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FOIA Number: 2017-0401-F
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General Files
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Fast Track [1]
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S
66
3
7
1
May 22, 1997
MEMORANDUM FOR MR. MCLARTY
From:
Dan Lesmez Dan.
Subject:
CBI Trade Enhancement
I spoke with John Hueneman and Sue Cronan this afternoon about the status of the CBI
Trade Enhancement proposal. Several agencies are still reviewing it, although only minor changes
are expected to be made to it. The date for the submission of this proposal to Capitol Hill remains
uncertain, although there is a chance that a decision on when to send it up could come up as early
as next week after the "dust settles" on Fast track.
Although the CBI Trade enhancement proposal is reflected in the President's FY 1998
budget that was submitted in February, it is not included in the House budget resolution. It also is
not expected to be included in the Senate's budget resolution. Instead, the tax writing committees
are expected to take it up separately after the proposal is submitted to Congress by the
Administration.
cc:
Nelson Cunningham
Eric Farnsworth
Steve Ronnel
Andrew Friendly
Chifford S. Gibbons
April 30, 1997
Dear Andrew,
1
at the Castag Richn
Itwas a pleasure to mut you
-
evenings. lease let us know y we
Our firm has pullid toyother a
can be of assistance to you and brood baud Mr.
burinew coalition to helpths White Have in the
fort teach anthonity. working
with you.
All the but! Clip Mistone
Fast tech file
Lall Brand cabe Kife
GIBBONS & COMPANY
apirl 16
1455 PENNSYLVANIA AVENUE, N.W.
at 10:00am
THE WILLARD OFFICE BUILDING
SUITE 525
WASHINGTON, D.C. 20004
BoB
TEL (202) 783-6000
FAX (202) 783-4171
March 18, 1997
Pete I would this join ti
Mr. Thomas F. McLarty, III
Senior Counselor to the President
The White House
Washington, DC 20500
discuss you I recept
this.
Dear Mack:
mis. was
Bill Frenzel and I are aggressively moving forward in our efforts to get fast
track negotiating authority for the President. I testified today before the Ways and
Means Committee hearing on U.S. Trade Policies and Initiatives. My testimony was
a call for Congress to immediately grant the President unconditional fast track
negotiating authority. Bill and I also met with Charlene Barshefsky and Ira Shapiro
today to discuss the content and timing of the Administration's proposal to
Congress.
Moreover, we are in the process of planning a meeting on April 10th at
10:00 a.m. with 25 to 30 senior business and association people in Washington who
will aggressively promote fast track authority. All of these individuals have the
common goal of obtaining "clean" fast track authority. Enclosed is a partial list of
those who, as of today, are planning to attend.
While we know that on this date you will be preparing for your important
trip to Mexico on the 11th, we would appreciate it if you would take 10 to 15
minutes to "jump start" the meeting by expressing the Administration's views on
this important matter. The meeting will be in The Willard Office Building, 1455
Pennsylvania Avenue, N.W., Suite 525, Washington, DC 20004 (a block away from
the White House).
Thank you for your consideration of this important meeting. We look
forward to working with you!
Lew Sam M. Gibbons
Sincerely
PARTICIPANTS IN APRIL 10, 1997
FAST TRACK AUTHORITY MEETING
Michael Andrews
Salomon Brothers, Inc.
Bob Barrie
O'Connor & Hannan
Tommy Boggs
Patton, Boggs, L.L.P.
Bill Cable
Timmons & Company
Nick Calio
O'Brien Calio
James Christy
TRW
Cal Cohen
Emergency Committee for
American Trade
Stephen Engelberg
Monsanto Company
Jane Fawcett-Hoover
Proctor & Gamble Company
Vic French
French & Company
Ray Garcia
Rockwell International
Mel Goodweather
United Technologies
Brendan Harrington
Cargill, Inc.
John Hay
Westinghouse Electric Corporation
Bill Hecht
Hecht, Spencer & Associates
Alan Holmer
Pharmaceutical Research &
Manufacturers of America
Mike House
Hogan & Hartson, L.L.P.
Bill Krist
American Electronics Association
Bill Lane
Caterpillar
Tracy Mullin
National Retail Federation
Chuck Levy
The Business Roundtable
Kip O'Neill
O'Neill, Athy & Casey, P.C.
Joe O'Neill
Public Strategies Washington
Peter Prowitt
General Electric
Elizabeth Schwartz
The Boeing Company
Duffy Wall
R. Duffy Wall & Associates
Lyn Withey
International Paper
Alan Wolff
Dewey Ballantine
03/18/97 TUE 17:18 FAX 202 783 4171
GIBBONS & CO.
001
GIBBONS & COMPANY
Facsimile Transmittal
For Immediate Delivery
To:
Mack McLarty
Total No. of Pages
(Including this Page): 3
Office:
The White House
Facsimile:
202/456-2464
From:
Sam M. Gibbons
Date:
March 18, 1997
Time:
5:15 pm
Client:
5000
Comments:
If you have trouble receiving this message, please call 202/783-6000.
This message is intended only for the use of the individual or the entity to which it is addressed and may contain information that is
privileged, confidential, and exempt from disclosure. If the reader of this message is not the intended recipient or an employee or agent
responsible for delivering the message to the intended recipient you are hereby notified that any dissemination, distribution, or copy of this
communication is strictly prohibited. Any inadvertent receipt by you of such confidential information is not intended to constitute A
waiver of any privilege. If you have received this communication in error, please notify us immediately by telephone and return the
original message to us by mail. Thank you.
I
NELSUS
One
@Stive
3
April 9, 1997
MEMORANDUM FOR MACK McLARTY
FROM:
Peter O'Keefe
SUBJECT:
Fast Track Briefing for Business Community
I understand that Sam Gibbons has canceled the meeting he set up with the business community
to discuss Fast Track. I think this is actually favorable for us. The business community is ready to
go to work on this issue and is waiting for some direction from The White House. Therefore, I
believe that we should call the first meeting when we have decided what this legislation will be
asking for. Also, you should know that I received several phone calls from corporate
representatives, who were attending the meeting, asking why Mr. Gibbons was hosting the first
meeting on this issue and not The White House.
My recommendation would be that once we have decided, internally, what the content of this
legislation will be, we host the first meeting and then let the outside entities convene successive
meeting from that point. This will give us the opportunity to disclose the entire legislative
proposal to them as well as our reasons for including certain priorities.
In addition, Ken Cole, among others, believes that you are going to be critical to the legislative
process once this legislation is sent to Congress. In his opinion, no one else will be able to sit
down with key legislators on the other side of the aisle, who will be key to passing any bill. He
has suggested that we begin setting up meetings with key CEOs (no more than 2 or 3 at a time) to
meet with you and discuss ways in which they can assist you in this process.
Please let me know if you would like me to proceed further.
Andrew
Document No.
WHITE HOUSE STAFFING MEMORANDUM
4-8
DATE:
(
ACTION/CONCURRENCE/COMMENT DUE BY:
Fast Track
SUBJECT:
ACTION FYI
ACTION FYI
VICE PRESIDENT
McCURRY
BOWLES
McGINTY
McLARTY
NASH
PODESTA
RUFF
MATHEWS
SMITH
RAINES
REED
BAER
SOSNIK
ECHAVESTE
LEWIS
EMANUEL
YELLEN
GIBBONS
STREETT
HALE
SPERLING
HERMAN
HAWLEY
HIGGINS
WILLIAMS
HILLEY
RADD
KLAIN
BERGER
LINDSEY
REMARKS:
This mine vent to Goyni last night.
RESPONSE:
Staff Secretary
THE WHITE HOUSE
8
WASHINGTON
April 7, 1997
MEMORANDUM FOR THE PRESIDENT
From:
Samuel Berger
Daniel Tarullo
Gene Sperling
ge
Subject:
Fast Track
Purpose
To determine how to proceed on seeking fast track authority. Our credibility in Latin America
increasingly is eroding because we have not moved beyond rhetorical support. Moreover,
economic integration is proceeding in the hemisphere (e.g., MERCOSUR), but without us.
However, there is substantial Democratic opposition to any fast track bill that does not mandate
provisions in trade agreements that provide for trade restrictions on countries for failure to meet
labor and environmental standards. Republicans will not accept such provisions, but they have
also indicated they would insist on significant Democratic support for a fast track bill. The issue
is further complicated by the possibility of an early budget agreement, which may also involve a
break in party unity, and which will command the lion's share of our resources and time,
including your own, for at least the next month.
Background
Fast track has never been popular in the Congress. The House tends to be skeptical of trade
liberalizing agreements in general, while the Senate tends to be resistant to the constraints upon
floor debate and amendments. Prior enactments of fast track were contained in broad-ranging
trade bills in which support for fast track was accepted by some members in return for making
U.S. import laws more restrictive and market access laws such as section 301 more aggressive.
These bills also provided new programs for displaced workers.
The normal difficulties of obtaining fast track are compounded this year by several factors. First,
free trade agreements have become strongly associated by many in Congress and the public with
NAFTA. The peso crisis and resulting reversal in our trade balance, along with seemingly
extraneous issues such as drugs and corruption in Mexico, have made NAFTA unpopular in
many quarters. Second, budgetary constraints suggest little room for additional programs to ease
displacement anxieties of potentially affected groups of workers. Third, the substantial
resistance to fast track among House Democrats presents a very awkward situation as we try to
conclude a budget agreement that is already placing severe strains on party unity. A number of
your political and congressional advisors are particularly concerned that proceeding vigorously
with fast track now risks both alienating Democrats we need on the budget and sustaining an
early loss that would reduce our influence on the Hill.
On the other hand, there is political cost to delay: Gephardt and other opponents already are
lining up Members, our supporters are exposed and we may exacerbate the challenge facing us if
we don't proceed soon.
The most contentious issue is the role of labor and environmental standards in future trade
agreements. For NAFTA we negotiated "side agreements" for labor and the environment, which
provided a special form of dispute settlement where there had been a "persistent failure" by one
of the governments to enforce its own laws on some labor areas and the environment. If such a
failure is found, fines are to be imposed on the offending government, with trade sanctions
imposed only if the fine is not paid. These agreements were approved by the Congress. They
have not been frequently invoked.
There appears to be strong support among business and the Republican leadership for fast track
authority, but only if labor and environmental provisions are not included in any agreements
negotiated under fast track authority. This proviso seems to include side agreements approved
by the Congress, though perhaps not side agreements reached on the basis of Executive authority
alone. Representative Gephardt and the AFL-CIO, on the other hand, have indicated they will
actively oppose fast track unless the terms of the authority require that labor and environmental
provisions, backed by trade sanctions, be included in any future free trade agreements. Even the
environmental groups that eventually supported the NAFTA side agreement will be hard to win
over this time around, since they have been disappointed in environmental developments along
the border and believe that they had an understanding with the Administration that future trade
agreements would be "greener" than NAFTA. However, anything less than the side agreements
approach would surely elicit charges that we are backing off even a moderate commitment to the
environment.
When USTR consulted extensively with the AFL-CIO earlier in the year there were some hints
that labor might not strongly oppose fast track (there was never any hope they would support it).
However, at the AFL-CIO's annual meeting in Los Angeles in February there was a surge of
anti-trade sentiment from some constituent unions, and the leadership had to work hard to avoid
a resolution that would have essentially opposed new trade agreements under any circumstances.
There is only limited hope that further discussions would yield agreement on some intermediate
position. A major anti-fast track campaign from labor is more likely.
In the House, where any fast track bill must originate, and where it will be tougher to prevail, we
will need at least 120-140 Republican votes, which the Republican leadership seem to believe
they can secure in the absence of a problem with the labor and environmental provisions. Vote
counting is complicated by the fact that House freshmen and sophomores have not had to cast a
3
difficult vote on trade. Based on previous landmark trade votes, the House Republican profile is
as follows:
98
Yes on NAFTA/GATT
2
No on NAFTA, Yes on GATT
25
No on NAFTA/GATT
91
Freshmen/Sophomores with no past trade votes
As was the case with NAFTA, Republicans are likely to insist that we get a substantial number
of Democrats (perhaps 80-90) to support our position. Many House Democrats who are
potential supporters of fast track are clearly uncomfortable with being pulled from opposite sides
by their leadership and the White House. The House Democratic profile is as follows:
43
Yes on NAFTA/GATT
48
No on NAFTA, Yes on GATT
57
No on NAFTA/GATT
59
Freshmen/Sophomores with no past trade votes
Our challenge in the House is exacerbated by the departure of most of the key Democratic
members who provided the whip organization for NAFTA. Indeed, Matsui is the only remaining
member who performed that role. Our core of support should come from the 43 Democrats who
voted for both NAFTA and GATT. If forty or so additional votes are needed, the next best target
group is composed of the freshmen and sophomores, with some lesser possibility of picking up a
handful from the group that voted no on NAFTA but yes on GATT. We will have to pick up
these Democrats with an intermediate position on labor and environmental standards that gives
them something to vote for while not losing significant Republican support.
Our position would likely be a "clean" fast track bill that did not either require or exclude labor
and environment provisions of any sort. However, we will have to state our intentions on these
issues. Charlene has recommended that we support an approach that would include side
agreements with sufficiently strong labor and environment provisions to attract some Democrats.
However, these agreements would not be submitted to Congress (which would engender
wholesale Republican opposition) and thus would be Executive agreements only, which in theory
could be terminated by a later Administration even as the underlying trade agreement remained
in place. She also recommends that we formally state our intention to consider labor and
environmental circumstances, among other criteria, in selecting countries with which to
negotiate. Finally, she proposes a more active effort in non-trade fora to promote labor and
environmental standards.
Suggested Approach
There are three sets of considerations that need to be reconciled. First, it is important not to
4
exacerbate relations with House Democrats over fast track at the same time as budget
negotiations are placing strains on party unity. Since any fast track bill with a real chance of
passage will fall short of what labor and many House Democrats will demand, waging both
fights simultaneously could alienate at the worst moment some of those whose support we will
need on the budget.
Second, and related to the first point, our resources will be severely strained if we try to fight two
major legislative battles at once. The resource problem extends to your time, which will be
extensively required for meetings with Members on both issues. Until the budget situation
clarifies one way or the other, a major commitment of senior Administration resources does not
seem feasible. (There will also be demands on your time in connection with CWC ratification.)
The third set of considerations pulls in a different direction. Whether we like it or not, the fast-
track fight has already begun. Further delay in active Administration efforts to secure fast-track
will give opponents time to consolidate their position. Too much delay will leave you headed for
South America (October) without this critical trade authority.
In several discussions over the past week, we have concluded that the best approach for at least
the next month is to reaffirm visibly your commitment to fast track and to an activist trade
policy, while not taking steps that would join the battle over labor and environmental standards.
A corollary of this approach is that we would try to freeze any flow of support towards an anti-
fast track position by indicating a desire to see if consensus positions on labor and the
environment can be worked out.
The elements of this approach are as follows:
(1)
A speech by you that includes an affirmation of your support for fast track and our
trade policies and that calls on all sides to see if a consensus can be reached on
pursuing free trade agreements while respecting labor and environmental
standards. Such a speech is critical for publicly committing to make fast track a
priority. We could use your remarks at the American Society of Newspaper
Editors this Friday as the venue for this speech.
(2)
A single, early meeting between you and a bi-partisan group of about two dozen
Members, in which you make the same statements of support for fast track, and
indicate you are asking us to work with them to try to work out consensus
positions.
(3)
Charlene and others would continue consultations with others on the Hill in
pursuit of the same end.
(4)
We would also work individually with Members to urge that they not commit to
an opposing position while we are trying to work out a common view.
(5)
We would bring in labor and environmental groups to be sure they feel thoroughly
consulted.
(6)
If the budget process does not move forward rapidly, we would reassess our
5
position in May; if it does move forward, we would then proceed rapidly to
present a bill.
There are risks associated with this approach, to be sure. In particular, our unwillingness to offer
a bill or to state our positions on labor and environment may be criticized quickly as avoiding the
issue that matters, and our attempt at consensus seen as at best futile and at worst ceding the field
to those opposed to fast track. Yet, in the current circumstances, any approach risks harm to our
interests on the budget, fast track, or both. In general, your advisors believe that this approach
best balances both our interests and the risks.
RECOMMENDATION
That you approve the approach described above.
Approve
Disapprove
Discuss
ESPIRITUE
OF
THE
CONTRISE
U.S.S CHAMBER OF COMMENTS
HB
CHAMBER OF COMMERCE OF THE
AMERICAN FARM
UNITED STATES OF AMERICA
BUREAU FEDERATION
1615 H STREET, N.W.
600 MARYLAND AVENUE, S.W., SUITE 800
WASHINGTON, D.C. 20062-2000
WASHINGTON, DC 20024
202/659-6000
202/484-3600
July 23, 1997
The President
The White House
Washington, D.C. 20500
Dear Mr. President:
We are writing to urge you to work with the Congress to renew fast-track trade negotiating
authority by the end of this session of Congress so you and your successor administrations can
negotiate trade agreements that would create new opportunities for U.S. businesses and farmers in
world markets.
As you know, the absence of fast track authority has already complicated U.S. negotiators'
tasks and costs U.S. business and agriculture many opportunities in the western hemisphere and
elsewhere. Because U.S. negotiators cannot effectively negotiate without fast-track, our competitors
have already begun negotiating trade preferences for each other while U.S. interests are left out.
Regaining our credibility at the trade negotiating table is necessary if the United States hopes to
avoid further erosion of its competitive position in world markets. Beyond simply attempting to
"level the playing field", U.S. negotiators should actively seek to restore and expand U.S.
competitive advantages whenever possible.
At the same time, we remain opposed to linkage of that authority to the pursuit of labor,
environmental or other non-trade or social agenda issues. Continuing insistence on this linkage is a
major reason why we have lost so much ground already. III-considered trade sanctions for various
non-trade purposes have also cost our nation substantial trade opportunities in recent years.
Expanding the list of available justifications for such sanctions through linkage to trade negotiations
could effectively cancel whatever benefits those negotiations might yield. And last but not least, few
if any of our major trading partners support incorporation of such linkages in any trade agreements
they might reach with the United States.
We appreciate the emphasis your administration has placed on international trade. We stand
ready to work with you in the months ahead to regain the momentum we all know will serve
America well in the 21st century global economy.
Sincerely,
Richard L. Lesher
Dean Kleckner
President
President
U.S. Chamber of Commerce
American Farm Bureau Federation
DIRECT SELLING ASSOCIATION
1666 K Street, NW, Suite 1010, Washington, DC 20006-2808
July 28, 1997
202/293-5760
Fax 202/463-4569
Mr. Mack McLarty
Senior Advisor to the President and
Special Envoy to the Americas
The White House
Washington, DC
Dear Mack:
Since we last saw each other at the TALC and ASAE meetings, I've been in India where the direct
selling market is exploding. In fact, direct selling is growing in all corners of the world including Latin
America. We know that in just a handful of countries where statistics are available (Argentina, Brazil,
Colombia, Chile, Mexico and Peru) the total amount of retail sales attributable to direct selling is US$6.7
billion and the number of people realizing meaningful income opportunities from this mode of sales is
almost 3 million. Given the impact in these few countries, imagine what direct selling could do for the
rest of the hemisphere!
Because of the importance of Latin America to our member companies, the Direct Selling Association is
very interested in and supportive of President Clinton's trade initiatives. In particular, we would
consider it an honor if you could address our members on the topic of fast-track negotiating authority and
NAFTA accessions at a luncheon during our October 22 International Seminar here in Washington. If
fast-track has already passed by the October 1997 date (fingers crossed), then your speech could address
the same topic as a platform to generate grass-roots support for the President.
In any case, your insight and expertise concerning Latin America would be invaluable and appreciated
by this audience. Approximately 100 of our international executives will be in attendance from such
companies as Avon, Mary Kay, Amway, Tupperware, etc. (membership list and statistical sheet
enclosed). In addition, the Direct Selling Association would be pleased to help you support the
President's other trade initiatives as well.
Mack, I would appreciate it if you could fit us into your very busy schedule.
Cordially,
Will
Neil H. Offen
President
xc Andrew Friendly
Enclosure
WORLD FEDERATION
OF DIRECT SELLING
ASSOCIATIONS
Worldwide Direct Sales Data
July 8, 1997
Retail Sales
Number of
Year
(in U.S. $)
Salespeople
Argentina
1996
$
1.004 billion
410,000
Australia
1996
$
2.02 billion
615,000
Austria
1996
$
340 million
40,000
Belgium
1996
$
111 million
13,500
Brazil
1996
$
3.5 billion
887,000
Canada
1996
$
1.825 billion
875,000
Chile
1996
$
180 million
160,000
Colombia
1996
$
400 million
200,000
Czech Republic
1996
$
75.5 million
70,000
Denmark
1996
$
50 million
5,000
Finland
1995
$
120 million
20,000
France
1996
$
1.19 billion
166,768
Germany
1995
$
4.67 billion
191,000
Greece
1996
$
41 million
25,000
Hong Kong
1995
$
78 million
98,000
Hungary
1996
$
53 million
110.000
India
1995
$
70 million
12,000
Indonesia
1995
$
192 million
750,000
Ireland
1995
$
19 million
5,000
Israel
1996
$
80 million
14,000
Italy
1996
$
2.12 billion
375,000
Japan
1996
$
30.2 billion
2,500,000
Korea
1996
$
1.81 billion
721,560
Malaysia
1996
$
760 million
1,400,000
Mexico
1996
$
1.3 billion
1,060,000
Netherlands
1993
$
130 million
33,750
New Zealand
1996
$
126.5 million
76,000
Norway
1996
$
90 million
9,000
Peru
1996
$
295 million
177,000
Philippines
1996
$
320 million
630,000
Poland
1996
$
155 million
220,000
Portugal
1996
$
57 million
22,800
Russia
1995
$
300 million
250,000
Singapore
1996
$
96 million
34,500
Slovenia
1996
$
58 million
15,500
South Africa
1994
$
330 million
100,000
Spain
1995
$
652 million
123,656
Sweden
1996
$
90 million
50,000
Switzerland
1996
$
245 million
5,700
Taiwan
1995
$
1.92 billion
2,000,000
Thailand
1996
$
800 million
500,000
Turkey
1996
$
98 million
212.000
United Kingdom
1996
$
1.396 billion
400,000
United States
1996
$
19.50 billion
7,200,000
Uruguay
1995
$
42 million
19.500
TOTAL
$
78.917 billion
22,803,234
Note: The People's Republic of China (PRC) Ministry of Internal Trade reported 500,000 salespeople in that country in 1995.
These numbers are not included in this survey. The Ministry did not give a report of estimated retail sales for the PRC.
© Copyright WFDSA 1997
Sales figures exclude VAT
Secretariat: 1666 K Street, NW, Washington, DC 20006-2808
(202) 293-5760
FAX (202) 463-4569
DSA
Active
Members
DSa
as of May 19, 1997
Achievers Unlimited, Inc.
Body Wise International,
DS-MAX U.S.A. Inc.
DIRECT
Inc.
West Palm Beach, FL
Irvine, CA
SELLING
Carlsbad, CA
ASSOCIATION
Act II Jewelry, Inc. - Lady
Dudley Products, Inc.
1666 K Street, NW
Book of Life
Kernersville, NC
Remington
Suite 1010
Bensenville, IL
Grand Rapids, MI
Washington, DC 20006-2808
202/293-5760
Eagle Distributing
202/463-4569 FAX
AdvoCare International
Busy Woman's Daily
Company, Inc.
Planner
Dallas, TX
Fishees, NY
Snowflake, AZ
Ekco Home Products
Alliance U.S.A. Inc.
Charmelle
Carrollton, TX
Company
San Francisco, CA
Westlake Village, CA
AMC Corporation
Colesce Couture, Inc.
Stamford, CT
Electrolux Corporation
Dallas, TX
Atlanta, GA
American Coin Collectors,
Color Me Beautiful
Enrich International
Inc. (Gold Marketing
Chantilly, VA
Orem, UT
Associates)
Orlando, FL
Conklin Company, Inc.
ENVION International
American Communications
Shakopee, MN
Nashua, NH
Network, Inc. (ACN)
Troy, MI
Cookin' the American Way
Equinox International
(Division of House of Lloyd)
Las Vegas, NV
Grandview, MO
Amway Corporation
Excel Communications, Inc.
Ada, MI
The Country Peddlers &
Dallas, TX
Applebrook Family
Company of America, Inc.
Enrichment Network
Alsip, IL
Finesse
Fremont, MI
Memphis, TN
Creative Memories
St. Cloud, MN
ForYou, Inc.
Art Finds International, Inc.
Loris, SC
Indianapolis, IN
CUTCO/Vector Corporation
Artistic Impressions, Inc.
Olean, NY
Gold Marketing Associates
Lombard, IL
Orlando, FL
Discovery Toys, Inc.
Assured Nutrition Plus
Livermore, CA
Golden Neo-Life Diamite
International
Greenville, OH
DK Family Learning
Fremont, CA
Avon Products, Inc.
Orlando, FL
Golden Pride International
New York, NY
Doncaster
West Palm Beach, FL
Rutherfordton, NC
Goldlinx USA, Inc.
Mississauga, Ontario
Herbalife International
Jeunique International, Inc.
Masterguard Corporation
Los Angeles, CA
City of Industry, CA
Dallas, TX
Highlights for Children, Inc.
KareMor International, Inc.
Melaleuca, Inc.
Columbus, OH
Phoenix, AZ
Idaho Falls, ID
Home & Garden Party, Inc.
Kids Only Clothing Ciub,
Melissa Rice and Company
Marshall, TX
Inc.
Houston, TX
Calgary, Alberta
Home Interiors & Gifts, Inc.
Multiples At Home
Dallas, TX
The Kirby Company
Dallas, TX
Cleveland, OH
The Homemakers Idea
Muscle Dynamics Fitness
Company (Wicker World
Kitchen Fair (Regal Ware,
Network, Inc.
Enterprises)
Inc.)
Torrance, CA
Elk Grove Village, IL
Jacksonville, AR
National Telephone &
House of Lloyd, Inc.
Kizure Products Company,
Communications, Inc.
Grandview, MO
Inc.
Irvine, CA
Compton, CA
H.Q. International, Inc.
Natural World
Garland, TX
Lady Love Skin Care
Scottsdale, AZ
Plano, TX
Hsin Ten Enterprise USA,
Nature's Sunshine Products,
Inc.
Lancie, Inc.
Inc
Plainview, NY
New York. NY
Provo, UT
Hy Cite Corporation
The Learning Journey From
Nest Entertainment, Inc.
