be able 

to import service parts. 

NAFTA brought down these trade barriers and allowed us to avoid duplication of our 

manufacturing capacity to take care of Mexico engine and components demand. We were able to 

close our assembly operations in Mexico and leverage our installed capacity in United States 

therefore increasing our efficiency in United States. 

Additionally, we were able to reduce duplication in our supply base and increase the volume 

purchased from our existing suppliers in United States. Today, Cummins Inc. sells nearly $600 

million worth of products into Mexico's market each year, of which, 80 percent is imported from 

the United States. While we still have a manufacturing presence in Mexico, on average, of the 

goods we ship into the United States from these plants, 60 percent of the raw materials originated 

from the United States. 

Similarly, Canada has proved a strong market for Cummins products. With its extractive 

iJJdustries, remote locations and long distances between major cities, Canada is a top destination 

for many of our larger engines. Just looking at the mining sector, our top 10 mining customers in 

Western Canada bought nearly $77 million of engines, parts and services in 2015. 

United States' Sunnliers Benefit from Trade 

The benefits don't stop directly with Cummins though. Trade bas a positive ripple effect 

throughout the U.S. economy in a supply chain generating billions of dollars in revenue and 

thousands of jobs. Our success also enables our 2,500 domestic suppliers to be more successful 

and create jobs. 

For example, we will purchase more than $15 million in titel system components from Camcraft 

this year, whose facilities are located iJl the western suburbs of Chicago. Additionally, more 

business is being created at Camcraft to suppon our latest technologies and that amount is 

forecast to grow to over $25 million over the next two years. 

Employment at Camcraft has grown to approximately 300 employees with dozens more needed 

to support current growth, half of which are directly supported by products that they supply to 

plants in Mexico for not only Cummins but companies like Caterpillar as well as Tier One and 

Tier Two North American auto suppliers. 

The components we buy from Cam craft are some of the most complicated we design and are 

critical in allowing us to maintain our position as a global leader in meeting the most stringent 

emission and fuel economy standards across all markets. 

Manufact11ring this type of product requires well trained and highly skilled people working on 

the latest machine tool technologies -- these are excellent, high paying jobs that represent the 

best in American manufacturing. Because of the work we've placed at Camcraft along with their 

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other customers, they are now building an additional l 00,000 square foot building in Bat1lett, 

Illinois. 

Camcraft along with its subsidiary, Matrix Design, LLC -- an automation integration company 

located in South Elgin, Illinois -- have added 150 employees over the last four years and now 

employ over 420 people. 

Revenue is up 56 percent since 20 I 0, with forecasted growth of another 20 percent over the next 

two years, and 36 percent of that total shipping to Mexico or Canada. 

Camcraft CEO, Mike Bertsche, recently shared with me that since making their first shipments to 

Mexico in 200 I, Camcraft 's revenue is up 134 percent. Trade agreements like NAFT A and 

others have allowed their sales to expand globally in a fashion that was not available to them 

previously. 

NAFT A Modernization 

As the United States embarks on renegotiating NAFTA next month, it is in1perative we take a 

comprehensive approach to this and other trade expansion tools, because our foreign economic 

competitors are certainly not standing still. Currently, 4 1 million U.S. manufacturing, services 

and other trade-related jobs are tied to internationa l trade. 1l1at's more than one in five jobs. ln 

our own backyard, a Brookings institute led study cited Columbus, Indiana as the single most 

trade dependent community in the United States. 

However, the original NAFT A was negotiated over 20 years ago, and as you are very aware, the 

manner and landscape in which we do business bas changed a great deal since this time. I believe 

we should proactively embrace tbis opportunity to modernize and strengthen NAFTA. At the 

same tinle, we should preserve the existing agreement and not move backwards. 

A modernized NAFTA should incorporate trade, investment and related regulatory refonns in 

Canada and Mexico since its adoption; promote digital commerce and cross-border data flows; 

ensure fair U.S. competition with foreign state-owned enterprises and protect U.S. intellectual 

property rights. 

In a digital age, we think a modernized NAFTA should include provisions that enable crossborder data flows- for all types of data. This will provide Cummins with the most flexibility to 

move telematics (and other) data between the US, Canada and Mexico. An updated NAFT A 

should also prohibit members from forc ing companies to use or locate computing facilities or 

servers within a member country. We also believe it should restrict members from requiring the 

transfer of, or access to, software source code and encryption as a condition lor the import, 

distribution, sale, or use of commercial software in a member cotultry. 

We also believe that NAFTA's environmental and labor standards should be strengthened and 

incorporated into the updated agreement itself. Over the last two decades, other U.S. trade 

agreements have included stronger labor and environmental standards. 

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In addition to the areas I just highlighted, we worked closely with the Business Roundtable to 

develop a more in depth outline of opportunities to modernize NAFT A and have submitted them 

to USTR Robert Lighthizer. 1 have included a copy of tlus letter in this submission, for your 

reference. 

Closing 

Mr. Chainnan, Mr. Ranking Member and members of the Subcommittee, my overwhelming 

support for trade expansion and NAFT A comes from the difference 1 have seen that it makes for 

Cumnuns, our suppliers, our employees and their families. I know that it makes our communities 

and economy stronger. 

It provides high quality jobs at Cummins in communities across the United States like 

Jamestown, New York to Rocky Mount, North Carolina, to Columbus and Seymour Indiana. It 

helps families thrive and it allows our employees to get involved and make these communities 

even better places to live. 

Thank you again, for the great honor and privilege to speak to you all today. If I can provide any 

infonnation to you in the future on behalf of Cummins Inc. or the Business Roundtable, I would 

be honored to discuss this issue or any other issue with you or your staff. 

6 
15 

Chairman REICHERT. Mr. Ottensmeyer, you are recognized for 

five minutes. 

STATEMENT OF PATRICK J. OTTENSMEYER, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, KANSAS CITY SOUTHERN 

Mr. OTTENSMEYER. Good morning. My name is Pat 

Ottensmeyer. I am president and CEO of Kansas City Southern, a 

railroad holding company with operations in the U.S., Mexico, and 

Panama, and headquartered in Kansas City, Missouri since 1887. 

Thanks to the chair, the Ranking Member, and the Subcommittee 

for holding this hearing today. 

Today I also represent the U.S.-Mexico CEO Dialogue Strategic 

Trade Initiative Working Group, of which I am the U.S. chair, as 

well as the Association of American Railroads. 

The CEO Dialogue is a private-sector forum initiated by the U.S. 

Chamber of Commerce and CCE in Mexico to engage U.S. and 

Mexico CEOs on key economic and trade issues. U.S. Secretary of 

Commerce, Wilbur Ross, and Mexico Secretary of Economy, 

Ildefonso Guajardo, spoke to the 8th Semiannual Dialogue on June 

6th, here in Washington. We welcomed their comments, which focused on the need to modernize NAFTA and to do no harm to the 

tremendous benefits that the current agreement provides American 

workers, farmers, and consumers. 

As Congress and the Trump Administration turn their attention 

to modernizing NAFTA, we support their efforts to update the 

agreement. NAFTA is critically important to the U.S. railroad industry, including KCS. According to a study conducted by the AAR 

in March of this year, at least 42 percent of rail carloads, and more 

than 35 percent of annual revenues are derived from international 

trade. 

International trade accounted for $26.4 billion of freight rail revenue and 511 million tons of rail traffic in 2014. During the same 

period, approximately 50,000 rail jobs, which contributed over $5 

billion of annual wages and benefits to the U.S. economy, depended 

directly on international trade. 

Rail movements associated with international trade include virtually every type of commodity railroads haul, and involve every region of the United States. A major shift toward more protectionist 

policies would threaten rail jobs all over the country. 

Treasury Secretary Mnuchin recently stated that, ‘‘We believe in 

free trade. We are in one of the largest markets in the world. We 

are one of the largest trading partners in the world. Trade has 

been good for us. It has been good for other people.’’ We agree with 

that statement. 

In a letter to President Trump dated May 25th, I joined 31 other 

CEOs of major U.S. companies, offering our support to modernize 

NAFTA without disrupting current trade flows and the livelihoods 

of millions of Americans who depend on them. We offered to work 

with the Administration to update NAFTA, expand and promote 

free and fair trade with Canada and Mexico, ensure a level playing 

field, and spur economic growth and job creation for American 

workers, farmers, and businesses. 

We all agree to the following. NAFTA has been good for the U.S. 

and for North Americans’ competitiveness in the world. NotwithVerDate Sep 11 2014 05:27 Feb 26, 2019 Jkt 033481 PO 00000 Frm 00019 Fmt 6633 Sfmt 6602 I:\WAYS\IN\33481\33481.XXX 33481

ralbany on LAP520R082 with HEARINGS
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standing, NAFTA was negotiated almost 25 years ago, so updating 

the agreement for today’s economy is entirely appropriate. Fourteen million American jobs and the livelihoods of millions of American families depend on NAFTA, especially in rural America. The 

Administration should approach negotiations with an emphasis on 

updating the agreement and expanding the opportunities for U.S. 

exports, where there is substantial growth potential. 

There should be a U.S. focus on enhancing the flow of trade 

across our borders, avoiding the high tariff that existed prior to 

NAFTA, and eliminating other trade barriers that preceded 

NAFTA. The following procedures established—and following the 

procedures established in the bipartisan Congressional Trade Priorities and Accountability Act of 2015. 

Negotiations should proceed promptly and trilaterally to avoid 

uncertainty that disrupts supply chain and investment, and should 

use NAFTA’s amended process under Article 2202. 

And again, U.S. negotiators should be careful to do no harm in 

areas beneficial to the U.S., especially to our U.S. agriculture and 

food products exporters. 

In addition, KCS believes the U.S. negotiation should work to 

achieve trilateral uniformity for customs and border control procedures to improve the fluidity and security of export freight movements, and preserve Chapter 11 and ISDS to protect investments 

by U.S. companies like KCS that have created the supply chain infrastructure required to support U.S. exports. 

In the 20 years our company has been doing business in Mexico, we have invested $4.5 billion. There are very significant and growing opportunities to increase U.S. agriculture, energy, petro-chemical, and plastics exports to Mexico. Our company is investing 

money today in Mexico to facilitate and expand liquid fuels exports 

from the U.S. Gulf Coast to Mexico. 

Without the past and future investment in Mexico facilitated by 

NAFTA, these opportunities could not be realized. Chapter 11 of 

NAFTA helps ensure this vital export infrastructure going forward, 

and is a critical element of NAFTA that must be retained. Again, 

thank you for the opportunity to testify and provide written comments. 

Chairman REICHERT. Thank you. 

[The prepared statement of Mr. Ottensmeyer follows:] 


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ORAL TESTIMONY OF PATRICK J. OTTENSMEYER, 

PRESIDENT AND CEO, KANSAS CITY SOUTHE RN, 

MODERNlZA TION OF THE NORTH AMERICAN FREE TRADE 

AGREEMENT 

Befo1·e the 

U.S. House of Rep1·esenta tives Committee on Ways & Means 

Subcommittee on T1·ade 

Hearing Room of 

The House Committee on Ways & Means, II 00 Longworth House Oflice Building 

T uesday, July 18, 2017 

Good moming. My name is Pat Ottensmeyer. I am President and CEO of 

Kansas City Southern, a railroad holding company with operations in the U.S., 

Mexico, and Panama and headquartered in Kansas City, Missouri since 1887. 

Thanks to the Chair, Ranking Member, and Subcommittee for holding this 

hearing. 

Today I also represent the U.S.-Mexico CEO Dialogue Strategic T1·ade 

Initiative W orking G1·oup, of which I am the U.S. Chair, and the Association of 

American Raih·oads (AAR). 

The CEO Dialogue is a private sector forum initiated by the U.S. Chamber 

of Commerce and the Consejo Coordinador Empresarial of Mexico to engage U.S. 

and Mexican CEOs on key economic and trade issues. 

U.S. Secretary of Commerce Wilbur Ross and Mexican Secretary of the 

Economy Ildefonso Guajardo spoke to the eighth semi-annual Dialogue on June 6. 

We welcomed their comments, which focused on the need to modernize NAFTA, 

but to "do no harm" to the tremendous benefits that the current agreement provides 

American workers. farmers. and consumers. 

As Congress and the Trump Administration tum their attention to 

modernizing NAFTA, we support their eflorts to update the agreement. 

NAFT A is critically important to the U.S. rail industry, including KCS. 

According to a study done by AAR in March of this year, at least 42 percent of rail 
18 


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carloads and intennodal units, and more than 35 percent of annual rail revenue, are 

derived from international trade. 

International trade accounted for $26.4 billion of freight-rail revenue and 

511 million tons of rail traffic in 2014. During the same period, approximately 

50,000 rail jobs, which contributed over $5.5 billion in aruma I wages and benefits 

to the U.S. economy, depended directly on international trade. 

Rail movements associated with international trade include virtually every 

type of commodity railroads carry and involve every region of the U.S. A major 

shift toward more protectionist policies would threaten rail jobs all over the 

country. 

Treasury Secretary Mnuchin recently stated that, "We believe in ji-ee trade, 

we are in one of the largest markets in the world, we are one of the largest trading 

partners in/he world, trade has been good for us, it has been good for other 

people." We agree. 

In a letter to President Trump dated May 25, I joined 31 other CEOs of 

major U.S. companies offering our support to modernize NAFTA without 

disrupting current trade flows and the livelihoods of millions of Americans who 

depend on them. We offered to work with the Administration to update N AFTA; 

expand and promote free and fail· trade with Canada and Mexico; ensure a 

level playing field; and spur economic gt·owth and job CI"eation for American 

workers, fanners, and businesses. 

We all agree: 

NAFTA has been genet·ally good for the U.S. and for North America's 

competitiveness in the world. 

• Notwithstanding, NAFTA was negotiated 25 years ago so updating the 

agr eement fot· today's economy is entirely appropriate. 

• 14 million American jobs and the livelihoods of millions of American 

families depend on NAFTA, especially in rural America. 

• The Administration should approach negotiations with an emphasis on 

updnting the ng•·eem ent nod expnnding t he oppot·tunitics for· U.S. 

exports where there is substantial growth potential. 

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• There should be a U.S. focus on enhancing the flow of trade across our 

borde1·s; a voiding the high ta l"iffs and othe1· trade baJTiers that 

p1·eceded NAFT A; a nd following the pmcedures established in the 

Bipartisan Cong•·essional Trade Priol'ities and Accountability Act of 

2015. 

• Negotiations should proceed p•·omptly and tl'ilate•·ally, to avoid 

uncertainty that dismpts supply chains and investment, and should use 

NAFTA's amendment process under Article 2202. 

• And again, U.S. negotiators should be careful to do no harm in a1·eas 

beneficial to the U.S., especially to our U.S. ag•·icultu•·al a nd food 

p•·oducts expo•·ters. 

In addition, KCS believes that U.S. negotiators should: 

• Work to achieve triJate•·al unifo•·mity for Customs and Border Control 

procedures to improve the fluidity and security of export freight movements; 

and, 

• P•·ese1·ve Chapter 11 a nd ISDS to protect investments by U.S. companies 

like KCS that have created the supply chain infrastmcture required to 

support U.S. exports. In the 20 years our company has been doing business 

in Mexico, KCS bas invested $4.5 billion. 

There are very significant and growing oppottunities to increase U.S. 

agricultural, energy, petrochemical and plastics exports to Mexico. Surging 

petroleum, refined petroleum and natural gas product exports to Mexico have 

turned a previous trade deficit with Mexico in these products to a trade surplus. 

KCS is investing money today in Mexico, to facilitate and expand liquid 

fuels exports from the U.S. Gulf Coast to Mexico 

There is also the opportunity for export growth tl-om the substantial 

investment in new ethylene and plastics plants that are currently being built in the 

U.S. Gulf Coast. 

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Without the past and future investment in Mexico facilitated by NAFTA, 

these opportunities could not be realized. Chapter ll ofNAFTA helps insure this 

vital export infrastructure going forward and is a critical element ofNAFT A that 

must be retained. 

Thank you again for the opportunity to testify and provide written 

comments. 

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NAFTA NEGOTIATIONS 

BEFORE THE 

OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE 

REQUEST FOR COMMENTS ON NEGOTIATING OBJECTIVES 

REGARDING MODERNIZATION OF THE NORTH AMERICAN FREE 

TRADE AGREEMENT WITH CANADA AND MEXICO 

COMMENTS OF PATRICK J. OTTENSMEYER 

PRESIDENT AND CEO, KANSAS CITY SOUTHERN 

Hearing Room of 

The United States International Tr ade Commission 

500 E Street SW, Washington, D.C. 

Tuesday, June 27, 2017 

Introduction and Summa1·y 

My name is Pat Ottensmeyer. I am President and CEO of Kansas City 

Southem (KCS), a railroad holding company proudly headquartered in Kansas 

City, Missouri since its predecessor was founded there in 1887. 

KCS thanks the Office of the United States Trade Representative (USTR) 

for holding hearings and soliciting comments on modemization of the North 

American Free Trade Agreement (herein, NAFTA or Agreement). On behalf of 

KCS, I join other U.S. business leaders to encourage the USTR to move promptly 

and trilaterally to modernize NAFTA while preserving the benefits to thousands of 

U.S. businesses and millions of U.S. citizens- particularly U.S. fanners- who 

have prospered due to the tremendous growth in U.S. exports that NAFTA has 

facilitated. KCS particularly encourages the USTR to work to modernize border 

practices to facilitate the flow of goods, and to preserve Chapter 11 protections to 

protect existing investments in Mexico and to encourage the investment that will 

be necessary for the U.S. to capitalize on the transformative export oppornmities 

becoming available in the energy sector. 

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In its growth from a 40-mile local switching railroad in the 1880's to its 

cunent position as a 6,600-mile system connecting the U.S. heartland to markets 

throughout Mexico, KCS has faced many challenges. Our company's history 

teaches that trade brings prosperity to American business, and that opportunities to 

facilitate that trade - such as by modemizing NAFTA - will benefit Americans 

when people of good will put their minds and effort to the task. 

KCS Company History and Role in NAFTA Trade 

In the mid-1990s, KCS faced many challenges as large mergers in the U.S. 

rail industry confronted the company's U.S. rail operation- The Kansas City 

Southem Railway Company (KCSR) - with competitors many times KCSR's size. 

But the completion ofNAFT A in 1994 created new opportunity for the company 

and its shareholders, employees and customers in the ten Midwest and 

Southeastern states that KCSR serves. 

In 1995, KCS entered into an agreement with Mexico-based Gmpo TMM, 

S.A. de C.V. (Grupo TMM) to pursue purchase of the concession of one of 

Mexico's soon-to-be privatized rail lines. Under the agreement, KCS also 

purchased an interest in Mexrail, Inc., owner of The Texas Mexican Railway 

Company (Tex Mex) and the U.S. portion of the lntemational Rail Bridge at 

Laredo. 

Tex Mex operates between Laredo and Corpus Christi, Texas, and provides 

a link between the United States and Mexico via the International Rail Bridge at 

Laredo. Laredo-Nuevo Laredo is t11e principal international gateway through 

which rail and tmck traffic between the United States and Mexico crosses the 

border. 

In 1996, in response to major U.S. rail mergers, the Surface Transportation 

Board granted Tex Mex trackage rights over Union Pacific from Robstown to 

Beaumont, Texas, linking KCS and Tex Mex. Then, in 1997, the Mexican 

government accepted the KCS/Gmpo TMM bid for the Mexican Northeast Line 

rail concession, the premier Mexican rail corridor serving most of the large 

industrial markets in Mexico. This year, KCS celebrates the 201

h anniversary of 

tl1at successful privatization. 

In 2005, KCS acquired Gmpo TMM's interest in the joint venture, making 

the Mexican railroad known as Transpot1acion Ferroviaria Mexicana - TIM - a 

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wholly-owned subsidiary ofKCS. KCS then renamed the company Kansas City 

Southern de Mexico, S.A. de C.V. (KCSM). 

Today, Kansas City-headquattered KCS is a transportation holding company 

that has railroad investments in the U.S. and Mexico, along with a SO% ownership 

interest in the Panama Canal Railway Company. As of December 31, 2016, KCS 

and its subsidiaries employed approximately 6,820 people. 

KCS' North American rail holdings and strategic alliances are primary 

components of a North American railroad system, linking the commercial and 

industrial centers of the U.S., Mexico and Canada. 

The KCSR- Tex Mex - KCSM System 

Source: KCS 

KCS 's North American network is strategically focused on the north/south 

freight cotTidor cotmecting key commercial and industrial markets in the central 

United States with major industrial cities in Mexico. KCSR serves a ten-state 

region in the Midwest and Southeast regions of the United States and has the 

shortest nortl1/south rail route between Kansas City, Missow·i and several key ports 

along the Gulf of Mexico. Meanwhile, KCSM serves most of Mexico's principal 

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industrial cities and three of its major seaports, and provides the shortest, most 

direct rail route between Mexico City and the principal U.S.-Mexico border 

crossing at Laredo-Nuevo Laredo. 

The 6,600-mile KCS rail network (KCSR, KCSM and Tex-Mex) connects 

with all other Class I railroads, providing shippers with an effective alternative to 

other railroad routes and giving U.S. businesses direct access to major markets in 

Mexico. 

Importance of NAFTA to KCS, the U.S. Rail Industry, and 

American Business 

NAFTA is critically important to the U.S. rail industry, including KCS. 

According to an Association of American Railroads study in March of this year 

(AAR Study), at least 35% of U.S. rail revenue is derived from international trade. 

In 2014, railroads handled 329 million tons of exports and 171 million tons of 

imports of many major freight types. 

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Revenue 

($ x billions) 

Tons 

(millions) 

Units 

(millions) 

Freight Freight p t 

M . M . ercen etncs etncs . 

R .

1 T t 1 1 t t. 1 International a1 o a n erna 1ona 

$75.1 

1,879.4 

32.2 

$26.4 

511.0 

13.4 

Source: AAR presentation. 2017 

Consistent with U.S. rail export tonnage exceeding imports, U. S. rail export 

revenue exceeds revenue from imports. 

Carload lntermodal Total 

Import 

Export 

Transit 

Total 

$7.2 Billion 

$9.1 Billion 

$0.5 Billion 

$16.8 Billion 

Source: AAR presentation, 2017 

$5.2 Billion 

$4.2 Billion 

$0.2 Billion 

$9.6 Billion 

$12.4 Billion 

$13.3 Billion 

$0.7 Billion 

$26.4 Billion 

And the AAR Study shows that nearly 29% of U.S. exports, about 68.8 million 

tons, are destined to America's NAFTA partners, Mexico and Canada. 

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Source: AAR presentation, 2017 

The KCS North American rail network is crucial to U.S.-Mexico trade, and 

that trade is crucial to KCS. KCS estimates that close to 40% of its traffic moves 

cross-border, while the remainder is intra-U.S. or intra-Mexico. 

OfKCS's cross-border traffic, about 60% is south bound movements from 

the U.S. to Mexico. These shipments include automotive parts; grain and food 

products; various types of containerized freight (a/k/a intennodal); steel; paper, and 

industrial machinery. KCS cross-border northbound traffic moving includes 

intennodal freight and finished vehicles. 

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KCS Cross-Border Traffic 

Total KCS Cross-Border Traffic 

Includes both: 

• KCS Cross-Border 

• KCS Cross-Border, Interchange 

Volume Breakdown: 

Southbound Movements {60%) 

- Cor Ports (for use in finished vehicles) 

- Groin & Food Products 

- lntermodol 

-Industrial Materials 

Northbound Movements (40%) - lntermodol 

- Finished Vehicles 

Source: KCS 

Not only is international trade impo11ant to rail revenues, it is also crucial to 

good-paying U.S. rail jobs. The AAR Sntdy estimated that industrywide, 50,000 

U.S. rail jobs - worth over $5.5 billion in wages and benefits - depend on 

international trade. 

International trade not only directly supports U.S. rail jobs; it also supports 

massive private infrastructure investment. The AAR reports that from 2010 

through 2016, U.S. railroads invested an average of$25.5 billion per year on 

infrastructure and equipment. Rail, locomotives, new and improved rail cars, and 

sophisticated new signaling systems, are among the many U.S.-produced products 

in which railroads have invested heavily over the past several years. With an 

estimated 35% or more of rail revenue derived from international trade, it is easy to 

see how reducing international trade by rail could lead to billions of dollars in 

reduced domestic capital spending by railroads. 

KCSR is a prime example of trade-driven rail investment. In 2008-2009, 

despite the significant dowmum in the U.S. economy, KCSR invested over $170 

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million in building nearly 90 miles of new rail line between Rosenberg and 

Victoria, Texas. Thousands and thousands of tons of rail from multiple U.S. 

manufacturers; thousands of tons of base rock and ballast quarried in Arkansas and 

Georgia; hundreds of reinforced concrete spans produced in Texas; and steel Hpile and pipe pilings from companies in Arkansas and Texas were among the many 

materials purchased for the project. The new line made international trade quicker 

and more efficient while providing U.S. industry with much-needed work. 

Modernization of NAFTA is a Worthwhile Goal But Cannot Come at the 

Expense of Disrupting These Vital Trade Flows 

Certainly, a 23-year old agreement should and can productively be reviewed 

and updated to include issues not contemplated or included when it was originally 

negotiated; however, this should not come at the ex ense of disru ting vital North 

American trade and its importance to U.S. interests. 

The benefits ofNAFTA to date are undeniable: 

• Over $ltrillion in annual trade, 

• Trade between the U.S. and Mexico has nearly quadrupled since NAFT A 

was implemented, 

• 14 million U.S. jobs are supported byNAFTA, and, 

• U.S. agricultural exports to Canada and Mexico have increased by 350% 

under NAFT A, a bonanza for U.S. fanners and ranchers. 

Canada and Mexico are the top two export destinations for U.S. small and 

medium-size enterprises, more than 125,000 of which sold their goods and services 

in Canada and Mexico in 2016. 

In the critical agricultural trade, NAFT A has promoted trade specialization 

where each country maximizes the benefits of its own agricultural production 

advantages, benefitting consumers in all of North America. 

• U.S. exports are concentrated in grains, meat and oilseeds, produced 

efficiently by highly-automated U.S. farms, accounting for 50% of 

agricultural exports to Mexico 

• Nearly 50% of Mexico's agricultural exports to the U.S. are fruits and 

vegetables, products that are labor-intensive to grow and harvest and are 

therefore well-suited to Mexico's labor market 

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US agricultural exports to Mexico 2016 

$18 billion 

US agricultural imports from Mexico 2016 

$24.8 billion 

Soutce: Ken Sn:li1h Ramos ptesenlalion, Secre1aria de Economia Mexico, May 2017 (USDOC. 

Agricuhural pi·oducis include chap1ers 1-24 HS 

Interruption of this crucial NAFT A benefit would especially bann rural counties 

across America where U.S. agricultural and food exports sustain producers and 

rural communities. 

The map below shows how dependent U.S. counties are on NAFTA-enabled 

trade expressing U.S. exports as a proportion of the local county economy. Rural 

agricultural and Midwest manufacturing counties, in addition to the border state 

counties, are the most dependent on NAFTA as a portion of their local economy. 

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, 'rr How dependent counties are on trade: Exports as a proportion ol the loeal economy 

(. ···~·' ,~: :>.·.:. . . '0 • • • . o• . . .. 

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areas 

end 

have 

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tiestoexpott$:3.8ml!lloojolloend 

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.. : • .. : _: ';; ~?-' Thehlstoricc:oreofAmerioa~M~• . • • • • • • o /T ondustry ....,,., Oelro .. till • .•• .,? • • : • • • • •• 0 : • • -":' "'!'").. "· t- oontalnsmanyoountteswith • r 

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· ·. ~;-~o.·· ~::~./~~j ·- ';i'. A ~<e.- es.Jet . ().· . ' ~~ I I...D' enCfnos, e!eotronlcs · : o· Houltoa Florid$ tOI.rism dw&d$ • and DMtmaoeulieaiS. 

ltado«tmdbu51nes$es 

and jobs. But even In the 

Shadow ot attraetiOt$ such l.ari 

as Disney Wortd. Cldvan::ed P • 

ma""""'urioeb erowlnc, 

Source: The Washington Post, "The r>laces in America most exr>osed to 

a trade war• 2/7/2017 

directly related to export actMly in 2015 

As U.S. Commerce Secretary Wilbur Ross 

observed at the June 6, 2017 U.S.-Mexico CEO 

ioo to mo<e than ~2 jobsd LoMthllna% 

---

Dialogue in Washington, D.C., there are "blameless" and "blameful" contributors 

to trade deficits. "Blameless" contributors to a trade deficit are those commodities 

that flow as imports due to a natural disadvantage or inability of the importing 

country to produce competitively. "Blameful" contributors are those that cause 

imports or prevent exports due to unfair trade practices, unfair tariffs, subsidies, or 

other govenunental practices that disadvantage one country to another. 

This distinction is very important and Secretary Ross' observation of it, very 

astute. ln NAFTA modernization, the U.S. must focus on the "blamenli" 

contributors to trade practices while holding harmless the "blameless" contributors 

to trade deficits, especially for agricultural and food trade. 

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High Level U.S. Negotiation Objectives 

Because NAFT A has been crucial to growing U.S. trade, particularly for 

agriculture and small U.S. businesses, I have joined 31 other CEOs of major U.S. 

companies in a letter to President Trump (attached) outlining our support for the 

Administration's efforts to modernize the Agreement. In that letter, we offer to 

work with the Administration to promote free and fair trade with Canada and 

Mexico, ensure a level playing field, and spur economic growth and job creation 

for American workers, fanners, and businesses. 

I join these other U.S. business leaders in offering the following high-level 

objectives for the United States' strategic approach to updating NAFTA: 

First, U.S. negotiators should build on the elements of our trading 

relationship that are already working well. They should enhance the job-sustaining 

flow of trade across our borders, which has reached $ 1.3 trillion annually. 

Returning to the high tariffs and other trade barriers that preceded NAFTA is not in 

the interests of U.S. workers, fanners, and exporters. 

Second, as Secretary Ross and others have pledged, the administration's 

pursuit of negotiations following the procedures established in the Bipartisan 

Congressional Trade Priorities and Accountability Act of2015, known as TPA, 

will provide a more predictable environment for business. Pursuing the TP A 

statute's negotiating objectives and following its consultation procedures will build 

broader support in Congress and the U.S. business and agriculture communities for 

this effort. 

Third, it is in the U.S.'s interest for the Administration to proceed quickly 

and trilaterally. Uncertainty about the future of America's tenns of trade with 

Canada and Mexico would suppress economic growth and may cause political 

reactions that undennine U.S. exporters and their significant growth opportunities 

in these markets. Further, maintaining NAFTA's three-party framework is critical 

to ensure a strong, profitable market for U.S. exports and to avoid disrupting the 

substantial existing flow of commerce and the American jobs that depend on it. 

Finally, to the extent possible, U.S. negotiators should try to achieve 

trilateral uniformity for Customs and Border Control, Agricultural, and other 

border crossing procedures to further improve the fluidity and security of freight 

moving across the U.S. and Canadian and Mexican borders. More specifically, 

KCS would strongly support the harmonization and mutual recognition of rail 

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regulations at the southern border as has been done at the northern border. The 

ability for citizens of the United States and Mexico to operate trains across the 

southern border similar to what is allowed at the north em border with citizens of 

the United States, Canada is very important for future capacity, fluidity, security, 

and growth in U.S. exports to Mexico. Coordination of operational protocols 

between U.S. CBP and Mexico SAT that includes unified cargo processing and 

investment in new technologies that maintain security at the southern border while 

also allowing for the increased fluidity of trade can be done in the near term and is 

important to U.S. export markets. 

Preserving Chapter 11 and ISDS: CJ"itical for U.S. Foreign Investment; Most 

Impot·tant to Retain in NAFTA 

Retaining NAFTA 's investment protections is critical for U.S. companies 

with foreign investment like KCS. Under NAFT A, the governments of Canada 

and Mexico agreed to investment rules that guarantee U.S. investments will not be 

subject to discriminatory treatment and will be compensated in the unlikely event 

of expropriation. Enforcement of these obligations through Chapter ll 's investorstate dispute settlement (ISDS) provisions is critical to establishing a neutral set of 

arbiters to uphold these provisions agreed to under the Agreement. 

The Chapter II investment protections are consistent with the due process 

protections guaranteed in the U.S. Constitution. Decisions that result from 

investment arbitration cannot overturn the policy decisions, Jaws, or regulations of 

any country. All such decisions can do is award compensation when a government 

expropriates property or otherwise tramples on the rule of law. Under trade or 

investment agreements the United States has entered into with 54 countries, just 13 

disputes have been brought against the United States and decided over the past half 

century, and the United States has not lost a single one. 

ISDS protects U.S. companies from foreign governments' arbitrary actions. 

It has been invaluable to U.S. companies and their predominantly U.S.-based 

shareholders who otherwise would have been subjected to expropriation or 

discriminatory treatment simply on the basis of their nationality. U.S. firms have 

won compensation under ISDS in disputes from Venezuela to Canada. Attempts 

by NAFTA partners to eliminate or change ISDS and its investment protections 

would deny an important mechanism for settling investment disputes and benefit 

no one but foreign governments engaging in discriminatory practices against U.S. 

companies. 

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Foreign investment protection and ISDS have earned strong congressional 

support through their inclusion in the TPA. In fact, an attempt to alter this 

particular congressional priority by amendment was soundly defeated in the Senate 

by a vote of 39-60. 

U.S. negotiators must protect U.S. foreign investment in production because 

production needs to be proximate to consumer markets and because U.S. 

investment in foreign transportation infrastructure facilitates U.S. exports. 

Over the 20 years that KCS has been invested in its Mexican concession, it 

has invested over $4.5 billion to make sure that rail network is reliable and 

efficient, prepared to deliver U.S. exports to Mexico and service growing Mexican 

industry. This investment is critical if the U.S. is to continue to grow its exports to 

Mexico. Any loss of foreign investment protections provided by NAFT A could be 

devastating to existing U.S. foreign direct investment in Mexico, would chill any 

future investment and would prevent full realization of the Mexican market for 

U.S. exports. 

Existing U.S. Agricultund, Petroleum, and Plastics Export Oppo1·tunities 

Tm·n Trade Deficit into Surplus 

KCS believes there are very significant and growing opportunities to 

increase U.S. agricultural, energy, petrochemical and plastics exports to Mexico. 

Surging petroleum, refined petroleum products and natural gas product exports to 

Mexico have n1rned a previous trade deficit with Mexico in these promising 

products to a trade surplus. Mexico's ambitious reforms to liberalize its energy 

sector provide the U.S. great growth opportunity in energy and finished petroleum 

product exports. In the U.S. Gulf region alone, there has been investment of $169 

billion in ethylene and plastics plants, where new U.S. job creation from U.S. 

refined petroleum exports to Mexico is significant. 

The U.S. trade balance with Mexico in petroleum, gas and refined products 

has gone from deficit to surplus in less than ten years. As the chart below 

demonstrates, the shift from deficit to surplus in energy-related trade with Mexico 

has, alone, caused a net reduction of nearly $45 Billion in the total trade deficit 

with Mexico. 

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• Pdro~um and coal products (~ in~d) (NAICS 324) 

\All/Ions of U.S. dollotS • Oil and a as (unr fm ) (NAICS 211) 

• Total Trad~ Balance In P~tro~um, Nat ural Gas, and R~fin~ Products 

This surplus is expected to continue to grow in the near future, creating a 

huge opportunity for U.S. energy products to completely reverse the future balance 

of trade between the U.S. and Mexico. The Energy Infonnation Administration 

reports that the U.S. is the source for most of Mexico's refined petroleum product 

imports, while at the same time being the destination for most of Mexico's crude 

oil exports. 

Recognizing that it lacked the refinery infrastructure necessary to meet its 

growing demand for refined energy products, Mexico developed legislation that 

put into motion a process that will culminate by 2018 in the country's energy 

markets being fully open to foreign investment. The importation ofrefmed energy 

products, i11C!uding gasoline and diesel badly needed in Mexico and which the U.S. 

will supply, is made possible through this investment. 

To facilitate this export growth, KCS joined its partners Watco and WTC 

Industrial in November 2016 to announce a joint venn1re investment in Mexico 

which will facilitate and expand the exportation of liquid fuels from the United 

States to Mexico. The joint venture comes as a direct result of energy reform 

legislation passed in Mexico in 2013. 

The joint venture partners will invest approximately $45 million in the first 

phase of the project, which is expected to be completed in the second quarter of 

2017. It is projected that the tenninal project will eventually include a storage 

facility that would provide for the efficient movement of dedicated, "unit train" 

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quantities of refined products from U.S. Gulf Coast refineries to meet the needs of 

the large and growing industrial and consumer markets in Central Mexico. 

Without the past and future investment in Mexican rail infrastructure, these 

opportunities could not be realized because these U.S. products could not get to 

Mexican consumption markets. Without Chapter I I under NAFTA, future 

investment in this vital export infrastmctme would be uncertain. Chapter II and 

ISDS are critical to this investment. Investment protection is the most important 

need to retain in NAFT A. 

CONCL USION 

NAFT A was negotiated 25 years ago. That alone gives rise to reviewing the 

Agreement and updating it for today's economy. The Agreement has been 

generally good for the U.S. and North America's competitiveness in the world; 

however, it can be made stronger, modernized and more inclusive of economic 

activity than it was 25 years. 

KCS supports the Administration's notice of intent to enter into negotiation 

with Canada and Mexico to update and amend the Agreement, but modernization 

catmot come at the expense of disrupting the trade flows that are vital to U.S. 

exporters, most notably U.S. agricultural exporters. To do so would impose a 

severe penalty on the 14 million American jobs that depend on the Agreement and 

the livelihoods of American families who depend on those jobs. This is especially 

true in rural America. 

We urge the Administration to approach negotiations with our North 

American partners with a positive attitude, focused on expanding trade, especially 

exports from the U.S. including petroleum and plastics. 

We believe the focus should be on enhancing the job-sustaining flow of 

trade across our borders; avoiding the high tariffs and other trade barriers that 

preceded NAFT A; following the procedures established in the Bipartisan 

Congressional Trade Priorities and Accountability Act of2015; and proceeding 

quickly and trilaterally. U.S . negotiators should be careful to do no hann to the 

critical trade among the NAFTA trading partners that is so vital to U.S. exporters 

today, especially U.S. agricultural and food products exporters. 

We believe U.S. negotiators should try to achieve trilateral unifonnity for 

Customs and Border Control, Agricultural, and other border crossing procedures to 

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improve further the fluidity and security of freight moving across the U.S. and 

Canadian and Mexican borders. 

Finally, we believe preserving Chapter 11 and ISDS are critical for U.S. 

foreign investment. Retaining the NAFT A's investment protections is critical for 

U.S. companies with foreign investment like KCS, whose investments are essential 

to facilitation of existing, new, and growing U.S. exports. 

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Chairman REICHERT. Mr. Arriola, you are recognized for five 

minutes. 

STATEMENT OF DENNIS ARRIOLA, EXECUTIVE VICE PRESIDENT, CORPORATE STRATEGY AND EXTERNAL AFFAIRS, 

SEMPRA ENERGY 

Mr. ARRIOLA. Chairman Reichert, Ranking Member Pascrell, 

and Members of the Subcommittee, thank you for this opportunity 

to testify. My name is Dennis Arriola, and I am the executive vice 

president of corporate strategy and external affairs for Sempra Energy. 

Sempra is a San Diego-based, Fortune 500 energy company with revenues of over $10 billion, and a market capitalization of approximately 28 billion. Our more than 16,000 employees serve approximately 32 million consumers, worldwide, and we do business in the 

U.S., Mexico, Chile, and Peru. 

In Mexico, our business includes IEnova, one of the largest private energy companies in the country. We own and operate natural 

gas and liquids infrastructure, as well as renewable generation. We 

are the largest private natural gas pipeline company in Mexico, delivering much of the U.S. gas in Mexico. And as of 2016, we have 

invested more than $7 billion in Mexico. 

On both sides of the border, these investments have generated 

hundreds of new jobs, good-paying jobs for engineers, operators, accountants, IT professionals, and others. And these investments 

have also improved the environment in both countries. 

NAFTA has been a big win for the U.S. energy sector. It has 

helped create a robust, integrated North American energy market 

that supports U.S. jobs and strengthens our energy security. U.S. 

trade with Canada and Mexico and energy commodities, including 

electricity, liquid fuels, and natural gas exceeds $140 billion annually. And last year, the U.S. enjoyed a trade surplus in energy with 

Mexico of more than $11 billion. The United States exported more 

than 20 billion in energy commodities to Mexico, and imported less 

than 9 billion. And of the 20 billion in U.S. exports, natural gas accounted for nearly 4 billion. 

Mexico accounts for nearly 60 percent of all U.S. natural gas exports, and we are just at the beginning to tap the potential of the 

U.S.-Mexico energy trade. Mexico’s natural gas imports, for example, are expected to double in just the next five years. And per capita electricity consumption in Mexico is expected to double during 

the next 25 years. 

Energy investments in Mexico, like ours, support many U.S. jobs, 

both directly and through U.S. shale energy development. And by 

enabling cross-border transmission, these investments also support 

domestic electric grid reliability among both borders. They also reduce greenhouse gas emissions, and they meet other local pollution 

challenges in Mexico. 

And a growing energy trade partnership is a win-win outcome for 

both the U.S. and Mexico and Canada. It increases jobs and investments in all countries. And as you prepare to modernize NAFTA, 

we urge Congress and the Administration to follow this basic guiding principle: maintain the existing benefits of NAFTA while improving it in ways that expand trade and investment. 


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My written testimony highlights four critical benefits that we believe must be maintained. But right now I want to focus on just 

one in particular: strong investment protection for cross-border 

projects and investments, enforceable by investor-state dispute settlement, or ISDS. 

Now, why is this important to a U.S. company? Our projects require Sempra to invest hundreds of millions of dollars, often in 

countries where the legal regimes are not as developed as the U.S. 

We need confidence that our company and our investments will be 

treated fairly over the long term. The investment protections in 

NAFTA and other U.S. free trade agreements enable us to mitigate 

this risk, expand our business, and compete for global customers. 

ISDS provides a neutral forum to hear claims for the breach of 

the agreement. And even if ISDS is never used, it serves as an important insurance policy. The investment protections in NAFTA 

and other FTAs provide U.S. investors with the same substantive 

rights in foreign markets that foreign investors enjoy in the U.S. 

under federal law. 

In addition to maintaining existing benefits, we offer four recommendations to further strengthen NAFTA. 

First, we urge that the text of the NAFTA be amended to reflect 

the current level of market openness. As you will recall, the energy 

markets were not open to U.S. and foreign investors in 1994. So 

we need to make sure that we lock in this new and improved level 

of market access. 

Secondly, NAFTA’s investment protection should be expanded to 

cover so-called investment agreements consistent with other U.S. 

free trade agreements. 

Thirdly, NAFTA should include a so-called tale of investment 

protection if the agreement were ever terminated. 

And fourthly, NAFTA should be modernized to increase regulatory coordination in the energy sector, particularly with respect 

to cross-border infrastructure investments. 

In conclusion, Mr. Chairman, NAFTA has been an enormous benefit to the U.S. energy industry. If negotiations can preserve these 

benefits while finding consensus to modernize and improve the 

agreement, North America will become an even more integrated 

and powerful energy market in the years to come, and this is going 

to benefit U.S. workers, our economy, the environment, and consumers. 

Thank you very much. 

Chairman REICHERT. Thank you. 

[The prepared statement of Mr. Arriola follows:] 


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Testimony of Dennis An ·iola, Executive Vice Pt·esident, Sempra Enet·gy 

Befot·e the Ways and Means Subcomotittee on Trade 

Hearing on "Modemization of the Not·th American Free Tt·ade Agreement (NAFTA)" 

J uly 18, 2017 

Chairn1an Reichert, Ranking Member Pascrell, thank you for this opportunity to testify about 

the upcoming renegotiation of the North American Free Trade Agreement. My name is Dennis 

Arriola, and I am Executive Vice President, Corporate Strategy and External Affairs, for Sempra 

Energy. 

Scmpra Energy, based in San Diego, is a Fortune 500 energy services holding company with 

2016 revenues of over $10 billion. The Sempra Energy companies' more than 16,000 employees 

serve approximately 32 million consumers worldwide. Sempra Energy is organized into two 

operating groups: Sempra Utilities and Sempra Infrastructure. 

Sempra Utilities includes Southern Califomia Gas Company (SoCaJGas), San Diego Gas & 

Electric (SDG&E) and two South American electric utilities. SoCalGas has the largest customer 

base of any U.S. natural gas distribution utility, providing safe, reliable and affordable service to 

about 22 million consumers. SDG&E is an electric and gas utility that provides safe and reliable 

energy to more than 3.5 million consumers in San Diego and southern Orange Counties. 

Sempra Infrastructure includes Sempra Mexico, Sempra LNG & Midstream and Sempra 

Renewables. Sempra LNG & Midstream develops and builds liquefied natural gas facilities, 

midstream natural gas infrastructure and natural gas storage. Sempra Renewables is a leading 

U.S. developer and operator of renewable energy with joint or solo ventures holding nearly 2,400 

megawatts of solar and wind capacity nationwide. 

Sempra Mexic-o includes IEnova, one of the largest private energy companies in Mexico. 

IEnova's footprint in Mexico spans several lines of business: natural gas transportation, 

distribution, and storage; electricity generation (natural gas, wind and solar); and liquids storage 

and transportation. IEnova is the largest private natural gas pipeline company in Mexico, 

facilitating most of the U.S. gas deliveries into Mexico. As of2016, we have almost 900 

employees working there and we have invested more than $7 billion dollars. 

Our investments in Mexico have made excellent business sense for Sempra Energy. Our 

expansion of investment io energy infrastructure in Mexico is one oft he key contributing factors 

to an approxinlate 45 percent increase in Sempra Energy's market capitalization over the past 

four years - from approximately $19 billion to $28 billion. This has translated to hundreds of 

new jobs on both sides of the border---good paying jobs for engineers, operators, accountants, 

lawyers and others. 

Investing in Mexico has also been a natural geographic extension of our business. Our San 

Diego operations share a border with Mexico. We are tied together economically, 

environmentally and culturally. We built the region's first cross-border energy ties in 1983. We 

installed air-quality monitoring equipment to establish a clean air baseline for our region. We 

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enabled the conversion of Mexican power plants near our border to run on cleaner-burning 

natural gas instead of heavy fuel oils. Also, in 1995, we earned the ftrst license awarded to a 

private company to build and operate local natural gas distribution utilities. Sempra 's dynamic 

growth has been fueled, in part, by NAFT A, and we a1·e glad that the Subcommittee bas included 

a focus on cross-border energy in this hearing. 

NAFT A and Energy 

NAFTA has been a big win for the U.S. energy sector. It has helped to create a robust and 

integrated North American energy market that supports U.S. j obs and strengthens our energy 

security. U.S. trade with Canada and Mexico in energy commodities, including electricity, liquid 

fuels, and natural gas, exceeds $140 billion annually. 

As Sempra operates in the U.S. and Mexico, I will focus my comments on the importance of 

NAFTA to energy trade between these two partners. Last year, the U.S. enjoyed a trade surplus 

in energy commodities with Mexico of more than $11 billion, with more than $20 billion in U.S. 

exports to Mexico and less than $9 billion in U.S. imports from Mexico. Of the $20 billion in 

U.S. exports, natural gas accounted for $3.7 billion, and was accounting for nearly 60 percent of 

all U.S. natural gas exports. 

As impressive as these numbers are, however, we are just beginning to tap the potential of 

U.S.-Mexico energy trade. Mexico's natural gas imports, for example, are expected to double in 

just the next ftve years. Mexico's per capita electricity consumption, which is only one-third the 

OECD average, is projected to double during the next 25 years. With respect to renewables, 

Mexico has a target of 35 percent of electricity generation from clean energy by 2024. 

Sempra's investments in Mexico througj1 IEnova support many U.S. jobs, both directly and 

more broadly through U.S. shale energy development. These investments have supported 

domestic electric grid reliability in both California and Texas. And our investments help address 

greenhouse gas and local pollution challenges in Mexico by using clean natural gas for electric 

generation, and introducing more solar and wind resources. A growing energy trade partnership 

is a win-win outcome for both the U.S. and Mexico. 

Sempra and other U.S. energy companies are well positioned to meet Mexico's rising 

demand for energy. As the two countries prepare to re-open NAFT A, we urge Congress and the 

Administration to follow this guiding principle: maintain the existing benefits ofNAFTA while 

improving it in ways that expand trade and investment. 

Maintain Existing NAFT A Benefits 

For Sempra and other energy companies, four critical benefits must be maintained: 

• zero tariffs on all energy goods, including electricity and natural gas; 

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open markets and non-discriminatory treatment for energy services and investment, 

including power generation and transmission; 

• strong iJwestmeot protections for cross-border projects, enforceable by Investor-State 

Dispute Settlement (ISDS); and 

• a provision that locks in market opening reforms, including in the energy sector, that 

Mexico has enacted since NAFTA was signed, kJ1own as " the ratchet." 

Let me take a moment to focus on the last two points, beginning with investment protection. 

For our U.S. LNG business, Sempra serves foreign markets by investing in the construction of 

U.S. pipelines and U.S. Jjquefaction facilities and exporting U.S. natural gas. But for our 

intemational electricity and natural gas businesses, like the ones we have in Mexico, we cru1 

serve foreign markets only if we are present in those markets. We must go where the resources 

and markets are located, build the generation, transmission, and distribution facilities, and supply 

electricity and natural gas to local customers. This is not about transferring jobs from the U.S. to 

Mexico, Ibis is about growing investment that benefits the economies of both countries. 

Such projects require Sempra to invest hundreds of millions of dollars, often in countries 

where the legal regimes are not as developed as the U.S. The investment protections in NAFTA 

and other U.S. free trade agreements enable us to mitigate this risk, expand our business and 

compete tor global customers. They provide Sempra and other U.S. investors with reciprocal 

rights in foreign markets that foreign investors enjoy in the United States under federal law: nondiscriminatory treatment, compensation in the event of expropriation, and due process. 

ISDS provides a neutral forum and an in1partial arbitral tribunal to hear claims for breach of 

the agreement. Even if a company never files a claim, the existence of these protections, and the 

availability of ISDS, is an essential insurance policy. That is why we strongly urge that they be 

maintained. 

I also mentioned the so-called ratchet mechanism. This is a technical provision, but very 

important. It states that if a party opens its market after NAFT A enters into force, then the 

party's NAFTA commitment "ratchets up" to this new level of market openness. If the party 

subsequently restricts such access, it would be in breach of its NAFT A commitments. 

When NAFTA was negotiated in the early 1990s, much of the Mexican energy sector was 

effectively closed to U.S. and other foreign companies. In 20 13, however, Mexico amended its 

constitution and enacted legislation to reforrn the energy sector and welcome increased toreign 

investment. The ratchet mechanism captures these refomlS and affords protection against them 

being reversed. 

Modernize NAFTA in Ways that Expand Trade and Investment 

In addition to maintaining existing benefits, the NAFT A renegotiation affords an opportunity 

to strengthen and improve the agreement. In this regard, we offer tour recommendations. 

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First, while the ratchet mechanism captures Mexico's refom1s, the text of the agreement 

should be amended to reflect the current level of market openness. In particular, Mexico's broad 

exception for energy should be removed and replaced with a short and specific list of exceptions 

for those areas of energy taw that rema in inconsistent with the NAFTA obligations. As 

compared to the ratchet alone, a specific list of exceptions detines more precisely the scope of 

Mexico's obligations and provides a roadmap for further liberalization. 

Second, NAFT A should be amended to cover so-called investment agreements, consistent 

with other U.S. free-trade agreements. An investment agreement is a type of contract between 

investors and the host government, such as a contract to develop natural resources or supply 

services to the public, such as power generation or distribution. The investor may bring a claim 

in ISDS for simple breach of contract, even if the action would not constiUlte a breach of 

standards of treatment in the free-trade agreement itself. 

Third, the AdministTation could strengthen NAFTA by adding a so-called "tail" of 

investment protection if the agreement were ever tenninated. Most free-trade agreements 

include such a provision that continues to apply the tenus of the chapter for a period of time 

(usually ten years) after the agreement is tenninated. This assures investors that the legal 

protections and enforcement mechanisms that might have been an in1portant factor in their 

deciding whether to invest wilt not be suddenly withdrawn. 

Fourth, the Administration could strengthen NAFTA by increasing regulatory coordination in 

the energy sector, particularly with respect to the cross-border infrastructure process. White each 

of the NAFT A parties may reserve the right to approve such projects, they could agree on 

guidelines for decision-making criteria, consultation procedures, and standard timelines. From 

our own experience witb both cross-border transmission and gas pipetine infrastructure, we 

believe more North American energy integration from pipelines and transmission lines is 

mutually beneficial to all three countries. 

Conclusion 

Mr. Cbainnan, NAFTA has been an enonnous benefit to the U.S. energy industry. If 

negotiators can preserve these benefits, while finding consensus to modernize and improve the 

agreement, North America will become an even more integrated and powerful energy market in 

tbc years to come. And this wilt benefit U.S. workers, our economy and the environment. 

Thank you for this opportunity to testify, and I look forward to your questions. 

4 
43 

Chairman REICHERT. Ms. Drake, you are recognized. 

STATEMENT OF CELESTE DRAKE, TRADE AND 

GLOBALIZATION POLICY SPECIALIST, AFL–CIO 

Ms. DRAKE. Thank you. Good morning, Chairman Reichert, 

Ranking Member Pascrell, Members of the Committee. I am 

pleased to testify about NAFTA on behalf of the American Federation of Labor and the Congress of Industrial Organizations, representing 12.5 million working people in every sector of our economy, from mining to retail, agriculture, manufacturing, transportation, and construction. 

While CEOs and global corporations have generally benefitted 

from NAFTA, it has failed the working people of North America. 

While it has increased the amount of trade between the U.S., Canada, and Mexico, it has also cost jobs, depressed wages, weakened 

worker negotiating power, and destabilized communities in all 

three countries. 

Trade deals will always be disruptive, both creating and destroying jobs. But NAFTA’s rules have redistributed income upwards, 

providing rewards to the wealthiest and the most powerful, while 

making it tougher for the rest of us to succeed. Trade does not inevitably have to redistribute income in this manner. So if we 

change the rules, we can change the outcomes. And that is why today’s hearing is so important. 

All working families in North America will benefit from a 

NAFTA that puts more jobs, higher wages, a clean environment, 

and a stronger democracy at its core. There is risk here. Renegotiating NAFTA in the wrong way could make the largest Wall Street 

firms, the biggest pharmaceutical companies, and those who profit 

from abusing immigrant labor even more powerful. The wrong 

rules could make it harder for working families to rise. 

But there is a great opportunity, as well. An open, democratic, 

and participatory negotiating process could create a continent-wide 

foundation for inclusive and sustainable growth that uplifts families through rewarding and secure jobs. 

The AFL–CIO submitted nearly 50 pages of comments on 

NAFTA renegotiations to USTR, and I will highlight some of the 

most critical recommendations here, and note that the objectives 

published yesterday lack both the ambition and the specificity that 

we had hoped for. 

First, eliminate the private justice system for foreign investors 

known as investor-to-state dispute settlement. ISDS allows foreign 

investors to challenge local state and federal laws before private 

panels of corporate lawyers. This private justice puts corporate 

rights ahead of our democracy, and amounts to little more than 

crony capitalism. It is a subsidy for companies that choose to offshore, paid for by North American families, whose taxes fund the 

lawyers, arbitrators, and winnings awarded. Scrapping ISDS will 

help level the playing field for small, domestic firms and their employees, while leaving those who want to invest abroad free to do 

so. 

Next, replace NAFTA’s labor and environment side deals with effective, binding rules in the core text. NAFTA’s side agreements 

were not designed to raise standards. They were hastily patched toVerDate Sep 11 2014 05:27 Feb 26, 2019 Jkt 033481 PO 00000 Frm 00047 Fmt 6633 Sfmt 6602 I:\WAYS\IN\33481\33481.XXX 33481

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gether to quiet critics. They do nothing to ensure monitoring or enforcement, and they have not raised wages, benefits, or standards 

for North American families. 

We learned last month just how ineffective these provisions are 

when even the CAFTA labor provisions—supposedly a step up from 

NAFTA—could not protect working people from anti-firings abuse 

and assassinations. 

Specifically, NAFTA should permit cross-border negotiations, establish floor wages, and allow border adjustments to prevent environmental degradation and human exploitation to be used for trade 

advantage. Enforcement must be automatic, and violators must be 

subject to trade sanctions when necessary, not to punish, but to 

raise standards and to trade fairly. 

Thirdly, NAFTA must address currency manipulation and misalignment by creating binding rules subject to enforcement and 

sanctions. Fair trade cannot exist in the absence of fair currency 

rules. 

Fourthly, we must upgrade NAFTA’s rules of origin, particularly 

on auto and auto parts, to reinforce auto sector jobs in North America. NAFTA’s rules allow nearly 40 percent of a car to be made in 

China, Thailand, or other countries that have no obligations to the 

U.S. under NAFTA. NAFTA must increase North American content 

requirements and eliminate loopholes in how the content is counted. 

Fifthly, NAFTA should delete procurement obligations that undermine Buy American rules and deter responsible bidding criteria. 

NAFTA should not be used to discourage procurement policies that 

create jobs, raise wages, and protect natural resources. 

Finally, NAFTA’s negotiators should think bigger. Rules that facilitate trade and investment must also put in place safeguards 

against tax dodging and other abuses. The new NAFTA must include new rules to combat tax avoidance and promote infrastructure investments. Without such rules we will continue to disinvest 

in the U.S. economy in ways that undermine productivity and the 

middle class. 

There are many other important changes that should be made to 

improve NAFTA for working families, but I will stop here. I am 

happy to answer any questions you may have. 

[The prepared statement of Ms. Drake follows:] 


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BEFORE THE HOUSE SUBCOMMITTEE ON TRADE 

OF THE COMMITTEE ON WAYS AND MEANS 

HEARING ON 

"MODERNIZATION OF THE NORTH AMERICAN 

FREE TRADE AGREEMENT (NAFf A)" 

TESTIMONY OF 

CELESTE DRAKE 

AMERICAN FEDERATION OF LABOR & 

CONGRESS OF INDUSTRIAL ORGANIZATIONS (AFL-CIO) 

JULY 18, 2017 
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Introduction 

On behalf of its 55 affiliates representing more than 12 and a half million working famil ies, the 

AFL-CIO appreciates the opportunity to testij)r about how to improve NAFT A for working 

families. The AFL-CIO represents working people in every sector of the economy, from energy 

to health to manufacturing to retail. We provide a voice to these families, advocating for policies 

that will help create high quality jobs and ensure working people have the freedom to join 

together to negotiate for better wages and working conditions. 

The AFL-CIO appreciates the attention the Ways and Means Committee is paying to this 

opportunity for NAFT A renegotiation. Repeatedly, over many decades, America's workers have 

made recommendations for improving trade policies-<>nly to find the bulk of our 

recommendations left out of final deals. Our criticism is not against " trade" per se: it is about the 

rules governing trade. We look forward to working with Congress to advance a new set of trade 

rules that promote good jobs, high wages, and sustainable and responsible economic growth that 

protects our environment and respects human dignity. 

Background: Why We Need a New NAFTA 

Under NAFT A, U.S. fim1s and workers lost more than 850,000 j obs. 1 A much more widespread 

impact, though less frequently discussed, is the wage suppression that affects about two-thirds of 

America's workers- those who lack a college degree. As the Economic Policy Institute's Jeff 

Faux explains: 

" [t)he inevitable result was to undercut workers' living standards all across North 

America. Wages and benefits have fallen behind worker productivity in all three 

countries. Moreover, despite declining wages in the United States, the gap 

between the typical American and typical Mexican worker in manufacturing 

remains the same. Even after adjusting for differences in living costs, Mexican 

workers continue to make about 30% of the wages of workers in the United 

States. Thus, NAFTA is both symbol and substance of the global 'race to the 

bottom."'2 

As explained at length in the AFL-CIO publication "NAFT A at 20," NAFTA and subsequent 

U.S. trade deals facilitate higher volumes of trade, but contain no measures to ensure that 

increased trade flows will be reciprocal or that any gains are widely shared. Many of the 

provisions- including investor-to-state dispute settlement and limitations on financial services 

and food safety rules- actively hinder or deter social policies that would foster equitable 

development. While there have been modifications to the language in subsequent agreements, the 

fundamental architecture that promotes broad investor rigllls wlule restricting governments' 

regulatory autonomy remains in place. On the whole, NAFT A -style agreements have proved to be 

1 S<lou, Robet1 E., "The effects ofNAFTA on US trade, jobs, and invesuneut, 1993-2013," Review of Keynesian 

Economics, Vol. 2 No. 4, Wimer 2014, pp. 429-441. ilvoilable at: \VWW.elgaronline.com/view/jotU11/llslroke/2-

41roke.2014.04.02.xml. 2 See FatLX, Jeff, "NAFTA's Impact on U.S. Wofkers," EPI Working Economics Blog, Dec. 9, 2013. Available at: 

www.epi.orglblog!naftas-impacl-workersl. 
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primarily a vehicle to increase corporate profits at the expense of workers, consumers, fanners, 

communities, the environment and even democracy itself.3 

Trade policy should never be a question of"free trade" versus "protectionism." Our 

recommended frame for NAFTA renegotiation is "How should the U.S. structure international 

trade rules so that they promote good, family-wage jobs, sustainable growth, dynamic 

economies, smart natural resource conservation, and the realization of human rights and dignity 

globally'?" We believe that using a more complex frame of this nature will lead to better trade 

policy choices, and better outcomes for working families. 

As Josh Bivens explains in his 2017 piece Adding Insult to lnjwy, this complex frame is what 

has been missing from U.S. trade policy, which seems to have been based on a misunderstanding 

of who benefits from trade. An extended excerpt is warranted: 

"When people say that economics teaches that expanded trade is a ' win-win' 

proposition, this means only that trade is 'win-win' for total nationa l income in 

each partner country. But textbook economics does not predict that expanded 

trade will be a win-win for all groups within those countries . . .. 

"Because it can be shown that the sum of capital's gains exceeds labor's losses, 

globalization remains "win-win" at the country level. Within the U.S., however, 

there is nothing "win-win" about it; labor loses not just in relative tenus, but can 

suffer absolute income losses as well. 

"Importantly, these losses are not the damage stemming from the adjustment cost 

of manufacturing workers' temporary unemployment spell[s] . . .. Rather, the big 

damage is the permanent wage loss resulting from America's new pattern of 

specialization that requires less labor and more capital. Further, this wage loss is 

not just suffered by workers in tradeable goods sectors who are displaced by 

imports; it's suffered by all workers who resemble these workers in terms of 

credentials and labor market characteristics. A simple way to say this is that wbile 

landscapers may not be displaced by imports, their wages suffer from having to 

compete with apparel (and auto, and steel) workers who have been displaced by 

imports. •>4 

The following charts show the impact of this model of trade-and other neoliberal economic 

policies-on U.S. wages and the share of U.S. national income going to working people. 

3 For more detail, see ' 'NAFTA at 20," AFL-CIO Report, March 2014. Available {II; bttps:/laDcio.orglreports/nefta-

£2. 

'Bivens, Josh, "Adding lnstllt to lnj1uy: How bad policy decisions have amplified globalization's costs for 

American workers," Economic Policy Institute, Jul. II, 201 7. Available {II; http:llwww.eP.i.orglpnblicationladdinginsuJI·to .. injm;y·llow·bad·policy.decisions·have·atnplified·globali7.a1iotts.cosls·for·american·worlsers/. 
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Figure 1: Workers' Shore of National Income is Shrinking (United States) 

- Nonf11nn 8usine" Sector: Labor Share 

95.0 

1950 1960 1970 1980 1990 2000 2010 

Source: U.S. Oepbrtl'ntlnt. ot Lobor: Burebu ot lab« Statl$bcl 

SMded areb' lndiCiite US~ • lC14 ftS.tilrdutloulsft<l.otg 

Source: Created with the FRED Economic Data Tool ofrhe Sr. Louis Fedeml Reserve Bank. Available at: 

hrms:ll(red srlottisfed or~ . 

Figure 2: Gop Between U.S. Worker Productivity and Wages Is Growing 

Disconnect between productivity and a typical worker's 

compensation, 1948-2014 

30096 1948-1973: 1973-2014: 

Productivity: 96.7'!41 Productivity: 72.2'!41 

~ 250 Hourly compensation: 91 .3'!1. Hourly compensation: 9.2'lf> 

~ <: 

... ., 200 

"' <: 

2 

v 

I ISO 

~ '5 

E 

100 

a 50 

1960 1980 2000 

Note: Data are for average hourly compensation of productionlnonsupetVtsory\YOril.ers In the prfvate s.ector ind net productivity of 

the total economy. ""Net productivity" Is the growth of output of goods and services minus depredation per hour WOtked. 

Sourc:e: EPf anatysls of data from th~ SEA and SLS (SH technical appendix fOf more detailed information) 

ECONOMIC POLICY INSTllUTE 
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The debates over NAFT A and subsequent trade dea ls sometimes discussed the need for some 

kind of compensation to those hanned by such deals, bm the only policy solution every offered 

was the meager Trade Adjustment Assistance program, which offers training and enhanced 

unemployment benefits to qualifying workers, but nothing at all to the two-thirds of America's 

workers who suffer wage impacts. Even this modest program has been endangered in recent 

years, subject to partisan bickering that threatens its funding and its very existence. Effective 

policy solutions to NAFTA's wage effects are nowhere on the horizon. 

To make any new N AFT A successful, the administration and Congress must ensure that its ntles 

incorporate changes that provide different incentives. In other words, the stmcture of the new 

NAFT A must recognize that trade and globalization have pushed wages down and weakened 

worker negotiating power- and build in counterbalancing incentives and tools to raise wages 

and empower working people. In addition, in conjunction with the deal itself, Congress should 

enact a broad set of domestic industrial and economic policies to rebuild, repair and modemize 

U.S. infrastntcture; support research, development and advanced manufacturing; and provide 

wutlciug peuvlc: with statt: ufthe at I skills. Al>st:ttt !ltt:st: iuwshueuts, a nt:W NAFTA st:c:ms 

poised to continue to leave workers behind. 

We also caution against viewing NAFT A renegotiation as an effective growth strategy in and of 

itself. Given the already low levels of tariffs worldwide, the oppottunities for large efficiency 

gains due to trade are largely exhausted5 We should improve NAFTA because NAFTA needs 

improving- not as a substitute for a purposeful growth policy. For example, the U.S. could 

achieve far greater growth, far faster, by investing in our own economy. As the Intcmational 

Monetary Fund bas demonstrated, an infrastructure investment of I% of GOP will result in an 

increase in GOP of almost 3% a mere four years after tbe investment. 6 This outcome is six 

times the projected outcome of the failed Trans-Pacific Partnership and would occur more than 

four times more quickly. In addition, according to economic modeling results by Ozlem Onaran 

of the University of Greenwich for tbe L20 in 2014, the U.S. c-ould achieve a growth rate as high 

as 9.84% over five years by coordinatittg a 1% of GOP infrastntcture investment with wage-led 

growth policies. 7 

' See, e.g .. Kmg.man. Paul, "A Protectionist Moment'?," The Conscience of a Liberal (Colunm), The New York 

Times. Mar. 9. 20 16. Aw,;Jnble m: hltps://lnJgman.blogs.nytimes.com/20 16/03/09/a.proteclionist .. momentl; Amiti, 

Mary and Mandel, Benjamin, "Will the United States Benefit from the Trans-Pacific Partnership?," Liberty Street 

Ecouolllics Blog, Federal Reserve Bank ofNew York, May 16, 2014. A••ailable ar: 

htto://libertystreeteconomics.newyorkfed.org/20 14/05Al111-tlte·tmited-states·benefit-from-the-tratts-pactficpannet·ship.htmi#.Vr4TO krLcv. 6 "Chapter 3: Is It Time for an lnfrastntcturc Push? The Macroeconomic Effects of Public Investment," in World 

Economic Outlook,Intemational Monetary Ftmd. Oct. 2014. Available at: 

hups://www.imf.org/extemaUpubsllllweo/2014/02/pdl7c3.udf. See especially p. 83 ("[A) debt-financed public 

invesunem shock of I percentage point of GDP increases the level of output by about 0.9 percent in tlte same year 

and by 2.9 percent four years after the shock ... "); Larry Suuuners, ''Why public investll)ent really is a free hutch: 

The IMF futds that a dollar of spending increases output by nearly $3," LatTy Summers Btog, Oct. 7, 2014. 

