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John Sununu Issues Files
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Originally Processed With FOIA(s):
FOIA Number:
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This is not a textual record. This is used as an
administrative marker by the George Bush Presidential
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George H.W. Bush Presidential Records
Collection/Office of Origin: Chief of Staff, White House Office of
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Sununu, John, Files
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Issues Files
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Fast Track 1991 [3]
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1
UNCLASSIFIED WITH CONFIDENTIAL MATERIAL ATTACHED
THE WHITE HOUSE
WASHINGTON
April 19, 1991
MEMORANDUM FOR MEMBERS OF THE ECONOMIC POLICY COUNCIL
FROM:
OLIN L. WETHINGTON, OLU EXECUTIVE SECRETARY
SUBJECT:
Economic Policy Council Meeting
April 22, 1991, 5:00 P.M. - Roosevelt Room
The Economic Policy Council will meet on Monday, April 22,
1991, at 5:00 p.m. in the Roosevelt Room. The matter for
consideration is the Administration's response to various
congressional letters on extension of fast track
authority.
The attached package contains the proposal of the sub-
Cabinet strategy group chaired by USTR.
Attachment
UNCLASSIFIED WITH CONFIDENTIAL MATERIAL ATTACHED
Document No.
CA
THE WHITE HOUSE OFFICE OF CABINET AFFAIRS
STAFFING MEMORANDUM
Date: April 22, 1991
Due by:
Subject: EPC MEETING - FAST TRACK
From:
OLIN L. WETHINGTON, EXECUTIVE SECRETARY
Action
FYI
Action
FYI
ALL CABINET MEMBERS
CIA
Vice President
CEA
Agriculture
CEQ
Commerce
EPA
Defense
GSA
Education
NASA
Energy
National Science Foundation
HHS
ONDCP
HUD
OPM
Interior
OSTP
Justice.
SBA
Labor
UN
OMB
State
Brady (For WH Staffing)
Transportation
Treasury
USTR
Veterans
COMMENTS:
CLASSIFIED MATERIAL
CLASSIFIED MATERIAL
CONFIDENTIAL
OFFICE OF THE UNITED STATES
TRADE REPRESENTATIVE
EXECUTIVE OFFICE OF THE PRESIDENT
WASHINGTON
20506
April 19, 1991
MEMORANDUM FOR THE ECONOMIC POLICY COUNCIL
FROM:
Joshua Bolten JB
Chairman, Senior Strategy Group on Fast Track
SUBJECT:
Responses to Leadership Letters on Fast Track
Attached for your review are proposed drafts of responses to
letters to the President from (A) Majority Leader Gephardt; and
(B) Chairmen Bentsen and Rostenkowski. Both letters seek the
Administration's plans for addressing a wide variety of issues
being raised primarily in connection with the negotiation of a
North American Free Trade Agreement (NAFTA).
Each response includes a detailed summary cover letter and
several Tabs. The two cover letters are essentially the same,
except for the introductions and the inclusion of some additional
material specifically raised in the Gephardt letter but not in
the Bentsen/Rostenkowski letter. The Tabs for each letter are
the same, except that Tab 5 (on the Uruguay Round) would be
included only with the Gephardt letter.
The content of the Tabs is as follows:
Tab 1:
Economic Impact of a NAFTA: summarizes major economic
studies to date and addresses the principal economic
concerns that have been raised about a NAFTA.
Tab 2:
Facilitating Adjustment: discusses the provisions we
will seek in the agreement in order to ease the
transition to free trade; describes the worker
adjustment program available to assist those who might
be dislocated by a NAFTA.
Tab 3:
Labor Standards, Worker Health & Safety, Worker Rights:
discusses current Mexican labor law and practice,
describes a Memorandum of Understanding (MOU) between
the U.S. and Mexican labor departments (now ready for
signature) and a jointly developed plan of action under
the MOU.
DECLASSIFIED
PER NSC WAIVER, 1500 2021-02
By SS NARA, Date 12/1/23
CONFIDENTIAL
CLASSIFIED BY You
DECLASSIFIED ON OADR
CONFIDENTIAL
Tab 4:
Environmental Matters: describes Mexico's record on the
environment, ongoing U.S.-Mexican cooperation, and a
detailed plan for addressing environmental issues.
Tab 5:
Uruguay Round: responds to specific questions about the
negotiations posed by Majority Leader Gephardt.
The Bentsen/Rostenkowski letter requested a reply by May 1; the
Gephardt letter specified no reply date, but we propose to
transmit both responses at the same time.
We anticipate that either or both the Finance or Ways & Means
Committees will be voting on resolutions to disapprove the
President's request for fast track extension by the week of May
6. Floor votes would then be likely by the week of May 13, or
the week of May 20 at the latest.