Madison, WI
World Book
Irving, TX
Chicago, IL
InKNOWvations, Inc.
New Image International,
Natick, MA
Learning Wonders
Inc.
Palm Desert, CA
Georgetown, KY
Intelligent Nutrients
Minneapolis, MN
LifeRich Limited Company
Newone Cosmetics
Idaho Falls, ID
Corporation
Interior Design Nutritionals
Los Angeles, CA
(Division of Nu Skin
The Longaberger Company
International)
Dresden, OH
Nikken, Inc.
Provo, UT
Irvine, CA
Longevity Network, Ltd.
Interstate Engineering
Henderson, NV
Noevir USA, Inc.
Anaheim, CA
Irvine, CA
Market America, Inc.
Jafra Cosmetics
Greensboro, NC
NSA
International, Inc.
Memphis, TN
Westlake Village, CA
Mary Kay Inc.
Dallas, TX
Nu Skin International, Inc.
Jeff Campbell HomeLife
Provo, UT
Systems
Mason Shoe Manufacturing
Boca Raton, FL
Company
Nutrix International, LLC
Chippewa Falls, WI
Chicago, IL
Jeunesse Cosmetics, Inc.
New York, NY
Orifiame U.S.A.
Rexair, Inc.
Tiara Exclusives
Los Alamitos, CA
Troy, MI
Dunkirk, IN
Oxyfresh Worldwide, Inc.
Rexall Showcase
Totally Tropical Interiors.
Spokane, WA
International
Ltd.
Boca Raton, FL
Calgary, Alberta
Oxygen For Life, Inc.
San Marcos, CA
Rich Plan Corporation
Tupperware Corporation
New York Mills, NY
Orlando, FL
The Pampered Chef, Ltd.
Addison, IL
RMC Group, Inc.
United Consumers Club,
Charlotte, NC
Inc.
PartyLite Gifts, Inc.
Merrillville, IN
Plymouth, MA
Saladmaster, Inc. (Regal
Ware. Inc
U.S Safery & Engineeric g
Personal Creations Gift
Arlington, TX
Corporation
Shows, Inc.
Sacramento, CA
Willowbrook, IL
Seaborne, Inc.
Alpharetta, GA
USANA, Inc.
Petra Fashions, Inc.
West Valley City, UT
Danvers, MA
Shaklee Corporation
San Francisco, CA
Usborne Books at Home
Pfaitzgraff/Flemington
Tuisa, OK
Outlet Corporation
Shaperite
York, PA
Sandy. UT
Vantel Pearls in the Ovster
Foxboro, MA
Pola U.S.A.. Inc.
Society Corporation
Carson, CA
Muncie. IN
Vita Craft Corporation
Shawnee. KS
Premier Designs, Inc.
The Southwestern Company
Irving, TX
Nashville, TN
Viva America Marketing,
Inc.
Primerica Financial Services
Sportron International, Inc.
Costa Mcsa, CA
Duluth. GA
Plano, TX
Watkins Incorporated
Princess House, Inc.
Stef International
Winona, MN
North Dighton, MA
Corporation
Mississauga. Ontario
Weekender Casual Wear.
PRP A ine Imernational, alle.
Inc.
Elk Grove Village, IL
The Story Teller
Buffalo Grove, IL
Salem, UT
RACHAeL International
The West Bend Company
Apopka, FL
Success Motivation Institute
West Bend, WI
Waco. TX
Regal Ware, Inc.
Wicker Plus, Ltd.
Kewaskum, WI
Sunrider International
Germantown, WI
Torrance, CA
Reliv International, Inc.
World Book, Inc.
Chesterfield, MO
Symmetry Corporation
Chicago, IL
Milpitas, CA
Rena-Ware Distributors, Inc.
Youngevity, Inc.
Redmond, WA
Table Charm Corporation
Dallas, TX
Markham. Ontario
MACK McLARTY
August 5, 1997
To: Andrew Friendly
I would appreciate it if you would make sure
we reach out to Henson, with perhaps your
contacting him and making sure his request
is integrated into our fast track effort.
Henson is a well regarded former Congressman
and was a Deputy Chief of Staff to President
Bush. He is a moderate Republican who could
help us a lot on both sides of the aisle.
w.p
Attachment
THE WHITE HOUSE
WASHINGTON
August 3, 1997
Mr. W. Henson Moore
President & CEO
American Forest & Paper Association
1111 19th Street, NW, Suite 800
Washington, DC 20036
Dear Henson:
Your thoughtful and comprehensive letter of July 29th is
received, and noted. It was my pleasure to be with you and your
TALC colleagues and, of course, I appreciated your kind words
about my presentation.
I have conveyed your letter to the appropriate people in the
Administration so that some of your well reasoned points might be
fully and further considered as we move forward with our trade
agenda, including fast track legislation.
As always, it was good to be with you. We have enjoyed a long
and good relationship and, despite being of different parties,
have agreed more often than we disagreed over the years.
Personally,
Med
bcc. JayBerman
Vichi Rodd
(w/full package)
Peter O'Keefe
bbcc: Donna
(w full package)
Desk
andrew triendly
I full package)
Nelson Cunningham
AF&PA
AMERICAN FOREST & PAPER ASSOCIATION
Office of the President
Newsiv
July 29, 1997
Doe
The Honorable Thomas F. McLarty III
Dosl
Special Envoy to the Americas
The White House
B/Vidi
1600 Pennsylvania Avenue, N.W.
Washington, D.C. 20500
Bete
Dear Mack:
I enjoyed seeing you and hearing your comments at the TALC breakfast July 17th. You were
very impressive and did an admirable job representing the Administration to business associations. I am
very glad you are close to the President and at the White House.
You are absolutely correct that in general our domestic market is mature and growth will come
through expanded trade. That is certainly true with our industry. We are a heavy industry and the
biggest in the world, yet we export only about 12% of our production. As outlined in the enclosed white
paper, our industry faces an array of public policy challenges which undermines our ability to capture a
share of these faster growing export markets commensurate with our fundamental competitiveness.
Foremost among these are the tariff barriers maintained by our trading partners in Europe and Asia.
Our concern with fast track is that it must give recognition and emphasis to the unfinished
business of the Uruguay Round in achieving a tariff-free global market for wood and paper products. As
a result of the Round, U.S. and Canadian tariffs on these products are at a near zero but the EU, Japan
and the APEC countries (including China especially) retain tariffs which are high enough to preclude
effective import competition. These tariffs also provide a sanctuary home market base for building
capacity, much of it targeted at the tariff-free U.S. domestic market. We will be working to make sure
that the President has the kind of fast track authority which will make the elimination of this inequity an
urgent priority. I am also enclosing some suggestions for specific legislative language on this point.
We are also increasingly concerned that our labor and environmental costs exceed those of many
third world countries especially those, such as Indonesia, where massive government investments in paper
capacity have created a world-class, globally competitive industry. That was the reason for my question
about your plans for labor and environmental provisions. We and, I suspect, other heavy industries, may
have a changing view of such provisions. If you are interested, I would be happy to visit with you on this
point and determine if others share this attitude.
1111 Nineteenth Street, NW, Suite 800
Washington, DC 20036
202 463-2700 Fax: 202 463-2040
America's Forest & Paper People-Improving Tomorrow's Environment Today
The Honorable Thomas F. McLarty III
July 29, 1997
Page 2
On a closing note, I will never forget our conversation at the Alfalfa Club Dinner in 1991 on the
forthcoming Presidential campaign. Just shows how much I know about politics! With kindest personal
regards, I remain,
Sincerely Hues yours,
W. Henson Moore
President & CEO
WHM:gp
Enclosure
U.S. Forest Products Industry:
Competitive Challenges in the Global Marketplace
America's Forest & Paper People
Improving Tomorrow's Environment TodaySM
AF&PA
American Forest & Paper Association
1111 19th St., NW, Suite 800
Washington, DC 20036
July 31, 1997
INTRODUCTION
The U.S. forest products industry has many important assets: a productive work force,
an abundant and expanding domestic fiber base, modern plant and equipment, and
cutting-edge technology. In 1993, these factors led Fortune magazine to name the
U.S. paper industry as one of the nation's two most competitive industries.
To maintain this position the forest products industry must continue to compete
aggressively in the domestic marketplace and globally a growth frontier. The
industry welcomes this challenge and is committed to free and fair open markets like
those provided to foreign forest products manufacturers here in the United States.
The ability to remain competitive at home and to access markets abroad is not only
important to the health of the industry but it is vital to the U.S. economy, which
depends heavily on the forest products sector for its continuing progress and
prosperity.
The competitiveness of the industry is being threatened. U.S. government policies
penalize wood and paper manufacturers with an onerous and expensive tax system, one
that also discourages forest-related investments. Government policies are also
producing environmental regulations for which the costs increasingly outweigh the
benefits. These regulations come despite vigorous and effective programs developed
and financed by the industry to safeguard the environment.
The U.S. forest products industry is denied open and fair access to foreign markets by
high tariffs and by non-tariff barriers. At the same time, foreign competitors are
advantaged by subsidized wood costs, low wages and comparatively lax enforcement
of environmental regulations.
More even-handed policies must be adopted at home and negotiated abroad that
allow U.S. wood and paper products manufacturers to compete in all markets on
an equal footing with their foreign counterparts.
The following pages present an overview of the current situation in the global
marketplace, review the role the forest products industry plays in the domestic
economy, and pinpoint the policy-related obstacles to competitiveness the industry
faces in the areas of foreign market access, taxation and environmental regulation.
Public policy recommendations aimed at fostering competitiveness are offered in the
concluding remarks.
-1-
I. U.S. MARKET OPEN TO FOREIGN FOREST MANUFACTURERS
The U.S. forest products marketplace is open to foreign wood and paper products.
The U.S. industry encourages competition in both the domestic and foreign
markets allowing all parties to provide consumers with superior products at the
most economical prices.
U.S. imports of softwood lumber reached a record high of more than 18
billion board feet in 1996 and accounted for 36 percent of U.S. consumption.
U.S. paper imports totaled 14.4 million short tons in 1996, up from
approximately 8 million tons in the early 1980s, an increase of 80 percent.
U.S. consumption of imported paper increased from 12 percent of
consumption in the early 1980s to 16 percent by the mid-1990s.
European producers shipped 520,000 tons of coated groundwood printing paper
to the U.S. in 1995, representing more than 10 percent of U.S. purchases.
Imports of high value-added printing and writing papers rose to 5.6 million
tons in 1995, up from less than 1 million tons in the early 1980s.
U.S. paper market is among the most open in the world with close to 90
percent of the $11.5 billion in paper and paperboard imported in 1996 entering
the U.S. duty free.
II. FOREST PRODUCTS INDUSTRY CRITICAL TO HEALTH OF
DOMESTIC ECONOMY
A prosperous, fully competitive forest products industry is critical to the overall
vitality and progress of the U.S. economy.
Industry products contribute more than $230 billion to U.S. GDP.
-2-
Industry ranks sixth among domestic manufacturing sectors based on its
contribution to the GDP, and it accounts for more than 7 percent of
manufacturing shipments.
Forest Products Ranks Sixth Among Manufacturing Industries
billions of $ of gross domestic product
140
120
100
80
60
40
20
0
Autos & Transp.
Chemicals
Indust. Mach.
Food
Elect. Equip.
Forest Products
Printing
Fab Metal
Instruments
Petroleum
Steel/Metals
Rubber
Apparel
Stone
Textile
Furniture
Tobacco
Leather
Source: Department of Commerce, Bureau of
Economic Analysis
U.S. is the world's largest producer of both solid wood products and paper
and paperboard.
U.S. production of paper and paperboard exceeds the combined total of the next
three largest producing nations combined.
Leading World Paper Industries*
million short tons
100
80
60
40
20
0
U.S.
Japan
China
Canada
Finland
ROJOR
South
greze
eleguopul
*Estimated 1996 data from Pulp and Paper International Magazine
-3-
Forest products industry employs 1.6 million people and ranks among the top
ten manufacturing employers in 46 states.
The industry provides its workforce with an above average standard of
living. Non-supervisory employees at paper and paperboard mills average
$19 an hour according to the Bureau of Labor Statistics.
Hourly Wage Rates of Pulp and Paper Mill Workers
U.S. $ per hour
20
15
10
5
0
U.S.
Brazil
Korea
Indonesia
Source: U.S. Bureau of Labor Statistics, RISI for Brazil and Indonesia
Exports of primary pulp, paper, paperboard and wood products totaled $17
billion, accounting for 12 percent of sales.
III. OBSTACLES TO COMPETITIVENESS
While our forest products market remains open to foreign competition, government
acts --ranging from ill-advised domestic policies to foreign protectionism-have
been placed in the path of domestic producers threatening the competitiveness of
the industry.
-4-
A. Public Policy: Constraining the Efficient Management of Wood Resources
For more than 50 years, U.S. forest growth has exceeded harvest--today growth
exceeds harvest by 33 percent--but wood supply constraints are threatening
the industry's competitiveness.
Since the 1980s, environmental litigation and administrative direction have
reduced timber availability from federal lands by more than 75 percent.
Federal, state and local regulation of private forest land, intended to protect
endangered species and wetlands, often has the opposite effect, while severely
restricting access to fiber and timber.
Given the restrictive and often counterproductive results of regulation
under the Endangered Species Act, some landowners have been
compelled to harvest timber prematurely to avoid creating habitat for
endangered and threatened species.
Reduced harvest levels on public lands and enforcement of the Endangered
Species Act have raised U.S. pulpwood costs, which were already
significantly higher than those of competitor nations in the southern
hemisphere.
Delivered Pulpwood Costs*
$ per cubic meter
70
60
50
40
Increase Since 1990
30
20
10
0
Sweden
U.S.
Chile
Indonesia
Brazil
.
Conifer wood prices for Chile, Sweden, and U.S.
Hardwood prices for Brazil and Indonesia.
Data pertain to 1995.
Sources: Wood Resource Inc.: Morgan Stanley; AF&PA
-5-
Public Policy: U.S. Tax System Impedes Ability of Companies to Compete
Abroad
This year's budget and tax agreement provides a measure of relief from tax-
related impediments to competitiveness, but does not go far enough.
The structure of the U.S. tax code, which includes double taxation of
dividend income, lack of border adjustability, and inadequate capital
recovery, makes for comparatively high marginal tax rates on capital
income. These high marginal rates discourage investment in plant,
equipment and sustainable forestry.
A study by Harvard Professor Dale Jorgenson found that U.S.
corporations have an average effective tax rate of 18.5 percent on
equipment investments compared with 8.8 percent in Japan and 8.0
percent in the United Kingdom. Tax rates on equipment-related
investment are actually negative in Italy, France and Sweden.
Marginal Effective Corporate Tax Rates on Machinery
Assets
Italy
France
Sweden
UK
Japan
Germany
Canada
U.S.
-100
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
%
Source: Dale Jorgenson/ American Council for Capital Formation
The paper industry's rate of return on capital has consistently lagged
behind that of the S&P 500 during the past two decades and its debt-
to-assets ratio is about 60 percent above the all-manufacturing
average. The high level of debt reflects the massive capital outlays
the industry has undertaken to remain competitive in the face of
rapid technology change and rising foreign competition.
-6-
Corporate capital gains rates are higher in the U.S. than in most competitor
nations, according to the American Council for Capital Formation (ACCF).
Some developing nations, such as Indonesia, have established tax
holidays for new investments in export-oriented industries.
Restrictions in the U.S. tax code often result in the double taxation of
income earned from international operations. Other nations often entirely
exempt such income from tax.
U.S. tax rules for the income earned from foreign operations are among the
most complicated in the world, and the expense of complying with these
rules represents a substantial cost to U.S. corporations.
C. Public Policy: Environmental Protection
The forest products industry has a substantial stake in the preservation and
protection of the environment.
From 1990 through 1994, the industry spent more than $1 billion each
year on environmental capital improvements. In 1995, environmental
capital expenditures came to $619 million.
Through 1995, overall capital investments for environmental protection in
the pulp and paper industry totaled more than $14.5 billion.
The industry's commitment to continuous environmental improvements is
demonstrated through a range of accomplishments, many of which are
voluntary. These initiatives represent significant environmental investments:
The industry adopted a 40 percent paper recovery goal during the early
1990s, and when that was achieved--ahead of schedule--a more ambitious
50 percent recovery goal was set for the year 2000. More paper is now
recovered for recycling than is sent to landfills.
-7-
Paper Recovery Versus Discards to Landfill
(million tons)
55
50
Paper Recovered
45
40
Paper Landfilled
35
30
25
20
85
86
87
88
89
90
91
92
93
94
95
96
Source: Franklin Associates, Ltd./AF&PA
Sustainable Forestry Initiative (SFI)-a mandatory, comprehensive system of
principles, guidelines and performance measures that integrates the perpetual
growing and harvesting of trees with the protection of wildlife, plants, soil, air and
water quality--was launched in 1994 by AF&PA member companies.
Industry embarked on a voluntary basic research program with the federal
government called "Agenda 2020" designed to stimulate a variety of
innovations to accomplish continuous environmental and energy improvements in
manufacturing and forestry.
Industry had an 80 percent participation rate--highest of any industry--in EPA's
"33/50" program to achieve a 50 percent reduction in the release of 17 priority
chemicals.
Amount of fresh water used to produce paper has been reduced by more than 70
percent per ton since 1959.
Since 1988, dioxin from pulp bleaching has been voluntarily reduced by more
than 94 percent to less than 2.5 ounces annually for the entire U.S. industry.
-8-
Ninety-eight percent of U.S. bleached pulp and paper mills report below EPA's
"minimum level" for dioxin in effluent.
Air pollution control devices now remove more than 97 percent of particulate
matter.
Emissions of sulfur compounds, the primary source of nuisance odors, have been
reduced by 90 percent since 1968.
Amount of fossil fuel used to produce a ton of paper has been cut about 38
percent and co-generation now accounts for 54 percent of total in-plant
electricity generation.
Approximately three-quarters of the energy consumed in the production of solid
wood products is self-generated.
Industry has pledged to follow a comprehensive code of Environmental, Health
and Safety Principles and Guidelines for its manufacturing facilities, which
represents its commitment to continuous, voluntary environmental
improvement.
Despite responsible environmental stewardship by the industry, stiff federal
and state regulation is imposing exorbitant costs on wood and paper
manufacturers--without demonstrated environmental benefits--and this is
seriously undermining the competitiveness of the industry.
Under the Environmental Protection Agency's (EPA) proposed Cluster
Rule, the paper industry will incur additional capital costs of from $2.8
billion to $5.2 billion in Phase I. A second phase of the Cluster Rule
will require additional costs.
EPA has stated its intention to propose MACT II (combustion sources)
simultaneously with publication of the final Cluster Rule.
EPA is developing MACT standards for wood products manufacturing that
could add capital costs in excess of $1 billion.
Industry outlays for the Great Lakes Initiative could run to $1.25 billion.
.
(This projections could be somewhat lower because additional flexibility is
built into the final rule.)
-9-
Additional costs are expected from other proposed regulations, such as
increased reporting requirements under SARA Title III, revised air
quality standards for particulates and ozone, and the industrial combustion
coordinated rule.
Complying with regulatory requirements such as Title V air permits
add to the burden.
D. Foreign Protectionism
High tariffs restrict the ability of U.S. wood and paper suppliers to export to
traditional markets and prevent them from taking full advantage of more
vigorous demand growth in developing countries.
Many countries impose steep tariffs on high value added products -- such as
lumber, mouldings, wood doors and windows -- but allow raw materials to
enter at zero or low duties. This practice -- known as tariff escalation --
effectively transfers jobs from U.S. mills to protected markets and robs U.S.
suppliers of the most profitable segments of the business.
Tariff rates as high as 7.2 percent imposed by the European Union
(EU) on top of high shipping costs place U.S. paper suppliers at a
competitive disadvantage.
Producers in Nordic countries, in South America and in the Far East
use the protection provided by high tariff walls to vastly expand
paper production, largely geared to export markets, including the
U.S. market.
-10-
Tariff Rates On Paper Products
%
30
25
25
20
20
15
14
11
10
8
7.2
5
5
1.8
0
ensuppul
China
Chile
Korea
Union Usedoung
Malaysia
USA
Average Tariff Rates On Wood Products
%
25
20
20
17.25 17
15
15
11
10
8.5
8.25
7
6.5
5
4.5
3
0
China
Puelleuu
Malaysia
Indonesia
Korea
Mexico
Taiwan
ueder
EU
U.S.
-11-
E. Foreign Government Policies Discriminate in Favor of Home Forest
Products Industries
Many of our trading partners--recognizing the competitive strengths of U.S.
paper and wood suppliers--have erected stiff trade barriers.
A number of fiber-rich developing countries--notably Brazil, Chile, Indonesia
and Malaysia--are building world class forest products industries with
substantial support from their governments. This support includes: low
wages and low labor standards; financial subsidies and tax breaks; lax
enforcement of environmental regulations; and failure to operate on the basis of
sustainable forestry principles.
Growth of Chemical Paper Grade Pulp Capacity
Average Annual % Growth, 1995-2000
20
15
10
5
0
U.S.
Brazil
Chile
Indonesia
Source: FAO
-12-
The Japanese restrict access to its wood and paper markets.
Japanese policies support home paper manufacturing and employment through
collusive business practices; close relationships between paper manufacturers,
distributors and end users; and lax enforcement of anti-competition laws.
Imports from the U.S. have been stuck at about 2 percent of Japanese
consumption despite significant cost advantages.
Total imports account for only 5 percent of paper consumption, the
lowest level of all industrialized nations.
Wood imports are restricted by high tariffs on value-added products
and by restrictive building codes and standards.
Finnish and other Nordic paper producers--our top competitors--have used the EU
as a sanctuary home market by taking advantage of duty free entry to the EU,
installing huge paper capacity dedicated to export markets, and by benefiting from
government targeting.
U.S. trade balance with respect to solid wood products has deteriorated sharply
since the early 1990s.
U.S. Trade Balance: Solid Wood Products
billions of $
2
1
0
-1
-2
-3
-4
84
85
86
87
88
89
90
91
92
93
94
95
96
Source: U.S. Department of Commerce, Bureau of the Census
-13-
F. U.S. Government Policies Assist Emerging Competitors
U.S. supported Export-Import Bank continues to provide financing for paper-
making machinery procurement by competitors that maintain tariff and
non-tariff barriers against U.S. products.
The U.S. Generalized System of Preferences gives forest products suppliers
in Brazil, Indonesia, and Thailand tariff free access to the U.S. market,
while these countries impose high tariffs on U.S. forest product exports.
-14-
CONCLUSION
Like other competitive American industries, the U.S. forest and paper industry must
tap into fast growing export markets to survive in the global economy. U.S.
management and workers have made the investments and taken the steps necessary to
ensure high productivity, competitive costs, and superior quality. At the same time,
government actions--domestic policies that penalize investment and protectionist trade
policies of foreign competitors--make it impossible to translate these advantages into
export sales and earnings on any equitable scale, and require an urgent and
comprehensive public policy response.
TRADE: FOREST PRODUCTS TARIFF INITIATIVE
The U.S. must adopt a comprehensive international trade policy aimed at achieving
global tariff free trade and a level international playing field for U.S. forest products
suppliers. The elimination of tariff and non tariff barriers worldwide for U.S. wood
and paper products will ensure continuing growth in the industry's sales, and the high
paying U.S. jobs they support. A pro-export trade initiative for the U.S. forest
products industry must include the following critical elements:
Successful conclusion of tariff negotiations with the EU, Japan and
APEC to achieve the elimination of tariffs on substantially all world
trade in wood and paper products by the year 2000.
An aggressive and effective strategy to achieve the elimination of
anticompetitive practices and the opening of the Japanese paper market--
the second largest in the world--as an explicit priority in the bilateral
relationship with Japan.
A commitment to use all available policy options--including the denial of
preferential tariff benefits under the U.S. Generalized System of
Preferences (GSP) to developing countries with world class forest
products industries--such as Indonesia and Brazil--which maintain high
tariff barriers against competition from U.S. forest products.
Achievement of the immediate removal of tariffs and non tariff barriers
on U.S. forest products as a precondition for Chinese and Russian
accession to the World Trade Organization.
-15-
Full integration of international programs of non-trade agencies which
confer benefits on overseas competitors -- including Export/Import Bank
and OPIC -- into market access strategies.
A thoroughgoing appraisal of the extent to which higher U.S.
environmental compliance costs undermine the international
competitiveness of U.S. industries, and development of market-oriented
strategies to level the international playing field in this area.
-16-
PRIVILEGED AND CONFIDENTIAL
July 1997
PROPOSED LEGISLATION DESIGNED TO ELIMINATE
FOREIGN TRADE BARRIERS TO U.S. WOOD AND PAPER EXPORTS
AFPA's draft proposed legislation sets forth specific objectives and authority for U.S.
trade negotiations which are designed to provide maximum leverage for eliminating foreign
barriers to U.S. wood and paper exports.
Negotiating Objectives. The proposed legislation sets as a principal negotiating
objective the prompt reduction or elimination of specific tariff and nontariff barriers for
those sectors in which (1) the United States imposes zero or de minimis tariffs, and (2)
our major trading partners maintain substantial tariff barriers, including, specifically,
wood and paper.
Tariff Proclamation Authority. To increase U.S. leverage to negotiate the elimination
of foreign wood and paper tariffs, the legislation grants the President new authority to
eliminate U.S. tariffs that are as high as 25 percent in order to implement trade
agreements whereby foreign countries agree to eliminate on a reciprocal basis significant
tariffs (including escalating tariffs on value-added products) on U.S. exports in sectors,
such as wood and paper, where the United States imposes zero or de minimis tariffs.
The tariff authority would give the Administration the ability to offer our trading partners
concessions in other sectors in order to obtain wood and paper tariff elimination.
Free Trade Negotiating Authority. The legislation provides the President with fast
track authority for future free trade agreements, subject to the condition that any such
agreements must include a provision guaranteeing that U.S. wood and paper exports to
U.S. free trade partners will be treated no less favorably than wood and paper exports
from any other country.
DETERMINED TO BE AN ADMINISTRATIVE
MARKING Per E.O. 13526
Sec. 3.2(C) Initials: DB Date: 3/18/19
DRAFT of July 7, 1997
PROPOSED TRADE NEGOTIATING OBJECTIVES
AND FAST TRACK/TARIFF PROCLAMATION AUTHORITY
1
SEC. 101. OVERALL AND PRINCIPAL TRADE NEGOTIATING OBJECTIVES OF
2
THE UNITED STATES.