Available at: 

http:i/lanysununecy.com/2014/I0/07/why-public-investment-really-is-a-free-1!111Chl#sthash.5tkHOnJ6.dpuf. 7 Ozlem Onaran, "The Case for a Coordinated Policy Mix of Wage-led Recovery and Public Investment in the G20, 

L20 in parutership with ITUC, TUAC, and the Council ofGtobal Unions, Jun. 2014. Available at: hup://www.illlccsi.org/IMG/pdt?modelin&Pl!f 
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By putting the U.S., Canada, and Mexico into competition for investment without ensuring that 

each country not only had high standards on paper but an effective enforcement regime for 

worker and environmental protections, and that NAFTA put brakes in place to avoid a "race to 

the bottom" in taxes and regulations, NAFT A acted as an anchor, dragging down taxes, wages 

and environmental standards, not just in the U.S., but in all three NAFT A countries. Because of 

the competitive incentives imposed by NAFT A and similar trade policies, income distributions 

became more unequal as global companies captured an ever-larger share and workers an eversmaller share. 

8 

Those who advocate trade policies that drive wages ever lower in the relentless pursuit of 

quarterly profits and "competitiveness" ignore the fact that workers also are consumers. 

Consumers drive the demand necessary to support the global economy. This one-sided vision of 

competitiveness has left jobs and development opportunities on the table and limited the 

potential for U.S. exports. Indeed, wage suppression in Mexico means that there are even more 

Mexican living in poverty than before NAFT A, that immigration push-factors have not abated, 

and that Mexico has become an increasingly attractive investment target, with recent and planned 

productions shifts by companies including Mondclez, Carrier, and Ford. 

The AFL-CIO's recommendations are comprehensive, and include changes not just to the labor 

provisions, but to most chapters ofNAFTA, as well as to domestic policies. The 2016 elections 

showed that America's working people are not satisfied with the statu.s quo. TI1ey've heard 

promises about the benefits of trade- but seen those benefits accrue to global corporations and 

economic elites. It is imperative that Congress provide a comprehensive response that improves 

trade and related policies. NAFT A renegotiation can't be just mere tweaks or the importation of 

rules from the failed TPP. Working people are ready to support beneficial changes, and will 

oppose any NAFT A that's new in name only. 

Recommendations9 

The AFL-CIO recommends the following specific changes to NAFT A: 

1. Democratize the Renegotiation Process 

The TPP negotiations demonstrated that secrecy breeds contempt. NAFT A renegotiation must be 

transparent, democratic and participatory, with more access for Congress and the public to 

proposals and negotiating texts. There must be oppornmities for public comment, periodic 

congressional hearings to review progress and more inclusive trade advisory committees. 

The following reforms are critical: 

• See Capaldo, Jerouim et al .. "Trading Down: Unemployment, Inequality and Otber Risks of the TraDS-Pacific 

Parmership Agreemeut," Global Developmeot and Environment Instinne Working Paper No. 16-0 I. January 2016, 

at pp. 12- 13. Available or: www.ase.tufts.edu/gdae/Pubslwp/16-0 ICapaldo-lzurietaTPP.pdf. 

• For an expanded explanation oftbe AFL-CIO's NAFTA renegotiation reconm1endations, please see our 

submission to the U.S. Trade Policy Staff Committee, ''How to M<Uce NAFTA Work for Working People," available 

at: httm:/laflcio.org/statements(wJitten-comments-how-make-nafta-wor!l-working-people. 
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With the full participation of the public and Congress, develop negotiating objectives tlJat 

are specific to NAFTA, rather than generic; 

Review and revise past practices that have resulted in the overclassification of trade 

policy documents, including textual proposals, working negotiating texts and offers 

tabled by other parties; 

Increase access to U.S. trade policy making, U.S. trade proposals and negotiating texts 

for Congress, congressional staff and members of the public, including by publishing 

draft texrual proposals in the Federal Register with adequate time for public comment 

before tabling them; 

Expand and balance membership in the existing trade advisory committees, ensuring 

adequate participation in all committees by academics, small domestic firms and family 

fanns, labor unions, public interest advocates, and state and local ofiicia Is; 

Ensure that trade advisory committees have the opportunity to meaningfully advise and 

consult on proposals before securing interagency approval on texts, at which point it is 

often too late for revisions; and 

Congress should hold periodic oversight hearings, by all c-onunittees whose jurisdictions 

include issues covered by NAFT A, on the negotiations at the outset, midstream, and once 

negotiations are complete in order to understand the legal implications of the NAFTA 

revisions. 

2. Adtl Strong Labor Rules with Swift and Certain Enforcement. 

To help raise wages and improve working conditions, NAFTA must ensure all working people 

can exercise fundamental labor rights reflected in lntemational Labor Organization (ILO) labor 

conventions, including the bedrock right to form unions and bargain collectively. NAFTA must 

embed strong labor obligations in the text and establish an independent enforcer with innovative 

tools and penalties to overcome entrenched indifference to worker rights. This is all the more 

inlportant given the panel decision in the labor case against Guatemala, which provides strong 

evidence that the existing framework is not only ineffective, but wholly inadequate. 

When workers lack the freedom to speak up about workplace conditions and negotiate together 

to improve their lives and livelihoods, it keeps wages, benefits and job safety lower than they 

would otherwise be. This race to the bottom has led to a global weakness in demand tbat 

hampers gross domestic product (GOP) growth and exacerbates inequality. Even the IMF has 

recognized a link between the decline in unionization and the dramatic increase in inequality 

worldwide. 10 If the new NAFT A fails to establish a level playing field for workers, it will 

continue to drive wages down and breed doubt that trade and globalization can be fair. 

Mexico, like other popular offshoring destinations, promises low wages, no unions (or companydominated unions) and substandard workplaces. Unforrunatel y, Mexican workers can face grave 

consequences for attempting to exercise their basic hwnan riglus. This is because, with few 

exceptions, Mexican labor unions are undemocratic and aligned more with employers or local 

political elites than with workers. These employer-dominated unions often sign contracts without 

any participation or input from workers for the sole purpose of interfering with the rigl1t to fonn 

10 Jaumoue, Florence, and Buitrot~ Carolina Osotio, "Power from the People," Finance & Developtnent, Vol. 52, 

No. I, Imemational Monetary Fwtd, March 20 t 5. Available ot: 

www.imf.org/exlemaVpttbsfftlfanddf20tS/031jaumotte.hhn. 
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effective, worker-directed unions. The cumulative effect of these bogus unions is to lower wages 

and working conditions in Mexico. 11 Improving wages will reduce the ability of employers to 

use N AFT A as a tool of arbitrage that pushes wages down across North America. Higher wages 

in Mexico not only are good for Mexico's working families, they are a required outcome of 

beneficial trade policy. In fact, raising wages in Mexico should be one of the most impo1tant 

goals ofNAFTA renegotiation. 

Key Recommendations: 

a. To improve compliance and enforceability, include in the agreement explicit references 

to the eight core ILO Labor Conventions and others where appropriate; 

b. To protect workers, raise wages and level the playing field among NAFTA countries, 

require that Parties not waive or derogate from any of their labor laws-regardless of the 

sector in which the breach occurred; 

c. To level the playing field among NAFT A countries, define "acceptable conditions of 

work" to include such concepts as payment of all wages and benefits legally owed and 

compensation in cases of occupational injuries and ilh1esses; 

d. To increase compliance, include commitments aimed at ensuring effective labor 

inspections; 

e. To level the playing field among NAFT A countries, do not include any requirement that 

violations must be in a "manner affecting trade or investment between the parties," or 

that violations must be "sustained or recuning," both of wh.ich add unnecessary barriers 

to enforcement; 

f. To prevent worker exploitation, agree that workers should be paid a floor wage that 

provides a decent standard of liviog, and include provisioos to prevent social dumping of 

goods made by workers paid less than floor wages or inadequate enforcement of workers' 

rights; 

g. To prevent forced labor and the worst fonns of child labor, prohibit trade in goods made 

with forced labor and the worst fonus of child labor; 

h. To prevent a spiral to the bottom in wages and working conditions, ensure migrant 

workers receive the same rights and remedies as a country's nationals; 

1. To prevent human trafficking and forced labor, establish enforceable rules for 

international labor recruiters and employers of foreign labor; 

j. To ensure timely enforcement and reduce unwarranted delays, establish clear, universal 

timelines for consideration of and action upon labor complaints; 

k. To help raise staodards across the region, create an independent labor secretariat (not 

cootrolled by the Parties) to research emerging issues, report on best practices, provide 

technical assistance when necessary, investigate alleged violations, recommend 

remediation and, in the absence of remediation, bring cases to dispute settlement; 

I. To make enforcement more effective and to reduce the ability to delay or ignore labor 

complaints, require the Secretariat to pursue meritorious complaints until the defects have 

been remedied; 

m. To ensure comprehensive analysis of the effects ofNAFTA on working people, establish 

a Wages and Standards Working Group to oversee the Secretariat, recommend remedial 

responses and policies to aid workers, families and communities negatively impacted by 

11 See NAFT A al 20, supra oote 3. 
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NAFf A, and provide recommendations for improving NAFT A and national laws in ways 

that benefit working families; 

n. To ensure that enforcement occurs, include enhanced enforcement tools, such as social 

dumping tariffs, additional duties for persistent labor violations, and private rights of 

action where the Secretariat or Parties refuse to enforce obligations; 

o. To level the playing field, allow workers to form transnationa l union organizations to 

negotiate with employers that operate in two or more NAFf A countries; and 

p. To maximize the potential for wages in Mexico to rise, continue to pursue constitutional 

and legal reforms already begun in Mexico as of2016. 

3. Elimi11ate lllvestor-to-Sillle Dispute Settleme111 a11d Mi11im11m Sta11dard ofTrealmellt 

Simply put, investor-to-state dispute settlement (ISDS) is a separate justice system for foreign 

investors for which there is no legal or moral justification. It discriminates against U.S.-Iocated 

firms by providing extraordinary procedural and substantive rights to foreign-based fim1s. 

According to the Cato Institute, "It is effectively a subsidy that mitigates risk for U.S. 

multinational corporations and enables foreign MNCs [multinational corporations] to circumvent 

U.S. courts when lodging complaints abotll U.S. policies."12 Eliminating ISDS will protect 

democracy, Article ill of the Constitution and America's rich jurisprudence while eliminating a 

handout to companies that choose to produce abroad. 

Rule of law requires that the law- including the system of justice-apply to everyone equally. 

lSDS violates this bedrock principle of democracy. Moreover, by offering additional legal 

protections beyond those that exist under U.S. law or other countries' national courts, ISDS 

makes it more attractive to send production and investment overseas. NAFf A must not include 

provisions that promote the further offshoring of jobs- particularly good, middle-class jobs. 

Furthennore, ISDS disadvantages U.S. companies that only produce in the United States (e.g., 

micro- and small- to medium-sized companies) because they have fewer rights than their foreign 

competitors. 

As one of the lawyers who brought a case against the United States on behalf of a Canadian 

company explained, "(The ISDS provision in] NAFT A does clearly create some rights for 

foreign investors that local citizens and companies don't have. But that's the whole pU1pose of 

it."J3 

Finally, the vague and overbroad minimum standard of treatment (MST) obligation should be 

eliminated. 'llle MST obligation goes far beyond the property rights available under domestic 

property law and is ripe for abuse. 1

'

1 

12 Ikenson, Daniel J .• "A Compromise to AdvruJce the Trade Agenda: Purge Negotiations of Investor-state Dispute 

Settlement," Cato Institute's Fo·ee Trade Bulletin No. 57, March 4, 2014. Avnilnblo nt: 

\V\Vw.cato.org/publications/frce-trade-bulletin/contpo·omise-advance-trade-agcnda-purge-ncgotiations-investor-statc. 

u Greider, \ViUiam, "The Right and US Trade Law: Invalidating the 20th Cennuy: How tlte right is using trade law 

to overtum American democracy," Tile Nation. Nov. 17, 2001. Availoblo a1: www.thenation.com/ruticlclright-andus-trade-law-invalidating-20Jh-cennu:y#. 

"Even tlte stauocWy free trade Cato Institute's Simon Lester calls the minimum standard oftreatmem a "poorly 

written" provision. Lester, Simon. "Responding to the White House Response on ISDS," Cato at Liberty Blog. Feb. 

27, 2015. Avnilabl• 01: www cato.oreJbloglresponding-white-house-defense-investor-state-dispute-settlement. 
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4. Create Jobs by Aflfling Enforceable C11rrency R11les 

NAFTA must include enforceable currency disciplines subject to trade sanctions in the text of 

the agreement.ts NAFTA parties also should commit to coordinating enforcement efforts with 

respect to the currency manipulation by non-NAFTA CO\mtries. The goal of both provisions 

would be to reduce the unsustainable U.S. trade deficit by addressing issues of trade and 

exchange rates. Currency realignment would create 2.3 million to 5.8 million jobs over the next 

three years.t

6 

5. Strengthen R11les of Origin 

In general, "rules of origin" should be set such that domestic producers and workers in the 

NAFTA signatory countries are the primary beneficiaries of market access commitments, not 

third-party countries that take on no trade obligations in the deal. This goal can be advanced 

through the following specific recommendations: 

a. Auto Regional Value Content (RVC) should rise above the current 62.5%, with a 

phase-in period to allow manufacturers to adjust supply chains. 

b. Auto Parts RVC also should increase from current levels; otherwise, the acnml auto 

content will lag far behind its nominal value. 

c. Current producers could be granted additional time to comply with the new, higher 

auto and auto parts RVCs dependent on the degree to which their hourly 

compensation of employees exceeds the median wage in the industry in the country in 

which they operate, and to which the enterprise observes all applicable workers' 

rights standards in NAFT A. Additional analysis on this topic, and a specific proposal, 

is being prepared that would ensure workers are the real beneficiaries of the NAFT A 

renegotiation. 

d. Abolish "deeming" and instead require auto parts to actually meet the nominal 

content requirement. 

e. For the class of green/energy-efficient parts identified by the Intemational 

Association of Machinists, UA Wand United Steelworkers in a joint Trans-Pacific 

Partnership safeguard proposal, require these parts to be made in the United States to 

cotmt toward the RVC for vehicles sold into the United States. Although this would 

be a deviation from the typical NAFTA-region sourcing rules, the Labor Advisory 

Committee on Trade Negotiations and Trade Policy (LAC) understands that these 

higb-value pans are not presently made in Mexico or Canada. Tl1is recommendation 

is aimed to promote the retention and growth of manufacturing in the particular class 

of parts bere in the United States for utilization in vehicles sold here. 

f. Eliminate tariff preference level exceptions (TPLs), which tmdennine the yamforward rule. 

g. Close otber rule-of-origin loopboles that minimize the domestic content through rollup and other provisions. 

•s There are lllJluy ways to establish such euforceable provisions against cwrency manipulation and ulisaligmnent. 

During llte TPP negotiations. for example. two useful proposals iucluded a test promoted by the Aulerican 

Automotive Policy Council and lbe incorporation oftbe IutematiouaJ Monetary fund's se.veu factor guidelines. 16 Scou. Robert E .. "Stop Currency Manipulation and Create Millions of Jobs. With Gains across States and 

Congressional Districts.'' EPl Briefing Paper #372. Ecououlic Policy Iustimte. feb. 26. 2014. Amllnble nt: 

www.epi.org/publication/slop-ctLITency-manipulation-and-cre::.te-mi11ions-of-jobsl 
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h. Rules of origin relating to the production of steel must require that, to be considered 

for tariff preferences, the steel must be melted and poured in the NAFf A region. A 

similar standard should be adopted for other materials (e.g., aluminum), to ensure the 

entire process relating to the production of the materials occurs in the NAFTA region. 

A strong rule of origin (ROO) promotes production in the NAFTA countries, rather than 

rewarding outsourcing to third-party countries. In addition, a strong rule of origin supports 

production and jobs. If the NAFTA renegotiations also include stronger ntles to raise wages and 

environmental protections in Mexico, thus leveling the playing field, strong ROOs could 

promote more jobs in the United States, as well as in Mexico. Strong rules of origin will provide 

an incentive to produce in Not1h America as opposed to China, Vietnam and other export 

platforms that exploit workers, and the incorporation of labor and other refonns suggested 

elsewhere in this document will ensure workers in all three NAFT A countries can benefit. 

6. Protect Responsible Go••emment Purchasing and Buy American Policies 

NAFT A should support domestic job creation efforts by eliminating procurement commitments 

and promoting responsible bidding standards.t 7 Currently, NAFT A gives bidders from all 

NAFTA countries expansive access to U.S. goods, services and construction contracts. These 

provisions can undennine not only domestic preferences, but also responsible bidding criteria 

(such as requirements that a bidder have no outstanding environmental cleanup obligations or the 

implementation of a system that awards bonus points for bidders with better safety records or 

that source from local farms). Arbitrary procurement commitments curtail efforts to ensure 

bidders- from any N AFT A Party- are not unfairly undercut by unscntpulous competitors, 

which is a further reason to eliminate procurement comrnitrnents. 

The United States' trade obligations open far more U.S. procurement (by dollar amount and by 

percentage) to foreign bidders than any other large economy.ts As detailed in a February 20 17 

Govenunent Accountability Office (GAO) report, there is no evidence that the United States' 

procurement commitments, at the WTO or in regional trade deals like NAFf A, create more jobs 

for U.S. workers than they cede to workers elsewhere .t 9 To the extent that procurement 

commitments like NAFTA's Chapter 10 drive down wages in a race to be the lowest bidder,

20 

they already have banned untold numbers of U.S. workers. 

17 Altltough tltcre is room for additional study of the impacts of existing procuremem deals (e.g., an aoalysis of the 

job and wage effects oflhe reciprocal agreement between the United States and Canada tbat was adopted for the 

expenditure of A.llleiican Recovety and Reinvestment Act funds a11d an analysis of U.S. procurement contracts won 

by mullinational versus domestic-only fmns), to date, there is simply no e\•ideuce to support maintaimng Chapter I 0 

couunimtents that require the U.S. govenunentto u·eat foreign bidders with the same preferences as U.S.-based 

bidders. 18 U.S. Govemment Accountability Office, "Goven1.ment Procurement: United States Reported Opening More 

Opportunities to Foreign Finns tltan Otl1er CoiUltries, bm Better Data Are Needed," Febmruy 20 t 7, Fig. 2, p. t2. 

Available at: www.gao.gov/products/GA0-17-168. 19 !d. In 2014 tl1e Obama administration agreed to amend te World Trade Organization Govenunent Procurement 

Agreement to delete the requiremem that pa11ies provide statistics on the country of origin of products and setvices 

purchased by covered government entities, ensuring that ftnure studies will be stymied in efforts to docwllclll tlte 

effectiveness (or lack thereof) ofproctueutent conunitmeots as ~ob creation" tools. 10 Sec, e.g., Richard B. DuBoff, "Globalization and Wages: The Dow11 Escalator," in DoUru'S & Sense. Available at: 

www.dollarsandsense.org/archives/1997/0997dttbotl.lnml. 
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NAFT A Parties should work to develop transparent, multilingual bidding systems and 

responsible employer standards that will benefit enterprises and workers located within North 

America, while leaving our democracies the freedom to choose when domestic preferences are 

necessary and appropriate, and when other considerations should prevail. A critical provision in 

Chapter I 0 that should be maintai.ned is its prohibition on offsets. 

7. Eliminate Chapter 19 Obstacles to Effective Trade Enforcement 

Chapter 19 should be eliminated and replaced with a mechanism for government cooperation to 

ensure effective enforcement against unfairly traded products from non-NAFT A countries 

8. Combat Tax Dodging 

NAFTA and subsequent NAFTA-style trade and globalization rules have had a negative longterm impact on tax rates and public investment. In addition, through a variety of legal and illegal 

tax avoidance schemes, tax revenues have fallen for j urisdictions around the world, regardless of 

tax rates. The OECD and G-20 both have recognized and developed recommendations to address 

this troubling trend, which undermines the social contract and inhibits robust public investment 

in infrastmcture and human capital. Without efforts to address base erosion and tax avoidance, it 

is unlikely that the U.S. will be able to address its infrastmcture needs or cultivate public support 

for international trade. The new NAFTA should incorporate at least the following commitments 

to combat tax dodging: 

Specifically, the renegotiated NAFTA must include at least the following obligations: 

a. Count1y-by-Count1y Reporting: Each Party shall require all multinational enterprises 

(MNEs) with prior year revenues of$850,000,000 or more to report annually and tor 

each tax jurisdiction in which they do business the infom1ation set out in the 

OECD/G20 Base Erosion and Profit Shifting Action 13 Guidance.21 Require that such 

reporting be made public, e.g., through the Department of the Treasury. 

b. No Secret Tax Deals: To ensure equal footing for all enterprises, each Party shall 

prohibit secret tax deals and shall instead create a public database to repo1t tax 

abatements, tax holidays and the like. 

c. Improve Enforcement Against Transfer Mispricing Schemes: The Parties shall make 

available to customs officers of each Party a database of typical prices for imported 

items, using the hannonized tariff schedule. Customs officers shall use the database to 

refer for further investigation those shipments whose invoice prices are grossly 

misaligned with comparative prices as recorded in the database. 

9. Remove Rules That Undermine Protections for Workers, Consumers and the 

Environme11f 

NAFTA must not limit, undemune or inhibit public interest standards or regulations. NAFTA 

must ensure that No11h America's democracies retain the freedom to develop, advance and 

implement commonsense protections, including country-of-origin labeling, free from the threat 

of trade challenges. For this reason, NAFTA must not expand any commitments in Chapters 7, 9, 

II, 12 or 14 that have the effect of limiting, undennining or inhibiting public interest standards 

" See "Guidance 011 the Implemenlation ofCounlr)'-by-Cotulh'Y Reporting: BEPS Action 13,'' Organisa1io11 for 

Eco11omic Co-operation and Development (OECD), last updated April6, 2017. Available at: 

www.oecd.orgttaxlbeps/guidauce·on-llle·implen1en1ation·of-country·by-cotuttry·reporting-beps-action- l3,htm. 
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or regulations. The renegotiated NAFTA must contain no negative lists, no ratchet clauses and 

no "Regulatory Impact Analysis" requirements. Negative List commitments in NAFTA must be 

rewritten into positive list commitments to ensure that North American democracies retain to 

right to advance commonsense rules relevant to newly developed services, free from the threat of 

trade challenges. In addition, Article 210 I, which currently provides a wholly ineffective general 

exception, must be rewritten. 

While the AFL-CIO agrees that, under the right circumstances, regulatory cooperation can 

increase trade and efficiency in ways that benefit workers and consumers, we also caution 

against blunt efforts to use NAFT A renegotiation as a back-door route to attack important 

worker, consumer, environmental, health and food safety protections. Deregulation via 

international negotiations is inherently undemocratic, reducing trust in both trade and the 

democratic system because it undennines standards that citizens struggled to enact (such as 

"COOL" labeling). 

10. Add Commitments to Invest in Infrastructure 

Investing in infrastructure dri ves long-tenn, broadly shared growth, but is bard to do when global 

companies are driving a race to the bottom. Adding an infrastructure commitment will help 

balance the incentives of prior trade deals that have depressed public investment. 

Specifically, NAFTA must include a new chapter in which each Party commits itself to investing 

a minimum of3% ofGDP ammally on public infTastructure construction, repair and 

maintenance. The commitment must ensure that preferences for domestic procurement are 

allowable. Parties shall determine their respective infrastructure priorities with public input, and 

all public construction, repair and maintenance investments (transit, aviation, bridges, roads, 

ports, water, sewer, electricity, c<>mmunications, schools, parks, other public facilities, etc.) shall 

count toward the rninimwn. The idea behind this provision is simple: set a reasonable target22 for 

public infrastructure spending and require Parties to report their actual spending annually. The 

public reporting aspect will assist local, state and federal policy makers in evaluating their 

respective investments and helping their economies to grow. 

Separately, and in addition, the NAFT A implementing bill must contain o ne-time mandatory 

funding for specific trade-related projects in the United States, to enhance the benefits working 

families can reap from North American trade, including but not limited to: 

• New and improved land border crossings and ICC border commercial zones with 

Mexico and Canada; 

• Ports, airports, roadways and waterways; 

New and improved rail corridors, including high-speed rail; and 

• Broadband infrastructure, including in rural conununities. 

12 According to the Congressional Budget Office, public spending on transportation and water infrastnocture alone 

"over the past three decades bas hovered at about 2.4 pcrcelll," ''Public Spending on Transportation and Water 

Infrastructure, 1956 to 2014," CBO, March 2015. Available ar: www.cbo.gov/sitesldefault/filesll 14th-congress2015-20t6freoorts/49910-Inthstmcture.pdf. 
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II. P•·otect Consume•·s and Ensu e Financial Stability 

NAFT A should protect the ability to engage in fair and nondiscriminatory application of capital 

controls and other measures to ensure the stability of the financial system. The WTO's General 

Agreement on Trade in Services (GATS) and NAFTA's existing text already provide sufficient 

market opening for financial services providers. Further liberalization in fmancial services trade 

not only is unnecessary, it is likely to be hannfi.1l to working families given the role that fmancial 

services globalization played in creating and exacerbating the Great Crisis. 

As Philip R. Lane explains in his paper, "Financial Globalization and the Crisis," financial 

globalization enabled the scaling-up of the U.S. "securitization boom" that triggered the crisis 

and was a key factor in the rise oflarge credit growth di ffcrcnces and current account imbalances 

that propelled the crisis across countries. 23 NAFT A Parties must incorporate the lessons learned 

from the aggressive financial deregulation of the 1990s and resist the entreaties of Wall Street 

and Canadian banks to use NAFTA renegotiation to ease financial services regulation. 

To achieve these ends, NAFTA must not expand any commitments in Chapter 14, nor insert any 

new provisions that have the effect of limiting, undermining or inhibiting financial services 

regulations. Moreover, Article 1 I 09.4 must be amended to ensure that under specified 

conditions, Parties may prevent the transfer of capital through the equitable, nondiscriminatory 

and good faith application oflaws relating to unpaid obligations to employees and safeguarding 

the safety and soundness of the financial system. 

12. Promote Transportation Safety 

The new NAFT A must ensure that all Parties may enforce domestic highway safety, labor 

protections and environmental standards on foreign trucks, raiJ and buses. In addition, NAFTA 

should continue its existing policy of broadly excluding water and air transportation services 

from coverage. TIJ.is includes maintaining existing Annex I and Annex II reservations covering 

the Jones Act, laws respecting ownership and control of airlines, and the like. 

13. Protect Intellectllal Property While Ens11ring the Right to Affordable Medicines 

For copyright: NAFT A should retain strong provisions to protect creative and innovative 

workers (including actors, writers, musicians and others) whose income, standard ofliving, and 

health and retirement benefits rely upon residuals, royalties and other payments tied to 

international copyright protection. 

For patents and related proteclions: NAFTA must balance innovation with affo.rdability of 

health care. The administration must work to ensure NAFTA's patent provisions do not become 

a corporate welfare program for brand-name phanuaceutical and medical device companies. Nor 

should NAFT A undenuine democratic choices about how to ensure prescription drugs and 

medic<~! dcvict:s provided through public progrdms art: a!Tordablt: for taxpayers and beneficiaries. 

Reproducing TPP provisions on patents, exclusivity and so-called "transparency and procedural 

fairness" into a renegotiated NAFf A would be a step backward for the health of working 

families in the Unjted States, Canada and Mexico, and is unacceptable. 

n Lane, Philip R., "Financial Globalisation and the Crisis," Prepared for lbe lith BIS Annual Conference on The 

Fuhu·e of Financial Globalisation, Luceme, June 21- 22, 20 t2. 
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14. Prohibit Global Corporations from Using NAFTA to Capture Public Services for Profit 

NAFT A renegotiation must expand the public services exception in Annex II so that public 

services are fully carved out, or protected, from the agreement. The current NAIT A text leaves 

out a number of important public services, including energy, postal, water and sewer, sanitation, 

immigration and public transportation sen,ices from its Annex II reservation. This shortcoming 

must be recti tied to protect the full spectrum of democratic decision making regarding the 

provision of public services. 

15. Add Strong Environmental Rules with Swift and Certain Enforcement 

NAFT A must be refonned to include strong environmental standards that will be enforced. 

NAFT A must require adoption of and compliance with key multilateral environmental 

agreements; prohibit illegal trade of timber and wildlife; promote responsible tlsheries; and 

ensure countries cannot gain an tmfair trade advantage by allowing highly polluting practices. 

This should be done in a manner akin to the recommendations for labor obligations. 

16. Improve Screening for Foreign Domestic Investment 

Congress and the administration should work together to enhance the powers of the C01runittee 

on Foreign Investment in the United States to be sure the U.S. can review greenfield investm ents 

and use a "net economic benefit test" to measure more impacts on our working people as a 

whole. In addition, NAFT A should be updated to acconnnodate this domestic policy change. 

17. Improve Trade Enforcement as Part of a Robust Manufacturing Policy 

Trade rules are only as good as their enforcement. Enforcement tools must be expanded and used 

promptly. Rules crafted to create a fair and level playing field and promote good jobs in growing 

industries will support employment and wage growth in all three NAFTA countries. This will be 

a significant improvement over the current rules and practices, which reward low-road practices, 

harming businesses, farms and working families across the region. 

18. Improve the ITC's Economic Modeling 

TI1e United States International Trade Commission (lTC) is responsible for projecting the 

economic outcomes of proposed U.S. trade and investment negotiations. The lTC uses a model 

called the computable general equilibrium (CGE). The CGE has a number oflimitations. It 

focuses ahnost exclusively on tariff reduction. The lTC report typically supplements its CGE 

results with an explanation that benefits likely are underestimated for the trade deal in question 

because CGE does not account adequately for the efficiencies gained through reduced regulation 

or enhanced intellectual property protection. The CGE model does not adequately address such 

issues as mercantilist trade policies, currency manipulation, long-tern1 wage stagnation or 

inefficiencies that result from trade deal-caused deregulation, privatization, market concentration 

or deunionization. 

Not only have tbe ITC's past projections been overly rather than underly optimistic/4 tbe CGE 

method is particularly ill suited to NAFT A renegotiations, as tariffs for nearly all traded goods 

:u See, e.g., Drake, Celeste, on behalf of the AfL-CIO, Oral Testimony on "Investigation No. TPA-105-00 I, Trans· 

Pacific Partnership Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors;· Before the 

U.S. International Trade Commission. Jan. 13, 2016. Available at: 

www.usitc.gov/press roontldocuments/testimony/105 001 005.pdf. 
60 

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already arc at zero. The LAC recommends that the ITC expand its methodology to include 

economic analyses that can compensate for some of the limitations of the CGE, including: 

• Currency misalignment; 

Mercantilist trade behavior; 

• Social welfare losses due to weakened regulations; 

• Income inequality; 

• Wage suppression; 

• Enhanced corporate influence, which can drive government revenues down and 

undennine the ability of governments to invest in infrastructure and market-con·ecting 

mechanisms; and 

• Variable impacts of strong versus weak enforcement approaches. 
61 

Chairman REICHERT. Thank you all for your testimony. And we 

will now enter into the question and answer session. And I will 

begin with Mr. Linebarger. 

In your written statement and testimony, you note that the 

Brookings Institute recently cited Columbus, Indiana as the singlemost trade-dependent community in the United States. My home 

state of Washington is probably the most dependent state in the 

Union, as it relates to trade: 40 percent of our jobs are directly related to trade in Washington State. So I very much understand the 

point that you are making and the types of issues that you have 

raised in your comments. 

One concern that I continue to hear from my constituents has to 

do with the need to eliminate burdensome customs procedures and 

regulations. One of the examples I often hear about is the need for 

streamlined customs processes, including electronic forms, signatures, authentication, as well as the need to eliminate duplicative 

and unnecessary regulations throughout the NAFTA zone. 

So, what are your thoughts related to this red tape? And then, 

more specifically, what are the challenges that you faced with your 

company? And hopefully you have some thoughts on some provisions we might be able to include that would streamline this, and 

eliminate some of the regulation’s red tape. 

Mr. LINEBARGER. Thank you for your question, Chairman 

Reichert. I would just say a couple things. 

First is that one of the reasons Columbus, Indiana I think has 

become such an important—that international trade has been so 

important to Columbus is because our growth and hiring has depended so much on being able to access customers outside the 

United States. 

The cost of participating in the commercial engine business is 

high, in terms of R&D. We have to spend a lot of money on R&D, 

typically around $700 million a year. And therefore, to be able to 

pay back that R&D, we need to be able to sell a lot of units. That 

is just—you need scale in our business to succeed. And it just turns 

out there are not enough customers in the United States, even if 

we occupy a reasonably strong market share, to afford to do all the 

investment we need to do to succeed. 

And much of that investment, by the way, has been what has 

helped us fulfill the requirements of the Clean Air Act, in terms of 

the emissions from trucks and construction equipment over the last 

15 or 20 years, which has been quite beneficial, I think, to communities. So that need to be able to invest is one of the reasons we 

need to develop scale and, therefore, be able to access foreign markets. So trade agreements have been a very important part of that. 

With regard to your second question about duties and—or customs rules, there is no question that by streamlining regulations 

and customs and other what I would call sort of the small tactics 

on how NAFTA performs across our region we can improve our economic activity in all three countries. 

Often times, the big elements of a trade deal get all of the attention, and it is the small parts like lines at the borders, where 

trucks get stuck for hours and hours or days at a time, that actually stop the economy from moving. So that is one of the emphases 

we put at the business roundtable, where I participate, is how do 


ralbany on LAP520R082 with HEARINGS
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we work out some of the smaller issues that—these things that 

seem smaller—that could actually add to our economy with no cost 

to either—to any of the sides, by just being more efficient. 

So there are significant opportunities there, using technology, as 

you mentioned, to reduce the burden on all sides and improve economic activity across the three regions. And I think that should be 

a clear follow-on from whatever NAFTA agreement is finally 

reached. 

Chairman REICHERT. Could you mention a couple of the 

thoughts that you might have on specific solutions to some of the 

small tactics that you talked about? I mean even taking a look at 

the long lines at the border, having trucks sit and wait—— 

Mr. LINEBARGER. There is no question that using technology 

instead of older, manual process would be—one, standardizing 

agreements. I heard in your opening statement talking about 

health standards, and making sure we are using science-based 

standards. Science-based standards, standard agreements between 

the countries, and then using technology wherever possible, transparency in the rules, so everybody knows what the rules are and 

who is responsible for them, these are just a few of the areas that 

we have been emphasizing to try to make these regulations more 

efficient and effective. 

Chairman REICHERT. Okay, great. I yield. Mr. Pascrell. 

Mr. PASCRELL. Mr. Chairman, we are not going to be suckered 

into the whole of it’s the traders versus the isolationists. I don’t 

know anybody on this panel up here that is an isolationist. So we 

believe in trade, and we want it to be fair. 

So let me ask you this question, Ms. Drake. The President has 

promised to bring jobs to the United States by renegotiating this 

disaster trade agreement. You represent the workers, AFL–CIO. 

Would you say that the USTR’s negotiating principles and objectives just released represents a radical transformation of our trade 

policy? 

And Part B of that question, do you see anything in their objectives that would create jobs here in the United States of America? 

Ms. DRAKE. Thank you for the question. The objectives are not 

a radical, retransformation of NAFTA. They essentially look like 

tweaking around the edges. And much of it seems wholly adopted 

from the trade negotiating objectives from the TPP, which is something that the President himself said was a failed agreement and 

withdrew from. 

I think the one sort of bright spot in the objectives is really the 

trade remedies section, but trade remedies can’t create jobs. They 

can only defend jobs that are being attacked by unfair trade practices. So we would have liked to have seen more clarity, more specificity, and, frankly, a higher ambition, in terms of the objectives. 

Mr. PASCRELL. Now, you have identified raising wages in Mexico as one of the most important goals of NAFTA renegotiation. 

Now I want you to talk some more about why you think wages in 

Mexico are so critical, both for Mexico and the United States. Try 

that one first. 

Ms. DRAKE. It is really critical because the low wages in Mexico 

and the ease with which bad actor employers can exploit and abuse 

Mexican workers is one of the pull factors inducing investment in 


ralbany on LAP520R082 with HEARINGS
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Mexico. And the side agreements in NAFTA for labor just haven’t 

done the job to protect workers. And we don’t—— 

Mr. PASCRELL. And we have proof of that, don’t we? 

Ms. DRAKE. We absolutely have proof of that. There have been 

39 cases filed over the years under the NAFTA labor side agreement, and none of them resulted in new workers being organized 

or having their wages raised in Mexico. So we have got to try something radically different, not tweaking around the edges. And there 

has got to be an enforcement mechanism that is not just slow and 

cumbersome and wholly discretionary, but swift, automatic, and 

something that workers can depend on. 

And we have to tweak the other provisions—not tweak, change 

the other provisions of NAFTA, as well, so that we are providing 

different incentives. When—you mentioned earlier the President 

had said jobs are being sucked out of the United States. They are 

not being sucked out by Mexico’s workers. They are being sucked 

out by decisions made by corporate CEOs to relocate production. 

And we have got to use NAFTA to change the incentives on those 

CEOs, so that they have more incentives to invest both in the U.S. 

and in Mexico. And when we raise wages in Mexico, we are going 

to have more exports to Mexico, because we are growing a middle 

class there, and really developing—— 

Mr. PASCRELL. Yes, the guy that is working in Pueblo is not 

the enemy. And we have made him the enemy. 

But we have had some changes in law in Mexico since 2016. 

Could you really be specific about how that helps the cause of fairness here? Fairness. I mean it is a simple word. 

Ms. DRAKE. So, the labor boards in Mexico have been really corrupt and used to attack independent trade unions in Mexico, and 

really promote these—what are called protection unions, or yellow 

unions, that simply have the same interests as the employers, in 

many cases. 

So the changes from 2016 in Mexico are really important, but 

they are not enough. We still need to see laws and regulations enacting them and implementing them, and then we need to see enforcement, and see how they are being implemented in practice, because workers have a long experience of changes on paper not 

translating into reality. 

Mr. PASCRELL. Thank you, Ms. Drake. 

Mr. CHAIRMAN. 

Chairman REICHERT. Thank you, Mr. Pascrell. 

Ms. Jenkins, you are recognized for five minutes. 

Ms. JENKINS. Thank you, Mr. Chairman. And I thank the members on the panel this morning for being here. 

Foreign investment is a critical tool that allows American manufacturing services and agriculture industries to grow and to thrive, 

allowing producers in my district, such as those in and around 

Atchison and Topeka in the northeast, or Pittsburg in the southeast of my district, to reach the 95 percent of consumers that exist 

outside of the U.S. borders. And boosting income, they contribute 

to our economy. 

In fact, U.S. economy is—that invest overseas are responsible for 

the majority of U.S. exports, as well as the majority of the U.S.- 

based research and development, both of which support high-payVerDate Sep 11 2014 05:27 Feb 26, 2019 Jkt 033481 PO 00000 Frm 00067 Fmt 6633 Sfmt 6602 I:\WAYS\IN\33481\33481.XXX 33481

ralbany on LAP520R082 with HEARINGS
64 

ing jobs. This investment is typically about reaching foreign consumers or participating in foreign infrastructure, energy, or resource, or—projects. 

While all investors in the U.S., domestic and foreign, benefit 

from protections based and baked into our Constitution and our 

strong legal system such as basic protections against discrimination, foreign seizure, or other forms of unfair action are not always 

available overseas. Investor-state dispute settlement mechanisms 

are one of the most important U.S. negotiating objectives under 

trade promotion authority, and the Administration has been very 

clear that it plans to follow TPA on modernizing NAFTA. 

Mr. Ottensmeyer, perhaps you could respond on behalf of my 

constituents in Kansas. How has the legal protection provided by 

ISDS been important in your investment decisions for the overall 

benefit of products grown or manufactured in Kansas? 

Mr. OTTENSMEYER. Thank you for the question. As I mentioned in my testimony, over the last 20 years, since we have been 

doing business in Mexico, we have invested $4.5 billion with the 

initial investment, as well as capacity enhancements to our rail 

network in Mexico. 

We operate roughly a 6,000-mile rail network in U.S. and Mexico, split pretty evenly: 3,000 miles in the U.S. and 3,000 miles in 

Mexico. We are the only North American railroad that owns and 

controls rail networks on both sides of the border. 

And agriculture is, obviously, important to you. It is important 

to us. If you look at our cross-border trade flows, 60 percent of our 

cross-border movement of freight is export, is south-bound. And the 

vast majority, the largest single commodity by a long margin, is 

grain. 

Mexico is the second largest importer of corn in the world. We 

move about 35 to 40 percent of all Mexican grain in—mostly yellow 

corn imports move on our railroad. And if you visualize a map of 

our rail network from St. Louis to Kansas City, down through 

Shreveport, Houston, across Laredo, into the heart of Mexico, we 

are a perfect pipeline for moving U.S. agriculture, food products, 

grain, corn, soybeans from the major producing regions down into 

Mexico. 

And I would say that, without the investment that we have made 

building the capacity on our cross-border network, those products 

couldn’t move in the quantities that they move today. Truck and 

other means of transportation, large bulk commodities, rail is really the best and most efficient way to move, and I think we have 

been critical to open up those markets for your constituents and 

those in the Midwestern states into Mexico. 

I would like to add, as we look at the future, we see two of our 

largest cross-border opportunities are also export-oriented. And 

they are in the form of refined petroleum products moving from the 

U.S. Gulf Coast into Mexico, which is happening today, and we are 

investing to support that movement, and petro-chemicals, petroleum derivatives, natural gas derivatives, plastic pellets that make 

everything from auto parts to water bottles to electronic casings. 

Those two opportunities, we think, are going to be very substantial 

export opportunities from the U.S. to Mexico. 

Ms. JENKINS. Thank you. 


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Mr. Chairman, I yield back. 

Chairman REICHERT. Mr. Kind. 

Mr. KIND. Thank you, Mr. Chairman. I want to thank our panelists for your testimony here today. And, Mr. Chairman, I am glad 

we are moving forward with this hearing. I think it is desperate 

that this Congress leans in now to try to get trade back on the 

rails, in light of the dysfunction and the conversation that took 

place in last year’s presidential campaign, and the start that we 

have so far this year. And hopefully, this will tee up some additional hearings, so we can continue to get feedback and also hold 

this discussion of how we can get back in the game. 

And I am all for NAFTA renegotiation, and try to modernizing— 

bringing it into the 21st century, in light of the deficiencies of the 

current agreement. But, you know, these renegotiations, these oneoff bilaterals, only get you so far. You know, it is in the multi-lateral context, where you have certain synergies and tradeoffs that 

you normally don’t get in bilateral negotiations. 

And that is why, at a previous hearing not so long ago in this 

Committee, I said that our rejection of trying to find a path forward with the Trans-Pacific Partnership trade agreement will go 

down as one of the great strategic mistakes that we made as a 

country in the 21st century. And how we get back in that tent, in 

the fastest-growing economic region of the global economy, the Pacific Rim, is going to be very, very important for our own economic 

well-being, but also diplomatically, and the national security interests that we have in that region, as well. 

Mr. Linebarger, I am glad to hear that, as a major corporation 

in this country, you too embrace the need for us to have enhanced 

labor and environmental standards and protections in any NAFTA 

renegotiation. I couldn’t agree with you more. And I have had the 

opportunity to visit a Cummins plant in Mineral Point, Wisconsin, 

in the southern part of my district, with exhaust emission technology that is taking us to that next generation of where we need 

to go, environmentally, too, with the products that is being made, 

including a Black River Falls plant. 

And these are good-paying jobs with benefits in rural western 

Wisconsin that we are talking about. And Wisconsin, overall, we 

export 60 percent of our products to either Mexico or to Canada. 

So these two countries are vital to our economic well-being. 

And just a quarter of a mile down the road from your Cummins 

plant in Mineral Point is a 220-head dairy farm. In Mexico right 

now is the greatest dairy export market that we have. 

So, my advice to the new Trump trade team was, first, no trade 

wars. That is only going to hurt all of us here in the Western 

Hemisphere. And secondly, let’s try to take what was accomplished 

in the TPP agreement and build upon that. And it seems as if they 

are starting to embrace that concept of not trying to recreate the 

wheel, seeing what these countries have already agreed to do in the 

context of TPP, which was also embracing core labor and environmental standards in the body of the agreement, fully enforceable, 

like anything else that is in the agreement, and go from there. And 

I think that would be a wise approach. 

But Mr. Linebarger, just to get your reaction to this, you might 

understand the skepticism that some of us have on this side of the 


ralbany on LAP520R082 with HEARINGS
66 

dais with an Administration that appears very hostile to worker 

rights, very hostile to collective bargaining rights in this country, 

and yet they are trying to move forward on a NAFTA renegotiation 

that takes May 10th and builds upon that by including labor and 

environmental standards. Why do you think this is important in 

any NAFTA renegotiation? 

Mr. LINEBARGER. Thank you very much for your question, 

Congressman. I couldn’t agree more with the disappointment with 

TPP, as you know. I spent a lot of effort on that. 

But I would just say that I think the labor and environment 

standards are important to keep strengthening over time. Many of 

these countries are starting from a place that the U.S. was many, 

many years ago. And just like we want with economic development, 

when we operate in other countries what we are trying to do is 

bring the communities in there up to a better standard of living, 

better benefits, better for their families, just as we are trying to do 

in the United States. 

So, as a company, we feel an obligation to all stakeholders. It is 

not just shareholders, it is employees, it is communities and families. That is the way Cummins was founded. That is the principles 

by which we operate. It is the values that we all share. So everywhere we go we want to do that. 

But we are starting from where we are starting from. And what 

we are trying to figure out is how to make sure that we move up 

through economic development and through raising standards. 

And I think just trying to establish those standards and then enforce them—I do agree with the panelists that I share the table 

with, that enforcement is important with whatever standard we 

put in there. I think we did miss some beats on all of our standards, where—our trade agreements—— 

Mr. KIND. Well, and I—— 

Mr. LINEBARGER. We didn’t enforce enough of what we 

had—— 

Mr. KIND. And I want to commend you, because you have been 

consistent on that message, with the visits that we have had, the 

conversations that took place on the Hill and off, and that is important. 

But—and I want any trade agreement, whether it is a renegotiation or a future one, to be elevating standards up to where we are 

so we start to level the playing field, you know, for our workers, 

for our businesses, for our farmers that is fully enforceable, that 

can expand the opportunities on a global basis. And hopefully, that 

will be a shared goal that we have with the Administration when 

it comes to NAFTA renegotiation. 

Thank you, Mr. Chairman. 

Chairman REICHERT. Thank you. 

Mr. Paulsen. 

Mr. PAULSEN. Thank you, Mr. Chairman, and thanks, everyone, for being here today. 

I do believe it is absolutely necessary and critical that strong digital trade provisions also be included in any NAFTA modernization 

to better reflect the realities of the economy today, including issues 

that are related to the digital economy. 


ralbany on LAP520R082 with HEARINGS
67 

In fact, today—I co-chair the Digital Trade Caucus and, in fact, 

today my co-chair, Suzan DelBene, and I are going to be sending 

a letter to the Administration, outlining some of the areas of digital 

trade that we think should be prioritized in the negotiations. This 

includes everything from promoting cross-border data flows, eliminating data localization requirements to streamlining customs procedures, and, of course, prohibiting unnecessary regulation of digital services. 

Mr. Linebarger, you spoke a little bit about adding thousands of 

new high-quality jobs being added at Cummins exclusively because 

of access to international markets. And NAFTA and other trade 

agreements have been a big part of that. 

And last fall I remember visiting the facility of Cummins in 

Fridley, Minnesota, had a chance to visit with some of the 1,200 

employees that are there, seeing the power generators, seeing the 

exports that are going right out the door to other markets. 

From your perspective at Cummins, and the work you do with 

your supply chain and with other American business leaders, can 

you talk a little bit about how important it is for digital trade for 

the success of your business, for American businesses, and how important is it that we include digital trade provisions in a NAFTA 

modernization? 

Mr. LINEBARGER. Thank you for the question, Congressman. I 

would just say that in today’s economy digital is a critical element 

in every business. All of us in business, in whatever field, are having more and more information and digital-related activities 

where—and so that is just part of the economy. To not have it in 

a trade agreement is just ignoring the—where the economy has 

gone. So we definitely have to have it there. 

Just in our case, in Cummins’s specific case, we now have 

telematics on all of our engines that go in trucks, and also in other 

equipment, which allows us to gather information to give customers more proactivity with their equipment. This is now required 

by nearly every producer. And I think it will be the basis of competition in the future, even more than some of the sort of manufactured goods that we make today. 

So, as things move forward, this digital area is going to get more 

and more important. Our ability to compete freely, and to be able— 

and not be restricted by where we have to keep data, how we have 

to gather data, these kind of things will become more and more important. And every manufacturer—it is not just going to be computer companies or banks that are going to be worried about that. 

Every one of us is going to be concerned about this, and it is going 

to be a major source of income and competitiveness. 

So I would just say that, without having it, we are ignoring 

where the economy is. And, for Cummins, it will be a critical element of the value that we sell to customers. 

Mr. PAULSEN. You know, this is interesting, because a lot of 

people think of digital trade only involving IT companies or hightech companies. And actually, it is about manufacturing, it is about 

e-commerce, it is about making sure you are selling your products 

throughout your supply chain. It—just all that integration. 

Mr. Ottensmeyer, maybe—any other thoughts or feedback on the 

same topic? 


ralbany on LAP520R082 with HEARINGS
68 

Mr. OTTENSMEYER. I would agree that the digital economy has 

advanced, you know, just tremendously in the last few years, and 

the pace is picking up. It is important to us, in terms of safety, security, efficiency of border crossing. I would say, more importantly, 

it is important to our customers, in terms of being able to track and 

trace and have information that allows their supply chains to operate at an optimal level. 

But just going back—and again, the Chairman’s question about 

efficiency of border crossing—we are working on some, I think, very 

important and potentially break-through initiatives at the border to 

improve the way trains cross. 

I mentioned earlier, if you look at the nature of our business, we 

handle large bulk commodities. Opportunities like refined products 

are going to require a more efficient border crossing process. And 

it is a lot easier to change processes and use technology to enhance 

capacity to allow for larger U.S. exports of products like gasoline 

and diesel than to build new bridges. Bridges are very, very expensive, and very hard to get permits and to build. So changing the 

processes that we currently use to move trains across the border 

is going to be necessary to take advantage of the export opportunities that we see in our business and we see for the country. 

Mr. PAULSEN. Thank you, Mr. Chairman. 

Chairman REICHERT. Mr. Doggett. 

Mr. DOGGETT. Thank you very much, Mr. Chairman, and 

thanks to each of our witnesses. 

We, of course, know that, regardless of the subject, President 

Trump has little interest in cooperating or collaborating with 

Democrats in trying to find solutions to the problems that our 

country faces. 

But listening to the comments this morning of my Republican 

colleagues about the many advantages of NAFTA and all that it 

has done that has been good for our country, I have some difficulty 

in reconciling that with what President Trump is saying about it 

being the worst trade deal in the history of the country, about it 

being a disaster. And I wonder if he is even collaborating with our 

Republican colleagues in designing new trade policy. 

I represent the City of San Antonio, in which NAFTA was 

signed. And for San Antonio and Central Texas, NAFTA has not 

been a disaster. It has, overall, been a benefit. It has been a disaster for the women who worked at the Levi plant in San Antonio, 

and it has been a disaster for some other parts of the country. But, 

on the whole, in our area there have been a number of economic 

benefits from NAFTA. 

Some people say that, given the total inconsistency between 

President Trump, not only—and our Republican colleagues here 

today—but they point to the inconsistency between him and his 

own advisors. Yesterday’s announcement of the NAFTA objectives 

appears to demonstrate, again, that total inconsistency, because it 

sounds like the objectives are kind of a warmed-over TPP, which 

he has already rejected, that that is the place that he wants to 

begin. 

And others have speculated that he will discover that trade policy, not unlike health care policy, is complicated, something all of 


ralbany on LAP520R082 with HEARINGS
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you knew, and that perhaps his response will be the same as we 

are hearing today: Let’s just forget it and repeal it all. 

Mr. Linebarger, I found a lot of merit in your testimony, the emphasis on the integrated supply chains, which I see for some of our 

companies there in San Antonio and throughout Texas. What 

would be the effect of just saying we have had enough, it is too 

complicated, Republicans can’t agree among themselves, as on 

health care, and just terminating NAFTA? Could it really be done, 

given 20 years of integrating the supply chains? And what would 

the impact be on American business and American workers? 

Mr. LINEBARGER. I think the impact would be significant and 

very detrimental, and not only to large companies, by the way. 

There is no question that large companies like ours would have not 

only higher costs and less competitiveness, but we would have 

lower sales and, therefore, we would have to reduce our workforce. 

That is my true belief. 

I also think, though, for small companies. Cummins has more 

than 2,500 U.S. suppliers. Many of them are small and mediumsized companies. These companies are now very sophisticated in 

how they participate with Cummins in international trade. Many 

of them started off as just a few hundred people in one small town 

in the Midwest or some other part of the country, and then, because they have started to supply Cummins, they have grown. And 

many of them have even opened overseas offices, things they 

couldn’t have imagined years ago, and have added employees at 

home now to sustain business they have outside of the U.S. 

So small, medium-sized, and large companies all benefit as part 

of this regional supply chain that NAFTA has created. So I am 

very convinced that terminating NAFTA would have a very, very 

detrimental effect on the U.S. economy—— 

Mr. DOGGETT. Thank you. I appreciate the fact that you also 

advocate enforcing environmental and labor conditions, and find it, 

again, totally inconsistent with what President Trump has said, 

that he is proposing to cut not just by a little, but by 80 percent, 

a bureau in the Labor Department that is focused on monitoring 

the treatment of foreign workers, and that that has been condemned by a number of American businesses, along with the AFL– 

CIO, and that the White House has no explanation of why it would 

reduce the enforcement by 80 percent. 

Ms. Drake, you have focused on the investor-state protection, 

which is something that has concerned me, along with the failure 

to enforce environmental and labor regulations. Is there any reason, particularly with Canada, why we can’t rely on a mature court 

system to adjust any differences that we might have? Don’t American businesses deal in the Canadian courts all the time? 

Ms. DRAKE. I have seen no evidence that we can’t trust Canadian courts. And I have been having this debate with folks who 

support ISDS for quite a long time. And it is really when businesses ask for certainty upon investment, there shouldn’t be any 

guarantee of profits or certainty of profits. And it is workers who 

often don’t have any certainty under trade agreements. 

Mr. DOGGETT. Thank you. Thank you all. 

Chairman REICHERT. Thank you. 


ralbany on LAP520R082 with HEARINGS
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Mr. Kelly, we are going to go two to one now. So Mr. Meehan 

will follow Mr. Kelly, and then we will go to Mr. Levin. Mr. Kelly. 

Mr. KELLY. Thank you, Chairman. Thank you all for being here. 

Just to kind of look at what we are talking about so far, I think 

it is pretty hard to look at six months of the Trump Administration 

and come up with some kind of a definitive idea that they haven’t 

gotten things done yet. That is kind of amazing to me, after sitting 

here for 8 years and watching the erosion of jobs across the board, 

5 million jobs, 70,000 plant closures, and saying, ‘‘You know what? 

This Trump needs to really get on the ball, he just hasn’t acted fast 

enough.’’ So I appreciate my colleagues weighing in, and we are 

getting ready for the 2018 elections, so I guess we start the campaign now. 

Let me just say this, though. I am really concerned with you all 

being here today because a lot of the things that we have talked 

about, a lot of the jobs we have lost, have not been because of trade 

agreements. A lot of them have been because of tax policy and regulation policy. People aren’t leaving the country because they don’t 

like America. They are leaving the country because they find it is 

too hard to stay profitable in the global economy. 

But one thing I will say about NAFTA. NAFTA has been very 

good in a lot of cases, has it not? Some of us would look at that. 

I know in Pennsylvania it has been important, especially to the ag 

people. 

So, for the record, Mr. Chairman, I would like to submit a letter 

by Mr. Smucker and also Mr. Kind and myself, and co-signed by 

45 other Members, kind of a do no harm. We talked to Ambassador 

Lighthizer to make sure that we are doing the right things when 

it comes to NAFTA. 

Chairman REICHERT. Without objection. 


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C!Lottgr.e.s.s of tl1.e l!tttit.et) ~fates 

ttlus(Jillgton, D(!; 2DSIS 

The Honorable Robert Lighthizer 

United States Trade Representative 

600 17111 Street NW 

Washington, D.C. 20508 

Dear Ambassador Lighthizer, 

June 29, 2017 

Our nation's agricultural industry plays a vital role in providing our nation's food supply as well 

as the global food chain. An integral part of the domestic economy, the agricultural sector supports 

more than 21 million American jobs. TI1erefore, ns the United States begins to renegotiate the 

North Americon Free Trade Agreement (NAFT A) with Canada and Mexico, we strongly urge you 

to prioritize the interests of the U.S. agricultural industry. 

Since the implementation ofNAFTA, U.S. agricultural exports have more than quadrupled from 

$8.9 billion in 1993 to $38 billion in 2015. The growth in U.S. agricultural exports is largely 

attributable to the removal of significant trade bnrriers nrnong NAFT A countries allowing 

American farmers to more easily reach new markets resulting in increased U.S. revenue. For 

instance, the U.S. cattle industry has benefited from expanded market access through the 

development of two $1 billion export markets in Canada and Mexico for American beef products. 

Largely small business owners, U.S. farmers often lack the financial resources to anticipate and 

respond to harmful government policies that negatively impact their farming operations. Recently, 

for e)(nrnple, American dairy and poultry producers have been threatened by Canada's tradedistorting non-tariff policies, as well as steep tariffs and quotas on U.S. dairy and poultry products. 

These protectionist policies have threatened the vitality of America's dairy and poultry industries 

across the country. 

We, therefore, welcome the opportunity to renegotiate NAFTA in order to address these 

discrepancies and other harmful trade policies in order to improve the competitiveness of the U.S. 

agricultural industry. Concomitantly, it is equally imperative that we preserve all the relative trade 

gains NAFTA has provided to American farmers' and ranchers' during the renegotiation process 

to allow for the U.S. agricultural sector to compete globally on a level playing field. 

Thank you, in advance, for recognizing the importance of trade to the economic security of our 

agricultural industry as you begin the renegotiation process ofNAfTA. Our farmers and the local 

communities they support will depend on a new trade deal that prioritizes the interests of U.S. 

agricultural producers while seeking to further expand U.S. market share in both Canada and 

Mexico. 

Sincerely, 

PFIINT£0 ON MCYCU:O PIJI(III 
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Mr. KELLY. Is there any of you that would disagree with the 

fact that a 23-year-old trade agreement shouldn’t probably be 

looked at to see is it operating under the current world that we live 

in? Is there anybody that disagrees that we should not take a look 

at that? 

[No response.] 

Mr. KELLY. You have all offered suggestions of what should be 

in that new trade agreement, right? Okay. I just wanted to make 

sure we are on the same page with this, because I really sometimes 

get baffled as to where we are going with these questions. 

But for all of you to come in here—I am an automobile dealer. 

I sell Chevrolets, I sell Cadillacs, I sell Hyundais, and I sell Kias. 

Of all of those products, there is not one that is just made solely 

in the United States. It is impossible to do. So, as we have changed 

and gone to a global supply chain, how would we now change back, 

and how quickly could that be done? 

Mr. Linebarger, I know what you are talking about, and I know 

that if I were to bring out Monroney labels right now—and, by the 

way, the Monroney labels are the stickers that are on the windows 

of cars and trucks that are produced—and if you go to the far righthand corner, and down in the left-hand side, it says ‘‘supply content.’’ It would be very hard for somebody to differentiate between 

which car was made in America, the Hyundai Elantra or the Chevrolet Silverado, because the Hyundai Elantra is actually built in 

Montgomery, Alabama, and the Chevrolet Silverado is built in 

Mexico, has about 38 percent U.S./Canadian—by the way—parts 

supplied. The rest of it comes from Mexico. 

So how do you re-engineer that? How do you, in a—in six 

months, re-engineer that, and how do you get 70,000 plants to reopen, and 5 million jobs to come back? And, from your perspective, 

from your perspective looking at NAFTA, if you all go right down 

the line, please tell me, if you can—and I know it is hard to do, 

it is hard to articulate—what you would like to see in that new 

agreement, or what should we be concentrating on that grow American jobs and make it safer for workers all around the world. 

But more importantly, with the clout that we have, with the 

clout that we have, we should be able to drive bargains that come 

far more favorable to us. 

So, Mr. Linebarger, if you would start, and if you would all right 

go down the line, I would appreciate just hearing from you. 

Mr. LINEBARGER. Yes, again, my strong recommendation for 

modernizing the agreement is add more parts of the economy to it. 

The U.S. is incredibly competitive in services, in IT, in technical 

areas, and there just are not enough protections in the old agreement for those areas. 

We talked about IP protection, we talked about making sure 

there is fair trade and where you need to keep your technology and 

your IT. I think having more of those modernizing things is really 

important. 

As I mentioned, I also think it is important to have enforceable 

labor and environment standards, because we are all trying to 

move the standards up. 

Mr. KELLY. Absolutely. 


ralbany on LAP520R082 with HEARINGS
76 

Mr. LINEBARGER. That is an important thing to do. That is 

where I would focus my attention, is on the parts that modernize 

the agreement, and the parts that make sure we add in standards 

that keep us all raising them up. 

Mr. KELLY. Yes. Mr. Ottensmeyer, there is nothing like a steel 

wheel and a steel rail. That creates an awful lot of jobs, and really 

supports Social Security. We need to get more people in the workforce. 

Mr. OTTENSMEYER. I would agree with what my colleague just 

said, expand it, look at—and again, I think that there are opportunities in front of us today in the form of energy markets—Mr. 

Arriola can talk more about those—that I think could be substantially opportunities to improve exports, increase exports. 

Infrastructure is going to be needed, so we will do our part and 

invest in infrastructure on both sides of the border. But I also 

think some of the regulatory relief that is taking place, particularly 

in energy markets, is going to make it easier for U.S. producers to 

tape those markets. 

Mr. ARRIOLA. Congressman, as you said, a lot has changed in 

the last nearly 25 years. The energy markets were not open 25 

years ago. 

Mr. KELLY. Absolutely. 

Mr. ARRIOLA. Today Mexico is one of our best trading partners. 

And, as I mentioned, we have a trade surplus because of the natural gas and liquid fuels that we send to Mexico. So making sure 

that the new, modernized NAFTA agreement recognizes those new 

open markets so that it is codified in the agreement we think is 

very important. 

Secondly, ISDS is not theoretical. It is not academic. It is for 

real. For companies like ours and industries like ours, that invest 

and put infrastructure in the ground that is there for 20, 30, 40 

years, it is for real. 

We had an experience in Argentina where, overnight, the government changed the rules and regulations. American companies need 

to be treated fairly, and need to have access to a tribunal that can 

think fairly. 

Chairman REICHERT. Thank you, Mr. Arriola. 

Mr. Meehan. 

Mr. MEEHAN. Thank you, Mr. Chairman. And I thank the panel 

for your insights into the broad spectrum of issues that are impacted by the purported agreement, and the opportunity for us to 

go back and revisit some areas. 

But significantly—and I think Mr. Linebarger put his hand on it 

the most—we are growing in certain areas that were never part of 

the original agreements. And my colleague, Mr. Paulsen from Canada—from Minnesota—— 

[Laughter.] 

Mr. MEEHAN. Hey, he is a pretty good hockey player, so I always think that he is from—focused on intellectual property protection, the cross-border data flow, and other important protections. 

I think one of the things that is often misunderstood when we 

talk about e-commerce is the tremendous growth that is taking 

place in this, and services that are provided. In addition to the mechanics, so to speak, that are part of the materials that you send 


ralbany on LAP520R082 with HEARINGS
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over, the digital information that is in the actual engines and 

things which need to be able to operate across borders, the United 

States has actually had a surplus of $159 billion in terms of services that are provided, but it requires that we have got protections 

in three critical areas. 

One is cross-border data flow to enable, as you have identified, 

Mr. Linebarger. The second is that we can’t then inhibit that by 

virtue of creating responsibilities for you to localize data in a particular nation. And then, third is when you do have information 

that is being traded, and that you have got certain kinds of intellectual property, that we have got appropriate protections that recognize and protect against the inappropriate use of that. 

Can you speak, Mr. Linebarger, to how significant it is that we 

not only look at this in terms of assuring that both Canada and 

Mexico—that we visit areas, some of which—Canada, for example—does look at localization in some areas, intellectual property 

protection is not quite what it has right here—how it is important 

that—not only that we work through those areas so that we modernize an agreement, but, as significantly, that we look at this as 

a paradigm that, if we can work through these issues to actually 

enhance some of the discussion that took place during TPP, that 

we may be able to create the kind of a model that we can replicate, 

globally. 

Mr. LINEBARGER. Thanks for the question. And I really agree 

with that. I think it is important. Congressman Kind mentioned it, 

too, that what we—when there are—when there is access to customers and there are a set of rules that are reasonably standardized, American companies can win. We have an incredibly capable 

workforce, we have talented people here, and we can win in other 

markets when the playing field is even close to level, is my opinion. 

So, some rules to live by. And the ones that you are mentioning 

are the ones that we want to begin to standardize and codify and 

get more countries to adopt, because those are the rules of the 

modern economy. And when the rules are there, we can win. So I 

would strongly agree that trying to push into areas, the new areas 

of the economy, make sure there is a standard set of rules that we 

can adopt in other trade agreements, bilateral or multilateral, is a 

really important thing that we need to do. 

I was hoping we would get it with the TPP, but now—we didn’t, 

but now we have more opportunities, I think, to do that with 

NAFTA. 

Same was true with labor and environment, by the way. All 

these standards are areas where, if we get them in, we have them 

codified, and we can then move on from there and continue to raise 

our standards and improve the way that the international trade 

works, and so there are not so many violators, and it is not so easy 

to violate. That is, I think, what is going to help good, responsible 

companies to do well. 

The other two areas you didn’t mention I would highlight would 

be state-owned enterprises. There are still many operations where 

state-owned enterprises are in. Sometimes that is an okay thing to 

do. But if they are not operating in an economic way, in a fair competition way, that can essentially exclude U.S. companies from participating anywhere near that industry. 


ralbany on LAP520R082 with HEARINGS
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And the last is national preference rules, which seem advantageous, as long as you are the nation putting them in. But the 

problem is when the other nation puts them in, it essentially excludes you from those industries. And I would just mention that 

some of the most competitive industries we have—banking, insurance, other IT-related industries—are areas that other countries 

like to put national preference standards. So if we have them, they 

are going to put those in, and—— 

Mr. MEEHAN. Because that stifles not only innovation, but 

when we have products that are innovations that can have an impact on their markets, it prevents the access to those markets—— 

Mr. LINEBARGER. Right, correct. 

Mr. MEEHAN [continuing]. And prevents that kind of growth of 

what we are talking about has actually been a surplus, when we 

have been able to deliver those kinds of services and innovation to 

foreign markets. 

Boy, I have got a lot of other questions, but the time has run out, 

and I appreciate your answers. 

And, Mr. Chairman, I yield back. 

Chairman REICHERT. Thank you. 

Mr. Levin. 

Mr. LEVIN. Thank you, Mr. Chairman. And I think this panel— 

perhaps it hasn’t been planned that way—has really helped us get 

to the nub of the issue. If you look at the—all of you except for Ms. 

Drake and the others on behalf of business are testifying that 

NAFTA has been a plus. Well, the President has said the opposite. 

If you look at the surplus and deficit figures, they tell the story. 

There is, with Mexico, a substantial surplus in services. In goods 

there is a deficit of over $55 billion last year. And that has happened—it is no surprise. 