Note that some of the attachments are classified and all are
being closely held until release.
Attachments
CONFIDENTIAL
CONFIDENTIAL
DRAFT 19 APRIL 9:00 AM
The Honorable Richard A. Gephardt
Majority Leader
United States House of Representatives
Washington, DC 20515
Dear Mr. Majority Leader:
Thank you for your letter setting forth your views on North
America Free Trade negotiations with Mexico, the Uruguay Round of
Multilateral Trade Negotiations, and the extension of the fast
track procedures.
I agree with you that our trade policy must have as its
highest priority American jobs, American companies, and American
exports. We seek a North American Free Trade Agreement and a
successful conclusion to the Uruguay Round precisely because we
are convinced that they will advance these American interests.
I also share your view that we should seize the occasion of
NAFTA negotiations with Mexico to move forward on our broader
bilateral agenda to address other issues of common interest such
as, for example, environment and labor matters. Our efforts to
increase growth and prosperity through economic integration will
be complemented by a joint effort to enhance environmental
protection. Likewise, we believe progress in the economic sphere
must be accompanied by cooperative efforts and concrete
initiatives in the labor area, including worker health and
safety.
I agree with you that Congress and the Administration must
be true partners, not adversaries, in trade negotiations. For
our part we are committed to making that partnership work. We
need your continued support, advice and counsel.
And we need the fast track. Without it, the United States
will not be able to realize the enormous benefits all agree trade
negotiations can achieve.
In this letter and its attachments we set forth our views
and plans with respect to the matters you raise. I believe that
our response supports the conclusion that the pursuit of the
NAFTA and a successful conclusion to the Uruguay Round are
overwhelmingly in the interests of the United States. Further, I
believe you will find that our plans for addressing environmental
and labor matters hold much promise for progress in these areas
as well. I appreciate your thoughtful letter and trust that our
response will be part of a continuing dialogue.
DECLASSIFIED
PER NSC WAIVER, 1500 2021-02
CLASSIFIED BY Jane
By S NARA, Date 12/1/22
CONFIDENTIAL
DECLASSIFIED ON OADR
CONFIDENTIAL
2
NORTH AMERICAN FREE TRADE AGREEMENT
I welcome your statement of support for a North American
Free Trade Agreement (NAFTA). We have seen a remarkable
transformation in Mexico away from statist, protectionist
policies toward a more open trade and investment regime. Without
these changes, there would be no basis for a NAFTA. We can seize
the opportunity created by Mexico's own initiatives to negotiate
an agreement creating the largest market in the world: 360
million consumers and a total output of $6 trillion. Such an
agreement would eliminate trade barriers and inefficiencies with
our first and third-largest trading partners. In 1990 alone, our
three-way trade amounted to $327 billion.
You and others in the Congress and the private sector have
expressed concerns about the economic impact of a NAFTA.
Concerns have also been expressed about such issues as the
environment, health and safety, and labor, including worker
rights. I would like to address each of these issues.
Economic Impact of the NAFTA
We are convinced that a North American Free Trade Agreement
will result in greater prosperity for U.S. workers, farmers,
businesses and consumers. The factual record since 1986, when
Mexico began opening its market, shows what can happen when trade
barriers are lowered between the United States and Mexico. From
1986 to 1990:
Exports more than doubled, rising from $12.4 billion to
$28.4 billion last year -- nearly twice the rate of
overall growth in U.S. exports during this period.
Manufacturing exports went from $10 to $22.5 billion.
Agricultural exports more than doubled to $2.5 billion
in 1990 -- our fourth largest market for agricultural
commodities.
This expansion of U.S. exports to Mexico has added an
estimated 300,000 export-related jobs in the United States.
Further, as a result of increased exports, our trade deficit
with Mexico has been cut by two-thirds; excluding petroleum
trade, the United States ran a trade surplus of about $2.7
billion with Mexico in 1990.
Under the NAFTA, we can do even better. We can expand our
access to Mexico's growing market and solidify the access
obtained in recent years. Mexico's trade-weighted average tariff
is still 10 percent, 2 1/2 times higher than that of the United
States. Moreover, in the absence of an FTA, Mexico would retain
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3
the right under the GATT unilaterally to raise its top tariff
rate back to 50 percent. Significant non-tariff barriers also
persist. For example, the volume of our agricultural exports is
less than it could be because restrictive Mexican import licenses
still apply to 40 percent of the value of U.S. agricultural
exports; trade in some manufactured goods is distorted by
licensing and performance requirements.
An FTA can be expected to raise average productivity and
real wages in both countries. We can expect to benefit from the
economic growth and increased purchasing power of our neighbor.