3
(a) OVERALL TRADE NEGOTIATING OBJECTIVES. - The overall trade
4
negotiating objectives of the United States are--
5
(1) to obtain more open, equitable, and reciprocal
6
market access;
7
(2) to reduce or eliminate barriers and other trade-
8
distorting policies and practices on a basis which assures
9
substantially equivalent competitive opportunities for the
10
commerce of the United States;
11
(3) to ensure fairness and equity in international trade
12
by reducing or eliminating tariff and nontariff barriers in
13
foreign countries in those sectors where the United States
14
imposes no significant barriers to imports, particularly in
15
those instances where the foreign countries' tariff and
16
nontariff barriers are substantial;
17
(4)
18
(b) PRINCIPAL TRADE NEGOTIATING OBJECTIVES
19
(1) MULTILATERAL NEGOTIATIONS. - The principal
20
negotiating objectives of the United States with respect to
21
multilateral negotiations are--
22
(A) to obtain as soon as possible reciprocal tariff
23
and nontariff barrier elimination agreements under the
24
auspices of the WTO, especially for those products which
25
were the subject of reciprocal duty elimination or
1
harmonization negotiations during the Uruguay Round of
2
multilateral trade negotiations and especially for those
3
products in which foreign countries maintain substantial
4
tariff and non-tariff barriers;
5
(B)
6
(2) SECTORAL NEGOTIATIONS - The principal negotiating
7
objectives of the United States with respect to sectoral
8
negotiations are--
9
(A) to obtain competitive opportunities for United
10
States exports in foreign markets substantially
11
equivalent to those afforded to foreign products in the
12
United States;
13
(B) to obtain the prompt reduction or elimination
14
of specific tariff and nontariff barriers, especially
15
with respect to those sectors in which the United States
16
imposes zero or de minimis tariffs and especially with
17
respect to those sectors in which major trading partners
18
maintain substantial tariff barriers, including, for
19
example, wood and paper;
20
(C)
21
(3) BILATERAL AND REGIONAL NEGOTIATIONS. - The principal
22
negotiating objectives of the United States with respect to
23
bilateral and regional negotiations are--
24
(A) to obtain more open, equitable, and reciprocal
25
market access for United States exports in those foreign
26
countries, the opening of whose markets has the greatest
- 2 -
1
potential to increase United States exports and foreign
2
direct investment;
3
(B) To obtain competitive opportunities for United
4
States exports in foreign markets substantially
5
equivalent to those afforded to foreign products in the
6
United States;
7
(c) to obtain the reduction or elimination of
8
specific tariff and nontariff barriers, especially with
9
respect to those sectors in which the United States
10
imposes zero or de minimis tariffs and especially with
11
respect to those sectors in which foreign countries
12
maintain substantial tariffs, including, for example,
13
wood and paper;
14
(D) to obtain treatment for United States exports
15
and foreign direct investment in the foreign countries
16
that are party to such agreements which is, and will be
17
in the future, no less favorable than that accorded to
18
the exports or investment of any countries not party to
19
such agreements;
20
(E)
21
SEC. 102. TRADE AGREEMENT NEGOTIATING AUTHORITY.
22
(a) AGREEMENTS REGARDING TARIFF BARRIERS
23
(1) Whenever the President determines that one or more
24
existing duties or other import restrictions of any foreign
25
country or the United States are unduly burdening and
26
restricting the foreign trade of the United States and that
- 3 -
1
the purposes, policies, and objectives of this Act will be
2
promoted thereby, the President-
3
(A) before July 1, 2005, may enter into trade
4
agreements with foreign countries; and
5
(B) may, subject to paragraph (2), proclaim--
6
(i) such modification of any duty,
7
(ii) such other staged rate reduction of any
8
duty, or
9
(iii) such additional duties;
10
as he determines to be necessary or appropriate to carry
11
out such trade agreement.
12
(2) (A) Except as provided in subparagraph (B) below, no
13
proclamation may be made under subsection (a) that--
14
(i) reduces any rate of duty (other than a
15
rate of duty that does not exceed 5 percent ad
16
valorem on the date of enactment of this Act) to a
17
rate which is less than 50 percent of the rate of
18
such duty that applies on such date of enactment;
19
or
20
(ii) increases any rate of duty above the rate
21
that applies on such date of enactment.
22
(B) Subject to the consultation and layover
23
requirements of [section 115 of the Uruguay Round
24
Agreements Act], the President may proclaim the
25
elimination, modification or staged rate reduction of
26
any duty (other than a rate of duty that exceeds 25
27
percent ad valorem on the date of enactment of this Act)
- 4 -
1
if the President determines and certifies to the
2
Congress that--
3
(i) a foreign country has agreed to the
4
elimination of a significant duty on U.S. exports
S
of an article contained in a tariff category for
6
which the United States bound rate of duty in
7
Schedule XX [of the United States annexed to the
8
Marrakesh Protocol to the GATT 1994] is free or de
9
minimis;
10
(ii) the elimination, modification or staged
11
rate reduction of the duty imposed by the United
12
States is necessary and appropriate to provide for
13
equitable and reciprocal market access for exports
14
of the United States and the foreign country; and
15
(iii) the overall agreement is beneficial to
16
the commercial interests of the United States.
17
(3) A rate of duty reduction or increase that may not be
18
proclaimed by reason of paragraph (2) may take effect only if
19
a provision authorizing such reduction or increase is
20
included within an implementing bill provided for under
21
[section 1103 of the Omnibus Trade and Competitiveness Act of
22
1988] and that bill is enacted into law.
23
(4) A trade agreement may be entered into under the
24
subsection only if such agreement makes progress in meeting
25
the applicable objectives described in section 101.
26
(b) AGREEMENTS REGARDING NONTARIFF BARRIERS.
- 5 -
DOO
P.08
1
(1) Whenever the President determines that any barrier
2
to, or other distortion of, international trade or foreign
3
direct investment--
4
(A) unduly burdens or restricts the foreign trade
5
of the United States or adversely affects the United
6
States economy; or
7
(B) the imposition of any such barrier or
8
distortion is likely to result in such a burden,
9
restrictions, or effect;
10
and that the purposes, policies, and objectives of this Act
11
will be promoted thereby, the President may, before July 1,
12
2005, enter into a trade agreement with foreign countries
13
providing for--
14
(i) the reduction or elimination of such barrier or
15
other distortion; or
16
(ii) the prohibition of, or limitations on the
17
imposition of, such barrier or other distortion.
18
(2) A trade agreement may be entered into under the
19
subsection only if such agreement makes progress in meeting
20
the applicable objectives described in section 101.
21
(c) BILATERAL AND REGIONAL AGREEMENTS REGARDING TARIFF AND
22
NONTARIFF BARRIERS.
23
(1) Before July 1, 2005, the President may enter into
24
bilateral or regional agreements with foreign countries that
25
provide for the elimination or reduction of any duty imposed
26
by the United States. A trade agreement entered into under
27
this paragraph may also provide for the reduction or
- 6 -
1
elimination of barriers to, or other distortions of, the
2
international trade or foreign direct investment of the
3
foreign country or countries or the United States.
4
(2) Notwithstanding any other provision of law, no trade
5
benefit shall be extended to any country by reason of the
6
extension of any trade benefit to another country under a
7
trade agreement entered into under paragraph (1) with such
8
other country, unless the country receiving the benefit is
9
also party to the trade agreement.
10
(3) A trade agreement may be entered into under
11
paragraph (1) with any foreign country or countries only if-- -
12
(A) the agreement makes progress in meeting the
13
applicable objectives described in section 101;
14
(B) such foreign country requests the negotiation
15
of such an agreement;
16
(c) the agreement provides for treatment for United
17
States exports and foreign direct investment in the
18
foreign country or countries that are party to the
19
agreement which is, and will be in the future, no less
20
favorable than that accorded to the exports or
21
investment of any countries not party to the agreement;
22
and
23
(D) the President, at least 60 days before the date
24
notice is provided under [section 1103 (a) (1) (A) of the
25
Omnibus Trade and Competitiveness Act of 1988] --
26
(i) provides written notice of such
27
negotiations to the Committee on Finance of the
- 7 -
1
Senate and the Committee on Ways and Means of the
2
House of Representatives, and
3
(ii) consults with such committees regarding
4
the negotiation of such agreement.
5
(4) The 60-day period of time described in paragraph
6
(3) (D) shall be computed in accordance with [section 1103 (e)
7
of the Omnibus Trade and Competitiveness Act of 1988].
8
(d) CONSULTATION WITH CONGRESS BEFORE AGREEMENTS ENTERED
9
INTO --
10
(1) Before the President enters into any trade agreement
11
under subsection (b) or (c), the President shall consult
12
with--
13
(A) the Committee on Ways and Means of the House of
14
Representatives and the Committee on Finance of the
15
Senate; and
16
(B) each other committee of the House and the
17
Senate, and each joint committee of the Congress, which
18
has jurisdiction over legislation involving subject
19
matters which would be affected by the trade agreement.
20
(2) The consultation under paragraph (1) shall include--
21
(A) the nature of the agreement;
22
(B) how and to what extent the agreement will
23
achieve the applicable purposes, policies, and
24
objectives of this Act; and
25
(C) all matters relating to the implementation of
26
the agreement under [section 1103 of the Omnibus Trade
27
and Competitiveness Act of 1988].
- 8 -
1
(3) If it is proposed to implement two or more trade
2
agreements in a single implementing bill under [section 1103
3
of the Omnibus Trade and Competitiveness Act of 1988], the
4
consultation under paragraph (1) shall include the
5
desirability and feasibility of such proposed implementation.
6
197721
- 9 -
DRAFT of July 7, 1997
PROPOSED FAST TRACK LEGISLATIVE HISTORY
Sec. 101. Overall and Principal Trade Negotiating Objectives of
the United States.
Section 101 contains a new statutory statement of the
overall and principal objectives of the United States in trade
negotiations. These are intended to update the objectives set
forth in the Omnibus Trade and Competitiveness Act of 1988 (1988
Trade Act), which were intended primarily to address the then
ongoing Uruguay Round negotiations. With the conclusion of the
Uruguay Round, as well as the North American Free Trade Agreement
(NAFTA) and the recent Information Technology Agreement, it is
appropriate that a new set of objectives for U.S. trade negotia-
tions be established.
Overall Negotiating Objectives. In keeping with previous
statements in the 1988 Trade Act and the Trade Act of 1974,
section 101 (a) first sets forth the overall U.S. trade negotiat-
ing objectives. These are to obtain more open, equitable, and
reciprocal market access; to reduce or eliminate barriers and
other trade-distorting policies and practices on a basis which
assures substantially equivalent competitive opportunities for
the commerce of the United States; and to ensure fairness and
equity in international trade by reducing or eliminating tariff
and nontariff barriers in foreign countries in those sectors
where the United States imposes no significant barriers to
imports.
Specific reference is given in the overall negotiating
objectives to the problem of disparities in tariff and nontariff
barriers between the United States and foreign countries. As a
result of the last 50 years of GATT negotiations, the United
States has substantially reduced or eliminated its tariffs with
respect to many significant sectors of the economy. Unfortunate-
ly, a number of our trading partners continue to impose signifi-
cant tariffs on U.S. exports in these same sectors. During the
Uruguay Round, the United States sought to eliminate these
disparities through the reciprocal elimination of duties among
major trading countries in a wide range of sectors of key inter-
est to U.S. firms. While this "zero-for-zero" initiative was
successful in some sectors, agreement on complete duty elimina-
tion was not achieved in others, including paper and wood prod-
ucts.
In the Uruguay Round Agreements Act (URAA), and in the
Statement of Administrative Action (SAA) accompanying the URAA,
both the Congress and the Administration emphasized the impor-
tance of obtaining further reductions and elimination of duties
in these sectors as a priority objective U.S. multilateral,
regional and bilateral trade negotiations. To achieve this
objective, the President was granted residual tariff proclamation
authority to reach additional agreements under the auspices of
the WTO to eliminate tariffs in these zero-for-zero sectors.
This tariff authority proved useful in eliminating tariffs in the
electronics sector through the Information Technology Agreement.
However, other important sectors such as wood and paper continue
to face significant foreign tariff barriers. Prompt elimination
of these tariffs is a matter of fairness and equity, and could
result in substantial trade gains -- to the benefit of the U.S.
industry and foreign importers -- and is therefore included in
the overall negotiating objectives.
It is equally important that these objectives be sought with
all possible alacrity. For example, even in those countries in
which important tariff disparities will be phased-out over time
as part of the Uruguay Round, often the disparities will be
maintained for many years to the great disadvantage of the U.S.
industry.
Principal Negotiating Objectives. Section 101 (b) sets forth
the principal negotiating objectives for each of the categories
of negotiations in which the United States is likely to be
engaged over the next eight years: multilateral, sectoral,
regional and bilateral.
Multilateral Negotiations. The principal trade negotiating
objectives with respect to multilateral negotiations focus on the
ongoing work of the WTO in such areas as agriculture, services,
subsidies, trade and the environment, and trade and competition
policy, as well as the continuing unfinished business from the
Uruguay Round, including those zero-for-zero initiatives of the
United States which remain unresolved. To achieve the objective
with respect to tariff elimination, the Administration should
seek to obtain reciprocal tariff and nontariff barrier elimina-
tion agreements under the auspices of the WTO for those products
which were the subject of reciprocal duty elimination or harmoni-
zation negotiations during the Uruguay Round of multilateral
trade negotiations and for those products in which there is a
substantial disparity between foreign tariff and nontariff
barriers and U.S. barriers.
Among the most critical areas where further progress is
needed is in the paper and wood sectors. Japan in particular has
resisted elimination of its wood tariffs, which range as high as
18 percent on some processed wood products. [CONFIRM HIGHEST
CURRENT FIGURES IN LIGHT OF URUGUAY ROUND IMPLEMENTATIONI With
respect to paper, a priority objective should continue to be an
accelerated reduction in EU tariffs on paper and paper products,
which under the Uruguay Round are being phased out over an
extended 10-year period. Thus, to be effective, such tariff
elimination should be obtained, if at all possible, no later than
the year 2000. In addition, there are numerous other countries
that impose significant tariff barriers on U.S. wood and paper
- 2 -
exports, as discussed further below in the section on sectoral
negotiating objectives.
Sectoral Negotiations. The principal negotiating objectives
with respect to sectoral negotiations are to obtain competitive
opportunities for United States exports in foreign markets
substantially equivalent to those afforded to foreign products in
the United States; and to obtain the reduction or elimination of
specific tariff and nontariff barriers, especially with respect
to those sectors in which the United States imposes zero or de
minimis tariffs and those secotrs in which there is a subtantial
disparity between U.S. tariffs and those of a major trading
partner.
Wood and Paper. Among the sectors on which the United
States should place priority attention in any sectoral negotia-
tions are wood and paper products, both as a zero or de minimis
area of U.S. tariffs and because of the substantial restrictions
maintained by several of our major trading partners. Despite
growth in exports over the past several years, the U.S. forest
products industry is losing significant market opportunities
around the world because of foreign trade barriers, both tariff
and nontariff.
1. Tariffs. Foreign tariff barriers cause significant
competitive effects because the United States has agreed to zero
or de minimis tariffs on most wood and paper products. U.S.
duty-free treatment or low duties on wood and paper products
permit essential unrestricted foreign access to the U.S. market,
while U.S. exporters continue to face high duties imposed on
those same products by foreign countries that have not kept pace
with the United States in reducing rates of duty. Such dispari-
ties in tariff treatment deny U.S. exporters competitive opportu-
nities that are substantially equivalent to those afforded to
similar foreign products in the United States.
Given the results of the Uruguay Round negotiations and the
immediate and substantial cost of such restrictions on U.S.
producers, prompt elimination of tariffs in these sectors, no
later than the year 2000, should be sought.
On a global level, the single- overwhelming barrier in key
world markets facing U.S. wood exporters is tariff escalation.
Tariff escalation is a practice normally used by developing
countries to protect infant industries. In the wood sector,
tariff escalation occurs when a country establishes low or zero
tariffs for logs and other raw materials, but maintains relative-
ly high tariffs on processed products like lumber, plywood,
veneer, doors, flooring and siding. This practice becomes
particularly damaging when utilized by economically developed
countries. It denies equitable market opportunities because it
undermines the comparative manufacturing advantage of the highly
- 3 -
productive and internationally competitive U.S. wood products
industry.
Japan is an example of an advanced industrialized economy
that continues to use tariff escalation to protect its wood
products industry. Japan imposes no tariffs on raw material
imports, but up to 18 percent tariffs on processed products. The
combination of zero duties on raw materials and high duties on
processed products creates an effective rate of protection that
is significantly higher than the nominal rate of duty. This is
because Japan's wood processors can import raw materials without
a tariff, while tariffs are applied to the full value of any
imported manufactured product -- both the raw material and the
value-added. For example, where a raw materials make up 50
percent of the cost of production, and the finished product faces
a tariff of 18 percent, U.S. producers of the same product would
have to increase their manufacturing productivity by 36 percent
to overcome the effect of the tariff.
In addition to Japan, some of the major markets to which
U.S. exports are significantly restricted because of tariff
escalation are: Algeria, Brazil, China, Columbia, the Dominican
Republic, the European Union, Egypt, India, Indonesia, Korea,
Malaysia, Mexico, New Zealand, Pakistan, the Philippines, Thai-
land, and Turkey.
With respect to paper, significant tariff barriers to U.S.
exports continue to exist in Australia, Brazil, China, the
European Union, India, Indonesia, Korea, Malaysia, South Africa,
Taiwan and Thailand. While the EU did agree in the Uruguay Round
to phase out its paper tariffs, it has taken an extended 10-year
phase-out period to accomplish this, during which time the U.S.
industry remains at a significant competitive disadvantage. A
much prompter elimination of tariffs is called for. In addition,
association agreements with the EU signed by the Czech Republic,
Hungary, Poland and the Slovak Republic give preferential tariff
treatment to EU paper exports, discriminating against U.S. paper
exports. Elimination of tariffs on U.S. paper exports should be
a priority objective of any future sectoral negotiations.
2. Quotas. U.S. wood producers also face quotas and
tariff-rate quotas that have been imposed merely to restrict
competitive products that limit their exports to the EU, Mexico,
Israel and China. Paper products are also subject to quota
restrictions in China. Elimination of these restrictions should
also be given significant priority in any sectoral negotiations.
3. Environmental Certification and Ecolabeling Require-
ments. An area of emerging concern with respect to non-tariff
trade barriers for U.S. paper and wood products is the growing
number of environmental forest management certification and
labeling requirements in key foreign markets. The certification
requirements often call for strict adherence to performance
- 4 -
standards governing what is harvested from a forest and how it is
harvested. These requirements also demand a certificate of
origin requiring producers to track the chain of custody of the
product throughout transportation, processing and distribution --
from the forest to the final end use. Such non-product-related
process and production method (PPM) requirements are often trade-
restrictive and discriminatory in effect.
U.S. paper and wood producers likewise face a series of
ecolabeling requirements in foreign countries, such as those of
the European Union, which include non-product related PPMs in the
criteria for product labels. The EU ecolabeling scheme for
copying paper, for example, includes a requirement that companies
describe how international or national agreements on sustainable
forest management are applied on their lands and those of their
suppliers, together with a statement by the "responsible authori-
ty" that these principles are followed, despite the fact that
there is no government agency in the United States with authority
over private lands to grant this verification. Such requirements
thus leave U.S. exports at risk of discriminatory treatment.
Bilateral and Regional Negotiations. The principal negoti-
ating objectives of the United States with respect to bilateral
and regional negotiations relate primarily to the proposed Free
Trade Area of the Americas (FTAA) and any other bilateral and
regional free trade agreements, such as an expansion of the NAFTA
or any free trade areas that might be negotiated in Asia and with
European countries.
A key objective in this area for the United States should be
to obtain more open, equitable, and reciprocal market access for
United States exports in those foreign countries the opening of
whose markets has the greatest potential to increase United
States exports and foreign direct investment. The purpose of
this objective is to ensure that options for regional trade
agreements are considered on the basis of which countries would
provide the best market opportunities for U.S. exporters. This
is intended to encourage the Administration to consider all
regions of the world, rather than simply focusing on any one, as
it considers future bilateral and regional negotiations.
Other key objectives for bilateral and regional negotiations
are to obtain competitive opportunities for United States exports
in foreign markets substantially equivalent to those afforded to
foreign products in the United States and to obtain the reduction
or elimination of specific tariff and nontariff barriers, espe-
cially with respect to those sectors in which the United States
imposes zero or de minimis tariffs and those sectors in which our
trading partners have substantially higher tariffs than those
imposed on imports into the United States. Here, as previously
discussed under the sectoral negotiations objectives, the focus
is to be on eliminating disparities in competitive opportunities
afforded to U.S. and foreign industries. This should include,
- 5 -
for example, attention to those sectors, such as wood and paper,
where the United States imposes zero or de minimis tariffs while
foreign countries still impose significant tariffs. Again, it is
important that these results be achieved as soon as possible, if
at all possible by the year 2000.
Finally, another objective in bilateral and regional negoti-
ations is to obtain treatment for United States exports and
foreign direct investment in the foreign countries that are party
to the agreement which is, and will be in the future, no less
favorable than that accorded to the exports or investment of any
countries not party to the agreement. Given the proliferation of
free trade agreements around the world, there is a substantial
risk that, absent clear provisions to the contrary, other coun-
tries entering into bilateral or regional agreements with the
United States may subsequently, in another bilateral or regional
agreement, seek to grant other countries terms of access to their
markets that are more favorable than those granted to the United
States. For example, while the U.S.-Israel free trade agreement
limited exports of U.S. plywood under a tariff rate quota, a
subsequent free trade agreement between Israel and the European
Union provided more favorable terms, leaving U.S. producers at a
competitive disadvantage. [CONFIRM SUMMARY WITH STEVE OR BETSY]
Such discrimination should be clearly prohibited in any bilateral
or regional agreements entered into by the United States.
Sec. 102. Trade Agreement Negotiating Authority.
Tariff Agreements. Section 102 (a) grants the President
authority to enter into trade agreements to reduce or eliminate
tariffs until July 1, 2005, and to proclaim the necessary reduc-
tions in U.S. tariffs to implement any such agreements. As with
the tariff proclamation authority granted in the 1988 Trade Act,
this authority is generally limited to reductions of 50 percent
of the rate of duty applicable on the date of enactment of this
bill, with the exception of existing duty rates that do not
exceed five percent ad valorem.
Section 102 (a) (2) (B) provides additional flexibility to the
President to negotiate tariff agreements (and implement them by
proclamation) that reduce or eliminate tariffs currently as high
as 25 percent without being subject to the 50 percent limitation
noted above if the President determines and certifies to the
Congress that--
(i)
a foreign country has agreed to the elimination of a
significant duty on U.S. exports of an article con-
tained in a tariff category for which the United States
bound rate of duty in Schedule XX of the United States
annexed to the Marrakesh Protocol to the GATT 1994 is
zero or de minimis;
- 6 -
(ii)
the elimination, modification or staged rate reduction
of the duty imposed by the United States is necessary
and appropriate to provide for equitable and reciprocal
market access for exports of the United States and the
foreign country; and
(iii)
the overall agreement is beneficial to U.S. commercial
interests.
In addition, before proclaiming any such reductions under this
provision, the President must observe the consultation and
layover requirements set forth in section 115 of the Uruguay
Round Agreements Act.
The purpose of this two-tier approach regarding tariff
proclamation authority is to create an incentive for other
countries to offer to eliminate significant tariffs on products
concerning which the United States has already bound its tariffs
at zero or very low levels. In such cases, the President would
have the authority to make significant reductions in high U.S.
tariffs on other products which may be of interest to other
countries. This is intended to provide the President with
additional leverage to conclude market-opening agreements bene-
fiting those U.S. sectors that have already given their tariff
protection and yet continue to face significant tariff barriers
to their exports to foreign countries. The Committee believes
that obtaining further reduction and elimination of foreign
tariffs, as well as accelerated staging of reductions, in these
sectors should be a priority objective in all future U.S. trade
negotiations, whether multilateral, sectoral, regional or bilat-
eral.
For example, the Committee notes that among the most criti-
cal areas where further progress is needed is in the wood and
paper sectors. Japan in particular has resisted elimination of
its wood tariffs, which range as high as 18 percent on some
processed wood products. In addition to Japan, some of the major
markets to which U.S. exports are significantly restricted
because of wood tariffs are: Algeria, Brazil, China, Columbia,
the Dominican Republic, the European Union, Egypt, India, Indone-
sia, Korea, Malaysia, Mexico, New Zealand, Pakistan, the Philip-
pines, Thailand, and Turkey. With respect to paper, a priority
objective should continue to be an accelerated reduction in EU
tariffs on paper and paper products, which under the Uruguay
Round are being phased out over an extended 10-year period. In
addition, significant tariff barriers to U.S. paper exports
continue to exist in Australia, Brazil, China, India, Indonesia,
Korea, Malaysia, South Africa, Taiwan and Thailand.
Section 102 (a) (3) provides that any tariff reduction or
increase that may not be proclaimed by reason of the restrictions
in paragraph (2) may take effect only if a provision authorizing
such reduction or increase is included within an implementing
- 7 -
bill subject to the fast track procedures and that bill is
enacted into law. Section 102 (a) (4) specifies that a trade
agreement may be entered into under subsection (a) only if the
agreement make progress in meeting the principal negotiating
objectives relating to tariff elimination described in section
101. Again, this is intended to emphasize the importance the
Congress places on eliminating tariff disparities between the
United States and our key trading partners, especially in those
zero-for-zero sectors that remain subject to further negotia-
tions.
Nontariff Agreements. Subsection (b) of section 102 pro-
vides separate authority for multilateral and sectoral agreements
regarding nontariff barriers. It is also effective until July 1,
2005. As with past grants of fast track authority, it is speci-
fied that a trade agreement may be entered into under the subsec-
tion only if such agreement makes progress in meeting the appli-
cable objectives described in section 101. The Committee notes
in this regard that priority should be given to concluding
outstanding zero-for-zero initiatives, such as those concerning
paper and wood, as discussed above.
Bilateral and Regional Agreements. Subsection (c) of
section 102 provides separate authority for bilateral and region-
al agreements with foreign countries regarding both tariff and
nontariff barriers. Again, this authority is limited to agree-
ments entered into by July 1, 2005. This authority is intended
to be used for the negotiation of the Free Trade Area of the
Americas (FTAA), as well as any expansion of the NAFTA or any
other regional or bilateral free trade agreements.