The big issue in NAFTA, what we fought over, were labor and 

environmental standards. We had already seen considerable parts 

of American industry move to Mexico. The maquila dynamic, it was 

already there. And what was done in NAFTA was not only to have 

a side agreement, so called, over our objection, but it was totally 

unenforceable. 

So, what happened is what we predicted, and that was that more 

industry would move to Mexico. And that happened in a number 

of industries, including the automotive industry: a dramatic shift 

of production from the United States to Mexico. And the differential was not automation, it was labor costs, predominantly. 

So, today the Mexican auto worker receives 14 percent of what 

is paid in Michigan and other places, about $2.40 an hour. And 

Mexican manufacturing productivity has increased 80 percent, 

while compensation for workers there has slid 20 percent. 

So, we are going to have to address that problem, or else there 

is going to be more and more slippage of production to Mexico and 

more jobs lost. One can argue whether it is two million, a million. 

You can also argue how much the impact has been on lowering 

wages in the U.S. I think undoubtedly the two-tier structure in the 

UAW plants resulted from the shift to production to Mexico. 

And so, while I don’t agree with the super-populism of this President for one second, I do think there is a real issue here. 


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Mr. Linebarger, you said—and that is why I think this is a useful hearing—you said, ‘‘We believe that NAFTA’s environmental 

and labor standards should be strengthened and incorporated into 

the updated agreement itself.’’ The only way that is going to happen is if Mexico dramatically changes its laws and practices. And 

if they don’t do that before we vote, there is never going to be an 

assurance that it will ever happen. 

And so, I think we need to ask you in the business community 

who say that, as well as those in the labor community. And those 

of us who care about worker wages in the U.S. and the impact competing with Mexico workers who are getting a fifth or a sixth in 

the auto parts industry—it is even a smaller percentage in the auto 

parts industry; they are making a buck an hour in some cases— 

and more and more companies have moved their parts production 

to Mexico. 

So this Administration, all of us, need to get serious. And the 

only way that we are not going to continue to lose production to 

Mexico in autos and beyond, and continue to lose jobs, is if steps 

are taken that auto workers in Mexico who today have zero rights 

will be able to have their international basic rights. That is the nub 

of this issue, in terms of the deficit in goods. 

Chairman REICHERT. Mr. Reed. 

Mr. REED. Thank you, Mr. Chairman, and thank you to our 

panel here today. I wanted to focus in a little bit—and I appreciate 

the efforts the Administration is doing in modernizing NAFTA and 

bringing it up to current standards. 

I mean over 22 years this agreement—for example, take the energy sector. I want to focus there a little bit and then touch upon 

how that impacts U.S. manufacturing, because I am a firm believer 

in U.S. manufacturing. On the—when they started on NAFTA, the 

Mexican energy market was essentially off limits. And as you noted 

in your testimony, that has been opened up a little bit. 

But I was wondering, Mr. Arriola, from an energy perspective, 

what provision should we be focusing on? How can we strengthen 

access to that marketplace? And what will that do to the overall 

cost for manufacturers, in your opinion? 

And then I will go to Mr. Linebarger as a manufacturer—proudly, in my district—with 1,500 folks working there in Jamestown, 

New York, and we appreciate his efforts. 

So maybe expand a little bit on the energy sector and what we 

need to focus on there. 

Mr. ARRIOLA. Sure. Thank you for the question, Congressman, 

and thank you for your letter to Ambassador Lighthizer, talking 

about the importance of free-flowing energy across all borders. 

One of the things I would touch on is the importance of crossborder infrastructure processes. And when you look at what has 

been happening in the energy world, the developments, especially 

on the electric side, have been very beneficial, both to the United 

States, as well as Mexico and Canada, from a grid reliability standpoint. 

So, as you know, these projects take a lot of time. And certainty 

is important to know what the schedule is, what the approvals are 

required. So what we would like to see in a modernized NAFTA is 

to have additional rules set in place, how the coordination is going 


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to take place, not taking away the sovereignty of approvals from 

each country, but laying out a process so that companies like ours 

and sectors like ours know what to expect and how to manage the 

process, and how each country is going to be dealing with it. 

We think that that helps a lot with getting the investment done 

in a timely basis, which actually helps to produce additional jobs 

here in the United States, as well. 

Mr. REED. I appreciate it. And in regards to U.S. manufacturing, Cummins being a great example of a great U.S. manufacturer, how would that energy policy equate to your position in the 

world marketplace? 

Mr. LINEBARGER. Yes, it is a great point. I mean, obviously, 

lower energy costs will benefit us significantly, especially if they 

can be done in a sustainable way. And so, being able to operate energy markets more efficiently and have more scale there will benefit—even—especially as technology changes occur. It is definitely 

beneficial. 

The other thing is that, you know, that Mexico began to restructure its own energy industry, because it has the enterprise there. 

They were very restrictive to buying from U.S. companies. Now 

they buy equipment from U.S. companies. They have just started 

restructuring that, though. So I would just encourage those participating in the NAFTA renegotiating process to continue to push 

them to continue restructuring, don’t go backwards. Because it is 

politically challenging for them to restructure that sector of their 

economy. So we want to encourage them to do so. 

And I think that is one of the real benefits of a thing like 

NAFTA. If we want to restructure Mexico’s economy, be it labor 

standards or energy restrictions, the economic activity represented 

by NAFTA is the way to drive them to do it. We can’t just decree 

that they raise labor standards or that they open their energy sector. It is only the benefits they receive from economic activity with 

the U.S. that drives them to do it. 

So we should continue to push Mexico to raise standards, open 

markets. And I think, through renegotiating NAFTA, and through 

the benefits from NAFTA, we can do it. 

Mr. REED. I appreciate that. With that, Mr. Chairman, I will 

yield back. 

Chairman REICHERT. Thank you. 

Mrs. Noem. 

Mr. Holding. 

Mr. HOLDING. Thank you, Mr. Chairman. The—as the very 

happy owner of a pair of Cummins engines, I am always watching 

the innovation and new technologies that come out of Cummins, 

with their new engines. So I would ask Mr. Linebarger how important is being able to access customers outside of the United States 

in Mexico, Canada, and elsewhere for Cummins’s ability to keep innovating and coming up with new technologies and more sophisticated engines. 

Mr. LINEBARGER. Thank you for that, Congressman. And in 

your segment that you mention is a perfect example. We are in the 

marine engine segment. It is a relatively small segment. So, in 

order to produce the technologies relevant for the marine segment, 

we have to invest a lot of money, because that segment has 


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changed a lot in technology, both in electrification and cleaner energies—cleaner technologies to clean up air and, of course, not pollute in the water. 

So there has been a lot of technology spent—again, we spent $700 million in a year in R&D. And in order to participate in sectors of that size, you need economies of scale. It is really important 

that we can access consumers around the world. 

And, by the way, there are companies who compete with us 

based in all those countries who have decided that they need to 

compete with us and beat us in the United States. So, in order to 

compete, we need to continually invest, and continue to build 

economies of scale through sales. 

So accessing those customers is important. And again, through 

my examples like Seymour, Indiana, Rocky Mountain, North Carolina, and Columbus, Indiana, we can compete. Our plants can compete. 

I heard some stories about how, after NAFTA went in, plants 

closed and moved to Mexico. But, in fact, what we did was we 

closed our engine assembly plant in Mexico and moved it to Jamestown, New York. And the reason we did that is we had very large 

scale in Jamestown, New York. And, despite labor differences, we 

are more competitive producing engines in Jamestown than we 

were in producing a very small number in Mexico. 

We make other products in Mexico that we produce at high volume, and they are quite competitive there. So, while labor cost is 

a factor, it is a relatively small factor of our total cost relative to 

R&D, capital investment, and other flows. So we feel like we can 

compete very well from the U.S. when we have access to customers 

abroad. 

Mr. HOLDING. Well, let’s use a specific example. So, of course, 

your favorite facility—my favorite facility is in Rocky Mount, 

the—— 

Mr. LINEBARGER. That is a good one. 

Mr. HOLDING. And so, if you could think about Rocky Mount, 

and tell me how market access helps create and retain jobs in your 

Rocky Mount facility. 

Mr. LINEBARGER. So Rocky Mount, North Carolina, produces 

our mid-range engines for the entire North and South America region. It produces engines for nearly every sector. It is one of the 

only plants where we export to China. We export natural gas engines for buses to China from Rocky Mount, North Carolina. 

That plant, in the downturn in the U.S., our production dropped 

by nearly 40 percent. And at the lowest point we were down almost 

two-thirds of our production, because the economy was so weak in 

the U.S. right after the financial crisis. And it was our growth and 

business outside the U.S. that allowed us to continue to maintain 

reasonable levels of employment in that plant, and then hire back 

from that very devastating downturn. 

So we find that the international business not only allows us to 

grow our business, to reach economies of scale, but also protects us 

against economic cycles that we have in the U.S. 

Mr. HOLDING. Staying on the topic of innovation and new technologies, you know, I do have some concern that both Canada and 

Mexico have too often fallen a bit short in respect to intellectual 


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property enforcement. And, of course, this was reflected in the special 301 report the USTR issued just earlier this year. 

So, Mr. Linebarger, you are nodding your head. Do you have any 

comment on that, any experience that you would like to share with 

us? 

Mr. LINEBARGER. I do think that—like we were talking before, 

we haven’t had enough focus on IP in our agreements, nor have we 

been as quick to enforce rules that we should be enforcing. And 

yes, we have had situations—more in Mexico than in Canada— 

where intellectual property has been—where people have essentially copied products or taken brand names and used them on 

other products. So we do feel like it is important. 

We also think it is in the interest of both those countries. Both 

of their—the companies that operate there would like to see IP enforcement for their own benefit. So I think both countries would 

also benefit from having strong IP rules and having enforcement. 

So I think it is an area, again, where everybody wins if we have 

strong standards and then continue to enforce them. 

Mr. HOLDING. Thank you. 

Mr. Chairman, I yield back. 

Chairman REICHERT. Mr. Davis, you are recognized. 

Mr. DAVIS. Thank you very much, Mr. Chairman. And I thank 

you for calling the hearing. I also thank all of our witnesses for 

being here. 

It is indeed a very interesting discussion, and I think of the title, 

which talks about the need to modernize NAFTA. And so I think 

that it is often much easier to talk about what than it is to talk 

about how. Just as I often hear a great deal, after all is said and 

done—somebody said, well, more is often said than done. 

And so the whole question of how do we change situations—Ms. 

Drake, let me ask you. You indicate that we have lost, oh, 850,000 

jobs under NAFTA. Could you tell us what kind of jobs those are? 

And is there any way to reclaim, recoup, or get any of them back? 

Ms. DRAKE. Thank you. So the job losses are in many sectors, 

but you can find concentrations in the auto sector and electronics, 

in textiles, and other manufactured goods. 

The goal of the American labor movement is not to turn back the 

clock or go back to the past, but it is to set up different and more 

balanced incentives, so that the U.S. can capture a larger share of 

new investment. And that is why we talk about it is really important to raise wages in Mexico, so we can level the playing field of 

competition, so that, as companies say, ‘‘We are growing, we are 

going to invest in new plants,’’ that they might make that decision 

to invest in the U.S. or Canada as much as they might make the 

decision to invest in Mexico. 

They have to think about all things, including labor costs, but it 

is really important not just to get wages up in Mexico, but to look 

at other structures that take away worker negotiating power and 

give additional power to, you know, the employer class. So we want 

to really get those incentives right. 

Mr. DAVIS. When we talk about influencing the behavior of 

other countries, are we talking reality, or are we talking something 

that is so far fetched until people cannot even imagine it? 


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There used to be a Zenith plant, oh, I guess about a mile from 

where I lived. And, of course, all of that shifted from Austin Boulevard in Chicago to Mexico. What do we have to do if we are going 

to influence other countries’ behavior as we negotiate with them for 

trade relations? 

Ms. DRAKE. Well, it is about influencing the behavior of other 

countries, but it is also about influencing the behavior of global corporations, which are powerful actors in the trade space. 

So, to influence the behavior of Mexico, we need to offer them 

something that they want, that they are willing to say, ‘‘We are 

going to raise our labor standards towards international levels and 

enforce them.’’ In exchange, what are they going to get? Additional 

access to the U.S. market, additional assurances about how trade 

is done, trade facilitation—we have to look at what they are interested in. 

And certainly, then the U.S. has to say, ‘‘Before we give you 

these additional things that you want, we are going to make sure 

that you have changed your laws and your practices, and you are 

implementing those promises.’’ And when you are looking at the 

global corporations, we need to make sure that the incentives to invest offshore, whether it is tax advantages, trade advantages, ease 

of exploitation of people and the environment, are really balanced 

by other incentives. 

So we change our rules to minimize tax avoidance. We change 

our rules to say we are going to invest more in infrastructure so 

we are a more desirable place to invest. And we can do that, we 

just really need to think big. 

Mr. DAVIS. Thank you very much. 

And, Mr. Chairman, I yield back. 

Chairman REICHERT. Thank you, Mr. Davis. 

Mr. Rice. 

Mr. RICE. As we said at the inception of this meeting, 95 percent 

of the world’s population lives outside of this country. And that fact 

alone makes it patently clear that our companies need to have access to other countries if they are going to compete. 

We have a very open market here, in the United States. And because of that, companies in other countries don’t necessarily need 

trade agreements to compete on our soil. But other countries are 

not so open, so our companies have to have trade agreements to 

compete on their soil. And I understand that very clearly. 

I will—I do believe that NAFTA has been a net plus for our country, because it has lowered barriers that existed in Canada and 

Mexico. I also believe NAFTA has been bad for my district, because 

we were overly invested, maybe, in low-tech industries like textiles. 

We also had tobacco. And so we were hit very hard. Some of the 

rural areas in my district were hit very hard with NAFTA and 

what has happened with tobacco, and we still haven’t recovered. 

So, on the one hand, we need to protect your access. You know, 

in the train business, in the energy production and provision business, we need to make sure your access is protected. On the other 

hand, I don’t want to do anything to incentivize more American 

jobs, Ms. Drake, to go overseas. So this is a delicate balancing act. 

And in—you know, we hear—I hear your concerns about labor 

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lectual property protection, and currency manipulation. I understand all those things. And giving you—those are things that are 

important to give you access. But my primary concern is what we 

can do here to make it so competitive in this country that other 

companies don’t want to move overseas. 

I think that, you know, we have divorced tax reform from this 

discussion, but I think perhaps that is the most important thing we 

can do for trade, and making our companies more competitive. 

Ambassador Lighthizer was here a couple of weeks ago, and I 

asked him, in renegotiating NAFTA, Mexico has a 16 percent border adjustment through a VAT. So how, in renegotiating NAFTA 

with Mexico, are you going to account for that? How can Cummins 

engine, when they are making a decision about where to locate 

their new plant, if we have free trade with Mexico—which I certainly want—how are you going to offset that 16 percent border adjustment tax? 

And he answered me by saying, you know, that is a real problem. 

That is not a very satisfactory answer. 

So, I think that certainly renegotiating NAFTA is important. I 

think my district has suffered because of it. I want to see NAFTA 

renegotiated to make it fair for American companies. But I also 

want to see us working other areas to make our country competitive, so that we are not moving jobs overseas. 

Mr. Linebarger, do you—first of all, I appreciate your factory in 

Charleston, South Carolina. My wife was a line manager for 

Cummins Engine Company when I met her in 1982. So I very 

much appreciate Cummins. 

You said you closed a facility in—well, 2010, I guess. It was a 

low-volume facility. What facilities do you maintain in Mexico now? 

Mr. LINEBARGER. We have three facilities now in Mexico, two 

in San Luis Potosi, and one in Juarez. Our primary manufacturing 

operations in Mexico now are related to re-manufactured goods. 

These are goods where we have a product in service. It comes back 

after its life, and we basically repair and try to rehabilitate the 

product, and then we add some new parts to it, and then we sell 

it as, essentially, a replacement part with a warranty. And that is 

the primary business we do there. 

We have a couple of other businesses. We make some filters 

there, and some other products, but the biggest—— 

Mr. RICE. Okay, so—I got 17 seconds left. This is my question. 

Mr. LINEBARGER. Okay. 

Mr. RICE. Between tax policy, regulatory policy—I mean I know 

we are not going to compete with Mexico on wages, and I don’t 

even want to try. But I want to know what we can do, so that we 

make it impossible for you to decide to move these divisions to 

Mexico, where you want to be in the United States to be competitive in the world. What can we do? 

Mr. LINEBARGER. Right. I—well, I would just like to emphasize 

a couple of things that you mentioned, and other panelists have 

mentioned. I do think tax reform is a big one, making the incentives that—keeping business and investment outside the U.S. is 

the wrong incentive. 

So something that creates a more—a better tax policy that we 

are not taxing overseas profits and nobody else is, that is a really 


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important part. And it lets people bring cash back to the U.S. And 

reducing the rate, that would be very important. 

The second thing would be infrastructure, which was already 

mentioned. Infrastructure investment in the U.S. would also help 

make it more competitive. So those are the two—if—direct answers 

to your question that I would emphasize. 

Chairman REICHERT. Thank you. 

Mr. RICE. Thank you, sir. 

Chairman REICHERT. Mrs. Noem. 

Mrs. NOEM. Thank you, Mr. Chairman. Mr. Ottensmeyer, I 

wanted to ask you a question, because you talked about—specifically about efforts to do no harm as we go into this modernization 

effort. And I know that we often talk about this deal and how good 

it has been for American farmers. Sometimes we fail to mention exactly how important it is to industries that depend on farmers for 

business, such as your business. 

Our Nation’s best farm ground is in the heart of this country, 

and we rely on businesses like yours to get our commodities to 

market, and to get them so that they could be exported to foreign 

countries. And you have some details about how heavily reliant you 

are on agriculture commodities, which I think is not unique to just 

your rail business. We have got many rail industries that are heavily dependent on agriculture commodities. 

But tell me a little bit about the significant impact that that has 

on your business, and what would happen if we had disruption in 

the kind of opportunities that we have. 

Specifically, I will just speak to my state of South Dakota. We 

export to Canada and Mexico, since we have had NAFTA, over— 

it has increased over $1.2 billion worth of exports, 969 percent increase since NAFTA has gone into place in 1994. So it is significant 

for my state. But as your business is impacted, tell me what would 

happen if we saw a slowdown in what was able to be exported to 

other countries, just from agriculture alone. 

Mr. OTTENSMEYER. I think it could potentially be devastating 

to a lot of communities in rural America, particularly in the Heartland. And I—we have used a graphic, a map, and actually are— 

my written testimony to the U.S. Trade Representative, I would be 

happy to provide, showing, by county, in the middle of the country, 

the percentage of the local economy that is based on international 

trade of agricultural products to two other countries. 

And, you know, it puts a different light on the issue, because 

when you talk about just the shear number of jobs in rural Kansas, 

or South Dakota, or Iowa, Nebraska, the numbers aren’t overwhelming, compared to Texas or Illinois or the East Coast or West 

Coast. But if you look at it as a percentage of the local economy, 

the percentage of local GDP in those counties that is related to 

international trade of agricultural products, it could potentially be 

devastating if those markets didn’t remain open to those farmers. 

And as I mentioned, you know, our largest cross-border commodity—in our case, our international trade is much more tied to 

Mexico. But the U.S. rail industry is very dependent on trade. And 

agriculture, I don’t have the number off the top of my head as far 

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umes and revenues that are tied to agriculture, but it is a very 

large number. 

Mrs. NOEM. I think you have in your testimony that, according 

to a study done by AAR in March of this year, at least 42 percent 

of rail carloads in intermodal units and more than 35 percent of 

annual rail revenue is derived from international trade, which isn’t 

specific to agriculture, but it highly impacts your industry and your 

business. 

And what happens in agriculture so much—that maybe hasn’t 

been discussed very much—is once we lose market share in another country, it is very difficult to get it back. We are already seeing that in some of the Asia-Pacific region countries, where we 

have lost market share because of different policies and changes 

and negotiations, and another country stepped in and filled that 

market share. And it is going to be even more difficult for us to 

get that back. 

So, any disruption, we can’t necessarily go back six months, a 

year later, and fix it and put it back to what it originally was, or 

helpful to make it grow. So thank you for being here today. 

Mr. Chairman, I yield back. 

Chairman REICHERT. Mr. Higgins. 

Mr. HIGGINS. Thank you, Mr. Chairman. Obviously, the North 

American Free Trade Agreement is over two decades old. The 

United States is the richest country in the history of the world. We 

have 5 percent of the world’s population and 23 percent of the 

world’s economy. 

After World War II we had about 45 percent of the world’s economy. All the things that America used to make and sell to the rest 

of the world, now they make and sell to us. In the last two decades, 

we have lost six million manufacturing jobs. Over 60,000 factories, 

manufacturing plants in the United States have closed. 

Obviously, the world wants to trade with the United States because not only are we the richest economy in the history of the 

world, but we are also 70 percent consumption. So we become the 

most attractive market in all the world. 

I often hear that, you know, these trade agreements are negotiated, but there is not much enforcement going on. And while the 

enforcement is talked about with great exuberance, there is really 

no mechanism to do that. 

We are told that the Trans-Pacific Partnership was a trade 

agreement that had to be negotiated in secret, and when it comes 

to Congress, you can vote on it but you just can’t talk about it, or 

you can’t change it. To me, that says watch out. You are probably 

going to lose a lot of jobs. You are probably going to lose your livelihood. And, for the American worker, you are probably going to lose 

your dignity. 

And then we add language called the trade adjustment assistance, which basically says you are definitely going to lose your job, 

we are going to provide you with a little bit of money in the short 

term to get you by, and then, essentially, we are going to forget 

about you. 

So, I think the United States—it is totally appropriate, after two 

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ican Free Trade Agreement. But it has to focus on worker protection for two reasons. 

One is the United States can compete with anybody on a fair 

playing field. We have embraced worker rights and environmental 

regulations because there is a societal benefit that comes with that. 

Others don’t value those things as much as we do. So, while it is 

written in language, it is not enforceable in fact. So we need to do 

those kinds of things. 

Ms. Drake, you had talked about in your testimony item number 

two, which I think is very important and speaks to this issue, and 

that is strong labor rules with swift and certain enforcement. Do 

you want to elaborate a little bit? 

Ms. DRAKE. Absolutely. So no prior U.S. trade agreement, 

whether it was NAFTA, CAFTA, or something later, had enforcement that said, ‘‘Here is the timeline that must be adhered to. Let’s 

consult for this amount of time, and if we haven’t seen—if we have 

seen meaningful progress, great, let’s keep doing it. If we haven’t, 

let’s move to the next step.’’ Nor is there any sort of automatic enforcement, so that citizens could go and say, ‘‘Look, you have promised to enforce, you are not doing it, we want to make sure that 

you do so.’’ 

And so, one of the things that we recommended is how about an 

independent enforcement mechanism in a secretariate that isn’t 

going to say, wow, I am subject to pressures from producers who 

don’t want us to act on labor rights. It is going to be solely focused 

on what is good for workers and what is going to raise wages and 

standards. So that is one way to get at it. 

Mr. HIGGINS. Yes. 

Ms. DRAKE. I think there are a lot of ways to fix it, but we don’t 

have the right answer yet. 

Mr. HIGGINS. Yes. Can I just—a final thought on this. I mean 

the corporate representation here is very, very impressive. You 

have created a lot of jobs, you have embraced innovation into your 

technology to make your companies competitive. And it is admirable, and that is the American way. 

And, you know, I hear a lot of people here whining about China, 

that they cheat on their currency, that they don’t respect their people, that they don’t respect their environment, and that is all true. 

But what you really need to do with China is stand up and compete with them. You know, China just invested $1 trillion in infrastructure to open up China to 27 brand new Asian markets to sell 

whatever they make to those new markets—$1 trillion in investment, infrastructure, roads and bridges to most efficiently do that. 

And our response, in terms of a transportation bill, is seeking 

$1.6 billion to build a wall that we were told that we would never 

have to pay for. That is pathetic. That is pathetic and indicative 

of a country that seems to be capitulating, economically, to China, 

when we should be standing up and competing with them in a 

highly effective way. 

Chairman REICHERT. Thank you, Mr. Higgins. 

Well, thank you to the witnesses who have just testified and answered our questions. As you can see, there are a variety of opinions, thoughts, and ideas on the panel here. 


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But you can walk away with two things to feel good about. One, 

your testimony was excellent, and your answers to the questions, 

along with your testimony, very valuable to us. You heard that. 

And two, you created a moment of bipartisanship, as they all 

agreed the panel was excellent. 

[Laughter.] 

Chairman REICHERT. So thank you all, and I will welcome the 

next panel. And as they are walking up, please be advised that 

Members will have two weeks to submit written questions to the 

answers, and those answers—in writing. Those questions and your 

answers will be made a part of the formal hearing record. Your 

record—our record will remain open until August 1st, and I urge 

interested parties to submit statements to inform the Committee’s 

consideration of the issues discussed today. 

So our second panel is getting seated. 

[Pause.] 

Chairman REICHERT. I would like to welcome our second panel 

and ask them to step forward, which you have got—you have already done. 

Our first witness is Mr. Stan Ryan, chief executive officer and 

president of Darigold, Incorporated. I am proud to welcome Mr. 

Ryan here today from Seattle, where Darigold is headquartered. 

Farmer-owned since 1918, Darigold produces products that are staples around the Pacific Northwest and the globe. 

And thanks for joining us today. 

Our second witness is Christine Bliss, president of the Coalition 

of Services Industries. 

Our third witness is Ms. Althea Erickson, senior director of Global Advocacy and Policy of Etsy, Incorporated. 

Our fourth witness is Mr. Jason Perdue, president of the York 

County, Nebraska Farm Bureau, and he is testifying on behalf of 

Mr. Steve Nelson, president of the Nebraska Farm Bureau. 

Mr. Smith, did you have any comments on your fellow state resident? 

Mr. SMITH OF NEBRASKA. Well, I am glad to have a constituent here today, and I appreciate the accommodation, and I 

wish him well. Thank you. 

Chairman REICHERT. Finally, our fifth witness is Professor 

Susan Helper, Frank Tracy Carlton Professor of Economics from 

Case Western Reserve University. 

Before recognizing our first witnesses, let me note again that our 

time is limited. So you should please limit your testimony to five 

minutes, and your written testimony will be made a part of the 

record. Members should keep their question to five minutes. 

Mr. Ryan, you are recognized for five minutes. 

STATEMENT OF STAN RYAN, CHIEF EXECUTIVE OFFICER AND 

PRESIDENT, DARIGOLD, INCORPORATED 

Mr. RYAN. Thank you, Chairman Reichert. I appreciate the opportunity to address all of you today. I am Stan Ryan, president 

and CEO of Darigold, based out of Seattle, Washington. Prior to 

Darigold, I spent 25 years with Cargill, living in six different countries around the world, and working in agribusiness and global 

trade my entire career. 


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Darigold is a subsidiary of the Northwest Dairy Association, 

which is a cooperative spanning 486 dairy farms across the Pacific 

Northwest. It has annual sales ranging between 2 to $3 billion a 

year, depending on prevailing milk prices and the year. We produce 

over 800 high-quality dairy products, and sell over 40 percent of 

those internationally, or about $1 billion. 

Just like the rest of U.S. agriculture, consistent market access 

and a level playing field is vital to our prosperity. Withdrawing 

from NAFTA would unwind significant progress. Even a status quo 

posture risks a setback, as our global competitors are emboldened 

and aggressively advancing their own trade agendas today, as recently seen by the alarming EU–Japan free trade agreement. We 

must lean forward into trade. 

Over 95 percent of the world’s consumers live outside the U.S., 

often where it does not make sense to grow many crops. The U.S., 

on the other hand, is one of the most competitive and sustainable 

agricultural systems in the world. Trade links these two together. 

Global consumers get quality products at better prices, which supports improved global food security. The U.S., in turn, gets economic prosperity and good jobs. Trade and U.S. agriculture are a 

perfect fit. 

Our most natural trading partners, of course, in agriculture are 

our neighbors. In over 20 years, U.S. agricultural exports to Mexico 

and Canada have more than quadrupled, from 8.9 to $38.6 billion. 

Roughly 1 out of every 10 planted acres in the U.S. goes to Canada 

and Mexico. 

Looking at dairy, we globally export 15 percent of the U.S. milk production today, or approximately $5 billion for a nearly a $4 billion trade surplus. And it is estimated to support 100,000 American 

jobs. It is a jobs multiplier. 

The U.S. dairy industry is a global, low-cost producer with sustainable resources and practices. We have incredibly efficient dairy 

farms, immensely capable dairy farmers, and an overall agriculture 

ecosystem in the United States that sustains our competitiveness. 

Mexico, in specific, is a $1.2 billion export market for U.S. dairy. 

And it is working quite well, frankly. We have a 73 percent share 

of Mexican imports. For Darigold, it is our single largest export 

destination out of about 20 countries we export to. 

Mexico is also the largest skim milk powder importer in the 

world, and export competitors like New Zealand or Europe would 

love to grow there. We need to remove any ambiguity or uncertainty of our commitment to Mexico, reinforce our relationship, and 

cement our trade flows. 

Canada, on the other hand, is more complex and challenging for 

dairy. NAFTA did not open up Canada the way it did Mexico, and 

today they maintain tariff rate quotas of up to 200 to 300 percent. 

Of primary importance today is Canada’s new class seven pricing 

strategy that just came into effect. It essentially matches the lowest prices in the world for milk protein finished products, despite 

Canada having one of the world’s highest raw milk farm gate 

prices, all operating under a state-controlled and state-protected 

system. 

Common sense economics would tell you if it looks and feels like 

subsidized dumping, it probably is. This just started, and it will 


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damage U.S. dairy export shares around the globe. We request that 

Congress work with the Administration to repeal that. 

Of longer-term importance with Canada, we urge you to ensure 

that the Administration seek dairy access that is duty free, just 

like in Mexico, and pursue the same types of benefits. 

In summary, our number-one priority should be to preserve 

NAFTA, at a minimum, while fixing the Canadian dairy situation. 

Furthermore, we also believe it is imperative to have a strong, 

overall agricultural trade policy agenda. We see every day that our 

competitors are expanding their markets, while we stand still at 

home. Besides NAFTA, we encourage you to engage countries such 

as Japan and Vietnam, and establish free trade agreements there, 

as well. Thank you. 

Chairman REICHERT. Thank you. 

[The prepared statement of Mr. Ryan follows:] 


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Written Testimony 

By Stan Ryan 

President & CEO of Darigold and Northwest Dairy Association 

Ways and Means Trade Subcommittee Hearing on the 

North American Free Trade Agreement 

July 18, 2017 

I am Stan Ryan, President and CEO of Darigold Inc. (Darigold), the marketing and processing 

subsidiary of the Northwest Dairy Association (NDA), a farmer-owned cooperative. Darigold is 

headquartered in Seatt le, Washington and manufactures high qualit y dairy product s from the 

milk our dairy farmers produce in Washington, Oregon, Idaho and Montana. Through our 

membership in the National Milk Producers Federation and the U.S. Dairy Export Council, in 

addition to other dairy sector organizations, we work with our partners across the industry on 

topics of importance to our company and farmers, including trade-related ones. 

I appreciate the opportunity to discuss with this subcommittee the importance of the North 

American Free Trade Agreement (NAFTA), its benefits to Darigold and our farmer owners, and 

key areas of needed improvement with our NAFTA partners. 

Executive Summary of Testimony 

NAFTA has been a tremendous benefit to the U.S. dairy industry, Darigold, and our farmer 

owners in light of the substantial liberalization it achieved in dairy trade between the United 

States and Mexico. Darigold and numerous other dairy companies have seen exports to Mexico 

climb over the years, to the benefit of American farmers who in turn experience stronger 

demand for their milk than would otherwise be the case. It is critical that this progress not be 

reversed and that our fully open access to the Mexican market remain in place. 

At the same time, NAFTA left barriers on trade between the U.S. and Canada largely untouched. 

This unfinished business, particularly when coupled w ith Canada's latest actions to use pricing 

tools (i.e. Classes 6 and 7) to thwart imports and dump cut-rate milk powder onto global 

markets, is a ripe opportunity for modernization in the coming NAFTA discussions. In addition, 

the agreement would strongly benefit from improvements to certain rules areas including those 

related to geographical indications, sanitary and phytosanitary issues and dairy rules of origin. 
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Introduction and Company Details 

Darigold produces a full line of dairy products for retail, foodservice, ingredient-commodity and 

specialty markets, and is one of the largest U.S. dairy processors. Darigold has total annual sales 

of $2-$3 billion, depending on the year and milk prices. Our company operates 11 processing 

plants throughout the Northwest to manufacture high-quality milk products. The sales from 

these plants support our roughly 500 dairy farm family owners and the jobs of over 1,400 direct 

Darigold employees. 

In Washington State alone, Darigold accounts for over $1.3 billion in annual economic activity 

and is the 2nd largest privately-held company in the state. In 2013, Washington State University 

reported that the dairy industry in Washington contributes $5 billion-plus a year in combined 

total economic activity and is responsible for more than 18,000 jobs. According to the National 

Milk Producers Federation and the U.S. Dairy Export Council, Washington export s of skim milk 

powder (SMP) alone in 2016 accounted for approximately 5,000 jobs. Darigold also operates 

plants in Oregon, Idaho and M ontana, helping to create jobs in those states as well. 

We operate in a competitive global market and export more than 40% of our milk products 

outside the U.S. That makes global market s absolutely essential to our company, our farmer 

owners and the manufacturing jobs that produce the high-quality dairy products we sell all 

around the world. 

Benefits ofTrade and NAFTA to Our Dairy Industry 

Darigold is at the leading edge of export-reliance, but trade is critical to the broader U.S. dairy 

sector as well. The equivalent of one day's worth of milk production each week now gets 

turned into products that are exported all around the world. The expansion of U.S. dairy 

exports since 2004 has increased our farmers' milk prices by an average of $1.25 a 

hundredweight. In other words, rising exports have increased farmers' milk sales income by 

roughly $36 billion over what they would have gotten in that period if exports had held steady 

from 2004. 

Just as importantly, U.S. dairy exports support up to 100,000 American jobs and cover every 

state of the Union. Impairing these sales would therefore deliver a devastating employment hit 

not only to farmers, but also to workers in companies supplying inputs and services, and 

downstream processing plant jobs, as well as cities with large port facilities heavily dependent 

on trade. 

As we look at how to ensure we can continue a positive track record of export sales supporting 

farms and good jobs back here at home, NAFTA, and the ongoing discussions pertaining to 
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modernizing it, is essential to that goal. Mexico is by far the leading export market for U.S. dairy 

product s while Canada clocks in at number two, although a sizable portion of U.S. product 

shipped to Canada is for further processing and ultimate re-export outside of Canada, including 

back to the United States. 

last year the U.S. shipped $1.2 billion worth of dairy products to Mexico, up from just $124 

million in 1995. Mexico is likewise one of Darigold's top global markets. 

For much, if not all, of this we have NAFTA to thank. Mexico now is the U.S.'s largest export 

customer, by far. Sales to Mexico are roughly triple those to China, our third largest export 

market, demonstrating just how irreplaceable the Mexican market is. For example, in 2016 

Mexico accounted for 47% of US exports of nonfat dry milk, 31%of cheese, and 38% of 

butterfat. Before NAFTA and before Mexico joined the predecessor to the WTO (the GATI) the 

only dairy-related U.S. exports to Mexico were some non-fat dry milk shipments for 

government feeding programs and a small number of breeding cattle. 

NAFTA has been the driving force behind this remarkable growth and is the reason the U.S. 

share of Mexico's total dairy imports is 73% today. Total U.S. dairy exports support some 

100,000 jobs in the U.S. and our exports to Mexico support roughly a quarter of them. 

Preserving those sales is therefore essential not only to our farmers, but also to the workers in 

companies supplying inputs and services, and downstream processing plant jobs such as those 

at Darigold, as well as cities with large port facilities heavily dependent on trade such as Seattle. 

While particularly important in Darigold's West Coast neck of the woods, those jobs are in 

virtually every state in the country. 

Without NAFTA, the duty-free access we enjoy into Mexico could evaporate and be replaced by 

WTO Most-Favored Nation (MFN) tariff levels. These are the rates that other major dairy 

exporters are currently required to pay. On an applied basis, Mexico's over-quota MFN tariffs 

can currently reach as much as 45% for skim milk powder and 60% for cheese (with even inquota rates for cheese applied at 45%). Mexico has the right, however, to raise its MFN rates to 

considerably higher over-quota tariff levels of 125% for both powder and cheese. 

Changes to that preferential tariff situation would dramatically undermine a core advantage of 

U.S. suppliers as the only major dairy supplier to Mexico currently benefiting from free trade. 

As we speak, Mexico is negotiating with the European Union (EU) which is actively working to 

secure its own preferential access to the Mexican market while New Zealand and Australia 

discuss with Mexico how to move forward with the Trans-Pacific Partnership with the 

remaining countries. Conceivably, all three of our major competitors could see improved access 

to the Mexican market in the coming years. 

That is what makes NAFTA absolutely essential for our industry- it currently provides Darigold 

and other U.S. exporters with uniquely preferential access to the Mexican dairy market and 
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looking forward is the vehicle the U.S. will need to ensure that we remain competitive in that 

market should Mexico decide to use its ongoing FTA discussions with major dairy exporting 

nations to open up new inroads to its market for them. 

Because of NAFTA and Mexico's commitment to a mutually beneficial trading relationship, we 

currently have very few trade problems with Mexico in dairy - it is our goal to use these 

discussions to help keep it that way. NAFTA has enabled the development of a partnership with 

Mexico that's benefited not only the U.S. dairy industry, Darigold and its farmers and workers, 

but also the Mexican dairy sector. 

Since 1994, Mexican milk production has increased by 58% which has helped meet the everincreasing demand of Mexican consumers and visitors to Mexico while at the same time 

continuing to provide market opportunities for American producers as well. Together, Mexico 

and the U.S. have collectively grown consumption for a large variety of products offered at 

affordable prices for both the Mexican and U.S. consumer. 

Areas for Improvement 

NAFTA has accomplished a great deal over the past two-plus decades, but it has also been 

overtaken by new, unanticipated forms of trade and trade problems. Our industry looks 

forward to working with this Committee and with the Administration to explore ways to 

preserve and strengthen NAFTA to address those issues. 

As noted above, NAFTA achieved substantial liberalization in dairy trade between the United 

States and Mexico, and our aim is to ensure that that open trade remains in place- both with 

respect to tariffs and nontariff measures. At the same time, NAFT A left sizable barriers on trade 

between the U.S. and Canada largely untouched. With Canada's restrictions already in place, 

reflected in much higher tariffs facing U.S. dairy exports, an imbalance in market access 

obligations in the sector has existed for over two decades. Moreover, Canada has taken 

additional steps over the years to limit imports whenever Canada's already highly restrictive 

import restrictions were deemed to be insufficiently limiting. 

Here below, I would like to spotlight a few areas on our trading relationships with Mexico and 

Canada that would benefit from improvement as we update this critically important trade 

agreement. 

• Canada: Removing Trade-Distorting Policies and Opening a Sheltered Market 

Canada's exorbitant dairy tariffs are well known. Over-quota tariffs top the charts at 

241% for fluid milk, 201% for skim milk powder, 298% for butter and 245% for cheese. 

Among the developed world, only the island nation of Japan in addition to countries 

such as Norway and Switzerland have maintained similar dairy fortress walls with the 
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U.S. Under NAFTA many are aware of the unfortunate fact that U.S. dairy exports are 

one of the very few sectors that do not enjoy duty-free access to the Canadian market. 

What may be less well known by all members of this committee is a more recent threat 

that has emerged as a result of Canadian policies tria led in Ontario last spring and 

instituted across Canada this February: Classes 6 and 7 respectively. These classes are 

part of the new Canadian National Ingredients Pricing Strategy. 

NAFTA modernization discussions are an unmissable opportunity to address just that 

type of unfinished business in order to truly open up the North American market and 

put our dairy exports to Canada on par with the vast majority of the rest of the U.S. 

economy. 

Canada, as a high price country that has refused to enter into the global markets with 

milk prices at global levels, adopted a new pricing scheme (Class 7) to effectively 

subsidize protein commodity exports without compromising the internal farm price of 

milk. 

These new pricing regulations and the broader Pricing Strategy have already negatively 

impacted bilateral trade with Canada. Most concerning, however, they are poised to 

unfairly take away the global markets that are our industry's and Darigold's lifeblood. As 

stated earlier, exports account for over 40% of the milk our farmers produce. 

The new Canadian policies effectively subsidize exports and are already being used to 

undercut U.S. dairy exports of milk proteins not~ to Canada but even more 

importantly to a number of other export markets around the world. Because Darigold's 

farmers, as well as thousands of other dairy farm families across the U.S., depend on a 

healthy global export market, Canada's strategy poses a very grave threat to America's 

dairy farmers, especially those in the Pacific Northwest, by unfairly underbidding world 

market prices. 

The shift in Canadian pricing tools has been driven by an uptick in Canadian demand for 

butter and cream. Rather than meeting this new domestic-demand growth through 

imports in order to keep its so-called supply management system in balance, Canada 

has used its government-dictated milk production system to encourage more of its own 

milk production, therefore supplying more butterfat, while simultaneously creating a 

surplus of skim milk, as milk contains both products. 

Since Canada had to find a way to "solve" t his surplus problem of its own creation and 

rid itself of the excess milk proteins, it has been using its government-controlled system 

to keep domestic milk prices at almost double the world and comparable U.S. prices, 
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while creating a new scheme to push surplus milk proteins onto world markets and push 

out competition in its domestic market. 

Canada implemented t he new Class 7 pricing system in February 2017. The Class 7 

establishes a protein price based on the lowest of US, EU, and Oceania skim milk prices, 

and then subtracts a very generous processor margin. In recent months, this means 

that Canada has priced milk proteins available to its processors under Class 7 for export 

at approximately 15% less t han what U.S. processors typically pay. That incentivizes 

processors to utilize subsidized Canadian milk proteins to modernize and expand their 

protein business. 

Reports to date from various markets around the world indicate that product~ being 

offered even below the lowest world market price. This below cost pricing avenue 

applies to the manufacture of skim milk powder (SMP), whole milk powder (WMP), milk 

protein concentrate (MPC), ultra-filtered milk (UFM) and similar dairy protein products. 

This recently introduced provision of below market price milk to produce the listed dairy 

products provides an incent ive to substitute those products for their imported 

counterparts in Canada while enabling the export of Canada's structural surplus of SMP 

at below t he cost of production. It flies in the face of common sense that a country with 

one of the world's highest milk prices would be offering a commodity product at levels 

far below those offered by all other major dairy suppliers. 

As a result, these pricing schemes have already harmed U.S. exports to Canada of ultrafiltered milk and have begun facilitating the dumping of milk powder onto the 

commercial global markets on which the U.S. so strongly relies. This is the latest in a 

series of narrowly targeted milk classes that have been created over the past few years 

specifically to displace imports, with the added harm of now also displacing U.S. exports 

to other markets. 

Canada is not alone in having different classes for milk usage and the mere existence of 

milk classes is not an inherent problem. However, the way Canada has utilized its milk 

class system is unique and very problematic. Canada's milk class system is regularly 

evolving in order to constrain imports and - in the latest case - provide an incentive to 

export. The new Class 7 pricing allows processors of non-fluid domestic products to 

allocate or use a proportion of their milk protein to the new Class 7 pricing. That 

effectively ensures processors will now use some of the lower priced skim in lieu of 

imported U.S. milk proteins. We expect that the balance not used internally will likely be 

used to process a reduced-price exportable surplus of subsidized protein products such 

as skim milk powder and dried milk protein concentrates. 
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These special pricing classes are put in place by the Canadian Milk Supply Management 

Committee (CMSMC), whose voting members are provincial boards and provincial 

governments and which is responsible for policy determination and supervision of the 

provisions of t he National Milk Marketing Plan. The way in which Canada is operating its 

milk class pricing system indicates a government policy intention to erect trade barriers 

and distort global markets. 

The production and sales data underscore what a pressing concern this program poses 

to the international milk powder market that is so crit ical to U.S. dairy farmers and 

companies. The full size and scope of t he t hreat to Darigold and the broader U.S. dairy 

industry is not reflected only in what Canada is doing today t hrough its new pricing 

programs but rat her is seen in the sharp surge in production, exports and utilization of 

t he new Class 7 pricing scheme. 

For years, Canada's milk production was relatively stable, a situation that should not be 

surprising for a country that claims to manage its supply to meet internal demand. From 

2000 to 2010 for instance, Canadian milk production rose only 2.5% over that decade. 

However, a distinct upward trend line has more recently emerged with 4% growth per 

year over the last two years. 

In some areas this has spiked even further: five leading provincial market ing boards in 

the East of Canada, working in concert, have collectively increased their governme ntdictated milk production quotas by an astronomical 12% between August 2016 and July 

2017 with the latest hike this month being 5%. Were these responses to normal 

commercial market signals - as is t he case in the U.S. and in most other major dairy 

producing countries - these may not be problematic. 

In contrast to this, typical milk production growth in the U.S. is in a range of 1-2%, even 

in years with highest prices. In addition to its magnitude on a percentage basis, the 

dramatic Canadian expansion is so problematic because it is the direct result of 

government-run programs in a supply management system with some of the highest 

milk prices in the world. 

Likewise, trade data demonstrates a large basis for concern as well. Canadian milk 

powder exports have surged in recent times. Canada's 2016 SMP exports set a record at 

approximately 24,000 MTs, a jump of roughly 75% over the prior year's total. 

(Reminder: Ontario's Class 6, effectively a pilot program for the national Class 7, was put 

in place in the spring of 2016.) The first five months of 2017 showed a further year-onyear increase in Canadian SMP exports of 271% to almost 20,000 MT w ith over 8,000 

taking place in May alone - a new mont hly record for Canada. Those SMP exports are 

going to various markets around the world including Algeria, Mexico, Egypt, Malaysia 

and Bangladesh, top markets for t he U.S. dairy industry, including Darigold. In addition 
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to the substantial increase in SMP exports, Canada is also seeing a spike in milk protein 

concentrate (MPC) exports with January to May 2017 sales of MPC up 48% over the 

same period in 2016. 

Despite limited information provided by Canada about the Class 7 program, since the 

February 2017 implementation of the pricing scheme, the volume of high-priced milk 

used to make domestic non-fluid products has declined, whereas the volume of milk 

protein going into Class 7 has risen. During February - April 2017, Canada reported that 

24% of the milk volume and 31% of the protein is now allocated to Class 7. Not 

surprisingly, the farm price of milk between last year and this year (since Class 7 has 

been implemented) dropped less than one percent despite that sizable shift towards the 

new lower-priced Class 7. That's because other prices under Canada's strict 

government-calculated class prices have been raised. This still works to the net benefit 

of Canada's dairy farmers given the surging milk quotas the government is granting 

(thereby permitting that 1% lower price to be paid on a much larger volume of milk and 

so generate greater total returns to farmers). 

As a result of the new Class 7 pricing scheme and a 5% expansion in the milk production 

quota in 2017 to date, Canada is poised to create an even more significant exportable 

surplus of milk proteins than we've seen take place to date. Furthermore, taking into 

account not only Class 7's export disposal goal of moving the remaining excess protein 

product onto world markets at cut-rate prices, but also its twin goal of import 

substitution through the displacement of U.S. protein exports from its market, the total 

impact to the rest of the world's protein markets will be even greater still. 

What is most concerning here is the trend line, with a harmful situation creating greater 

damage to our producers and a trend line expected to get even worse as time goes on. 

That's particularly the case if milk quotas continue to be permitted to similarly grow 

over time. 

It is this escalating threat to global dairy markets that united 10 of the world's leading 

dairy associations from around the world last month to collectively write to their six 

respective Trade Ministers, including Ambassador lighthizer, urging prompt action to 

exhaust all available options to put a stop to Class 6 & 7 in light of their violation of 

Canada's international commitments. As the joint industries letter noted: "Canada's 

increasingly protectionist policies are diverting trade with attendant global pricedepressing impacts, and are in conflict with the principles of free markets and fair and 

transparent trade." (See attached.) 

Examples cited in that letter of united international concern included the following: 
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o "In December of 2015 at Nairobi, Kenya, Canada became a signatory to the 

Export Competition Ministerial Decision, thereby undertaking to terminate all 

scheduled export subsidies by the end of 2020, maintain a quantity standstill at 

2003-05 levels until then, and refrain from applying export subsidies to new 

products or new markets. The 2016 Canadian exports of 23.7 thousand tonnes, 

noted above, is an amount in excess of the Nairobi standstill agreement 

amount." 

o "As part of the 2003 resolution of the WTO dispute settlement case brought by 

the United States and New Zealand against Canada's special milk class for 

exports, Canada agreed "that, for the marketing year beginning 1 August 2003, 

and thereafter, Canada's exports of dairy products for which export subsidies 

have been granted will not exceed the quantities and budgetary outlays 

specified in its WTO Schedule. The upward trend in Canada's exports of SMP, 

reported above, is rapidly approaching the 44.9 thousand tonnes Uruguay Round 

annual quantity commitment." 

Canada's National Ingredient Strategy and Class 6/7 contravene the spirit of Canada's 

World Trade Organization and NAFTA trade commitments. After all, does it make sense 

that a high-priced milk producer with a closed domestic market using a governmentsanctioned export program should take market share from countries with a 

commercially-based and lower cost of production, like the U.S.? The answer is no. 

We must see a repeal of Classes 6 and 7 and steps taken to ensure similar programs do 

not spring up in their place. If Canada wishes to retain a government-run system of 

micro-managing its milk supply, that is its prerogative but that does not give it t he right 

to use the high returns from that system to disrupt the commercial dairy markets on 

which Darigold and countless other good-faith competitors in the U.S. and elsewhere 

rely. If left unchecked, these Canadian programs will grow to become bigger and bigger 

threats to U.S. exports around the world. 

These latest actions are most concerning because they represent a shift by Canada from 

using policy tools to impede imports into Canada to now also disrupting export markets. 

Altogether, however, Canada has for years intentionally tried to shirk its dairy 

commitments, using one policy or regulatory tool after another to chip away at access 

granted. Another example of this consistent trade-distorting pattern was Canada's 

decision in its FTA with the EU to impose new restrictions on the use of a number of 

generic cheese terms (i.e. asiago, feta, fontina, gorgonzola and muenster). Canada 

provided direct protection to a number of European G Is that have been common names 

(in order words, generic) in Canada and the United States for decades. By taking t his 

action, Canada abandoned any pretense of due process and the integrity of its own 

intellectual property system. NAFTA would offer a prime chance to press Canada to hold 
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U.S. companies harmless from this unwarranted nontariff barrier on U.S. cheese 

exports. 

Given Canada's deliberate creation of an environment of policy uncertainty, there can 

be no clarity on whether or not current dairy sales to Canada - nor new sales 

established under the NAFTA modernization process - will be allowed by Canada to take 

place in the future without addressing t his underlying problem of Canada's habitual use 

of policy tools to distort trade. 

• Mexico: Preventing New Barriers to Trade: Geographicallndicotions {Gis) and 

Common Names {CNs) 

As I have stressed above, with respect to Mexico our charge is largely to do no harm to 

market access opportunities. That's relevant not only on the tariff side of the equation 

but particularly important on t he nontariff barrier portions as well. 

The latter is a particularly timely concern given ongoing FTA extension negotiations 

between Mexico, the U.S.'s largest and most diverse cheese export market, and the EU. 

As it seeks to do through all its FTAs, the EU has been attempting to use that process to 

impose de facto barriers to trade and competition on various common name products 

that the EU falsely claims as Gls. That puts at risk t he export of products such as the 

gouda cheese that Darigold makes in Sunnyside, Washington, as well as the sales of 

many other cheeses such as asiago, parmesan, feta and gorgonzola, in addition to 

numerous others that U.S. companies produce and that help generate returns that 

support farmers' milk prices back here at home. That's true whether they're in the 

Pacific Northwest where our farmers live or around the country. 

It is essential that ongoing engagement with Mexico and NAFTA modernization 

discussions make it clear that the U.S. is vehemently opposed to the imposition of any 

new restrictions on the market access opportunities for U.S. products relying on 

common names. We must require that Mexico uphold the letter and spirit of its NAFTA 

market access commitments in order to ensure it does not impair the value of its prior 

market concessions to the U.S. 

In parallel to these FTA negotiations, Mexico is also dealing with Gls that impact the use 

of common name products in other avenues as well such as through domestic 

legislation and ongoing court cases. Each of these venues is an important forum for 

shaping how Mexico will uphold its market access commitments to the United States. 
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• Mexico & Canada: Improving NAFTA Rules in Key Areas 

o Improving Upon the WTO-Pius Sanitary & Phytosanitory (SPSI Agreement 

To ensure for predictability of trading conditions moving forward and a sciencebased approach to the development of new regulations impacting trade, NAFTA 

modernization efforts should incorporate work done in this area within TPP and 

build further upon that base of "WTO SPS-Pius" commitments. This is needed to 

guard against the prospect of future problems and also to ensure that the 

updated NAFTA text can serve as a strong model for future U.S. bilateral FTAs as 

well. This area was cited as a key Trade Promotion Authority (TPA) priority for 

negotiations and would help to address concerns by agricultural organizations 

across the board about spotlighting the importance of transparency, 

predictability and science-based decision-making on SPS matters. 

o Establishing Fair Due Process Systems and Market Access Safeguards for 

Common Names Through Text on Geographical Indications (Gis) 

As noted above, there are unique situations on Gls and Common Names issues 

with both Mexico and Canada that need to be dealt with appropriately on a 

bilateral basis. In addition to those efforts, however, NAFTA modernization 

efforts should incorporate text on the issue of Gls and common names, in 

keeping with the TPA directive to address this issue. In order to build upon the 

progress made to date with our trading partners on this issue, the Trans Pacific 

Partnership (TPP) text on Gls should be used as a starting point and further 

improved upon to effectively preserve U.S. market access opportunities for 

common name products despite foreign governments' efforts to misuse Gls to 

erect barriers to those products. 

o Preserving Dairy Rules of Origin (ROO/ Approach to Uphold Integrity of NAFTA 

Benefits 

The driving goal in NAFTA dairy-specific ROO with Mexico for most dairy 

products was to seek to ensure that high dairy-content products traded under 

the agreement were being produced from milk from the exporting country. As 

such, for instance, the U.S. cannot import milk powder from Europe to make 

cheese and ship that to Mexico, and vice versa. Likewise, Mexico should not be 

able to import concentrated butterfat from outside the NAFTA region, add sugar 

or cocoa to it, and sell it into the US as a food preparation. The open trade is 

intended to be between and to benefit the dairy sectors that have opened their 
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In Closing: 

markets under the agreement - a goal that is particularly important for a 

product that is easily traded in various ingredient forms. 

Given that the lines most clearly associated as dairy such as those for cheese, 

butter and yogurt, all require the product to be made from dairy from the 

exporting country, it is reasonable to insist that other processed food lines also 

should be subject to these same provisions in cases where they contain a very 

high level of dairy content. It is important to ensure that Mexico is not a platform 

for other major dairy exporters to ship butterfat simply as a conduit to 

inappropriately access the U.S. market. Based on customs rulings and trade data 

with Mexico and New Zealand this is a reasonable cause for concern. 

In addition to the need for movement towards greater consistency in the dairy 

ROO, we would also encourage negotiators to examine how to improve the 

process for investigating potential ROO violations to make it easier to chase 

down potential violations of the ROO. In our view, these measures are a critical 

element of the agreement and ensuring that the effectiveness of the ROO in 

concentrating the agreement's benefits on its Parties that have chosen to open 

their markets to one another is a vital part of ensuring that NAFTA remains such 

a strongly successful FTA. 

NAFTA is indisputably the most important U.S. FTA. An agreement that has done this much 

good and that supports tens of thousands of jobs in the dairy sector alone must be preserved. 

That is why we believe we must ensure that no new trade restrictions arise through the NAFTA 

modernization discussions and that talks are instead focused on pursuing improvements to the 

agreement that preserve our open trade relationship w ith Mexico and address Canada's 

flouting of its trade commitments. 

Even as the U.S. negotiates improvements to this critical FTA, however, we believe it's also 

essential to move forward on other fronts as well. Our competitors are very active al l around 

the world in negotiating their own agreement. This month's news of the EU-Japan agreement in 

principle is a fresh reminder that the world is not standing still. Given that, if the U.S. stands still 

we will slip behind. 

We urgently need a proactive trade policy agenda with key agriculture-importing countries in 

Asia such as Japan, Vietnam and others in order to keep pace in that growing area of the world. 

In order to ensure that U.S. negotiating time is best concentrated on agreements likely to yield 

net agricultural benefits for the U.S. with ag-importing countries, we would also strongly 

caution against sinking scarce U.S. resources into negotiations with countries unlikely to lead to 
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net dairy and agricultural export gains for the United States. There are only so many staff at our 

government agencies and only so much time in the day; we need to focus it where it can yield 

the most benefits to American agriculture. 

As we stand poised to commence NAFTA modernization discussions in the very near future, 

Darigold, in collaboration with a united dairy industry, looks forward to working closely with 

this committee and with the Administration to make improvements to this beneficial FTA so 

that we can continue to deepen our trade relationships throughout North America. 

Thank you for t he opportunity to testify before this committee. 
104 

Chairman REICHERT. Ms. Bliss. 

STATEMENT OF CHRISTINE BLISS, PRESIDENT, COALITION OF 

SERVICES INDUSTRIES 

Ms. BLISS. Chairman Reichert, Ranking Member Pascrell, Members of the Subcommittee, I thank you for the opportunity to 

present the views of the Coalition of Services Industries. I appreciate the opportunity to appear before this Committee and to 

present the views of the Coalition of Services Industries on how 

best to modernize NAFTA to maximize the gains for American companies and workers. 

I would also like to thank you, Mr. Chairman Reichert, as well 

as Congressman Marchant and Congressman Meeks, for your leadership of the Congressional Services Caucus, and for kicking off the 

caucus in the 115th Congress with your letter to USTR, highlighting the importance of services. 

Turning to NAFTA benefits to U.S. services, NAFTA provides 

U.S. services companies guaranteed, non-discriminatory market access to Mexico and Canada, including the ability to provide services 

on a cross-border basis; investment opportunities; and strong investment protections; and the opportunity to compete for major foreign procurement—government procurement contracts. NAFTA is 

responsible for our tremendous services trade surplus with Mexico 

and Canada. 

NAFTA has also provided substantial government procurement 

opportunities for U.S. services firms, which would not otherwise 

exist. Almost two-thirds of all Mexican Government employees are 

insured by a U.S. services supplier. U.S. firms also supply pensions, as well as property and casualty insurance directly to the 

Mexican Government. By contrast, Mexican and Canadian participation in the U.S. federal procurement market is negligible. 

On digital trade, an area that I know has been highlighted this 

morning in the previous panel, it is important to remember that it 

is not just a priority solely for U.S. tech companies, but for companies across the spectrum of services, from financial services, media 

and entertainment, to retail and logistics. And also to manufacturing—and I would believe in agriculture, as well—you heard this 

morning, as well. I describe this in greater detail in my longer remarks for the record. 

To ensure that these benefits to U.S. services continue, CSI recommends four overarching principles to govern NAFTA modernization: first, we must do no harm to NAFTA’s existing benefits, including jobs supported by NAFTA; second, we must ensure NAFTA 

modernization is consistent with TPA; third, NAFTA should remain a trilateral agreement with common North American rules; 

and fourth, the process must be transparent and efficient, to minimize commercial uncertainty and facilitate trade and investment 

flows. 

I would now like to highlight a number of CSI’s proposed negotiating objectives. 

With respect to services and investment market access, NAFTA 

modernization should ensure continued use of a negative list and 

a ratchet that binds new liberalization and non-conforming measVerDate Sep 11 2014 05:27 Feb 26, 2019 Jkt 033481 PO 00000 Frm 00108 Fmt 6633 Sfmt 6602 I:\WAYS\IN\33481\33481.XXX 33481

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ures. These elements already exist in NAFTA, and must be preserved. 

To ensure that the agreement accommodates market evolution 

and technology advances, NAFTA should also continue to cover any 

new services, and the U.S. should also reject any effort to exclude 

new services. 

The U.S. should also oppose any effort to maintain Canada’s cultural carve-out. 

On e-commerce, we recommend modernizing NAFTA by including a comprehensive chapter on e-commerce and digital trade. CSI 

supports language in the—that the U.S. proposed in the TSA negotiations on data flows and forced data localization as a building 

block in the e-commerce and financial services chapter in a NAFTA 

modernization. 

We also recommend provisions to address intermediary liability, 

safe harbors relating to third-party content in certain discreet contexts. Further, modernizing of customs procedures such as the use 

of electronic customs forms, electronic signature and authentication, and secure online payment are also recommended. 

Regarding communications services, the NAFTA telecommunications chapter should be updated to ensure non-discriminatory 

market access, technology choice, and a level playing field. On financial services, we believe that there should be parity for investor-state coverage with respect to breaches of national treatment, 

MFN, for financial services. And electronic payment services commitments should also be covered. We also believe that express delivery services are a critical area to cover in the agreement. 

On trade facilitation, we think there should be ambitious, highstandard custom policies, and they should be harmonized across 

Canada and Mexico, including a raising of the de minimi threshold 

for express and postal shipments. We also think customs procedures should be streamlined and expedited. We also think current 

reciprocal access under government procurement should be preserved. 

And finally, on investment, we believe that it is critical to preserve and build on the existing NAFTA framework, and to provide 

the same scope of enforceable investor protections to all sectors, including financial services. 

In conclusion, we thank you for your willingness to engage, and 

your knowledge on the issues. And I am happy to answer any questions from the panel. 

Chairman REICHERT. Thank you. 

[The prepared statement of Ms. Bliss follows:] 


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Testimony of Cbt·istine Bliss 

Pt·esident, Coalition of Services lndustt·ies (CSI) 

House Ways and Means Subcommittee on Tmde 

Tuesday, July 18, 2017 

lOam 

Chainnan Reichert, Ranking Member Pascrell, members of the subcommitteethank you for the opportunity to present the views of the Coalition of Services 

Industries (CSI) on how best to modernize NAFTA to maximize the gains for 

American companies and workers. 

For more than tlu·ee decades, CSI has been the leading industry association devote< 

exclusively to promoting the international objectives of U.S. services companies 

and associations. Our members include the vast anay of U.S. companies that 

provide services and digitally enabled services, domestically and internationally, 

including information and conununication technology services, financial services, 

express delivery and logistics, media and entertainment, and distribution and 

professional services. 

Chainnan Reichert, I'd also like to thank you for your leadership of the 

Congressional Services Caucus. Congressman Marchant, we welcome you as a cochair of the Congressional Setvices Caucus; and we thank you both, along with 

Congressman Meeks, for kicking off the Caucus for the 115'b Congress with the 

letter you sent to United States Trade Representative Lighthizer about the 

importance of services. 

Thank you for your expertise on trade and advocacy for American workers and 

American services fimlS, both large and small. 

NAFTA BENEFITS TO U.S. SERVICES 

NAFTA provides U.S. setvices companies guaranteed, non-discriminat01y market 

access to Mexico and Canada. This includes the ability to provide services on a 

cross-border basis, major investment opportunities and strong investment 

protections, and the opportunity to compete successfully for major govenm1eot 

procurement contracts. 

Under NAFT A, the United States has maintained a consistent trade surplus in 

services with both Canada and Mexico. The most recent data indicates that U.S. 

setvices exports to Canada totaled $56.4 billion and imports $29.0 billion, 
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producing a $27.4 billion services surplus. Similarly, in Mexico, U.S. exports of 

services were an estimated $31. 1 billion, while imports were $23.5 billion in 2016. 

And something remarkable to note with NAFTA- since 1999, the United States 

has doubled its bilateral services trade surplus with Mexico and quadmpled its 

SUJplus with Canada. 

In total, U.S. trade with both Canada and Mexico in services exports alone 

amounts to $88 billion as of 2015. This directly supports 587,000 American jobs, 

which are well paying jobs, too. Research has shown that jobs in the services 

sectors that are tradeable, which tend to be in professional services, have produced 

high skilled and high paying jobs. 

NAFTA's rules and specific conunitments are responsible for our tremendous 

services and investment growth in Mexico and Canada. These provisions include 

the guarantee of non-discriminatory treatment, transparency, and binding dispute 

settlement and investor-state dispute settlement. As of2013, U.S. foreign affiliates 

in Mexico generated approximately $43 billion in sales and $128 billion in sales in 

Canada. These figures are important to note because while many services can be 

supplied on a cross-border basis, market penetration in some services sectors, such 

as financial services, can only be supplied through investing and establishing a 

conunercial presence. At the same time, this foreign investment yields significant 

benefits back to the United States in the form of generating revenues and 

supporting U.S. jobs and operations. 

NAFTA's investment provisions have also produced significant Canadian and 

Mexican investment in the U.S., which supports the American economy and its 

workers. As of2014, Mexico had invested nearly $18 billion in the U.S. And as of 

2015, the United States receives almost half of Canada's global foreign direct 

investment at $448 billion. The level of both inbound and outbound investment 

with Canada and Mexico is one of the primary drivers of the North American 

econ01nic success ofNAFTA. 

NAFTA has also provided substantial government procurement opportunities for 

U.S. services firms which has created a "win-win" sit1.1ation for the United States. 

For example, nearly two-thirds of all Mexican govenunent employees are insured 

by a U.S. services supplier. In addition, U.S. finns supply pensions as well as 

property and casualty insurance directly to the Mexican govemment. Other major 

U.S. finns in the financial services and inf01mation technology sectors also have 
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benefited from NAFTA's procurement provisions. By contrast, Mexican and 

Canadian participation in the U.S. Federal procurement system is negligible. 

The U.S. is a significant beneficiary ofNAFTA 's procurement provisions. The 

Federal Procurement Data System confirms that, across the entire federal 

government, just two percent of all contracts were secured by foreignheadquartered companies in FY 2016, and these contracts were predominantly 

awarded to U.S. affiliates of British or European firms. Just one Canadian 

company showed up in the top 100 contractors to the U.S. Government; not a 

single Mexican company appeared on the list. NAFTA's procurement chapter 

provides an important institutional framework of transparency and open bidding 

procedures for all three countries, where American services providers have taken 

full advantage. 

GENERAL PRINCIPLES 

To ensure these benefits to U.S. services finns continue, CSI reconunends that four 

overarching principles govern NAFT A modernization. 

Fit·st, we must preserve the existing NAFTA framework- which provides a 

c-ommercially stable and efficiently integrated environment for US. services 

suppliers-and make sure that we "do no hann" to the existing benefits and jobs 

suppo1ted by NAFTA. If the NAFTA negotiations (directly or indirectly), lead to 

even a one percent loss of U.S. services jobs, this would equate to a loss of I 

million American services jobs. 

Second, we must ensure modernization ofNAFTA is consistent with the 

negotiating objectives set forth in the Bipartisan Congressional Trade Priorities and 

Accountability Act of2015 (TPA). CSI strongly supports the Administration's 

statement in its notification letter to Congress that proper consultation will be 

conducted through TP A, ensuring that due account is given to the Congressionally 

mandated objectives for trade negotiations, particularly for services, investment, 

digital trade, transparency, regulatory cooperation, and enforcement. As you know, 

it is a Constitutional mandate that Congress regulate foreign commerce with the 

United States, and TPA is a key legislative manifestation of this responsibility. 

Thit·d, to preserve and enhance the benefits that NAFTA provides to the U.S. 

services sector, it should remain a trilateral agreement with common North 

American mles. This integration of the North American markets is fundamental to 

continue to reap the highest level of rewards that we can from NAFT A 
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Fourth, we must continue to ensure that U.S. firms can continue to perform and 

compete to the best of their ability during the NAFTA modemization process. To 

guarantee this, the process must be carried out in a transparent and efficient 

manner that minimizes any commercial uncertainty and facilitates trade and 

investment flows. 

NEGOTIATING OBJECTIVES 

I will briefly highlight some ofCSI's proposed negotiating objectives. As a general 

proposition, we urge improvements that will have cross-cutting effects to benefit as 

many American business sectors as possible, and that there be no carve-outs of 

sectors from any of the protections provide.d by the improved agreement. 

Ser·vices and Investment Mar·ket Access 

Any modemization ofNAFTA should ensure continued use of a "negative list" 

approach and a "ratchet" for any non-conforming measures. These elements 

already exist in NAFT A and must be carried forward in any negotiation to 

safeguard U.S. services firms from the reintroduction of barriers in either Canada 

or Mexico since entry into force. 

A modernized NAFT A should also ensure that services and services-related 

investment market access commitments meet or exceed those agt·eed to with 

Canada and Mexico in the Trans-Pacific Partnership (TPP), and/or adopted by 

Canada and Mexico since NAFT A. 

NAFT A should continue to cover any new services that may emerge in the future 

and the United States must not accept carve-outs for "new" services. Innovative, 

new services should be protected against future discrimination, as trade agreements 

should not become obsolete as markets evolve and technology advances. 

Moreover, the U.S. should reject any effort to maintain Canada's cultural carveout; NAFT A is the only U.S. FT A currently in force with such a carve-out, which 

is inconsistent with the principles of free and fair trade and erroneously suggests 

that cultural promotion and open markets are incompatible. 

E-commerce 

Modernization ofNAFTA provides an ideal oppornmity to update tl1e agreement to 

reflect the digital trade ecosystem which did not exist when NAFTA was 

negotiated. Therefore, a chapter on e-commerce and digital trade should be added 

toNAFTA. 
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Data flows, the lifeblood of a modem economy, have grown by 45 times since 

2005 and will have grown by another nine times by 2020. Though practically 

nonexistent just 15 years ago, data flows now hold more economic value than 

global goods trade. 

Data flows are the foundation for teclmological advances, such as cloud 

computing, the Internet of Things, and Artificial Intelligence, all of which are 

cornerstones of the emerging "Fourth Industrial Revolution." Data flows 

provisions are also important for services companies outside of the tech sector, 

such as in financial services, as these services companies rely on their ability to 

move and store data on their global platfonns. In 2015, U.S. global exports of 

potentially Infom1ation and Communication Technology (ICT)-enabled services 

(which are provided over ICT networks) alone totaled almost $400 billion. This 

amounted to a $161.5 billion surplus, and included exports of $27. 1 billion to 

Canada and $8.7 billion to Mexico. 

In 2016, after TPA-required consultations, the United States proposed strong data 

flow and forced data localization provisions in the Trade in Services Agreement 

(TiSA) negotiations for both services and financial services. CSI supports the use 

of this language as a building block in the e-commerce and financial services 

chapters in the NAFT A negotiations to set a high standard for the benefit of all 

services sectors. 

A modernized NAFTA should also include provisions to address intermediary 

liability/safe harbors relating to third-party content. For matters other than 

intellectual property and criminal law, consistent with U.S. law, countries should 

not hold platfonns and service suppliers legally responsible for third-party content 

in an unreasonable manner that prevents them from effectively facilitating 

transactions and conununications among businesses and consumers. For 

intellectual property, the agreement should ensure that effective legal remedies are 

available to address online copyright infringement and provide conditional safe 

harbors for intennediaries. Limitations of liability should also include provisions 

such as a "good Samaritan" clause that facilitates intennediaries addressing and 

detetTing illegal activity conducted over their networks and services. 

Further, NAFTA must streamline and modernize customs processes, such as the 

use of electronic customs fonns, electronic signature and authentication, and 

secure online payment, in addition to upgraded de minimis levels. CSI believes 

that these modifications will benefit micro-, small- and medium-sized businesses. 
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Communications Se•·vices 

The modernization ofNAFT A further provides an opportunity to address 

limitations on technology choice and disproportionately burdensome regulatory 

requirements that interfere with the ability of U.S. communications services 

providers to operate in Canada and Mexico. The NAFTA telecommunications 

chapter should be updated to ensure non-discriminatory market access, a level 

playing field, and a pro-investment, pro-competition environment. The chapter 

should also enable communications services finns to take advantage of 

opportunities in Canada and Mexico. 

Financial se•·vices 

The preservation of market access, and investment and procurement opportunities 

achieved under NAFTA are vital to financial services providers. The more that 

U.S. services fmns, including fmancial services, grow their businesses in Canada 

and Mexico, the more they are able to use those dividends from foreign earnings 

and investments back in the U.S., further supporting and expanding American jobs 

and the American economy. 

An area of importance for financial institutions is to ensure they receive the same 

coverage of investment protections as afforded to other sectors, including 

minimum standard of treatment, civil strife, and perfonnance requirements. In 

addition, financial institutions should have access to investor state protections as 

afforded to other sectors. This includes access to investor-state dispute settlement 

(ISDS) for breaches of Most Favored Nation (MFN) and National Treatment. 

These modernizations would put financial services on par with all other sectors of 

the economy with significant investments in Canada and Mexico. 

NAFT A modernization also presents the opportunity to address areas which have 

historically been overlooked, such as commitments on electronic payment services 

(EPS), where we must ensure the application of market access commitments to 

prohibit the imposition of numerical restrictions and a national treatment 

commitment to ensure non-discrimination with respect to the cross-border delivery 

ofEPS. 

Finally, we believe that the Financial Services Committee established under 

NAFT A should be updated into a more formalized, principles-based entity with an 

expanded scope to increase regulatory coordination. 
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Expl'ess delivel'y 

For express delivery services providers, modemizing NAFT A means updating 

inefficient processes that affect the ability to transport American goods from the 

U.S. and through the North American region. In Mexico, this means addressing 

processes goveming less-than-truckload (LTL) and express delivery services 

shipments, as well as the elimination of current discriminatory Mexican regulations 

regarding the operation of foreign-owned express delivery trucks on Mexican 

federal highways. 

Tl'ade facilitation 

On trade facilitation, NAFT A must ensure that ambitious, high-standard customs 

policies are hannonized across Canada and Mexico to promote U.S. e-commerce 

exports and SME exporting opportunities. This includes substantial increases to 

Canada and Mexico's customs de minimis tlu·eshold for express and postal 

shipments. 

Further, any chapter on SMEs in NAFT A should also include a Small Business 

Committee that reinforces the need to protect entrepreneurs from fraudulent 

business offerings. 

Pl'ocul'emeut 

The United States must ensure that existing reciprocal market access commitments 

in govemment procurement, already provided through NAFTA, remain. 

Investment 

On investment, it is critical that negotiations preserve and build on the existing 

framework, and that the same scope of enforceable investor protections is provided 

for all sectors, including financial services. 

CONCLUSION 

Thank you again for the opportunity to present CSI's position on NAFTA 

modemization a11d the importance of preserving existing benefits to services 

suppliers under the agreement. Last, I would like to thank the subcommittee for 

your willingness to engage and your knowledge on our issues. With that, 1 am 

happy to answer any questions from t11e panel. 
113 

Chairman REICHERT. Ms. Erickson. 

STATEMENT OF ALTHEA ERICKSON, SENIOR DIRECTOR, 

GLOBAL ADVOCACY AND POLICY, ETSY, INCORPORATED 

Ms. ERICKSON. Thank you, Chairman Reichert, Ranking Member Pascrell, and Members of the Committee, for inviting me to 

speak to you today about opportunities to modernize NAFTA for 

the 21st century economy. My name is Althea Erickson, and I lead 

global policy at Etsy, an online marketplace where you can buy 

handmade and vintage goods from creative entrepreneurs around 

the world. Today we host 1.8 million active sellers who, together, 

sold $2.8 billion worth of goods, globally, in 2016. 

Etsy’s creative entrepreneurs aren’t the stereotypical businesses 

you might imagine, when considering the exporters who would benefit from global trade agreements. The vast majority of Etsy sellers 

are businesses of one, working out of their homes. Fully 87 percent 

of our sellers are women, and 28 percent live in rural areas. In 

many ways, Etsy functions as an on-ramp to entrepreneurship. For 

53 percent of our sellers, Etsy was the first place they sold their 

goods online. Nearly a third of our sellers operate their creative 

businesses as their sole occupation. And for the rest, it is an important source of supplemental income. 

Etsy was founded in 2005, 9 years after NAFTA took effect. Since 

that time, the Internet has enabled creative entrepreneurs to use 

platforms like Etsy to connect with buyers around the world. Unfortunately, existing trade laws have not kept up with the growth 

of global e-commerce and the opportunities it provides to microbusinesses. 

Many Etsy sellers began exporting goods from the moment they 

opened their shops. As of March 31, 2017, 32.1 percent of Etsy 

sales involved a buyer or a seller outside of the U.S. Forty-four percent of U.S. Etsy sellers export their goods. Unfortunately, the U.S. 

is the only Etsy key market where the majority of Etsy sellers do 

not ship internationally. For example, 88 percent of our Canadian 

sellers export their goods. 

Most independent, creative businesses lack the infrastructure 

and information to navigate complicated international trade rules. 

Customs and duties vary by country, and credible information 

about each country’s requirements can be difficult to find. Packages 

are often delayed at the border, or subject to unforseen import 

taxes that the buyer must pay before receiving their package. In 

the face of these challenges, buyers may reverse transactions or request refunds, the cost of which the seller often bears. 

Historically, trade rules and regulations have enabled larger—or 

trade agreements have enabled larger, more established companies 

to bring their products to new markets. However, innovative programs like the Trusted Trader Program or the Single Window simply aren’t relevant to a single person selling one item to another 

person in another country. We see an enormous opportunity to 

modernize NAFTA to foster digitally-enabled micro-business exports. By focusing on the needs of our smallest exporters, we could 

set new global standards for peer-to-peer trade around the world. 

The single greatest opportunity to support micro-businesses 

would be to negotiate a higher de minimi customs exemption with 


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114 

our trading partners. Thanks to the Trade Facilitation and Trade 

Enforcement Act, the U.S. de minimi threshold is now $800, which 

eases burdens for U.S. micro-businesses processing returns and 

purchasing supplies. However, Canada and Mexico have some of 

the lowest de minimi thresholds in the world of $20 for Canada 

and, for Mexico, $50 for express and $300 for postal shipments. 

As a result, low-value goods from U.S. exporters often end up 

subject to unexpected fees or delays at the border. The upcoming 

NAFTA negotiations provided an opportunity to alleviate this burden that disproportionately impacts U.S. micro exporters. 

Additionally, e-commerce regulations vary widely between countries. Discrepancies in the categorization of goods, as well as consumer protection and privacy laws pose a challenge for individual 

sellers who must find relevant information on requirements for 

each country before shipping an item. 

Unlike a traditional retailer who can research rules before deciding to enter a market, the typical e-commerce seller makes her 

product available to buyers worldwide, and begins researching the 

rules after the product is sold, when she is under considerable 

pressure to mail the goods quickly. Navigating the various Web 

sites and interfaces to find credible information is an administrative struggle for an Etsy seller who is hungry to comply with the 

rules. Currently, customs brokers have large exporters navigate 

these complexities, but a business of one exporting a $30 item simply doesn’t have the means to engage those services. 

We urge negotiators to create a far smaller, simpler set of harmonized tariff codes for low-value goods, and make information 

about all important export rules easy for third-party services to access, for example, through an open API. 

We believe a modernized NAFTA agreement should include a 

small and micro-business chapter. Although TPP included such a 

chapter, the contents focused on opportunities to educate small 

business, rather than address the substantial barriers these exporters face to trade, such as an increased universal de minimi customs 

exemption. 

Such a chapter might also enable negotiators to align around a 

shared definition of micro-business, paving the way for future programs that specifically address this constituency’s needs. 

Finally, enabling digital trade requires preserving the fundamental protections that enable intermediaries such as Etsy to operate in a global marketplace. In particular, we hope any new 

NAFTA agreement will preserve the intermediary liability protections and balanced approach to copyright that underpin online innovation in the U.S. 

The changes we seek for our sellers may seem small, but they 

would have a huge impact on e-commerce and micro-businesses. 

We are confident that a modernized NAFTA can help Etsy sellers 

succeed in a global marketplace, and set the standard for future 

trade agreements. 

Thank you for the opportunity to address you today. 

Chairman REICHERT. Thank you. 

[The prepared statement of Ms. Erickson follows:] 


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Etsy 

Testimony to the U.S. House Conunittee on Ways and Means 

Subcommittee on Trade 

Hearing on Modernization of the North American Free Trade 

Agreement (NAFTA) 

Althea Erickson 

Senior Director of Global Policy, Etsy, Inc. 

July 18, 2017 

My name is Althea Erickson. and I lead global advocacy and public policy at Etsy. an online marketplace where you 

can buy handmade and vintage goods from creative entreprenews around the world. I'd like to thank Chairman 

Reichert. Ranking Member PascreU and members of the Committee for inviting me to speak with you today about 

opportunities to modernize NAFTA for the 21st century economy. 

Etsy is a global creative commerce plaUorm that builds markets. services. and economic opportunities for creative 

entrepreneurs. On Etsy. millions of people around the world connect. both online and offline. to make. sell. and buy 

handmade and vintage goods. as well ascraJt supplies. We host 1.8 million active sellers' around tbe worJd. who 

togethersold$2.84Bin2016. 

The creative entrepreneurs who sell on Etsy are not the stereotypical businesses you might imagine when considering 

the exporters who could beneflt from global trade agreements. The vast majority of Etsy sellers at businesses of one. 

working out of their homes. Fully 87% of our sellers 311! women, and 28% live in rural areas, compared to just 17% of 

U.S. non· farm business owners. 

In many ways. Etsy functions as an on-ramp to entrepreneurship. For 53% of our sellers. Etsy was the flrst place 

they sold their goods. a number that increases foryoungsellers and those with children at home. Nearly a third 

of our sellers operate their creative business as their sole occupation. and for the rest irs an trnportant source of 

supplemental income. contributing an average of 13% of annual household income.• Nearly half or sellers use this 

income to pay for necessary household expenses. including utility bills and rent. 

Etsy was founded in 2005. sixteen years after the North American Free Trade Agreement (NAFTA) took effect. Since 

the trnplementation of NAFTA. the internet has made it possible for creative entrepreneurs to use platforms like Etsy 

to connect with buyers around the world. Unfortunately, existing trade laws have not kept up with the growth of 

global e-commerceand the opportunities it provides to microbusinesses. 

I As of March 31,2017. 

2 Etsy. CmfljlJI tht fururr of ''nrk-fhs-. hi£ lmp..w t!Cmktphu.,irre«. 201 7. 
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Many Etsy sellers begin exporting goods from the moment they open their shops. As of March 31, 2017, 32.1% of gross 

merchandise sales on Etsy involve a buyer or a seDer outside the United States. Fully 44% of Etsy sellers in the US 

are international exporters in their own right, and 55% of sellers who focus on their creative business as their sole 

occupation ship their wares internationally. Unfortunately, the US is the key only market where the majority of Etsy 

sellers do not ship their goods to other countries. For example, 88% of Canadian Etsy sellers ship internationally. 

Most independent, creative businesses lack the inftaStructure and information to navigate complicated international 

uade rules. Customs and duties vary by country, and credible information about each country's requirements can 

be difficult to lind. Packages are often delayed in customs or subject to unforeseen import taxes that the buyer must 

pay before receiving the.ir package. Package tracking often stops at the border, creating unnecessary friction in 

international transactions. ln the lace olthese challenges, buyers may reverse transactions or request refunds. the 

coot of which the seller often bears. 

Historically, trade rules and regulations have enabled larger, more established companies to bring their products to 

new markets. However, innovative programs that seek to streamline and simplify exporting like the trusted tiader 

program or the Single Window simply aren't relevant to a single person selling one item to another person in another 

country. We see an enormous opportunity to modernize NAFTA to looter digitally-enabled. microbusinesses exports. 

By focusing on the needs of our smallest exporters. we could set new global standards for peer·to-peer trade around 

the world. 

The single greatest opportunity to support microbusinesses would be to negotiate a higher low-value customs 

exemption with our trading partners. Thanks to the Trade Fadlitation and Trade Enforcement Act of201S, the US de 

minimis threshold is now $800, which eases burdens for US micro-businesses processing returns and purchasing 

supplies. However, Canada and Mexico have some of the lowest de mjnimJs thresholds in the world of $20and $50 

respectively.' As a result, low value goods from US exporters often end up subject to une.xpected lees or delays at the 

border. The upcoming NAFTA negotiations provide an opportunity to alleviate this burden that disproportionately 

impacts US micro-exporters. 

In addition to burdensome customs and duties, e-commerce regulations vary widely between countries. 

Discrepancies in the categorization of goods. as well as consumer protection or privacy laws pose a challenge lor 

individual sellers. who must find relevant information on requirements for each country before shipping an item. 

Unlike a tradjtional retailer, who can research rules before deciding to enter a market. the typical e-commerce seller 

makes her product available to buyers worldwide. and begins researching the rules after the product is sold, when she 

is under considerable pressure to mail the good quickly. 

Navigating the various websites and interfaces to lind credible information is an administrative struggle for an 

Etsy seDer that is hungry to comply with the rules. Currently, customs brokers help larger exporters navigate these 

complexities, but a business of one exporting a $30 item simply doesn't have tbe means to engage thooe services. 

We urge negotiators to create a far smaller, simpler set of harmonized tariff codes for low-value goods, and make 

information about all import/export rules easy to access- for example. through an open API. 

Finally, we believe a modernized NAFTA agreement should include a small and micro-business chaplet The TPP was 

the first trade agreement that included a small business chapter, but the contents of that chapter focused mainly on 

opportunities to educate small business. rather than address the substantial barriers these exporters face to trade, 

such as an increased, universal de minimis customs exemptiorL Such a chapter might also enable negotiators to align 

around a shared definition of micro-business· for example a business with fewer than 10 employees· paving the way 

for future programs that specifically address this constituency's needs. 

The changes we seek for our sellers may seem srnaU. but they would have a huge impact one-commerce and the day· 

to-day operations of a microbusiness owner. Weare confident that a newly negotiated NAFTA can help Etsy sellers 

succeed in the global marketplace, and set the standard for future trade deals. It hank you for the opportunity to 

address you today, and welcome any questions you may have. 

31he Lhre.shold in CanOOa is $20 CAD, and .\ll~x co's lhre.shold is $50 (or e-xpress shipme-nts and $300 for postal shipments. 
117 

Chairman REICHERT. Mr. Perdue. 

STATEMENT OF JASON PERDUE, PRESIDENT OF THE YORK 

COUNTY, NEBRASKA FARM BUREAU, TESTIFYING ON BEHALF OF STEVE NELSON, PRESIDENT, NEBRASKA FARM BUREAU 

Mr. PERDUE. Chairman Reichert, Ranking Member Pascrell, 

and Committee, thank you for the opportunity to be here today. My 

name is Jason Perdue, and I am a row crop farmer, cattle and 

poultry producer from York, Nebraska. I am testifying today in 

place of Steve Nelson, who had an unexpected family emergency 

yesterday morning. 

I am currently the president of the York County Farm Bureau, 

and a member of the Nebraska Farm Bureau Young Farmers and 

Ranchers Committee, and I am testifying today on behalf of the 

American Farm Bureau Federation. 

NAFTA has been beneficial for farmers, ranchers, and associated 

businesses all across the United States, Canada, and Mexico. For 

more than two decades, U.S. farmers and ranchers have benefitted 

from an increase in annual exports to Mexico and Canada from 8.9 

billion in 1993 to 38.1 billion in 2016. 

Nebraska alone exported more than 2.4 billion worth of products 

to Mexico and Canada in 2016, with agricultural products making 

up 1.5 billion, more than half of that total. 

There are reasons to modernize NAFTA from agriculture’s perspective. While the sector as a whole has been—has had a substantial benefit, there are individual commodities that have faced challenges. With Mexico, tomatoes and other fruits, vegetables, and 

sugar all have experienced issues. There are also challenges for 

dairy, specialty and row crops, wheat, lumber, and wine with Canada. 

We believe negotiations should eliminate or reduce long-standing 

Canadian tariff barriers to dairy, poultry and eggs, as well as the 

relatively recent barriers to ultra-filtered milk exports. U.S. agricultural exports to Canada would grow if greater competition were 

allowed. 

Remedies for our produce growers need to be strengthened. A 

timely trade dispute resolution process should be added that takes 

into account the perishability, seasonality, and regional production 

of fruit, vegetable, and horticultural products. 

There are several areas where the NAFTA agreements could be 

modernized to improve trade in agricultural goods. It is critical 

that the modernization effort should recognize and build upon the 

strong gains achieved by the U.S. agriculture through tariff eliminations, regulatory improvements, and the development of integrated supply chains that have arisen due to the NAFTA agreement. 

Trade agreements also provide the highest standard of trade 

rules, allowing the United States and its partner to be global leaders. We support science-based terms of trade and dispute resolution 

that will benefit the U.S. food and agriculture industry. We also 

recommend some additional and significant provisions on geographical indicators in biotechnology that would ensure that the reVerDate Sep 11 2014 05:27 Feb 26, 2019 Jkt 033481 PO 00000 Frm 00121 Fmt 6633 Sfmt 6602 I:\WAYS\IN\33481\33481.XXX 33481

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vised NAFTA agreement could be used as a model for future trade 

agreements the United States may enter. 

NAFTA must preserve U.S. market access opportunities for common-name products. The misuse of GI’s is a constant and significant threat to maintaining and growing sales of high-value U.S. 

products in the United States within the markets of our NAFTA 

partners and in markets, worldwide. 

We support adding in a new chapter on biotechnology to the 

NAFTA. The U.S. Government should, one, enter a mutual recognition agreement on the safety determination of biotech crops intended for food and feed; and two, develop a consistent approach 

to managing low-level presence of products that have undergone a 

complete safety assessment and are approved for use in third countries, but not yet approved by a NAFTA member. 

We also oppose erecting new barriers to agriculture trade in 

NAFTA, including adding mandatory country of origin labeling for 

beef and pork products. 

U.S. agriculture depends upon a growing, international economy 

that provides opportunities for farmers and ranchers to sell their 

products. Modernization of NAFTA will help expand market opportunities through the U.S. and Nebraska agriculture. 

Thank you for the opportunity to testify today. 

Chairman REICHERT. Thank you. 

[The prepared statement of Mr. Perdue testifying on behalf of 

Steve Nelson follows:] 


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... 

Statement of the 

American Farm Bureau Federation 

TO THE UNITED STATES HOUSE OF REPRESENTATIVES 

COMMITTEE ON WAYS AND MEANS TRADE SUBCOMMITTEE 

HEARING ON: 

"MODERNIZATION OF THE NORm AMERICAN FREE TRADE 

AGREEMENT'' 

July 18, 2017 

Presented By: 

Stephen D. Nelson 

President, Nebr·aska Far·m Bur·eau Fedention 

Board of Dir-ectors, Amel'ican Farm Bur·eau Feder·ation 

American Farm Bureau Feder·ation Trade Advisory Committee 
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My name is Steve Nelson and I am President of the Nebraska Farm Bureau Federation (NEFB) 

and serve on the Board of Directors of the American Farm Bureau Federation (AFBF). I am a 

member of the American Farm Bureau Trade Advisory Committee as well as the newly formed 

Nebraska Governor's Council for International Relations. I am testifying today on behalf of the 

American Farm Bureau Federation. 

The American Farm Bureau Federation is pleased to offer our objectives for the North American 

Free Trade Agreement (NAFT A) negotiations. AFBF and NEFB submitted comments on June 

12 addressing the negotiating objectives for NAFT A. 

Existing trade agreements have proven successful in reducing tarift's and tearing down non-tariff 

trade barriers that hinder U.S. fam1ers' and ranchers' competitiveness and prevent us from taking 

advantage of consumer demand for high-quality U.S. food and agricultural products throughout 

the world. 

NAFT A has been overwhelmingly beneficial for the vast majority of fanners, ranchers and 

associated businesses in the United States, Canada and Mexico. U.S. fam1ers and ranchers across 

the nation have benefited from an increase in annual exports to Mexico and Canada from $8.9 

billion in 1993 to $38.1 billion in 2016. Nebraska exported more than $2.4 billion worth of 

products to both Mexico and Canada in 2016 with agricultural products making up $1.5 billionmore than half- of that total. Mexico alone is Nebraska's second-largest trading partner with 

$1.3 billion dollars' wonh of agricultural products being exported there, which supported nearly 

1,200 Nebraska jobs. 

Despite the clear and numerous benefits, there are reasons to update and refonn NAFT A from 

agriculture's perspective. While the sector as a whole has seen substantial benefit, there are 

individual commodities that have faced challenges. With Mexico, tomatoes and other fruits, 

vegetables, and sugar all have experienced issues. There also are challenges for dairy, specialty 

and row crops, wheat, lumber, and wine with Canada. 

We believe negotiations should at best eliminate, and at worst, reduce, longstanding Canadian 

tariff barriers to dairy, poultry and eggs, as well as the relatively recent barriers to ultra-filtered 

milk exports. U.S. agricultural exports to Canada would grow if greater competition were 

allowed. 

Remedies for our produce growers need to be strengthened. A timely trade dispute resolution 

process should be added that takes into account the perishability, seasonality and regional 

production of fruit, vegetable and horticultural products. 

While there clearly are several areas where the NAFTA agreement could be modemized to 

improve trade in agricultural goods, it is critical that the modernization effort recognize and build 

upon the strong gains achieved by U.S. agriculture through tariff eliminations, the recognition of 

equivalency of numerous regulatory issues, and the development of integrated supply chains that 

have arisen due to the NAFT A agreement. 
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Trade agreements also provide the highest standard of trade rules, allowing the United States and 

its partners to be global leaders in setting the foundation to establish market-driven and sciencebased tenns of trade and dispute resolution that will directly benefit the U.S. food and agriculture 

industry. 

We support adding to the NAFTA agreement the sanitary and phytosanitary (SPS) language 

negotiated as part of the Trans Pacific Partnership (TPP), which would strengthen the existing 

WTO SPS commitments. 

We strongly support the inclusion of a rapid response tool, which will help to resolve shipmentspecific issues. Cooperative Technical Consultations would allow agencies to find science-based 

solutions to SPS issues in a timely manner, which is particularly beneficial to growers of 

perishable products. 

In addition to the TPP SPS text, we recommend some additional and significant provisions on 

Geographical Indicators (Gl) and biotechnology that would ensure that the revised NAFT A 

agreement could be used as a model for future U.S. trade agreements. 

We support the inclusion of the TPP text in order to preserve U.S. market access opportunities 

for common-name products. TI1e misuse of Gls is a constant and significant threat to maintaining 

and growing sales of high value U.S. products within the markets of our NAFTA partners and in 

markets worldwide. 

We support adding to NAFTA a new chapter on biotechnology. Under a modernized NAFTA, 

the U.S. government would I) enter into a mutual recognition agreement on the safety 

detemJination of biotech crops intended for food and feed, and 2) develop a consistent approach 

to managing low-level presence of products that have undergone a complete safety assessment 

and are approved for use in third countries but not yet approved by a NAFTA member. 

We oppose erecting new barriers to agricultural trade through NAFT A, including adding 

mandatory country of origin labeling for beef and pork products. 

Trade in goods c.ousists of not only frnal consumer products, but also intennediate it1puts and raw 

materials as fmns reorganize their activities around regional markets for both inputs and outputs, 

spurred in part by greater foreign direct investment. 

This integration enables agricultural producers and consumers in the region to benefit more fully 

from their relative strengths and to respond more efficiently to changing economic conditions. 

The creation of a larger, single market has given producers access to cheaper supplies of inputs, 

which allows U.S. producers to be more price competitive domestically and abroad. 

U.S. agriculture depends on a growitJg international economy that provides opportunities for 

fanners and ranchers to sell their products. Modernization ofNAFT A will help expand market 

opportunities for U.S. and Nebraska agriculture. 

Thank you for the opportunity to testify today. 
122 

Chairman REICHERT. Ms. Helper. 

STATEMENT OF SUSAN HELPER, FRANK TRACY CARLTON 

PROFESSOR OF ECONOMICS, CASE WESTERN RESERVE UNIVERSITY 

Ms. HELPER. Chairman Reichert, Ranking Member Pascrell, 

Members of the Committee, thank you for the opportunity to testify 

about NAFTA today. 

As an economist focusing on supply chains, I have long followed 

this issue. Twenty years ago I visited plants making automotive 

wiring harnesses in Warren, Ohio. At that time, senior production 

workers earned middle-class union wages, owning houses and cars. 

I also visited their counterparts in Mexico, eager young women who 

lived in tarpaper shacks, using the plant’s bathrooms to apply their 

makeup because their own homes lacked running water. 

I am inspired by the hard-working people I met in both places, 

people who coax machines into producing tiny, perfect, plastic connectors, people who made sure that these connectors were so flawlessly joined to wiring that our cars rarely suffer electrical issues. 

Today the plants in Warren are bulldozed or vacant, and middleclass jobs are largely gone. Mexican workers still have jobs, but 

their pay has not risen since NAFTA was signed in 1994. Is this 

the best we can do? Can’t the power of global trade be leveraged 

to benefit everyone? 

Appropriately designed, trade deals can set rules so that everyone shares in the gains. Trade deals should ensure that competition is based on technology and innovation, and not on other nations’ willingness to exploit workers or the environment. 

As other witnesses have discussed, key ways that NAFTA could 

move toward this goal include stronger protections for workers and 

the environment, and an end to special courts for investors. I would 

like to discuss an additional way: strengthening supply chains. 

Some arguments against changing NAFTA are based on fear that 

changes would weaken U.S. supply chains. However, these arguments assume that supply chains are ideal as they are. They also 

assume that Mexican and Canadian supply chains complement 

U.S. supply chains, and do not substitute for them. 

But in some cases, we have actually seen that foreign supply 

chains do substitute for U.S. suppliers. For example, in electronics, 

U.S. personal computer manufacturers started by off-shoring the 

assembly of printed circuit boards. Then they moved complete product assembly overseas. Then they moved supply chain management. And finally, design and innovation. 

To prevent this atrophy of capabilities, it is important to identify 

clusters of industries that are at a tipping point, and bolster these 

ecosystems. 

For example, it may be that North American auto parts cluster 

is approaching such a tipping point. Since NAFTA came into force 

in 1994, Canada has lost 4 auto assembly plants, the U.S. has lost 

10, even as Mexico has gained 8 plants. 

As more auto assembly occurs in Mexico, more suppliers will find 

that costs of shipping and of coordinating engineering changes fall 

as critical mass is reached. These firms may thus find it profitable 

to relocate to Mexico from the U.S. As each of these firms moves, 


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it creates additional reasons for other firms in the network to 

leave, as well. 

The North American industry could benefit from careful examination and management of these trends, assurances that changes 

are based on fair competition and promotion of investment and fuel 

efficient, innovative vehicles. 

Thus, a concern for U.S. supply chains should not preclude renegotiation of NAFTA. Instead, U.S. supply chains would greatly 

benefit from actions such as, first, better data and analysis; second, 

convening stakeholders, including business, unions, consumers, and 

environmental groups, across the U.S., Mexico, and Canada to develop industry-specific strategies; third, it is important to adopt 

non-trade policies to strengthen supply chains within the U.S. 

U.S. manufacturing supply chains are characterized by a heavy 

presence of small, isolated firms. Forty percent of manufacturing 

workers are in firms of fewer than 500 employees. And these firms 

struggle to do the innovation on which most U.S. comparative advantage is based. We could strengthen U.S. supply chains by making more robust efforts to train workers and managers; by including in sourcing decisions the benefits of supplier innovation, not 

just of cheap labor; by promoting collaboration within supply 

chains; and by continuing to fund the manufacturing extension 

partnership. 

The fourth issue, I think, is to review NAFTA rules of origin. But 

I would note that, to the extent that the production moves from 

low-wage nations, production may well go to Mexico, not the U.S. 

And thus, the impact of this policy on U.S. employment and wages 

depends critically on having policies that—suggested above on 

labor and environmental rights. 

A thoughtful renegotiation of NAFTA could make good on the 

promise of a prosperous, innovative, sustainable North America, in 

particular by strengthening its supply chains. 

[The prepared statement of Ms. Helper follows:] 


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Testimony before the House Ways and Means Subcommittee on Trade 

Hearing on Modernization of the 

North American Free Trade Agreement (NAFT A) 

July 18,2017 

by Susan Helper 

Carlton Professor of Economics. Case Westem Reserve University, Cleveland, Ohio 

fonnerly Chief Economis1 . U.S. Deparunem of Commerce 

Thank you for the oppornmity to testify today. As an economist with supply chains as my primary 

research focus, and as a loog-lirne Ohio resideD!, I have followed the implementation of NA.Fr A for 

many years. 

As an economist, I believe that increased competition has many benefits, for example allowing companies with bener products to grow and profit by beller serving consumers. While increased trade in 

general has the potential to make everyone bener off, this has not been the case with NAFf A, as 

President Trump and others have noted. 

Economic smdies have found only small overall increases in welfare for the U.S., Canada, or Mexico as a result of the agreement1 While some groups have benefited, especially large corporations, 

others have lost ground. A careful study by Hakobyan and McLaren (2016) shows that NAFTA has 

caused significantly slower wage growth in both U.S. industries and regions affected by tariff reductions in the agreement. The slower wage growth affected not just manufacturing workers, but also 

service workers, as those who lost manufacturing jobs tried to find new jobs in sectors like restaurants and retail, even as loss of these good-paying jobs reduced demand for such services. In Mex.ico 

as well, wages have stagnated even as productivity has increased; overall real wages rose just 2.3% 

between 1994 and 2012 (Weisbrot et. al, 2014). Mex.ican manufacturing wages remain well under 

20% of US manufacturing wages (Blecker, 20 14). 

Appropriately designed, trade deals can set rules so that everyone shares in the resulting gains. For 

instance, we should negotiate trade deals to ensure competition is based on technology and innovation - rather than on other nations" willingness to exploit workers or the environment. However, 

NAFTA's current rules allow companies to compete based on who can exploit workers or the environment more , undercutting finns that would like to compete on innovation. 

1 Romalis (2007) found no nel benefil of NAFfA for a~ re a1e welfare in 1he US; Caliendo and Parro (2015) find very 

smaJt increases in aggreg;ue welfare for each NAFT A country. 
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Susan Helper- Testimony Before the House Ways and Means Subcommittee on Trade 2 

In my testimony, l will discuss four ways in which the agreement could be improved: increasing 

worker protections, increasing environmental protections, eliminating or reforming special comts for 

foreign investors, and strengthening supply chains. l will address the first three briefly, and then 

discuss supply chains in somewhat more detail. 

If implemented, these changes would go a long way toward making the agreement work for ordinary 

citizens not just in the US, but in Mexico and Canada as well. 

I. Incr easing worker protections. As discussed above, a strong argument can be made that 

NAFT A has contributed to the reduced bargaining power experienced by workers in both the US 

and Mexico. Poorly designed rules can aggravate inequities. Under NAFI'A, for example, the worst 

penalty that can be imposed for sweatshop conditions is that countries can call for "consultations" 

with the offending country's labor ministers - consultations with no enforcement mechanisms. As 

discussed below, investors have far stronger protections available to them. Several groups have 

made detailed recommendations about bow to ensure that workers share in gains from trade, including the AFL-CIO (2017) and the Roosevelt Institute (Tucker, 2017).2 

2. Increasing environmental protections. Like the worker protections, environmental protections 

in NAFTA are vague and contained in a side agreement with no enforcement provisions. As a result, 

the post-NAFT A period has been characterized by environmental issues such as deforestation, increased use of fossil fuels, and environmentally-destntctive mining. Leading environmental groups 

(in addition to the sources above) have provided detailed recommendations for improvement. 

(350.org et. a!, 20 17) 

3. Reform or eliminate special courts for investors. Firms' decisions to leave the U.S. are eased 

by provisions in trade agreements such as NAFI'A, which set up special comts in which finns can 

challenge government policies that affect their investments. These "investor-state dispute settlement" (ISDS) mechanisms undermine national sovereignty. ISDS also undercuts the U.S. advantage 

in having a reliable legal system by helping ensure companies against potential expropriation by 

countries with weaker institutions. Countries have lost lawsuits over policies ranging from financial 

stabilization to environmental clean-up and even criminal prosecutions. (Hamby, 2016; Tucker 

2017.) 

:z More recent trade agreemenrs have gone beyond NAFT A in creating enforceable labor standards. but recent evidence 

suggests that even these do not go far enough to tmly create equity between worker and investor interests. For example. 

last month, an arbitral panel released the ftrst ever mling under tJ•e labor rights provisions of the U.S ... Central Americ-a 

Free Trnde Agreement (CAFfA). While siding with the U.S. that Guatemala had violated worker.;' rights, the panel 

found that it did not do so iu a manner sufficiently affecling cross bordcr ttadc. ·ntis trade nexus requirement ~ also in· 

eluded in the proposed Trans· Pacific Partnership .. is difficuh to meet and limits the utility of these provisions for work~ 

ing families. Negotiators should consider a simpler fonm1latiou that makes clear high labor standards must be enforced 

(and enforceable under NAFT A) across lhe econo1ny as a whole (rucker 20 17). 
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Susan Helper- Testimony Before the House Ways and Means Subcommittee on Trade 

More generally, institutions of global governance should focus less on facilitating mullinationals' 

ability to pit countries against each olher to win investment and more on genuinely global issues. For 

example, international trade agreements should tackle issues of international lax evasion and on 

promoting cross-border collaboration on environmental issues that cross national boundaries. 

4. Str engthening US supply chains. Many arguments against making changes to NAFI'A are 

based on a fear that any change would weaken U.S. supply chains. For example, Amiti, Freund, and 

Bodine-Smilh (20 17) argue: "Some critics of NAFI' A are concerned about the bilateral trade deficit 

and have proposed stricter rules of origin (ROO), which would make it more cumbersome for ftrms 

to access !he zero tariff rates they are entitled to under NAFI' A. We argue that measures !hat make it 

costlier for US firms to import will also hurt US exports because much of US-Mexican trade is part 

of global supply chains." 

For example, these analysts point to the auto industry, where U.S.- produced components comprise 

40 percent of the value of products imported into the United States from Mexico. In contrast, for 

goods imported from China, only 4 percent of their value is from U.S. content (Wilson, 2011). If 

NAFr A re-negotiation meant that trade barriers wilh Mexico were raised, labor-intensive production 

steps (like assembly of instrument panels) might move to China. Losing access to cheap nearby labor could mean !hat work currently done in the US (e.g., production of gauges for instrument panels) 

might move to Asia as weU. 

However, analysis such as this assumes that individual companies alone optimize their supply 

chains, and that no market failures existJ TI1e analysis also relies on the key assumption that Mexican (and Canadian) supply chains complement US supply chains and do not substitute for them. 

Moran and Oldenski (2014) appears to support this complementarity assumption, finding !hat when 

firms increase !heir Mexican employment, they also increase !heir US employment. However, much 

more research is needed to be sure of this result. Their data looks only at employment by a focal 

ftrm, not at suppliers. It is plausible that when a ftrm expands in Mexico, it expands its Mexican 

supply base more !han it would if it expanded in the US. Also, it is not clear that their teclmique separates cyclical changes (e.g., when the business cycle is favorable, firms expand in all their locations) from trends (e.g., a gradual hollowing out of US supply chains). 

U.S. supply chains are largely domestic. Eighty-five percent of U.S. exports are composed of U.S.-

made parts; domestic colllent of overall U.S. production is similarly high (Mahoney and Helper, 

3 In comrast. as discussed below. where chere are benefirs co clusrers of fimls, the impact of each finn's location and 

ioves1ment decisions spills over ro affecr other fimts in 1he industry (Mahoney and Helper, 2017). 
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Susan Helper- Testimony Before the House Ways and Means Subcommittee on Trade 4 

20 17) .. The threat to manufacturing jobs comes less from the globalization of supply chains than 

from the movement of large chlmks of whole industries abroad. 

In many cases, this process begins when manufacturers move labor-intensive components or assembly overseas. Before too long, they do the san1e for higher-tech operations as well. For example, 

U.S. personal computer manufacturers started by offshoring the assembly of printed circuit boards, 

then moved complete product assembly overseas, then supply-chain management, and, finally, design and innovation (Pisano and Shih, 2009). 

To prevent this atrophy of capabilities, it is important to identify clusters of industries tbat are at 

tipping points, and bolster these eco-systems. For example , it may be that th.e North American auto 

parts cluster is approaching such a tipping point. Since NAFTA came into force in 1994, Canada bas 

lost four auto assembly plants and the US has lost ten, even as Mexico has gained eight plants.5 As 

more auto assembly occurs in Mexico, more suppliers will find that costs of shipping and of coordinating engineering changes fall, as critical mass is reached. These firms may thus find it profitable to 

re-locate to Mexico from the U.S. and Canada; as each flffll moves, it creates additional reasons for 

other firms in the network to leave as well (agglomeration economies). The North American industry could benefit from careful examination and management of these trends, assurance that changes 

are based on fair competition (not unfau· practices), and that dislocation is managed and investment 

in fuel-efficient, umovative vehicles is promoted. 

S upply Chain Recommendatious 

A concern for US supply chains should not foreclose re-negotiation of NAFTA.Instead, promoting 

the vibrancy of US supply chains would greatly benefit from actions such as the following: 

1. Better data and analysis about the health of US supply chains. US statistical agencies are doing a great deal of creative work (despite tight budgets) to improve our w1derstanding of 

global value chains.6 However, there are several key steps that should be taken, requiring 

modest adclitional resources; 7 

a. Greater fundu1g of input-output tables. Currently, estinlated relationships underlie 

much of this analysis, data limitations preclude computing many of these statistics for 

service sector supply chains. Moreover, the domestic content figure assumes "import 

• See also Fe1zer and S1rasser (2015), Nicholson and Noonan (2017); Helper and Kmeger (2017). 5 Uniled Aulo Workers (2017). 

Sec Fetzer and Strasser (20 15) as one example amonlmany. 1 Taken together. the US sratistic.a.l agencies spend only 3 cents per Americarl per year. (Powers and Beede, 2014). 
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Susan Helper- Testimony Before the House Ways and Means Subcommittee on Trade 5 

proportionality," (e.g., that if 40% of a broad category of steel is imp011ed, that each 

industry usil1g that steel imports exactly 40% of it). 

b. Analysis of !he extent to which foreign suppliers are complements or substitutes for 

domestic suppliers. The Moran and Oldenski analysis could be ilnproved by using 

customs data to track ilnports by a particular fmn through the tiers of the supply 

chain. This would allow us to understand the circumstances under which fim1s add or 

subtract domestic employment when they expand abroad or use foreign suppliers. II 

is very rare to trace a product through !he supply chain. However, the Customs-Trade 

Partnership Against Terrorism is beginning to collect such data (Homeland Security, 

2015); it would be useful to use this for statistical purposes. (Note that as tracking 

technologies such as RFID spread throughout !he chain, the costs fall of collecting 

such data and of monitoring that only suppliers with good conduct are used (Mahoney and Helper, 20 17). 

2. Convening of stakeholders (including business, unions, consumers, enviromnental groups) 

across the US, Mexico, and Canada to develop industry-specific strategies and responses. 

3. Non-trade policies to strengthen supply chains with in the US. US manufacturing supply 

chains are characterized by a heavy presence of small, isolated fmns (40% of manufactw·ing 

workers are in finns of fewer than 500 employees). These firms struggle to do !he innovation 

on which the main source of US comparative advantage is based. Strengthening US supply 

chains C·ould include more robust efforts at training workers and managers, eff011s to promote 

sourcing based on total cost of ownership (including costs of poor quality and missed delivery), promoting collaborative relationships with suppliers, continued funding for the Manufacturing Extension Partnership. See Mahoney and Helper (2017): Helper and Krueger 

(2016) for more analysis and recommendations. 

4. Reviewing NAFf A rules of origin. Rules of origin should be revisited to detennine how 

they could better promote development of tri-national clusters il1cluding robust US participation. The process of review should be undertaken carefully. [f mles of origin are too weak, 

other nations can share in the gains from !he agreement without taking on the disciplines 

contained in it. On the other hand, if rules of origin are too strict, firms wiJl forgo NAFfA 

benefits, import instead under most-favored nation rates at the World Trade Organization, 

and perhaps weaken clusters. Also, to the extent production moves from low-wage nations 

(such as China) to North America, production may well go to Mexico, not the US or Canada. 

Thus, the impact of this policy on US employment and wages depends critically on the policies suggested above regarding stronger labor and environmental rights. 
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Susan Helper-Testimony Before the House Ways and Means Subcommittee on Trade 6 

A thoughtful renegoti.ation of NAFT A could make good on the promise of a prosperous, sustainable 

North American contillent, and should be conducted in an open, inclusive manner. The key step is to 

put the interests of American workers and communities ahead of the profits of multinational corporations. 
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Susan Helper- Testimony Before the House Ways and Means Subcommittee on Trade 

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133 

Chairman REICHERT. Thank you. Thank you all for your testimony. Now we will ask you a few questions, if you don’t mind. 

Mr. Ryan, thanks for being here today. As you said, Darigold, located in the State of Washington, and especially important, located 

in Issaquah, Washington, which happens to be in the eighth district of Washington, which is the district that I represent. So whatever you said is absolutely correct. 

[Laughter.] 

Chairman REICHERT. One of the things that I listened to in 

your testimony, and agree with and am concerned about, is Canada’s national ingredients pricing strategy. So that includes the 

class six and now the class even pricing scheme, With the importance of trade to our state and in your industry, I completely agree 

this practice that effectively blocks our exports to Canada and negatively impacts your sales in other markets has to end. 

So we will continue to work with the Administration to seek additional commitments from Canada with respect to the market access for dairy products. As Mr. Perdue also testified to in his comments, we want to end these discriminatory practices. 

I also agree with your concern about the growing use of geographical indications as a form of protectionism, and the need for 

strong rules to prevent this. We also need additional rules to ensure that our trading partners’ sanitary and phytosanitary determinations are based on sound science. 

So, I hope that you could please speak to the opportunities that 

you see for your industry in an upgraded NAFTA, and explain how 

these changes would impact Darigold’s sales with NAFTA and 

other markets. 

Mr. RYAN. Well, first of all, I think it all stems from the competitiveness of the U.S. You know, with more market access—you 

know, to Canada, for example—you will just simply have a growing 

U.S. industry. 

I think, secondarily, repealing the class seven pricing strategy 

will essentially reverse what is going to amount to be—as a market 

share move from the United States to Canada, by virtue of the policy they have, and stemming that. The U.S. dairy industry will be 

larger. The economy will be bigger. Jobs will be bigger, you know, 

without the class seven than with it, which I believe is strongly in 

conflict with the WTO. 

From a Mexico point of view, Mexico is a giant dairy import 

country in the world [sic]. And there is a lot of ambiguity out there. 

Europe—New Zealand, specific—would love to develop a greater 

share of the Mexican market. So reinforcing our situation is critical 

to just stay where we are, and where we are is a very good, good 

situation. But it is at risk, given the current environment. 

Chairman REICHERT. I want to give you the opportunity to 

comment on any other of the issues or concerns that you heard expressed today that might have struck a note with you as far as border crossings, technology, anything there that you see that could 

help or benefit? 

And anything specifically, other than the dairy issue with Canada, that you would like to mention that maybe—that you see as 

a benefit that we could add to and change and update NAFTA? 


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Mr. RYAN. Yes. Chairman Reichert, I think in your opening 

comments you said that NAFTA can serve as a template for things 

we can use in other places in the world. And I think in dairy, that 

is completely appropriate. At the end of the day, the world has— 

people and productive land are not all in the same spot. Global 

trade brings that together. It is good for global security and, because we are in one of the most competitive farming, land-rich, sustainable-resource, rainfed parts of the world, we can be a giant 

supplier to that, and grow the U.S. economy and jobs quite a bit. 

Dairy, in specific, is tremendously affordable protein and nutritious, and on trend from all aspects of the nutrition spectrum. And 

so, the global opportunity to grow the U.S. dairy business is extremely large, not only for Darigold, but for the entire U.S. dairy 

industry. Other bilaterals, going back to multilateral platforms, different ways—a lot of the things that were done in TPP would be 

essential for all of the U.S. agriculture, I believe, as well as dairy. 

And other countries are on the move. I mentioned in my comments the recent EU–Japan free trade agreement, which is—essentially did about what we were going to do in—for U.S. in our own 

TPP, and sort of one-upped us, if you will. This is a big setback. 

Japan is a very natural trading partner, and it sets a precedent for 

what takes place in other places. 

We have an environment where there is a—sort of a window of 

opportunity created for our export competitors around the world to 

go forward. And I would urge everybody to jump into that void and 

advance U.S. interests. 

Chairman REICHERT. Great, thank you. 

Mr. Pascrell. 

Mr. PASCRELL. Mr. Chairman, thank you. And I want to thank 

the panelists today. All excellent. 

Ms. Erickson, I paid very close attention to your testimony. And 

as senior director of global policy for Etsy, I want to ask you this 

question about empowering women entrepreneurs. 

I am impressed with the way that Etsy—is that correct—has empowered women to start their own businesses and sell products 

over the Internet. And you said in your testimony that almost a 

third of the sales on Etsy come from outside the United States. Am 

I correct? 

Ms. ERICKSON. It is about a third of sales involve either a seller or a buyer outside of the United States. 

Mr. PASCRELL. Now, you mentioned that our trade laws 

haven’t kept up with the changes in technology. So how can trade 

agreements help facilitate exports on behalf of small businesses 

like those that you use on your site? 

Ms. ERICKSON. Absolutely. So I think a lot of it is focused on 

the basic trade facilitation components of trade agreements. So, as 

I said in my testimony, de minimi customs exemptions would solve 

most of these challenges for Etsy sellers. The average good people 

are sending is not very expensive. And so that would eliminate 

much of the friction. 

I think, secondarily, just simplifying the rules. These are businesses of one, and they are hungry to comply with the rules, but 

it rapidly becomes too difficult for a business of one to figure out 


ralbany on LAP520R082 with HEARINGS
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what the rules are that apply to their product in a particular country. 

I think we also can take advantage of technology to make this 

easier. So a lot of trade facilitation focuses on, for example, putting 

rules online on individual Web sites. We would encourage countries 

to go even further in making those standards available in an open, 

common format that technology companies like Etsy could easily 

access to make that information available in the moment of the 

transaction, so our sellers don’t have to go digging through different countries’ Web sites to find them. 

So, for us, it is really about simplification. 

Mr. PASCRELL. Thank you. 

Professor Helper, thank you so much for your testimony. Democrats have consistently been vocal, particularly over the last 20 

years, about the severe erosion of manufacturing operations and 

jobs in our own country. People who don’t quite agree with that debate, and point out advancements in technology, in automation, as 

policy-neutral explanations for what is going on. 

Many of us have seen entire factories and entire factory towns 

leave, shut down. So is there any doubt in your mind, as an economist and an expert in manufacturing policy, that the incentives 

created by our trade policies have played a significant role in that 

demise of manufacturing jobs? 

Ms. HELPER. No, there is no doubt in my mind. There has been 

a significant change in the economics profession’s view on this 

question. 

Mr. PASCRELL. Could you explain that? 

Ms. HELPER. There is a very important paper by David Autor, 

chair of the MIT economics department, looking at the impact of 

free trade and the China entry into WTO, and finding that this 

change alone accounted for about a quarter of manufacturing job 

loss. 

There is a recent paper by Hackobyan and McLaren that use this 

same methodology, apply it to NAFTA, and find a slower wage 

growth, significantly slower wage growth, across the country in industries that were primarily affected by the tariff changes in 

NAFTA. And these changes affect not just, you know, a small number of workers in tariff-affected industries. 

Mr. PASCRELL. Right. 

Ms. HELPER. They spill over to affect the service workers—— 

Mr. PASCRELL. So not only are we losing the jobs, but those remaining are affected in a negative way, in terms of dollar growth, 

wage growth, as—— 

Ms. HELPER. It comes back to bargaining power—— 

Mr. PASCRELL. Right. 

Ms. HELPER [continuing]. That when you are competing with 

dollar-an-hour labor, and also when you are competing with the 

lack of demand that people earning a dollar-an-hour can bring to 

the marketplace, what happens is that businesses move toward 

strategies that involve lower wages and less innovation, because 

that is the way they compete. 

Mr. PASCRELL. Thank you very much. I yield, Mr. Chairman. 

Chairman REICHERT. Thank you. 

Ms. Jenkins. 


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Ms. JENKINS. Thank you, Mr. Chairman, and thank you all for 

being here. 

Mr. Perdue, as you are a producer from York County, Nebraska, 

an area very similar to and not terribly far across the border from 

my eastern Kansas district, I imagine you are, no doubt, familiar 

with the challenges that the agriculture community in rural America is currently facing. Part of that is due, in part, to low commodity prices, seasonal national disasters, and countless other 

pressures. 

Throughout this year and last, producers throughout Kansas in 

my district have visited with me about these challenges, and they 

have really stressed the incredible importance our trade deals are 

to their bottom lines. 

In light of the current slump in which the ag sector currently 

finds itself, how important is NAFTA to your own operation and to 

your neighbor’s farms? And what would be the effect that a withdrawal from NAFTA would have on farmers’ livelihoods, whether 

they be in Nebraska or an hour south, in Kansas? 

Mr. PERDUE. Well, thank you. The first answer I will go with 

is for the second question, and it would obviously mean lower 

prices to the producers. If we had any impediments to the trade we 

are currently doing in the export market, we would obviously have 

a build-up of supply, and it would result in a reduced price. And 

then you would quickly feel that ripple effect through the communities that are based so much on agriculture. 

So, I wish I had the exact numbers. I know there are studies out 

there. And I would be happy to get those to you in writing later. 

But there have been analyses to show what the export markets 

bring to every bushel of corn, every bushel of soybeans that a producer receives, and then take that into the livestock market, as 

well. And it is a very significant amount of income coming back to 

the communities from these exports. 

Ms. JENKINS. Thank you, Mr. Perdue. 

Mr. Chairman, I yield back. 

Chairman REICHERT. Mr. Paulsen. 

Mr. PAULSEN. Thank you, Mr. Chairman. And also, thanks for 

the other panel for sticking around. I will start with Ms. Bliss. 

You mentioned earlier that we have had a consistent trade surplus in the area of services, both with Mexico and with Canada. 

And there is widespread agreement, I think from folks here, that 

we do need to modernize NAFTA, or have a chapter now on e-commerce and digital trade, and have that be added. 

Can you just talk a little bit more about what the consequences 

would be for your members, or for service providers, if digital trade 

provisions were not included in a modernized NAFTA? 

Ms. BLISS. Thank you, Congressman. I think they would be adverse. And for one thing, let me just say that I think my members—and I know a large part of the business community, not just 

the tech center, believe that NAFTA really presents an opportunity 

to create a real template and a very high standard set of disciplines 

with respect to e-commerce and digital trade. 

So, if that opportunity is missed, I think the consequences are 

beyond just NAFTA, but more broadly, because certainly the topic 

of digital trade and e-commerce is being discussed in a number of 


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forums, in a number of trade agreements with respect to the EU 

and Japan. There was a decision to kick the can down the road, 

and so there won’t be any disciplines in that agreement. There is 

a lot of discussion in the WTO among developing countries and others, some who are strongly resisting a strong standard in that area. 

So, I think—just point one I would make is it would be a tremendous missed opportunity to not set high standards. Two, I think 

has previously discussed, the extent of restrictions on data flows, 

and data localization in particular, are, unfortunately, increasing 

globally. And they are—have not been as significant a problem 

with respect to Canada and Mexico—more so for Canada than in 

Mexico. 

So I think that if, again, the agreement did not set a high standard, it would be a missed opportunity, and it could send the wrong 

signal, in terms of encouraging those kinds of policies. 

And then, lastly, just let me say I think if you look at the trade 

surplus that has been generated broadly for the United States of 

about 262 billion, about 159 billion of that is accounted for by 

digitally-enabled services. So it is a huge area in which we are 

competitive, in which we are generating a big advantage for the 

United States. So if we don’t have those kinds of rules to undergird 

and to protect that advantage, we stand to lose a great deal. 

But I think it is—I would emphasize that it is really the last 

point, that we want to set an example, and we want to discourage 

kinds of policies that discourage data flows and mandate-forced 

data localized. 

Mr. PAULSEN. Can you also maybe mention what the implications would be for, you know, service providers or some of your 

members if a foreign government decided to levy customs duties on 

data? 

Ms. BLISS. Again, it would certainly—the immediate effect 

would be to increase the cost of business—— 

Mr. PAULSEN. Sure. 

Ms. BLISS [continuing]. Which is always adverse, and makes— 

would make the U.S. less competitive. 

Two, I think it would also set a very bad precedent, because I 

know there are developing countries that are looking very actively 

at doing precisely that, and seeing it as a potential source of revenue. So I think it would set a very bad precedent, globally. 

Mr. PAULSEN. Thank you, Mr. Chairman, yield back. 

Chairman REICHERT. Mr. Levin. 

Mr. LEVIN. Well, thank you. I mean this panel, again, I think, 

illustrates the challenge. Why we find it so difficult for us to listen 

to all of you, and instead just listen to some of you. 

Ms. Bliss, you have outlined the need to have high standards in 

services, and I have been active in this, including the WTO, as well 

as data flows and others. 

Ms. Helper essentially outlines the need for us to have high 

standards in terms of worker rights and the environment. But we 

pick and choose. And the challenge for any renegotiation of NAFTA 

is to pay attention to the need for standards across the board. 

And, Ms. Helper, you outline, I think so clearly, the need for us 

to do that in terms of labor standards, and you focus on suppliers. 

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mists, because, without naming names, I know, for example, of one 

very large supplier—it is an American supplier—that I think has 

about 80,000 jobs; 70,000 of them are in Mexico. 

And so, when there is a reaction by the public to NAFTA, I think 

we need to understand the impact of loss of jobs in critical areas 

like industry, while acknowledging there has been an increase in 

jobs in other areas, including the service industries. 

And Ms. Helper, you mentioned the recent study. And I just saw 

the abstract. You have to pay to get the whole thing. So I guess 

I will pay to get the whole thing. But its conclusion is we find evidence of both effects, dramatically lowering wage growth for bluecollar workers in the most effective industries and localities, and 

it goes on to say even for service-sector workers in affected localities whose jobs do not compete with imports. 

And so, everybody has a stake in addressing this issue of the attraction of jobs from the United States, in this case to Mexico, by 

the policy of Mexico essentially to be a very low-cost economy, 

when it comes to industry, and to make sure that wages are suppressed, including because workers have no ability to be represented in the workplace. 

In industry, in all cases except mining—maybe one or two others—the contracts are totally sham agreements, often reached by 

a union, so-called, that is attached to the government and the employer, before a single employee has been employed. 

So, Ms. Helper, you want to just close with some fervent expression why we need to address this? You are an economist, but you 

can get fervent. 

Ms. HELPER. Yes. And I am also a business school professor. 

Mr. LEVIN. Are you? Good. 

Ms. HELPER. So I would be remiss to not say that these high 

standards in the labor area can actually help business, as well. 

And I think Mr. Linebarger’s testimony about Cummins really 

shows this, that if he’s—innovation in his plants in the U.S. is actually helped when there are higher wages in Mexico, both because 

there are more demand for his products in Mexico, and also because competitors of his that don’t use the high standards that he 

uses can’t get away with the poor practices. 

So I think that this is a practice that doesn’t benefit just workers, but also innovative businesses, and also consumers. 

Mr. LEVIN. Thank you. 

Thank you, Mr. Chairman. 

Chairman REICHERT. Thank you. 

Mr. Kelly. 

Mr. KELLY. Thank you, Chairman, and thank you all for being 

here. I know you are very busy in your lives, and to take time out 

to come here is really critical to us. 

But all of you, we are here for the same reason today, and that 

is to talk about—specific about NAFTA and where we are with 

NAFTA today, as opposed to when the NAFTA was initiated, and 

what you see the improvements could be. Is there anybody at all 

on the panel that says we just shouldn’t do anything? 

I know do no harm, I get that part. But is there anything else 

that you see? Because you are all pretty articulate in what it is 

that you think the opportunities are, and where maybe we aren’t 


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looking that we should be looking in today’s market, as opposed to 

23 years ago. 

Mr. Ryan, and good to have another Domer in the room—by the 

way, that is Notre Dame, for you folks who don’t understand where 

we are coming from, the Golden Dome. 

Mr. RYAN. Go Irish. 

Mr. KELLY. Yes, Go Irish is right. 

Mr. RYAN. You know, I am struck in that we are talking about 

NAFTA, but there is dozens and dozens and dozens of countries 

around the world, and trade is an issue of everywhere. Food and 

agriculture, again, it is a—there is dozens and dozens of countries 

who are net importers of food and structurally always will be, and 

they are growing. And we can be a large net exporter. So it is a 

boom industry. 

I believe that the way we treat this NAFTA negotiation is an opportunity for us to establish ourselves as an extremely reliable 

trade partner who will always be there and always work to improve. And some of the environment brings that into question, 

which is simply arming the trade negotiators from our competitor 

countries to open doors against us. 

So I think there is the substance of what you get out of NAFTA, 

do no harm—clearly, improve a number of things, clearly open 

some more doors with Canada, specific, a number of industries— 

dairy and a few others that you mentioned—but in the eyes of Vietnam, in the eyes of the Philippines, in the eyes of China, everywhere else, lay the groundwork to open up the next doors. 

I believe, Mr. Smith, you said there was over 95 percent of the 

consumers are outside of the United States. And billions of them 

are graduating up into the lower levels of middle class, if you will, 

by an income definition and are ripe consumers for U.S. products. 

So I think the reliability of a trade partner, which has been 

brought into question, is also at stake right now. 

Mr. KELLY. Okay. Ms. Bliss. 

Ms. BLISS. Thank you, Congressman. Just elaborating on a couple of points, one is that I think it is worth clarifying that when 

we talk about promoting growth in the American economy, we are 

very focused on the 40 percent of services that are tradeable. And 

those jobs tend to be primarily in professional services, where 

wages tend to be considerably higher. 

And so, we are talking about promotion of the creation of good, 

high-skilled, high-paying jobs, and I think that is a very important 

point to make. 

And two, in promoting that, we do not ignore the fact that there 

is a need for significant worker education and training, which— 

many of our member companies have their own programs that are 

dedicated to that. So just by point of clarification, in terms of benefits that we see coming forward, we think NAFTA is in that regard. 

And the second thing I would say is that the investment protections that have been talked about today are very important across 

the board, certainly to services companies, because when services 

companies invest abroad, they generally do so because otherwise 

they couldn’t capture market share. They have to be on the ground 

and have a local commercial presence to supply their service. 


ralbany on LAP520R082 with HEARINGS
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So it is not off-shoring jobs from the United States, it is not that 

there are jobs that would otherwise exist in the United States. If 

anything, it is a job creator, and a creator of revenues that then 

come back to the United States. 

Mr. KELLY. Ms. Erickson. 

Ms. ERICKSON. Yes, I mean, for us it really is about the opportunity for NAFTA to be the model trade agreement of the future 

that really drives us into the 21st century. 

And at its base it is about three things. Certainly, simplifying 

the process for micro-businesses to ship their goods across borders. 

Secondarily, I think the digital trade components are extremely 

important to enable the platforms that enable those micro-businesses to grow and expand. And we are seeing many protectionist 

efforts to push back against those digital platforms like Etsy. 

And then, you know, we are very supportive of strong labor and 

environmental protections, as well. And so, for us, NAFTA represents an opportunity to modernize on all of those fronts. 

Mr. KELLY. Thank you. 

Mr. Perdue. 

Mr. PERDUE. I would just say that NAFTA has been good to agriculture, and we see NAFTA modernization as a template for market access and rules for future negotiations, and to improve agriculture trade with Japan and other Asia-Pacific countries in the future. 

Ms. HELPER. It falls to me, as the data wonk to talk about data. 

We have a data system that is set up for a very different, older 

world in which finished goods are largely what is exported. In fact, 

we have a lot of supply chains, we have a lot of related-party trade. 

In my written testimony I have some ideas about how we can use 

customs data. I think there can also be cooperation across the three 

countries to improve our understanding of how supply chains actually work to make supply chains less substitutes for each other and 

more complements. 

So I think the—in the agreement there can be cooperation, and 

then I think it would be helpful to have a little bit more budget 

for these very important data issues. 

Mr. KELLY. Okay. Thank you all for being here, and thanks for 

your contributions. We appreciate it. Thank you, I yield back. 

Chairman REICHERT. Mr. Meehan. 

Mr. MEEHAN. Thank you, Mr. Chairman. I thank the panel for 

their insights. And I have been educated in a number of the elements of the testimony. 

But Ms. Erickson, one that I am intrigued by was something that 

I don’t think you have had a good-enough opportunity to explain. 

And I know under Etsy there is—there are some standards that 

have been changed, de minimi standards, which the United States 

seems to have moved towards a more modern approach to that 

issue. Also mindful of the opportunities that have been created by 

global access to the Internet. 

And as you have identified, small business people—often times, 

women entrepreneurs that manufacture something or create some 

kind of a good that is very, very unique. And the kind of—while 

it may be a niche market, it is able to be accessed anywhere. And 

therefore, everybody has a chance to shop at that store. 


ralbany on LAP520R082 with HEARINGS
141 

And yet there seems to be barriers that have been put in place. 

Can you explain what de minimi means, how it influences the ability for small businesses like those you are talking about? And give 

me the example. I mean Canada and Mexico have taken different 

standards, but you identified a statistic, if I recollect correctly, that 

Canada’s exports globally from similarly-situated small businesses 

are significantly higher than those from the United States. Why is 

that, and what do we need to do to get that right? 

Ms. ERICKSON. Absolutely. So the de minimi issue for us is 

huge, and it is basically the de minimi customs exemption is the 

value under which goods imported into a country are not subject 

to customs and duties and those processes. 

And so, if a good falls below that threshold, then it basically sails 

through, and you can ship it from your home to somebody else’s 

home without friction. In the U.S., we recently increased our de 

minimi customs exemption to $800, meaning any item sent into the 

U.S., is it subject to those fees? That means it is very—most Etsy— 

goods from Etsy sellers, it is pretty easy to import into the U.S. 

However, in Canada in particular, the de minimi customs exemption is just 20 Canadian dollars, which is actually less than 20 U.S. 

dollars. And so that means that most goods that U.S. Etsy sellers 

are shipping into Canada do get stuck in customs. It takes longer 

for the item to get there. The buyer may have to pay import fees 

that they don’t expect. So that creates friction, that transaction. It 

means that often a buyer will just send the item back, not pick it 

up, what have you. 

So, for us, increasing those thresholds really eliminates the challenge of having to figure out what the rules are, because the item 

just goes through. 

The statistics I gave you were about Etsy sellers in particular. 

And so, yes, Canadian Etsy sellers do ship quite a bit more internationally than U.S. Etsy sellers. That is, in part, probably due to 

the de minimi customs exemptions, and part due to the fact that 

our market in the U.S. is quite a bit larger with buyers and sellers. 

Mr. MEEHAN. What justification would Mexico or Canada give 

for having a lower number? How do they defend it? 

Ms. ERICKSON. I mean, I—you know, I can’t speak for the Canadian or Mexican Government, but often it is a desire to protect 

local industries. 

Mr. MEEHAN. Well, I thank you, and I am hoping we can develop the kinds of policies that continue to encourage those global 

access. 

Ms. Bliss, you have also talked a lot about trade and services and 

how services themselves are entities that we export and create jobs 

here at home, but not exclusively. Those trade and services also 

end up supporting other kinds of things, like manufacturing and 

agriculture, some of the issues that we are dealing with on—across 

the border. 

I have an awful lot of—Michael and I both have dairy in our districts, and we face issues with export there. How do the trade services actually enhance the ability for manufactured goods or dairy 

goods or other kinds of farm goods to also have enhanced access to 

markets? 


ralbany on LAP520R082 with HEARINGS
142 

Ms. BLISS. Thank you, Congressman. And I certainly appreciate 

your earlier remarks in this regard, because it is an area that CSI 

has really been focused on, because we understand that this Administration is very concerned, in particular, about the manufacturing sector. 

So one of the things that we have been doing is doing some work 

and research about the role of services in enhancing the competitiveness of manufacturing. And it is actually quite considerable. 

Anywhere from 25 to 49 percent of the value of the input in manufacturing is actually services. And if you look at the auto sector, it 

is roughly about 50 percent. 