Consistent with past grants of fast track authority, the
subsection specifies that, notwithstanding any other provision of
law, no trade benefit shall be extended to any country by reason
of the extension of any trade benefit to another country under a
trade agreement entered into under paragraph (1) with such other
country, unless the country receiving the benefit is also party
to the trade agreement. This provision is intended to ensure
that foreign countries which have not made reciprocal concessions
to the United States do not receive the benefits of regional or
bilateral free trade agreements.
This subsection also sets forth certain restrictions on the
President's ability to enter into regional or bilateral trade
agreements. First, as in past grants of fast track authority,
the agreement must make progress in meeting whichever principal
negotiating objectives established in section 101 are applicable
to the agreement. Second, and again consistent with past grants
of fast track authority, the foreign countries with which the
United States has negotiated the agreement must have requested
the negotiation of such an agreement.
- 8 -
FRUIT
$80
784632772A
P.20
Third, the agreement must provide for treatment for U.S.
exports and foreign direct investment in the foreign countries
that are party to the agreement which is, and will be in the
future, no less favorable than that accorded to the exports or
investment of any countries not party to the agreement. This is
a new requirement intended to deal with the problem of one
country entering into free trade agreements with several coun-
tries on different terms. For example, as noted above, Israel
has entered into free trade agreements with both the United
States and the European Union. The U.S.-Israel free trade
agreement limited exports of U.S. plywood under a tariff rate
quota, while EU plywood exports received more favorable treat-
ment. Such unequal treatment is likely to become an increasingly
more common problem as the number of bilateral and regional free
trade agreements around the world proliferates. This new re-
quirement is intended to resolve this problem by requiring a
provision in all future free trade agreements of the United
States which guarantees U.S. exports and investment equivalent
treatment to that granted by a free trade partner to the exports
and investment of any other country.
A fourth requirement, again consistent with past grants of
fast track authority, mandates that the President, at least 60
days before he formally notifies the Congress of his intention to
enter into an agreement under the fast track authority, must (i)
provide written notice of such negotiations to the Committee on
Finance of the Senate and the Committee on Ways and Means of the
House of Representatives, and (ii) consult with those committees
regarding the negotiation of the agreement in question. The 60-
day period of time for consultation is to include only those days
in which the Congress is in session, as was provided for under
the 1988 Trade Act.
Consultation with the Congress. Subsection (d) of section
102 sets forth the general requirements for consultation by the
President with the Congress under the fast track procedures.
These requirements are generally consistent with those set forth
in the 1988 Trade Act. The consultations are directed to occur
with the Committee on Ways and Means of the House of Representa-
tives and the Committee on Finance of the Senate, as well as each
other committee of the House and the Senate, and each joint
committee of the Congress, which has jurisdiction over legisla-
tion involving subject matters which would be affected by the
particular trade agreement under negotiation.
The consultations mandated under this subsection are to
cover the nature of the agreement; how and to what extent the
agreement will achieve the applicable purposes, policies, and
objectives set forth in this bill; and all matters relating to
the implementation of the agreement under the fast track proce-
dures set forth in section 1103 of the Omnibus Trade and Competi-
tiveness Act of 1988. As with past grants of fast track authori-
ty, if it is proposed to implement two or more trade agreements
- 9 -
in a single implementing bill under the fast track procedures,
the consultations between the President and the Congress must
also cover the desirability and feasibility of such proposed
implementation.
197736
- 10 -
09/22/97 MON 11:19 FAA 5132999967
TWI TERMS TWHIN
hio Alliance
for International Trade
Thomas S. Norwalk
c/o M V Marketing Group. Inc.
937-299-1825
1250 W Dorothy Ln., Ste 205
MONDAY, SEPTEMBER 22, 1997
fax 937-299-9967
P.O. Box 321. WWB
e-mail [email protected]
Dayton Daily News
Dayton. OH 45409-0321
Robert K. Chappell
937-298-5070
tax. 937-297-1105
EDITORIALS
e-mail chappell@ennel
Result of
Fast track
McLarly swing
IS right way
through Ohio
on trade
pages
Tom Norwalk
Chio Alliance
937/299-1825
937/299-9967
Mack
The legitimate concerns of unlons and
others already get plenty of consideration
-
Andrew
when agreements are negotiated.
resident Clinton is trying to get Con-
- Nelson
Date
From
Co.
Phone #
Fax
P
gress to give him the same kind of
leeway that past presidents have had
in negotiating trade agreements. His
- Eric
proposal is referred to as "fast track," meaning
7671
White House OEOB 169
that Congress would have to either approve or
disapprove of a treaty as a package, rather
than having the option of rejecting some sec-
FYI
tions.
The president's proposal is reasonable.
st-it° Fax Note
Jay Berman
202/456-1998
202/456-2464
The main opposition comes from labor
Den
unions, which fear that various administra-
/Dept.
tione:might not be careful enough to protect
American jobs in negotiations. In truth, how-
ever, evidence is slight that past treaties have
cost more jobs than they have created, espe-
cially a state like Ohio, which is one of the
biggest exporting states in the nation. Studies
on the national impact of the North American
Free Trade Agreement, for example, show rela
tively small numbers of jobs gained or lost, but
certainly no net loss. (Nor is it a simple calcu-
lation as to whether the new jobs are as good a
the old, or better.)
Workers in an auto town like Dayton are
used to seeing foreign competition as a threat
to jobs. It is, but only in the narrow sense. If
Americans can buy foreign products, but for-
eigners can't buy American, that's a problem.
But It's a problem recognized by American
negotiators. Under Bill Clinton, as under other
presidents, the negotiators have generally seen
their task as being to open foreign markets. As
the world has moved toward open markets in
the 1990s, this natlon has prospered.
Dayton Daily News -
1.1 The main impact of adding Congress to the
primary coverage
negotiating mix would be to complicate the
- Rep. Tony Hall (D) 3rd
already monumentally complicated process of
working out trade agreements. If Congress -
secondary coverage
which is not known for being a great friend of
- Rep. Dave Hobson (R) 7th
unions these days anyway- wants to nix an
- Rep. John Boehner (R) 8th
agreement, it can. That's the arrangement that
- Rep. Rob Portman (R) 2nd
has always existed and generally worked. It's
enough power for Congress.
June 30, 1997
Andrew-
MEMORANDUM FOR MACK MCLARTY
FROM:
ERIC FARNSWORTH
fir
SUBJECT:
LABOR AND FAST TRACK
ER
Progressive Policy Institute says that Labor plans to run a $20 million media campaign against
fast track this August. Targeted will be Members of Congress in swing districts at home on
August break.
The good news, according to PPI, is that August may be too soon, and that the campaign may
therefore run out of steam before fast track comes to a head later in the autumn. Still, delay in
introducing the bill is allowing opponents of the measure to organize aggressively to defeat it; no
word on whether the business community plans a countervailing public affairs/media/lobby
campaign.
Andrew
-Back to you
For File.
June 10, 1997
-
one
MEMORANDUM FOR MACK MCLARTY
FROM:
Andrew Friendly
SUBJECT:
Al From and Latin America
CC:
Nelson Cunningham
Edie Wilson who deals with trade issues for the DLC called me today to talk about getting more
involved in Latin America and the upcoming fast track debate. She said that Al From has never
been to South America and that she has talked to him about taking a trip in the near future so that
he can become better acquainted with the issues. Also, she hoped to get Sen. Lieberman more
involved with trade and specifically Latin America.
Al told Edie that they needed your advise first before planning such a trip and she suggested the
two of them come talk with you soon. She would also like to discuss how the DLC can help in
pushing general trade issues other than MFN which they are already involved in doing.
Are you willing to set up a meeting with Al and Edie within the next week? If so, who else
would you like to include from the WH?
6/11
Andrew
Nelson -
Mack wants to do
- Who', your enswer
this + I've got in
to this question?
a call to set up for
-I6 sounds like something
next Mon or Tues am.
wes hould do - don't you
What about NSC or
agree?
?
Shid it just be us?
one
- Andrew
6/10
KEEPING AMERICA AND ITS WORKERS THE MOST COMPETITIVE IN THE WORLD
America Needs Fast Track to Continue to Create Higher-Paying Jobs for More Americans. Without it,
America's role as the largest exporter in the world will be put in jeopardy. And with new markets
opening around the world, it is more important than ever to give the President traditional trade authority
to break down trade barriers that put American products made by American workers at a disadvantage.
We will continue to ensure that America's workers will benefit from expanded trade by fighting for
increased training and education opportunities.
I.
AMERICAN WORKERS STILL FACE A DISADVANTAGE BECAUSE TOO MANY
FOREIGN COUNTRIES PLACE RESTRICTIONS ON AMERICAN GOODS. WE NEED
FAST TRACK TO LEVEL THE PLAYING FIELD FOR AMERICAN WORKERS.
What We Inherited. In 1993, President Clinton came into office at a time when the U.S. continued its
commitment to free and fair trade, but other countries maintained high tariffs and other obstacles to fair
trade to the disadvantage of America's workers.
President Clinton Moved to Address this Disadvantage by Completing the Uruguay Round
Agreements, Negotiated Under Fast Track Authority. We have repeatedly leveled the playing field by
negotiating tough, fair agreements -- securing more concessions from our trading partners than we had to
give up. For example, Australia has cut its tariffs five times more than we have had to, Korea six times
more than the U.S. and Peru has cut its tariffs ten times more than the U.S. since the Uruguay Round of
GATT. Because of the ongoing benefits from the Uruguay Round, it is estimated that trade will continue
to grow by an average of 9% per year until 2000.
American Workers Still Face a Disadvantage. Even with the recent progress in GATT, American
exports still face higher tariff rates than our own. For instance, U.S. agricultural exports average 38%,
while our own rates average 11%. U.S. electric machinery exports average 5%, while our rates average
under 2%. Without Fast track authority, these conditions will only persist when more and more countries
negotiate their own preferential trade deals to the detriment of America's workers. American workers
deserve better.
Open and Fair Trade is in the Best Interest of American Workers and their Families. As the
American people prepare for the challenges of the 21st century, we face a critical choice: We can meet the
challenges of the future, write the trade rules and continue America's remarkable economic growth -- or
we can turn our back on the world and fail to compete for new markets, new contracts, new business and
new jobs. All over America, jobs have been created in small, medium and large companies that would not
be here today if we did not have the ability to negotiate fair trade agreements.
Over the last four years, American manufacturing exports rose 42%, high technology exports
jumped 46%, service exports climbed 33% and farm exports rose 41%.
From 1990-1996, U.S. auto exports to the biggest emerging markets (excluding Mexico) rose
$500 million and are estimated to reach $6.1 billion by 2010. U.S. parts exports to these
emerging markets are expected to more than triple from the current $3 billion to $10 billion in
2010.
The U.S. dominates 75% of the global software market. More than one-half million workers
are employed in the industry -- double the level a decade ago. This industry is expected to
grow 9% per year worldwide over the next decade.
The U.S. once again dominates the world's semiconductor industry -- after trailing Japan for
years. More than one-quarter million American are employed in the semiconductor industry --
up 13% over the last three years. The global semiconductor market nearly tripled in size
between 1990 and 1995 -- and sales are expected to reach $200 billion by the year 2000 -- a
fourfold increase over a decade.
Exports of goods and services have risen from about 4% of GDP in the early 1960's to over
13% today. Over 15% of the total American workforce is employed in the manufacturing
sector. U.S. exports have grown 3 times faster than Japan's, 5 times faster than Germany's
since the mid 1980's.
П.
TO ENSURE THAT ALL AMERICAN WORKERS BENEFIT FROM EXPANDED TRADE,
THE CLINTON ADMINISTRATION HAS FOUGHT FOR INCREASED TRAINING AND
EDUCATION OPPORTUNITIES.
We need a growth strategy in which we take every action possible to ensure that all Americans can benefit
from economic change. We need to break out of the old arguments that say you are either for blocking
change or you are for the market, but everyone has to fend for themselves. Government needs to help
workers, communities and those not in the job market realize the benefits of expanded trade.
The Administration is developing a comprehensive plan to help communities and
workers who have been affected by trade. President Clinton is building on his strong record
of helping workers and families secure more opportunities to improve their educations and
obtain higher paying jobs. The President will announce his plan early next week.
A Record of Strong Action to Help Families and Workers
Fought To Ensure Low-Income Families Benefitted from Child Tax Credit. Because of
the President's efforts, 13 million children from families with incomes below $30,000 will
receive the tax credit -- up to 7.5 million more than under the House plans. Families making
under $30,000 -- such as young teachers, police officers, farmers, nurses and others who work
hard and play by the rules -- will now receive the child credit.
20% Tuition Tax Credit. The balanced budget deals provides for a 20% tuition tax credit
applied to the first $5,000 of qualified education expenses and to the first $10,000 thereafter for
college juniors, seniors, graduate students, and working Americans pursuing lifelong learning.
$1,500 Hope Scholarship Tax Credit. The balanced budget deal also includes a $1,500 Hope
Scholarship to make the first two years of college universally available. For a student attending
the average four-year college, the Tuition Tax and HOPE Scholarship tax credits will provide
tax savings of up to $5,000.
Doubled Dislocated Worker Funding. The funding for dislocated workers has been doubled,
from $651 million in FY93 to $1,286 million in FY97. This year, the dislocated worker
program will assist 580,000 workers, up about 300,000 since President Clinton took office.
Largest Pell Grant Increase in Two Decades. The Balanced Budget agreement boosts the
maximum 1998 Pell grant from $2,700 to $3,000, and expands the program to more poor
independent students -- that's the largest increase in two decades.
III.
IF THE PRESIDENT DOES NOT HAVE THE SAME AUTHORITY THAT EVERY
PRESIDENT HAS HAD SINCE 1974, OUR COMPETITORS, NOT AMERICAN WORKERS,
WILL REALIZE THE BENEFITS OF THE NEW ECONOMY.
Today, we have the opportunity to permanently create the types of jobs that pay more and provide our
workers with more security -- if we continue to increase our exports and open more markets. But if the
President does not have the authority to negotiate tough and fair trade agreements with Congress' consent,
our competitors will get the best jobs for their workers, while the U.S. will be relegated to the sidelines.
Without fast track, the U.S. will lack credibility to push for a fast start on global
negotiations scheduled to start at the end of 1999. The United States stands the most to
gain in these negotiations because of its comparative advantage in agriculture,
commercial services and government procurement.
Agriculture. Agricultural exports support nearly a million U.S. jobs. Agriculture remains
one of the most protected and subsidized sectors in the world economy. American exports
still continue to face trade barriers through high tariffs and preferential trade deals that
exclude the U.S.
Commercial Services. Service exports of U.S. firms supported nearly 4 million jobs in
1996. Unless negotiated away, barriers will inhibit increased U.S. service exports. In
Korea, a number of service sectors remain restrictive for foreign investment including
telecommunications and insurance. Brazil has restrictive investment laws, lack of
transparency in administrative procedures and limits on foreign capital participation.
Distribution in the domestic market is restricted in Indonesia.
Government Procurement. Some sectors relating to government procurement include
civil aircraft, energy equipment, environmental technologies and services and medical
equipment which employ over 2 million American workers. The vast majority of low and
middle-income countries have not signed the WTO Government Procurement Code and
the U.S. cannot negotiate government procurement obligations in plurilateral negotiations.
TALKING POINTS ON FAST TRACK AND FOREIGN POLICY
Fast Track and American Leadership -- Overview
The fast track debate is about much more than trade. It is about American
leadership in the world. Other governments, particularly those in Latin America, view
fast track as a test of whether the United States intends to maintain our half century of
leadership -- or retreat and turn inward.
A failure of U.S. leadership would be a huge mistake. For over 50 years, we have led
the world toward freer markets -- reducing average tariffs from 40% at the end of World
War II to about 5% today. That has led to a 90-fold increase in trade, which has
enormously benefitted the U.S. We must not turn our back on that progress.
American leadership is not divisible. If we fail to lead on trade, our influence will
suffer in other areas. The patterns of trade developed in the coming decades will create
patterns affecting our national security, foreign relations and political interests. If Latin
America is permitted--by default in our leadership--to turn increasingly to Europe and
Asia in its trade relations, it will weaken our relationship with Latin America. Rejecting
fast track would also send a terrible signal to emerging markets, undermining the
developing world trend toward free market policies and democracy.
Exports and U.S. Growth
For the U.S., the case for fast track is clear: if we are to sustain our economic
growth, we must export. Since 1993, one-third of our growth has come from exports.
Over the next decade, the economies of Latin America and Asia are expected to grow at
three times the rate of the U.S. economy. In a world where 96% of the world's
consumers live outside our borders, we must export to grow. It's that simple.
We are in a perfect position to compete. Our economy is the envy of the world. We
are once again the world's most competitive economy, the world's largest exporter, the
leading producer in key industries like automobiles, semiconductors and pharmaceuticals.
It makes no sense to sideline ourselves now.
But we cannot afford to take our economic leadership for granted. Throughout the
world, other countries are moving to reach trade deals opening their markets. We can
either lead this process--or watch it proceed without us:
In Latin America and Asia alone, other countries have reached more than 20
preferential trade agreements without us. Today every major economy in the
hemisphere has a preferential trade deal with Chile, except the U.S.
The EU is seeking a preferential trade agreement with MERCOSUR, a market of
over 200 million people and a GDP exceeding $1 trillion. President Chirac has
declared "the future of the region rests with Europe, not the United States."
Fast track and American Foreign Policy
Fast track is a test of our foreign policy. As the sole remaining superpower, the United
States has a fundamental interest in aiding both security and prosperity around the world
-- particularly in our own hemisphere. Stable trading relationships are critical to that end.
In the post Cold-War world, trade agreements serve some of the same purposes security
pacts played during the Cold War: They bind nations together through a set of shared
interests and common objectives.
If the U.S. fails to lead, we risk losing influence by default. The trade patterns set in
coming decades will have enormous strategic importance too. That is part of the
strategy behind FTAA and APEC processes. They are not just economic: they are also
intended to reinforce broader U.S. engagement in Latin America and Asia, two regions
where U.S. foreign policy strategic and security interests are deeply implicated. Rejecting
fat track would signal retreat from these initiatives.
That would clearly undermine broader U.S. interests. Latin America sees trade as the
linchpin of a stronger hemispheric relations -- our failure to engage would undermine
cooperation on a range of issues including drug interdiction, immigration, environmental
protection and corruption. In Asia, the industrialization of 3.5 billion people in the arc
from Korea to Pakistan will be perhaps the greatest development of the 21st Century. It is
critical to America's economic and security interests that we be deeply engaged in the
transformation. Without fast track, we are crippled in that effort.
The cause of democracy and free markets would also suffer. After decades of failed
experiments and anti-Americanism, many of the world's emerging markets today are
embracing free markets, democracy and other American values. Today -- for the first time
in history -- on behalf of the world's population lives under elected rulers. But this fragile
progress will continue only if we continue to press countries to embrace free trade
policies, build stronger middle classes and strengthen the building blocks of democracy.
Rejecting fast track would send a terrible signal that we are not serious about trade
liberalization and reform.
Conclusion
The United States faces a critical choice. We can continue to make our economy the
model for the rest of the world, open foreign markets, and reaffirm our global leadership.
Or we can convince ourselves that we cannot compete, turn inward, and cede that
leadership to others eager to take our place. The choice is that stark -- and that important.
PPi
PROGRESSIVE POLICY INSTITUTE
The NAFTA Success Story
More than Just Trade
Trade in the New Economy Project
Policy Report No. 1
Rebecca Reynolds Bannister
September 1997
Progressive Policy Institute's
Trade in the New Economy Project
The Progressive Policy Institute (PPI) is a center for policy innovation that de-
velops alternatives to the conventional left-right debate. Founded in 1989, the
Institute is fashioning a public philopsophy for the 21st century by adapting
America's progressive tradition of individual liberty, equal opportunity, and civic
obligation to the challenges of the Information Age.
Building on earlier work on trade, in 1997 PPI launched a project on Trade in
the New Economy. The project director is PPI Senior Fellow Edith R. Wilson.
Providing general guidance is an advisory panel that includes leaders in academia,
business, and nongovernmental organizations.
PPI believes that today's growing economic interdependence makes open and
free trade more essential than ever to creating opportunities for average Ameri-
cans, especially since trade is a steadily increasing contributor to our economic
growth. As the world economy evolves into its 21st century form, trade expan-
sion and technological change interact in new ways to spur innovation and
productivity. Moreover, globalization-the integration of national economies
into a world marketplace-poses new challenges as it alters patterns of produc-
tion, employment and wealth. It also means that our domestic prosperity de-
pends even more on strong U.S. leadership in developing fair and reciprocal
rules to govern international commerce. This leadership is critical to U.S. ef-
forts to promote democracy and stability around the world.
But trade liberalization and leadership is only half the equation. As we open
markets abroad, we must expand the winner's circle at home. PPI proposes a
"third way" in the debate over trade and globalization: Combine vigorous sup-
port for expanded economic integration with new public initiatives to insure
that the resulting gains are widely shared. We believe America needs a new
social compact for the Information Age which includes a set of domestic poli-
cies and arrangements that enable all American workers to share in the rewards,
not just the risks, of global competition. We can do this by creating a vibrant,
democratic capitalism that puts our people and their productive potential first.
The Progressive Policy Institute is a project of the Progressive Foundation. For
further information about the Institute or to order publications, please call or write:
Progressive Policy Institute
518 C Street, NE
Washington, DC 20002
(202) 547-0001 Fax (202) 544-5014
e-mail [email protected] http://www.dlcppi.org/
PPi
PROGRESSIVE POLICY INSTITUTE
The NAFTA Success Story
More than Just Trade
Trade in the New Economy Project
Policy Report No. 1
Rebecca Reynolds Bannister
September 1997
Contents
1. Introduction
1
2. Trade and Investment within North America
5
3. The Horror Stories Didn't Happen
12
4. The Mexican Crisis
14
5. Results of NAFTA
16
6. What Remains to be Fixed
20
7. Public Opinion
23
8. Conclusion
24
Endnotes
26
Bibliography
30
Executive Summary
When the North American Free Trade Agreement
though its economy is one-twelfth the size of
was negotiated, progressives endorsed it as a vi-
Japan's).
tal tool for taking control of our economic fu-
U.S. small businesses and large firms alike
ture. Three years later, NAFTA is fulfilling its
have been given secure market access to Mexico
promise. Our trade relations, economic competi-
as well as methods for resolving commercial and
tiveness, overseas investment, and consumer
investment disputes with relative transparency
buying power were all strengthened by the pact.
and according to established procedures.
The agreement was also a defining moment in
Despite predictions of a "giant sucking
U.S.-Mexico-Canada relations, securing and ad-
sound" from south of the border, NAFTA has
vancing our bonds with our North American
not produced a deleterious flight of American
neighbors.
investment or jobs.
NAFTA set a new standard for future U.S. trade
The United States today is a vibrant, dy-
agreements in the Americas. It was our first
namic, and highly successful global competi-
agreement with a less-developed country to ad-
tor. The country has kept its lead in exports, a
dress not only merchandise trade but a host of
testimony to its strong competitiveness in pro-
other crucial issues: services, investment, sales
viding products and services around the world.
to governments, intellectual property protection,
We enjoy our lowest unemployment rate in 23
transparency of rules for trade and dispute reso-
years, low inflation, lower consumer prices due
lution, and labor and environmental standards,
in part to trade, and impressive economic
to name a few. Mexico and Canada already have
growth.
patterned their free trade agreements with Chile
Clearly, NAFTA has not hurt the U.S.
and other countries on NAFTA. Indeed, the pros-
economy.
pect of U.S. trade with other emerging markets
Our economy now creates as many jobs in a
without such guidelines, safeguards, and predict-
month as the country lost over three years be-
ability is alarming.
cause of NAFTA. If we look at the sectors of the
By nearly every measure, NAFTA is working:
U.S. economy NAFTA negotiators targeted, we
Trade and investment throughout North
find an important and positive story that
America have increased.
should be told. Key industries such as autos and
North America's regional economy in 1997
electronics and the service sector have benefited
is expected to grow by 3.5 percent, a much
from the agreement.
higher growth rate than today's 2.7 percent av-
NAFTA was designed to lock in market ac-
erage for the rest of the industrialized nations.
cess for U.S. businesses, and it has done the job
U.S. exports to Mexico and Canada com-
admirably. Despite Mexico's economic crisis in
bined reached $191 billion in 1996, a record.
1995, trade flows continued to grow because
Mexico and Canada are the United States'
Mexico was prevented from imposing import
top export markets (Mexico surpasses Japan even
barriers on its NAFTA partners, even as it in-
From The New Democrat, Why Trade Matters, Volume 9, Number 5, September/ October 1997
creased tariffs on products from other nations.
products that enjoy special market access to Chile
U.S. imports from Canada and Mexico in-
and other Latin American countries, thanks to
creased after NAFTA. In fact, our overall trade
Mexico's and Canada's separate free trade agree-
in goods with these countries accounts for one-
ments with those nations.
third of our trade with the world (amounting
Critics of NAFTA and of U.S. trade with devel-
to $421 billion in 1996). Mexico's 1995 reces-
oping countries point to Mexico's troubles as a rea-
sion and the U.S. economic boom resulted in a
son for the United States not to enter into such
U.S. trade deficit with that country, which
agreements. But if the United States fails to lock
NAFTA critics equate with displaced U.S. pro-
in market access to these countries, we will miss
duction and lost jobs. The critics are wrong. Im-
important opportunities. Low- and middle-income
ports provide our producers with essential
countries are the leading source of U.S. export
inputs (such as energy), fill market niches aban-
growth, increasing 9 percent in 1996.
doned or not supplied by U.S. producers, spur
The United States needs to extend the principles
innovation in our industries, and often create
embodied in NAFTA to its trade with the rest of
and satisfy new consumer demands. Rather
the hemisphere. By forging new hemispheric trad-
than being a sign of U.S. economic weakness,
ing partnerships based on NAFTA's model, we
imports indicate that our economy is robust.
would gain leverage in the World Trade Organiza-
Investment in North America has increased
tion to lead the rest of the world to open and fair
since NAFTA. Though NAFTA critics say other-
trade.
wise, American foreign investment does not im-
To do this, Congress must give the President
ply forgone investment at home; indeed, total
the tool all previous presidents have wielded to
U.S. investment in Mexico averages less than 1
assert U.S. leadership in the world marketplace-fast-
percent of our domestic investment in plant
track trade negotiating authority. Without it, the
and equipment. Furthermore, by investing in
United States is not welcome at the bargaining
Mexico or Canada, U.S. companies can produce
table.