And also, in terms of jobs, the—it is, again, a range of anywhere 

from 25 to 60 percent, depending on the particular product that is 

being manufactured. 

But to your point about how does it promote competitiveness, 

there are various ways along the chain, starting from the initiation 

of the production process. And it may be that it is an element of 

technology that has enhanced the production process itself. It may 

be that there is a technician, a service supplier that is there, that 

is implanting a sensor in the product. 

I think that might have been an example that you used, or a previous witness might have even used, when they are ultimately 

telematics. I think the Cummins witness referred to that. So there 

is a sensor implanted, and then there is a service supplier that is 

then reading the big data that is then generated, once that sensor 

is employed. And one perfect example of that are Boeing engines 

that have sensors to monitor their safety and operation. 

Mr. MEEHAN. I will look forward to your research in that space. 

Thank you, Mr. Chairman, I yield back. 

Chairman REICHERT. Thank you. And thank you for your answer. 

Mr. Holding. 

Mr. HOLDING. Thank you, Mr. Chairman. I am going to ask 

kind of a detailed question, Mr. Perdue, having to do with sanitary 

and phytosanitary measures. 

So I believe one of the most important negotiating objectives in 

TPA is—we put in there is to obtain enforceable WTO plus SPS obligations to hold other countries accountable for using biased and 

discriminatory standards to justify locking out U.S. agricultural 

products. 

And this can be valuable in the Canadian and Mexican markets, 

but these negotiations also are important to set high standards 

that we can use in future trade agreements with other countries. 

So, Mr. Perdue, I would like to know if you have some thoughts 

about would enforceable, high-standard, SPS commitments be valuable to the farmers and ranchers that you represent? And accordingly, other farmers and ranchers throughout the United States? 

Mr. PERDUE. In regards to that, the SPS would be a benefit to 

have the science-based regulations, as well as enforcement with 

Mexico, especially in the fruits and veggies. That is not my expert 

matter, but if we could have, you know, the enforcement of the regulations, I think we have heard that that is the important piece 

throughout today’s testimony. 

Mr. HOLDING. Good. Thank you very much. 


ralbany on LAP520R082 with HEARINGS
143 

Mr. Chairman, I yield back. 

Chairman REICHERT. Mr. Davis. 

Mr. DAVIS. Thank you, Mr. Chairman. And I also want to thank 

our witnesses for their indulgence and for being here with us. 

I certainly agree that globalization is a fact of life. And we must 

be strategically prepared to market successfully whatever products, 

whatever businesses that we have to other countries. And I also 

agree that our taxing policies have to be such that they are helpful 

and facilitative. 

I agree that NAFTA has been good to agriculture. And, of course, 

I come from a large, urban area. And people often ask me why I 

have so much concern about agriculture. One is that the U.S. agriculture sector, including food manufacturers, is deeply concerned 

about the potential erosion of benefits under NAFTA for an obvious 

reason: our farm and food sector exports more products to the 

world than we import from the world. And, of course, agriculture 

continues to produce and generate surplus with the rest of the 

world. 

Unfortunately, there are many food processors and candy makers 

in the area that I come from who cannot purchase sugar on the 

global market, and they have to purchase this domestic sugar. And 

we are allowing more sugar imports from Mexico and Canada and 

other places, which drives the cost of sugar up for our candy makers and food processors, which make them less competitive with 

others, other candy makers, for example. 

We have had several candy companies to actually move outside, 

or move away from Chicago, move away from the area because they 

just could not successfully compete. And so that is a concern that 

they have that is also a concern that I have. 

I know that NAFTA has produced winners and losers, any way 

we cut it, no matter what it is that we might say, no matter how 

we rationalize it. We know that there have been losers—that is, industries, products. I can walk down the street and see vacant lots 

where there used to be garment makers that no longer exist in the 

area. 

Dr. Helper, I wanted to ask you. How do you think we can try 

and assure that we can balance the scales a little bit more, in 

terms of winners-winners, as opposed to winners-losers? 

Ms. HELPER. Yes. I think the debate around NAFTA is often— 

as Chairman—Ranking Member Pascrell said, between sort of profree-trade people and isolationists. And I would challenge that. 

I mean I think if it was really free trade, NAFTA wouldn’t need 

to be 2,000 pages long. And most of those 2,000 pages are actually 

protections for people who are—already have quite a lot of bargaining power. So we have the special courts for investors, we have 

a great deal of intellectual property rights, and very little protections for workers and environment. So, I think changing that, as 

has been discussed, would be really helpful. 

I think a second point, your sugar example, is also a supply 

chain example in the sense of if you protect part of a supply chain 

and not others—so you protect—or there is high tariffs on sugar, 

but not on the candy, you can run into trouble. And you can also 

see this, you know, where tariffs are very different on an upstream 

producer, versus a downstream producer. And so I think it is anVerDate Sep 11 2014 05:27 Feb 26, 2019 Jkt 033481 PO 00000 Frm 00147 Fmt 6633 Sfmt 6602 I:\WAYS\IN\33481\33481.XXX 33481

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other reason why it is very important to think about supply chains, 

as a whole, so that, in our efforts to help one industry, we don’t 

hurt other industries. 

I guess one last point. I think I would say that, you know, often 

we think about high-tech industries and low-tech industries. And 

we often think, oh, textiles, we can’t possibly compete in textiles. 

Well, there is research going on at MIT, for example, saying textiles could be the new software. We could actually have embedded 

sensors in our clothing. If we have no clothing industry, it is going 

to be hard for us to take advantage of that market. 

So, I think thinking about how do we compete in these innovative, high-road ways, and how do we build that into our trade 

agreements is a really important agenda, and there is some great 

opportunity for us, going forward. 

Mr. DAVIS. Thank you for your indulgence, Mr. Chairman. 

Chairman REICHERT. You are welcome, Mr. Davis. 

Mr. Kind. 

Mr. KIND. Thank you, Mr. Chairman. I apologize for having to 

step out a little bit, but I really do appreciate the panel’s testimony 

here today, your written and verbal. And I think it is important 

that we continue to have these conversations of where trade 2.0 

should look like, and where we go from here. 

I know it has been a frustrating topic of conversation of late because all too often we sometimes let the perfect be the enemy of 

the good. And trade policy is complicated. There are a lot of different moving parts to it and that, and we are trying to strike the 

right balance to, again, try to level the playing field for our workers, businesses, farmers, ranchers, right here in this country, so 

that we can be more effective competing in the global marketplace. 

That is crucial. 

But sometimes trade and trade agreements get conflated. And 

the fact is we only have 20 trade agreements right now throughout 

the world. And of those 20 nations, we are actually running a trade 

surplus in manufacturing, in agriculture, in services. I believe it is 

the countries we don’t have a trade agreement with that get us into 

trouble, because that is just a race to the bottom with no rules, no 

laws, no standards to enforce. And it is important for us to be at 

the table, establishing those rules with our values leading the way. 

And I want to get a little bit technical on—Mr. Ryan, I am looking at you, because I know you have been leaning in on this issue, 

as those of us from dairy country have been. But in the context of 

NAFTA renegotiation, of course we have got the ultra-filtered class 

pricing system up in Canada that is giving us some fits lately. 

And being from one of the dairy co-ops from the chairman’s home 

state, I just wanted to get your perspective, since I have been trying to wrap my head around it, any possibilities of breakthrough 

with Canada when it comes to some of our dairy export opportunities there, just want leverage we ultimately have. Of course, they 

got a supply management system up there that they are trying to 

protect. They have been very protective with high tariffs when it 

comes to dairy exports. We are trying to address this ultra-filtered 

milk issue now that wasn’t even around or addressed adequately 

during NAFTA. 


ralbany on LAP520R082 with HEARINGS
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I mean, well, really, what is the path forward here? Is—do we 

have any leverage at all that we can use effectively in this? 

Mr. RYAN. Yes. Been looking for that leverage. Been looking for 

that path forward. I think, one, of making it a big issue, the bully 

pulpit that all of us can share in is one way. 

I think, two, it looks pretty clearly that it will be in violation of 

all their WTO commitments. The problem with that is that can 

take years to come through, and this is a real-life issue right now. 

So I believe there is—well, a whole number of other countries 

have stood up, saying it is in violation of WTO, agricultural ministers around the world. And so there is a collective body there, too. 

Getting change is another matter. 

I believe the leverage of the United States is ultimately one of 

the things, in a broader NAFTA negotiation, that the United States 

needs to stand up and say we are standing on this issue. You know 

it is going to be unwound eventually, through WTO. Do it right 

now, because it is right, and it is what good trading partners 

should do. 

It is the best I can think of. As far as other leverage, I am open 

ears. 

Mr. KIND. You know, I am sure Washington State is the same 

as Wisconsin. Canada is a very crucial and important trading partner. In fact, 60 percent of our exports are either going into the Canadian or Mexican market right now. So we don’t want to jeopardize that. But then again, we need to be able to feel assured that 

whatever system we have is a fair and balanced one, one that does 

level the playing field. And right now we don’t feel that that is happening, as it relates to Canada. 

And I have been one of those, you know, voices, being from agriculture country, trying to bring that perspective in our farm bill deliberations, that we got to be sensitive to our own WTO obligations, 

as well. And the title one subsidy programs sometimes puts us in 

that box, that counts against us. And we are trying to tee up another reauthorization of the farm bill, and I think it would be wise 

for us to be sensitive to our own trade obligations, globally. Otherwise, this can boomerang against us. 

I mean we are still frustrated with the problem we have with 

cotton subsidy and Brazil right now, who can level economic sanctions against us but for a $500 million bribe going to Brazilian cotton producers every year in order to keep them at bay. I mean this 

is how crazy our own farm policy has become in this country. 

So, you know, we look forward to working with you and others 

when it comes in the context of the next farm bill, that we are 

doing this in light of what this means for trade and our WTO obligations in that area, as well. 

Mr. RYAN. I fully agree. 

Mr. KIND. Yes. Thank you. Thank you all again. Thank you, Mr. 

Chairman. 

Chairman REICHERT. Thank you. 

Mr. Smith. 

Mr. SMITH OF NEBRASKA. Thank you, Mr. Chairman, for allowing me to participate here with the Trade Subcommittee, and 

certainly thank you to our entire panel, and especially our Nebraskan here today. 


ralbany on LAP520R082 with HEARINGS
146 

As you have shared your insight and expertise, obviously, U.S. 

agriculture and NAFTA—I am repeating a lot of what has already 

been said, but U.S. agriculture has benefitted tremendously under 

NAFTA. 

And I was wondering, Mr. Perdue, if you could perhaps tell us 

what you think makes American agriculture so competitive that, 

you know, that we would want to—and have a product that is generally affordable and high quality that the rest of the world would 

want to buy. Can you tell us maybe what goes into that, from your 

perspective as a producer? 

Mr. PERDUE. I would say that we have some of the most passionate people about what they are doing in producing our food and 

fiber in this country. And not only are they passionate, they are efficient and take advantage of technology to grow and be more efficient all along that line. 

And you know, it is just that passion for high quality food that 

makes us want to be a trade partner, as we have seen in some recent trade deals, especially in Nebraska. 

Mr. SMITH OF NEBRASKA. Right, very good, thank you. 

I yield back, and thanks again, Mr. Chairman. 

Chairman REICHERT. Thank you, Mr. Smith. 

Well, thank you for your testimony, and I think this panel can 

walk away with the same good feelings that the first panel had in 

accomplishing, first of all, sharing your message and getting your 

information to all of us. And I can assure you that there were probably some people just down the street from us in USTR listening 

to your testimony and our comments, too. 

Secondly, another moment of bipartisanship in recognizing the 

expertise at the panel brought today. So I really want to thank you 

and assure you that what you have shared with us is important 

and will be considered as we move forward. 

As I have advised the previous panel, please note that the Members will have two weeks to submit written questions to be answered later, in writing. Those questions and your answers will be 

made a part of the formal hearing record. Our record will remain 

open until August 1st, and I urge interested parties to submit 

statements to inform the Committee’s consideration of the issues 

that we have discussed today. 

The Committee stands adjourned. 

[Whereupon, at 1:14 p.m., the Subcommittee was adjourned.] 

[Member Questions for the Record follow:] 


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ralbany on LAP520R082 with HEARINGS33481.085

Answers to Questions from Rep. Higgins 

By Celeste Drake 

Witness representing the AFL-CIO 

July 18, 2017 Hearing before the House Ways and Means Subcommittee on Trade 

1) Infrastructure: Do you think that infrastructure investment should be a priority within the 

context of free trade agreements, and do you think that improvements to infrastructure -

particularly cross-border infrastructure- should be prioritized as the Administration and 

Congress embark on this process? 

Answer: Yes, infrastructure investment should be a priority within the context of free trade 

agreements and should be prioritized as the Administration and Congress embark on the 

NAFTA renegotiation process. Investing in infrastructure drives long-term, broadly shared 

growth, whi ch would benefit both the United States and its NAFTA partners. Unfortunately, by 

stimulating a form of economic competition that prioritizes returns to capital at the explicit 

expense of wages and tax revenues, NAFTA has made it difficult for the U.S. to engage in 

commonsense infrastructure investment in recent decades. 

Investing in infrastructure is important for reasons beyond immediate job creation and shortterm economic gains. Investments in infrastructure spur sustainable economic growth, enhance 

long-term economic competitiveness and improve qualit y of life for residents.1 The benefits of 

public infrastructure investment are shared broadly across households at all income levels, thus 

helping to offset any inequality increasing aspects of neoliberal trade rules. State-of-the-art 

ports, airports, roads and rail; education, training and research centers; water and wastewater 

treatment and storage; and upgraded national utilities, including broadband, cannot be 

"captured" by any one group in the economy, but benefit us all, with huge spillover effects for 

the economy as a w hole.2 

Ensuring that infrastructure investments occur not just in the United States, but on a 

regionw ide basis will ensure the benefits of economic growth are more w idely shared than they 

have been under the current NAFT A. Substantial investments in infrastructure could mitigate 

wage distribution issues within NAFTA countries as well as between them. Infrastructure 

occupations offer higher wages compared with jobs that require similar skills sets and 

educational requirements and frequently pay more than the national median wage.3 By 

'See Bivens. Josh. "The Short- and Long-Term Impact of Infrastructure Investments on Employment and 

Economic Activity in the U.S. Economy," EPI Briefing Paper No. 374, Economic Policy Institute, July 1. 

2014. Available at: www.epi.org/publicationlimpact-of-infrastructure-investmentst; and Testimony of 

Richard L. Trumka, President, AFL-CIO, before the Committee on Transportation and Infrastructure, U.S. 

House of Representatives, Feb. 1, 2017. Available at: http:fltransportation.house.gov/uploadedfiles/2017-

~2-01-trumk<!,~>df. 

/d. 3 See Kane, Joseph, and Puentes, Robert, "Beyond Shovel Ready: The Extent and Impact of U.S. 

Infrastructure Jobs," The Brookings Institution, May 201 4. Available at: www.brookings.edu/wpcontenVuploads/2014/05/Beyond-Shovei-Ready.pgf. 
148 


ralbany on LAP520R082 with HEARINGS33481.086

increasing the demand for these jobs, a NAFTA that prioritizes infrastructure improvementsuch as by including the AFL-CIO's recommended cooperative commitment of three percent of 

GOP annually-could benefit working people across the continent. 

The American Society of Civil Engineers currently grades U.S. infrastructure as aD+ and calls for 

an investment of nearly $5 trillion over the next 10 years.• Including infrastructure investment 

as a cooperative commitment both w ithin NAFTA and as mandatory spending as part of trade 

implementing legislation could help address our infrastructure deficiencies while building 

popular support for NAFTA and breaking the cycle of disinvestment. 

2) Infrastructure: My district has four ports of entry on the Northern Border. Wait times 

are consistently a problem. The Peace Bridge in Buffalo is the second-busiest northern border 

crossing. Yet the American government does not prioritize investments in border crossings 

like the Peace Bridge, despite their importance. What financial and infrastructure resources 

do you feel will help aid the free flow of goods and people between the US and Canada? 

Answer: Trade deals are meant to facilitate economic activity, which means we should expect 

to see greater movement of both goods and people as a result. To date, these deals done a 

better job at protecting goods than they have people, and that must be fixed.

5 

With respect to goods, trade agreements have attempted to facilitate goods flows through 

limited means, e.g., by reducing tariffs and quotas, and in recent decades through deregulatory 

efforts (such as challenges to country of origin labeling and clove cigarette bans). However, 

when viewed as comprehensive international agreements to enhance and improve standards of 

living through trade promotion, there is a good deal more that trade agreements, including 

NAFTA, can do to facilitate efficient, appropriate flows. 

It is imperative that U.S. border crossings and entry points, whether those are bridges, airports, 

water ports, are modern, efficient, and secure. If they are not, trade w ill migrate toward better 

functioning entry points. To the extent that some crossings, such as the Peace Bridge between 

Buffalo and Fort Erie, are inadequate, inefficient, or in need of expansion and repair, it is likely 

that communities served by those crossings will lose some economic activity to other, more 

efficient crossings. 

4 "2017 Infrastructure Report Card." American Society of Civil Engineers, March 2017. Available at: 

www infras ruc ure~ortcard.o ~-con enVup oa s/2016110 20 7-lnfras ruc e-R~port-Car pdf. 

" With respect to the flow of people, trade deals should in no way commodity people, nor ignore their 

fundamental human rights. Trade rules that fail to secure fundamental rights for working peopleincluding migrant workers-eventually drive down wages and create justified hostility toward the trade 

agreements themselves. For more information, see the AFL-CIO's NAFTA Recommendations, available 

here: httQs://aflcio.orgfsitesldefauiUfiles/2017-

0~NAF'(A0fc>.20Negot [r}g%20Re9ommen ation?%20from%20~Fk 

CI0%20%28Witness%3DTLee%29%20Jun2017%20%28PDF%29 O.pdf. 
149 

f 


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One reason China is out competing the U.S. in many facet s of trade is its state of the art ports 

and transportation systems. If it is easy and efficient to move goods in and out of Guangzhou 

but not Buffalo, that w ill become a factor in a firm's production and transportation decisions. 

Infrastructure investments not only create immediate constructions jobs, they permanently 

increase the capacity of our economy. The administration campaigned on robust infrastructure 

investment, but to date, there is no plan of action to fulfill that commitment. NAFTA can be 

part of that plan, if it includes and promotes real investments. Now is the time for Congress 

and the administration to commit to a first class infrastructure across North America by 

including a cooperative commitment to invest three percent of GOP annually in public 

infrastructure and by developing a NAFTA implementation bill that also includes mandatory 

funding for the following types of trade-related projects: 

New and improved land border crossings and ICC border commercial zones with 

Mexico and Canada (including the border crossings such as the Peace Bridge); 

Ports, airports, roadways and waterways; 

New and improved rai l corridors, including high-speed rail; and 

Broadband infrastructure, including in rural communities. 
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KANSAS CITY SOUTHERN 

MAIUNG ADDRESS: PO BOX 219335 

PATt\lCK ). OTTENS MEYER PRESIOENT ANO CHIEF O:£CUTIV£ OFFICER 

PHONE: (8tG)M3· 1702 

August 21, 2017 

The Honorable Dave Reichert 

• KANSAS CITY MO 64 121·9335 

Chainnan, U.S. House of Representatives Ways and Means Committee 

Subcommittee on Trade 

1102 Longworth House Office Building 

Washington, D.C. 

Dear Representative Reiche11: 

FOIJNOt(D ' •• 1 

www.kesoulhorn.eom 

11ta.lk you for providing me the follow up question to the July 18, 2017 Subcommittee on Trade hearing 

from Representative Lynn Jenkins regarding Investor State Dispute Settlement (ISDS). 

As Representative Jenkins indicated in her follow up question, Kansas City Southern (KCS) agrees that 

U.S. companies that invest overseas and in our case, in Mexico, are ofien responsible also for facilitating 

U.S. exports. In KCS' case, over the 20 years that KCS has been invested in its Mexican concession, it 

has invested over $4.5 billion to make sure that rail network is reliable and efficient, prepared to deliver 

U.S. expo11s to Mexico and service growing Mexican industry. More recently. KCS joined its pa11ners 

Watco and WTC Industrial last November in announcing a joint venture investment in Mexico which will 

facilitate and expand the exportation of liquid fuels from the United States to Mexico. The joint vcmure 

partners will invest approximately $45 million in the first phase of the project. This opportunity for new 

U.S. export petroleum products comes as a direct result of energy refonn legislation passed in Mexico in 

2013. Likewise. shipment of U.S. grain exports to Mexico require capital investment in Mexico to make 

exportation of U.S.-produced grain and other agricultural products from the United States to Mexico 

possible. 

KCS believes there are very significant and growing opportunitie.~ tO increase U.S. agricultural, energy, 

petroleum products and natural gas product exports to Mexico. To fully realize these opportunities, U.S. 

foreign investment in Mexico of the kind KCS and our partners have made is essential. WiU1out the past 

and future investment in Mexican rail infrastructure, these opportunities could not be realized because 

U.S. products could not get to Mexican consumptions markets. And, without Chapter II under NA.f'T A, 

future investment in this vital export infrastntcture would be uncertain. Chapter II and IS OS arc critical 

to this in vestment. 

In more specific response to your question, "How has the legal protection providrxl by ISDS been 

imporllllll in your investment decisions for t he overall benefit of products grown or mtmufactured in 

Kansas?". as with products grown or manufactured across KCS' U.S. service territory, the Chapter I I 

protections contained in NAFT A and the IS OS dispute resolution process have been very important to 

KCS' confidence in making its past investments in Mexico and its future investments which f.1cililate the 

transportation of U.S. export products from the U.S. to Mexico. Retaining NAFTA 's current investment 

protections is critical for U.S. companies with foreign investment like KCS. Under NAFT/\, the 

governments of Canada and Mexico agreed to investment mles that guarantee U.S. investments will not 

CATHEDRAL SOUARE 427 WEST 12t H STREET KANSAS CITY, MISSOURI 64105 
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Representative Reichert 

August21. 2017 

be subject co discriminacory treacmel\1 and will be compensated in che unlikely cvenc of 

Page 2 of2 

exproprialion. Enforcemenc of these obligations llll'ough Chapter II 's investor-scare dispute sclllcmenc 

(ISDS) provision is critical co this foreign invcscmenlco faci litate U.S. exports. 

Chapcer II invescmenc proceccions arc consistcnc wich the due process protections guaranteed in the U.S. 

Constitution. ISDS procects U.S. companies from foreign government's arbitrary actions. These 

protections are esscnt ial co U.S. companies and their shareholders who otherwise mighc be subjected co 

expropriation or discriminatory creacment simply on the basis of their nationality. Any attempt to 

eliminate or dilute these proceccions would certainly chill future invescmcnt consideration. Such 

protections have earned strong congressional support thi'Ough their inclusion in the Bipartisan 

Congressional Trade Priorities and Accountability Act of20 15 (TPA). 

For these reasons, KCS believes preserving the Chapter ll and !SDS arc critical for U.S. foreign 

investment which is critical for U.S. companies to make such investments and essencial to cxiscing, new, 

and growing U.S. exports such as those produced in Kansas and other states in the KCS service leiTitory. 
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August 24, 2017 

U.S. House of Representatives 

Committee on Ways and Means 

1102 Longworth House Office Building 

Washington, DC 20515 

Question from Rep. Jenkins 

1) NAFTA Witbdl'aw Consequences 

My question is for Jason Perdue wirh the Nebraska Farm Bureau. Mr. Perdue, as you are a 

producer from York Counry, Nebraska - an area ve1y similar to and not terribly far across the 

borderfrom my eastern Kansas dish·ict - I imagine you are no doubt familiar with the 

challenges that the agriculture communiTy in mra/ America currently face pertaining ro low 

commodity prices, seasonal natural disasters, and countless other pressures. Througholllthis 

y ear and last, producers across Kansas have visited with me about these challenges and stressed 

the incredible imponance our h·ade deals are to their bollom lines. 

In light of the current slump in which the agriculture sector currently finds itself. how imponant 

is NAFTA to your operation OJ' to your neighbors' fm·ms; and, what would be the effect that a 

withdraw from NAFTA would have on farmers ' livelihood whether they be in Nebraska or an 

hour's drive south into Kansas? 

As mentioned previously in my testimony, NAFTA is extraordinarily valuable to Nebraska's 

farm and ranch families. In 2016, Nebraska exported over $2.4 billion worth of products to 

Canada and Me>tico with agricultural products making up $1.5 billion of that total. Me>tico alone 

is the second largest trading partner tor Nebraska fam1ers and ranchers, exp011ing $ 1.3 billion 

worth of agricultural products per year, which supports nearly I ,200 jobs. 

However, Nebraska isn' t the only state which feels the e,conomic impact from trade with our 

neighbors. Nationwide, the United States conducts more than $3.6 billion in trade with Canada 

and Mexico every day. Fanners have seen their exports to Canada and Mc>tico increase by 350 

percent since NAFT A's implementation. In terms of scale, NAFT A is worth three times the 

export value to Nebraska of what the Trans-Pacific Partnership would have been when nllly 

implemented. 

NAFT A has clearly been a boon for fann families whether they be in Nebraska, Kansas or 

anywhere else. By helping level the playing field, free of tariffs and other obstructions, NAFT A 

ensures that producers in Nebraska and across the country receive a fair deal. Withdrawal from 

this agreement would have a significant and dangerous impact on America's fam1 and ranch 

families. 

Sincerely, 

Jason Perdue 
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[Public Submissions for the Record follow:] 


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AAPC AMERICAN AUTOMOTIVE POLICY COUNCil 

FCA ~ II 

Submission fo•· the Record to the 

U.S. House ofRep•·esentatives 

Committee on Ways and Means, Subcommittee on Trade 

on behalf of the 

Ame1·ican Automotive Policy Council 

July 18,2017 Subcommittee Hearing on the 

Modemization of the No•·tb Amel'ican Free T•·ade Agreement 

On behalf of its member companies- FCA US, Ford Motor Company, and General Motors 

Company - the American Automotive Policy Council (AAPC) submits the following comments 

to the Committee on Ways and Means Subcommittee on Trade (Subcommittee) in connection 

with its July 18, 2017, hearing 011 the "Modernization of the North American Free Trade 

Agreement" (NAFTA). 

We thank the Subcommittee for the opportunity to share our views and recommendations on 

NAFTA, which has played a key role in the domestic auto industry's domestic, regional and 

global success, including record sales for the past seven years, and a U.S. workforce that grew to 

over 240,000 directly employed on a full-time basis last year - and that is just for Ford, FCA and 

GM, who employ roughly 2 out of3 U.S. autoworkers. 

Despite this success, after 23 years NAFT A could benefit from a modernization, and in AAPC's 

written submission, we have suggested six specific areas of improvement. While there are areas 

for improvement in NAFTA, we are also mindful that certain changes to NAFT A's market 

access provisions could lead to wuntended and potentially negative consequences for America's 

automotive sector. 

NAFTA provides American automakers with duty-free access to two of the largest vehicle 

markets in the world where our companies bave been incredibly successful. In Canada, our 

brands now account for43 percent of the 2 million vehicles sold, and in Mexico, American 

nameplates have secured 30 percent of the 1.6 million vehicle market - a market that is 

expected to steadily grow in the future. 

The vehicles we sell throughout the NAFT A region have very high levels of American 

content. These high U.S. content levels support thousands of auto parts jobs here at home, and 
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are due - in part - to a mle of origin that bas the highest regional value content of any free trade 

agreement in the world. 

The current rule of origin strikes the right balance: allowing those that have invested in the North 

American region to continue to benefit from the agreement's duty-free benefits while 

discouraging "free riders" who might use NAFT A as a conduit for outsourcing. The notion that 

NAFT A mles of origin encourage the use of imported auto parts from non-NAFT A countries 

such as China is unfounded. In fact, based on the dollar value of total auto parts consumption, 

less !han 6 percent of the auto parts consumed in the United States and Mexico are imported 

from China. We have encouraged the Administration to examine all aspects of the automotive 

supply chain before accepting these kinds of claims and making any changes to the NAFT A 

rules of origin. 

We are hopeful that a modemized NAFTA can be a mode l for future FTAs and as such, we 

strongly support including the acceptance of U.S. automotive safety standards in the modernized 

agreement and enforceable measures to deter currency manipulation by our trade partners. 

In recent years, the EU has used a well-organized and highly successful global effort to persuade 

other countries to accept vehicles certified to UNECE European auto standards. The acceptance 

ofUNECE standards often supplant acceptance ofU.S.-built products. AAPC, along with other 

industry partners and the U.S. govemment, is working to counter this trend. Including provisions 

in NAFTA that " lock in" recognition of U.S. auto safety standards would bolster this publicprivate partnership, and serve as a vital precedent for future U.S. free trade agreements. 

Additionally, enforceable cu1Tency provisions should be included in an updated 

agreement. C\lrrency manipulation provides an unfair c.ompetitive advantage to America's trade 

partners and often undermines expected benefits of our trade and investment agreements. This 

bas had a particularly harmful effect on U.S. automakers, who have been severely damaged by 

past currency manipulation here in the U.S. and in other markets where the U.S. competes. 

While neither Canada nor Mexico have manipulated their currencies, strong and enforceable 

disciplines in NAFT A would set an important precedent for other would-be U.S. trade partners 

that manipulate their currencies- something President Trump and members of his Cabinet have 

promised to crack down on. 

Including these changes, as well as several other recommendations - including customs and 

border infrastructure improvements - are described in the written comments AAPC submitted to 

the Administration on behalf of America's automakers, which are attached and made part of 

AAPC's submission for the record to the Subcommittee. We look forward to working with the 

Subco•mnittee and the Tmmp Administration to modernize NAFTA and advance our shared 

goals of strengthening the American economy. 

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TESTIMONY TO THE U.S. CONGRESS HOUSE OF REPRESENTATIVES, 

COMMITIEE ON WAYS AND MEANS, TRADE SUBCOMMITIEE HEARING ON 

MODERNIZATION OF THE NORTH AMERICAN FREE TRADE AGREEMENT 

TESTIMONY OF HON. ALBERT C. ZAPANTA, PRESIDENT AND CEO, UNITED 

STATES-MEXICO CHAMBER OF COMMERCE 

WASHINGTON, D.C., JULY 18,2017 

The U.S.-Mexico Chamber of Commerce, nonprofit business association 

chartered in Washington, D.C. in 1973, is the leading binational business 

organization working to build mutually beneficial trade and invest ment 

relationships in the Americas. Its mission is to promote business between 

the United States and Mexico. 

The success of NAFTA and its impact on the U.S. economy cannot be 

refuted, with tri-national trade up by 245% since 1993. The U.S. is $127 

billion richer each year due to the "extra" trade growth that results from 

the cooperation of the NAFTA partnerships. As an example, Mexico is the 

largest market for the U.S. in energy while Canada is the biggest energy 

supplier, creating a combined $100 billion in energy goods and 

commodities. In 2016 the U.S. exported $231 billion to Mexico, which is 

more than it did to the UK, Germany, France and Italy combined, and nearly 
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twice as much as it did to China. In agriculture, NAFTA provides the third 

largest destination for American grown produce and crops. 

It is also telling to note that the current $500 billion trade gap was created 

by the relocation of American manufacturing and technology based 

business out of the NAFTA partnership. China accounts for more than 60% 

of the U.S. trade deficit, and petroleum accounts for more than a quarter of 

the balance. 

North America, from the Arctic region to Panama, over the last twenty 

years has seen a major breakthrough in the way trade is conducted in the 

Western Hemisphere. The approval of the North American Free Trade 

Agreement (NAFTA) in the 1990's brought together the economies of the 

United States, Mexico and Canada, establishing the framework that created 

the world's largest trade region, connecting 450 million people, and 

producing $17 trillion worth of goods and services annually. 

During the 24 years NAFTA has been in effect, the region has experienced 

dramatic development with respect to consumption, production, 

distribution of goods, services, and persons. The hemisphere is indeed 

repositioning itself and with the opening of the Northwest Passage in the 

Arctic and the expansion of the Panama Canal, NAFTA partners are finding a 

need for additional focus on incorporating these regions into trade 

discussions. 
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We must consider the notion of North America in the context of today's 

present challenges, including security, global governance, and the quest for 

energy independence; while securing the safety of goods and people that 

expedite trade in a secure and efficient manner along our border, providing 

stimulus for job creation through all NAFTA partners, and incorporating the 

use of technology to maximize returns and encourage further investment 

and update the North American Free Trade Agreement to a fair and 

balanced partnership. 

The border of today has been strengthened by more than thirty years of 

shared border interests, common objectives, opportunities, challenges and 

old partnerships. It will be these partnerships that allow the United States 

to meet the challenges the current economy faces ranging from economic 

blocs, competitiveness, pricing in international markets, and years of strong 

collaboration support, business opportunities in the hydrocarbon sector, 

information technology, supply chain management, agriculture, and 

investments. 

The 2016 Presidential Elections in the U.S., especially the heightened focus 

and debate on the impact of international trade, immigration and the 

growing concern relative to cyber and physical security in the hemisphere, 

prompted the Chamber to establish the North American Working Group 

initiative. 

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The Working Group's recommendations are: 

• Protecting the U.S. and Mexico trade positions by implementing an 

innovative SMART Border, leveraging technology, achieving an energy 

balance, reviewing trade agreements, workforce optimization and 

improve efficiency of smooth and timely transport of goods and 

persons; 

• Developing and implementing IT platforms to achieve efficiencies in 

border security and effective trans-border movements of people and 

cargo; 

• Achieving supply chain efficiencies and manufacturing with continued 

evolution of a shared economy with respect to trusted trader 

programs, pre-clearance programs, improvements in innovation and 

infrastructure. 

• Pursuing Public/Private Partnerships to support mobile digital 

learning, skills development, job training, and expanding innovative 

financing to drive growth in all sectors. 

Thank you 

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if 

~onal 

Chamber 

July 31.2017 

The Honorable Dave Reichert 

Chainnan. House Ways & Means Subcommittee on Trade 

I I 02 Longworth House Office Building 

Washington. DC 20515 

The Honorable Bill Pascrell 

Ranking Member, House Ways & Means Subconnninee on Trade 

1139E Longworth House Oftlce Building 

Washington, DC 20515 

402 l &'ooc.twov. Svlltt I (XJ() 

SQn Ologo, CA 92101 ~ 

p 6195U 1300 

www sdchambor.org 

For more than 145 years, the San Diego Regional Chamber has played an important role in 

driving our region forward with the advancement of global policies that boost cross-border 

commerce and international trade. Our Chamber membership of 2,500 businesses strongly 

believes in the importance of the North American Free Trade Agreement which bas fueled the 

growth of the San Diego-Baja. California economy. 

Since the implementation ofNAFTA. this region has seen an increase in higher-payingjobs and 

stronger relationships with Mexico and Canada. More than 110,000 jobs in San Diego are 

dependent on trade with Mexico as our number one export market. Today. the manufacntring 

industry makes up 10 percent of San Diego's jobs and is the second highest paid sector in San 

Diego after IT. Companies locate here to create intellectual property and co-produce with 

Mexico and take advantage of the business opportunities that NAFT A provides. San Diego and 

Baja California have leveraged NAFTA to create a S2.5 billion manufacturing supply chain that 

supports co-production between the two cities. Meanwhile, Canada is San Diego's sixth largest 

source of foreign direct investment and sixth largest employer. That's 3,500 jobs directly tied to 

trade with Canada. 

NAFT A has been a tremendous asset to the San Diego commw1ity, yet there room for 

improvement. The Chamber offers the following points to enhance this important trilateral 

agreement: 

Inclusion of a section on energy to take advantage of investment opportunities in Mexico 

witl1 deregulation of the industry. 

Recognition of internet-based businesses and new technologies. 

Implement Unified Cargo Processing at each commercial port of entry. 
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Ability for professionals to move back and forth across NAFTA borders without 

bureaucratic delay. We urge the expansion of the U.S. TN Visa and extension of Mexico's FMM 

permit, which is currently valid for only six months and limits use to only one entry. 

Creation of a unified framework to faci litate the development of border infrastructure in 

a coordinated fashion where revenues generated at each border from trade are reinvested to 

support the infrastntcture and staffing needs of the borders before remitting dollars to each 

country's treasury. 

Integrate a plan to modernize the North American Development Bank. 

The North American Development Bank bas benefitted 15 million residents on both sides of the 

U.S.-Mexic.o border through sustainable infrastructure since its formation in 1994. With an initial 

$405 million in total paid-in capital contributions from the U.S. and Mexico, NADB has 

leveraged investments totaling $7.1 billion in the development of sustainable infrastructure. 

o Approve a capital increase. 

o Expand the Bank's role in order to participate in the development and fmancing 

of natural gas pipelines, power plants in Mexico for North American energy 

security as well as improvements at our international land crossings to facilitate 

trade while supporting border security. 

Above all, we strongly urge for the continuation of a trilateral agreement which maintains or 

expands the free trade zone and the investor visa which spurs investment in the U.S. 

Please count on our region and organization's assistance and expertise as a resource in the 

negotiations of a modernized pact with our trade partners. 

Sincerely, 

Jerry Sandet·s 

President and CEO 

San Diego Regional Chamber 
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August 1 , 2017 

The Honorable Dave Reichert 

Chair, Subcommittee on Trade 

SAN ANTONIO CHAMBER 

OF COMMERCE 

House Ways and Means Committee 

United States House of Representatives 

Washington, DC 20515 

Dear Chairman Reichert: 

Since 1894, the San Antonio Chamber of Commerce has advocated for the interests of its 

more than 2,100 members. It works to build and sustain a vibrant business community by 

engaging business owners, policymakers and influencers to address the issues and 

opportunities vital to the success and prosperity of San Antonio. 

San Antonio has a rich history with the North American Free Trade Agreement (NAFTA), 

beginning with the initialing of the historic agreement in San Antonio in 1992. The impact of 

NAFTA, however, is far more than ceremonial and affects companies of all sizes in our 

community- many of whom are members of the Chamber. 

As the seventh largest city in America and with projections of continued growth over the next 

20 years, San Antonio is a hub of growing industries like healthcare, biosciences, information 

technology, cybersecurity, energy and advanced manufacturing. It is a thoroughfare of 

international trade, with four of the six major rail gateways in Texas. 

This community, like many across Texas. has benefited greatly from NAFTA. Texas leads the 

nation in worldwide exports by a wide margin. In 2016, Texas's exports to other countries 

totaled $232 billion, including more than $90 billion to Mexico alone. Mexico is Texas's most 

important market - accounting for 40 percent of the state's exports in 2016, the most of any 

state. 

As we look to the future, the uncertainty surrounding the upcoming renegotiation has had a 

chilling effect on growth and new investment throughout the region, putting our existing 

record of prosperity in doubt. The Chamber would, therefore, like to offer several areas 

where this vital agreement should be strengthened and modernized. 

Energy 

602 E. Commerce St. San Antonio. TX 782051 P: (210) 229-2100 F: (210) 229-1600 1 www.sachamber.Otg 
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SAN ANTONIO CHAMBER 

OF COMMERCE 

The continued integration of the U.S. and Mexican energy markets is beneficial to both 

nations, but requires regulatory certainty - both within and across borders - to function 

effectively. 

With such certainty, we know the economic growth and investment that follows. For example, 

as a direct result of the 2013 Mexican Energy Reform and the free flow of hydrocarbons 

allowed under NAFTA, San Antonio-based Howard Energy will be investing in projects 

totaling more than $1 billion over the next five years in Northern Mexico and South Texas. 

These projects will create more than 950 temporary construction jobs and 22 permanent jobs; 

generate almost $1.5 million per year in local property taxes and $230 million per year in 

direct economic value; and move approximately $2.1 billion of hydrocarbons per year 

between the two countries. None of this includes NAFTA's indirect and implied effects of 

creating new markets for American producers. 

Retail 

Ensuring that trade remains tariff-free throughout North America is essential to keeping 

existing retail supply chains moving and maintaining low prices on food and other essential 

items for American families, thereby preserving the millions of jobs that depend on trade. A 

stronger, modernized NAFTA can bring greater benefits to U.S. consumers, protect American 

jobs, and help American retailers and their suppliers in several critical ways: 

• A stronger NAFTA will maintain and expand current access for U.S. food and other 

products to Mexican and Canadian markets while protecting American workers, 

growers, and manufacturers. 

Reducing non-tariff barriers, such as processing fees and sanitary and phytosanitary 

measures, will make fresher, healthier, and lower-priced produce and other products 

more easily available to American families. 

In today's digital economy, it is imperative that a modernized NAFTA include digital 

and e-commerce provisions like simplified customs requirements and processing foreshipments, which would make it easier for companies to export goods across the 

border. 

• An improved NAFTA will ensure consistent food and other product labeling 

requirements across countries, eliminating the need for costly and duplicative efforts to 

comply with divergent standards. 

Increased resources for customs modernization and improved infrastructure at the 

border will reduce delays in border crossings, benefitting consumers by minimizing 

food spoilage and transportation costs. 

Environment 

602 E. Commerce St. San Antonio. TX 782051 P: (210) 229-2100 F: (210) 229-1600 1 www.sachamber.Otg 
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SAN ANTONIO CHAMBER Of COMMERCE 

Established in 1994, the North American Development Bank (NADB) works to enhance the 

quality of life for people who live along the U.S.-Mexico border through cleaner water, air, and 

land. Owned entirely by the United States and Mexican Governments in equal shares, NADB 

helps develop and finance infrastructure in communities on both sides of the border through a 

variety of services and programs that encourage sustainable development. 

To date, 15 million residents on both sides of the border have benefitted from sustainable 

infrastructure supported by the NADB. 

With an initial $405 million in total paid-in capital contributions from the United States and 

Mexico, the NADB has leveraged investments totaling $6.9 billion for the development of 

sustainable infrastructure. NADB is the only development bank that finances projects in the 

United States and has financed 107 projects in economically-distressed areas. In Mexico, 

NADB has financed an additional 124 projects for a total of 231 projects in both countries. 

In light of the NADB's proven track record of significant infrastructure investment 

and environmental impact along the border, the Administration should include the Bank's first 

capital increase in its history in the NAFTA renegotiation talks. Because of the importance of 

Mexico as a trading partner, we would also like to see the Bank participate in the 

development and financing of natural gas pipelines and power plants in Mexico for North 

American energy security, as well as trade facilitation projects that still support strong border 

security at international land crossings. 

Conclusion 

The forthcoming NAFTA negotiations must recognize the interdependence of all three 

economies, guarantee continued access to the U.S., Mexican and Canadian markets, and be 

conducted in a manner that avoids any prospect of retaliation against American products. 

On behalf of the more than 2,100 San Antonio Chamber of Commerce members, I thank you 

for the opportunity to comment on how we can continue to use and strengthen NAFTA to help 

our businesses and communities thrive and remain globally competitive. Please contact me 

at my office line 210-229-2128 if you should have any questions regarding this letter. 

Respectfully, 

602 E. Commerce St. San Antonio, TX 782051 P: (210) 229-2100 F: (210) 229-1600 1 www.sachamber.O<g 
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Richard Perez 

President & CEO 

SAN ANTONIO CHAMBER OF COMMERCE 

'''''"'•••uluu .htuu 

602 E. Commerce Sl San Antonio, TX 782051 P: (210) 229-2100 F: (210) 229-1600 1 www.sachamber.org 
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Statement of David Apostolico 

SVP, Platform Distribution & Development, QVC, Inc. 

House Ways and Means Trade Subcommittee 

Hearing on Modernization of the North American Free Trade Agreement 

Tuesday, July 18, 2017 

On behalf of QVC, Inc., I thank you for this opportunity to provide written comments regarding the 

modernization of the North American Free Trade Agreement. After 23 years, we believe this is an 

opportune time to examine and update NAFTA. Since NAFTA was negotiated over two decades ago, 

we share the general view of the retail sector that it does not reflect today's global value chain or the 

many new ways of doing business in the global economy. NAFTA should be modernized to reflect 

today's business environment, technologies and innovations. These provisions should also be nimble 

and forward-thinking enough to address what may come in the future. 

We applaud this Committee for bringing much-needed attention to opportunities and challenges 

affecting 21" century retail and broadcasting. We look forward to working with you during the NAFTA 

modernization process to address these issues and, in particular, full market access to the Canadian 

market for QVC and other companies providing television shopping services. 

We look forward to working with the Committee and the Administration to ensure that the NAFTA 

negotiations result in meaningful access to the Canadian market for u.s. television programs to the 

same extent as non-U.S. television shopping operators are permitted to compete in the U.S. 

Eliminating market access barriers will result in greater export potential for U.S. products and vendors, 

and increase U.S. jobs, and will provide additional economic benefits on the Canadian side of the 

border as well. 

QVC is a global platform for U.S. vendors small businesses and entre reneurs 

QVC is the world's leading television shopping company. We are a pioneer in innovative methods of 

retailing, including the sale of a wide variety of consumer products through televised retail shopping 

programs distributed to hundreds of millions of households worldwide each day. 

With operations based in West Chester, Pennsylvania, QVC has grown from a U.S. based television 

shopping retailer started in 1986, to an international multimedia retailer operating in the U.K., Ireland, 

Germany, Austria, Japan, Italy, France and China. QVC's current annual revenues are more than $8 

billion, and we employ over 10,000 in the United States and another 7,000 around the world. 
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QVC's innovative retail platform has successfully launched countless American brands and companies 

based in communities t hroughout the United States, including Missouri-based Heartland Fresh, 

Maryland's Perfect Gourmet as well three companies from our own backyard of Pennsylvania ·· Tempt· 

tat ions l l C, Scrub Daddy and Campanelli Cleaning Products. QVC is transforming nascent concepts 

into recognizable, profitable, American businesses, creating thousands of jobs in broadcasting sales, 

merchandising, accounting, legal, supply chain and logistics, information technology, and other 

corporate functions. With an expansive assortment of products for sale and user-friendly shopping 

technology, QVC has accrued millions of loyal fans in the United States and abroad. Successful with tie· 

ins on popular TV shows as well as a QVC-related storyline in a recent Hollywood movie, we continue 

to grow our customer base. 

We believe QVC's work at the intersection of commerce, technology and innovation could do even 

more for American businesses, including women entrepreneurs, if we could extend our t elevision 

programming reach to the Canadian marketplace. There is little debate that an open and transparent 

system for retail and distribution services promotes diversity of programming, reduces the cost of 

essential goods for consumers, and creates jobs throughout the global supply chain. We are convinced 

televised retail shopping programs in international markets result in employment opportunities for 

individuals in the U.S., as well as export opportunities for U.S. product vendors and manufacturers. 

Despite these economic benefits, Canada maintains significant regulatory barriers to entry for U.S. 

television shopping companies by virtue of very restrictive licensing and ownership requirements 

applicable to television programmers generally, without regard to the type of content they are 

distributing. In this respect, cultural, historical, and editorial programming is treated in the same 

manner as television shopping programming. Because television shopping programs are by definition 

commercial and not cultural in nat ure, Canada's restrictions result in overbroad and needless barriers 

to entry for U.S. television shopping retailers such as QVC, which have a business model that is 

different than more traditional (i.e., non-retail) television programmers. It should also be noted that 

non-U.S. television shopping programmers face no similar barriers to entry at the U.S. border and are 

free to enter the U.S. market to freely compete against domestic operators such as QVC. 

U.S._providers of television shopping services face needlessly restrictive regulato(y_barriers to access 

the Canadian market 

QVC and other U.S. providers of television shopping services face a range of restrictive regulatory 

barriers to access to the Canadian market. We mention t he following as examples of such barriers, but 

would be pleased to provide additional information on canada's actions with respect to U.S. television 

shopping services. 

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The Canadian Radio-television and Telecommunications Commission (CRTC), the independent 

government authority that regulates and supervises the Canadian broadcasting system 

pursuant to the Broadcasting Act, restricts foreign direct investment by non-Canadians in 

holders of broadcasting licenses, and their parent companies. These restrictions create practical 

limitations on QVC's ability to set up a viable local business in Canada. 

A Canadian broadcast distributor (e.g., cable or satellite) may apply to the CRTC on behalf of a 

foreign programmer- such as QVC- to add that programmer's foreign service to the List of nonCanadian programming services authorized for distribution (the List). Canadian distributors may 

carry foreign television services only if they are on the List. A number of major U.S. 

programming channels have successfully been added to the List, including CNN, Fox News, NFL 

Network, and Turner Classic Movies. The CRTC denied the 2015 application to add QVC to the 

List, reasoning that QVC's television shopping activities in Canada would mean that it was 

"broadcasting in Canada" without a license. The rationale for CRTC's treatment of QVC versus 

other U.S. programming channels is unclear and QVC is appealing the decision. 

The CRTC has the authority to issue administrative Exemption Orders to exempt certain kinds of 

broadcasters from licensing requirements. The CRTC has issued an Exemption Order for 

television shopping services, but a broadcaster can benefit from the exemption only if it is 

"Canadian" (as defined by the Direction to the CRTC), originates its programming in Canada, 

and makes "predominant use of Canadian creative and other resources". These constraints are 

examples of unnecessary business challenges to QVC's ability to broadcast in Canada because 

they attempt to apply a measure designed for cultural protection to an inherent ly commercial 

(and non-cultural) activity. 

The upcoming NAFTA negotiations present a unique and critical opportunity to clear the way for QVC's 

television shopping service to access the Canadian market. We expect the Committee and the 

Administration will consider a number of ways to eliminate market access barriers and ensuring a level 

playing field for U.S. television shopping services in the Canadian market. We would like to discuss 

those options with you and suggest the following two options for your consideration. 

Exclude television shopping from the definition of "cultural industries" under NAFTA Article 

2106. Arguably, Canadian ownership requirements are permitted at a treaty level because of 

the "cultural industries" provisions in NAFTA Article 2106 and US-Canada FTA Article 2005. For 

3 
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broadcasting, these protections have always focused on ensuring a supply of Canadian 

entertainment and news. Television shopping is a commercial service and, as such, should be 

excluded from the protections for "cultural industries". 

Negotiate a Memorandum of Understanding, perhaps with an exchange of letters, that would 

modify the CRTC Exemption Order for television shopping services (discussed above) which 

limits beneficiaries of the exemption to "Canadian" broadcasters. 

QYC access t o the Canada market would benefit both the u.s. and Canadian economies 

Market access for television shopping is not a zero-sum game for Canada. It is our view that the 

economies of both the United States and Canada would benefit from QVC's provision of retail 

programming in Canada. This would give consumers more choices, increase demand for services (e.g., 

express delivery, transportation, and payments), and provide access for entrepreneurs, including small 

and medium-sized businesses, to a proven distribution channel for their products. This can result in a 

true win for both the U.S. and Canadian economies. 

Conclusion 

We urge Congress and the Administration to use these negotiations to put an end to discrimination 

against retailing services offered via television by American companies. QVC's access to Canadian 

viewers would provide significant economic benefits to small businesses, vendors, inventors and 

women entrepreneurs throughout the United States, and we look forward to working with you to 

achieve that goal. On behalf of the 17,000 QVC employees, including 10,000 in the United States, 

thank you for holding a hearing on NAFTA modernization and for giving full consideration to the 

comments filed by QVC. 

4 
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2017 - 2018 

WER Encufivt 

Sen. Al'nit Roblan 

Oregon 

Presidenl 

Larry Doke. MLA 

SRsk:ucbewan 

Vice Pres-ide1u 

Rep. Mike CUffe 

Montana 

Vice Presideot 

Graham Sucba. MLA 

AJbcr1a 

Vice Pre-sidem 

Rep. Gael Tarleton 

Wa.sbiu.gton 

Vice Presideu1 

Seo. Chuck Winder 

Idaho 

Rep. Bryce Edgmon 

Alaska 

Hon. Ranj PiUai 

Y\lkOD 

lion. Wally Schumann 

Northwest Terrilories 

ColiuSmilh 

APEGBC 

Priv:ue $ec1or Co-Chair 

Dan Kirschner 

Northwest Gas Assoc. 

Private Sector Co-Chair 

Dan Ashton. MLA 

British Columbia 

lnnn. Pas1 Presidem 

r,r.=~-~. Pacific North West ~ J Economic Region ::5:::~ 

August I, 2017 

Rep. Dave Reichert 

Trade Subcomtniuee Chainnan 

House Committee ou \Vays and Mea.us 

1102 Longwonh HOB 

Washington, D.C. 20515 

Dear Chainnan Reichert, 

I am writing to convey the views of the Pacific NottbWest Economic Region (PNWER) on 

the modernization of the Notth American Free Trade Agreemem (NAFTA). PNWER is a 

Slatutory, public-private non-profit that was chartered in 1991 by the five Northwest states of 

Alaska, Idaho, Montana, Oregon. and Washington. and tbe westem provinces of British 

Columbia, Alberta. Saskatchewan, and the Yukon and N011hwest Territories. Our Canadia_n 

provincial govenuneot members will engage directly with the Government of Canada and 

relevant U.S. jurisdictions, so this letter is not intended to convey their views on NAFTA. 

PNWER bas been wotkiug with tlte public and private sectot' for over 27 years to create 

solutions for the economic growth, prosperity, and bealtl>y euviromuent of the entire teo 

jurisdiction region in both Canada and the U.S. We are encouraged that Congress is involved 

in the oous t~ tation process alongside Secretary Ross and USTR Lighthizer, in improving tl1e 

existing trade agreement between tbe U.S .. Canada, and Mexico while preserving tbe spirit of 

North Americ-:m cooperation. which has beeo a great benefit to the competitiveness of our 

Pacific Notthwest businesses. 

PNWER has been a champion throughout its 27-year history, bringing together stakeholders, 

border officials, and policymaket·s to enhance the border facilitation processes at the U.S.-

Canada border. We urge you to build on tbe success of the Beyond the Border Action Plan, 

the Regulatory Cooperation Council. U.S.~Cauada Preclearance agreement, and tbe numerous 

smart border initiatives that our country has invested in for several decades. 

We urge tbe three panics to quickly come to an agreement to modemize NAFTA in a 

collaborative and transparent process that will su·cugtheu our competitive advantage across 

the globe. Uncertainty creates an erosion of confidence in markets and i_nvestments for tbe 

fi.lture. 

While we t·ecognize the need fot NAFT A to be updated. we recommend that a primary 

objective should be to "do no hann''. This is au oppommity to optimize the lArgest trading 

relariousbip iu the world, tl1at between the U.S. and Canada. 

Hundreds of our public and private stakeholders in both the U.S. and Canada have joined with 

the PNWER NAFfA Modernization Task Force to participate in a survey idcntifyiug key 

priorities for our region. We ask that you keep these priotities in mind as you consult with the 

Administration on their list of recently released objectives. The most impo11ant elements from 

our stakeholder survey include the following recommendations: 

Pacific NorthWest Ecouomic Region (PNWER) 2200 Alaskau Way. Suite 460. Seattle. WA 9812 1 

Phone: (206) 443-7723 Fax: {206) 443-7703 www.pmvcr.o•g 
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I. Include Advancements from other Free Tt·ade Agreements: As a starting point, examine previously 

ago·eed upon advances from modern trade agreements like the TPP. 

2. Cross-Border Trade Facilitation: Include 'modern' processes for cross-border customs (methods to 

streamline and simplify clearance, declaration, documentation, facilitation, etc.). Sitnple clearance, 

declaration and origin rules will facilitate that process. Harmonizing and aligning standards before 

products reach the border to increase efficient trading. This iucludes preclearance for goods and livestock. 

3. Digital Trade and £-Commerce: NAFTA should be modernized to provide a framework to promote and 

govern digital trade, e-commerce. services- including financial services, logistics, and information aud 

communication technology. 

4. Energy and Infrastructure: Support further integration of North American energy markets and tlte 

in fraslnrclure needed 10 eonuec1 1.hem. 

5. Intellectual Property: Increase protectiou of intellectual property 

6. Regulatory Coo)>eratlon: Encourage permanent adoption and expansion of the Regulatory Cooperation 

Council to align product standards, testing, and certification. 

7. Express Delivery: Include modem provisions to facilitate cross-border express delivery for small 

shipments; bannonize de minimis tltresholds for expedited shipments. 

8. Labor Mobility: Update NAFTA labor categories to reflect modem classifications and expand cononon 

standards for professions and mutual recognition of skills credentials. 

9. Procurement: Include exemption for Canadian content in ' Buy American ' procurement, as it currently is 

in the defense sector. 

10. Dispute Settlement: Establish clearer and more effective mechanisms for resolving trade disputes. 

Conclusion: 

PNWER st.rongly advocates for a modemized NAFT A and quick negotiation process, with outcomes that will 

provide tlu~ stability and certainty necessary to increase investment in our globally competitive industries. Titis 

will increase jobs in the U.S. and provide countless opportunities for Americans. We also suggest a more 

effective trade adjustment assistance program in the U.S. for workers displaced by globalization. 

We remain committed to assisting in any way we can as one of the most mature U.S.-Canada public private 

regional organizations, focused on tl1e bi-national economy. Please feel free to call on us if we can provide 

additional input or infonnation. 

Sincerely, 

Matt Morrison 

Chief Executive Officer 

PNWER 

Pacific NonbWest Economic Region (PNWER) 2200 Alaskan Way, Suite 460. Seaule. WA 9812t 

Phone: (206) 443-7723 Fax: (206) 443·7703 www.pnwer.org 
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PNWER NAFTA Modernization Survey 

Executive Summary 

The following is a summary of the data collected by the Pacific Northwest Economic Region (PNWER) between May 

3-June 7, 2017. For more information, please contact PNWER Executive Director Matt Morrison. 

I Stakeholder Demographics 

The survey was administered to PNWER stakeholders and shared with partner organizations that mainly focus on 

U.S.-Canada trade. Through this process we received 226 responses, with 129 (S7.8%) coming from Canadian 

stakeholders, 92 (40.71%) from United States stakeholders and 3 (1.3%) from Mexico. 

US Stakeholder responses primarily originated from the 10 PNWER jurisdictions with the most from Montana 

(34.07%), followed by Idaho {28.S7%), Washington {17.S%), Oregon (S.4%) and other states such as Utah (6.5%}. 

Canada stakeholder comments also mostly came from PNWER provinces and territories with BC leading the way 

with 42.S%, followed by Alberta (20.47%}, Saskatchewan (13.39%), Yukon (11.02%} and several others outside the 

region such as Ontario at 9.45%. 

Organizations responding identified 32 states where they do business In the U.S.; the percentages of these were 

fairly evenly spread across the board with the exception of Washington at 12%, California 8.1%, Montana 7%, 

Alaska 7%, Oregon 6% with the remaining ranging from 1-4%. Organizations identified that they do business in BC 

(29.4%}, Alberta (14.9%) and Ontario (17.11%}, followed by Quebec, Saskatchewan and Yukon at around 9% each. 

Sectors 

The most responses came from Agriculture/Food Processing (28%}. followed by "other" (18.78%) which included 

trade associations, chambers of commerce, education and many other Industries. The next highest represented 

categories were Government (8.9%}, Transportation/tourism (8.9%) and Manufacturing {7.98}. 

I Organization Size 

The size of the organizations represented ranged from small businesses with less than SO employees at 63.13% of 

the respondents, to organizations with between SO and 1000 employees (22.S4%} and large organizations with 

over 1000 employees (14.29%}. 

Priority Issues to Address in the Modernization of NAFTA 

Stakeholders were given specific identified issues and asked how important these are to include In the negotiation 

of a modernized agreement. Stakeholders were asked to select if the issues were highly important, somewhat 

Important or not important. They were also given the option to select N/A if the issue did not apply to their 

Industry or if they were not familiar with the issue. In calculating the responses to each issue, theN/A selections 

are not included in the totals of this summary report. Stakeholders were also given the opportunity to provide 

comments throughout the survey. Relevant comments were summarized related to related topics. 

1. Advances from other Free Trade Agreements {FTAs} · Review recent FTAs, such as TPP, to adapt modernized 

provisions, In such areas as simplified rules of origin, importer self-certification, trade facilitation, enforcement, 

supply chain security~ non· tariff trade barriers, etc. 

Of the respondents to this issue, 89.8% (168) felt that this was important to include as we move toward 

renegotiating NAFTA. 10.16% (19) did not think it was important. 

Select Stakeholder Comments Summary 

Our states and provinces are each other's top customers. Our economy is integrated as the economic 

watersheds flow north and south. Trade barriers reduce the overall benefit to our region. 

Tariffs are seen as detrimental to business and make products more expensive 

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Tariffs risk turning the market elsewhere 

2. Buy America - Haw important Is It thot Canada be considered "domestic" for the purpose of U.S. federal 

procurement, as it currently Is In the defense sector? 

Of the respondents to this issue, 84% (158) felt that this was important to include as we move toward 

renegotiating NAFTA. 15.9% (30) did not think it was important. 

3. Cross-border Trade Facilitation-Should opportunities for trade facilitation and cross-border movement of 

goods through such efforts as preclearance, expanded border crossing capacity, etc. be encouraged? 

96.42% (189) respondents felt this was important to include. Only 3.5% (7) did not think it was important. 

Select Stakeholder comments summary 

Include 'modern' processes for cross-border customs (methods to streamline and simplify clearance, 

declaration, documentation, facilitation, etc.). Simple clearance, declaration and origin rules will facilitate 

that process. 

Harmonize and align standards before products reach the border to increase efficient trading. This 

includes preclearance for goods and livestock. 

NAFTA has played a critical role in liberalizing agricultural trade and enabling stronger integration of 

agricultural supply chains. This integration has led to significant outcomes including greater productivity 

and competitivenes.s for the benefit of agricultural produc.ers1 processors and consumers across the 

region. 

4. De Minimis Value for Expedited International Shipment - The de minimis threshold for the U.S. Is $800, $20 for 

Canada, and $300 for Mexico. How important is it that these thresholds be aligned? 

79.5% (132) of respondents felt this was important to include while 20.4% (34) did not think it was important. 

5. Digital Trade -Should a framework to promote and govern digital trade (digital goods and services, far 

example, software, music, films, games, etc.) be established? 

72.18% (109) of respondents felt this was important to include while 27.81% (42) did not think it was important. 

Select Stakeholder Comments Summa 

Recognize the importance of services trade in NAFTA, such as financial services, logistics~ and information 

and communic-ation technology. 

All business depends on free flow of data. Examine digital trade provisions that were identified in the TPP 

as a starting point for including this in a modernized agreement. 

Clients who require cross border banking services would benefit greatly from improved NAFTA regulations 

pertaining to e-commerce1 and standardized financial services regulation. 

6. £-commerce· How important are modernized regulations one-commerce? 

90.6% (164) of respondents felt this was Important to include while 9.39% (17) did not think it was important. 

7. Energy and Infrastructure · How important is it that NAFTA support further integration of North American 

energy markets and the infrastructure needed to connect them? 

90.65% (156) of respondents felt this was important to include while 9.34% (17) did not. 

Select Stakeholder Comments Summary 

Find opportunities for further integration of North American energy markets and the infrastruclure 

needed to connect them 

Examine energy and transportation regulations including pipeline standards, renewable energy standards 

and energy transport standards 

8. Express Delivery· How important is it that NAFTA includes modern provisions to facilitate cross border express 

delivery for small shipments? 

87.74% (174) of respondents felt this was important to include, 12.5% (199) did not think this was important. 
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I 9. lnteflectuol Property · Should NAFTA lncreose protection oflnteflectuol property? 

75.86% (132) of respondents felt this was important to include. 24.13% (42) did not think this was important. 

10. NAFTA Professionals List· How importont Is it to update NAFTA lobor categories to reflect modern 

classifications of employment? 

82.55% (142) of respondents felt this was important to include. 17.44% (30) did not think it was important. 

Select Stakeholder Comments Summa 

Streamline the process; need to facilitate job offers and timely arrival on both sides of the border 

Update Chapter 16 NAFT A Professions list to reflect the jobs that actually are needed to be filled on both 

sides of the border, or abolish the list altogether and establish a process that is more responsive to 

regional labor market dynamics. 

Ability to access talent, supplier, and partner across borders improves ability to compete globally on both 

sides of the border. 

11. North American Single Window ~ How important is it to finalize cross·border data sharing and harmonization 

into o single window for Import/export? 

92.47% (172) of respondents felt this was important to include. 7.52% (14) did not see this as important. 

12. Regulatory Cooperation · How important is it to encourage expansion and permanent adoption of the 

Regulatory Cooperation Council~ to align product standards, testing and certification? 

92.1% (175) felt this was important to include. 7.89% (15) did not feel this was important. 

An overwhelming majority of respondents indicated the importance of aligning consistent regulatory standards in 

order to more easily facilitate trade and streamline border processes. Respondents encouraged the adoption of 

consistent and harmonized standards in order to prevent impediments at the border. 

Select Stakeholder Comments Summary 

Integrate research-backed findings with regulatory agencies 

Expand regulatory cooperation efforts across all sectors 

Uphold and extend the gains achieved in the existing NAFTA agreement 

Aim to align consistent regulations on both sides of the border 

13. Skills Certification Standards~ How important is it to encourage mutual recognition of skills certifications 

standards across borders? 

90.86% (169) felt this was important to include. 9.13% (17) did not see this as important. 

114. Softwood Lumber · How importont is It thot o modernized NAFTA include o solution to softwood lumber? 

86.1% (130) indicated that it would important to include a solution to softwood lumber within NAFTA. 13.9% (21) 

did not think this was important. 

15. Doiry ond Poultry - How lmportont is It thot o modernized NAFTA oddress the issues reloted to doiry ond 

poultry? 

Of the respondents to this issue, 81% (129) indicated it would be important to include. 19% Indicated the issue as 

•not important• (31). 

I Other Issues to Address 

Stakeholders identified other issues that the survey did not specifically address as important to include. This 

includes focusing on revising dispute mechanisms, environmental concerns and renegotiation process. Below are 

summary highlights of the comments we received related to these topics. 

I Dispute Settlement Mechanisms 

Select Stakeholder Comments Summary 

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NAFTA has been Inefficient in resolving disputes in a few major industries, highlighting the necessity for 

new mechanisms that will decrease 'uncertainty' 

I Environment 

Uncertainties hurt global competitiveness and may cause certain companies to turn to partners 

in other regions, esp. Asia 

Select Stakeholder Comments Summary 

Examine opportunities to find common ground on environmental and clean energy standards across 

North America. 

I Other Comments 

Ensure groups like PNWER are front and center in consultation mechanisms for negotiation. 

Stakeholders would like to see an Institutionalized and fully funded Stakeholder Advisory Council that 

includes consumer,labor and business community representation going beyond only the "big business" 

community to enable dialogue, build trust in free trade and ensure all views are heard. 

Engage with gras.sroots organizations and members of the public. Events like public forums, plainlanguage information materials and workshops, etc. in order to facilitate access of the public to these 

negotiations. 

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TESTIMONY OF AMBASSADOR RUFUS YERXA 

PRESIDENT, NATIONAL FOREIGN TRADE COUNCIL 

Hearing Regarding NAFTA Negotiations 

Docket Number USTR-2017-0006 

June 29, 2017 

Introduction 

Thank you for the opportunity to testify at this important hearing on behalf of the National 

Foreign Trade Council (NFTC). 

NFTC is dedicated to making America more competitive in the global economy by 

ensuring the adoption of forward-looking tax and trade policies, by strengthening global rules 

and by opening foreign markets to U.S. products and services. Our strong support for these 

objectives, and our belief that their fulfillment is essential to our members' success in a 

globalized economy, have been unwavering for decades. We therefore believe that it is critical 

to provide policymakers in the Administration with our clear views about the role that trade and 

tax policies play in unleashing a new era of U.S. competitiveness. 

NFTC represents nearly 200 companies and our membership spans the breadth of the 

national economy. It includes sectors such as energy products, capital goods, transportation, 

consumer goods, technology, agribusiness, healthcare products, services, e-commerce and 

retailing. Our companies account for more than $3 trillion in total sales worldwide, employ over 

five million Americans and produce a large share of our nation's total exports. NFTC members 

play an important role in ensuring a healthy national economy and promoting U.S. global 

leadership. 

The success of American companies in world markets would not have been possible 

without the hard work and talent of those in USTR and other agencies who have negotiated 

better trading conditions worldwide for our goods and services. Nowhere has that been more 

National Foreign Trade Council 

1625 K Street NW Suite 200 • Washington, DC 20006 •202-887-0278 

Serving America's Global Businesses Since 1914. 

www.nlrc..:.Q!P 
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the case than in our trade with our two North American neighbors. Canada and Mexico are now 

our two largest export markets, and altogether they now pay $600 billion annually for American 

goods and services. Although our exporters still face some problems in these two markets, 

NAFTA has succeeded in eliminating all tariffs and significantly reducing non-tariff barriers in 

both Mexico and Canada. As a result, U.S. exports have increased by more than 350% in real 

terms since the agreement went into effect. The expanding markets for U.S. manufacturers, 

service providers and agricultural producers have contributed significantly to the bottom line for 

our companies. 

But the gains from NAFTA go beyond our increased exports to these two markets. North 

American integration of our production platforms has helped our industries compete more 

effectively with producers in Asia, Europe and other regions. In the autos sector, for example, 

integrated production has lifted our export competitiveness, increasing U.S. exports of autos to 

over 2 million vehicles annually - more than five times the volume of exports prior to NAFTA. In 

our most technologically intensive sectors- such as capital goods, machinery, electronics and 

IT- the wide-scale integration of production in North America has been critical to maintaining 

us global leadership in innovation and technological development. 

NAFTA benefits our economy in a variety of other ways. Our truck and rail transport 

companies have a huge stake in the vast movement of goods between our three markets, with 

more than 100 trains and 5,000 trucks crossing our northern and southern borders each day. 

Our farmers now export close to $40 billion to Canada and Mexico every year. Our banks, 

insurance companies and accounting firms have made huge gains selling to both Canada and 

Mexico, part of the reason we enjoy a $34 billion surplus in services trade with our NAFTA 

partners. Finally, American consumers benefit from a much wider array of goods available at 

lower prices - from Mexican avocados to Canadian beer. 

National Foreign Trade Council 

1625 K Street NW Suite 200 • Washington. DC 20006 •202-887-0278 

Serving America's Global Suslne$$es Since 1914. 

WW'W.ntrc.org 
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NAFTA also has another important benefit: II has given us a much more prosperous, 

stable and democratic neighbor to our south. Until it began opening up in the 1980s and 1990s 

by joining GATT and signing NAFTA, Mexico was a one-party state with a highly protected 

economy, state ownership of most industries, widespread poverty and significant out-migration 

to the United States. Today, Mexico is a multi-party democracy with a growing middle class, a 

more open economy a thriving private sector and net in-migration from the United States. It is 

worth noting that few big developing countries have opened their economies to a powerful 

developed partner so completely. In fact, U.S. exports to Mexico now represent 20% of its GOP, 

a remarkably high percentage (by way of contrast, imports from Mexico represent only 1.8% of 

our GOP). So, in the final analysis, a stable and prosperous Mexico means fewer immigration 

problems here at home and better customers for American goods and services. That is why it is 

in our long term national interest to continue Mexico on its path of economic stability and 

growth. 

Guiding Principles for NAFTA Modernization 

As consultations begin with Congress and the private sector on how to modernize this 

vital agreement, the member companies of NFTC want to state our unequivocal support for an 

outcome that will maintain and build upon NAFT A's success in creating a more open and 

integrated North American market and strengthening America's competitiveness in the global 

economy. Our membership includes many of our nation's largest exporters, with extensive 

North American production platforms. We depend heavily on a smooth-functioning open market 

among the three NAFTA countries. Any effort to modernize NAFTA must recognize this reality. 

While it is important to address remaining barriers, especially those affecting newer 

technologies and modes of trade that didn't exist when NAFTA was enacted, we already enjoy 

significant gains from the elimination of tariffs and reduction of other barriers achieved under 

National Foreign Trade Council 

1625 K Street NW Suite 200 • Washington, DC 20006 •202-887-0278 S~rvlng America's Global Busln~ssts Sine~ 1914. 

www.nftc.r![g 
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NAFTA. Any final agreement that diminishes our existing access will have significant adverse 

effects on our U.S. operations, sales and employment. 

It is therefore vital to ensure that negotiations to modernize NAFTA result in a 

strengthening of our trade ties with our North American partners. We believe there are many 

ways the agreement can be improved, and are prepared to work closely with U.S. negotiators to 

identity key potential gains for the United States from a modernization of the agreement. In 

particular, we see important gains to be made by including new commitments in areas not 

contemplated when NAFTA was negotiated over 20 years ago, by upgrading the rule-book in 

traditional areas of non-tariff discipline in ways that will improve trade and by eliminating 

remaining tariffs that were not removed under the existing agreement. These •upgrades• of 

NAFTA will set important precedents for any future negotiations with Asia or Europe, and thus it 

is important to make sure the result of these negotiations can become the template for a new 

era of trade cooperation. 

Based on the aforementioned, NFTC believes that the effort to upgrade NAFTA should 

be guided by the following basic principles and objectives: 

1. The New NAFTA Should Create More Open Markets and Better Rules, Not New 

Restrictions. 

Negotiations should be focused on improving market access and ensuring greater fairness, but 

must not become a pretext for designing new trade restrictions or undermining existing access. 

2. The New NAFTA Should Strengthen the North American Production Platform. 

The agreement should strengthen North America as an integrated production platform for goods 

and services, enhancing U.S. producers' competitiveness in global markets, while also 

maintaining strong investment protections in all three countries. 

3. The New NAFTA Should Remain a Tripartite Agreement. 

National Foreign Trade Council 

1625 K Street NW Suite 200 • Washington, DC 20006 •202-887-0278 

SetVing America's Global Busine-sses Since 1914. 

WrNW.rtf!..C.ptg 
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The final agreement should maintain common rules and commitments among all three NAFTA 

partners. Separate bilateral agreements create greater inefficiencies for U.S. exporters. 

4. The New NAFTA Should Reflect the Changing World Economy. 

Negotiations should create new rules to ensure open markets in digital trade, e-commerce and 

other new technologies and modes of commerce that were not covered by the original 

agreement, establish new disciplines on state-owned enterprises and create better opportunities 

for small and medium-sized enterprises to compete in global commerce. 

5. The New NAFTA Should Update Rules in Other Areas Covered by the Original 

Agreement. 

Negotiations should seek to update NAFTA's rules on services, intellectual property, customs 

and trade facilitation, sanitary and phytosanitary measures, technical regulation, and regulatory 

coherence to both ensure greater fairness and openness in NAFTA trade and make NAFTA a 

better model for future negotiations with other regions. 

National Foreign Trade Council 

1625 K Street NW Suite 200 • Washington, DC 20006 •202-887-0278 S~rv/ng m~rlca's Global Sus/nU$1!$ Slnu 1914. 

www . .nftc.org 
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§.(;!ecific Negotiating .QIDectives 

Consistent with our written comments filed in connection with this hearing, I will now 

highlight various areas where NFTC has proposed specific goals for the NAFTA modernization. 

Customs and trade facilitation: 

We need to streamline and make fully transparent the customs clearance process to 

ensure that movement of goods across borders is efficient and timely. NAFTA should allow for 

acceptance of electronic signatures for the certification process in all three countries and the 

use of digital documentation for audits. We should make certain that NAFTA mirror TFA 

commitments. The NAFTA should ensure publication of laws and regulations, provide for an 

advance rulings process, and move North America towards a single window system for entries. 

Finally, NAFTA should establish a commercially-meaningful de minimis threshold in Canada 

and Mexico. We note that the u.s. has an $800 threshold, whereas Canada's threshold is $15 

USD, the lowest in the industrialized world and among the lowest globally and Mexico maintains 

two ra tes: a $50 USD rate applied to express carriers and a $300 USD rate applied to Mexico 

Post. 

Qigital Trade: 

We need to ensure a framework of rules for digital trade in North America that will 

benefit both businesses and consumers. We need to ensure that companies and consumers 

can access and move information freely, that there are no customs duties on digital products 

and that we provide for use of electronic signatures and authentication methods to allow 

transactions through secure online payment systems. Provisions should also guarantee that 

new digital products are protected against future discrimination. We must prohibit governments 

from requiring local storage of information or force suppliers to share source codes or other 

confidential information and include appropriate protections for Internet intermediaries regarding 

third-party activity that occurs on their networks 

National Foreign Trade Council 

1625 K Street NW Suite 200 • Washington, DC 20006 •202-887-0278 

SetV/ng America's Global Businesses Sfnce 1914. 

www.nftc.<![g 
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Intellectual Property Rights: 

The U.S. economy is driven by innovation- our companies develop ground breaking 

technologies, products and services which we export to the world. These companies rely on IP 

protections to incentivize their R&D and innovation. Among the issues to address in a 

modernization, Canada must address its patent utility standard known as the "promise doctrine," 

a doctrine which is inconsistent with international practice and has resulted in 28 court decisions 

invalidating biopharmaceutical patents for "lack of utility: Consistent with current U.S. law, the 

IP chapter should be updated to include a 12-year period of regulatory data protection for 

biologic medicines. A modernized agreement should also include provisions on copyright, 

establishing copyright safe harbors for online service providers consistent with U.S. law and 

provide effective protections for rights holder while fostering an appropriate balance, including 

through limitations and exceptions consistent with the internationally recognized three-step test. 

Finally, the IP chapter should be revised to update the trade secret provisions of NAFTA and 

require NAFTA members to establish criminal procedures and penalties for trade secret theft. 

Rules of Origin: 

These rules were heavily negotiated and have functioned well over time - they should 

be maintained as they currently exist. 

National Foreign Trade Council 

1625 K Street NW Suite 200 • Washington, DC 20006 •202-887-0278 

Serving America's Global Businesses Since 1914. 

www.nftc.org 
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Investment: 

NAFTA's Investment Chapter should be revised and updated, in particular to apply to 

state-owned enterprises, and should not contain any industry-specific carve-outs. 

Government Procurement: 

The NAFTA contains a strong procurement chapter that helps U.S. companies access 

procurement opportunities in Canada and Mexico. We consider it critical that these provisions 

be maintained in a modernized NAFTA. 

SOEs: 

It is important to address SOE behavior by providing a definition of SOEs that is broad 

enough to include SOEs that are principally engaged in commercial activity as well as SOEs 

that are acting under delegated authority from a government. When SOEs make commercial 

purchases and sales, they must do so on the basis of commercial considerations. The 

agreement should Provide that SOEs cannot discriminate against the companies or goods or 

services of another NAFTA party. 

Thank you for the opportunity to provide our comments to you today. I look forward to 

answering any questions that you may have. 

National Foreign Trade Council 

1625 K Street NW Suite 200 · Washington, DC 20006 •202-887-0278 

Serving America's Global Businesses Since 1914. 

www.nftc.oro 
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Testimony to the U.S. House of Representatives 

Committee on Ways and Means 

"Hearing on Modernization of the North American 

Free Trade Agreement (NAFT A)" 

July 18, 2017 

Heather Wingate, Senior Vice President, Head of Global Government Relations 

MetLife Inc. 

Testimony for the Record 

Metlife and Trade 

Metlife, Inc. is a leading global provider of insurance, annuities, employee benefits and 

asset management, serving approximately 100 million customers and more than 90 of 

the top one hundred FORTUNE 500® companies. Metlife has operations in 44 

countries and holds leading market positions in the United States, Latin America, Asia, 

Europe and the Middle East. 

Founded in 1868, Met Life continues to build upon its long history of serving our 

customers by launching new and innovative products, expanding its role as a leader, 

and continuing to provide high quality financial solutions that are backed by a trusted, 

well-recognized brand name and strong financial performance. 

International growth is critical to our company's future success. In 2016, Metlife's 

international business operations accounted for more than 40 percent of our revenue. 

Our international business growth is supported by many of our highly-skilled employees 

in the United States in fields such as investments, finance, and technology. 

Metlife operates in markets around the world. We need to be where our customers are 

- our products do not cross borders. Our investments in foreign markets allow us to 

serve customers we otherwise could not through our U.S. operations. We are a "local" 

business· by necessity, we incorporate locally and are subject to local regulation and 

capital requirements. The growth of our business relies on new market opportunities. As 

a result, MetLife is a strong supporter of efforts to break down barriers to global trade to 

ensure that U.S. firms can compete on a level playing field in foreign markets. 
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Metlife Mexico: A Growth Story for Metlife 

Mexico is Metlife's 3rd largest market, after the United States and Japan. Since Metlife 

entered the Mexican market in 1992, our business has grown dramatically, thanks in 

large part to our 2002 acquisition of the formerly state-owned insurer, Aseguradora 

Hidalgo. We are now the largest life insurer in Mexico and serve nearly 10 million 

customers, the vast majority of whom work for the government. We protect nearly twothirds of all public servants in Mexico. Many of our customers are low-income 

government employees, including some who lack a basic bank account. Metlife 

provides them financial education and protection at their worksite. For Metlife, the more 

our business grows in Mexico, the more we are able to use dividends from foreign 

earnings to fund investments in the United States, which helps the U.S. economy. 

MetLife Mexico: A NAFTA Enabled Business Hi hlights the Agreement's Benefits 

NAFTA has provided a strong foundation for Metlife's business model in Mexico. As a 

result of NAFTA, Mexico substantially liberalized its financial services industry, opening 

the banking sector to foreign competition, and eliminating its 30 percent foreign equity 

limitation on foreign insurers. The Mexican government privatized Aseguradora Hidalgo 

because of commitments made under the agreement. That privatization paved the way 

for Metlife's acquisition of what had been a state-owned insurance company. 

Furthermore, NAFTA's rules on government procurement facilitate our ability to sell 

employee benefit products to the Mexican government and its employees under a fair 

and transparent process. Similarly, NAFTA provides strong protections for foreign 

investors through a binding investor-state dispute settlement process. 

NAFTA Modernization Will be Hel~ful 

Metlife supports the effort to modernize NAFTA with updates and additions, particularly 

to address instances where financial services have been carved out of provisions in 

other agreements. From our perspective, it is critical that negotiators take a "first, do no 

harm" approach to modernization. NAFTA's provisions on government procurement, 

investor protections, market access and national treatment fortify our operations in 

Mexico by creating a level-playing field based on core trade principles of nondiscrimination, transparency, and rule of law. From Metlife's perspective, any 

modernizing reforms to NAFTA should preserve and keep in force the critical benefits of 

the agreement. Metlife is particularly focused on aspects of the NAFTA negotiations 

that would impact our business in Mexico. We do not do new business in Canada. We 

were pleased that the Administration's "Summary of Objectives for the NAFTA 

Renegotiation," released on Monday, July 17, 2017, largely followed the "first, do no 

harm" approach. 

Government Procurement is Critical to MetLife 

As mentioned above, a significant portion of our business in Mexico is driven by 

contracts with the Mexican government- Metlife insures nearly two-thirds of all 
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Mexican government employees. Metlife provides Mexican federal employees with life, 

medical and retirement insurance through employee benefit products. Most of these 

contracts are awarded through a public procurement process. NAFTA's rules on 

government procurement ensure that Metlife and other firms can compete for Mexican 

government contracts on a fair and transparent basis. In particular, non-discriminatory 

rules set out a transparent and objective tendering process that creates a level-playing 

field for U.S. firms operating in Mexico. 

We are pleased to note from Metlife's experience doing business in Mexico that the 

Mexican government has honored both the letter and spirit of the government 

procurement chapter. This experience proves the power that trade agreements have to 

open markets when partner countries agree to reciprocal access. 

It is important to add that the Federal Procurement Data System shows that the benefits 

from leveling the government procurement playing field thus far are flowing very 

favorably to U.S. firms. Just 2% of all U.S. federal government contracts were secured 

by foreign-headquartered companies in FY 2016. This data makes the strongest 

possible case that the government procurement chapters in NAFTA and other trade 

agreements are working well for U.S. companies. 

We are pleased the Administration plans to preserve NAFTA's existing commitments on 

government procurement as a baseline, while seeking to increase opportunities for U.S. 

firms to sell goods and services in our NAFTA partner markets. We also support the 

addition of anti-corruption provisions to NAFTA, as outlined in the Administration's 

negotiating objectives. 

Investment Protections are Key to Financial Services Companies 

A modernized NAFTA should preserve and build on existing investor protections and 

access to investor-state arbitration. These rules provide a legal framework for ensuring 

that investments are not subject to discriminatory treatment, and in the event of 

expropriations or nationalizations, that investors are compensated. They are backed by 

a binding arbitration mechanism that investors can use to gain redress in the event of a 

breach of these rules. 

However, NAFTA's financial services chapter does not provide access to investor-state 

dispute settlement for violations of national treatment or most-favored nation treatment. 

As a result, we ask that a modernized NAFTA ensure that financial institutions receive 

the same degree of investor protection and ability to enforce those protections under 

investor-state dispute settlement as provided to all other sectors, including for breaches 

of national treatment and most-favored nation treatment. 

While the Administration's objectives on investment are broadly consistent with the 

investment objectives outlined in Trade Promotion Authority (TPA), we were 

disappointed that the language did not include a specific reference to investor-state 

dispute settlement. As noted above, access to a binding arbitration mechanism allows 

firms like Metlife to ensure that they are able to meet their obligations to shareholders 

and gain redress if a party to the agreement breaks the rules. 
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Affirm and Update Cross-border Data Flows and Data Localization Provisions 

The United States should seek to reaffirm existing commitments on cross-border data 

flows and prohibit data localization requirements for all sectors, including financial 

service suppliers. 

NAFTA includes provisions requiring parties to allow financial institutions to transfer 

data across national borders for processing where such processing is required as part 

of that institution's ordinary business. However, parties may also schedule exceptions or 

limitations to this requirement. In addition, NAFTA does not provide enforceable 

protection from forced data localization, a critical barrier for all firms operating in a 

modern economy that rely on the ability to transfer and store their data based on 

efficiency and security decisions, rather than arbitrary requirements. Metlife is seeking 

new provisions that address this gap by extending data localization prohibitions to all 

sectors including financial services, as tabled by the United States in the Trade in 

Services Agreement (TiSA) negotiations. The Administration's goal of ensuring NAFTA 

countries refrain from imposing barriers to cross-border data flows or that require the 

use of local computing facilities is a welcome modernization. It is a goal that will allow 

data-dependent companies, including Metlife, to manage their data in ways that 

prioritize security and efficiency. 

Regulatory Cooperation is Important for Highly Regulated Industries 

NAFTA should include a formal consultative mechanism on regulatory cooperation. This 

will encourage NAFTA participants to avoid costly regulatory inefficiencies stemming 

from inconsistent or contradictory regulation. NAFT A's financial services chapter 

established the Financial Services Committee (FSC) which meets on an annual basis. 

Under the renegotiation, the FSC should also be charged with taking up financial 

services regulatory cooperation. This committee could be used to implement the 

Administration's objective to seek good regulatory practices that ensure transparency 

and accountability in the development, implementation and review of regulations. 

Summary: As the largest life insurer in Mexico, Metlife supports the above-referenced 

modernizing reforms to NAFTA, but with a strong recommendation that such reforms be 

achieved while simultaneously preserving and keeping in force the benefits of the 

existing agreement. Specifically for Metlife, provisions on government procurement, 

investor protection and financial services are paramount. 
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STATEMENT FOR THE RECORD 

SUBMITIED TO THE 

House Ways & Means 

Trade Subcommittee 

11Hearing on Modernization of the 

North American Free Trade Agreement (NAFTA)" 

Held on July 18, 2017 

Submitted by the 

Motor & Equipment Manufacturers Association (MEMA) 

on August 1, 2017 
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House Subcommittee on Trade - July 18, 2017 Hearing re: NAFTA Modernization 

MEMA Statement for the Record 

Introduction 

The Motor & Equipment Manufacturers Association (MEMA) represents the full scope of the 

motor vehicle supplier industry - providing technologies, components, and systems for all 

vehicle types- passenger cars and light trucks as well as medium- and heavy-duty commercial 

trucks. Our members make the original equipment installed on new vehicles as well as new and 

remanufactured aftermarket parts for the maintenance and repair of over 260 million vehicles 

on the road today.' Our members lead the way in developing advanced, transformative 

technologies that enable safer, smarter, and more efficient vehicles, all within a rapidly growing 

global marketplace with increased regulatory and customer demands. Suppliers' components 

account for about 77 percent of the content value in today's vehicles. 

Vehicle suppliers have seen a 19 percent increase in employment since 2012- a growth rate 

that is three times that of other major sectors of the U.S. economy - providing over 871,000 

direct jobs to Americans nationwide, making it the largest manufacturing sector in the United 

States. Together with indirect and employment-induced j obs, the vehicle supplier industry 

supports 4.26 million jobs. The economic contribution to the U.S. GOP generated by vehicle 

parts manufacturers and supported activities is nearly $43S billion- or about 2.4 percent of the 

GOP. 

Modernizing the North American Free Trade Agreement (NAFTA) 

On June 12, 2017, MEMA responded to the request from the Office of the United States 

Trade Representative (USTR) for public comments on modernizing the NAFTA. To view that 

detailed response, we refer the House Ways and Means' Subcommittee on Trade to MEMA's 

complete written comments located in the public docket under record number USTR-2017 • 

0006-0923. 

MEMA supports a balanced modernization of the NAFTA that creates a 21" century trade 

agreement. A modernized NAFTA must foster a competitive U.S. manufacturing environment 

and avoid unintended risks that may impact domestic jobs, increase production cost s, and 

disrupt supply chains. MEMA members operate in a global economy; an economy that depends 

on strong North American trade and a complex worldwide network of suppliers and customers 

for continued viability and growth. Our industry's 19 percent job growth can be attributed, in 

part, to the NAFTA model. NAFTA-enabled "nearshoring" of an interconnected, highly complex 

supply chain between the U.S., Canada, and Mexico has allowed the U.S. manufacturers to 

compete with the rest of the world. 

MEMA commissioned The Boston Consulting Group (BCG) to evaluate the impact of NAFTA 

on the vehicle industry and how changes may affect vehicle parts manufacturers. For your 

reference, this data was discussed in more detail in our aforementioned written comments to 

1 MEMA represents its members through fou r divisions: Automotive Aftermarket Suppliers Association (AASA); 

Heavy Duty Manufacturers Association (HOMA); Motor & Equipment Remanufacturers Association (M ERA); and, 

Original Equipment Suppliers Association (OESA). 
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MEMA Statement for the Record - Aug. 1, 2017 Page 3 

the USTR; the complete BCG study can also be found online.

2 The study provided valuable 

information to form MEMA's conclusions, including key highlight s noted in MEMA's recent 

comments to the USTR: 

Domestic investment in technology innovation and R&D is possible in part because of 

the industry's access to imported parts from low-cost countries (e.g. Mexico). This 

sourcing allows the labor market in the U.S. to focus on developing and manufacturing 

new and advanced technologies and systems domestically and on providing highqual ity, higher-paying j obs in the U.S.3 

BCG found that the implementation of a tariff on goods from Mexico would create 

$16-$27 billion of additional costs for the U.S. automotive market. Consequently, as the 

cost of vehicles rise, vehicle manufacturers may decrease content that could impact 

25,000 to 50,000 U.S. j obs.

4 

One of the stated goals of a renegotiated NAFTA is tore-shore jobs into the United States. 

However, industry challenges dealing w ith capacity, sales volumes, and skilled workforce 

complicate that objective. Both vehicle manufacturers (a.k.a. "OEM s") and suppliers are 

operating their current manufacturing facilitates at peak capacity. Any new capacity would 

require new or expanded facilities at a time w hen U.S. sales volumes are at their peak and the 

economic viability of opening new facilities is minimized. Furthermore, like many 

manufacturing industries, suppliers are having a difficult time finding enough skilled 

tradespeople to fill open positions in the U.S. At the same time, we must maintain existing and 

increase higher value-added manufacturing in the U.S., w here we already have a competitive 

advantage. 

Finally, a renegotiated NAFTA should: 

Establish a level playing field for all parties, and initiatives that would eliminate unfair 

trade practices globally (including non-tariff barriers to trade); 

• Allow flexibility in key NAFTA provisions on how to qualify items because of the 

substantial manufacturing process in the region and to update the rules of origin that 

reflect current and future manufacturing environments; 

Include investor-state disputes and other NAFTA forums that could speed conflict 

resolution including tariff classifications (including tariff classifications); 

Enforce Intellectual Property Rights (I PRJ protection; 

Align data protection and privacy laws so that data can freely flow within NAFTA; 

2 "Impact of BAT and NAFTA Reforms on the U.S. Motor Vehicle Industry; Summary of analysis and key findings" The Boston 

Consulting Group and M EMA. July 2017 https;/fwww.mema.org/resourceJborder-acjjustment-tax-and-changes-nafta 3 Ibid, Slide 16 

• Ibid, Slide 15 
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MEMA Statement for the Record - Aug. 1, 2017 Page 4 

Ensure that U.S. Federal Motor Vehicle Safety Standards and other similar provisions 

are accepted in treaty countries; 

Promote a harmonized regulatory system, particularly working with Mexico to 

implement safety and environmental provisions that are in line with the U.S. and 

Canada; 

Regulate the move and residence of laborers, their dependents, and business visitors 

across NAFTA (e.g., allowing for additional inner-NAFTA work visas beyond the current 

program); 

Require that imports of all aftermarket parts - including remanufactured goods -

are not treated differently from new goods imports; 

Utilize draft components of previous trade agreements that are beneficial for all three 

countries (e.g. services, IPR); and, 

Increase and encourage cooperation between countries and the industry to improve 

international trade. 

In closing, the final NAFTA product must continue to provide for a vibrant North American 

supply chain. Care must be taken to balance the re-shoring of U.S. jobs with the unintended 

risks to current workers and the supply base. MEMA stands ready to fully participate in the 

modernization dialogue. 

For questions and more information, please contact Ann Wilson, senior vice president of 

government affairs at (202) 312-9246 or awilson@mema.org. 

111111 
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KEVIN L. FAULCONER 

July 31, 2017 M AYOR 

The Honorable Dave Reichert 

Chairman, House Ways and Means Subcommittee on Trade 

1102 Longworth House Office Building 

Washington, DC 20515 

The Honorable Bill Pascrell 

Ranking Member, House Ways and Means Subcommittee on Trade 

1139E Longworth House Office Building 

Washington, DC 20515 

Re: Statement for the Record on Modernization of the North American Free Trade Agreement 

Dear Chairman Reichert and Ranking Member Pascrell: 

On behalf of the City of San Diego, I am writing to provide the following statement forthe record following 

the House Ways and Means Subcommittee on Trade's July 18 hearing on modernization of the North 

American Free Trade Agreement (NAFTA). For the last 23 years, NAFTA has bolstered the economy of the 

San Diego region. We welcome the opportunity to modernize the trilateral agreement to meet the needs 

of the 21st century economy. 

NAFTA has created a highly-efficient manufacturing environment that has resulted in an enhanced quality 

of life throughout the region. San Diego's top export market is Mexico, wit h $5.5 billion in exported goods 

In 2016. San Diego and Baja California have leveraged NAFTA to create a $2.5 billion manufacturing supply 

chain that supports co-production between the two cities. Concurrently, canada is San Diego's sixth 

largest source of foreign direct investment and sixth largest employer, with 3,500 jobs directly tied to 

trade with canada. 

A modernized NAFTA will help all of North America remain competitive against other trade blocs, 

preserving U.S. jobs and discouraging the outflow of capital. The modernized agreement will also ensure 

that products made In the U.S. can compete abroad, while lowering prices and expanding consumer 

choice here at home. We encourage all three nations to approach renegotiation as an opportunity to 

shape a 21st century trade agreement and to do so in the spirit of friendship that has defined these crossborder relationships for generations. 

Thank you for the opportunity to comment on the renegotiation of NAFTA. 

Mayor 

202 C eTRDrT, 1 tTH FLOOR • SAN 0 1100, CA 0210 1 
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TI1e Presideut 

TI1e White House 

Washington, DC 20500 

Dear Mr. President: 

May25,2017 

As your admi.Jliswltion considers the funu:e of d1e 23-yea.r old Nott.h American Free 

Trade Agreement (NAFTA), we-the tutdet-sigued cluef executives of American 

companies-write to express our suppott for yom efforts to modenuze dte agreement. \Y/e 

hereby offer to work widt your adm.in.istmtion to promote free and fair trade widt Canada 

and Mexjco, ertsure a level playing field, and spur ecotlOtnic growth and job creation for 

American workers, farmet-s, and businesses. 

Americruts benetit from trade and investment widt Cru1ada and tviexjco in many ways. 

U.S. trade widt dtese two cotuttries supports 14 million American jobs, ru1d d1e daily voltm1e 

of trade betweer1 the United States and our two North America11 neighbors tops $3.5 billion. 

In llddition, the significa nt cross-investment among the three partners supports mllny 

additional good paying jobs across closely integrated supply chains. Much of this commerce 

depends on NAFTA, and the ford1cotning negotiations wi.d1 Canada ru1d Mexjco should be 

conducted inll maJHler d1at recognizes onr shaxed vlllues as neighbors lind dtat does not put 

these millions of American jobs at risk. With your support, we believe dus goal is eminendy 

achievllble. 

Tite benefits of U.S. u·ade a11d investment widt Canada lind Me.'t.ico include: 

Jobs across America: The e.>,;pansion of trade unleashed by NAFTA supports tens 

of dtousands of jobs in each of dte 50 states-and more than 100,000 jobs in each of 

17 states. 

Biggest Growth Ma rkets: U.S. e.>,;ports to Canada ru1d Mexjco-which represent 

America's largest expott markets by a wide margin-expanded far more in d1e 2009-

2015 period dtan U.S. exports to any odtet· cotu1tl')' in dte world (by Sl15 billion to 

Mexjco and $89 billion to Cru1ada). Half of all Cwadian rutd Mexjcrul imports come 

from d1e United States. 

Manufacturing J obs: Canadians and Mexjcans purchased S445 billion of U.S. 

manufacnu:ed goods in2016, generating$37,000 in expott revenue for evet-y 

A er c~n filctory worker. 

Services Surplus: In 2015, U.S. ser~·ices expo1ts to C11nadil ~nd Mexico reached $88 

billion, widt il services uade surplus of $37 billion. U.S. set-vice providers <'~re market 

leaders in many sectors of the Canadian and Mexjcan econonues. 
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Advancing Agriculture: Under NAFTA, U.S. agricultural exports to Canada and 

tv[ex.ico have quadrupled from $8.9 billion in 1993 to $38 billion in 2015, providing 

critical growth opportunities for an indus tty at the heart of tum! America. 

Big Gains for Small Business: Canada and Mexico are the top two export 

destinations tor U.S. small and medium-size entet-prises, more than 125,000 of which 

sell d1eir goods and services in Canada and Mex.ico. 

As your administration seeks to modernize and improve NAFT A, we ask d1at the 

following be taken into account to guide d1e process: 

Fit'St, we should build on the elements of our tradiJlg relationship d1at are already 

working well. W/e should enhance d1e job-sustaining t1ow of trade across our borders, which 

has reached $1.3 u·illion. Retuming to d1e high tariffs and other trade baniers d1at preceded 

AFTA is not in d1e interests of U.S. workers, farmers, and exporters. 

Second, as Secretary Ross and od1ers have pledged, the administration's pillsuit of 

negotiations following d1e procedures established in d1e Bipartisan Congressional Trade 

Priorities -..nd Account-..bil.ity Act of 2015, known as TPA, will provide a more predictable 

environment for business. Pursuing the TPA stanne's negotiating objectives and following 

its consultation procedures will build broader suppott in Congress and the U.S. business a11d 

agriculnlfe commLuuties for dlis effort. 

Tllird, we encourage d1e -..dministration to proceed quickly and trilaterally. 

Uncertainty about d1e future of America's terms of trade wid1 Canada and Mexico would 

suppress econonlic growth and may cause political reactions d1at m1demline U.S. exporters 

and d1eir significant growth opporttuuties in d1ese markets. Furd1er, maintaining NAFTA's 

dlCce-party framework is critical to ensure a stt·ong, profiroble market for U.S. exports and to 

avoid dismptiJ1g d1e substantial e.xisting How of commerce and d1e American jobs that 

depend on ir. 

i\1r. Presidenr, we look torward to working wid1 you and yotlt' administration on dus 

critical eftot't. W/e stand read)' to assist you and your admuustration u1 any way we can. 

Sincerely, 

David Abney 

Chairman and CluefExecutive Officer 

UPS 

Kit·kAubry 

President& CEO 

Savage Services 

Richard C. Adkerson 

Vice Chairman, President, and Cllief 

Executive Ofticer 

Freeport-McMoRan Inc. 

Richard Bt·ent 

Chief Executive Officer 

Louroe E lectronics 

2 
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Greg Brown 

Chairman and CEO 

Motorola Solutions 

William Fellows 

President & Chief Executive Officer 

Bartlett & Company 

William A. Furman 

Chairman & CEO 

The Greenbrier Companies 

Evan G . Greenberg 

Chairman and Chief Executive Officer 

Chubb 

Jefflmmelt 

Chairman a11d CEO 

GE 

Steven A. Kru1dat"ian 

Preside.nt, Chairman, & Chief Executive 

Officer 

MetLife, Inc. 

Andrew N . Live cis 

Chairman and Chief Executi,,e Ofticer 

The Dow Chemical Company 

David Macl.en.t!Ml 

Chairma.11 a11d CEO 

Cargill, Incorporated 

Detl.tus E. Nixon 

CEO 

International Bank of Commerce 

Patrick Ottens meyer 

President and CEO 

Kansas City Southern 

Michael L. Cor bat 

Chief Executive Officer 

Citigroup 

La11ce M. Fritz 

Chairma.11, Presidetlt and Cllief 

Executive Officer 

Union Pacific Corporation 

Ale-x Gorsk-y 

Chairman of the Board and Chief 

Executive OHicer 

Johnson &Johnson 

DaveHage.t· 

Presider1t aod Cllief Executive Officer 

Devon Energy Corporation 

Wilson R. Jones 

ClliefExecutive Officer a.11d President 

Oshkosh Corporation 

Ryan M. Lance 

Chairman aod Chief Executive Officer 

ConocoPhillips 

T am:u a Lw1dgt·en 

Presidetlt a11d Cllief Executive Officer 

Schnitzer Steel Industries, Inc. 

Doug McMillon 

Presider1t a.tld CEO 

Walrnart 

L1dra K. Nooyi 

Chairman ru1d Chief Executive Officer 

PepsiCo 

W. Douglas Parker 

Chairman ::md CEO 

American Airlines Group, Inc. 

3 
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Debra Reed 

Chairman, President and Chief 

Executive Officer 

Sempra Energy 

De. Edmund 0. Schweitzer, Ill 

President 

Schweitzer Engineering Laboratories 

Da,rid Taylor 

Chairman of rlle Board, President, atld 

Chief Executive Officer 

Procte r & Gamble 

Steve Van Andel 

Chairman 

Am way 

Steven E. Rendle 

President & Chief Executive O fficer 

VF Corporation 

Frederick \Y/. Smirll 

Chaum an & CEO 

FedEx Corporation 

Jun Umpleby 

Ch.iefExecutive Officer 

Caterpillar Inc 

Scott w. Wule 

Chairman and CEO 

Polaris Industries 

4 
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House Comminee on Ways and Means 

Tt·ade Subconunittee 

Hearing on Modemiuaion of the North Americfm Free Trade Agreement (NAFTA) 

Statement for th e Record 

July 31 . 201 7 

Michael J. Smart 

Flotida Fntit & Vegetable Association 

The Florida Fntit & Vegetable Association (FFVA) is snbmitting this Statement for the Record in 

cotuJectionwith the House Couuninee on Ways and Means Trade Subcommittee's Hearing on tbe 

modemization of the Not'th American Free Trnde Agreement (NAFTA) of Jnly 18, 2017. 

FFV A is a trade association comprised of growers of vege1ables. citnts. sugarcane. u·opical fruit, and 

other agticultural co1l111Jodities in Florida. The Association is the State 's leading fltll-service specialty 

crop organization, serving Florida 's grower-shipper conllllunity since 1943. 

Florida is the second leading producing state in the nation for fruits and vegetables. Its fl'llit and 

vegetable sector delivers an ammal economic impact of$12.2 billion. Although Florida grows the highest 

quality produce in the world and can successfully compete in a fair global marketplace, the cmTent unfair 

trade environmcm fostered by NAFTA has had a significam adverse impact on specialty crop producers 

in Florida. 

Since the lum of the millennium. most of the growth in Mexico·s agricultural shipments to 1he United 

States has been in the fresh fmit and vegetable sector. As discussed further below, imports of Mexican 

strawbet1ies have almost tripled. impons of Mexican bell peppers have grown by 163%. and inlports of 

Mexican tomatoes have increased by about 2 billion pounds, dramatically impacting US jobs and 

revenues. 

Although the United States is one of the wol'ld's major agricultural producers, Mexico's extraordinary 

expansion in fmit and vegetable shipments to the United States is creating a growing trade deficit in USMexico ag1icultural trade. As of2016, that deficit exceeded $5.3 billion. 
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Florida Fruit & Vegetable Association 

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9,000.0 

8,000.0 

7,000.0 

6,000.0 

5l 

~ s.ooo.o 

~ i 4,000.0 

3,000.0 

2,000.0 

1,000.0 

0.0 

Agricultural Imports from Mexico- Fresh Fruits and Vegetabtes Growing Faster than other 

Agriculture and livestock Products 

.. 

.. 

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 

Imports from Mexico (Fresh Fruits and Vegetables) - Imports from Mexico (Other A« and Livestock) 

Because Flot·ida and Mexico produce a number of the same specialty crops and share a similar growing 

season (i.e., primatily the winter months. November-March. before most other US producers begin their 

hatvests), fmit and vegetable impot1s from Mexico have had a disproportionately negative impact on 

Florida producers. The origina l NAFTA negotiators anticipated this result, forecasting that Florida 

producers of winter fruits and vegetables would be negatively affected once NAFT A was implemented. 

Tnte to that forecast. the state's specialty-crop fanners have faced mouming pressure from growing 

Mexican imports in vittually every year since NAFTA took effect. 

Today, as a result of unfair subsidy. pricing. and labor practices (see below). Mexican producers have 

become the dominant supplier of fruits and vegetables in the US market, greatly diminishing Florida's 

production and profitability in these sectors. Based on conservative estimates of what Florida's fntit and 

vegetable sector could have produced in the absence of tltese surging Mexican volumes, Florida has 

experienced a loss of agriculmral cash receipts of between $1-3 billion a year by reason of Mexican 

imports. 1 

' Florida Depamnent of Agriculture and Cooswner St:rvicfl ... An ExamiMiion of lntemaliooal Com~titive Jmpac1s on Florida A,griculture'• 

(Marth 201 7), 111 S. 
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Florida Fmit & Vegetable Association 

Statemem for the Record 

Page 3 

Mexico Agricultural Exports to the US and Florida Agricultural Cash Receipts $2S.O 

$20.0 $19.1 

$17.1 $17.7 

$14.7 

$1S.O $1).4 ~ :::> $12.0 & $11.3 

~ $10.$ 

$10.0 $9.) 

ilillltll 8.0 .2 8.2 8.S 78 77 7l 7.3 

I I ss.o 

$· I I I 

SU.l 

8.S 

1999 2000 2001 2002 2003 2004 200S 2006 2007 2008 2009 2010 2011 2012 2013 2014 • Value of Ag. Imports from Mexico • Florida Cash Receipts 

The following are notable examples of how Mexico's unfairly traded shipments of fmits and vegetables 

have hanned Fl01ida producers: 

Strawberries. Strawberry imports from Mexico have almost tripled since the tum of the millennimu, 

rising from 76.1 million pounds in 2000 to 216 million pounds in 2016 (a 184% increase).' That 

expansion bas compromised absolute growth and market share for Florida producers. Of equal 

concem, cash receipts for Florida stl'awbcn·y producet·s have declined. In the wimcr of 2016-2017, 

Mexican sttawben·ies shipped to the eastem United States were priced half as high as Mexican 

strawberries shipped to Califomia, and at rates about 50% of the price achieved each week by Florida 

producers. 

3 

z Oat3 from Florid~ ~l)l'lrtlll~llt of ASJieltln.u-c l\nd Conslunt1' Stn>iee:s. 

' Florida Oq>arlmem of A8ficulmte and Consume-r Service-s, "An Ex11minattoa of lnttffUitional Comperili\'t- Impac-t.$ oo Florida Agricuhure .. 

(Ma"'h 201'1).•• $. 
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f lorida fruit & Vegetable Association 

Statement for the Record 

Page 4 

_,M arUI Slw .. VOiutM -tot<-· r-....., 2001 

• Plondl • MO.Jeo • Ot'Mn 

Sourr~: Flo,;dn D' porlmt'nf of Agricullurt' 111rd ComNmn St'n·ius 

s..-ny Mam• Shor .. vokiHow- 10U·kbnoary1017 

• flondia • ~o • Othtn 

Nott': "Othn$"' (gilt)~ l.s prif•~t~ri/J• Cnl/fomltt prt>dllrtlon thnt oppnm It> IN shifting to M 'xfro. 

Bell Peppers. Imports of bell peppers from Mexico have grown from 326.53 million pounds in 2000 

to 859.77 million pounds in 2016 (a 163% increase). By contrast, US ptoduction of bell peppers bas 

slmmk from 745.19 million pounds in 2000 to 667.34 million potmds in 2016 (a 10% decrease)' 

Oversupply of lower-pticed Mex.ican products has depressed Florida 's price position and reduced perpound ptices by 20-35%. The estimated economic injury inflicted upon Florida fanners tln·ough 

unfair pticing by Mexican bell pepper shipments is $226 million' 

Bell Peppers -Domestic Production and Imports from Mexico (USDA) 

1000 

800 

1 600 

~ ~ 

400 

200 

2000 1001 2002 2003 2004 2005 2006 2007 2003 l009 2010 20U 20U 2013 2014 201-S 2016 

•Mexko • us 

• ()Jir~ ft(tQ'I FloridA 0e-J)31"1J»eor of Ag.rieuhure IUld COI)$UO)t1' Ser\'it:es. 

' Florida l)rtpaHmeor of A.gric:,drure tmd Con$Uiller SM•ic:u, .. An ExarnioMion of ln1t1'Miiooal CC)I_npetiti\'t (n)p:t.cts on Florid.\ A.grio.drute'" 

(Marth 201 7). MlO. 
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Florida Fmit & Vegetable Association 

Statemem for the Record 

Page 5 

Tomatoes. Imports of tomatoes from Mexico have increased from 1.2 billion pounds in 2000 to 3.2 

billion pounds in 2016 (a 166% increase). By comparison, domestic production has shrunk from 2.7 

billion pounds in 2000 to 1.7 billion pounds in 2016 (a 37% decrease).6 US fresh tomato growers 

have stmggled as prices, depressed by escalating impo11 competition, have failed to keep up with 

rising fanning costs. Low market prices have forced fanners to leave tomato fields unharvested in 

bad years, and numerous producers, especially smaller fatms, have been forced into bankmptcy. 

USDA figures show that US fresh tomato production is in serious decline, having lost almost 25% of 

total acreage since 1996.7 

Tomatoes- Domestic Production and Imports from Mexico (USDA) 

4,000.0 

~~ o.o jjfjiifiifiifilll 2000 2001 2002 Z003 2()1)111 200S 2006 2007 2008 2009 20 10 20U 2012 2013 2014 201S 2016 

Year 

• MEXICO • us 

Sourt't': Florida Dt'P'"''"'"' of Agrkulfurt' and Ct~11sunu•r St'n1us 

Mexican fmit and vegetable producers have only been able to achieve tlteir extraordinary US growth with 

the help of unfair subsidies, sales prices significamly below costs of production, and dramatically lower 

labor costs. Mexican fresh tomato growers and other fruit and vegetable producers benefit from 

govennnent suppor1 programs aimed at increasing producr-ivity in Mexican greenhouses and shade 

houses, not only during the. wimer momhs (November-March), but throughout the year. These support 

1>rograms, which provide as much as 45%-60% of the cost of improvements for certain specialty crops,

8 

have helped Mexican producers become the dominant US supplier of specialty crops and are 

progressively pushing Florida producers out of their own market. 

Sittce 200 I , the Government of Mexico has steadily expanded its fntit and vegetable support payments. 

From 200 I to 2008, Mexico's main agricultural ministry, SAGARP A, spem SSO million subsidizing 

e; Data from Florida Depar1ment of Agricultuce and Coosmne:r Sen<ices. 

1 See USDA National Statistics Service. Annual Swvey Data. a\-ailabfc al llltps:llqlllchtal$.,uus.uJ.do.go,,l 

1 See Wagenill8en Univel'$iry and Rete'arch, .. Mexican Prot~red Horticulmre: Prod\tction and M11rke1 of Mexiean Ptotttte-d Ho 1iculn~n 

!Xscribcd and Analy:ccd ... (Repoa1 GTB I26. 2011 )~ USDA fo1-cjgn Agrieultun1l Sovic:c. 2012 Tomalo Annual GAIN Report No. MX2036 

(June 4, 2012),_at6. 
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Florida Fruit & Vegetable Association 

Statement for the Record 

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1,220 hectares (ha) of greenhouses and other fom•s of protected agriculnue.9 Ln 2009 and 2010, Mexico 

spent $189.2 million on 2.500 ba of protected agricultttre: 65% for greenhouses, 25% for shade-houses, 

7% fOJ' macro-tunnels, and 3% for micro-tunnels. Those aid programs supported 859 ha of tomatoes 

(4 1%), 428 ha of cucumbers (20%), 347 ha of bell peppers (16%), 274 ha of berries (13%), and additiona l 

plantings of zucchini, grapes, bmssels sprouts, habanero and green peppers, and omaruental plants, 

among other specialty products10 Not surprising ly, Mexico's pt·oductivity improved markedly dlU'ing this 

petiod. even as overall planted areas decreased." 

Mexico's specialty crop support payments continue today. For FY2017, SAGARPA has established at 

least nine programs and 43 "components" to support agricuht~re 12 Its regulations spec ifically authorize 

greenhouse "incentives" of up to $48,000 per hectare13 Other reports have found that subsidies for new 

greenhouse iustallations are as high as $162,000 per agricultural project. 

14 Those greenhouse funds can 

be used in Mexico for the purcbase of materials. equipment. and infrastntcn•re. and for the management. 

conservation, and processing of greenhouse products." The funds can cover up to 50% of the cost of 

invest1nents.16 FFVA believes that Mexico's fi .. uit and vegetable sector is also benefiting from other 

unpublished subsidies. 

These Mexican govenunent benefits, which are aimed at promoting the year-round production of 

Mexica11 fresh fruits a11d vegetables, have au·eady put Florida producers at serious risk. Over time, as 

greenhouse support further expands Mexico's production season, all US producers of fmits and 

vegetables will be compromised. 

Another major factor in enabling Mexican fruit and vegetable producers to achieve their extraordinary US 

growth is their dumpi11g of specia hy products imo the US mal'ket at prices significamly below tl1e cost of 

production. In the winter of 20 17. for example, as shown in Figures I A and I B below, Mexican 

strawbenies shipped to the easten1 United States were priced half as high as Mexican srrawbe1ries 

shipped to Califot'tlia, and at rntes about 50% of the pt·ice achieved each week by Florida producet'S. 

FFV A does not have access to Mexican cost data, but based on the vast experience of Florida spec ialty 

crop producers, FFV A believes that the prices charged for Mexican strawbenies shipped to the eastem 

United States at'e not even close to sufficient to cover the Mexican producers' costs of pt'oducing and 

9 Wagenillfl;tn Uui\'er$ity 111~ Rese~b. ··Mexico\n Prot«l«< Horti(ulrure: Produ<:tion aod Market of Mexican Protoetltd Honicuhure Des<:ribed 

aud An.alyz<d."(R<pO<t GTB·t l26. 2011). alp. 55. 

tt USDA F0teip1 Agrieuhural Service, '"Mexico TO!nlliO Ammal: E.vly 2012 Supply Spike UW co Low Prices, E.'(port.s Expected Highet in 

l\fY2012J2013." June 14, 2012, available 

llup,:llgam.ftu.,uda.go\'IRen!ntJ'lOGA/i~OPub/Jcnnon,nomtlto%10Annuai M~.d«J''l0Ctt)' !tfe:nco 6·14·1011.pdf 

u /d. all, 

I} Government ofMex.ico website, "SAGARPA huthe Suppon You Need, .. January 14. 20l6. 

u Offici.lll Dial)' of dle Go\'eruruent of Me~C. co. -RuiC$ of ()pen1ion for the Pro8J1lru for the Promotiot:a of Agriculture of the Scttetruiat of 

A.grk:ulture. Li\'estoc;:k Rural De\'clopmc:nt. Fi.sberiesand food for lhe"20l7 fiscal Year." .D¢cember 31. 20l6. Article l2. 

II /d. 

u /d. 

1

' !d .• at Article l 0. 
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House Conuniltee on Ways and Means 

Florida Fn•it & Vegetable Association 

Statement for the Record 

Page 7 

shipping those strawben'ies. much less make a profit. The same is 11\le for other specia lty products. with 

devastating impacc on Florida producers. Oversupply of lower-priced Mexican bell peppers. for example, 

has depressed Florida 's price position and reduced per-pound prices by 20-35% . 

......... <- .... 

., .... ,., n .. .,o..,.,••oeuoo .. ., ... _ ... .,,. .. ,.,.,..,.,,.. •• ,. .. l •• n 

-·-~"'"'•lo .,....,_ID....,..._.._ __ ........,...... 

Figure /A (20/d· l 7 SetJ$()11): CollfonJitJ pdtu C()htpored mtll pn ~ oJ.,..It.liC(In prrx/uctt fll/fl'lng ColiformiJ: Mt.lic<m o11d Colrfonrlo prlcu 

clottly mfn'()l' totb ()lbtr. 

~~--------------- --- ·~00 ~ 

Ftgure /8 (1016-17 sNUon): F!OI'Idn pn<'n compared M'lth lti'-'CI<'<m mtpo1u to tlte MSittrn US; Af£'CICOII pl'l<'e3lunv. o mud1 narrow~r price 

rong~. are rommmtly s.kewed toward tM fO'I,·,.r pnring rtmg~ of Flonda. and tM JH'odJitts tmm 1M shlpJHd janJ1u «rou tM US. 

Stil1 ano1her unfair advan1age enjoyed by Mexican producers of specialty crops is Mexico•s extremely 

low labor costs. The estimated annual Mexican wage advantage in the agricultural sector isS I billioo.

11 

Mexican farm laborers are paid about 10% ofwbat Florida farm laborers are paid for similar work.

18 As 

each phase of production is completed, tl1is labor differential provides Mexican specialty crop producers 

with a compounding advantage. 

Under the Trade Pti01i1ies and Accountability Act of201 5 (TPPA), Congress has called on the Executive 

Branch to pursue in all trade negotiations govemed by TPPA several objective-s related to specially crops, 

the primary ones of which are as follows: 

(J) eliminacing praccices thai adversely affect trade in perishable or cyclical produces, 

while improving import relief mechanisms to recognize the unique characteristics of 

perishable and cyclical agriculrure; 

u FJotida Oepattmem of AgricuJnare and Con.swuer ~r\'i«:s. ••An Examination of lmMV~tional Competiti\'t lm~c'ls on FIMida Agriculturt .. 

(Marcl1 Z017), I'll I I . 

11 fflmlwori::tn in Mexico typically um approximately the- equi\'aleru of SS pt-r <by. while US fannworkm cam approximately $10-12 ptt 

hour. Thus. assuming an cigtu·hour day, a f.anuwori::tr in tbt United States would e.am at a miuiuuun SSO. while a Mexic.an fannwocker wouJd 

t<lrnS.S, i.c .. ~ .. 
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House Committee on Ways and Means 

Florida Fmit & Vegetable Association 

Statement for the Record 

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(K) ensuring that impot1 relief mechanisms for perishable and cyclical agricult1tre are 

as accessible and timely to growers in the United States as those mechanisms that are 

used by other countries: .... [and] 

(R) seeking 10 develop an intemational consensus ou the treatment of seasonal or 

perishable agJicult\tral products iu investigations relating to dumping and safeguards 

and in any other relevant area.

19 

Pursuant to these and o ther TPAA objectives, the Administration 's July 17. 2017, Summary of Objectives 

fort he NAFTA Renegoriation, properly tmderscored the Administration's imention to 

"improve the U.S. trade balance and reduce the trade deficit with the NAFT A 

countries:·· 

'"seek a separate domestic industry provision for perishable and seasonal products 

iu AO/CVD proceedings:" 

''presetve the abiliry of the United States to enforce vigot·ously its trade laws, 

including ·the antidumping, coumervailing duty. and safeguard laws;" and 

"require NAFTA coutttties to have laws governing acceptable conditions of work 

with respect to minimum wages. hours of work. and occupational safety and 

health." 

USDA Secretary Sormy Perdue and USTR Amba.ssador Bob Ligluhizer have elsewhere publicly 

emphasized the need to find au effective, timely solmion to the Florida fruit and vegetable indusuy's 

growing concems regarding unfair impons from Mexico.

20 Florida 's specially crop sectors applaud the 

commitment being expressed by Congress and rhe Administration to solve this urgent problem. 

Because of the urgency of Florida 's import coucems. the State's indusny bas already asked the 

Administration to consider every remedial and political tool at its disposal to help quickly reverse the 

unfair Mexican practices and adverse US impon trends described above. Among other near-term 

approaches. the industry is discussing with the Administration, iu close coordination with its 

Congressiona l delegacion. an accelerated Govenunent investigation into Mexico's unfair subsidy and 

pricing practices, self-initiated impon relief action(s), and inct·eased US Govemmclll advocacy at highest 

levels to insist that Mexico cease its unfair trading practices. FFV A looks forward to working closely 

with Congress and the Administration in moving these and other steps forward to deliver timely. 

effective, and enforceable relief for Florida's produce sector . 

., 8ip3rti$a.i' CongtHSion~l Ttllde Priorities and Accountability Ac-t of 201j, Pub L. No. 114.-26, § 102(bX3). 129 Slat. 320, 322-21 (201$) 

("20 tS TPAA"). 

lO SN, e.g., Stt~lary Perdue's May 17. 2017. ttsti.Olony bc(ore the House Conunin~ on Agriculture; US Trade Rq>rnentat:in R«ppttsc to 

QueJiions for dlt R~ US Senator BiiJ Ntlson, Marcll 20. 2017. 
204 

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Page 9 

Although FFVA recognizes that a modemized NAFTA may not enter into force for some time, and 

therefore may not be able to provide the near-term impon relief the Florida indusuy needs, FFV A 

nevettheless mges the Committee on Ways and Means to endorse NAFTA solutions that are consistent 

with the TPPA and NAFTA renegotiation objectives above, and to lend its support to the trade 

investigation, enforcement, and political steps the industry is currently pursuing with the Administration. 

As the near-term remedial and political solutions take shape in concert with the Administration, FFV A 

will have a better sense of the complementary provisions needed under NAFT A to enshrine and reinforce 

those solutions over the long tenn. 

FFV A looks forward to working closely with Congress and the Administration on a comprehensive 

strategy that aligns near-tenn remedies with longer-tenn NAFT A specialty-crop refonns to provide the 

Florida indusuy with timely. durable protections against unfairly traded Mexican produce. 
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1 LLEO 

rrs 

NCIL 

U.S. HOUSE OF REPRESENTATIVES 

TRADE SUBCOMMITTEE OF THE COMMITTEE ON WAYS AND MEANS 

" Modernization of the North American Free Trade Agreement" 

August 1, 2017 

STATEMENT OF THE DISTILLED SPIRITS COUNCIL 

OF THE UNITED STATES, INC. 

I. Introduction 

The following statement is submitted on behalf of the Distilled Spirits Council of the 

United States, Inc. ("Distilled Spirits Council") for inclusion in the printed record of the House 

Ways and Means Trade Subcommittee's hearing on modernization of the North American Free 

Trade Agreement (NAFTA). The Distilled Spirits Council is a national trade association 

representing U.S. producers, marketers, and exporters of distilled spirits products. 

The Distilled Spirits Council's member companies export spirits products to more 

than 130 countries worldwide. Over the past two decades, the U.S. spirits sector has 

become increasingly reliant on exports to fuel growth. Since 1989, the value of global U.S. 

distilled spirits exports has increased nearly five-fold, from $242 million to over $1 .4 billion in 

2016. Canada and Mexico are the lop and tenth-ranked export markets, respectively, for 

u.s. distilled spirits exports. 

The Distilled Spirits Council strongly supported the negotiation and implementation of 

NAFT A and enthusiastically welcomes the administration's efforts to modernize the 

agreement. To be sure, U.S. distilled spirits exporters have benefitted significantly from the 

terms of NAFTA. U.S. spirits exports to Canada and Mexico have grown exponentially 

since the agreement was implemented in 1994, thus supporting jobs in the manufacturing, 

hospitality, retail, and logistics sectors in the United States. Specifically, total U.S. spirits 

exports to our NAFTA partners increased from $34 million in 1995 to $228 million in 2016. 

It is therefore critical that the modernization of NAFT A preserve - and build upon - the 

gains that have already been achieved. The specific provisions of NAFT A that have 

benefited the U.S. spirits sector, as well as our specific objectives for negotiations to 

modernize the agreement are detailed below 

II. NAFTA's Key Provisions Related to Distilled Spirits 

Implementation of NAFTA opened the Canadian and Mexican markets to U.S. spirits 

exports. As detailed below, these include tariff elimination commitments, recognition of 

distinctive U.S. spirits, and establishment of certain commitments to ensure the fair and 

equal treatment of U.S. spirits by Canada's state-owned beverage alcohol distribution and 

retail monopolies. 

Distill~ Splrl1s Council • 1250 Eye StrHl NW • Suitt -400 • W•shlngton, D.C. 20005 • (202) 628·3$44 • OlstilltdSplrl'ls.org 
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A. All U.S. Distilled Spirits Exports to Mexico and Canada are Duty-Free 

NAFTA eliminated tariffs on Bourbon and Tennessee Whiskey exports to Mexico 

immediately upon entry into force of the agreement. Tariffs on all other U.S. spirits exports 

to Mexico were eliminated over a five-year phase out period. Tariffs on U.S. exports of 

whiskey and rum to Canada were eliminated under the Canada- U.S. Free Trade 

Agreement (CUSFTA) in January 1989. Canadian tariffs on all other U.S.-origin spirits were 

scheduled to be eliminated over five or ten years, th ~ U.S. spirits to Canada being dutyfree by 1998. In addition, since 1995 Canada has bound at zero its tariffs on whiskey, 

brandy and Tequila at the World Trade Organization (WTO) on a most-favored nation (MFN) 

basis. Thus, U.S. exports of "white spirits" such as rum, vodka and gin, have enjoyed 

preferential access to the Canadian market since the CUSFTAINAFTA commitments 

entered into force in the late 1990s. 

The tariff elimination on U.S. spirits to our NAFTA partners has contributed to the 

dramatic increase in exports to those markets. For example, U.S. spirits exports to Canada 

grew nearly 582 percent, from $28 million in 1995 to $191 million 2016. Of this, 23 percent 

is accounted for by American Whiskeys, 18 percent by rum, 12 percent by vodka, and 12 

percent by liqueurs and cordials. As noted above, Canada now ranks as the largest 

market globally for U.S. distilled spirits exports. 

• 

$250 

$200 

$150 

$100 

$50 

$· 

U.S. Distilled Spirits Exports to Canada 1990-2016 

($millions) 

•American Whiskeys •Rum • vodka liqueur-s and Cordials • All Others 
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Page 3 

Similarly, U.S. distilled spirits exports to Mexico grew nearly 470 percent since 

NAFTA was implemented, from just over $6 million in 1994 to $37 million in 2016, making it 

the tenth largest export market. American Whiskeys accounted for 45 percent of the total. 

U.S. Distilled Spirits Exports to Mexico 1994-2016 

($millions) 

• $90M 

$80M 

$70M 

$60M 

S50M 

$40M 

I I I $30M I I $20M 

I I I i I I I I I I I I I I I I $10M 

SM I 19941995199619971998199920002001200220032004200520062007200820092010201120!22013201420152016 

• American Whiskeys •uqueurs and Cordials • Rum Vodka • All others 

However, Canada and Mexico have not bound all of their tariffs on distilled spirits at 

zero under the WTO's General Agreement on Tariffs and Trade (GATT). Specifically, while 

Canada's WTO bound tariff for whiskey, brandy and tequila is zero, its bound rate for gin is 

4.92¢/liter of absolute alcohol (laa), for rum is 24.56¢ per laa, and for vodka and liqueurs is 

12.28 ¢/laa. Mexico's WTO bound rate is 45 percent ad valorem for all distilled spirits 

categories. In contrast, the United States has bound its tariffs under the WTO's GATT at 

zero on all spirits categories (except low value rum (HTS 2208.40.20 and 2208.40.60) and 

one "other" category (2208.90.80)). 

Thus, in order for all U.S. distilled spirits exports to continue to receive tariff free 

treatment in Canada and Mexico, it is critical that NAFTA retain tariff free trade in distilled 

spirits throughout the three partner countries. 

B. Mexico and Canada Officially Recognize " Bourbon" and " Tennessee Whiskey" 

as " Distinctive Products" of the United States 

"Distinctive product" recognition refers back to the laws in the product's country of 

origin and serves as an important tool to assure consumers that the products purchased are 

genuine. Since 1964, the United States government has officially recognized "Bourbon" as 

a distinctive product of the United States. The first international agreement explicitly 
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Page 4 

recognizing "Bourbon" exclusively as a product of the United States dates to 1971 

(Agreement between the United States of America and France for the Protection of Names 

of Bourbon Whiskey and Certain French Brandies). Since then, Bourbon and Tennessee 

Whiskey have also been accorded distinctive product recognition through trade agreements 

and other bilateral agreements the United States has negotiated with several other 

countries, including the 28 members of the European Union, Chile, Korea, Brazil. Colombia, 

Peru, Australia, Panama, Dominican Republic, Costa Rica, El Salvador, Guatemala, 

Honduras, Nicaragua, Canada, and Mexico. 

Specifically, under Chapter Three: National Treatment and Market Access for Goods -

Article 313 and Annex 313 (1) of NAFTA, Canada and Mexico agreed to recognize 

"Bourbon Whiskey• and "Tennessee Whiskey• as distinctive products of the U.S. In return, 

Mexico and the U.S. agreed to recognize "Canadian Whisky" as a distinctive product of 

Canada, and Canada and the U.S. agreed to recognize "Tequila" and "Mezcal" as distinctive 

products of Mexico (see Annex 313 (2) and (3)). The United States' decision to confer such 

recognition to these distinctive Canadian and Mexican spirits reflects the fact that these 

products cannot legally be made in the United States. 

This recognition, which is implemented primarily through a country's domestic product 

marking and labeling laws, is a very important mechanism to ensure that products labeled 

as "Bourbon" or "Tennessee Whiskey" that are offered for sale in Canada and Mexico are, 

in fact, legitimate products that were produced in the U.S. in accordance with U.S. laws and 

regulations regarding the production of these products. Because American Whiskeys, such 

as "Bourbon" and ''Tennessee Whiskey", account for 69 percent of total U.S. spirits exports 

globally, it is critical that this recognition be retained. 

C. Canada' s Provincial Liquor Board Policies Required to be Transparent and NonDiscriminatory 

In Canada, provinces are empowered under its Constitution to establish beverage 

alcohol supply and distribution monopolies. In the 1980s, Canada maintained closed 

provincial markets with discriminatory restrictions on the listing and sale of imported spirits. 

These discriminatory practices were addressed by the provisions contained in Chapter 

Three: National Treatment and Market Access for Goods- Article 312 and Annex 312.2, 

which incorporated Chapter Eight: Wine and Distilled Spirits from the Canada - United 

States Free Trade Agreement (CUSFTA). 

Specifically, Chapter Eight (Article 802 (1)) stated that measures concerning the 

listing policies for the sale of distilled spirits are to be transparent, treat Canadian and U.S. 

products equally and be based on "normal commercial considerations." Thus, any distiller 

applying for a listing is to be informed promptly of the decision and, in the case of a negative 

decision, a statement of the reason for the refusal. The distiller can appeal the decision 

through the administrative appeal procedures that were established following CUSFTA. 

With regard to pricing/mark-ups, Chapter Eight (Article 803 (4)) specified that all 

discriminatory mark-ups on distilled spirits were to be eliminated immediately upon entry into 
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force of the agreement. However, public entity distributors are permitted to charge the 

"actual cost-of-service differential" between spirits of the other party and the domestic spirits. 

Any such differential, however, shall not exceed the audited cost of service for the spirits of 

the exporting party with the audited cost of service for the spirits of the importing party 

(Article 803 (1 )). 

Concerning distribution, the agreement stated that any measure related to the 

distribution of spirits shall conform with national treatment obligations (Article 804 (1 ). but 

indicated that measures limiting on-premise sales by a distillery to distilled spirits produced 

on its premises would be permitted (Article 804 (2a)). 

Finally, Article 312 of NAFTA specified that no party may adopt or maintain any 

measure requiring that distilled spirits imported in bulk from another territory for bottling be 

blended with distilled spirits of the importing party. 

D. Rules of Origin 

NAFTA's rule of origin for distilled spirits was changed in 2003 to reflect increased 

efficiencies within the supply chain (Annex 401: specific rules of origin (as amended over 

time) for HTS 2208). Distilled spirits must comply with these rules in order to receive 

"preferential' treatment under the agreement. The U.S. spirits sector strongly supported the 

change and continues to support its retention in a modernized NAFTA. 

Ill. Objectives for NAFTA Modernization 

As noted above, the overall spirits trade relationship with Canada and Mexico as a 

result of NAFTA has been highly successful and beneficial for U.S. spirits exporters. 

However, there are several areas in which the NAFTA modernization negotiations could 

improve the agreement and provide further benefits for U.S. distilled spirits exporters to 

these vital markets. 

Protecting and preserving the important gains achieved in NAFTA is paramount. 

However, targeted improvements to the agreement can be made to help expand 

opportunities for U.S. spirits exporters. In particular, the U.S. spirits sector is seeking to: 1) 

preserve the current duty free access for U.S. spirits exports; 2) preserve existing 

protections for "Bourbon" and "Tennessee Whiskey" and secure distinctive product 

recognition for "American Rye Whiskey;• 3) adopt a section detailing labeling and 

certification best practices for spirits; 4) strengthen and update the rules regarding Canada's 

Provincial Liquor Boards; 5) eliminate Canada's discriminatory excise tax on imported 

beverage alcohol products; 6) preserve the preferential rules of origin for spirits, as well as 

include new transit and transshipment provisions; and 7) end the prohibition in NAFT A on 

the use of duty drawback. 
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A. Preserve Duty-Free Treatment for U.S. Distilled Spirits Exports 

The Distilled Spirits Council urges that the U.S. government ensure that the current 

duty-free treatment for U.S. distilled spirits exports to Canada and Mexico will be retained. 

As noted above, the United States has bound its tariffs at zero at the WTO on practically all 

spirits categories on a most-favored nation basis, yet this is not the case across the board 

for Canada and Mexico. Thus, all U.S. spirits exports to Canada and Mexico will only 

remain duty-free if the tariff commitments contained in NAFTA remain in place. 

B. Affirm Distinctive Product Recognition by Canada and Mexico of "Bourbon" 

and "Tennessee Whiskey" and Expand Recognition to Include "American Rye 

Whiskey" 

Over the past decade, Rye Whiskey production in the United States has experienced 

phenomenal growth, with over 100 brands now on the market. This is up from a handful a 

decade ago. In terms of the United States domestic market, from 2009- 2016, American 

Rye Whiskey sales volumes have grown by an astonishing 778 percent to reach over 

774,800 cases. In terms of value, that translates into a 900 percent jump from slightly over 

$15 million in supplier revenues in 2009 to over $150 million in 2016. This represents 

approximately $450 million in retail sales in the United States alone. Several companies, 

both large and small, export American Rye Whiskey to a wide-range of markets, including 

Canada and Mexico. 

The Distilled Spirits Council urges the U.S. government to ensure recognition for 

"Bourbon" and "Tennessee Whiskey" is retained (NAFTA Article 313 and Annex 313 (1)), 

and secure and incorporate recognition by Canada and Mexico for "American Rye Whiskey" 

into Annex 313 (1). Securing distinctive product recognition will help assure the producers of 

this rapidly growing category that only rye whiskeys made in accordance with U.S. laws and 

regulations will be able to be labeled and sold as "American Rye Whiskey" in Canada and 

Mexico. In exchange, the Distilled Spirits Council would support the recognition of 

"Canadian Rye Whisky" by the United States. 