1.
Introduction
W
hen the North American Free Trade
Mexico, which has been used as an argument to
Agreement (NAFTA) was negotiated,
disparage NAFTA.
progressives endorsed it as one tool
Measuring NAFTA's impact after just three
among many for taking control of America's eco-
years is important, but it is also an exercise of lim-
nomic future.¹ Three years later, NAFTA is fulfill-
ited meaning. The Clinton Administration re-
ing its promise. Our trade relations, the benefits
leased a NAFTA report in July 1997 because such
to our consumers, the competitiveness of our
a report was mandated in the agreement's 1993
workers, and the security of our investments are
implementing legislation. The three-year time
stronger for having completed NAFTA. The agree-
frame (instead, for instance, of the more normal
ment was also a defining moment in U.S.-Mexico-
five) was settled upon so that neither presiden-
Canada relations, securing and advancing
tial nor mid-term elections would be affected by
cooperation with our neighbors in North America.
the report. Certainly, trade economists would not
This paper focuses primarily on what has hap-
have chosen this reporting period. The lag time
pened to U.S. trade with Mexico under NAFTA and
in reporting economic data means that barely
its impact in the United States. Trade between
three years of data were available.
the United States and Canada was already well
More importantly, the agreement has not yet
on its way to full liberalization after the 1989 U.S.-
been fully implemented. While many provisions
Canada Free Trade Agreement (CFTA), so there is
went into effect immediately in 1993, many oth-
not much new to say about that relationship.
ers (particularly tariff reductions) phase in over
Criticism of NAFTA has almost exclusively been
five to ten years. Some are not complete for a full
directed at United States liberalizing trade with
fifteen years. This was done to permit the work-
Mexico, a developing country. Before NAFTA,
ers and industries of all three countries ample time
Mexico's tariff and non-tariff barriers were much
to adjust to change, particularly in sectors with
higher than the U.S. barriers and NAFTA's reduc-
political sensitivity or economic vulnerability. In
tions have resulted in more dramatic changes in
other words, NAFTA was carefully designed to
U.S. market share in that country. And finally,
have a gradual impact on the North American
an economic crisis in Mexico in 1995 altered the
economy. Much of NAFTA's impact still lies ahead.
trade balance between the United States and
While no NAFTA assessment at this point can
measure the agreement's full benefits or results,
viding boundaries for behavior in the global mar-
the 1997 congressionally mandated assessment of
ket, but the prospect of free trade without any
NAFTA is useful and timely. It allows Congress to
such guidelines, safeguards, and predictability is
determine if anything is dramatically wrong with
much more alarming. This is the situation facing
the agreement. Similar reports should be required
the United States in other emerging markets to-
down the line. Most importantly, the Clinton Ad-
day.
ministration report provides an excellent oppor-
tunity to replace the innuendo and false charges
aimed at the agreement with facts.
NAFTA Works
The positive findings in the Clinton Adminis-
tration report have made some inroads in refut-
It is clear to objective observers that NAFTA is
ing the notion that trade with developing
working:
countries such as Mexico is damaging to U.S. in-
terests. But the report primarily serves as a snap-
Trade and investment throughout North
shot of a work in progress. It focuses on the
America have increased.
quantitative impact of tariff reductions under
NAFTA, but does little to examine how the im-
North America's economic growth is projected
portant underlying architecture of principles of
at 3.5 percent in 1997, compared to the aver-
free trade included in NAFTA are fundamentally
age 2.7 percent growth rate for the rest of in-
improving our trade and foreign relations with a
dustrialized nations.³
developing country partner. Principles such as
transparency and protection of intellectual prop-
U.S. exports to Mexico and Canada are at
erty are worth looking at because they set the stan-
record levels ($191 billion in 1996).4
dard for better trade deals for the United States
in the rest of the world.
Canada and Mexico are the top export mar-
kets for the United States (despite Japan's
economy being 12 times larger than Mexico's).
A Landmark Agreement
Trade and investment disputes are handled
NAFTA was pathbreaking. It raised the floor for
with relative transparency and according to es-
trade rules beyond previous free trade agreements.
tablished procedures agreed to in NAFTA.
NAFTA was the first agreement with a less-devel-
oped country to comprehensively cover trade in
Small businesses as well as large firms have
services (such as insurance, transportation, bank-
been given secure market access as well as
ing), investment, government procurement,
methods for resolving commercial disputes
transparency issues (making the business oppor-
under NAFTA.
tunities and the rules of the game clear), dispute
settlement, and intellectual property protection
Despite predictions of "giant sucking sounds"
as well as merchandise trade. The agreement also
from south of the border, NAFTA to date has
includes unprecedented mechanisms for address-
not produced a flight of investment or jobs.
ing environmental and labor concerns. These
safeguards are vital to American firms and work-
Beyond NAFTA's impact on trade relations in
ers.
North America, NAFTA has been accompanied by
NAFTA should be a model for future U.S. trade
other positive trends. Just as the Clinton Admin-
agreements in the Americas. Already, Mexico and
istration released its report, Mexican democracy
Canada have patterned their free trade agreements
took a large, peaceful step forward as voters in
with Chile and other countries on NAFTA's archi-
state and local elections redistributed power
tecture, although other less-open trade arrange-
among the three leading political parties. The PRI,
ments such as the Mercosur customs union now
the political party with a monopoly on power for
threaten this progress.² Not only is NAFTA pro-
over 60 years, no longer controls a majority in
2
the Mexican Congress. An opposition leader was
United States that its impact is dwarfed by the
elected mayor of Mexico City. In another devel-
U.S. economic impact on Mexico.
opment little noted by outsiders, Mexican labor
The employment effects of NAFTA, as best can
unions reached a watershed as their leader (since
be determined by various studies, are negligible
the early days of PRI control in Mexico) died, and
within the scope of the enormous job creation
union leadership moved toward a new indepen-
numbers in the U.S. economy. The total number
dence from government control. These changes
of displaced jobs attributed to NAFTA over three
make the obvious point: economic reforms sym-
years equals the number of jobs created in the
bolized by NAFTA have indeed been accompanied
U.S. economy in one month.⁷
by a process of significant political reform in
It is now four years after NAFTA and three years
Mexico. It is fair to argue that the transparency
after the even more far-reaching Uruguay Round.
and openness to outside scrutiny and influence
The U.S. economy is a dynamic and highly suc-
that came with NAFTA contributed to the politi-
cessful competitor in the global arena with the
cal opening.⁵
lowest unemployment rates in 23 years, low in-
Also too late to be included in the Clinton
flation (due in part to trade offering better choices
Administration's report to Congress came news
and prices), impressive GDP growth, and excel-
that many have been waiting for: Mexico's
lent global competitiveness of U.S. products and
economy has come bounding back this year. In
services (as demonstrated by the United States
the third quarter of 1997 gross domestic product
maintaining global leadership in exports). NAFTA
(GDP) grew 8.8 percent, its largest increase in 16
has not hurt the U.S. economy.
years. Growth for the year is now estimated to
If we look at the provisions of NAFTA and at
reach somewhere between 5 and 6 percent, far
the sectors of the U.S. economy targeted by
above the Zedillo Administration's 4 percent pro-
NAFTA's negotiators, we find an important and
jection at the start of the year.6 Throughout 1997,
positive story that should be told. Key industries,
U.S. trade growth with Mexico and Latin America
such as autos, electronics, and the service sector
has been outpacing growth in other regions. The
(a misunderstood but vital component of U.S.
U.S. trade deficit with Mexico is shrinking, reflect-
GDP growth and a sector with a persistent trade
ing increased Mexican buying power. The 1995
surplus with the world) have benefitted from
peso crisis and its aftershock have passed, thanks
NAFTA's provisions. This has occurred despite
in part to NAFTA; political transformation has
Mexico's peso devaluation and balance of pay-
happened peacefully; and confidence is return-
ments crisis that originated virtually the day
ing to Mexico. Finally, the Canadian Conference
NAFTA started and continued for 19 months
Board released an August report showing that
through 1995.
North America is now the world's fastest growing
region. The news about NAFTA is better than the
Clinton Administration report was able to show.
What Did the United States Seek
to Gain with NAFTA?
Overall Economic Impact
NAFTA was meant to lock in and increase U.S.
market access to Mexico's newly open and grow-
Based on the first three years, the macroeconomic
ing economy. It was designed to push for new
impact of NAFTA on the United States is modest.
opportunities in services and sales contracts with
Trade patterns and investment patterns that be-
government projects (which were significant in a
gan to improve in the 1980s after Mexico joined
largely state-controlled economy) in both Mexico
the General Agreement on Tariffs and Trade
and Canada. It was designed to make sure that
(GATT) and began to lower trade barriers have
our companies got a fair deal, the rules of the
continued. Free trade with Canada was already
game were transparent, and our companies were
underway since 1989 under the Canadian Free
treated just as well as national firms in Mexico
Trade Agreement. Furthermore, Mexico's
and Canada. NAFTA was also clearly designed to
economy is so much smaller than that of the
make North America an even stronger economic
3
powerhouse vis a vis competing regional econo-
by NAFTA concerning trade (characterized for
mies in Asia and Europe. The fact that the North
years by a series of ongoing disputes), the envi-
American economy is growing faster than any
ronment, and labor issues achieved important
other region-with strong growth in all three
foreign policy objectives for the United States.
countries-indicates that this is happening.8
Through NAFTA, democratic principles such as
There was another important motive for the
transparency (open records, public notice, re-
United States to negotiate with Mexico. NAFTA
course for disputes) were introduced throughout
was a vote of confidence in Mexico and its pos-
Mexico. While corruption, narcotics, and im-
sibilities. It was an expression of optimism about
migration difficulties remain, there are impor-
U.S. relations with the country after a long his-
tant signs of change in Mexico since NAFTA in
tory of troubled interaction. Mexico's interest
the areas of openness and increased pluralism
in committing to the broad cooperation covered
and democratization.
4
2. Trade and Investment within
North America have Increased
T
he United States exports more to its North
and high unemployment rate (10 percent) in
American trading partners than to any
1996, as well as a falling Canadian dollar. 11
other region of the world including the en-
Imports also increased from Mexico and
tire Pacific Rim or all of Europe.
Canada, at a faster rate than our exports to those
countries. This is an indication that NAFTA, a
Exports and Imports. Trade between the United
vehicle to expand trade, is working. Falling cur-
States, Canada, and Mexico has increased by 43
rency rates in these countries made their prod-
percent since NAFTA took effect, with total trade
ucts cheaper in the U.S. economy where demand
(imports and exports between the United States
was booming due to strong growth. For a sense
and Mexico and the United States and Canada)
of proportion, imports from the whole world to
of $421 billion in 1996. Trade with Mexico and
the United States grew six percent in 1996, down
Canada comprises nearly one third of U.S. trade
from 11 percent in 1995 and 12 percent in 1994.
in goods with the world, growing 44 percent since
Import growth was led by purchases of industrial
NAFTA was signed. Exports to our NAFTA part-
supplies and materials, thanks to the ongoing
ners accounted for 53 percent in the total growth
expansion of the U.S. economy. Capital goods
of U.S. exports in the first three months of 1997.9
and industrial supplies and materials account for
Trade both ways increased; together, Mexico and
more than half of U.S. imports from the whole
Canada supplied 30 percent of our imports and
world. These same goods account for 60 percent
Canada and Mexico purchased 30 percent of our
of the dollar increase in U.S. goods imports be-
exports in 1996. 10
tween 1992 and 1996. 12 Rather than being a sign
U.S. exports to Mexico under NAFTA now sur-
of U.S. economic weakness, imports indicate that
pass our exports to Japan, an economy 12 times
our economy is robust. We import and export
larger than Mexico's. In 1996, they reached a
more when our economy is thriving.
record $57 billion, growing 37 percent since
NAFTA critics sound the alarm that the United
NAFTA began. U.S. exports to Canada, our most
States has a trade deficit with Mexico and Canada
important trading partner, reached $134.2 billion
since NAFTA. There is nothing wrong with a short
in 1996, up 34 percent since the start of NAFTA,
term increase in the U.S. trade deficit with these
despite that country's low growth (1.5 percent)
important partners. U.S. imports from Mexico
and Canada feed the engine of U.S. economic
other foreign suppliers to Mexico. At the same
growth, by providing key inputs to production
time, as U.S. tariffs on Mexican products declined
and satisfying consumer demand, without inflat-
from 4 percent to about 2.5 percent, Mexico's
ing prices. Furthermore, the International Trade
share of American imports has risen from 6.9 to
Commission finds that American imports from
9.3 percent. 18
Mexico have much higher U.S. content than im-
ports from other markets. 13
Investment. Since NAFTA patterns of cross-border
Imports from Mexico have more than doubled
investment have continued, U.S. and Canadian
since 1992. In 1996, Mexico was our fastest grow-
investment in Mexico has increased, but averages
ing source of goods imports (up 18 percent), due
less than $4 billion annually since NAFTA began.
to industry integration and the continuing effects
That amount is less than one percent of plant and
of the peso devaluation. U.S.-made components
investment equipment expenditures at home. 19
comprise half the value of imports from assem-
The United States attracts more foreign invest-
bly plants in Mexico, compared to less than one-
ment than any other country ($60 billion in 1995
quarter the value of such imports from Asian
compared to $7 billion from all countries invest-
countries. 14 Furthermore, imports from Mexico
ing in Mexico). 20 The vast majority of U.S. for-
appear to have displaced imports from Asia. For
eign direct investment (FDI) stock remains in
example, the share of U.S. imports of apparel from
developed countries.²¹
Mexico rose from 4.4 to 9.6 percent between 1993
It is true that U.S. foreign direct investment
and 1996, while the share of U.S. apparel imports
(FDI) is increasing in developing countries as a
from China, Hong Kong, Taiwan, and Korea fell
strategy to gain market share and to facilitate glo-
from 39 percent to 30 percent.¹⁵
bal production and trade. FDI opens toe-holds in
The largest percentage post-NAFTA import
other markets that allow American companies to
surges were found in textiles and paper products,
further expand sales. 22 NAFTA made it possible for
but these account for less than one percent of all
businesses to remain in the United States and be
U.S. manufacturing imports. The next highest
able to sell into Mexico and Canada without tar-
were in those sectors that also saw the highest
iffs that make our products and services less com-
percentage export increases from the United States
petitive than goods produced in those countries.
to Mexico: transportation (the automotive sector)
Domestic and foreign investment in automobile
and machinery (encompassing computers). 16
plants in the United States of $39 billion from
In fact, the top twenty imports and exports
1993-96 versus $3 billion in Mexico shows how
between the United States and Mexico were in
removing tariff barriers to U.S. products helps to
virtually the same industries, implying comple-
keep investment at home. However, by delaying
mentary products. This phenomenon indicates
the extension of NAFTA's free trade principles to
intra-industry trade and is evidence that NAFTA
U.S. trade with the rest of Latin America, U.S.-
is allowing North American industries to special-
based products face disadvantages in those other
ize and develop economies of scale for increased
markets. Products produced in Canada, for ex-
productivity and competitiveness (one of the
ample, have an 11 percent price advantage in
agreement's objectives). 17
Chile over products placed in the United States
A good way to see if NAFTA has made a differ-
because of their free trade agreement.
ence in the U.S. presence in our neighbor's mar-
ket (as differentiated from other trading partners)
Effect of NAFTA on the States. Every state in the
is to look at market share and our tariff advan-
United States saw its exports to Mexico and
tage vis a vis Mexico's other trading partners. As
Canada grow during the 1993-1996 period. Loui-
Mexico's tariffs on U.S. goods have come down
siana, Mississippi, and Kentucky enjoyed cumu-
(from an average of 10 percent before NAFTA to
lative export growth of more than 75 percent and
less than 6 percent today, after four rounds of tariff
19 other states enjoyed 25 percent growth. Un-
cuts) U.S. market share in Mexico has grown from
employment is at its lowest in what were once
69.3 percent to 75.5 percent. The United States
termed "rust-belt" states such as Michigan and
has a ten percent average tariff advantage over
Ohio.
6
The U.S. Department of Commerce now offers
lion-87,000 vehicles in 1996 alone-as compared
state export data in its Export Locator Series il-
to only 4,000 cars and 2,000 trucks per year prior
lustrating more than the previous trade-flow data
to NAFTA. This increase is even more notewor-
and showing the location of an export's origin.
thy when we recall that it occurred during the
With this new data it is possible to truly see for
worst economic crisis in Mexico in decades. 24
the first time a more balanced view of state ex-
Imports by AAMA members from Mexico have
ports to our NAFTA partners, instead of empha-
doubled since 1993, largely to meet U.S. demand
sizing the states which serve as transportation and
spurred by the economic growth. But exports
distribution centers. A recent series of reports by
have risen by 800 percent over that same time
the Council of the Americas on 21 U.S. states
period, even while demand in Mexico stagnated
clearly indicates that the agreement has produced
as the economy shrank 7 percent and the demand
significant benefits since its implementation in
for new vehicles dropped nearly 70 percent. In
the areas of export growth, job creation, FDI in
fact, in 1996, one in four cars or trucks bought by
the states, and environmental improvements.²³
Mexican consumers was produced in U.S. and Ca-
nadian plants. 25
Automobile Trade. Securing market access for U.S.
The rationalization of automotive production
vehicles and components was a key objective for
between the United States and Mexico, which had
U.S. negotiators of NAFTA. The U.S.-Canada FTA
already begun with Canada, allowed Mexican sub-
was already liberalizing trade with our principal
sidiaries of U.S. automotive companies to supple-
trading partner when NAFTA discussions first be-
ment U.S. production of vehicles in high demand
gan, but Mexico had not only higher tariff barri-
in the United States. This not only contributed
ers but a variety of non-tariff barriers that
to Mexico's economic recovery, but kept U.S. auto
discriminated against U.S. goods and services. The
prices lower and made it possible for consumers
automotive sector confronted an array of restric-
to purchase North American-made automobiles
tions in Mexico that distorted efficient produc-
rather than imports from Asia or elsewhere. Fur-
tion and distribution. NAFTA dismantled these
thermore, these same U.S. subsidiaries were able
barriers, and the results have been more positive
to reap the benefits of trade agreements Mexico
than predicted three years ago.
has with other Central and South American coun-
Prior to NAFTA, Mexico's Auto Decrees re-
tries by exporting vehicles to these growing mar-
quired foreign auto makers to produce in that
kets. 26 And, lest these same subsidiaries be labeled
country in order to sell there. Mexico's trade bal-
investments that are diversions from the United
ancing rules required automotive manufacturers
States, the Big Three U.S. automobile manufac-
to export more than they imported. Local con-
turers invested only $3 billion in Mexico between
tent requirements forced manufacturers to pur-
1993 and 1996 while investing $39.1 billion in
chase components from Mexican-owned suppliers
new manufacturing plants and equipment in the
(which effectively forced U.S. parts manufactur-
U.S.²⁷
ers to invest in Mexico). Tariffs were set at 20
Furthermore, according to the AAMA, NAFTA
percent for cars and trucks.
has defused the potential for Mexico to become
NAFTA immediately cut these tariffs on cars
an "export platform" to the United States for Japa-
and light trucks to 10 percent. It reduces, and
nese and other non-North American auto produc-
eliminates in seven more years, local content re-
ers with its strong rule of origin (requiring North
quirements. It gave U.S. medium and heavy truck
American components for eligibility for the re-
and bus exports immediate access to the market
duced tariffs under NAFTA). In fact, BMW,
and eliminates all restrictions on these imports
Mercedes, and Toyota have all established new
less than two years from now.
plants in the United States since NAFTA's pas-
In 1993, the American Association of Automo-
sage.2⁸
bile Manufacturers (AAMA) predicted that NAFTA
The development of Mexico's automotive sec-
would increase vehicle exports to Mexico from
tor has not diverted investment from U.S. indus-
less than $200 million to over $1 billion. By 1996,
try. Foreign and U.S. investments continue to be
vehicle exports to Mexico were nearly $1.3 bil-
made, with plants re-opened and re-tooled and
7
capacity increased. 29 Automotive employment in
America, as well as stronger intellectual property
the United States has risen by 100,000 net jobs
protection for the vital semiconductor industry.
since NAFTA took effect (14.1 percent overall),
There has been virtually no increase in U.S.
productivity in the industry grew 7 percent, and
investment in Mexico's computer sector since
hourly earnings grew 5.6 percent since NAFTA. 30
NAFTA. Meanwhile, from 1994-96, employment
Obviously these jobs are not due to only to
in the computer equipment industry rose 9 per-
NAFTA; they are representative of the strong de-
cent, with the number of production workers also
mand for U.S. automotive products both at home
increasing by 8 percent. 34
and abroad. But the figures indicate that NAFTA
is not hurting the automotive industry in this
Textiles and Apparel. U.S. exports of textiles and
country, and the industry leaders themselves say
apparel to Mexico increased 79 percent between
that the specialization allowed by NAFTA has ac-
1993 and 1996, despite Mexico's recession. The
tually helped.³¹
U.S. share of Mexico's textile and apparel imports
rose to 86 percent, from 68 percent in 1993.
Computers and Electronic Machinery and Related
Mexico's export of these goods to the United
Software. Intellectual property protection secured
States also increased dramatically over that pe-
under NAFTA and the dismantling of import-sub-
riod (from $1.4 billion in 1993 to $4.2 billion in
stituting requirements in Mexico has allowed U.S.
1996). Canada's exports to the United States of
firms to expand sales and to integrate production
these goods doubled between 1993 and 1996 from
in Mexico for better global competitiveness.
$1 to $2 billion while U.S. exports to Canada rose
Electronics exports account for one quarter of
39 percent to $2.7 billion.
U.S. exports to Mexico, followed by machinery
These data are emblematic of the shift from
(including computers). U.S. exports of computer
the Far East to NAFTA countries that NAFTA
hardware rose 58 percent from 1993 to 1996, ris-
prompted in the growing textile and apparel trade.
ing at an average rate of nearly 17 percent per
Between 1993 and 1996, total U.S. imports of tex-
year. The United States maintained a 65 percent
tile and apparel from China, Taiwan, Hong Kong,
market share in Mexico in these products, while
and Korea declined 13 percent. Imports from
Mexico's imports from Japan, South Korea, and
Canada and Mexico more than doubled, but be-
Taiwan lost market share between 1993 and
cause of NAFTA's strict rules limiting benefits to
1996.³²
products made in North America from North
Computers and electronics accounted for the
American yarn, these imports contain increasing
top five U.S. imports from Mexico. 33 This evi-
amounts of U.S. components. 35
dence of complementarity of trade in computers
In 1993, 39 percent of U.S. textile and apparel
and electronics indicates industry integration
imports were from China, Taiwan, Hong Kong,
across the borders, once again for economies of
and Korea. Canada and Mexico accounted for only
scale, productivity increases, and enhanced com-
7 percent. By 1996, Canada and Mexico ac-
petitiveness.
counted for 14 percent, and the value of U.S. im-
NAFTA has already provided for duty-free treat-
ports from these Asian countries was three percent
ment for U.S. exports of semiconductors, com-
lower than in 1993. In 1996, Mexico became the
puter parts, and modems. Within seven years,
world's largest clothing exporter by volume, dis-
import licenses for used equipment will be elimi-
placing Asian countries.³⁶
nated in Mexico for NAFTA partners (providing
The prominent characteristic of U.S. apparel
an important market for the still viable, but older
imports from Mexico is shared production, where
technology discarded in the United States). Strict
apparel is cut and sewn in Mexico from U.S. fab-
rules of origin for printers and monitors as well
ric and then returned to the United States. While
as motherboards encourage North American
the number of apparel manufacturers in Mexico
sourcing, with a process to establish a common
has increased, apparel manufacturing in the
external tariff for NAFTA partners within seven
United States has declined. Yet the majority of
years. NAFTA also establishes copyright protec-
Mexico's new apparel production capacity is due
tion for computer programs produced in North
to shifted production from Asia where Asian fab-
8
ric was typically employed and not from the
ment in Canada and Mexico. In 1995, U.S. ex-
United States. New production in Mexico has
ports of insurance, business, professional, and
boosted U.S. textile mill exports. To a lesser ex-
technical services to NAFTA partners were ap-
tent it has also displaced production from the
proximately $8.6 billion, 15.8 percent more than
Caribbean Basin and Central America.
in 1993 before NAFTA. 41
Protection of apparel and textile trade is a glo-
U.S. railroad services are other big winners in
bal reality that continues to be argued at the
NAFTA. Mexico nationalized its railroads earlier
World Trade Organization. Certainly NAFTA pro-
this century, expropriating U.S. rolling stock and
visions for these industries were not designed to
precluding any participation by U.S. railroads in
expose them to pure free trade. North American
transporting goods into that country. Since
producers were clearly designed to be favored
NAFTA, Mexico has begun to privatize the most
under NAFTA. There was a conscious path taken
important trunks of its rail system. And, thanks
by negotiators to support high wage and high
to NAFTA, U.S. railroad companies have been al-
technology textile production and jobs in the
lowed to bid and own shares on these lines. For
United States and not to stake out a position to
example, in June, Mexico's government awarded
protect the highly mobile low-wage apparel
a 50-year operating concession for the Pacific-
manufacturing sector. This was accomplished
North railway, the second rail line offered to pri-
with tough rules of origin requiring "fiber-for-
vate operators in a year. The sole bidder,
ward" North American content in order to qualify
U.S.-Mexico consortium Grupo Ferroviario
for NAFTA apparel and other tariff benefits. 38
Mexicano SA that includes U.S. rail company
Thus, North American, if not U.S.-only, apparel
Union Pacific, offered $527 million for the 3,875-
manufacture and textile production were carved
mile line. The Pacific-North railway is the second
out as worthy of special treatment. 39
of Mexico's three main trunk rail lines to be priva-
tized by the Mexican government. 42
Services. During the 1993 NAFTA debate and the
In December 1996, the concession for the
1992 campaign, the U.S. services sector was deni-
northeast rail route, which connects the US-
grated as "hamburger flipping" employment. This
Mexico border city of Nuevo Laredo with Mexico
did a disservice to the public understanding of
City, was awarded to Transportes Ferroviarios
what is a vital component of U.S. economic
Mexicanos (TFM), a partnership that includes
strength. The services sector includes insurance,
U.S.-based Kansas City Southern Industries (KCSI).
banking, professional services, environmental,
Before NAFTA's requirements for open bidding
communications, advertising, entertainment and
and allowing U.S. firms the same rights as Mexi-
the travel business, among other things. The
can firms, U.S. companies were likely never to
United States is the leading service exporter in
have had this business opportunity.
the world, with a $73.8 billion surplus in 1996. 40
Unfortunately, the United States has reneged
The demand for services in Mexico and other de-
on its obligations in an important service covered
veloping countries is for inputs to manufactur-
by the agreement: land transportation. In 1995,
ing industries as well as for final consumption.
the long process of consultation and noteworthy
For the first time in 50 years, NAFTA allowed
cooperation between the transportation depart-
U.S. financial firms to establish a direct presence
ments of the United States and Mexico, border
in Mexico. It also removed limits on United States
states, inspection agencies, and others was to have
and Canadian ownership of Mexican insurance
concluded with the implementation of NAFTA's
companies-an important and underinsured mar-
agreement to permit trucks to carry cargo to the
ket. NAFTA allows U.S. service firms either to es-
contiguous states of the other country provided
tablish a local presence in Mexico and Canada or
that these trucks met established safety certifica-
to provide their services from the United States
tion requirements. Despite the desire of shippers
directly (with the exception of entertainment,
to reduce the costly inefficiency caused by switch-
which is still a protected industry in Canada). U.S.
ing drivers and trailers at the border, implemen-
service providers must receive the better of na-
tation of the provision has been delayed
tional treatment or most-favored nation treat-
unilaterally by the United States, "an egregious
9
action for a country of laws" according to trade
in Canada. But the features of NAFTA allowing
scholar Sidney Weintraub.⁴³
for challenges and demands for transparency,
In retaliation, Mexico has prohibited certain
have allowed NAFTA partners and their compa-
trailers produced in the United States from cross-
nies to fight back effectively for the first time.
ing into Mexico, adversely affecting jobs and
U.S. companies have won major government
manufacturers of certain trailers used for this in
contracts in the past three years, including a $650
the United States. The land transportation pro-
million contract for a power plant and pipelines,
visions of NAFTA's services coverage were designed
a $22.5 million natural gas turbo compressors
to enhance the efficient movement of goods
contract, and other major contracts in transpor-
throughout North America, reducing costs to pro-
tation, computer equipment, and semi-conduc-
ducers and consumers. It was one of the more
tors. Perhaps most surprising, Mexico recently
eagerly anticipated features of NAFTA by those
opened bidding at the state and local level for long
familiar with the bottlenecks at the border. Un-
distance service to foreign telecommunications
fortunately, progress in this important service sec-
firms. MCI, together with its Mexican partners,
tor is currently stymied.
has started marketing its services to municipal and
state governments, and to date, the 13 municipal
Government Procurement. The fact that NAFTA
governments that have opened their competition
opens opportunities to compete for government
have assigned 68 percent of their lines to this
contracts may not seem very compelling to those
partnership. 45 Such open bidding at the
unaware of the control maintained by the Mexi-
subnational level is unprecedented in Mexico. In
can government over key economic sectors. Even
Canada, U.S. companies have increased their share
during NAFTA negotiations, the value of liberal-
of the Canadian procurement market from 7 per-
izing government procurement was not well rec-
cent to over 9 percent in just one year between
ognized. But this section of the agreement is truly
1994 and 1995. 46
path-breaking.