C. Incorporate Regulatory Best Practices for the Labeling and Certification of 

Distilled Spirits Products 

NAFTA modernization negotiations are an excellent forum for advancing reasonable, 

science-based regulation of beverage alcohol in Canada, Mexico, and around the world. To 

that end, we propose the inclusion of a section detailing regulatory best practices for 

distilled spirits with regard to labeling and certification requirements, ideally as part of a new 

chapter on technical barriers to trade. 

Securing these commitments will make NAFTA a model 21st-century trade 

agreement for the distilled spirits industry, by ensuring that three of the major spirits 

producing and consuming nations in the world will adhere to a set of regulatory principles 

with regard to labeling and certification. Doing so will reduce potential barriers to trade by 
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providing greater certainty, transparency and efficiencies for distilled spirits producers, 

importers and exporters throughout the NAFTA countries. 

D. Strengthen and Update Rules Concerning Canada's Provincial Beverage 

Alcohol Distribution and Retail Monopolies 

The NAFTA modernization negotiations provide an opportunity to update and 

strengthen the rules governing the practices of Canada's provincial state-trading 

enterprises, importation monopolies and market-dominant state-owned beverage alcohol 

retailers to ensure that they do not discriminate against U.S.-origin distilled spirits. While 

many of the provisions are important to retain, several are in need of updating to reflect the 

current marketplace and to address new barriers that have arisen. 

For example, currently the practices of certain provincial liquor boards with regard to 

groduct mark-ups appear to run counter to Canada's international trade obligations, which 

provide for transparent and standardized product mark-ups for all "like" or "directly 

competitive and substitutable" product. In British Columbia, for example, while the 

wholesale portion of the markup is transparent, published, and standardized, the retail 

portion, which is applied by the BC Liquor Distribution Branch, is not. Saskatchewan has 

announced its intention to move towards the British Columbia model in the future. In 

addition, Nova Scotia operates a complicated supplier competition for certain 

subcategories of spirits, such as "economy vodka" or "economy white rum", which can result 

in certain products not being subject to the posted standardized mark-up. The Liquor 

Control Board of Ontario (LCBO) notified suppliers in June 2016 of its intention to test the 

concept of "flexible mark-ups" for wine and spirits, a further deviation from the application of 

standardized and transparent product mark-ups. The LCBO issued a letter on July 11, 2016 

announcing an indefinite extension to the timeline to submit supplier quotes under the 

agency's proposed "flexible mark-up" initiative. 

Furthermore, expanded retail access opportunities are provided to local producers in 

key provinces of British Columbia, Ontario and Quebec. Local beer, wine and spirits are 

now offered for sale in farmers' markets in British Columbia and local wine and cider in 

Ontario. Quebec's Bill 88 permits the sale of local artisanal wine, cider and mead products 

to be sold in grocery and corner stores. British Columbia has auctioned new licenses for 

the sale of local wines on the shelves of grocery stores in violation of the maximum number 

of discriminatory wine stores established under NAFTA. To address some of these barriers, 

in January 2017 the U.S. government requested consultations with the Government of 

Canada under the WTO's dispute settlement provisions raising concerns with British 

Columbia's decision to expand access to British Columbia wines on the shelves of grocery 

stores while relegating all other beverage alcohol to a separate "store-within-the-store." 

The Distilled Spirits Council requests that the U.S. government seek updated and 

strengthened rules addressing Canada's provincial beverage alcohol distribution and retail 

monopolies (i.e. discriminatory product markups and retail access). 
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Specifically, the Distilled Spirits Council supports the retention of: 

• NAFTA Article 312 (concerns bulk imports. as detailed above); 

• CUSFTA Article 801 (1 ). which states that this Chapter applies to any measure 

related to the internal sale and distribution of wine and distilled spirits; 

• CUSFTA Article 802 (1) (concerns listing policies, as detailed above) 

• CUSFTA Article 804 (1) (concerns national treatment and distribution of spirits, 

as detailed above); 

• CUSFTA Article 804 (2)(a); (concerns on premise sales by distilleries, as 

detailed above); and 

• CUSFTA Article 807 (concerns Parties being able to retain their rights and 

obligations under General Agreement on Tariffs and Trade (GATT) and 

agreements negotiated under the GATT.) 

However. the Distilled Spirits Council requests the following modifications to other 

provisions: 

• CUSFTA Article 801 (2) (Coverage): This provision, which permits existing 

measures to be imposed that are not in conformity with national treatment 

obligations, should be deleted in its entirety. The Distilled Spirits Council 

specifically seeks the elimination of preferential federal excise duties for certain 

domestic wines (including ciders) and beers introduced in 2006 (see Section E 

below for details). 

• CUSFTA Article 803 (1) (Pricing): This provision concerning public entity 

distributors' permission to charge the "actual cost-of-service differential" should 

be updated and further clarified. For example, Annex 30-B (Section D: 4aPricing) to the Comprehensive Economic and Trade Agreement (CETA), a freetrade agreement between Canada and the European Union), includes several 

important commitments to enhance transparency, efficiency and nondiscrimination of pricing policies by public entities involved in the sale and 

distribution of beverage alcohol. Specifically, "Each Party shall ensure that a 

cost of service is not applied to a product of the other Party on the basis of the 

value of the product." Further, "the cost of service differential shall be justified in 

line with standard accounting procedures by independent auditors on the basis of 

an audit completed on the request of the other Party .. ." and "on request of that 

Party at intervals of not less than four years." In addition, "the audits shall be 

made available to either Party within one year of a request being made. 

Competent authorities shall update cost of service differential charges, as 

required to reflect the commitment made" regarding cost of service differentials. 

And "Competent authorities shall make available applicable cost of service 

differential charges through publicly accessible means, such as their official 

website. Competent authorities shall establish a contact point for questions and 

concerns originating from the other Party with respect to cost of service 

differential charges. A Party will respond to a request from the other Party in 

writing within 60 days of the receipt of the request." 
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The Distilled Spirits Council supports the inclusion of these enhanced 

commitments, as provided for in CETA, into a modernized NAFTA. 

• CUSFTA Article 803 (5) (Pricing): The Distilled Spirits Council supports retention 

of an overall commitment to ensure that no discriminatory pricing measures are 

in force. and that no discriminatory pricing measures will be adopted in the future. 

Specifically, the Distilled Spirits Council requests that all provincial spirits markups, levies, taxes or other pricing measures are transparent, non-discriminatory 

and apply equally to all "like", directly competing or substitutable products sold 

through any retail sales channels, including private outlets. 

• The Distilled Spirits Council is also seeking new disciplines on state-owned 

enterprises to ensure fair commercial treatment for U.S. spirits exporters and 

avoid state sanctioned anti-competitive behavior. Specifically, the Distilled Spirits 

Council requests that provincial state-owned liquor boards commercial activities 

be restricted to those within their own territorial borders and any extraterrestrial 

activities be restricted to those solely essential to fulfilling those internal activities. 

Moreover, the Distilled Spirits Council seeks a prohibition by state-owned alcohol 

retailers from listing or offering for sale distilled spirits products in which they 

have any ownership or financial interest. 

E. Eliminate Canada's Discriminatory Excise Tax on Imported Beverage Alcohol 

Products 

On March 22, 2017, Canada's federal government introduced a 2 percent increase 

on the federal excise tax on beverage alcohol and a future yearly automatic increase tied to 

the Consumer Price Index (CPI). However, since 2006 wines made from 100 percent 

Canadian grown grapes or other fruits, (including ciders made from Canadian apples) have 

been exempt from any federal excise tax. Increasing beverage alcohol excise duties by 2 

percent immediately and by the CPI annually thereafter, while continuing to maintain the 

exemption from federal excise tax on wines made from 100 percent Canadian grown grapes 

or other fruits, exacerbates the uneven playing field that exists in the Canadian market for 

beverage alcohol products. This disparity will grow wider as the tax rate increases on an 

annual basis. Such a scheme imposes new costs on U.S. spirits and wine imports, thus 

tilting the playing field even more to domestic wine, to the detriment of imported wines and 

spirits. 

In the context of the NAFTA modernization negotiations, we request that the U.S. 

work to secure Canada's commitment to eliminate all of the discriminatory aspects of its 

excise tax pertaining to beverage alcohol products. This will allow spirits trade to continue 

the considerable expansion it has enjoyed over the past twenty-five years. and will reaffirm 

the Parties' commitment to the rules-based international trading system. 
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F. Rules of Origin 

The NAFTA "preferential" rule of origin for distilled spirits, as described above, should 

be retained. 

In addition, new transit and transshipment provisions should be included to expressly 

permit minor processing in non-NAFTA members to include unloading, labeling, marking, 

reloading, etc., without losing the good's originating status. The goods should, however, 

remain under the control of the customs administration during this process. 

G. Duty-Drawback 

The Distilled Spirits Council supports removal on the prohibition on the use of duty 

drawback currently contained in NAFTA Article 303. 

IV. Conclusion 

As detailed above, international trade has become increasingly instrumental to the 

long-term viability of the U.S. distilled spirits sector. The commitments contained in NAFTA 

have helped to make Canada and Mexico extremely important markets for U.S. spirits 

exporters. While there is much to be retained in NAFTA, the Distilled Spirits Council and its 

members support negotiations to modernize the agreement in order to protect and expand 

upon the important gains already achieved. 

Written Statement of: 

Christine LoCascio 

Senior Vice President 

International Issues and Trade 

Distilled Spirits Council of the United States, Inc. 

1250 Eye Street, NW, Suite 400 

Washington, DC 20005 
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VIA ELECTRONIC SUBMISSION 

The Committee on Ways and Means 

1102 Longworth HOB 

Washington D.C. 20515 

July 18, 2017 

Consumer 

Technology 

Association 

Re: Comments on Hearing on M.odei'Dization of the Nor·th American Fr ee T rade 

Agreement (NAFTA) 

Nor th American Trad e Issues Impacting the U.S. Consumer Technology Industry 

Dear Mr. Chairman and Members of the Subcommittee: 

The Consumer Technology Association ("CTA") welcomes the opportunity to provide 

comments to Committee on Ways and Means in response to the July 18, 2017 hearing on the 

Modemization of the North American Free Trade Agreement (NAFTA.). We have identified a 

number of areas that could be updated including digital trade, technical barriers to trade ("TBT''), 

rules of origin or origin procedures, and trade-related intellectual property rights issues, that 

affect CTA's membership. As such, CTA is excited at the chance to participate in this process 

and hopes that these comments help the Committee appreciate the various issues facing the U.S. 

consumer technology industry when they trade with Canada and Mexico. CTA hopes that 

Congress the Administration will maintain the beneficial parts ofNAFTA, which bas played a 

significant role in liberalizing trade and in giving U.S. manufacturers the chance to grow their 

market presence in Canada and Mexico. Still, we appreciate that the current Administration is 

deciding to modernize this 23-year-old trade agreement. We certainly agree, and describe herein, 

that NAFTA could be improved to more thoroughly reflect the global trade issues facing U.S. 

companies and consumers today. 

I. BACKGROUND ON THE CONSUMER TECHNOLOGY ASSOCIATION 

As a proponent of innovation, CTA advocates for the entrepreneurs, technologists and 

innovators who mold the future of the consumer technology industry. Representing more than 

2,200 corporate members, CTA provides a platform that allows today's consumer technology 

leaders to connect and collaborate. Its membership includes companies from every facet of the 

consumer technology industry, including manufacturers, distributors, developers, retailers, and 

integrators. In addition, CTA provides avid policy support to its membership, by fighting for the 

issues that most significantly affect its membership. Relying on its leading market research, 

CTA also educates members and shapes the industry as a whole by establishing standards that 

in1pact its membership's product lines. 
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International trade is critical to our members- both big and small. CTA's membership 

consistently trades throughout the North American region. In fact, Mexico has been one of the 

U.S. consumer technology industry's fastest-growing marketplaces over the past few years. Our 

members must have the ability to compete, seU, and distribute on a level playing field in North 

America. Otherwise, they, including, in many cases, their domestic manufacturing presence, 

suffer. 

II. COMMENTS ON SPECIFIC ISSUES RELATING TO NAFTA 

Trade with Canada and Mexico supports nearly 14 million U.S. jobs, and nearly 5 million 

of these net jobs are supported by the increase in trade generated by NAFT A, according to a 

comprehensive economic study commissioned by the U.S. Chamber ofCormnerce.t ll1e 

expansion of trade enabled by NAFf A supports tens of thousands of jobs in each of the 50 

states-and more th.an I 00,000 jobs in each of 17 states. In fact, U.S. manufacturers added more 

than 800,000 jobs in the four years after NAFT A entered into force. In addition, U.S. exports to 

Canada and Mexico have increased by $385.9 billion (272 percent) since NAFT A went into 

effect in 1994.

2 As .of2016, the United States was exporting $7.8 billion of computer equipment 

to Canada and $12 billion of semiconductors and other electronic components to Mexico.3 

This data demonstrates that NAFTA has been highly beneficial for the U.S. economy and 

for the U.S. technology sector. However, CT A recogni zes that the renegotiations present an 

opportunity to modernize NAIT A. As a result, CT A submits comments on the following 

NAIT A issues: (I) d igital trade and internet services; (2) TBT; (3) rules of origin; (4) 

intellectual property rights; and (5) temporary entry of professionals. 

a. Digital T r ade and Internet Services 

The digital e·conomy is key to America's growth and globa l competitiveness. The United 

States has exported roughly $400 billion in digitally-deliverable services on an annual basis in 

recent years, and today's U.S. consumer technology industry supports more than 15 million jobs. 

Internet services have transformed trade and enabled small and medium-sized businesses to 

reach global audiences in ways never possible in the past. Over the last decade, the Internet has 

created new opportu nities for cross-border trade and investment, enabling small businesses 

around the world to connect with customers and suppliers in the globa l market without building 

their own multinati<mal supply h~ins. With the help of Internet phllfonns, small businesses: (I) 

grow up to four tinJcs faster than businesses that do not embrace the web; (2) create twice as 

1 U.S. Chamber of Commerce, NAFTA Triumphant: Assessing Two Decntfes of Gnlnsln T mtfe, Growth, and Jobs, 

available at hllps: l/www schamber.cornlsi tcsldcfau fileslle&acy rcportsiiii2 INTL NAFTA 20Ycars pdf. 

' Business Roundtable, The United States Needs Trade Agreemems to Grow. /Nailable at 

hllp://trndepartnership.comlwp-conteniluplonds/20 t5/0 IIUs_§tate Stud.YJ>df. 3 M. Angeles Villarreal & Ian F. Fergusson, The North American Free Trade Agreement (NAFTA), Congressional 

Research Service (May 24, 201 7). 1wailable 111 hnps://fas.or&fsgplcrs/row/R42965.j>df. 

2 
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many jobs; (3) are three times as likely to be exportcrs;4 and ( 4) bring in twice as much revenue 

through exports as a percentage of sales. 

Overall, the Internet is powering US economic growth. The U.S. International Trade 

Commission ("lTC") found that the productivity gains from the Internet have increased U.S. real 

GOP by 3.4 to 3.5 percents It is clear that digital trade and e-commerce have become important 

for muhinational companies and small and medium-sized businesses alike to market their 

products or services in the global marketplace. Thus, reducing barriers to digital trade and ecommerce is crucial "to ensure that trade agreements afford small businesses equal access to 

international markets, equitable trade benefits, and expanded export market oppornmities.',6 Renegotiating NAFT A, therefore, presents an oppornuuty to modernize the agreement in order to 

account for the significant growth of digital trade and trade in services. 

In addition, U.S. retailers also benefit significantly from low tariffs on consumer 

electronics and home appliances. As a result, CT A urges Mexico to join the expanded 

Information Technology Agreement ("IT A"). The original ITA led to the elimination of import 

duties on a large number of high tech products which in 2013 accounted lor an estimated $1.6 

trillion, and the expanded ITA clinlinated tariffs on an additional list of201 products. 

t. Cross-Border Data Flows and Trade in Digital Content 

Internet services and digital trade have been able to play a significant role in boosting 

U.S. trade due to their open narure: online services and/or intermediaries can facilitate 

transactions and commUJucations among millions of businesses and consumers, enabling buyers 

and seiJers to connect directly on a global basis. As a result of the benefits of increased digital 

trade, Internet penetration, and cross-border data transfers, CT A urges that the "Digital 2 Dozen'' 

prioritizes principles7 and prevents barriers toe-commerce trade and cross-border data flows. 

The Trans-Pacific Partnership ("TPP") agreement included some positive provisions in 

support of a global, open Internet, including protecting cross-border data flows and preventing 

data localization. CTA urges that the re-negotiated NAFTA aUows for a free and open lntemet 

and adequately protects the free flow of infonnation through cross-border data flows. ln 

addition, the new NAFT A should prevent forced localization requirements of data centers and 

facilities. ln an age where cloud computing is increasingly utilized by U.S. businesses to store 

and transfer infonnation between offices and facilities across many regions, countries that 

• Deloine (couunissioncd by Google), Connected Small BusiniJSses US (20 17), available at 

hups:/lwww2.deloiue.com us enlpages techno~nedia and-t ecommunications/anicleslconnected-smallbllsinesses.hunl. 

' For more infonnation on the smdies cited in this section, please see McKinsey & Company, Digital Globo/i:(llion: 

17te New Era of Global Flows (March 20 t 6), nvnilob/e nt hnp:/iwww.ulck'insey.comlbusiuess-llmciiOns/cbgitalmc~jQur-insi.s!Jis!diSJ.Ial:g!obalization-lhe n~w~ra-of global-fl.Q;VS. 6 Bipartisan Congressional Tmde Priorities and Accountability Acl of20t5, Sec. 102(aX8). 1 Please see hnps:{/ustr.gov/sites/defautt/mes!Digilal-2-Dozen-Final.pdf. 

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require local servers or data centers as a condition for market access will create significant 

barriers to the cross-border business of consumer technology companies. 

In order to facilitate trade in digital products and content, the re-negotiated NAFT A 

should also prohibit customs duties, taxes, and other barriers to digital products (e.g., software, 

music, video, e-books, etc.) and services. Moreover, the new agreement must ensure nondiscriminatory treatment of digital products transmitted electronically. 

n. Intermediate Liabilit Rules in Internet-Driven Trade 

For the Internet to serve its trade-enabling role, and for local entrepreneurs to drive crossborder economic activity, trade negotiators need to ensure predictable liability protections are in 

place across countries where users and content creators are sharing inforn1ation on Internet 

platforms. Millions of small businesses and billions of consumers depend on clear rules of the 

road that enable connections and trade flows online. 

The current business model works because intem1ediaries can host online transactions 

without being held liable for the vast amounts of content surrounding each transaction. As such, 

the new NAFT A should make clear that, in order to allow global e-commerce, NAFT A parties 

must ensure that online services are not automatically considered liable for third-party content. 

This is a core principle necessary for digital trade and is already recognized by the United States, 

the EU, and many other countries. lntennediary liability laws like Section 230 of the 

Communications Decency Act in the United States enable lntemet services to host, process, and 

distribute user-generated content without being treated as the creator or originator of such 

content for purposes of determining liability. 

These sate harbors are keys to enabling digital trade. If a plattonn with millions of users 

faced the risk of being held liable each time a user posted even remotely questionable content, 

then it is very unlikely such services would ever launch in the first place - ham1ing not just 

innovation within a country but also the ability of small businesses to use these services to export 

to globa l customers. To promote digital trade and foster vibrant domestic Internet economies, 

NAFTA parties should include a provision that addresses intem1ediary liability. By providing 

safe harbor protections from liability, NAFT A parties will establish an innovation framework for 

digital trade. 

b. Technical Barriers to Trade 

CTA respectfully submits that regulatory misa lignment, through the establishment of 

TBT, is a significant problem for the consnmer technology industry and a problem that NAFTA 

should more thoroughly tackle. Articles 904.4, 905, 906, and 908 of the current NAFTA 

encourage the NAFTA partners to, amongst other things, avoid imposing unnecessary obstacles 

to trade, rely on intemational standards (as opposed to making their own standards), and make 

compatible and/or equivalent their standards-related measures, as well as their conformity 

assessment procedures. However, there are several loopholes in NAFTA that, in the end, give 

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each country enough leeway to implement what they want, with little limitation. Plus, CTA has 

seen our NAFTA partners not stringently follow the notice and comment requirements of 

NAFTA's Article 909, as well as the agreement's other procedural obligations. CTA submits that, 

in light of these problems, we need stronger obligations in NAFfA on regulatory substantive and 

procedural alignment. 

These problems have particularly affected CTA's membership in the energy efficiency 

regulatory space. Over the last several years, CTA has seen both Mexico and Canada impose 

diverging energy efficiency requirements that do not reflect the U.S. and/or international norm in 

this area. For example, although Mexico has worked with CTA and its membership to roll back 

some of its more troublesome parts, a recent proposed measure on energy efficiency would have 

required the use of a marking symbol that does not align with the rest of North America and a 

product label with a substantial amount of extraneous infomtation that other countries do not 

require (includ.ing the full name of the regulation itself). As it currently stands, the measure, and 

its underlying law, still provide for unaligned testing requirements, including a requirement that 

manufacturers test and certify their products on a yearly basis. In most countries, manufacturers 

only need to test and certify a product once, until they significantly modify it. An annual testing 

re.quirement is extremely burdensome and misaligned in comparison with the energy efficiency 

requirements of other countries, including the United States. 

We have also experienced similar issues with Canada, particularly relating to the 

measures of its provincial governments. Article 902 ofNAFTA provides that each party shall 

seek, through appropriate measures, to ensure observance of Article 904 through 908 by state or 

provincial governments in its territory. However, CTA has, on more than one occasion, seen 

Canada's provinces, such as Quebec, contravene the spirit ofNAFTA and these obligations by 

implementing energy efficiency requirements that do not align with Mexico and the United 

States or even its own national govenunent. CTA asks that an updated NAFTA focuses on 

addressing these issues. 

As we noted above, we also ask for focus on ensuring that our North American partners 

have a transparent and open notice and comment process for proposed regulations or standards 

measures. Although the current NAFTA imposes some of these requirements on the parties, the 

obligations are not always followed. The United States should ensure that the obligations are 

more strictly enforced. For example, we hope that the renegotiation ensures that aU NAFfA 

parties follow Article 909. l(d), which provides that each party shall "without discrimination, 

allow other parties and interested persons to make comments in writing and shall, on request, 

discuss the comments and take the comments and the results of the discussions into account." 

We have experienced some tendency, on the part of our NAFTA partners, to weigh domestic 

party comments more heavily than comments from manufacturers in, for example, the United 

States. We have also not always seen our NAFTA partners notify us when their sub-national 

governments propose new energy efficiency measures, even though Article 3.2 of the WTO TBT 

Agreement and Article 903 ofNAFTA generally require it. We not only see a need for more 

enforc.ement, but also for stronger obligations in this area. For example, we believe that 

requiring all of the NAFTA parties to establish public consultations early in the development of 

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new measures, enabling trade-related concerns to be vetted and addressed before new measures 

are fwalized, is crucial to implementing regulations that make sense for industry. 

CTA also submits that NAFTA should include some text that encourages the NAFTA 

countries to consider using non-regulatory initiatives in lieu of traditional regulation, where 

appropriate. CTA has found that, in the fast-moving product space of the consumer technology 

industry, reg1•lations often cannot keep pace with technological development. For this reason, 

CTA has worked with governments, including Canada and the United States, to develop nonregulatory solutions for ensuring the energy etliciency of consumer technology products. The 

most successful solution that CTA bas helped to develop is the voluntary agreement, i.e., a nonregulatory approach at setting energy efficiency requirements that relies on industry-driven 

standards and government oversight (through mandatory reporting and audit authority). The 

United States and Canada have taken this approach to impose energy efficiency standards for settop boxes, and government officials from both countries have indicated that the agreements have 

been a success. TI1ese programs have also proven effective in providing consumers with the 

information that they need in making their choices for consumer technology products. CTA 

encourages USTR to develop some language for the modernized NAFTA that recognizes the 

value of these solutions and encourages all NAFTA parties to consider them when dealing with 

the issue of energy efficiency requirements for consumer technology products. 

c. Rules ofO•·igin 

CT A understands that the three NAFf A parties may seek to negotiate new rules of 

origin ("ROO") to address recent developments in auto and auto parts manufacturing. 

However, when considering potential ROO changes to IT products, CTA urges that making the 

ROO requirements, including regional value content thresholds, more restrictive and 

burdensome to the consumer technology industry be avoided. Consistent with the 

Administration's intention to "do no hanu" in renegotiating NAFfA, CTA urges Congress and 

the Administration to ensure that the consumer technology manufacturing base, as well as 

complex and integrated supply chain.s, are reviewed and understood and any ROO changes and 

their potential impact are carefully studied. 

CTA also emphasizes that cun-ent IT products produced in a U.S. FfZ cannot qualify 

for preferential treatment even if they otherwise meet the rules of origin ("ROO") requirements 

under NAFf A. However, goods produced in maquiladoras8 can qualify for preferential 

treatment. CTA asks that the re-negotiated NAFf A allow goods produced or assembled in 

FTZs that meet the relevant ROOs requirements to qualify for preferential treatment under the 

agreement, consistent with the treatment that qualil)ting goods from maquiladoras receive. 

FTZs help local employers remain competitive, and lower FfZ-based production costs 

encourage increased investment in U.S. facilities.9 

8 Maquiladoras are pla111s in Mexico tl1a1 arc owned by foreign companies tl1a1 assemble producls and expon 10 1he 

coumry of1bose companies. 

t Please see llp://enforcemenl.lrade.~tlzpagelle ers/flzinf.Q&M. 

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Consumer 

Technology 

Association 

d. Intellectual Pr·operty Rights 

NAFT A was the first free trade agreement to contain an intellectual property rights 

("IPR") chapter. However, g iven the significant evolution inlPRs protection and the significant 

growth in digital content and services, CT A urges USTR to modernize the chapter. 

CTA asks that NAFTA reflects the strong IPR enforcement obligations in the WTO 

Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRlPS") and a standard 

of protection, including proper and flexible copyright Limitations and exceptions, similar to that 

found in U.S. law. The new NAFTA should provide strong protection for new and emerging 

technologies and new methods of transmitting and distributing products embodying intellectual 

property in a manner that facilitates legitimate digital trade. In addition, the re-negotiated 

NAFTA should ensure that standards of protection and enforcement keep pace with 

technological developments and that rights holders have the legal and technological means to 

control the use of their works through the Internet and other global communication media, and to 

prevent the unauthorized use of their works. The new NAFT A should provide strong 

enforcement oflPRs, including through expeditious and effective civil, administration, and 

criminal enforcement mechanisms. Provisions should a lso prevent government involvement in 

the violation of IPRs, including through cyber theft or piracy. 

In addition, the re-negotiated NAFTA should require copyright limitations and 

exceptions like fair use that have been essential to U.S. itmovation and the strength of the U.S. 

tech sector, as well as copyright 'safe harbors'. The absence of such provisions in Mexico leaves 

the U.S. tech sector vulnerable there - particularly as Mexico strengthens other parts of its 

copyriglll system. 

The United States cannot continue to export one-sided enforcement provisions of 

copyright law without their equally important partner under U.S. law - fair use. The Internet's 

open and seamless operation thrives on copyright policies that recognize equally exclusive rights 

for creators and llexible limitations and exceptions such as fair use and the ftrst sale doctrine that 

encourage innovation. U.S. copyright law reflects this balance and contributes to the success of 

Internet companies domestically. 

The past 30 years and the growth of the U.S. tech and Internet economy have 

demonstrated the importance of a balanced approach to copyright. The United States bas 

promoted the progress of sciences and useful arts by ensuring that there is breathing room in 

copyright law for the development of new products and services such as the VCR, DVR, iPod, 

cloud computing, search engines, social media, and 3D printing. All of these innovations- and 

the growth of U.S. companies that they have created - are fundamentally reliant upon concepts 

like tair use and other copyright limitations and exceptions. These innovations could be 

j eopardized by weak language on limitations and exceptions in the copyright laws of other 

countries. 

e. Tempor·at·y Entry of Professionals 

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Consumer 

Technology 

Association 

The United States is the top knowledge economy in the world with a strong and 

innovative technology sector. With the development of the Internet of Things ("loT"), cloud 

computing, and other slate-of-the-art technologies, the United States technology sector will also 

require skilled employees to continue to grow. S~ecifically, appropriate immigration policies are 

key to unleashing the potential oflhe loT sector. 1 

In light of the breathtaking growth expected in this sector over the next decade, it is 

unlikely that the United States' science, technology, engineering and math ("STEM") work force 

will be sufficient to support the sector's rapid expansion unless Congress adopts meaningful 

reform to the United States' overly restrictive immigration policies. There simply are not 

enough STEM-skilled U.S. workers today to fill the myriad of technical positions that will be 

created by the loT sector at the hardware, operating system, connectivity, data management and 

user interface layers. Strategic immigration refonns are needed to encourage U.S.-educated 

immigrants to remain in the United States to build businesses and create domestic jobs. 

Moreover, pem1itting temporaty entry of IT professionals in the United States will help ensure 

that research and development ("R&D") remains based in the United States instead of the 

professionals' home country. Doing so will allow the United States to maintain its edge as the 

most im10vative technology economy in the world. As a result, CTA urges that this issue be 

addressed in the negotiations for a new NAFTA. 

Thank you for the opportunity to provide comments on the upcoming NAFT A 

modernization. CT A hopes that this infonnation assists the Conuniitee during the upcoming 

negotiations and is happy to act as a future resource for the U.S. govenunent on NAFT A. Please 

feel free to contact the undersigned with any questions or comments. 

Best regards, 

Is! 

Sage Chandler 

Vice President, International Trade 

schandler@cta.tech 

Is/ 

Douglas K. Johnson 

Vice President, Technology Policy 

djohng>.!!@fta.tech 

1

° For more infonnation, please see Consumer Technology Association, lmornet of Things: A Frnmfhvo,.kfor the 

No:xt Administration (November 20 t6}, available at bnp~_;ljw\Y\Y,CJa.tccb/c aLutcdi "'j!Oiiey_lmageslpo licyPDF~CTA

lnteruel-of-Tiuugs-A-Framework-for-Ute-Next-AdmiuistrattotLpdl: 

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~ 

Cit I 

Citigroup submission io response to the House of Representatives House Ways and Means 

Committee, Trade Subcommittee Hea.-ing regarding i\lodem ization of the North Amer·ica 

Free Trade Agreement (NAFT A) 

As a global fmancial institution with a significant and diversified presence in all three NAFT A 

signatory countries, Citi strongly supports both NAFT A modemization and the preservation of 

many existing benefits of the current agreement. We encourage the administration to negotiate 

expeditiously because a swift resolution will limit economic and political uncertainty while 

ensuring that the symbiotic trade partnership the U.S. now enjoys with both Canada and Mexico 

is not merely maintained but bolstered by the enhanced trade agreement. 

As the leading global bank, with approximately 200 million customer accounts, Citi conducts 

business in more than 160 countries and jurisdictions, including in Canada since 19 19 and in 

Mexico (via Citibanamex) since 1886. Citi is the largest U.S.-based bank in Mexico, and 

Citibanamex activities comprise roughly 20% of the financial sector in Mexico. We are one of 

the largest global banks operating in Canada. Our strong support for NAFT A is based on our 

long history of working in and faci litating trade and investment among the U.S., Canada and 

Mexico and witnessing its many benefits to our clients. 

Citi believes that it is vital to ensure that all trade agreements, including NAFT A, maintain the 

highest possible standards and commitments. A comprehensive agreement enables the financial 

industry to support clients in manufacturing, agriculture and other areas of the U.S. economy. 

For the past quarter century, the fmancial services chapter ofNAFTA bas served as a reliable 

and consistent foundation for the opening up of the financial sectors in Mexico and Canada to 

foreign competition, the establishment of a strong rule of law governing the treatment of foreign 

investors and the creation of new procurement opportunities. 

On July 17, 2017 the Trump Administration released its summary of objectives for the NAFT A 

modemization as required under the Bipartisan Congressional Trade Priorities and 

Accountability Act of20 15. Along with the summary of objectives, the law requires USTR to 

publish an explanation of how a successfully concluded agreement will further those objectives 

and benefit the United States. 

The negotiating objectives include positive language on financia l services, seeking to expand 

market opportlmitics and obtain fair and open conditions for fmancial services trade and 

investment; improve transparency and predictability in financial services regulatory procedures; 

and prohibit restrictions on cross-border data flows and requirements to use or install local 

computing facilities. 

As Citi outlined in its response to tbe Federal Register notice inviting public comment on 

NAFTA modemization, Citi strongly supports language, as tabled i11 the Trade in Services 

Agreement (TiSA), to ensure the free flow of data across borders and prohibiting govemmcnts 

from imposing measures requiring local servers for data storage. The existing financia l services 

chapter ofNAFT A includes a provision that pem1its the transfer of data across borders for data 

processing in the nonnal course of business. However, the provision is outdated and insufficient 

to addressing the new methods that companies like Citi now use to move data on a global basis 
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while securing that data from cyber risks. TI1e Trans-Pacific Partnership excluded the financial 

sector from provisions ensuring free flow of data and prohibiting localization. We are pleased 

that the negotiating objectives of the current administration specifically included financial 

services in data localization protections and we recommend looking to the TiSA language as a 

model for a modernized NAFr A. 

We are also pleased to see regulatory cooperatioo iocluded io the administratioo's objectives. 

We would like to see an expansion of the NAFr A Financial Services Committee's jurisdiction to 

mandate more integrated cooperation oo regulatory matters including anti-money laundering 

regulation. Financial regulatory cooperation is more vital than ever and should take place 

through a more fonnalized, principles-based consultative mechanism. 

With significant investments in both Mexico and Canada, it is important that investor-state 

arbitration be included in NAFTA modernization as the appropriate enforcement mechanism 

available to U.S. investors abroad. We are concerned about the absence of its inclusion in the 

Administration's objectives. In fact, Cit1 supports expanding the investor protections afforded to 

the fmancial sector and providing access to an efiicient enforcement mechanism, investor-state 

dispute settlement, to adjudicate breaches of those protections, including for national treatment 

and most favored nation treatment. Past U.S. trade agreements, iocluding NAFI'A, have not 

afforded the financial sector the same investor protections - and enforceability of those 

protections - as are ensured lor all other sectors. A NAFTA modernization should extend to 

fmancial services the same level of protection, e.g., minimum standard of treatment, civil strife, 

perfonuance requirements, as is provided for all other sectors in the existing NAFr A. 

In conclusion, Citi - and Citi's clients around the world - rely on the provisions of the existing 

NAFTA to keep both their domestic and international operations functioning smoothly and 

efliciently. We believe the administration can both improve and update NAFI'A while 

maintaining the benefits our country and its companies enjoy under the existing agreement. 
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Statement on Modernization of NAFT A 

Evan G. Greenberg, Chairman and CEO, Chubb Limited 

House Ways and Means Committee 

Trade Subcommittee Hearing-- July 18, 2017 

My name is Evan Greenberg and I am the Chairman and CEO of Chubb. Chubb is 

the world's largest publicly traded property and casualty insurer. With direct 

operations globally around the world in 54 countries, Chubb provides commercial 

and personal property and casualty insurance, personal accident and supplemental 

health insurance, reinsurance and life insurance to a diverse group of clients. 

I would like to provide my company's perspectives on the positive impact NAFT A 

has had on the services sector in general and the insurance industry specifically, 

and how modernizing NAFTA is mutually beneficial for all three parties. 

NAFTA AND SERVICES 

Chubb is part of the services economy, and the services sector dominates the U.S. 

economy. The services sector accounts for over 75% of the American workforce 

and nearly 80% of U.S. GOP (Source: BEA). 

Since its implementation in 1994, NAFT A has effectively integrated the services 

markets of Canada, Mexico and the United States. Through the creation of common 

and non-discriminatory trade rules, NAFT A has opened both Canadian and Mexican 

markets to a diverse array of U.S. services providers, strengthening the U.S. 

services trade relationship with our neighbors. 

From 1999 to 2015 (latest data), the United States has doubled its bilateral services 

trade surplus with Mexico and quadrupled it with Canada. The U.S. had a $37 billion 

trade surplus in services in 2015 with our NAFTA partners. 

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The goods trade figures also do not take into account how cross-investment 

between the three countries creates enormous economic benefits for all the parties, 

generating jobs and growth. 

CHUBB AND NAFTA 

Chubb is a great example of a company that has benefited from the positive 

environment NAFTA created. 

In Mexico, for example, a key component of NAFTA was the elimination of the 

foreign investment cap, allowing U.S. insurers to own 100% of locally established 

companies. 

The "National Treatment" provisions of NAFT A required Mexico to treat foreign firms 

the same as local businesses in terms of regulatory and tax treatment. 

NAFTA's procurement provisions ensure that U.S. owned firms in Mexico are able to 

participate in government and state-owned enterprise (SOE) procurement 

opportunities. 

NAFTA also required increased transparency and administrative procedural 

safeguards for U.S. insurance companies in Mexico. Under NAFTA, a "Financial 

Services Committee" was established, creating a mechanism to address issues of 

concern. 

While the specific provisions of NAFTA are critical, most importantly, NAFTA created 

an environment of non-discrimination in Mexico, allowing foreign insurers to flourish 

there. 

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This is evidenced by the meaningful portion of our business that is done with the 

Mexican government. We insure government vehicles, water treatment facilities, 

infrastructure projects and public universities, just to name a few of our insured 

public entities. 

This non-discriminatory environment was accommodating for foreign investors and 

allowed Chubb to grow both organically and through acquisitions over the past 23 

years since NAFTA was implemented. Mexico is now our fourth largest market, after 

the United States, the United Kingdom and Canada, and Chubb is the third largest 

property and casualty insurer in the country. 

Mexico's growing middle class, which has been fostered by the nation's strong protrade stance since NAFT A, has created significant opportunities for our industry and 

others. Mexicans are buying more homes and cars and establishing new 

businesses all of which require insurance protection. 

The infrastructure reforms have created significant opportunities for our surety 

business in Mexico, where we are the second largest surety company in the country. 

Finally, Chubb benefits as it insures a significant and growing number of U.S. firms 

operating in Mexico as well as Mexican firms operating around the world. 

To give you an example of the magnitude of our business and presence in Mexico, 

Chubb has more than one million automobile insurance policies in Mexico through 

our wholly owned subsidiary ABA Seguros. Today, Chubb has over 2,400 

employees in 66 locations across Mexico, and a strong agency distribution network 

with more than 4,000 agents and brokers. 

Chubb also has a significant presence in Canada- as I just noted, our third largest 

market. Chubb has been in Canada since 1821 , when we became the first 

American insurance company to appoint an agent in Canada. 

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Today we are a top 10 insurer and employ nearly 600 Canadians located in four 

branch offices in Toronto, Montreal, Calgary and Vancouver. 

Our success in Mexico and Canada supports Chubb jobs in the U.S. Many of our 

15,000 employees in the United States support our Mexican and Canadian 

operations in important professional functions such as analytics, claims, finance, 

legal and underwriting. 

So, you can see this is not a zero sum situation. This is the case for our industry as 

well as the services sector overall. NAFT A has created an environment of mutual 

benefit among the three countries. 

MODERNIZING NAFTA 

The U.S. business community has made it clear that it has no interest in going 

backwards with respect to NAFT A. Our first principle with respect to a NAFTA 

renegotiation should be to do no harm. 

Interrupting the $1.3 trillion in annual trade across our borders, or reverting to the 

high tariffs and other trade barriers that preceded NAFTA, would be devastating for 

workers, farmers, service providers and exporters in all three countries. Preserving 

the existing benefits I noted earlier is critical. 

It is also important to maintain NAFTA as a trilateral agreement. Unwinding the 

supply chains established over the last two decades would cause unnecessary but 

significant economic disruption. 

Lastly, beyond the economic and trade benefits, all three countries have also clearly 

benefited from NAFTA with regard to our shared border. The positive economic 

benefits over the past two decades have generated trust among our governments, 

allowing for successful cooperation on many matters including national security. 

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Given that the agreement is 23 years old, there is room and a need for 

modernization. Such modernization should enhance NAFTA. Issues like the 

treatment of cross-border data flows and storage and e-commerce simply didn't exist 

when NAFTA was originally negotiated. Transparency and anti-corruption 

provisions that promote good governance and deter the damaging impact of bribery 

and corruption should also be included in the modernized NAFT A. Establishing 

disciplines in these new areas would be beneficial for all three parties. 

Finally, establishing standards for small and medium-sized enterprises and 

establishing state-owned enterprise disciplines would enhance NAFT A, again to the 

benefit of all three parties. 

CONCLUSION 

NAFTA has significantly improved our nation's competitive profile. North America 

and the United States are a competitive force in global trade. It is part of our 

country's strategy to remain competitive in the future in a world where other powerful 

countries aren't standing still. 

We believe that when all the facts are reviewed in terms of the economic, social and 

national security implications of NAFTA, our political leaders will recognize the 

magnitude of our North American integration and will take the right steps in fortifying 

this mutually beneficial relationship. 

I hope I've given you some insights into how NAFT A has benefitted the services 

sector and the insurance industry, and how modernizing the agreement would 

provide further benefits. 

Thank you again for allowing me to express my company's views on this important 

subject for your consideration. 

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AUTO ALLIANCE 

July 18. 2017 

The Honorable Dave Reichert 

Chairman 

Ways & Means Trade Subcommittee 

U.S. House of Representatives 

Washington. DC 20515 

The Honorable Bill Pascrell, Jr. 

Ranking Member 

Ways & Means Trade Subcomminee 

U.S. House of Representatives 

Washington. DC 205 15 

803 ) th Street N .W .. SUi It 300 I Washington. DC 20001 

202.326.5-SOO I www.autollllianct.ora 

Re: House Ways and Means Trade Subcomminee hearing entitled "Modernization of 

the North American Free Trade Agreement" 

Dear Chairman Reichert and Ranking Member Pascrell: 

On behalf of the ~ance of Automobile Manuf.1ctt1rers (Alliance), we welcome this 

opporttmity to provide the following cotmnents on the Modernization of the North 

American Free Trade Agreement (NAFT A). The All.iance is the leading advocacy 

group for the auto industry. Together. our 12 member companies represem 70% of 

aDDual new car and light truck sales in the United States. 

A robust alllo sector is vital to a healthy U.S. economy, and NAFTA has allowed 

automakers that produce in the U.S. to maximize investments and remain competitive in 

the global marketplace. Auto manufacturing represents the largest manufacturing sector 

in the U.S. with 13 automakers operating 44 assembly plams across 14 states. 

Automakcrs along with their suppliers nnd dcalcrs generate billions of dollors for the 

U.S. economy and support 7.25 million American jobs. The industry pays out $500 

billion in aDDual compensation to its employees and generates more than $205 billion in 

federal and state lax revenue in the manufacntre, sale and maintenance of autos. 

Additionally, between 2010-2014, the industry has invested $46 billion in factories and 

facilities in the U.S .• typically investing $18 billion a year on research and development 

(R&D) in the U.S - an average of$1 ,200 for every new vehicle produced. Fifty percent 

of the companies listed on the Dow Jones Industrial Average depend on the auto 

industry for revenue. Simply put, the auto industry is one of the most powerful engines 

driving the U.S. economy. 
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The auto industry has historically contributed 3-3.5% to economic growth in the U.S., 

denoted by Gross Domestic Product, and remains a significant player in today's global 

economy as well. The U.S. based auto industry is America's largest export sector with 

automakers exporting more than 2 million vehicles in 2016, totaling more than $56 

billion' - a roughly138 percent increase from 20092 Additionally, these exports are 

from both U.S. based and international automakers. Among Alliance members, BMW 

Group, FCA USA LLC, Ford Motor Company, General Motors Company, MercedesBenz USA, Toyota Motor North America, Inc. and Volkswagen Group all manufacture 

vehicles in the U.S. for export, and Volvo Car USA is currently building a U.S. facility 

that will also export vehicles. More than half of those exports are to our NAFTA 

partners, Canada and Mexico. Thus, America's automotive industry has a significant 

economic stake in the outcome of the renegotiations ofNAFTA - perhaps more than 

any U.S. industrial sector. 

Department of Commerce Secretary Wilbur Ross recently stated that the frrst guiding 

principle of the upcoming renegotiations will be to "do no hann." The Auto Alliance 

wholeheartedly appreciates and supports this approach towards the modernization of 

NAFTA, an agreement that has been a key contributor to competitive success of the 

U.S. auto industry in the global marketplace. 

Today's highly complex automobile is a product comprised of thousands of parts 

sourced from a global network of thousands of suppliers. NAFTA has resulted in the 

"near-shoring" of manufacturing operations to our neighbors, Mexico and Canada, in 

lieu of more distant ones. NAFTA's strong regional bloc supports an expansive 

automotive supply chain in the U.S, Canada, and Mexico. In many cases, auto parts and 

components cross U.S. borders more than eight times in the production and assembly 

process. In this way, even investments in Mexico and Canada result in the creation of 

jobs in the U.S. by encouraging a network oflocal business partners. Disrupting this 

integrated supply chain would increase prices, lower sales, threaten exports and 

endanger American workers' jobs. 

NAFTA has resulted in significant North American investment from within the global 

auto industry. Global companies have shifted production from other automotive regions 

to North America and increasingly rely on North American supply chains. Facilities 

built in Canada or Mexico support U.S. jobs and vice-versa. For example, prior to 

1 United States Department of Connnerce, Bm·eau of the Census, Foreign Trade Division, New Passenger 

Vehicle Exporls Jo !he World. http://www.trade.gov/tcVotm/assetslauto/New Passenger Exports. pdf 1 U.S. Department of Commerce. Office ofTranspot1ation & Machinety. Trends in U.S. Vehicle Exporls. 

August 2015 http://www.ttade.J!QY/tcVotmlassets/autoiEx tP~0!2d>M 
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NAFT A, the U.S. content of vehicles imported from Mexico was five percent and 

today, that figure is approximately 40 percent.3 

While NAFTA has provided countless benefits to the automotive sector, Alliance 

members recognize that much bas changed in the global economy since NAFT A was 

enacted in 1994. As such, we support the Administration's aim of modernizing tl:Us 

trilateral trade agreement and offer reconunendations to further enhance the benefits of 

NAFT A. If implemented, these recommendations will significantly advance the 

guiding principles underlying the Admit:Ustration's trade policy agenda by encouraging 

fair and free trade, increasing econon:Uc growth, promoting job creation in the U.S., and 

strengthening the U.S. manufacturing base. 

Maintain stt·ong and effective market access pt·ovisioos within NAFT A: 

Many of the aforementioned benefits created by NAFT A are due in part by the 

effective market access provisions granted for autos and auto parts. 

Specifically, duty-free access granted under the existing mles of origin generate 

the free flow of autos and auto parts throughout the North American region. It is 

important to note that the 62.5% regional vehicle content under the existing net 

cost method is the highest of any U.S. trade agreement. 

Improve Regional Regulatory Coopet·ation: A modernized NAFTA should 

encourage more effective regulatory cooperation on future standards to avoid 

unnecessary divergence. Regulatory streamlining across the region will further 

facilitate trade and reduce unnecessary costs and adn:Unistrative burdens. 

Regulatory cooperation among the three NAFTA partners will help spur 

cooperation on the global stage, within the United Nations Working Parry 29. 

Formal t·ecognit.ion of U.S. motor vehicle safety standat·ds (FMVSS) 

throughout the NAITA r egion: We recommend the U.S. utilize this 

opportunity to formally enshrine existing practice and include commitments in 

the agreement requiring Canada and Mexico to recognize FMVSS. 

Sta·eamUne customs pr•ocedures to faci)jtate cross-borde•· trade Oow: As 

indicated above, in many cases automotive parts and components may cross the 

border as many as eight times before reaching fina l assembly. A modernized 

NAFTA should expressly allow tme electronic signatures, (i.e. those that do not 

require the integration of a reproduced hand-written signature), requiring all 

three party-countries to accept them on NAFT A certificates. Reducing existing 

3 Center for Automotive ReseaJ·ch. NAFTA Briefing: Trade benefits to the automotive industry and the 

potential consequences ofwithdrawalfi'om the agreement. January 2017 
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inefficiencies and burdensome border delays will help facilitate the free flow of 

these goods. 

Update NAFfA's Jabot· a nd envir onmental provisions: The Alliance 

supports efforts to strengthen NAFTA's labor and environmental provisions to 

reflect a strong commitment to maintain a level playing field with parties to the 

agreement. 

Promote ct·oss-bot·dct· data flows: Since NAFTA is more than 20 years old, it 

lacks language on cross-border data flows. A modernized NAFT A should 

ensure that automakers are able to move data freely across borders to enable 

them to compete fairly to serve customers in North America and around the 

world. 

Much anention has been given to the U.S. trade deficit with Mexico. A significant 

reason for the U.S. trade deficit with Mexico is related to the complex and integrated 

regional supply chain that has developed since NAFT A entered into force more than 20 

years ago. Automakers import several labor-intensive auto parts and components from 

Mexico, including wire hamesses and seat components. If this trade were to stop, 

automakers would seek supply from other sources outside the NAFT A region because it 

would not be economical to source such components in the U.S. Additionally, some 

non-U.S. sourced components are not cutTently available to be sourced in the U.S. 

Sourcing these components elsewhere would adversely affect the U.S. economy: on 

average, a 10 percent increase in employment at a Mexican affiliate operation leads to a 

1.3 percent increase in U.S. employment, a 1.7 percent increase in U.S. exports, and a 

4.1 percent increase in U.S. R&D.

4 

As noted above, the auto sector has benefited greatly from a strong and integrated North 

American regional bloc and it has clearly enabled job creation within the U.S. auto 

industry. Auto manufacturing throughout the region has helped anchor automaker and 

supplier engineering and R&D operations largely within the U.S. In doing so, it creates 

and supports thousands of high-wage auto sector jobs.5 

It should be noted that Mexico also has free trade agreements (FTAs) with 45 countries, 

giving automakers access to nearly half the global auto market tariff-free. The U.S., on 

the other hand, has FT As with 20 countries, representing about nine percent of the 

4 Moran, T. H., and Oldenski, L., Peterson Institute for Intemational Economics, How 

U.S. Investments in Mexico have increased investment and jobs a/ home. In NAFTA, 20 

Years Later. July 2014 5 Ceurer for Auromorive Research, NAFTA Briefing: Trade benefits lo the automotive indusl•y and the 

potential consequences of withdrawal fi'om the agreement. January 201 7 
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global market. Mexico's trade agreements are making it an increasingly important hub 

to export outside of North America, which is a boon to U.S. suppliers given the 

significant amount of U.S. content in these Mexico-assembled vehicles. As free trade 

opens markets abroad for US exports, the US should endeavor to undertake new trade 

agreements with its key trading partners. 

The Alliance stands ready to be a constructive stakeholder as the Administration and 

Congress move forward with the modernization ofNAfTA. NAFTA has created a 

strong regional bloc and enhanced American competitiveness in this global economy. 

Modernizing this trade agreement provides a unique opportunity to expand the benefits 

that this North American partnership has provided to our nation's economy and further 

expand job creation within the U.S. 

Thank you for the consideration of our views. 

Sincerely, 

Mitch Bainwol 

President & CEO 

Alliance of Automobile Manufacturers 
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U.S. Trade Representative 

Trade Policy Staff Committee 

" Negotiating Objectives Regarding Modernization of 

North American Free Trade Agreement with Canada and Mexico" 

Written Testimony of Kyle lsakower 

Vice President, Regulatory & Economic Policy 

The American Petroleum Institute 

June 29, 2017 

Members of the Trade Policy Staff Committee, thank you for the opportunity to 

speak with you. My name is Kyle lsakower, and I am Vice President, Regulatory & 

Economic Policy, with the American Petroleum Institute (API). API is the only 

national trade association representing all facets of the oil and natural gas 

industry. 

Today's North American energy market, including oil and natural gas, is highly 

integrated and interdependent, which has been facilitated by the North American 

Free Trade Agreement (NAFTA). 

A critical component of the North American energy market is the U.S. energy 

renaissance. The United States is now the largest producer of oil and natural gas 

in the world.1 According to the EIA, the U.S. is projected to surpass the historical 

1970 peak of crude oil production by 2018.

2 Since 2005, natural gas production in 

the U.S. has increased by 47 percent. Energy flows between the U.S., Canada, 

and Mexico are multi-directional, as depicted in the graphic from the API North 

American Energy backgrounder. 

1 https://www.eia.gov/beta/international/ 

' 1970 Production Peak 0 https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPU.S.2&f=A 

EIA forecast 0 https://www.eia.gov/outlooks/steo/pdf/steo_full.pdf 
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Canada is the top export market for U.S. crude oil, motor gasoline blending 

components, and kerosene type jet fuel.3 Mexico is the largest export market for 

U.S. pipeline natural gas, total refined products, finished motor gasoline, and 

distillate fuel oil.4 In addition, significant U.S. crude oil imports from Mexico are 

manufactured in the U.S. into the refined products that are exported back to 

Mexico and elsewhere. As for natural gas, in 2016 the United States exported 2.1 

trillion cubic feet of natural gas by pipeline to Canada and Mexico.5 U.S. pipeline 

capacity for natural gas exports to Mexico has rapidly expanded in the past few 

years and is expected to nearly double in the next three years.

6 Mexico is also a 

new market for U.S. LNG, receiving 67 billion cubic feet of natural gas shipped 

since February 2016.7 

U.S. refineries also receive crude oil from Canada and Mexico, which supports U.S. 

jobs. In 2016, 69 U.S. refineries, primarily in the Midwest, processed heavy sour 

crude oil from Canada.8 In 2016, twelve (12) U.S. refineries along the Gulf Coast 

imported crude oil from Mexico,9 producing refined products for both U.S. and 

Mexican markets. Since 2000, Mexico's net imports of gasoline and diesel have 

tripled, most of which are supplied by refineries in the United States.

10 

Canada and Mexico are also significant markets for U.S. investment in oil and 

natural gas. Mexico's hydrocarbon sector is just now opening to foreign 

investment for the first time in nearly a century. In Mexico's December 2016 bid 

round of deepwater blocks, U.S. companies were successful in capturing five of 

the eight blocks awarded. 

'hl!ps:Uwww.ela..oB9.Ylllna~Lil_~ve__!>xlll= de NU.~OO mb.b_lpUJl.tm 4 https://www.ela.gov/dnav/pet/pet move ex!ll' de NU.S.·ZOO mbblpd a.htm 

s https2}www.eia.govLdna'!J.ngLng_!!19ve_expc_sl_a.htm 

'https://www.eia.gov/todayinenergy/detail.phJl?id•28972 

' https:/ /energy.gov /sites/prod/files/2017 /05/f34/lNG%20Monthly%202017 l.pdf 

1:!!.\P2ifwww.eia.RQY[~oleumD!Jlpo@browser/#/?e•201701&f>m&s•200901&v~ORTS.WORlD·US· 

All.M 

9 1bid 10 International Energy Agency (lEA). 2016. Mexico Energy Out~ p. 23. 

2 
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As the President, USTR and Congress begin to consider possible changes to the 

NAFTA, we urge them to keep in mind the important role this agreement has 

played in fostering the dynamic energy relationship between our countries. As an 

energy superpower, with the United States as the world's leading producer of oil 

and natural gas, NAFTA has allowed U.S. oil, natural gas, and derived products to 

flow to and from both Canada and Mexico. API urges the U.S. Government to 

retain the following in a modernized NAFTA: 

• Zero Tariffs. NAFTA eliminated tariffs for crude oil, gasoline, motor fuel 

blending stock, distillate fuel oil and kerosene type jet fuel. 

• Full Trade Liberalization. NAFTA also liberalizes trade in energy, including 

the automatic liberalization, per the Natural Gas Act, of U.S. natural gas 

exports to Canada and Mexico. 

• Market Access that is non-discriminatory, providing "national treatment" 

to US products and investors. NAFTA also plays a critical role for U.S. 

foreign direct investment in Canada and Mexico. 

• Investment Protection. NAFTA's provisions for strong investment 

protections, which are consistent with U.S. law, are essential for U.S. oil 

and natural gas investments in Canada and Mexico. 

In conclusion, NAFTA supports U.S. jobs and manufacturing in energy, helps to 

make energy more affordable for American families, enhances energy security 

and affordable energy for U.S. allies, and enables U.S. companies to compete in 

Canada and gain opportunities for development in Mexico. We look forward to 

working with the Administration and Congress to continue the U.S. energy 

renaissance and our energy linkages to North America and the rest of the world. 

Thank you, and I would be happy to answer any questions that you may have. 

3 
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t.1..~~rlERIC~N PHOENIX .... TIUIDE l!DVIJORT .SERVIC.EJ PLLC. 

"' FORGING A NEW CONSENSUS ON TRADE. 

EXECUTIVE SUMMARY 

August 1, 2017 

In the past year, the backlash against globalization has expressed itself through 

Brexit, the withdrawal of the U.S. from the Trans-Pacific Partnership, and the launch 

of NAFTA renegotiations. It is clear from the discussions that significant segments 

of the population do not feel that globalization is working for them. 

Both economic theory and empirical evidence support the argument that trade 

overall is beneficial. But theory and practice also support the argument that trade 

exacerbates inequality. 

Modernizing trade agreements is not just about recognizing that we now live in a 

digital age. It is also about rethinking the terms of these agreements, and making 

our trade policy more inclusive. 

The foil owing principles are designed to modernize policy to achieve that goal: 

1. Less is sometimes more. 

2. Labor and environment rules not only need to be included but strengthened. 

3. Rules of origin need to be tightened- intelligently. 

4. Digital trade is vital, but we must be thoughtful about it. 

5. Investor-State Dispute Settlement in trade agreements is an anachronism. 

6. We need a competitiveness policy. 

7. Visionary businesses must lead the charge for a new, more inclusive trade 

policy. 

* ** 

These views are elaborated below. 

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THE NAFTA R ENEGOTIATION: 

SEVEN W AYS TO M ODERNIZE TRADE P OLICY 

Mistrust of government and business- the very entities that make our trade policy-

- is one of the enduring legacies of the financial crisis. Couple that mistrust with the 

targeted, devastating effects of trade to certain segments of the population, and the 

backlash against globalization is not hard to understand. 

There now seems to be a new consensus that trade agreements must be 

modernized. The NAFTA renegotiation is the first step in this direction. However, 

modernization can take one of two forms. It can continue the past practice of 

focusing on business and simply update the agreement to provide benefits for new 

industries, s uch as digital trade. Alternatively, modernization can recognize the 

inequality inherent in the approach to date, and seek better balance. Below are 

seven principles designed to promote the latter. 

LESS IS SOMETIMES MORE. 

The reflexive reaction to the concept of modernizing trade agreements is to expand 

them. 

Less, however, can be more. 

As a nation, we have decreasing confidence in the way panels have interpreted 

provisions in our trade agreements. The latest example is the controversy over the 

panel decision In the Matter of Guatemala - Issues Relating to the Obligations under 

Article 16.2.1{a) of the CAFTA-DR., where the United States lost its case against 

Guatemala over labor rights - despite having proven that Guatemala hasn't lived up 

to its promises. 

Given these concerns, we should reevaluate whether it is a good idea to expand the 

jurisdiction of the very panels we believe are interpreting the agreements 

incorrectly. As it is, the Trump Administration is seeking to eliminate the special 

mechanism that governs unfair trade disputes. 

Other reasons to ask ourselves if increasing the girth of these agreements is the best 

policy: 

We aren't just plaintiffs - we're also defendants. We tend to design trade 

agreements with an overly-optimistic view that we will be attacking other 

countries' laws, rather than defending on our own. That approach was 

certainly true, for example, when we were designing the WTO dispute 

settlement system. Yet we more frequently find ourselves defending our 

own laws than we had anticipated. 

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The WTO has been particularly aggressive in striking down our unfair trade 

laws - despite the fact that preserving them has been a major negotiating 

priority for the United States since before the GATT was created in 1947. 

That priority led to the exceptionally strong language in Article VI of the 

GATT that dumping is to be "condemned." 1 The United States has been, and 

remains, the global market of last resort. That means other countries will use 

all available tools to improve their access to our markets, including filing 

seemingly meritless disputes at the WTO that nevertheless end up 

succeeding. 

In that context, the push for enforceable "WTO-plus" sanitary and 

phytosanitary rules might be a case of "be careful what you wish for." If our 

trading partners choose to challenge our laws, we cannot guarantee that 

those laws won't be found inconsistent with our trade commitments. We can 

certainly argue that we won't be forced to change those laws, but that 

argument will ring hollow in the wake of, for example, the repeal of the 

Country of Origin Labeling law. It may be that big business can absorb an 

influx of invasive species; but it is less clear that our independent farmers 

can. During the debate around the NAFTA renegotiation, we have heard over 

and over again that agriculture has been a big winner. The mantra, including 

from the agriculture community, is to do no harm. Why risk it? 

Similarly, on currency manipulation, rather than having a set of rules that a 

panel might or might not interpret in a way we consider sound, why not 

include language affirming our ability to use our countervailing duty laws to 

address the problem? That approach has the benefit of preserving our 

ability to tackle currency manipulation-- unilaterally. 

Provisions don't just restrict other governments - they restrict ours. Little 

discussed is the push to include provisions for the purpose of hamstringing 

Congress' flexibility. During the negotiation of the Trans-Pacific Partnership, 

one of the stumbling blocks was the length of protection for biologic 

medicines. The U.S. industry pushed for 12 years- the same amount of time 

as provided for in current U.S. law. Meanwhile, there was a simultaneous 

debate in the United States about whether the 12-year period should be 

reduced to seven. Had TPP required 12 years, and entered into force, then 

any ongoing effort to reduce the U.S. term of protection would have been 

met with the argument that we'd be in violation of the very provisions we 

insisted on including in TPP. 

For this reason, highly prescriptive provisions are seen as incursions on 

sovereignty, and may explain why, during the trade debates of 2015, the 

Members of the Freedom Caucus were more aligned with Progressives than 

with other Republicans. 

'Terry Stewart, The GATT Uruguay Round: A Negotiating History, at 1405. 

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Sometimes we're wrong. We also do not have perfect information, and in our zeal 

to establish rules for everything, we include provisions that turn out to be illadvised. As an example: at one point, we considered it a foregone conclusion 

that capital controls should be prohibited, and thus we began to proscribe them 

in our trade agreements. Then the financial crisis occurred, and we learned that 

capital controls can be valid and useful. In recognition of that fact, prohibitions 

on capital controls were not included in the Trans-Pacific Partnership. But they 

live on in, for example, the U.S.-Korea trade agreement2 We leave too little room 

to revisit policies that over time become anachronistic.3 

Even as to tariffs we have been too idealistic. At the GATT (now WTO), other 

countries often negotiated a bound rate- the maximum tariff they can impose on 

imports of a particular good. However, they a lso have a separate applied rate -

the rate they intend to actually impose. The applied rate cannot be higher than 

the bound rate, but it can be lower. The wriggle room between the two provides 

policy flexibility for countries to raise their applied rates if the need arises. The 

United States, by contrast, did not negotiate a lower applied rate, and we thus 

have no wriggle room. Perhaps our manufacturing base would have fared 

better, and the backlash against globalization less severe, if we had allowed 

ourselves more flexibility. 

The very fact that NAFTA is being renegotiated after two decades highlights the 

comparative permanency of the rules in these agreements. They cannot be changed 

unless the parties all agree. As the scope and detail of agreements grow, these 

agreements become inflexible, outdated contracts that do not easily respond to the 

evolution of trade priorities. Instead of taking every regulatory grievance, big or 

small, and shoehorning it into a trade agreement, we should ask ourselves if it 

would be better to return to the days when these agreements provided a more 

general framework of rules under which trade is conducted. Businesses prefer zero 

risk, to be sure. But the effort to eliminate risk has led to excessively prescriptive 

agreements that tie regulators' hands and encourage the feeling that these 

agreements are the product of crony capitalism. 

LABOR AND ENVIRONMENT RULES NOT ONLY NEED TO BE INCLUDED BUT ST RENGTHENED. 

The NAFTA renegotiation highlights how the thinking behind trade policy can 

evolve. In 1994, labor and environmental provisions were considered 

2 See Article 11. 7, 

https:/ /ustr.gov /sites/ default/fi lesjuploads/ agreements/fta/korus/ asset_upload_flle587 _1271 O.pdf 

J Indeed, the question of whether total liberalization of trade in financial services has been good 

policy remains an area that has not been adequately explored. One of the upshots of This Time is 

Different. the famous work exploring centuries of financial crises, is that a rapid influx of capital leads 

to bubbles that eventually burst - and ensuing crises. It is worth examining whether the financial 

crises of the late 1990s were in any way linked to trade liberalization in financial services after 

implementation ofWTO commitments. Perhaps not- but the issue should be examined. 

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inappropriate subjects for a trade agreement at all, let alone to be backed up with 

binding dispute settlement. just over a decade later, in 2007, a new consensus 

emerged, and today Republicans and Democrats alike support enforceable labor and 

environmental provisions. 

However, a disparity remains. To prove a claim under the labor and environmental 

chapters, the complaining party must demonstrate that the breach affected trade or 

investment between the parties. At first blush, that condition makes sense. After all, 

the provisions are part of a trade agreement. But the trade nexus is not applied in 

other chapters. Take the TPP intellectual property chapter, for example. The 

chapter requires parties to impose penalties, including criminal penalties,4 for 

violations of intellectual property rights- whether or not a cross-border transaction 

is involved. 

As it turns out, that condition is pivotal. The United States failed to make its case in 

the Guatemala dispute not because Guatemala complied with the substantive labor 

rights provisions of the agreement - the panel found otherwise - but because the 

United States did not prove that Guatemala's breaches occurred in a manner 

affecting trade or investment between the parties.5 

Labor and environment provisions aren't included in these agreements because 

they're "social" issues - they're included because they're economic issues. They 

directly affect the competitiveness of U.S. workers, businesses, goods, and services. 

It only makes sense that these provisions be subject to the same dispute settlement 

standards as other provisions in the agreement. 

Lastly, these provisions must be enforced. There are breaches of existing trade 

agreements that would clear the hurdle that proved problematic in Guatemala. For 

example, there are s ubstantiated allegations that Peru is in breach of its obligations 

under our bilateral trade agreement, particularly with respect to illegal harvesting 

and export of timber. A shipment of such merchandise made its way to the Port of 

Houston, where the U.S. government detained it - certainly that ought to meet the 

requirement that the breach occurred in a manner affecting trade. Yet no dispute 

has been brought against the Peruvian government to compel compliance. 

RULES OF ORIGIN NEED TO BE TIGHTENED- INTELLIGENTLY. 

When people talk about rules of origin, they often focus on sensitive products, such 

as autos, or textiles and apparel. 

• See, e.g., Article 18.77. 

sIn the Mattero[Guatemala - Issues Relating to the Obligations under Article 16.2.1(a) of the CAFTADR, 

htt~tiitrade.gQY/ind stryfu.UGuatemala%20%20%E2%80%93%200bli gati ons%20Unde %20Arti 

cle%2016-2-l(a)%20ofl'420thc%20CAFTA-DR%2_Q_%_20June%2014%202017.p.l!f, pp. 50 et seq; pp. 

156,167-1 70. 

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What people don't talk about is the rules of origin for goods that aren't sensitive. 

Those rules are even weaker. President Trump has been dismissed as wrongheaded 

for claiming that China had a backdoor to TPP. The truth is that China has had a 

backdoor to all of our trade agreements in the past two decades, via weak rules of 

origin for non-sensitive goods.6 

Tightening these rules is even more important now that we have binding labor and 

environmental rules in our trade agreements. These rules are only binding on the 

parties to the agreement, not to third countries such as China. At present, Korea - a 

trade agreement partner - is required to meet labor and environmental standards 

as a condition of enhanced access to our markets, but China is not. If we want to 

establish the rules of the road for trade, which was a commonly-invoked argument 

in favor ofTPP, why not start by tightening up our rules of origin? 