Government procurement is usually the last
Agriculture. NAFTA was expected to enhance the
refuge for discrimination against foreign products.
complementarity and division of labor between
In developing countries like Mexico (and others
the United States and Mexico in agriculture, with
in Latin America) where national and sub-na-
the United States exporting more grains and crops
tional governments continue to assert consider-
that are land and capital intensive, as well as fruits
able control over major infrastructure projects and
that grow better in the North, and Mexico sup-
some key industries, it had been nearly impos-
plying its fruits and vegetables. This has occurred.
sible for U.S. suppliers of goods and services to
Furthermore, long-standing agricultural disputes
learn of market opportunities, much less to se-
are finally being resolved cooperatively in the
cure them. No transparent open bidding process
post-NAFTA climate between the two countries.
was required in Mexico. In fact, foreign purchases
Trade is vital to U.S. farmers. U.S. producers
were explicitly precluded from key industries such
now depend on exports for 25 percent of gross
as oil (PEMEX) and electricity (CFE, the federal
receipts and this is expected to increase to over
electricity commission).
one-third in the next six years. U.S. agricultural
Under NAFTA, Mexico committed to a very
trade with Mexico (growing at 15 percent per year
high standard of procurement practices and pro-
on average) compares favorably with our trade
cedures such as transparent tendering and bid
with the rest of the world (a 12.4 percent growth
protest procedures, some of which were not yet
rate).48
in place in the GATT Government Procurement
Mexican government statistics indicate that
Code. To be sure, these changes have been hard
the United States now has a 75 percent market
to implement down through the levels of state
share of Mexican agricultural imports.4 U.S. ag-
and local government where control over projects
riculture exports to Mexico reached a record $5.4
and bidding is a long-standing tradition. We have
billion last year, an increase of 46 percent since
seen innovative tactics to avoid the procurement
1994. 50 Mexico exported $3.1 billion to the U.S.
provisions of NAFTA, not only in Mexico but also
Market opening from NAFTA has been especially
10
important for U.S. sales of grains. Corn exports
Florida, date from decades before NAFTA. Florida
tripled and soybean exports to Mexico nearly
growers complained that Mexican tomatoes could
doubled due largely to drought that destroyed
be sold in the United States at reduced prices be-
crops in northern Mexico. 51 The U.S. Department
cause of lower production costs. Mexican pro-
of Agriculture (USDA) expects Mexico to greatly
ducers argued that the strong consumer demand
increase imports of major grains over the next few
for their product was due to a higher quality prod-
years to meet a rapid growth in demand for food. 52
uct-since their tomatoes could be picked riper
The largest farmer-owned cooperative in North
resulting in a tastier product, while Florida toma-
America testified that it sold only 300,000 tons
toes are picked green and treated with gas to en-
of grain in 1993, but in 1996 it sold 1.9 million
hance their red color. A recent International Trade
metric tons and expected to sell more than two
Commission ruling on this matter found unani-
million in 1997. Meat exports, animal feed, and
mously that Mexican tomatoes were not causing
pet food sales have also increased as a result of
serious harm to U.S. producers, but the case con-
NAFTA.⁵³
tinued. 55 Mexico's tomato growers voluntarily
Much has been said about the impact of win-
agreed last year to sell their tomatoes in the
ter vegetable and fruit imports from Mexico.
United States at prices comparable to those sold
These have increased, offering consumers seasonal
by producers in Florida.
foods year-round, with a broader selection and
For its part, the United States has provoked its
lower prices. Similarly, U.S. cherries, peaches,
share of aggravation in the agricultural area with
apples, etc. have been offering Mexican consum-
prohibitions on Mexican avocado imports since
ers more choices. Sanitary standards and
1914 to protect California and Florida growers from
phytosanitary protections under NAFTA protect
the risk of pests. This long-standing dispute has
consumers, though recent strawberry contamina-
also moved toward a compromise resolution. In
tion scares have led to calls for more funding for
May 1996, the United States agreed to allow Mexico
border inspection. In fact, the U.S. Department
to export avocados to 19 U.S. states in the North-
of Agriculture's Inspector General found recently
east between November and February. Other agri-
that the Agricultural Marketing Service is "over-
cultural disputes being resolved in the climate of
whelmed" by the influx of products since NAFTA
increased interaction between NAFTA actors con-
and has allowed "serious violations to occur" at
cern grapefruits (Mexico is finally allowing Florida,
the border. Congress needs to increase funding
California, and Arizona to export these), hog and
for border inspection to handle the increased
pork (the United States has certified Mexico is free
trade volume.
of hog cholera and is allowing these imports), and
Most complaints about winter vegetable im-
wheat from Mexico (though wheat disputes with
ports, especially by U.S. tomato producers in
Canada continue over subsidies).
11
3. The Horror Stories Didn't
Happen: Strong U.S. Economy and
Minimal Employment Impacts
B
ack in 1993, H. Ross Perot relied on a study
ing campaigns to lure workers to their states. 58
by Pat Choate entitled "U.S. Jobs at Risk:
Yet we continue to see reports by the AFL-CIO
Vulnerable Industries and Jobs Under
equating the U.S. global trade deficit and the re-
NAFTA." Perot claimed that six million Ameri-
cent crisis-induced trade deficit with Mexico with
can workers were vulnerable to low wage Mexi-
immense job losses.
can competition or to company relocation to
In the three and a half years since NAFTA be-
Mexico. Today we find that, despite NAFTA's re-
gan, 132,000 persons were certified as negatively
duced tariff barriers and an economic crisis in
affected under the self-reporting and certification
Mexico in 1995 that lowered the value of the peso
of the Trade Adjustment Assistant program for
and made Mexican labor comparatively even
NAFTA (NAFTA-TAA). NAFTA-TAA does not re-
cheaper, the United States has not even lost one-
quire that the negative effect be correlated with
fortieth of the 6 million jobs that Perot predicted
increased opening of trade between NAFTA coun-
would be lost. In fact, the economy has created
tries, just that the trade was with NAFTA coun-
8.6 million U.S. jobs since NAFTA's inception. 56
tries or that the plant closing was related to
We are enjoying the most stable U.S. economy
investment in our other NAFTA partners. Given
in thirty years. In 1996, real GDP expanded 2.8
that the U.S. jobs have increased by 8.6 million
percent. Since 1992, unemployment has fallen
since NAFTA's inception (at a rate of 2.2 to 2.5
from 7.5 to 4.8 percent as of June 1997. Inflation
million per year) the 132,000 jobs impacted
as measured by the Consumer Price Index is ap-
amount to two weeks of U.S. job creation. 59
proximately 3.5 percent. Core inflation (exclud-
Anti-NAFTA organizations like Public Citizen
ing volatile energy and food sectors) was at 2.6
claim that NAFTA "is causing major U.S. job loss,"
percent in 1996.57
and they base their claim in part on the NAFTA-
Unemployment is so low this year that U.S.
TAA numbers. 60 The Wall Street Journal looked into
News & World Report wrote a special report in June
the circumstances behind some NAFTA-TAA cer-
advising workers on how to "cash in on a new
tifications and revealed cases where neither the
reality-bosses are desperate for workers." The
firm nor the laid off workers actually could lay
lowest unemployment levels in 30 years have
the blame on trade or investment with either
spurred Michigan and Ohio to launch advertis-
Mexico or Canada, nor on NAFTA. 61 In the same
report by Public Citizen, U.S. firms are criticized
The overall U.S. employment impact of NAFTA
for unfulfilled promises to create more U.S. jobs
has been slightly positive, even taking into ac-
by trading with Mexico. Yet their survey was
count the large impact of the peso crisis of
taken in the midst of the Mexican crisis and its
1995.
aftermath. No mention is made of how Mexico's
economic decline and subsequent rapid recovery
Job losses related to imports have actually de-
might have affected export-supported jobs in the
clined when comparing pre- and post-NAFTA
United States.
periods. 63
Having concluded that NAFTA-TAA certifica-
tion is not an ideal measure of job impacts of
NAID estimates a fifty percent undercount in
NAFTA, UCLA's North American Integration and
NAFTA-TAA numbers. Even so, with the dynamism
Development Center (NAID) is developing a new
of the U.S. labor market kept in mind, the total at-
methodological approach for estimating the
risk jobs since NAFTA's inception are approximately
sectoral, regional, and aggregate impacts on the
one month's worth of job creation. 64 Together with
U.S. labor market of increased international trade.
other experts, the researchers at NAID emphasize
Researchers at NAID argue that previous studies
that it is more important to focus on trade's im-
have far over-estimated job displacements due to
pacts on productivity growth and welfare gains
imports from Mexico, and to a lesser extent, the
rather than short-term employment effects.
number of jobs supported by exports to NAFTA
Proponents and opponents of NAFTA know that
countries. 62 Using this methodology, NAID's re-
"success stories" or "disaster stories" play longer
port on North American Integration Three Years Af-
and better in the media and public imagination.
ter NAFTA finds:
A thoughtful audience will remember that in an
economy the size of the United States with hun-
The overall positive or negative employment
dreds of thousands of businesses, anyone can find
impacts of U.S.-Mexico trade have not been
any number of anecdotes to support his or her own
significantly affected by the liberalization of
position. The truth must be discovered in the drier
tariffs due to NAFTA.
realm of employment and trade statistics. The
macroeconomic data indicates that NAFTA has
The net employment impacts due to NAFTA
locked in the trade liberalization and market op-
tariff liberalization have been slightly positive,
portunities begun by Mexico, unilaterally, in the
representing a very small share of new jobs
1980s while not hurting the U.S. labor market in
being supported by exports to Mexico.
any way.
13
4. The Mexican Crisis: NAFTA Helped
U.S. Exports and Mexico's Recovery
M
uch of the criticism of NAFTA is derived
ments, the United States has a stake in their eco-
from the sudden decline in U.S. exports
nomic stability. Mexico's recovery was most defi-
to Mexico in 1995 and increased im-
nitely in the U.S. self interest; our exports to that
ports from that country. It is important to dis-
country have a virtually direct correlation with
cuss what caused this temporary shift in the trade
that country's GDP growth. 66 When our neigh-
balance, because it had nothing to do with the
boring market needed help in 1995, the United
reduction of tariffs under NAFTA.
States led a coalition with a number of central
Beginning in the very first year of NAFTA and
banks and the International Monetary Fund (IMF)
continuing through 1995, Mexico suffered sev-
to provide a short-term swap loan which Mexico
eral political shocks triggering its worst (but short-
could draw down if needed. The U.S. share of
est) recession in 50 years. NAFTA did not cause
the $50 billion package was $20 billion provided
the economic crisis in Mexico. A balance of pay-
through the Exchange Stabilization Fund set up
ments crisis resulting from a peso devaluation
in the 1930s. This was repaid, early, by Mexico
undertaken shortly after the change in presiden-
and brought the United States $500 million more
tial administrations in late 1994 compounded a
in interest than it would have under domestic
series of violent events in Mexico that year that
interest rates. By the second quarter of 1996,
denoted political instability. These events resulted
Mexico's economy was in strong recovery. 67
in capital flight (not only because of events in
Despite Mexico's recession, trade between the
Mexico, but also because U.S. interest rates made
United States and Mexico continued to grow over
our market more attractive for investors) and a
the three years of NAFTA. In fact, U.S. exports
further decline in the value of the Mexican peso.
did not decline nearly as drastically, nor for as
GDP declined seven percent and private consump-
long, as they did in Mexico's previous economic
tion declined 13 percent in the subsequent 19
crisis in 1982. Why? Because Mexico was pre-
months. Unemployment doubled, inflation in-
vented from imposing import barriers to its
creased six-fold to 45.7 percent, and interest rates
NAFTA partners (while increasing tariffs on prod-
went as high as over 100 percent.65
ucts from other parts of the world). Furthermore,
As developing countries like Mexico become
U.S. imports contributed to Mexico's export-led
globalized in their financial systems and invest-
recovery.68 U.S. exports to Mexico actually in-
creased by 11 percent over the three years of
raised to our products (tariff rates raised to 100
NAFTA. 69 In the previous peso crisis of 1982, U.S.
percent and import licenses imposed on all prod-
exports to Mexico dropped by 50 percent. 70 Fur-
ucts) and Mexico's nationalization of major sec-
thermore, full recovery of U.S. exports to the
tors of the economy, namely banking.
growth rate of pre-crisis 1994 level took only 19
In 1996, Mexico's GDP returned to 5.1 percent
months. By contrast, recovery took seven years
growth and U.S. exports surpassed their pre-NAFTA
after 1982 because of import barriers Mexico
peak by $15 billion to a record $57 billion.71
15
5. Results of NAFTA
Quiet Good News
T
he positive results of NAFTA are not found
and increased trade is occurring tranquilly. It is
only in increased trade between our three
testimony to the agreement's quality that there
countries and increased U.S. exports, but
have been notably few disputes given the fact that
also in the fact that we are seeing trade in sectors
North American trade has increased 44 percent
where there previously had been no opportuni-
since NAFTA was signed.
ties (such as services and procurement). Until re-
cently, most trade agreements have been tariff
Box 1. Non-Tariff Accomplishments
reduction agreements. One reason NAFTA is a
landmark agreement is because of the wide range
Inputs
of its other trade-enhancing provisions, particu-
1. Opportunities for integrated production in various sectors
larly related to investment. No understanding of
(most notably automobiles) to more efficiently meet
demand in the North American market and be more
NAFTA's importance to the United States is pos-
sible if these other elements are not appreciated.
competitive outside of NAFTA, by allowing for barrier-
In addition to tariff phaseouts on manufactured
free movement of production inputs and the services
and agricultural trade, no less than fifteen non-
that support production.
tariff accomplishments of NAFTA are significant
2. Rules of origin to ensure that the agreement would
[See Box 1].
encourage manufacturers to use inputs produced
This cursory list illustrates NAFTA's compre-
within North America and discourage disguising non-
hensive nature. The careful attention to estab-
North American products as North American by add-
lishing rules and procedures to provide
ing only marginal value before final sale.
predictability and safeguards for the vast flows of
trade and investment already taking place before
Transparency
negotiations started is one of its under-appreci-
3. Norm of transparency for standards (to discourage non-
ated accomplishments. The principles covered by
tariff trade barriers) requiring that standards be clearly
NAFTA now serve as the terms of reference for
based on verifiable criteria (e.g. environmental, scien-
other trade agreements to which the United States
tific, health and safety) and that parties be given ad-
is not even party.
equate notification and opportunity to comply.
Perhaps most important, all of this new
The automobile industry is reaping outstand-
4. Open system for bidding on government contracts in
ing benefits from NAFTA, as are computer and
each other's countries (important for market access in
electronics, services, textiles industries, and ag-
Mexico where the public sector still accounts for a large
riculture, among other sectors.
part of the market).
Disputes have been proportionally few, and
Services
several of these are the culmination of disputes
5. Access to Mexico's once-closed financial services markets
that have been ongoing for decades.
and dramatically increased opportunities in other ser-
vice sectors such as insurance, construction, and tele-
The level of interchange, not only between
communications.
businesses in North America, but also between
6. Certified professionals allowed to work across borders
policymakers (especially at the functionary lev-
in NAFTA countries (important for trade services).
els where the wheels of trade and policy truly
turn and affect outcomes on a daily basis) is at
Investment
unprecedented levels. This means that many
7. No trade and investment restrictions impeding U.S. auto
disputes are resolved before they become cri-
exports.
ses.
8. Permanent rights of investors to control Mexican sub-
sidiaries and protect them against any future reversal
The atmosphere generated by the ongoing in-
of Mexican (or Canadian or U.S.) investment rules.
teraction between NAFTA partners is such that
there is an expectation of cooperation and
Conflict Resolution/Protections
resolution even in areas where there are real
9. Procedures for dealing with private commercial or agri-
differences between the parties.
cultural disputes.
10. Ongoing working groups to share information, to deal
The interaction, stability, and procedures
with NAFTA implementation concerns, and manage and
NAFTA established are important indicators of
diffuse difficulties concerning various sectors and is-
the agreement's positive effect.
sues addressed in the agreement.
11. Dispute resolution panels effectively extending U.S. le-
gal protections to American businesses on Mexican soil.
Dispute Mechanisms
12. Higher level of intellectual-property-rights protection
than any other bilateral or multilateral agreement (of great
Only a decade ago our companies had limited re-
interest to U.S. high technology, entertainment, and
course if they felt they had been treated unfairly
consumer goods producers).
in Mexico. NAFTA has provided clear and trans-
parent procedures to expedite the resolution of
Environment
disputes. NAFTA established panels for resolving
13. Prohibition to relax environmental and worker safety
disputes in the areas of antidumping and
standards to attract investment, as well as preservation of
countervailing duties (AD/CVD) in Chapter 19,
each party's ability to maintain strong health, safety
and violations of provisions of the agreement or
and environmental standards.
acting to nullify expected benefits in Chapter 20.
14. Establishment of the Border Environment Coopera-
Two cases have been brought forward under Chap-
tion Commission (BECC) and North American
ter 20 and some 29 under Chapter 19. Thirty cases
Development Bank (NADBank) to address the envi-
may sound like a lot in three years, but when the
ronmental problems in the U.S.-Mexico border re-
scope of the agreement is considered, as well as
gion and the paucity of capital in the region needed
the vast amounts of trade and investment flows
to invest and solve these problems.
covered under NAFTA's legal boundaries, the num-
15. Institutions to study cross-border problems and at-
ber is surprisingly low.
tempt to resolve them and increase mutual under-
Before NAFTA there was no standard way for
standing of each other's systems, and to receive and
small businesses and those engaged in regular com-
manage citizen complaints and disputes.
mercial activities in Mexico to safeguard against
17
and resolve the inevitable periodic disputes and
Commission for Environmental Cooperation
commercial frictions. NAFTA created an interna-
(CEC): environment secretaries of the three
tional dispute resolution center. In December
countries with a secretariat and council located
1995, the creation of the Commercial Arbitration
in Montreal.
and Mediation Center for the Americas (CAMCA),
the first international dispute resolution center
North American Agreement on Labor Cooperation
founded to resolve private, cross-border commer-
(NAALC): labor secretaries of each country
cial disputes relating to NAFTA, was announced.
with a secretariat and executive director in Dal-
Formed by the American Arbitration Association,
las, Texas.
the British Columbia International Commercial
Arbitration Centre, the Mexico City National
Border Environment Cooperation Commission
Chamber of Commerce, and the Quebec National
(BECC): a bilateral commission of presiden-
and International Commercial Arbitration Cen-
tially appointed members from the United
ter, the CAMCA has a multi-national roster of
States and Mexico with an office and general
neutral arbitrators and mediators; publishes guide-
manager in Juarez, Mexico.
lines and sample text for parties to insert into their
contracts in advance of doing business that will
North American Development Bank (NADBank):
provide for mediation in case of disputes; and
U.S. Secretary of the Treasury, the U.S. Secre-
studies, promotes, and administers procedures to
tary of State, the U.S. Administrator of the En-
resolve disputes through arbitration, mediation,
vironmental Protection Agency, Mexico's
and conflict resolution."2
treasury minister, social development minis-
ter and trade ministers, as board of directors
Institutions and Ongoing Consultations Lubri-
located in San Antonio, Texas.
cate the Relationship. The array of institutions
and working groups established by NAFTA has also
The labor and environment institutions under
made an important contribution to the success
NAFTA were unprecedented, and consequently
of the agreement. Regular interaction by the play-
took a while to get off the ground. It is really too
ers and policy experts in the numerous issue ar-
early to definitively claim success or failure. The
eas covered by NAFTA has been valuable in quietly
Labor and Environment commissions must
helping the businesses and citizens affected by
grapple with their dual nature of models for co-
North American trade and investment.
operation contrasted with their role as official fin-
There are twenty-four committees and work-
ger-pointers and potential enforcers with trade
ing groups dealing with every area of NAFTA,
sanctions. The punitive flavor of the institutions
staffed by officials from the relevant agencies for
detracts from the atmosphere required for pro-
these issues from all three countries. Rather than
ductive collaboration. The NADBank and BECC
waiting for a crisis to bring these officials together,
are slow to certify and fund projects, though they
the committees and working groups offer a regu-
have made significant strides in bringing the bor-
lar opportunity to exchange information, learn
der communities into the process of their own
more about each other's activities, and defuse
infrastructure development by raising their un-
problems before they erupt.
derstanding of how to structure and manage such
The more visible institutions established un-
projects. The border institutions have not at-
der NAFTA are:
tracted the confidence nor significant amounts
of partnered lending, however, of the private in-
North American Free Trade Commission (NAFTC):
frastructure finance community.
trade ministers of Mexico, Canada and the
The scope of NAFTA's supporting structure is
United States who supervise implementation
nowhere near as large as that of other regional trad-
of NAFTA and assist in the resolution of dis-
ing agreements, and certainly nothing like the enor-
putes regarding interpretation of the agree-
mous bureaucracy of the European Community.
ment. (They have met four times to date, most
Nonetheless, it provides an important oppor-
recently in March 1997).
tunity for regular interaction by the key policy
18
players in the relationship and opportunities to
their activities have been controversial and war-
resolve problems.
rant more discussion and analysis than can be
Labor, environment, and border institutions
covered in this paper. A forthcoming Progressive
are important experiments for learning how to
Policy Institute paper will address these issues in
create multilateral mechanisms to address these
greater detail.
difficult issue areas. Their scope is complex, and
19
6. What Remains to be Fixed?
O
n the whole, the parties to the agreement
Unpredictable administration of tariff-rate
are staying within the boundaries of be-
quotas (TRQ's) on agricultural products (TRQs
havior set by NAFTA. When so many of
were set, allowing a set amount-a quota-of
the rules of the game have been changed, occa-
goods into the country under reduced or no
sional deviations from the intent of the agreement
tariffs, with a tariff rate imposed when the
are to be expected (whether from ignorance, or
quota is exceeded. TRQs were set based on his-
adherence to old ways of doing business, or other
torical trade levels before NAFTA.)
reasons). Irritations like the blocking of U.S. and
Canadian Christmas trees at the Mexican border,
Onerous labeling and certification require-
ostensibly for lack of having been sprayed for pests
ments for consumer goods, processed foods,
that only live in the trees in the summer, are part
and apparel.
of the backsliding that can be characterized as "re-
venge of the nerds" syndrome. That is why the
Difficulties with testing procedures and tech-
ongoing consultative working group mechanisms
nical standards for telecommunications termi-
are so important. In the past, resolution of these
nals.
sorts of commercial problems would have been
slow, channeled through formal diplomatic chan-
In the United States:
nels, often never to be fixed.
In addition to the U.S. failure to comply with
Safeguard measures imposed to raise tariffs to
NAFTA's timetable on trucking safety certification
protect our production of broom corn brooms
and access, the U.S. International Trade Commis-
(a tiny low-wage industry).
sion (ITC) found the following additional prob-
lem areas under NAFTA in its recent review.⁷³
Slowness in resolving animal and plant health-
related restriction (including the threat of leg-
islation requiring country-of-origin labeling
Country-specific
for agricultural products).
In Mexico (largely related to a lack of transpar-
Implementation of sugar quotas and the U.S.
ency and predictability in Mexico's administra-
sugar re-export program.
tion of trade rules):
In Canada (largely due to gaps in NAFTA cover-
Other Problems in the Bilateral Relationship:
age and differences in opinion over rules):
Improved relations due to the many mechanisms
for cooperation in trade and investment matters
High post-Uruguay Round agricultural tariffs.
under NAFTA are threatened periodically by erup-
tions in the problem areas of narcotics and mi-
Subsidies for lumber and wheat.
gration. Extra-territoriality and perceived
violations of sovereignty by the United States as
Protection of cultural industries.
represented by the Helms-Burton Act are also ir-
ritants. Critics of NAFTA link these issues to the
trade agreement, when it is more noteworthy to
Remaining Reforms
point out that our biggest problems lie in those
areas that are not governed by the formal arrange-
Progress is needed in several other areas.
ments, agreements, and institutions that NAFTA
provides.
Judicial reform in Mexico: While NAFTA pro-
In the United States, an anti-immigrant senti-
vides U.S. investors with national treatment in
ment prevails despite the lowest unemployment
Mexico, it does not address the continued need
in decades. In Mexico, the recent U.S. immigra-
for reform of the judicial system for review of
tion law, coupled with publicized incidents of
government actions in Mexico. There needs to be
police abuse of illegal immigrants, are perceived
more transparency and clear adherence to the let-
as indications that the United States is anti-Mexi-
ter of the law. This problem in Mexico is nowhere
can. Nonetheless, progress on migration and
near the scope, however, of similar difficulties in
narcotics has accelerated since NAFTA's imple-
Asian markets. 74
mentation, perhaps due to the growing comfort
and familiarity between the policy leaders of both
Trade Diversion and Distortions: As we strive
countries that has arisen from not only NAFTA's
to move the world toward full and open trade, it
on-going institutional collaboration, but also
is not a good precedent for the United States to
from the increasingly meaningful meetings of the
allow its trade agreements to result in trade di-
Binational Commission of executive agencies on
version. Furthermore, U.S. inaction on following
both sides of the border. In fact, a comprehen-
through on commitments to extend NAFTA to
sive study of migration, by a team of binational
Chile and other countries in the hemisphere is
demographic and migration specialists commis-
causing U.S. businesses to lose out to their Cana-
sioned by Presidents Clinton and Zedillo, will be
dian and Mexican counterparts who benefit from
released in September 1997.79 And cooperative
lower barriers to those markets. For example,
anti-narcotics measures were announced on Presi-
Washington state apple growers are losing mar-
dent Clinton's visit to Mexico in April of this year.
ket share in Chile to Mexico, which already has a
It is true that the U.S.-Mexico relationship
free trade deal.75 Already 20 other trade agree-
reaches far beyond the trade and investment gov-
ments in our hemisphere have been signed with-
erned by NAFTA. The same political courage and
out U.S. participation. 76 The European Union has
long-view that were necessary to undertake this
expressed interest in negotiating with Mercosur,
agreement between a rich and a developing coun-
and opening its trade with Latin America. Already
try are necessary to manage the more troublesome
in June 1997, Mexico and the European Union
issues of migration and narcotics. 80
took concrete steps toward free trade with plans
to start negotiations in the spring of 1998.⁷⁷ With-
Improved Trade Data: Ignorance and fear are fu-
out presidential fast track authority, and the as-
eled by a lack of adequate data and the dificulty of
surance that agreements negotiated with the
empirically measuring the employment effects of
United States will not be reworked by the 435
NAFTA. Periodically the State Department, U.S.
members of the U.S. Congress ex post facto, these
Trade Representative, and members of Congress
other important and growing markets for U.S.
clamor for this data, but Congress has been un-
products will not be opened to American goods
willing to fund it on a regular basis. The Interna-
and services and the jobs they provide.⁷⁸
tional Trade Administration is currently trying to
21
develop employment statistics for traders on a state
trade and employment, we need to address di-
and sectoral level-essentially restarting the "ex-
rectly the apprehension about employment se-
port origin" series that was stopped for lack of fund-
curity that persists in the U.S. public despite
ing in 1992. The Census of Manufacturers (taken
record employment levels and low inflation.
every five years) and Survey of Manufacturers (un-
This means giving individuals the power to con-
dertaken annually) ask trade and employment
trol their own employment destinies with
questions that would allow profiles of U.S. traders
voucher-supported training and more meaning-
by industrial sector and region. Unfortunately,
ful adjustment assistance. The Progressive Policy
these statistics are not compiled into reports be-
Institute has advocated increased public invest-
cause of budget constraints. It would cost $750,000
ment in human capital and proposed innovative
to start up such a project and $500,000 per year to
solutions to the education and training needs of
continue it.⁸¹ The regular release of this kind of
American workers. During a period character-
information would go a long way toward remov-
ized by a shortage of skilled labor and high un-
ing the reliance on anecdotal success and horror
employment for high school drop-outs, we, as a
stories that pervade the discussion of trade today.
country, are about to experience the by-product
of underinvesting in the education of our
Modernize Workers' Tools for Adapting to
workforce.
Change: Beyond providing regular statistics on
22
7.
Public Opinion: Removing Fear
and Loathing from the
Trade Discussion
W
ith NAFTA working well for the United
A poll undertaken by EPIC/MRA of Lansing,
States, why do protectionists continue
Michigan for the Association of Women in Inter-
to find an audience for their isolation-
national Trade, found that 61 percent of respon-
ist sentiments? Perhaps because the benefits of
dents approved of free trade agreements with
applying rules and standards of behavior to on-
other countries, and 88 percent agreed that
going global trade and investment have not been
America's economic strength in the future de-
communicated well to the general public. When
pends on our ability to compete in the global
the purpose of trade agreements is explained (to
market place. Yet 47 percent thought the United
expand access for U.S. goods and services in world
States should either change or pull out of NAFTA,
markets), then the public supports such agree-
versus 30 percent who thought the United States
ments. But in the absence of that information,
should continue the agreement as is. Three quar-
the public is apprehensive about the impact of
ters were unaware that the United States is the
trade agreements on job security in the United
world's largest exporter. Sixty percent were un-
States.
aware that America's exports have doubled over
A recent survey undertaken by the Democratic
the last seven years. They were skeptical about
Leadership Council found that support for ex-
the value of labor, environment, or human rights
panding trade is strong among all voters. Two-
linkages to international trade, but still thought
thirds of voters see global integration as a
the United States should make these links.⁸³
necessary and positive action. Sixty-seven per-
Trade is too important to the U.S. economy to
cent think it is better to be aggressive at opening
continue being misunderstood. Better informa-
up markets, while only 22 percent think it is bet-
tion about the impact of trade must be collected
ter to limit trade and be protectionist.
on a regular basis and become part of the stan-
While supportive of free trade and rejecting
dard reporting of the federal government. Pro-
protectionism, voters have concerns about the
gressive approaches to dealing with the highly
effect of trade on their jobs and families and be-
mobile nature of capital and firms, which is a fea-
lieve corporations may benefit more than the av-
ture of the modern world economy, must be put
erage American.⁸²
in place.
8. Conclusion
N
AFTA is an important and solid agree-
don't just safeguard U.S. businesses, they protect
ment. It protects the interests of U.S.
the technology, processes, and markets that pro-
employers and investors and those of our
vide employment for our workers, too.
trading partners. It contains important principles
As the world's leading exporter, the U.S.
that will benefit U.S. employers when they are
economy will continue to be deeply involved in
extended to other regional markets. It provides
the global market. The prospect of free trade with-
boundaries for behavior in the global market that
out the kinds of guidelines, safeguards, and pre-
protect U.S. interests. NAFTA puts in place rigor-
dictability epitomized by NAFTA should be far
ous rules for governing trade, setting a higher
more alarming than the prospect of further U.S.
standard than previous agreements. While these
leadership in global trade negotiations.
rules have been good for North America, their
We need to extend the principles embodied in
value lies in serving as a template to expand these
NAFTA to the rest of the hemisphere. Having
principles to other key markets.
hemispheric trading partners who advocate the
Furthermore, through the vehicle of trade lib-
same principles at the WTO will give the United
eralization, NAFTA has introduced to Mexico im-
States leverage to lead the global marketplace to
portant principles of transparency, the right to
a new era of open and fair trade.
appeal government decisions, public access to
NAFTA is designed to be expanded. It contains
information (about trade, labor, the environ-
a "docking" or accession clause that would allow
ment), and a number of other issues that make
other countries to sign on to its provisions. Since
up the foundation of an open, pluralistic, and
NAFTA went into effect, however, a number of
democratic society.
other developments have occurred in our hemi-
Institutions, working groups, and mechanisms
spheric trading environment. It behooves the
that NAFTA created have smoothed the path to
United States to ensure that any future trade agree-
allow North American businesses to trade, invest,
ments not only meet the standards included in
and position themselves for better productivity
NAFTA, but also cover current conditions with the
and comparative advantage-thus making our
proposed trading partner(s) and anticipate future
economies stronger against shocks, such as
needs. In this regard, the founding principles and
Mexico's 1994 crisis. These features of NAFTA
approach epitomized in NAFTA should be used as
the basic architecture for future hemispheric
trade in the Americas.87 Any further delay in as-
agreements, even if such agreements are not "ac-
serting U.S. leadership in trade negotiations with
cessions" to NAFTA per se.
Latin America may hurt U.S. interests.
Though the next round of fast track is needed
The plain fact is, U.S. trade partners will not
for much more than negotiating agreements with
engage in comprehensive trade negotiations un-
the rest of the Americas, no one should forget
til they are assured that the deals reached will not
how important Latin American markets are to our
be watered down or changed in the process of
economic future. Latin America is one of the two
congressional approval. That assurance is pro-
fastest growing regions in the world (with the de-
vided by fast track authority for the president.
veloping countries of Asia being the other). 84 For
While trading partnerships are being cemented
the first time in 1996, hemispheric exports ex-
throughout the hemisphere, the United States is
ceeded $1 trillion. 85 The Mercosur countries
being left out of the bargaining. Our partners
alone represent a market of 220 million consum-
would prefer the status quo with the United States
ers with a combined GDP of more than $1 tril-
to bad faith negotiations.
lion. 86 Twenty trade agreements have been
Congress must give President Clinton the tool
negotiated within the hemisphere without U.S.
that all previous presidents have wielded to as-
participation. Talks currently underway between
sert U.S. leadership in the world marketplace-
Mercosur and Canada, Mexico, Venezuela, and
fast track trade negotiating authority. Without
the Andean Community threaten to make the
it, the United States is not welcome at the bar-
Mercosur model (of higher tariffs and external
gaining table.
barriers to non-participants) the framework for
25
Endnotes
1
The New Democrat Editors, "NAFTA and the National Interest" The New Democrat, Volume Five, Number 4,
(November 1993): 5-6.
2
Mercosur is a trade agreement between Brazil, Argentina, Paraguay, and Uruguay (with Chile signing on as
a "plus one") that is classified as a customs union because it establishes a common external tariff barrier to
products from outside the region while reducing trade barriers between the members of Mercosur.
3
Canadian Conference Board Report on NAFTA Economic Growth (Montreal: Notimex News Service, (Au-
gust 7, 1997).
4
Study on the Operation and Effects of the North American Free Trade Agreement (Report of the President
of the United States, July 1997): i and 1.
5
Mexico expert political commentator and editor of the magazine Courrier Internacional, Jean Michel Boissier,
is quoted in the Mexican magazine Siempre, as saying that "NAFTA has importance in the fall of the
PRI This democratic opening is a direct consequence of the free trade agreement With NAFTA, Mexico
has become a more visible country... (Siempre, August 27, 1997).
6
"Government reports GDP growth at 8.8 percent in second quarter & 7 percent in January-June" (SourceMex
on-line newsletter, http://ladb.unm.edu/, September 20, 1997).
7
Testimony before U.S. International Trade Commission (USITC) hearings on NAFTA (Gary Hufbauer and
Jeffrey Schott, May 15, 1997): 3.
8
Canadian Conference Board, (Montreal: Notimex News Service).
9
Study on the Operation and Effects of the North American Free Trade Agreement (Report of the President
of the United States, July 1997): i and 1.
10
Ibid., i and 1.
11
Regina Vargo, Deputy Assistant Secretary for the Western Hemisphere, U.S. Department of Commerce,
before the Subcommittee on International Economic Policy and Trade of the House International Rela-
tions Committee (March 5, 1997): 5.
12
U.S. Trade Representative (USTR), "1996 Annual Report of the President of the United States on the Trade
Agreements Program" (http://www.ustr.gov./reports/tpa/1997/part3.html): 2.
13
"U.S. Trade With Mexico during the Third NAFTA Year" International Economic Review (U.S. International
Trade Commission, April 1997): 11.
14
Ibid., 11.
15
Study on the Operation and Effects of the North American Free Trade Agreement (Report of the President
of the United States, July 1997): 39.
16
"North American Integration Three Years after the NAFTA: A Framework for Tracking, Modeling, and
Accessing the National and Regional Labor Market Impacts" (North American Integration and Develop-
ment center, UCLA,. http://naid.sppsr.ucla.edu/NAFTA96/Introduction.html, December 1996): Chapter
3, p. 13.
17
Sidney Weintraub, "NAFTA at Three: A Progress Report." The Center For Strategic and International Stud-
ies, (1997): 17-18 and 33-34-on the specialization effect.
26
18
Executive Summary, p. iv.
19
Testimony before U.S. International Trade Commission (USITC) hearings on NAFTA (Gary Hufbauer and
Jeffrey Schott, May 15, 1997): 5 and Table 14.
20
"NAFTA: The Right Track for U.S. Trade Policy" (National Foreign Trade Council, 1997): 5.
21
Economic Report of the President, (Council of Economic Advisors, February 1997): 256, Charts 7-8
22
Ibid., 255.
23
State NAFTA Reports Executive Summary, (Council of the Americas, May 1997): 1.
24
Andrew H. Card, President & CEO, American Automobile Manufacturers Association, (USITC Hearing,
May 16, 1997): 2-3 and Regina Vargo, 2.
25
Andrew Card, "Impact of North American Free Trade Agreement on U.S. Automotive Exports to Mexico"
(U.S. Department of Commerce, http://www.ust.gov.reports/nafta/auto_96/index.html.: 1, 4.
26
Ibid., 1-2.
27
Study on the Operation and Effects of the North American Free Trade Agreement (Report of the President
of the United States, July 1997): 46.
28
Andrew Card, AAMA, "Impact of North American Free Trade Agreement on U.S. Automotive Exports to
Mexico" (U.S. Department of Commerce, http://www.ustr.gov.reports/nafta/auto_96/index.html): 3.
29
Ibid., .2-3. This gives an extensive list of specific plant re-openings and investments made in the United
States.
30
Study on the Operation and Effects of the North American Free Trade Agreement (Report of the President
of the United States, July 1997): 46.
31
Andrew Card, AAMA and "Impact of NAFTA on Automotive Exports." Study on the Operation and Effects
of NAFTA, p. 56.
32
Study on the Operation and Effects of the North American Free Trade Agreement (Report of the President
of the United States, July 1997): 59.
33
North American Integration, Chapter 3, p. 13.
34
Study on the Operation and Effects of the North American Free Trade Agreement (Report of the President
of the United States, July 1997): 56.
35
Ibid., 85-86.
36
Executive Summary, p. vi and International Economic Review, (April 1997): 5-11.
37
Of the total 557 NAFTA-TA certified manufacturing firms, 19.9 percent were apparel firms (an over-repre-
sentation when compared to the fact that apparel firms account for only 6.3 percent of all U.S. manufac-
turing firms) according to NAID, North American Integration, Chapter 5, p. 2.
38
Fiber or yarn-forward rules of origin require that a fabric must be made from North American materials
from the level of the fiber (e.g. cotton or wool) or the yarn made from these fibers on until the final
product (clothing, carpet, fabric).
39
William A. Orme, Jr., "The NAFTA Debate-Myths Versus Facts-the Whole Truth about the Half-Truths,"
Foreign Affairs, Vol. 72, No. 5 (November/December 1993): 4.
40
USTR 1996 Annual Report of the President of the United States on the Trade Agreements Program." World
Wide Web, http://www.ustr.gov/reports/tpa/1997/part3.html): 11-12.
41
Survey of Current Business, USDOC (1996).
42
"Government Increases Share in Northeast Railroad" (SourceMex on-line newsletter, http://ladb.unm.edu/
February 12, 1997).
27
43
Sidney Weintraub, "NAFTA at Three: A Progress Report." The Center For Strategic and International Stud-
ies, (1997): 50.
44
Remarks by Congressman Steve Buyer, J.S.International Trade Commission, Hearings (May 15-16, 1997):
3-8.
45
"Government Announces Guidelines for Federal Agencies to Select Long Distance Service Providers,"
(SourceMex on-line newsletter, http://ladb.unm.edu/, May 14, 1997).
46
International Trade Administration, Office of Mexico, U.S. Department of Commerce (May 1997) unpub-
lished summary of procurement effects of NAFTA.
47
Stephen P. Dees, Farmland Industries, Inc., "The Impact of the North American Free Trade Agreement"
U.S. ITC Hearings (May 12, 1997):1.
48
Study on the Operation and Effects of the North American Free Trade Agreement (Report of the President
of the United States, July 1997): 90.
49
"NAFTA Works," Embassy of Mexico NAFTA Office, (Vol. 2, Issue 4): 1.
50
"U.S. and Mexico Announce Agreement to Open Markets for Some Agricultural Products" (SourceMex on-
line newsletter, http://ladb.unm.edu/, May 14, 1997).
51
International Economic Review, p. 4.
52
"U.S. and Mexico Announce Agreement to Open Markets for Some Agricultural Products" (SourceMex on-
line newsletter, http://ladb.unm.edu/, May 14, 1997).
53
Stephen P. Dees, Farmland Industries, Inc., "The Impact of the North American Free Trade Agreement"
U.S. ITC Hearings (May 12, 1997): 2.
54
Phillip Klutts, National Farmers Union, Testimony before the USITC (May 15, 1997): 6.
55
"Fresh Tomatoes" Report to the President on Investigation No. TA-201-64, USITC (July 1996): 1.
56
Study on the Operation and Effects of the North American Free Trade Agreement (Report of the President
of the United States, July 1997): 11.
57
Economic Report of the President 1997, Council of Economic Advisors (1997): 22, 76.
58
Amy Saltzman, "Making it in a Sizzling Economy" U.S. News & World Report (June 23, 1997): 50.
59
Testimony before U.S. International Trade Commission (USITC) hearings on NAFTA (Gary Hufbauer and
Jeffrey Schott, May 15, 1997): 3.
60
"NAFTA's Broken Promises: Failure to Create U.S. Jobs-NAFTA's Three Year Reality: Spiraling Job Loss and
Trade Deficits Instead of Job Creation" Public Citizen (February 1997): 1.
61
Bill Richards, "Shaky Numbers: Layoffs Not Related to Nafta Can Trigger Special Help Anyway" The Wall
Street Journal (June 30, 1997): 1.
62
"North American Integration Three Years after the NAFTA: A Framework for Tracking, Modeling, and
Accessing the National and Regional Labor Market Impacts" (North American Integration and Develop-
ment center, UCLA,. http://naid.sppsr.ucla.edu/NAFTA96/Introduction.html, December 1996): 9.
63
Ibid., 5.
64
Ibid., 6, 8; Testimony before U.S. International Trade Commission (USITC) hearings on NAFTA (Gary
Hufbauer and Jeffrey Schott, May 15, 1997): 3; Sidney Weintraub, "NAFTA at Three: A Progress Report."
The Center For Strategic and International Studies, (1997): 11.
65
"NAFTA: Past Experience and Future Prospects, 45th (Manuel Suarez-Mier, Annual Management Confer-
ence, Graduate School of Business, The University of Chicago, April 1997): 1.
28
66
Regina K. Vargo, Deputy Assistant Secretary for the Western Hemisphere, U.S. Department of Commerce,
before the Subcommittee on International Economic Policy and Trade of the House International Rela-
tions Committee (March 5, 1997): Chart 2.
67
For a discussion of the Mexico peso crisis there are numerous references, but the following give an over-
view: Sidney Weintraub, "NAFTA at Three: A Progress Report." The Center For Strategic and International
Studies, (1997): chapter 4; and Geoffrey J. Bannister, "The Economic Context of the Mexican Crisis" Re-
search Paper Series No. 29 (University of New Mexico, Latin American Institute, September 1996).
68
Sidney Weintraub, "NAFTA at Three: A Progress Report." The Center For Strategic and International Stud-
ies, (1997): 31.
69
Ibid., 28, Figure 1.
70
Regina K. Vargo, Deputy Assistant Secretary for the Western Hemisphere, U.S. Department of Commerce,
before the Subcommittee on International Economic Policy and Trade of the House International Rela-
tions Committee (March 5, 1997): 3.
71
Ibid., 4; and Executive Summary, USTR. p. 6.
72
These guidelines available by calling (212) 484-4000 or on the World Wide Web, http://www.adr.org/.
73
"NAFTA Commission Meets Amidst Debate Over Accord's Expansion" International Economic Review, 14.
74
Interview with Robert Herzstein, Shearman & Sterling, (Washington, D.C., June 11, 1997).
75
Regina K. Vargo, Deputy Assistant Secretary for the Western Hemisphere, U.S. Department of Commerce,
before the Subcommittee on International Economic Policy and Trade of the House International Rela-
tions Committee (March 5, 1997): 7.
76
Ambassador Charlene Barshevsky, USTR, Testimony before the Trade Subcommittee of the House Ways
and Means Committee (March 18, 1997).
77
"Mexico and Europe Seek Trade Accord" El Financiero International Edition, (June 16-22, 1997): 1.
78
There is ample opportunity for congressional and business input to negotiations before and during free
trade negotiations, if NAFTA is any example. By the time NAFTA was signed, over 1,000 consultations
(averaging two per working day from the moment negotiations began with Congress and industry groups)
had been held. Source: USTR NAFTA Sourcebook 1994.
79
The report finds that the number of undocumented Mexican workers settling in the U.S. each year is
105,000 as opposed to the 1 million per year estimated by such political figures as Patrick Buchanan and
Governor Pete Wilson. Source: "Paper: Illegals Fewer than Thought" Associated Press, (September 1, 1997
New York, AOL On-Line News Service).
80
Clark W. Reynolds, "The Missing Vision" The San Diego Union-Tribune, (May, 11 1997): G-6.
81
Interview with International Trade Administration Official (June 24, 1997).
82
"The New Democratic Electorate" Democratic Leadership Council Survey, Executive Summary (August 6,
1997).
83
Results from Epic/MRA survey of 850 adult U.S. residents conducted May 19-22, 1997, margin of error ±
3.5 percent, commissioned by Women in International Trade.
84
USTR, 1996 Annual Report on Trade Agreements, p. 2 (WWW version); "Globalization Opportunities and
Challenges" International Monetary Fund, World Economic Outlook (May 1997): 5, Table 1.
85
Gary Springer, "Strategic Developments in Hemispheric Free Trade Agreements" (Unpublished September
1997): 1, Chapter 2.
86
Ibid., 3.
87
Ibid., 3.
29
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31
About the Author
Rebecca Reynolds Bannister ([email protected]) is a Fellow of the Progressive Policy Institute.
She is currently director of the Latin America Data Base at the University of New Mexico, an on-line
news service and searchable archive available on the World Wide Web (http://ladb.unm.edu/) pro-
ducing weekly reports about Latin America.
Previously she served as executive director of the North American Institute, a tri-national public
policy research group in Santa Fe. Ms. Bannister worked for NAFTA's passage as deputy director of
the Council of the Americas' Washington, D.C. office from 1993-94. From 1990-93, she worked for
the International Trade Administration of the U.S. Department of Commerce as director of commer-
cial programs (to help businesses get ready for NAFTA) in the Office of Mexico, and as special assis-
tant to the deputy under secretary for international trade and advisor to the under secretary for
international trade on NAFTA issues. During this period she conceived and organized the first U.S.-
Mexico border infrastructure finance conference headed by Commerce Secretary Ron Brown and
Mexican environment and infrastructure Secretary Luis Donaldo Colosio. From 1987-90, she was
director of international trade for the state of Texas Department of Commerce, establishing a struc-
ture of Texas-Mexico commissions on bi-state issues, a project to help Texas firms sell inputs to
maquiladoras in Mexico, and a network of local export-assistance centers for small businesses.
She holds a Bachelor's degree in political science from the University of California at Berkeley, and a
Master's degree from Brown University in political science, specializing in state level economic devel-
opment and international trade.
Acknowledgments
The author gratefully acknowledges the invaluable help of Edie Wilson, and also of Rob Shapiro and
Will Marshall of the Progressive Policy Institute; Dr. Sidney Weintraub, Center for Strategic and In-
ternational Studies; Robert Herzstein, Shearman & Sterling; Gary Springer, Hemispheric Strategies;
Manuel Suarez-Mier; Peter Hakim, Inter-American Dialogue; Dr. Clark Reynolds, Stanford University;
and Dorothy and Ted Reller in the preparation of this paper. Research and production of this report
would not have been possible without the assistance of David Datelle, Eliza R. Culbertson, and Anne
Saunders.
PPi
PROGRESSIVE POLICY INSTITUTE
518 C Street, NE . Washington, DC 20002
E-mail . [email protected] . www . http://www.dlcppi.org/
Phone (202) 547-0001 Fax (202) 544-5014
The North American Free Trade Agreement:
Fulfilling Its Promise
Statement by
Edith R. Wilson
Trade Project Director, Democratic Leadership Council
Senior Fellow, Progressive Policy Institute
Subcommittee on Trade
House Committee on Ways and Means
September 11, 1997
Washington, DC
Introduction
Mr. Chairman, support for trade liberalization, like other aspects of American foreign affairs, has
usually been handled on a bipartisan basis, as it should be. We hope this tradition continues as
Congress considers fast track negotiating legislation this fall, and that the new 'vital center' of
American politics will hold. I am here on behalf of the Democratic Leadership Council, which
endorsed NAFTA three years ago, to explain why we did so and why Americans should be proud
of President Clinton's historic achievement in expanding ties to our neighbors in North America.
By explaining why we believe, based on the evidence to date, that NAFTA has been good
for ordinary Americans and serves the national interest, we hope also to demonstrate why we support
further trade expansion. We believe a successful trade policy recognizes three core components: the
significance of international trade to domestic growth; the importance of leadership in trade to
America's international leadership overall; and the need to help American workers adjust and
compete to changing economic conditions. Trade currently represents one third of America's
economic growth.¹ Maintaining growth in trade is critical to sustaining our robust growth overall,
and particularly important to maintaining a resurgence in manufacturing jobs.² That, in a nutshell,
is why Americans cannot be pro-growth without being pro-trade. Trade is critical to the new
economy.