At the same time, we have to be realistic. The United States has comparatively low 

tariffs on most products. If we require 100% regional content, then companies may 

not bother using the agreement, and pay the tariff instead, as Professor Helper 

explained.? That certainly won't incentivize American production. 

Little work has been done to identify optimal rules of origin. Rather than rushing to 

complete a renegotiation in a short period of time, negotiators would be well-served 

to spend some time devising a process for identifying more optimal rules of origin 

that would drive sourcing in the region. 

In this vein, calls for eliminating duty drawback restrictions are at odds with the 

goal of incentivizing regional sourcing. Advocates for eliminating these restrictions 

themselves state that the upshot of the drawback restrictions is to encourage 

manufacturing to move from non-NAFTA parties to NAFTA parties. In that context, 

it seems the drawback rules are fulfilling their intended goal. 

D IGITAL TRADE IS IMPORTANT, BUT WE MUST BE THOUGHTFUL ABOUT IT. 

Much of the emphasis on modernizing NAFTA has focused on digital trade, including 

issues around forced localization and cross-border data flows. Indeed, digital trade 

• Rules of origin are technically complex. Many ru les do not involve a pe rcentage content 

requirement but rather depend on whether an appropriate shift has occun·ed from one classification 

in the Harmonized Tariff Schedule to another. A rule of origin permitting a shift from one subheading 

to another is considered a lenient rule of origin that facilitates a much greater amount of th ird·party 

content than a rule requiring a change from one chapter to another. A pe rusal of the NAFTA rules 

origin highlights that many of these lenient ru les exist today. 

7 Further, if the rate applicable to all our trad ing partners (the "MFN" rate) is zero, then a lenient rule 

of origin is not problematic. However, if the MFN rate is positive, then lenient rules of origin create a 

free· rider problem. 

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-not manufacturing- was the first sector listed in the letter Ambassador Lighthizer 

sent to Congress notifying the NAFTA renegotiation.s 

There is no need to repeat the discussion here. A few points, however, are raised 

less often, if at all: 

Are we at risk of repeating the mistakes we made with manufacturing? 

We were pioneers in manufacturing and assumed that open markets 

would always operate to our benefit. As manufacturing shifted abroad, 

we have been left with few tools to replace the lost jobs, and the 

frustration stemming from job loss has fueled the backlash against 

globalization. 

Are there legitimate reasons to require data localization? As one 

example, Chinese companies listed on U.S. stock exchanges must allow 

U.S. audit inspectors to examine the company's audit workpapers. The 

Chinese don't allow those inspectors to do so. The United States could 

reasonably require the workpapers to be kept here, rather than in China. 

What will we do with 3D printing? There is little d iscussion about 

additive manufacturing, including what appropriate rules of origin might 

be in such circumstances. 

Although the Administration has indicated it believes it can wrap up the 

negotiations quickly, previous Administrations have had similar ambitions, only to 

be frustrated by the exponential complexity of modern trade negotiations and the 

inability of the United States to d ictate terms. 

If indeed the parties want to claim victory before Mexico's election season begins in 

earnest, then they may choose to conclude a digital update to NAFTA - one that 

would not necessarily require implementing legislation in the United States. If so, 

then the Administration's NAFTA modernization would be of the kind that simply 

follows the pr evious line, rather than fundamentally improving the balance in favor 

of those who have lost more than they have won from globalization. 

I NVESTOR-STATE D ISPUTE SEITLEMENT IN TRADE AGREEMENTS IS AN ANACHRONISM. 

Investor-state dispute settlement may have made a certain amount of sense when it 

was initially included in investment treaties. Those treaties had no other 

mechanism to resolve conflicts, and the risk of expropriation in some countries was 

real. 

8 https:f justr.gov jsitesjdefault/filesjfiles/PressjRelcasesjNA FT A%20Notification.pdf 

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The world, however, has changed. Today, the excesses of IS OS are a common point 

of discussion. One of the witnesses at the hearing characterized ISDS as an 

important mechanism to keep countries honest. Unfortunately, threats to use ISDS 

to keep a country "honest" are in too many instances threats to prevent a country 

from regulating in the public interest. 

Indeed, even companies that don't have deep pockets now reportedly benefit from 

"angel" investors who will fund the litigation: hedge fu nds have gotten into the 

business of fi nancing claims as investment vehicles, subsidizing claimants who 

might not otherwise have the means to wage a battle of attrition against a foreign 

sovereign government.9 

The debate has reached the point where the pro-trade Economist is scratching its 

head: 

If you wanted to convince the public that international trade 

agreements are a way to let multinational companies get rich at the 

expense of ordinary people, this is what you would do: give foreign 

firms a special right to apply to a secretive tribunal of highly paid 

corporate lawyers for compensation whenever a government passes a 

law to, say, discourage smoking, protect the environment or prevent a 

nuclear catastrophe. Yet that is precisely what thousands of trade a nd 

investment treaties over the past half century have done, through a 

process known as "investor-state dispute settlement", or ISDS.10 

In fact, the Economist went so far as to advocate that we should simply rely on stateto-state dispute settlement to solve these types of conflictsll And that is the main 

reason ISDS in trade agreements makes little sense. These agreements already have 

dispute settlement mechanisms, and thus it is not necessary to give investors special 

access. 

Labor unions and environmental groups oppose ISDS- as does the Cato lnstitute.12 

The AFL-CIO and the Cato Institute do not consistently share policy positions; yet 

they agree that ISDS should not be part of our trade agreements. 

WE NEED A COMPETITIVENESS POLICY. 

9 http:ffwww.nakedcapitalism.com/2017/04/investor-state-dispute-settlement-isds-suits-becomefavored-hedge-fund -investment.html 

1o The Arbitration Game, October 11 tb, 2014. lmps:ffwww.economist.comjnewsffinance-andeconomics/21623756-governments-are-souring-treaties-protect-foreign-investors-arbitration 

"A Better Way co Arbitrate, October 11.2014. 

https:/ jwww.cconomist.comfnewsjleaders/21623674-protections-foreign-investors-are-nothorror-critics-claim-they-could-be-improved 

12 Dan lkenson, A Compromise to Advance the Trade Agenda: Purge Negotiations of Investor-State 

Dispute Settlement, https:ffwww.cato.orgfpublications/free-trade-bulletinjcompromlse-advancetrade-agenda-purge-negotiations-invcstor-state 

www.ame[)sa.[!P.hoenixRIIc.com 

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Important as it is to have labor and environmental provisions, and to recalibrate the 

rules of origin, these provisions will not, by themselves, bring jobs back to the 

United States. The labor and environmental rules would dissuade race-to-thebottom offshoring. but they won't necessarily lead companies to onshore in the 

United States. Rules of origin incentivize regional sourcing. but that sourcing could 

be in Mexico or Canada - not necessarily the United States. 

When many think of trade agreements, they assume that Trade Adjustment 

Assistance addresses any job losses under our agreements. TAA is an excellent 

program for helping workers from an individual factory retrain to become 

something else - a nurse, for example, or a software programmer. But TAA was 

never intended to address the kind of crippling job loss that has ravaged the 

Midwest as entire supply chains have been offshored, or to replace the textile and 

apparel industry that once flourished in North Carolina. As a country, we made the 

decision to open our markets. But, as a country, we have no answer for the 

consequences that have been visited on entire regional economies. 

It doesn't have to be that way. In light of German workers' ability to weather the 

financial crisis comparatively well, there are new questions about whether we 

should explore Germany's apprenticeship system, or something similar. Other ideas 

include reexamining the way we evaluate foreign investment, and to consider it in 

light of its effect on competitiveness. 

There are reasons other than trade agreements to take a look at how we can 

improve our competitiveness. There's no need to debate whether trade or 

automation causes more job loss - they both do, and right now we have a solution 

for neither. 

I VISIONARY BUSINESSES WILL LEAD THE CHARGE FOR A NEW, MORE INCLUSIVE TRADE POLICY. 

Businesses that like trade agreements and want more of them should be concerned 

that, absent major changes in process and substance, the opposition that sank TPP 

may sink future agreements as well. The financia l crisis fundamentally changed the 

way Americans view both government and big business. Polls indicate that people 

trust business and elected officials least.n Yet our trade policies have to date been 

predominantly created by collaboration between government and big business. 

The fight over TPP, and the Brexit vote, represent a watershed, the embodiment of 

the frustration that the middle and working class have had with global economic 

policy. The response to this frustration can be, as it has been, to dismiss opponents 

as unfamiliar with even the most basic principles of"Econ 101." But this response is 

facile. Paul Krugman didn't win a Nobel Prize in Economics on the basis of freshman 

t3 See, e.g., http:/ fwww.pewresearch.org/fact-tank/2016/10/18/most-americans-trust-the·militaryand-scientists·to·act·in·the-publics-interest/ 

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trade theory, where variables are suspended and information and markets are 

presumed to be perfect Economists such as David Au tor at MIT are challenging the 

assumptions that traditional approaches have been accurate predictors of economic 

change: 

l think if we had realized how traumatic the pace of change would 

have been we would have at a minimum had much better policies in 

place. 14 

Advocates of trade must be at the forefront of seeking a more inclusive approach to 

our policy. At the hearing, Mr. Linebarger of Cummins stood out, expressly 

supporting not just enforceable labor and environmental standards, but actual 

enforcement of those standards. At the same time, those are policies that have been 

in place since 2007. In light of the backlash against globalization, it seems clear that 

still more must be done. 

American Phoenix has submitted these comments on its own behalf. 

" http:/ /freakonomics.comfpodcastfchina-eat-americas-jobs/ 

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NAFTA negotiations: An opportunity for 

precedent-setting e-commerce rules 

Claude Barfield I June 30, 2017 I TechPolicyDcillY.com 

Of all the negative fallout from the Trump administration's withdrawal from the Trans-Pacific 

Partnership (TPP) agreement, clearly one of the most destructive was the demise of the precedentsetting new trade rules fore-commerce. In any otherwise cautious, conservative analysis of the TPP, the 

US International Trade Commission had agreed with outside observers that the "E-commerce and other 

digital trade-related provisions are the most transformative measures in the agreement." The 

commission also predicted that thee-commerce rules would become a "template for future US and 

global trade agreements." 

The timing and substance of the proposed TPP e-commerce trade regime was of key importance. As I 

noted in these pages at the time: "Legal principles and rules for the internet are still in their infancy. If 

successfully ratified by the 12 members of the TPP, the regime created fore-commerce, international 

competition, and regulation will inevitably form an important baseline for future international law and 

custom." Other nations and trading entities- notably China and the European Union- with different 

views regarding digital trade rules stood (and stand) ready to advance their own competing agendas. 

So where are we now in the face of President Trump's foolish destruction of the original12-member 

TPP? The other 11 members of the TPP- as I've strongly advocated for- will possibly come together 

to form a rump transpacific agreement that would include the groundbreaking e-commerce trade rules. 

But those negotiations, should they become serious, will take months if not years to complete. 

An opportunity with NAFTA 

At this point, the upcoming renegotiation of the North American Free Trade Agreement {NAFTA) 

represents the best, and most timely, opportunity for the US to advance the vital national interest of 

creating a truly liberal, technically sophisticated e-commerce trading framework. And while Trump 

officials on trade can often believe "six impossible things before breakfast," a Ia the White Queen in 

Alice in Wonderland, they do seem to understand the signal importance of building a new e-commerce 

regime as part of the imminent negotiations with Mexico and Canada. Secretary of Commerce Wilbur 

Ross and US Trade Representative Robert Lighthizer have both pledged to give e-commerce top priority 

when the formal negotiations begin later this summer. 

U.S. Secretary of Agriculture Sonny Perdue (C) along with counterparts, Agriculture Minister for Canada 

Lawrence MacAulay (2nd R) and the Secretary of Agriculture for Mexico Jose Ca lzada Rovirosa (R) 

observe ship-to-shore operations. Reuters. 

That both Canada and Mexico agreed to key e-commerce rules in the TPP negotiations, the digital trade 

provisions ratified in that proposed agreement should provide the baseline for the upcoming NAFTA 

negotiations. The novel e-commerce provisions include the following TPP foundational elements: 

Prohibits restrictions on cross-border data flows and data localization requirements; 
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Prohibits forced disclosure of source codes; 

Prohibits forced technology transfer; 

Provides that no TPP members can enact customs duties on electronic transmissions; 

Requires TPP members to enact online consumer protection laws; 

Indirectly, through the TPP services agreement, provide that future internet services be 

automatically granted national treatment (foreign providers equal treatment with domestic 

service providers); and 

Requires TPP members to enact legislation providing criminal penalties for trade secret 

cybertheft. 

Some US corporations and trade observers are pushing for rules that go beyond TPP provisions. Among 

the suggestions put forward are: mandating that Mexico join the World Trade Organization Information 

Technology Agreement, requiring Canada to make certain changes in its domestic intellectual property 

laws, and adding additional safeguards against liability for internet service providers. Certainly, the US 

has the right to advance additional proposals, with the following two notes of caution. 

First, the top priority for the US must be to achieve the core principles described above in the new 

NAFTA agreement: Pressing too hard for additional US "offensive" trade negotiating objectives should 

not be allowed to jeopardize the basic TPP commitments. And second, US negotiators will quickly be 

made aware that both Mexico and Canada have stated that "nothing is free" - that is, if the US 

introduces additional priorities, it must be prepared to pay for them with concessions regarding Mexican 

or Canadian additional requirements. 

In sum, with the NAFTA negotiations, the Trump administration has the opportunity to regain at least 

some of the initiative for a future pro-market digital trade regime that was lost when it withdrew from 

the TPP. Hopefully, it won't be deflected from this strategic goal. 

Claude Barfield is a resident scholar in economic policy studies at the American Enterprise Institute. 
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Where are we now on NAFTA 

Claude Barfield I June 27, 2017 I USKI Washington Review 

The trilateral NAFTA renegotiation process has now entered a crucial phase. The Trump administration's 

mid-May notification to Congress started the NAFTA renegotiation clock ticking, and under US law 

formal talks can begin after 90 days (mid-August). Mexico and Ca nada have both signaled t hat they are 

ready to move ahead with dispatch. Given the highly erratic statements and actions of the Trump 

administration, and continuing divisions within the White House and the Republican party over trade 

policy, it is impossible to know what the US will put on t he table-or how open it w ill be to compromise 

on its demands or t he counter proposals from Mexico and Canada. That being established, what follows 

are potential scenarios for the negotiat ions. 

Ultimately, the smartest course for the Trump trade team-admittedly entailing dissembling and fancy 

rhetorical footwork-would be to adopt as a base template many of the liberalizing provisions of the 

Trans-Pacific Partnership agreement (from which it had foolishly withdrawn). In essence, the TPP 

constituted the "modernizing" of NAFTA that the forthcoming trilateral negotiations aim to achieve. 

Such a course, whatever its hypocrisy, would have the political virtue of starting with core issues that all 

three countries had formally settled. Among the major TPP advances that could be incorporated: tariff 

reductions (18,000); E-commerce; labor and the environment; state-owned-enterprises (SOEs); 

intellectual property (biologic patents); services; and promotion of small and medium-sized businesses 

through trade facilitation measures. 

One potentially new area for advanced liberalization, of great importance to all three countries, is the 

energy sector. With Mexico's unilateral energy reforms, and t he move toward greater energy 

independence in bot h the US and Canada, the time may be ripe for the creation of a North American 

market in energy production and distribution. 

The greatest danger to accommodation among the three trading partners is overreach by the Trump 

administration. If the President and his trade adviser insist on some of their most "illiberal" and 

retrograde proposals, Mexico, in particular, and Canada may be forced politically to resist fiercely. 

Examples of such deal killers would be: (1) a trade balance chapter that would allow US to impose 

penalties for continued or increased bilateral trade deficits; (2) refusal of US to accept current NAFTA 

Chapter 19 which grants special appeals for trade remedies cases; (3) US insistence on a new currency 

manipulation chapter with legal penalties; (4) attempt to resolve ongoing separate issues such as 

Canadian softwood lumber and dairy management through NAFTA; (5) refusal to exempt Mexico and 

Canada from any future draconian "Buy America" legislation passed by t he US Congress. 

The TPP-based strategy described above would give the Trump administration a clear shot at an 

important political victory on trade and, indeed, enhance the president's promise of increased economic 

growth. Unfortunately, at this writing, the chances for such an outcome are slim. More likely, we will see 

a protracted, difficult- and possibly corrosive-NAFTA renegotiation over the coming year (or longer). 

Claude Barfield is a resident scholar in economic policy studies at the American Enterprise Institute. 
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Overview 

ADVAMED PROPOSALS 

FOR NAFf A RENEGOTIATION 

AdvaMed supports the North American Free Trade Agreement (NAFT A) and believes that it is 

an important and foundational free trade agreement (FT A) for increasing U.S. economic growth 

and well-paying U.S. jobs. Maintaining the NAFT A's market access should be the overriding 

U.S. objective in a renegotiation. 

However, since the Administration has announced its intemion to modernize the NAFT A, we 

believe improvements can be made that will support good, high-paying research and 

manufacturing jobs in the United States - helping to address the U.S. trade deficit in medical 

devices with Mexico. While NAFT A was the most comprehensive, cutting-edge U.S. FTA when 

it was negotiated, subsequent U.S. FTAs included some imponant improvements and 

enhancements. Every FT A the United States has negotiated has striven to set higher standards 

and cover more issues important to U.S. stakeholders. We believe strongly that this process of 

improvements should continue for FT As- whether new or renegotiated, including NAFT A. 

Each successful FT A should include advancements that can be viewed as precedents for 

subsequent FT A templates. 

In that same vein, we recommend that the NAFT A remain a trilateral FT A. After over twenty 

years, supply chains have developed that rely on the ability to achieve a dynamic interaction 

among the NAFTA panners. 

Congress provided the President authority to negotiate trade agreements and listed specific 

objectives. AdvaMed supponed Trade Promotion Authority (TPA). The negotiating objectives in 

TPA should drive the NAFTA negotiations, including opposition to price controls. 

In terms of timing, we hope the renegotiation can be concluded no later than mid-2018. While 

we acknowledge that this is a very rapid pace for an FT A negotiation, we believe that ensuring 

continuity and stability is very important. By using the best of existing or proposed provisions in 

other FTAs as the foundation for modernizing NAFTA, we think this timetable can be achieved. 

Outlined below are provisions which the medical technology industry requests be included in a 

renegotiated NAFTA. These provisions are important to the U.S. medical device industry's 

ability to grow, improve patients' lives, make positive contributions to the U.S. economy, and 

create and sustain jobs in the United States. 

The Medica l Technology.Jndush-y 

The medical technology industry, an American success story and a highly competitive global 

indusuy, is responsible directly and indirectly for nearly 2 million high-paying U.S. j obs and 

9,800 manufacturing facilities, across the 50 states and around the world. Our industry's wages 

are an average of30% above those of other manufacturing jobs. We are a research intensive 

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industry, with some members spending as much as 20 percent of revenue on R&D to provide 

patientS the most innovative teclmologies and to compete in a highly competitive global market. 

Our industry is the clear world leader and is one of the few U.S. manufacturing i.ndustries that 

has consistently nm a U.S. trade surplus, with 2016 exports of almost $5 1 billion and imports 

approach.ing $50.3 bill.ion. The industry also bas substantial trade with our NAFT A partners. 

These .flows represent a dramatic increase in trade with both Canada and Mexico since 1994, 

when U.S. exports to Mexico were about S382 million, and U.S. imports were $425 million; U.S. 

exports to Canada were $1 billion, and U.S. imports were SI66 million. 

The U.S. medical teclmology industry is global in scope - both in tenns of our supply chain and 

the patients we serve. Our goal is to provide the patient- whether in the United States or in a 

foreign country - the best and highest quality product to treat his/her individual condition. TI1e 

industry's products, regardless of origin, are subject to internationally recognized quality 

processes and standards, including those supported by the U.S. Food and Drug Administration. 

The value of medical technology to patients bas increased dramatically in tenus of the range of 

products available to d.iagnose and treat diseases and the vastly improved outcomes that patients 

experience; indeed, many med.ical technologies available today were not even invented, or were 

in a much more prim.ilive stage, during the NAFTA negotiations. (AdvaMed's website 

ww\v.LifeChanginglnnovation.org provides many concrete examples.) In the highly competitive 

U.S. healthcare market, since 1992 the share of medical device spending as a percent of U.S. 

healthcare costs has been essentially flat at about 6.0 percent. 

The U.S. medical technology industry has been able to achieve these remarkable results in part 

due to our global supply chain. AdvaMed members source from thousands of suppliers spread 

around the United States and abroad. l11is global sourcing model enables us to manufacture 

efficiently and serve patients effectively. 

AdvaMed NAFTA Pro osals 

ln1port Tariffs 

As a result ofNAFTA, U.S. exports of medical teclmology to Mexico and Canada enjoys duty 

free treatment, and vice versa. Most medical devices entering the U.S. from Mex.ico and all other 

WTO members encoumer zero duties on a Most Favored Nation (MFN) basis. AdvaMed 

opposes any change in this market access provision. 

Rules of Origin 

The NAFT A rules of origin for medical technology are based on an approach that may be 

outdated, especially since the medical technology industry has become much more diverse and 

sophisticated since the NAFT A negotiation. These rules are among the tightest of any FTA 

worldwide. As noted above, there are medical technologies on the market today that were not 

even invented by the conclusion of the NAFTA. The U.S. medical technology industry relies on 

a wide-ranging and complex supply chain to achieve efficiencies. 

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We oppose " tightening" the rules of origin criteria for medical teclmology products. More 

sttingem criteria coupled with stric-t application of contem re-quirements, including in public 

hospital tenders for medical devic-es for example, can adversely affect a company's abilil)' to sell 

products in the NAFTA markets. Stricter criteria could be partic-ularly problematic for companies 

that source multi-component products from a combination of differem countries to be 

manufactured as fmal products in the NAFT A region. This change would have the potemialto 

undermine the sale of products containing U.S. content in Mexico, as well as lhe U.S. jobs that 

are responsible for manufacturing this content. 

ln addition, more stringent mles of origin requirements have the potential to impose significant 

compliance costs in the industry, including customs fees. Such costs might outweigh NAFTA 

benefits, leading to manufacturers foregoing any tariff preferences- especially for the many 

products 1ha1 are MFN duty free. 

Services 

Parties to the NAFT A conunit to national treatment and schedule their cross-border services 

conmlitmems on "negative list" approach - i.e., the sec1or is assumed to be covere-d unless it is 

listed for exclusion under a "non-<:onfomling measure (NCM). AdvaMed supports !his sys1em, 

as it ensures the maxinum1libcralization over lime. (AdvaMed members recognize that 

govemmem procurement provisions are trca!ed in a separate chapter ofNAFTA.) 

However, all of the NAFTA parties exclude medical services from their services commitments 

(as well as in the WTO) if the service is delivered as a social service for public purposes. This 

means that U.S. medical technology companies' protection under NAFT A's national treatment 

obligations is subject to debate: if they sell their heahhcare services: (1) from the United States 

into the other NAFTA parties; (2) to a Mexican or Canadian in the United States; or (3) to a 

Mexican or Canadian who has a presence in Mexico or Canada. 

Many medical technology firms provide some services with the sale of their products. For 

example, firms selling cardiovascular or orthopedic implants train physicians on the latest 

surgical techniques. Capita l equipment manufacturers main tain and repair andlor train local 

representatives. Some firms provide credit financing for purchases of their products. Titese 

services are " traditional" in the sense that they are provided as part of the sale of the product. 

Temporary entry of business people would also appear 10 be under the Parties' NCMs, if lhe 

services are for "public purpose." 

An increasing number of U.S. medical technology companies arc combining the provision of a 

range of services and the sale of products. This "new" model involves the medical technology 

company providing services, some unrela1ed to lhe sale of a specific producl (and which the 

company did not manufacture), wi1h the objec1ivc of improving the efficiency of the hospital 

setting. We can provide an indicative list of the services companies might provide. 

NAFT A provisions should ensure that services can be provided under both the " traditional" and 

"new" models. We have proposed to U.S. negotiators some possible methods. 
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Tcclmical Barriers to Trade CTBT) 

To address the challenge ofnon-tarifftrade barriers, the NAFTA should contain provisions that 

build on the WTO TBT Agreement. These improvements should ensure that standards-selling, 

confonnity assessment procedures, and teclmical regulations are developed in a fair and 

transparent manner, with opportunities for "bottom-up" participation by stakeholders. 

Though not NAFT A specific, also we recommend that U.S trade agreements prohibit bans on the 

importation of refurbished or remanufactured me-dical equipment, at least for equipment that 

meet the specifications of the original manufacturer. l11is provision could serve as a template for 

futttre FT As. 

TBT Medical Technology Annex 

In as much as the NAFT A is likely to provide precedent for future FT As, we should seek a 

separate medical teclmology annex with the following regulatory provisions that would call on 

the parties to: ( 1) in1prove the aligument of medical device regulations; (2) consider relevant 

internationally-developed guidance documents when developing or implementing laws and 

regulations on the approval of medical devices; (3) use a risk-based approach that distinguishes 

between classes of medical devices; ( 4) base approvals solely on infonnation related to safety, 

effectiveness, labeling, and design/manufacturing quality (and not pricing requirements); (5)n 

administer the approval process in a timely, reasonable, objective, rransparem, and impattial 

manner; and (6) allow decisions to be subject to an appeal process. 

Good Regulatory Practices 

We encourage the U.S. proposal to include a separate section which applies broadly to the 

development of regulations and other governmental decisions across the economy. This 

approach, similar to the U.S. Administrative Procedures Act, is designed to promote good 

governance through greater rransparency, participation, and accountability in the development of 

regulations and other govenunent decisions. 

These provisions would go beyond NAFTA to require governments to promptly publish or 

update laws, regulations, administrative rulings of general application, and other procedures that 

benefit market access, trade and investment. They would also provide for policies that increase 

regulatory accoulllability and require evidence-based decision making. l11ey should ensure 

opportunities for stakeholder comment on measures - and serious consideration of those 

comments by regulators- before they are adopted and finalized. Including such provisions in 

NAFTA would be an excellent foundation for other U.S. FTAs. We also believe that 

hannonization of good regulatory practices would improve administrative procedures that 

conduct intergovernmental coordination of ntlemaking activity and impact assessment. 

To be clear, these provisions are important to the medicalteclmology indus11y because the 

development of regulations is always a work-in-progress in NAFTA members, as well as in most 

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countries around the world. Having a sound foundation of good regulatory practices greatly helps 

stmcture improved regulatory systems for medical technology. 

As an example of a specific regulatory convergence issue, we urge that labeling regulations be 

clear, concise and allow consumers to re.ceive meaningful inforu1ation about the safe use of 

products, while avoiding uooecessary requirements that provide little value to consumers. 

Labeling statements and contents should be aligned as closely as possible so consistent labeling 

can be used. 

Regulatory Conformi Assessment 

Medical technology products must be evaluated for safety and effectiveness in each of the thre.e 

countries. Each country has a regulatory authority that oversees these requirements - U.S. FDA, 

Health Canada, and COFEPRIS. We believe all regulatory authorities could benefit from closer 

regulatory harmonization, which would reduce regulatory redundancy and industry's costs. 

The United States and Canada are participating in a Medical Device Single Audit Program 

(MDSAP). AdvaMed supports the MDSAP program, as it is being implemented in the context 

of the International Medical Device Regulators' Forum, and believes it should be in NAFTA. 

We believe that the three NAFT A partners could go further and adopt a mutual recognition 

agreement, allowing mutual recognition of their respective approval procedures. The ultimate 

objective should be a single North American market, in which a medical device approved in one 

of the NAFT A partners are accepted in all. Recognizing that Health Canada and U.S. 

Gover1m1ents make de·cisions on whether to pay for specific products and, if so, the 

reinlbursement levels for those products - i.e., the price the goveroo1ent is willing to pay, either 

directly or to the providers - for a specific device. In many cases, the goveroo1ent's decision is 

not based on objective criteria but simply on a perceived need to save funds by cutting prices. 

Such decisions can adversely impact patient access and companies' ability to sell the product. 

The purpose of a TPF chapter for medical technology -like the provisions in KORUS- is to 

give the manufacturer the opportunity to understand the basis for a reimbursement decision and 

to provide evidence to the govermnent body making the reinlbursement decision. Consistent with 

previous AdvaMed positions, we should seek provisions that are designed to provide 

transparency to the process by which national (but not state or provincial) health care authorities 

in the NAFT A c.ountries set reinlbursement rates for medical devices at the national level. 

The NAFT A should also include as an objective that the value of the medical technology be 

taken into accoum and that market forces would be allowed to influence prices - i.e., similar to 

KORUS .. However, the agreement would not require that covered products be reimbursed or that 

the reimbursement be set at specific levels. 

The procedures should require that: ( I) countries act within a reasonable time period in making 

reimbursement decisions; (2) the rules they use to make these decisions are made public; (3) 

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applicantS can provide comments at appropriate times in the decision process; ( 4) tbe basis for 

decisions is made available to the applicants; and (5) an appeals process be available. 

Government Procurement 

AdvaMed supports a government procurement (GP) chapter that opens further the Mexican and 

Canadian markets. Both countrie-s have govenunent-run healthcare systems, with over half of 

patients treated in public faci lities. Having access to procurement by these hospitals is an 

extremely important market access issue and can belp improve U.S. exports. We also believe 

improved access is necessary not only for the NAFT A but also as a sound precedent for funtre 

U.S. IT As. In this respect, the NAFT A should ensure that healthcare related entities are covered, 

and that medical technology goods and services supplied to these entities are not excluded. A GP 

chapter should be based on the most recent U.S. FTAs- so that NAFTA is updated accordingly 

A specific barrier our manufacturers face is that Mexico bans the procurement of refurbished 

medical e-quipment within its public hospitals. We recommend that this ban be lifted and all 

equipment that can meet the specifications of the original manufacturer should be admitted. 

We believe the NAFT A tendering procedures, which are generally good, could be updated to 

incorporate WTO GPA provisions and on the basis of new World Bank procurement principles. 

Investment 

The NAFT A should include investment provisions consistent with newer U.S. FTAs. Wl1ile 

there are no known cases of an AdvaMed member encountering investment restrictions or 

discrimination in Canada or Mexico, updated provisions - consistent with new FT As - would set 

a good precedent going forward. 

Intellectual Property_@ Rigbts 

AdvaMed suppons strong IP protection for patents, copyright, and trade secrets. TI1e IP chapter 

should be updated and clarified to reflect improvements in scope and coverage contained in later 

U.S. IT As since NAFTA was concluded. 

State Owned Entemrises 

Wl1ile members have not complained about monopolies or state-owned enterprises (SOEs) in 

Canada or Mexico, a new NAFT A should include provisions that address potential abuse -

especially with an eye to China. In general SOEs should not be allowed to discrin1inate on the 

basis of nationality of the enterprise or product (except for purposes of government procurement, 

which is covered separately). Also, the NAFTA provisions should also apply to sub-central 

SOEs (again, considering provinces in China). 

Electronic Data Flows and Privacy 

Medical technology finns understand the sensitivity of private data and the need to protect 

privacy. In addition, confidential clinical data and proprietary business infonnationmust be 

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protected. At the same time, the most efficient means to provide expert advice (either on the 

medical teclmology itself or directly to patients) might be by sending data across borders - which 

is especially the case as healtbcare relies more on "big data" and medical devices and diagnostics 

become even more connected to the cloud. The balance between smooth flow of data and 

protection of personal privacy should be struck in a way that allows efficiency and patientcentered outcomes to be realized in NAFTA. 

Anti-Corruption 

AdvaMed has a strong code that delineates the practices members should follow when working 

with healthcare providers. The NAFTA should contain robust and detailed provisions to combat 

comaption and support the nale of law. 1l1ese provisions should discourage comaption, including 

through enforcement of domestic anticorruption laws and regulations, as well as through 

international anticorruption efforts. They should also call for the establishment of codes of 

conduct to promote high ethical standards among public officials - consistent with AdvaMed's 

work in this area. 

Small and Medium-sized Entemrises (SMEs) 

About three-quarters of AdvaMed members are SMEs, and an even larger share of the industry 

in the United States would be so classified. 1l1e NAFTA should include a chapter that is 

specifically designed to address issues that create particular challenges for SMEs. 

Conclusion 

AdvaMed members support the NAFT A and want to see this important agreement continue. 

Lower trade barriers, whether in the United States or in other countries, help U.S. medical 

teclmology manufactures source most efficiently, provide patients high quality products, and 

compete effectively in a highly competitive global market. We have provided some proposals for 

U.S. Government consideration as it seeks to modernize the NAFTA. If adopted, these proposals 

would have a positive impact on the U.S. trade balance in medical technology with Mexico and 

support good, high-paying research and manufacnuingjobs in the United States. We would 

welcome the opportunity to provide additional infonnation. 

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~cuityBrands. 

t.xpiJrt] 

The Honorable Kevin Brady 

Chainnan 

Comminee on Ways and Means 

I I 02 Longworth HOB 

Washington D.C., 20515 

August I, 2017 

Dear Cbainnan Brady and Ranking Member Neat, 

Acuny Brands llghung, Inc. OnelidlclniaWay 

Co!l'll'fs,GA»Jl2·3957 Tel n0922~ 

IM'tW aa;itybtanc:Js.eom 

The Honorable Richard Neal 

Ranking Member 

Conuninee on Ways and Means 

1139E Longworth HOB 

Washington D.C., 205 15 

Acuity Brands appreciates tl1is opportunity to provide comments to the Committee regarding 

the pending renegotiation of the North American Free Trade Agreement ("NAFT A"). As a 

leading manufacturer of lighting and building management solutions for commercial and 

residential applications both in the U.S. and around the world, Acuity depends on NAFTA for 

continued growth- including our ability to offer more good-paying jobs to hard-working 

Americans. While we appreciate that NAFT A may be due for some technical modifications and 

modernizations-some of which Acuity Brands fully supports, as discussed below- for the 

reasons provided herein, Acuity Brands urges Congress to "do no hann" by refraining from 

supporting substantial changes to NAFT A, which would undennine the competitiveness of 

Acuity's U.S. employment base and NAFT A's fundamental free trade structure. 

I. BACKGROUND 

Acuity Brands, Inc. (NYSE: A Y1) is the North American market leader and one of the 

world's foremost manufacturers of lighting and controls equipment. Headquartered in Atlanta, 

Ge·orgia, Acuity currently bas over 4,300 employees in the U.S. and has operations throughout 

North America and across the globe. Acuity's fiscal year 2016 net sales were S3.3 billion. 

Acuity's lighting and building management solutions vary from individual devices to 

intelligent network syste1ns. Individual devices include luminaires, lighting controls, lighting 

components, controllers for various building systems (including HV AC, lighting, shades, and 

access control), power supplies, and prismatic skylights. Intelligent network systems, meanwhile, 

can optimize energy efficiency and comfort, as well as enhance the occupant experience for 

various indoor and outdoor applications, all while reducing operating costs. Additionally, Acuity 

continues to expand its solutions portfolio, including software and services, to enable data 

analytics that support the "Internet of Things" and the advancement of smart buildings, smart 

cities, and the smart grid. 

Acuity is also focused on creating American jobs and finding efficiencies and cost-savings 

for American businesses and consumers. Specifically, our U.S. presence boasts: 
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U.S. regional production centers with over 700 employees across five states (IL, CA, PA, 

TX, GA); 

Five additiona l manufacturing locations located in IN, OH, CA, IL, MN that have over 

2,200 employees; and 

Additional production capability being added in our Crawfordsville, IN production 

facility. 

Our century of tradition, our current financial strength, and our commitment to a sustainable 

future provide ns with an opportunity to grow, innovate, and further capture the rapidly growing 

market opportunities before us. In order to do so, however, Acuity relies upon the existing U.S. 

trade regime, and particularly NAFTA, to continue growing our business. 

II. NAFTA BENEFITS 

Since NAFTA went into effect in l 994, U.S. trade flows with Canada and Mexico have 

tripled, reaching the $ 1 trillion threshold in 20 II. In addition, in 2016, Canada and Mexico 

accounted for more than one-third of U.S. exports. Acuity Brands- along with countless other 

U.S. businesses- has benefitted from this expansion in trade relations and has substantially 

increased the number of the U.S. employees working for Acuity since the mid 1990's when 

NAFTA was instituted. These positions are good-paying jobs that focus on manufacturing 

technology, engineering, R&D, and customer engagement. NAFTA has be-en essential to the 

proliferation of these jobs; Acuity has been able to invest in the U.S. due to supply chain 

efficiencies created by NAFTA that help to streamline costs and operations between our U.S. and 

international facilities. 

For instance, Acuity Brands bas benefitted significantly from the existing tariff shift rules 

under NAFTA, which allow our Mexican facilities to support enhanced investment in U.S. 

operations. Specitical!y, tariff sllifl rules help us to streamline our manufacturing processes and 

avoid paying costly duties when we send products between our facilities in Mexico and the U.S. 

This allows Acuity to be competitive in the marketplace and invest further in U.S. facilities and 

j obs, all while passing the benefit of duty savings to our customers. 

Given that manufacmring businesses are highly dependent on, and sensitive to, labor and 

supply chain costs, changes to tariff shift rules and corresponding increases in tariffs could have 

a devastating impact on Acuity, the manufacturing sector in general, and consumers. For 

example, increased tariffs or new impon quotas could spark retaliation from other countries, 

resulting in fewer purchases of American-made products abroad, which is harmful to American 

workers. 

Additionally, if Mexico is excessively burdened with increased tariffs under a renegotiation, 

it is likely that the manufacturing sector will seek out the lowest-cost alternative (in terms of 

labor, tariffs, and supply chain efficiencies), which may shift manufacn•ring activity to other 

countries, rather than increasing U.S. jobs. In many cases, new facilities could be located in 

countries where it does not make sense for them to work so closely with American facilities. 

TI1is would disincentivize further U.S. expansion, increase consumer costs, and lead to loss of 
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fun1re U.S. jobs. It is critical that these good-paying jobs remain in the U.S. so that workers 

across the country can support their families. 

Moreover, as NAFTA has allowed Acuity to more easily shift goods cross-border, Acuity's 

Mexico facilities have been able to specialize in different production capabilities than the U.S. 

facilitie,s. Acuity's Mexico facilities produce high-volume products and parts, which supports 

and enhances the effectiveness of our U.S. labor force. For example, providing high-volume 

finished goods from Mexico enables Acuity Brands to invest in our U.S. regional production 

centers, whose personnel includes nearly 700 employees across five states. Those centers also 

support five additional manufacmring locations that have over 2,200 employees in total. Withom 

NAFTA, such investment in U.S. facilities would be significantly more difficult, if not 

impossible. 

Furthermore, the supply chain efficiencies created by NAFT A have allowed us to bring 

products to the marketplace at lower initial cost, which benefits Acuity's customers and allows 

Acuity's employee base to be more competitive in the U.S. Specifically, these efficiencies enable 

us to utilize the highest quality components in our product solutions and to effectively compete 

with imports from other parts of the globe (while maintaining the marketplace's price 

expectations). Acuity Brands estimates that NAFfA in its current fonn allows us to offer 

consumer products at a cost that is competitive world-wide. As such, significant changes to the 

existing agreement could cause consumer costs to increase. 

This would harm not only residential customers, but also industry consumers- including the 

building and infrastructure industries (roadways, bridges, underpasses, parks, education facilities, 

etc.), which Acuity supplies with timely, high-quality lighting products. As such, U.S. building 

stock and overall efficiency goals could also be harmed by major changes to the agreement. 

Without the benefit ofNAFT A we would be looking at lower-cost manufacturing locations to 

build our products and passing those duties on to the consumer, thus slowing down the building 

and infrastrucmre markets due to increased costs or investing in increased automation. 

Finally, with one of the highest corporate tax rates and most complex regulatory regimes in 

the world, operating in the U.S. presents a challenging landscape for businesses. In the face of 

these unique U.S.-based challenges, participation in free trade agreements such as NAFT A is 

critical to help American companies, such as Acuity Brands, compete internationally. 

m. SUGGESTED IMPROVEMENTS 

In light of the foregoing, the U.S.'s first and most important priority in the NAFTA 

renegotiation should be to do no harm to our current manufacturing industrial base. NAFTA is 

already working- and working weU from our perspective- and any renegotiation that 

compromises free trade with Mexico and Canada would erode manufacmring efficiency and may 

not result in benefits for the U.S. workforce. 

However, as noted above, we do understand the desire to modify some more technica l 

aspects of the agreement to ensure it is updated and as beneficial as possible to U.S. interests. To 
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those ends, we strongly support simplifying burdensome documentation requirements under 

NAFT A and taking into account technological advances that would allow for ti1rther use of 

electronic documematiou. 

Specifically, we recollJfJlend that the documentation burden of obtaining Manufacturer's 

Affidavits from suppliers every year should be moved to every 2-3 years. The requirement under 

NAFTA that requires a supplier to provide notification if a product is no longer eligible should 

be able to support the move to a 2-3 year supplier solicitation process. We also suggest that the 

requiremem for original blue ink-signed NAFTA certificates of origin be eliminated and instead 

replaced by electronic signan1re and transmission of signed NAFT A fonns, and that a company's 

corporate location be allowed to be used as the Exporter or Importer name and address on 

NAFTA fonns without the tax ID number requirement. TIJis will help to streamline paperwork 

requirements, as a company with multiple physical locations will not have to issue the same 

NAFTA certificate of origin multiple times for each location in order for the company to be 

considered as the importer of the product. 

We further recommend redeftn.ing and simplifying tbe Rules of Origin. Current complexities 

and ambiguities in the Rules, which help to determine which goods qualify for preferential 

tariffs, make them difficult for businesses to fully utilize and undennine the underlying purpose 

of the preferential tariffs. Streamlining tbe Rules and increasing definitional clarity, therefore, 

would help NAFTA to function more effectively from a U.S. business perspective. 

We support aligning tbe Rules of Origin from various Free Trade Agreements (FTAs), 

especially for Regional Content Value (RVC) calculations. Currently, most software programs 

used by businesses need to have a different module for various FT As due to differences in the 

Rules of Origin. Simplifying the Rules, and particularly the RVC calculations, would help to 

improve companies' system automation and improve compliance with the FT A. We also ask that 

the de minimis level be raised to 10 percent or more and that the related RVC requirement be 

eliminated. 

While recommending these improvements to ensure that NAFTA continues working well for 

U.S. businesses, we urge you to not make concessions that could hurt the current, successful fre-e 

trade environment. Acuity has been able to utilize supply chain efficiencies under NAFTA to 

grow our business, increase the number of good-paying, American jobs at our company, and 

better supply our customer with lower-cost, higher-quality items. Changes to NAFT A that harm 

our- and other manufacturers'-ability to do business would be ham1ful for the American 

economy. 

IV. CONCLUSION 

In sum, undennining NAFT A would have a devastating impact on our company and 

industry, and could negatively impact the competitiveness of Acuity's U.S. employment base, as 

well as American consumers across the country. We do encourage you to support a strengthened 

agreement where possible- including improvements and simplifications to the Rules of Origin 

and other paperwork requirements-but we strongly oppose any efforts to substantially 

renegotiate the agreement. Ultimately, we hope you will maintain the principles of the current 
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agreement that have lowered tariffs, made U.S. companies more competitive domestically and 

internationally, and reduced the prices of goods for consumers at home in the U.S. 

Thank you for the opportunity to provide these comments. If you have any questions or if we can 

be of any assistance, please free feel to contact me; Kristen Lane, Acuity Brands' Director of 

Trade Compliance; or Kate Jensen, Acuity Brands' legislative and policy counsel, at any time. 

We very much appreciate your attention to this matter. 

CC: The Honorable David Reichert 

Chainnan 

Subcommittee on Trade 

Committee on Ways and Means 

1103 Longworth HOB 

Washington D.C., 20515 

The Honorable Bill Pascrell, Jr. 

Ranking Member 

Subcommittee on Trade 

Committee on Ways and Means 

1103 Longworth HOB 

Washington D.C., 20515 

Sincerely, 

~p~ Cheryl English 

VP, Government & Industry Relations 

Acuity Brands 
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merican· 

Chemistry 

ouncil 

American Chemisto-y Coundl 

Statement for the Record 

House Ways :md Means Committee 

Subcommittee on Trade 

"Moderni7_ation of the North American Free Trade Ago·eement" 

July 15, 2017 

The American Chemistry Council (ACC) appreciates the opportunity to submit comments for the 

hearing of the Subcomminee on Trade of the House Ways and Means Conunittec entitled, 

"Modernization of the North American Free Trade Agreement." ACC represents a diverse set of 

companies engaged in the business of chemistry - a $797 billion enterprise. 

The chemical industry is one of the nation's most important trading sectors, with exports 

of $ 121.4 billion in 2016 (excluding phannaceuticals), representing l 0 percent of total 

U.S. goods exports. Thirty percent of the 810,000 jobs in the business of chetnistry in 

the U.S. are export dependent. The U.S. has a large and growing trade surplus in 

industrial chemicals, of$28.2 billion in 2016. ·n1at surplus is likely to grow significantly 

as increased production from more than $ 185 billion in announced new investment in 

domestic chemical manufacturing comes on stream. A 2015 ACC report projects that 

exports of specific key chemistries directly linked to shale gas, such as polymers, 

plastics resins, and specialty chemicals will more than double, lrom $60 billion in 2014 

to S 123 billion by 20301 

Over tl1e past two decades, NAFT A has provided enonnous benefit for tl1e chemical 

sectors in Canada, Mexico and tl1e United States. NA~ rA has facilitated expanded 

economic growth and job creation, and enhanced North American competitiveness in the 

global marketplace. Since NAFT A entered into force, trade in chemicals between 

NAFT A countries has more than tripled, from $20 billion in 1994 to $63 billion in 2014. 

NAFT A 's success lies in tl1e economic partnerships and supply chain syne-rgies and 

efficiencies that have been created through reduced bani crs to trade. TI1e 

interconnectivity between the three NAFT A economies has not only lowered the cost of 

chemical production, it has also strengthened the sector's relevance in the region's 

overall manufacturing economy. More than 95 percent of manufactured goods- from 

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textiles, to electronics, to automobiles- are touched by chemistty. As a result, the 

chemical industry has a multiplier effect on job creation and economic growth in the 

region. The chemical industry's oversized share of ec-onomic activity in Nonb America 

is a direct outcome ofNAFTA's effectiveness in reducing barriers to trade. This includes 

trade in energy products, particularly natural gas - a critical building block for chemical 

production. More than I 0 percent of NAFT A trade is in energy products, and there are 

more than I 00 cross-border energy infrastructure projects in place among the three 

economies. 

After more than 20 years, modernization ofNAFTA is an opportunity to upgrade the 

agreement to address inefficiencies and reflect procedures adopted or proposed in 

subsequent negotiations. The agreement should be modernized to faci litate digital trade, 

especially establishing strong protections for cross border data flows, an essential 

element of global value chains. NAFTA should also codify process on regulatory 

coherence and simplification, including cooperation on embodying sound science, and 

promoting risk assessment ptinciples and mutual recognition of chemical approvals. A 

modernized NAFT A would especially benefit from enhanced trade and customs 

faci litation, including streamlining duty drawback procedures and prioritizing 

infrastrucnue projects that support export growth, for example more border crossings 

(especially between Canada and Michigan) to eliminate bottlenecks. ACC's overriding 

objective is for a modernized NAFT A to result in efficiencies that deepen economic 

integration, and make North America's co-produced products and services more globally 

competitive. 

Tariffs and Market Access 

All chemicals trade between Canada, Mexico and the U.S. is currently duty free tor 

qualified products, and this must remain the case in a modernized NAFT A. Canada is 

the single largest national market for U.S. chemical exports (S24 billion in 2016, aS 1.9 

billion trade surplus) and Mexico is the second largest ($21 billion, a $14.6 billion trade 

surplus). A large proportion of chemicals trade within NAFTA is intra-company, which 

enables companies to realize significant savings on intra-company shipments within 

North America. ACC estimates that intra-company trade makes up 50 percent of U.S. 

chemical expons and 70 percent of chemical imports. Imposing tariffs or other trade 

barriers on trade in chemicals would be like putting a wall in the middle of a factory. 

Rules of Ori&i!! 

The current NAFT A rules of origin should be modernized to bring them into line 

with rules adopted in subsequent U.S. trade agreements, such as the Korea-U.S. Free 

Trade Agreement (KORUS). This would reduce the burden of gathering and 

reviewing vendor certificates and cost information in order to determine whether a 

good qualifies for duty-free treatment under NAFTA. In particular, the current 

NAFT A rules should be revised to eliminate the Regional Value Content (RVC) 

requirement, and provide for greater flexibility in deterntining origin, beginning 

with tariff shift and proceeding through a menu of options including substantial 

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transfonnation, chemical reaction, purification, changes in particle size, etc. Tite "de 

minimis" amount underNAFTA should be revised to 10% (from 7%), which would 

bring NAFTA into alignment with other U.S. FTAs. ACC also recommends that the 

polymer content rule should be consistent with the language negotiated for the TransPacific Partnership (TPP). 

Customs/Trade Facilitation 

ACC recommends that the U.S. should pursue a World Trade Organization (WTO) 

Trade Facilitation Agreement "plus" approach to customs and trade facilita tion efforts 

under a moderuized NAFT A. This includes: 

Updating paper filing and auditing requirements to allow for electronic tiling 

and digital signature. 

Establishing mechanisms to provide for the free flow of cross-border data. 

Targeting infrastructure projects to remove bottlenecks on the movement of 

exports (e.g. Michigan-Ontario bridge, cross-border pipelines). 

Moderuizing transport security requirements to allow for the same drivers or 

single forms of transport across borders. 

Harmonizing clearance procedures within NAFTA, e.g. single window, 

infonnation required, and standardizing documents such as CBP434. 

Expanding the unified cargo processing program between the U.S. and Mexico. 

Unifying low value shipment criteria to minimize inconsistencies across members. 

Extending the validity period of blanket certificates beyond one year - three 

(3) years would be advantageous especially if the originating process is static. 

Instituting a pre-clearanc-e pilot program to facilita te easier border crossings. 

Regulatory Coherence & Good Regulatory_Practic.es 

A modernized NAFT A should strengthen regulatory coherence and implementation of 

Good Regulatory Practices (GRPs). Horizontal issues (relevant across all sectors) 

addre-ssed in the Regulatory Coherence chapter should include: addressing areas of 

regulatory divergence and options for narrowing them, developing mechanisms to 

ensure that potential future areas of regulatory divergenc.e are identified and addressed, 

detennining whether differing regulatory approaches are equivalent in meeting a similar 

regulatory objective, and promoting greater regulatory transparency, including in 

regulator-to-regulator dialogue. These all contribute to a more efficient and transparent 

North American regulatory environment, which will boost innovation, growth and job 

creation, while ensuring that regulatory objectives are achieved. 

Regulatory Cooperation and Alignment 

A moderuized NAFT A should promote a more integrated and efficient regulatory 

environment within North America. Regulatory cooperation can help eliminate 

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unnecessary burdens on cross-border trade and provide more certainty for businesses 

and the public. Done weU, regulatory cooperation can help boost innovation, growth and 

job creation while maintaining high levels of protection for human health and the 

environment. ACC would support the establishment of a Regulatory Cooperation 

Council under NAFTA, along the lines of that envisaged under the TPP. Such a Council 

would help to set overall priorities, and coordinate regulatory cooperation and coherence 

efforts on a sectoral basis. To be clear, ACC believes that existing bilateral regulatory 

cooperation efforts (such as the U.S.-Canada Regulatory Cooperation Council) should 

continue at their own pace outside of the NAFTA agreement. Results from these 

bilateral effons, where appropriate, could then be extended throughout North America 

underNAFTA. 

ACC's top priority for enhancing regulatory cooperation under NAFT A is to strengthen 

and align the risk- and science-based approach to chemical regulation adopted in the 

U.S. and Canada throughout the region. The Canadian Chemical Management Plan 

(CMP) and the U.S. Toxic Substances Control Act (TSCA)- recently updated in June 

20 16 - rely upon a common set of concepts and principles to ensure appropriate health 

and envirollll1ental protections while preventing the imposition of regulatory barriers to 

trade, reducing costs and creating other efficiencies for regulators and industry. ln 

promoting such a "North American model" for chemical regulation, NAFT A could help 

provide a model for other countries and regions around tbe world considering 

developing or updating their own chemical regulations, and push back against the 

spread of more hazard-based approaches. Specific improvements that migbt be pursued 

to enhance chemical regulatory cooperation under NAFT A include: 

Extending the TCSNCMP model for chemical regulation to Mcxico.ln doing so, 

the first step could be having Mexico adopt either the U.S. or Canada's chemical 

inventory instead of trying to compiling their own. Secondary options would be 

to consider mutual rec.ognition for Mexico - for example if a chemical is on 

either the U.S. or Canadian inventories, it is automatically on the Mexican 

inventory. ACC is also working with Mexico to align their new chemicals 

program with those of the U.S. and Caoada. 

Extending U.S.-Canada alignment on their implementation of the UN 

Globa lly Hannonizen System for Classification and Labeling (GHS) -

to Mexico. 

Reducing or eliminating other variances between the U.S. and Canadian 

adoption of GHS. Examples include repotting requirements for chaoges to 

Safety Data Sheets, labeling requirements, procedures for prote.cting 

Confidential Business lnfonnation (CBI), and requirements applicable to 

combustible dust. 

Companies face a set of challenging options under Canada's revised Workplace 

Hazardous Materials Infonnation System (WHMIS) for SDS: companies must 

provide the govermnent with sensitive business infonnation (either exact 

chemical concentrations or product-specific concentration ranges), or they must 

pay a per-product application fee for review and approval of the confidentiality 

of chemical concentrations, au option that quickly becomes expensive. These 

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July 15, 2017 

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requirements do not align with both corresponding U.S. and European 

regulations. 

Hannonizing documentation by government regulatory agencies across 

NAFTA (e.g. uniform permits, certificates, Chemical Data Reporting (CDR), 

chemical nomenclature rules, and regulatory controls (e.g., TSCA Section 6 

requirements versus Ministerial Conditions and Prohibitions in Canada); 

In this regard, EPA, Health Canada, and Environment and Climate Change 

Canada have a Regulatory Cooperation Council (RCC) working group to align 

New Substance Notifications (NSNs), risk evaluations and classifications, 

Significant New Use Rules (SNURs) and Significant New Activity (SNAcs). 

Similarly, these agencies are also working to further align their processes for 

chemical risk assessments under a separate RCC working group. A more 

fonnalized process for the RCC would be welcome in relation to all of these 

matters, to ensure timely and consistent results. Such work could also be 

expanded to include Mexico. 

At the same time, Environment Canada is considering an export regulation akin 

to TSCA 12(b), so efforts to align the two system from the outset would help to 

avoid complicated and potentially competing regulatory requirements. 

Canada maintains strict rules to define hazardous waste that crosses its borders, 

disrupting trade in the chemical industry with the U.S. Specifically, the Canadian 

federal govemment does not provide any exemption to allow empty containers 

with hazardous waste residue to bypass the substantial Basel Convention 

paperwork re-quirements that nonnally accompany transit of hazardous waste -

even though many of its provinces, and many other governments (including the 

U.S.) do so. Such policies mean that any containers transiting the border for 

cleaning have to go through onerous and time- consuming transboundary 

paperwork re-quirements, impacting not only makers of chemicals and paints, but 

downstream industries that usc those products as well as hazardous waste 

cleaning facilities on both sides of the border. Alignment on a definition of 

"empty" containers would increase regulatory efficiency while relieving industry 

of a burdensome regulatory requirement that provides no benefit to human 

health, safety, or the environment. 

Conclusion 

ACC strongly suppons the launch and timely completion of negotiations on 

modernizing NAFTA. For the chemical industry, and for the broader economy, it bas 

!be potential to provide a significant boost to growth and job creation, which in mrn 

would promote imtovation and strengthen the intemational competiveness of U.S. 

exponers. A successful conclusion of negotiations on modemizing NAFTA would also 

send an imponant signal to the rest of the world, particularly in tenus of promoting risk 

and science-based decision making. ACC looks forward to maintaining a dialogue with 

negotiators and regulators as the NAFTA negotiations proceed. 

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bup://www.a mericaochemlstr ·.com 

The American Chentistry Council (ACC) represents the leading companies en.gaged in the 

business of ehemisuy. ACC members apply the science of ehemisny to make U.movative products 

and services that make people's lives better, healthier and safer. ACC is COI1llllitted to improved 

euviroumeutal, health and safety perfonnance through Responsible Care®. couuuou sense 

advocacy designed to address major public policy issues, and beallh and environmental research 

and product testing. The business of chemistry is a $797 biUion enterplise and a key element of 

the nation's economy. It is one of the nation's largest exporters, aceotmting for ten cents out of 

every dollar in U.S. expotts. Chemisny companies are among the largest investors in research 

and deve-lopment. Safety and security have always been primary concems of ACC members, and 

they have intensified their efforts. working closely with govemmcn1 agencies to improve securily 

and to defend against auy tlu-eat to the nation's critical infrastruemre. 

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• ••••• 

••••• • 

July 28, 2017 

American Coatings 

1-SSOCI-\TION'" 

The Honorable Dave Reichert, Chair 

Ways and Means Subcommittee on Trade 

U.S. House of Representatives 

Washington, D.C. 

The Honorable Bill Pascrell, Ranking Member 

Ways and Means Subcommittee on Trade 

U.S. House of Representatives 

Washington, DC 

RE: Hearing on the Modernization of the North American Free Trade Agreement (NAFTA), July 18, 2017; 

Written Testimony on behalf of the American Coatings Association, Inc. 

Dear Chairman Reichert: 

The American Coatings Association ("ACA") is pleased to submit this statement on the success of the 

North American Free Trade Agreement (NAFTA) and suggestions on modernizing and updating NAFTA to 

improve issues affecting U.S. workers, businesses, and consumers in today's economy. 

ACA is a voluntary, non-profit trade association working to advance the needs of the paint and coatings 

industry and the professionals who work in it. The organization represents paint and coatings 

manufacturers, raw materials suppliers, distributors, and technical professionals. ACA serves as an 

advocate and ally for members on legislative, regulatory and judicial issues, and provides foru ms for the 

advancement and promotion of the industry through educational and professional development 

services. ACA's membership represents over 90% of the total domestic production of paints and 

coatings in the country. 

ACA supports the Administration's objectives of modernizing and strengthening the North American 

Free Trade Agreement (NAFTA), and we appreciate the opportunity to share our priorities for the 

negotiations. We understand the importance of updating this two-decade-old trade agreement to 

further benefit the U.S. economy and American businesses, workers and consumers. We also urge that 

these negotiations be accomplished in way that preserves the very real benefits that the coatings 

industry has seen from this trade agreement over the past two decades. We are prepared to work with 

you, the Administration, and the International Trade Administration to achieve a successful negotiation. 

Background 

The North American Free Trade Agreement (NAFTA) entered force on January 1, 1994, following its 

approval by Congress on November 20,1993. 1 NAFTA, along with other trade issues, became a point of 

1 The NAFTA Implementation Act was signed into law by President William J. Clinton on December 8, 

1993 (P.l.103-182). 

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Ways and M eans Trade Subcommittee 

Modernization of the North America Free Trade Agreement 

July 18, 2017 

contention in the recent elections, with then candidate (and now President) Donald Trump promising to 

end or renegotiate NAFTA if elected. On M ay 18, 2017, the u.s. Trade Representative (USTR) sent a 90-

day notification to Congress of its intent to begin talks with Canada and M exico to renegotiate the 

NAFTA, as required by the 2015 Trade Promotion Authority (TPA) (P.L. 114-26). 

On May 18, 2017, the Office of the U.S. Trade Representative notified the Congressional Leadership that 

it intended to initiate negotiations with Canada and Mexico regarding modernization of NAFTA under 

the authority of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015. 

Subsequently, on May 23, 2017, the Administrat ion asked for public comment on this issue. 

The Coatings Industry and NAFTA 

The U.S. coatings industry (NAICS 32551) is a highly efficient, internationally competitive industry that 

features not only many key global marker leaders, but numerous SMEs who compete in a variety of 

market sectors. The U.S. market is roughly evenly divided between architectural (decorative) coatings, 

along w ith industrial coatings, most of which are sold for OEM applications, but some of which are 

categorized as special purpose coatings, such as automotive refinish coatings. According t o the Census, 

the U.S. coatings manufacturing industry had a total value of shipments and receipts for services of 

$27.7 billion, and it employs approximately 33,933 persons, and has an annual payroll of $2.231 bill ion, 

along with $612 million in fringe benefits. z 

$2,500,000 

$2,000,000 

-g $1,500,000 

:l! 

::> & $1,000,000 

$500,000 

so I I J J I 

Figure l: US Coatings Exports, 2002-26. Source, lnternotionol Trade Administration 

2 Source: U.S. Census Bureau, 2015 Annual Survey of M anufactures. 

The u.s. coatings industry also 

enjoys a strong trade position, 

both within NAFTA and 

globally. In 2016, t he U.S. 

exported coatings products 

valued at $1,531,842,275 to 

our NAFTA partners Canada 

and Mexico, with 

$1,040,857,987 of that total 

going to Canada and 

$490,984,288 to Mexico. 

These figures are comprised of 

a mix of waterborne,' 

solventborne,' and 

miscellaneous coatings 

' These are represented by HS Code 3209, "Paint s and varnishes (including enamels and lacquers) based 

on synthetic or chemically modified natural polymers, dispersed or dissolved in an aqueous medium." 

• These are represented by HS Code 3208, "Paints, varnishes; (enamels and lacquers) based on synthetic 

polymers or chemically modified natural polymers, dispersed or dissolved in a non-aqueous medium." 

2 
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Ways and Means Trade Subcommittee 

Modernization of the North America Free Trade Agreement 

July 18, 2017 

products• that are sold to both Canadian and Mexican consumers as well as industrial and commercial 

users and manufacturers. While the U.S. market did import coatings products from NAFTA as well, trade 

in coatings products resulted in a positive trade balance of $1,146,662,347 in our transactions within the 

NAFTA framework (these include a positive trade balance of $734,324,057 with Canada and 

$412,338,290 with Mexico).' 

As noted, the coatings products traded in the NAFTA region include both consumer paints, as well as 

coatings that are used as intermediate goods within in the manufacturing setting. Of particular 

importance to our industry is the North American market for the manufacturing of motor vehicles. U.S. 

manufacturers, along with their global competitors, assemble cars, light trucks, and heavy vehicles at 

many locations in the United States, Canada, and Mexico. The extremely complex supply chains that 

support this manufacturing activity involve Tier 1 and Tier 2 suppliers within NAFTA and elsewhere. This 

trade in intermediate goods works in both direction, with U.S. suppliers selling to Canadian and Mexican 

manufacturers, and vice versa. As the Brookings Institution recently observed, "advanced 

manufacturing in many states greatly depends on intermediate imports from Canada and Mexico. 

Michigan's automotive industry has long relied on suppliers in Canada and Mexico who provide 61 

percent of Michigan's total intermediate imports."' 

In the case of the coatings industry, NAFTA has proven to be highly beneficial, and U.S. coatings 

producers have been successful over the past two decades in selling into the Canadian and Mexican 

markets, both to Canadian and Mexican manufacturers and consumers. Thus, ACA's believes that the 

upcoming negotiations should not produce outcomes that lead to either Canada or Mexico erecting new 

trade barriers that hinder these currently beneficial trade flows, particularly those involving coatings as 

an input into the manufacturing process. Specifically, re-negotiation of any of the existing trade 

agreement positions that affect the listed categories of coatings good that could result in increased 

import duty rates into Canada and Mexico will adversely affect American manufacturing operations, 

considering the large coatings export volumes to Canada and Mexico. 

Specific Improvements that can be Achieved during Re-Negotiation 

1. Reimportation of Goods 

The re-importation of goods often arises in the context of exported merchandise which is deemed 

defective or obsolete, which would ordinarily result in the return of the merchandise to the producer. In 

the case of U.S.- origin products, the process of re-importation into to the United States is 

straightforward as U.S. import procedures permit duty free re-importation. In contrast, the procedure 

for returning Canadian goods back to their Canadian manufacturer duty-free is very cumbersome in 

practice. The complexities result in some companies deciding not to return defective or obsolete 

• These are represented by HS Code 3210, "Paints and varnishes (including enamels, lacquers and 

distempers), excluding those of heading no. 3209, prepared water pigments of a kind used for finishing 

leather." 

6 The comparable global numbers are total exports of $2,284,383,233, with a net trade surplus of 

$1,453,069,036. Source: International Trade Administration. 7 " How US states rely on the NAFTA supply chain," Joseph Parilla, The Brookings Institution, March 30, 

2017 

3 
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Ways and Means Trade Subcommittee 

Modernization of the North America Free Trade Agreement 

July 18, 2017 

Canadian merchandise to Canada and results in U.S. customers holding those goods having to find a 

market, such as a salvage outlet, or having to liquidate or dispose of those goods in the United States. 

ACA urges the Committee to ensure that the re-negotiation strategy includes simplification of Canadian 

goods return procedures by Canadian customs. This will result in U.S. customers being able to 

successfully ship Canadian-origin products back to Canadian producers on the same basis as they would 

with U.S. suppliers. 

2. Customs and Trade Facilitation 

Generally, import and export administrative procedures between Canada and the United States are well 

streamlined. In practice, the routine exchange of substantial trade information between Canada and the 

United States, results in the waiver of certain procedures (for example, U.S. export declarations), which 

simplifies and facilitates the border crossing process considerably. In contrast, the import and export 

administrative procedures between Mexico and the United States are more cumbersome and require 

more paperwork. These extra steps result in longer clearance and border crossing times. ACA urges the 

Committee to make elimination of this divergence in customs procedures a priority when reviewing a 

new agreement. 

3. Rules of Origin or Origin Procedures for NAFTA Qualifying Goods 

While not specifically coatings, key raw material inputs classified, for example, under HS 39078 are used 

in coatings and in some cases, are also manufactured by coatings producers as inputs into coatings 

formulations. In practice, importing these products requires producers to apply (1) tariff shift rules and 

(2) regional value content calculations. This requirement places a considerable administrative burden 

on manufacturers, who must solicit supporting NAFTA certificates from suppliers of raw materials. 

Simplifying this procedure and allowing importers to apply either tariff shift rules or regional value 

content calculations rather than both could considerably simplify the overall process of importation. 

4. Harmonization of Standards for Transport of Dangerous Goods 

It is widely understood that harmonized regulations enhance the safety and efficiency of cross-border 

shipments of dangerous goods. Typically, these standards are discussed and debated at the United 

Nations Sub-Committee of Experts on the Transport of Dangerous Goods (UN SCE TOG) with the 

participation of countries and non-.governmental organizations, including the International Paint and 

Printing Ink Council (IPPIC} for which ACA serves as the Secretariat. The UN SCE TOG issues revisions to 

its model regulations every two years and participating countries may then adopt these changes into 

their country regulations for transport of dangerous goods. Whi le NAFTA already contains international 

harmonization standards under Article 906, these principles have not been embraced by Mexico nor 

applied to cross border traffic in dangerous goods between the United States and Mexico. 

Consequently, ACA member companies experience delays at the southern border related to differing 

regulatory structures. ACA encourages the Committee to pay special attention to the issue of 

harmonization of standards to alleviate these unnecessary delays. 

8 HS 3907 is defined as "polyacetals, other polyethers and epoxide resins, in primary forms; 

polycarbonates, alkyd resins, polyallyl esters and other polyesters, in primary forms." 

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ralbany on LAP520R082 with HEARINGS33481.211

Ways and Means Trade Subcommittee 

Modernization of the North America Free Trade Agreement 

July 18, 2017 

Conclusion 

While there are clearly areas in which NAFTA could be improved and modernized, ACA urges the 

Committee to engage in these negotiations and any resulting agreement with a "do no harm" approach. 

The current arrangement is largely beneficial to U.S. consumer, the U.S. manufacturing sector and 

workforce, and the U.S.·based coatings industry. We believe you share our view that maintaining this 

beneficial agreement in a trilateral form is the best outcome, and again, we stand ready to assist in any 

way we can. 

Best regards, 

Allen Irish Heidi K. McAuliffe, Esq. 

Senior Counsel, Esq. Vice President, Government Affairs 

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