Our goal in expanding trade should be a more dynamic and compassionate economy in which
companies, workers, and government share responsibility for helping working Americans adapt to
the changing economy. The burdens of change must not fall solely on the shoulders of working
Americans. Government, business, and other institutions share responsibility for the security of
¹Trade, as a percentage of Gross Domestic Product, is approximately 14 percent when counting only
exports.
²Bergsten, C. Fred, Director of the Institute For International Economics. Testimony before the Senate
Finance Committee (June 1997).
those few who might be left behind. We will be looking to new models, such as business and jobs
consortia, to help workers and companies to succeed and share in the benefits of expanded trade, and
thus "expand the winner's circle."
Assessing NAFTA Three Years Out
Today the Progressive Policy Institute is releasing a study, The NAFTA Success Story: More than
Just Trade, by Rebecca Reynolds Bannister, a former trade official. I draw substantially on that
research in making my own analysis.
One point must be clarified at the beginning. Contrary to popular impression, NAFTA has
not yet been fully implemented. While many NAFTA provisions went into effect immediately in
1993, others phase in over five, ten, and even fifteen years for the most sensitive sectors. This was
intended to permit the workers and industries of all three countries ample time to adjust. At this
point, no NAFTA study can adequately measure the agreement's full results because much of
NAFTA's impact still lies ahead. The benefits to the United States will improve as implementation
continues, and as NAFTA provides the conditions for increased economic growth in Mexico and
Canada.
Nonetheless, the 1997 congressionally-mandated assessment of NAFTA by the
Administration released this July is useful and timely. It provides Congress with a snapshot of this
work in progress and allows it to determine if anything is dramatically wrong. Most importantly, the
Clinton Administration report and hearings such as this provide an excellent opportunity to examine
the facts.
NAFTA Lessons and Results
There are three main lessons to be learned from the NAFTA experience to date. First, the United
States can liberalize trade with developing countries, if the agreements go beyond reducing tariffs
on merchandise trade and cover other essential aspects of a sound and fair trading relationship.
Longer phase-in periods are also necessary in such cases. This is critical information for the future,
since the fastest growing markets lie in developing countries. Second, trade does follow trade
agreements, and dramatic increases in trade are possible from agreements committed to lowering
barriers on both sides. Third, lowering trade barriers between neighboring countries-those who can
through proximity and familiarity easily, quickly, and at lower cost become better customers and
partners-is one of the most effective ways to increase trade rapidly.
We have learned from the Clinton Administration report and the Progressive Policy Institute
examination that NAFTA is fulfilling its promise. Our trade relations, the benefits to our consumers,
the competitiveness of our workers, and the security of our investments are stronger for having
concluded NAFTA. It helped increase trade and investment in North America. It put in place
rigorous rules for governing trade, setting a higher standard than previous agreements. Institutions,
working groups, and mechanisms that NAFTA created have smoothed the path to allow North
2
American businesses to trade, invest, and position themselves for better productivity and
comparative advantage, making our economies stronger against shocks such as Mexico's 1994-95
crisis.
This summer, North America was ranked as one of the world's fastest growing regions, with
growth projected at 3.5 percent, compared to the average 2.7 percent growth rate for the rest of the
industrialized nations. Not only is there strong economic growth in all three countries, but Mexico's
economic growth has been particularly impressive this year, with 8.8 percent GDP growth in the
third quarter of 1997 and a projected aggregate rate of between 5 and 6 percent GDP growth.³
Canadian GDP growth for this year is projected at 3.3 percent. In 1996, nearly one-third of U.S. trade
in goods was with Canada and Mexico ($421 billion). When our two top customers grow, we grow,
and vice versa: our NAFTA partners accounted for 53 percent of the growth in total U.S. exports in
the first four months of 1997. Trade is not a zero-sum proposition, as some would suggest.
Despite dire predictions, NAFTA to date has not produced a flight of U.S. investment or jobs.
The U.S. economy now creates in approximately one month the total number of jobs lost due to
NAFTA in three years. Today we find that despite NAFTA's reduced tariff barriers and an economic
crisis in Mexico in 1995 that lowered the value of the peso and made Mexican labor comparatively
even cheaper, the United States has not lost even a small fraction (1/40th) of the 6 million jobs that
Ross Perot predicted. In fact, under President Clinton's leadership, the U.S. economy has created
8.6 million jobs since NAFTA's inception. NAFTA's impact on jobs in the U.S. economy has been
negligible in most sectors with positive job growth in others. Quite simply, neither NAFTA nor
GATT nor any of our other lesser trade agreement has hurt the U.S. economy. Instead, they have
been a vital component in our economic growth by opening new markets and eliminating barriers.
But when we look at the agreement's results, we are continually reminded that NAFTA was
about more than trade. It was a pathbreaking, comprehensive trade and investment accord that
"locked in" not only a steadily decreasing tariff rate on almost all products but also significant
market reforms, as well as dispute settlement and investment guarantee procedures. It has increased
certainty and stability in our commercial relations with our two top customers. No less than fifteen
non-tariff accomplishments of the agreement are truly significant, covering areas such as inputs,
transparency, services, investment, conflict resolution/protections, and environment⁴. These features
of NAFTA don't just safeguard U.S. businesses; they protect the technology, processes, and markets
that provide employment for our workers, too.
So, what do we find when we look at this section of the agreement four years later? Trade
and investment disputes are now being handled with relative transparency and according to the
established procedures agreed to in NAFTA. The agreement was, in particular, a step forward in
3"Mexican Growth Is Fastest in 16 Years As GDP in Second Quarter Soared to 8.8 percent," The New
York Times (August 19, 1997).
4Bannister, Rebecca Reynolds, The NAFTA Success Story: More Than Just Trade, (Washington, DC: The
Progressive Policy Institute, DC, September 1997).
3
enhancing the ability of small businesses to participate in international trade. Under NAFTA, small
businesses as well as large firms have been given secure market access as well as methods for
resolving commercial disputes in a developing country market. No other agreements do this. When
the scope of the agreement is considered as well as the vast amounts of trade and investment flows
covered under NAFTA's legal boundaries, the number of disputes since 1993 has been surprisingly
low. Congress should consider this lack of conflict as a particular endorsement of how well the
agreement is working.
States and Sectors: Michigan and South Carolina
Nearly all states have posted gains in exports with Mexico since NAFTA. Key industries such as
autos, electronics, and the service sector have benefitted from NAFTA's provisions -- despite
Mexico's economic crisis of 1994-95. Let us examine for a moment two states that were particularly
concerned about negative impacts when NAFTA was signed: Michigan and South Carolina. Both
are excellent examples of how states and sectors have benefitted generally from increased trade and
specifically from the terms of NAFTA.
As overall unemployment and inflation have fallen to their lowest levels since the 1960s,
Michigan's economy has prospered. Michigan's unemployment is at its lowest level in nearly 30
years. Michigan's unemployment rate has fallen from 6.8 percent in November 1993, to 4.4 percent
in April 1997, since the passage of NAFTA. Michigan's export growth has increased 68 percent
between 1992 and 1996, making it the fourth largest state exporter of goods. Michigan's
export-related jobs-which pay, on average, 13 to 16 percent more than non-export related
jobs-increased by an estimated 40 percent, or 147, 883 jobs, since 1992.
Michigan's exports to NAFTA countries increased by 40 percent between 1993 and 1996.
During 1996, Canada was Michigan's largest export market and Mexico was its second largest.
Between 1993 and 1996, Michigan's exports to Canada rose by 56 percent. During this same period,
Michigan's exports to Mexico declined by 2 percent, due to the deepest but shortest lived recession
in Mexico in 50 years. Transportation equipment accounted for 63 percent of Michigan's total
exports.
Some U.S. sectors-such as the automotive industry-have experienced large net import and
export growth as well as job growth. U.S. employment in the automotive industry grew by 14 percent
between 1993 and 1996, including a 10.6 percent increase in employment in automotive assembly.
This job growth was accompanied by a 5.6 percent increase in hourly earnings for automotive
production workers. While U.S. imports of Mexican automotive vehicles and parts nearly doubled,
thanks to NAFTA provisions, those imported vehicles now include a high percentage of components
made in the United States. In fact, U.S. exports to Mexico of automotive vehicles and parts increased
11 percent, from $7.5 billion in 1993 to $8.4 billion in 1996. These positive developments in the
automotive sector have certainly helped the state of Michigan, which is the leading manufacturer of
4
automobiles in the United States. 5
In South Carolina, unemployment in 1993 stood at 7.6 percent. In April, 1997, it was 4.6
percent, a decline of 2.9 percent. In this state, we find that record levels of foreign investment have
supported 21,000 additional high-paying, high-skilled jobs since 1992. During 1995, Canada was
South Carolina's largest export market, while Mexico was South Carolina's second largest export
market. Since 1993, exports to Canada have increased by 23 percent, from $1.3 billion in 1993 to
$1.7 billion in 1997. South Carolina's exports to Mexico have increased by 58 percent, from $300.3
million in 1993 to $719.0 million in 1995.
Moreover, South Carolina's textile industry illustrates the benefits of integration under
NAFTA. Textile and apparel goods production have shifted from the Far East to North America.
South Carolina's textile exports to Mexico increased 143 percent, 1993 to 1995, and textile imports
to Canada have increased 40.2 percent between 1993 and 1996. Due to NAFTA requirements,
Mexican-made apparel and footwear exported to the United States have higher U.S. content, on
average, than imports of these products from Asia and other countries. With Mexican plants now
purchasing large amounts of U.S. components, U.S. firms are increasing profits and efficiencies.
After years of decline, the textile and apparel industries are thriving on the challenges presented by
the global economy. Now highly automated and requiring skilled workers, South Carolina's textile
industry accounts for 10 percent of the state's total exports ($388.9 million) and employs 22 percent
of its workforce.⁶
Similar success stories are found in every state and in sectors such as in computers and
electronic machinery and related software, government procurement, and agriculture. In all these
critical areas, NAFTA has not only expanded markets for U.S. goods, but has helped position U.S.
industries for future competitiveness by strengthening our productive capacity on the North
American continent, and allowing the three NAFTA partners to benefit from their comparative
advantages
Economic Reform and Political Reform
NAFTA has been accompanied by other positive trends. This summer, Mexican democracy took a
large, peaceful step forward as voters in state and local elections redistributed power among the three
political parties. The PRI, after having been in power for over 60 years, no longer has a majority in
the Mexican Congress. Mexican labor unions have moved toward independence from government
⁵All data on the state of Michigan is from the following sources: BLS, USTR (based on data from the
Massachusetts Institute of Social and Economic Research), ITC, and U.S. Department of Commerce.
⁶All data on the state of South Carolina is from the following sources: USTR (based on data from the
Mass. Institute of Social and Economic Research), U.S. Department of Commerce, U.S. Department of Agriculture,
South Carolina Department of Commerce, and Study on the Operation and Effects of the NAFTA, Executive Office
of the President, July 1997.
5
control, and are becoming more vocal on behalf of their members.⁷ These changes make the obvious
point: economic reforms symbolized by NAFTA have been accompanied by a process of significant
political reform in Mexico.
There is much discussion about how and whether free trade encourages the growth of
democracy. In NAFTA, we find a very specific example of how this process works. Through the
vehicle of trade liberalization and for sound commercial reasons, NAFTA has introduced to Mexico
principles of transparency, the right to appeal government decisions, public access to information,
and other processes that are the foundations of open, pluralistic and democratic societies. Two
examples: The Mexican government must now publish every federal regulation for review and
comment, and an open bidding process is required for government procurement. These are dramatic
changes from prior practices. As a result, Mexicans expect increased openness in other areas as well.
Finally, to demonstrate how NAFTA has already served as a template for other trade agreements,
many of these same provisions have been incorporated by Mexico into recent free trade agreements
with Central and South American countries.
Should NAFTA Be Expanded?
The fundamental conclusion we should draw from NAFTA is clear: The prospect of increased trade
without the kinds of guidelines, safeguards, and predictability epitomized in NAFTA should be far
more alarming to the American people than the proposal to initiate new trade negotiations. If we can
negotiate similar comprehensive agreements with other countries, it is in our interest as the world's
leading exporter to pursue them expeditiously.
We need to extend the principles embodied in NAFTA to the rest of the hemisphere soon
because we have much to gain from increased trade and investment with Latin America, one of the
fastest growing regions in the world. How is this to be accomplished? NAFTA contains a "docking"
or accession clause that would allow other countries to sign on to its provisions. Since NAFTA went
into effect, however, a number of other developments have occurred in our hemispheric trading
environment. It behooves the United States to ensure that any future trade agreements meet the
standards included in NAFTA. They should also cover current conditions with the proposed trading
partner(s) and anticipate future needs. The founding principles and comprehensive approach
epitomized by NAFTA should be used in the basic hemispheric agreements. But it is increasingly
clear that future agreements-with Chile and Latin America, among others-may be able to raise
the bar even higher than NAFTA. Fresh negotiations may be in order and expanding NAFTA in the
literal sense may not be the most productive or appropriate approach at this point.
Expanding the Winner's Circle at Home
The American public is right to feel that there is some unfinished business from NAFTA, GATT,
and other developments that have changed our economy. Trade, of course, is not the only factor
"Mexico's Unions Form New Coalition," Journal of Commerce (August 26, 1997), p.5A.
6
responsible for these changes; actually, technology accounts for more of the economic restructuring
we are experiencing.
As our stake in the new global economy increases, so does our responsibility to ensure that
all Americans have the opportunity to compete effectively. Our efforts to accommodate
technological progress and trade expansion for the sake of economic growth must go hand-in-hand
with a new social compact that offers all U.S. workers lifelong access to career training; provides
more effective public support for workers in transition; equips them with the tools to manage their
career security by controlling their own health and pension resources; and redefines corporate
responsibility in a world of borderless markets.⁸ We must expand the winner's circle through shared
responsibility by government, business, and workers for those Americans who may be left behind
in the New Economy.
In the same session of Congress that passed the NAFTA implementing legislation, Congress
and the Administration were unable to agree on any major proposals to modernize our nation's job
placement and worker training systems. A NAFTA trade adjustment assistance program was
established but with limited scope and effectiveness. As a consequence, many Americans feel that
their needs have been ignored. The United States needs to do better. We must substantially improve
our efforts to equip all Americans with the education and skills they need to be as competitive as
individual citizens as we now are as a nation, and we must extend a helping hand at key moments.
Congress has recently made progress in areas such as health care and pension portability. Now that
the budget is balanced, we must turn our attention to the rest of this domestic agenda. In particular,
we hope Congress will consider the G.I. Bill for Workers and consider replacing outdated adjustment
assistance with comprehensive training programs available through individual vouchers.
Maintaining U.S. Momentum and Leadership in Trade
In closing, I would like to add one word about the debate over fast track authority. It can be hard to
distinguish between the genuine and the disingenuous in concerns raised first about NAFTA and now
about fast track authority. This is because protectionism mutates in every generation and finds new,
socially acceptable ways to hinder trade. Special interests work to protect their gains even if at cost
to the national interest. Again, many concerns about issues such as labor rights and environmental
protection are utterly sincere. Indeed, we share them.
But it is simply unfair to use such concerns or other means to elevate the interests of
industries or groups that seek protection from international competition above the interests of
workers in exporting industries, of consumers, of communities that benefit from foreign investment,
and of every American who benefits from steady growth, low unemployment, and low inflation.
⁸Rodrik, Dani, Has Globalization Gone Too Far?, Institute For International Economics (Washington, DC,
March 1997); I.M. Destler, Renewing Fast-Track Legislation, Institute For International Economics (Washington,
DC, September 1997), p.47; and "Expanding the Winner's Circle," Fact Sheet, (Democratic Leadership Council,
Washington, DC), July 1997.
7
There are many approaches to industrial relations, labor rights, pollution prevention, and
conservation that can be pursued productively, particularly through international cooperation. There
are connections between trade liberalization and these same issues, but they must be explored
cautiously.
Further delay in fast track renewal, with all that is ahead on the trade calendar, will be
protectionism in a new and virulent form and could cost Americans dearly. In fact, legislative
rejection of President Clinton's request for fast track authority this fall would send a message around
the world that America has abdicated international economic leadership-and damage our political
leadership as well.
The United States must move forward to lead the world in a new era of open and fair trade.
At the global, sectoral, and regional level, many of our key trading partners are about to move ahead
without us in critical new trade negotiations. Congress should give President Clinton the same broad
authority to negotiate new trade agreements under fast track procedures that every U.S. President
since Gerald Ford has received.
Renewed negotiating authority is as vital to U.S. leadership in world affairs as it is to
sustaining our economic growth. The message about fast track is clear: If America can't negotiate,
Americans lose.
Thank you.
For further information about the Democratic Leadership Council or DLC publications,
please call or write:
Democratic Leadership Council
518 C. Street, NE
Washington, DC 20002
Telephone: 202/546-0007
Fax: 202/544-5002
E-mail: [email protected]
WWW: http://www.dleppi.org/
8
NEWS NEWS NEWS NEWS NEWS NEWS NEWS NEWS
PPi
PROGRESSIVE POLICY INSTITUTE
FOR IMMEDIATE RELEASE:
CONTACT:
Chip Azano
THURSDAY, SEPTEMBER 11, 1997
PHONE:
202/547-0001
PPI RELEASES NEW REPORT ON THE SUCCESS OF NAFTA
WASHINGTON, D.C. - The success of the North American Free Trade Agreement, now three
years into its 15 year implementation schedule, can be seen not only in the positive economic returns,
but also in the important precedent it has established for advancing U.S. interests in trade agreements,
according a new report from the Progressive Policy Institute.
The report, entitled The NAFTA Success Story: More than Just Trade, comes as Congress turns
its attention to trade issues by taking up President Clinton's request for fast-track trade negotiating
authority. The report's author, Rebecca Reynolds Bannister, a fellow at the Progressive Policy Institute
and director of the Latin America Data Base at the University of New Mexico, demonstrates how
NAFTA, while a modest economic success, has met or exceeded its other wide-ranging goals.
"NAFTA is an important and solid agreement [that] protects the interests of U.S. employers and
investors and those of our trading partners," Bannister writes. Pointing specifically to the boundaries it
establishes for behavior in the global market and the rigorous rules it sets for governing trade
standards higher than in any previous agreements - she says, NAFTA should serve as a template for
extending these principles to other key markets. "These features of NAFTA don't just safeguard U.S.
businesses; they protect the innovation of American workers, processes and markets that provide
employment for our workers."
As an added benefit, she writes, "NAFTA has introduced to Mexico important principles of
transparency, the right to appeal government decisions, public access to information (about trade,
labor, the environment), and a number of other issues that make up the foundation of an open,
pluralistic, and democratic society."
"It is clear to objective observers that NAFTA is working," Bannister writes. As evidence, she
points to these facts:
*
Trade and investment throughout North America have increased.
*
North America's economic growth as a region is projected at 3.5 percent in 1997, compared
to the average 2.7 percent growth rate for the rest of industrialized nations.
U.S. exports to Mexico and Canada are at record levels ($191 billion in 1996).
*
Canada and Mexico are the top export markets for the United States.
-more--
518 C Street, NE
Washington, DC 20002
202.547.0001
FAX 202.544.5014
INTERNET [email protected]
1
*
Trade and investment disputes are handled with relative transparency and according to
established procedures agreed to in NAFTA.
*
Small businesses as well as large firms have been given secure market access as well as
methods for resolving commercial disputes under NAFTA.
*
NAFTA to date has not produced a flight of investment or jobs; in fact, the United States
economy now creates in approximately one month the total number of jobs lost due to
NAFTA in three years.
Additionally, Bannister notes that NAFTA has been accompanied by other positive non-
economic trends: Mexican democracy took a large, peaceful step forward as voters in state and local
elections redistributed power among the three leading political parties; the PRI, the political party with
a monopoly on power for over 60 years, no longer controls a majority in the Mexican Congress; an
opposition leader was elected mayor in Mexico City; and Mexico labor relations reached a watershed
as union leadership has moved toward a new independence from government control.
"These changes make the obvious point: economic reforms symbolized by NAFTA have
indeed been accompanied by a process of significant political reform in Mexico. It is fair to argue that
the transparency and openness to outside scrutiny and influence that came with NAFTA contributed to
the political opening."
The report calls for congressional approval for federal funding for improved trade data so that
the anecdotal success and horror stories that pervade the discussion of trade today will be replaced by
improved employment statistics for traders on a state and sectoral level.
Finally, the report addresses the widespread apprehension regarding employment security that
exists in the U.S., despite record employment levels and low inflation. The Progressive Policy
Institute has long advocated increased public investment in human capital and proposed innovative
solutions to the education and training needs of American workers. The report recommends that
individuals be given the power to control their own employment destinies with voucher-supported
training and more meaningful adjustment assistance.
The report, which also contains specific information on the automobile, computers and
software, textile and apparel, government procurement, agricultural, and services sectors, is available
on the DLC web page at http://www.dlcppi.org, or by calling the PPI press office at (202) 547-0001.
###
September 2, 1997
DRAFT
1:00 p.m.
FAST TRACK "SUCCESS" STORIES
There is greater utility is using small business to showcase the impact that international trade is
having on the U.S. economy during the President's Fast Track roll out event, rather than using
blue chip corporations, as the American public is aware that multi-national firms are benefiting
from international trade. By contrast, Americans are not knowledgeable about either the extent
of small business involvement in exports (over 90 percent of U.S. firms exporting overseas are
small businesses), or about Fast Track and what it means (could mean) for their firms directly
(reduced tariffs) or indirectly (improved legal and regulatory environment). Included in the
success stories are examples of small business exporters that would help broaden the
stakeholders involved in the Fast Track debate, by reminding small business owners that they
could compete in overseas markets just like those found in the success stories and that Fast Track
will enhance their opportunities to enter into/expand in foreign markets by leveling the playing
field vis-a-vis foreign competitors. Their exports overseas will help grow the U.S. economy.
The Rewards of Engagement:
Agriculture:
Contact: Scott Schearer, Director of National Relations
Farmland Industries, Inc.
Kansas City, Missouri
(202) 783-5330
Farmland Industries, Inc., headquartered in Kansas City, Missouri, is the largest farmer-
owned cooperative in North America serving 500,000 farmer-rancher families through
over 1,500 local cooperative members in 22 Midwestern States, Mexico and Canada.
Also, more than 13,000 livestock producers are direct members of Farmland, marketing
their hogs and cattle. U.S. producers now depend on exports for over 25 percent of gross,
receipts, which are anticipated to increase to 35 percent by 2003. In the past six years,
these cooperatives have seen their international sales grow from less than $200 million to
over $4.1 billion. In Mexico alone, since the passage of NAFTA, their sales have
increased from less than $50 million in 1992 to $450 million in 1996.
(Source: USDA)
Small Businesses:
Contact: David Scheuermann, Jr., Owner
Deep South Bowling Pro Shop, Inc.
Kenner, Louisiana
(504) 467-0248
A husband and wife owned and operated business created in 1992, has experienced a
dramatic increase in its sales of bowling balls since entering the export market in 1995.
Overseas shipments grew from $75,000 in 1995 to about $850,000 in 1996 to its
primarily Asian and South American markets. Seven months into 1997, it is on the brink
of surpassing its 1996 exports (comprising 30 percent of total revenues) while entering
five new international markets. Export sales allows Deep South to order bowling balls at
the most competitive prices from manufacturers. At the start of the business, the couples
dining room substituted as the warehouse for the bowling balls. Today, Deep South has a
12,000 square feet warehouse and is about to expand to a larger warehouse.
(Source: Department of Commerce)
Contact: Bernard Glas and Stan Popeil, Co-owners
B.G. Imaging Specialities
Bronx, New York
(718) 378-3100
B.G. Imaging Specialties is an exporter of used diagnostic imaging equipment to under-
developed countries throughout the world that do not have the technology to produce
such equipment and whose medical institutions do not have the capital to purchase new
models of such equipment. In business since 1986 and operating with 25 employees,
B.G. has doubled its revenue from exports and the number of employees in the last 4
years. In 1993, it undertook a major effort to expand its marketing activities (primarily in
China up to that point) to other emerging economies, including: Russia, other newly
independent states (former Soviet Union), India, Ireland and Latin America. Its revenue
from exports has grown to about 90 percent of total sales and amounted to over $3
million in export sales in 1996.
(Source: SBA)
Hi-Tech:
Contact: Tom Ory, President
Daedulus Enterprises, Inc.
Ann Arbor, Michigan
(313) 769-5649
Daedulus Enterprises, Inc. is a manufacturer of highly specialized remote sensing systems
worldwide. In business for 30 years, it has tapped a global demand for its product in uses
as varied as waterborne pollution sensing to drug interdiction efforts. Its exports sales
range between 50 percent and 66 percent of total sales annually and directly support five-
to-ten employees (out of a total of 17 employees). Daedulus earned over $1.2 million in
revenue from exports in 1996 and $1.4 million this year.
(Source: Department of Commerce)
The Risk of Inaction:
The risk of inaction is quite great given the pace at which countries continue to sign trade
agreements further liberalizing their markets by tearing down tariffs and non-tariff barriers,
thereby increasing market access with trading partners.
Manufacturing:
Contact: Donald Bohach, Director of Marketing and Business Affairs
Stupp Corporation
Baton Rouge, Louisiana
504) 778-2203 or 2-(800) 535-9999)
The Stupp Corporation, a leading producer in the Western Hemisphere of API line pipe,
is confronted with a price hurdle when doing business in South America that its
competitors from countries in the southern cone common market (MERCOSUR: Brazil,
Argentina, Uruguay and Paraguay) do not face having signed trade agreements between
themselves and with Chile. These trade agreements significantly reduce duties and taxes
on products exported between them. For example, in bidding to supply $100 million of
pipe to an Argentina-Chile gas pipeline project, Stupp faces duties and taxes of 27
percent on the Argentine portion of the pipeline. These are costs that a major competitor
from Chile does not have to pay. For corporations like Stupp and its workers, including
the steelworkers, dock workers, railroad employees, stevedores and truck drivers, the
stakes are quite high in winning these major infrastructure projects. Stupp estimates a
successful bid would:
-- require the equivalent to two days of U.S. Steel's total shipments or twice that
at a company the size of LTV;
-- employ over 1,600 rail cars to ship the steel to their plant; or alternatively, 67
barges and 1,904 trucks;
-- provide more than two months of work for a U.S. facility to coat the bare pipe.
(Source: Department of Commerce).