For each dollar Mexico spends on imports, seventy cents is spent
on U.S. goods. For each dollar of growth in Mexico, fifteen
cents is spent on U.S. goods.
In addition to what past experience shows, all three major
economic analyses that have been done to date conclude that the
U.S. economy will benefit from a NAFTA in terms of exports,
output and employment. 1 Attached at Tab 1 is a discussion of
these studies, our assessment of the FTA's projected economic
impact on the United States, as well as our analysis of the
impact of the FTA on U.S. investment in Mexico.
We will continue to draw on the best analyses during the
course of the negotiations. We have asked the International
Trade Commission (ITC) to analyze the probable economic effect on
U.S. industries and consumers of eliminating tariffs and
nontariff trade measures between the United States and Mexico.
We also have asked for an analysis of the effect of such actions
on our trade with Canada.
Further, the ITC is continuing work on a computable general
equilibrium (CGE) model for examining the economic impacts of a
NAFTA. We will draw on the ITC's further analyses as well as
ongoing work in academia and the private sector. Our goal is to
use the best analyses from a variety of sources to help guide us
in crafting an agreement that is in this nation's interest.
Beyond econometric analysis, we will rely on the advice and
experience of our private sector. Econometric models can be
useful tools but their findings must be considered in conjunction
with the expertise of our private sectors.
1 The Clopper Almon Study, commissioned by the U.S.
Department of Labor, Industrial Effects of a Free Trade Agreement
between Mexico and the USA; the KPMG Peat Marwick Study (Policy
Economics Group), contracted for by the U.S. Council of the
Mexico - U.S. Business Committee; and the International Trade
Commission's report entitled The Likely Impact on the United
States of a Free Trade Agreement with Mexico, requested by
Chairman Bentsen and Chairman Rostenkowski.
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4
The Impact of a NAFTA on U.S. Jobs
Fears that the NAFTA will result in massive job flight or
job loss are unwarranted for a number of reasons. First, of the
three completed studies described above, only one -- the Clopper
Almon study -- deals with the impact of an FTA on overall U.S.
employment. That study estimates that an FTA would result in net
creation of up to 64,000 jobs over ten years with most of those
in the manufacturing sector.
Second, Mexico's economy is 1/25 the size of the U.S.
economy. Its exports to the United States amount to only 6
percent of U.S. imports. Therefore, scenarios about mass
dislocations resulting from reduced U.S. trade barriers are not
realistic. Any concerns in this regard are further reduced given
our intention, as discussed below, to include adequate transition
and other adjustment measures in the FTA itself.
Third, the United States is already relatively open to
Mexican imports, yet we have not seen a flight of jobs or
investment. As noted above, Mexico's average trade-weighted
tariff is 2 1/2 times higher than that of the United States and
numerous non-tariff barriers exist which limit U.S. exports.
Given that our market is already open, certainly it makes sense
to lower Mexican trade barriers to increase our export
opportunities.
Indeed, we would expect a NAFTA to increase investment in
the United States. For example, current Mexican performance
requirements compel some U.S. firms to invest in and export from
Mexico in order to gain access to the internal Mexican market.
If such requirements were eliminated in a NAFTA, some firms could
expand their U.S. investment to serve the Mexican market through
exports from the United States. In general, increased export
opportunities to Mexico means increased investment in the United
States.
Fourth, the mere fact that wages are lower in Mexico does
not mean that manufacturing jobs will flee to Mexico. Wage
disparities between Mexico and the United States largely reflect
the disparity in productivity. On average, the U.S. worker is
seven times more productive than his Mexican counterpart. Our
advantage in productivity results from factors such as education,
higher technology, better transportation, communication and
overall infrastructure. Hence, wage disparity itself is a
misleading factor in assessing any potential employment losses.
Fifth, trade liberalization is not a zero-sum game in which
the benefit for one side necessarily entails a loss for the
other. As noted, Mexican growth contributes to U.S. growth
because 70 cents of every Mexican import dollar is spent in the
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5
United States, and 15 cents of every dollar of Mexican income
growth flows back to the United States.
Sixth, reduction of barriers on both sides of the border
will spur economic integration that strengthens the global
competitiveness of U.S. firms. By increasing efficiency and
lowering the cost of inputs, higher value and higher wage U.S.
manufacturing operations will be better positioned to take on
competition from Europe and Japan.
A 1988 study by the ITC supports this conclusion. The ITC
found that the vast majority of responses from 323 U.S. firms
stated that their Mexican assembly operations increased the
competitiveness of their U.S. production. These assembly
operations were integrated with high wage manufacturing
operations in the United States. Most firms indicated that the
alternative to moving part of their labor-intensive assembly
operations to Mexico, where a substantial amount of U.S.
components were used, was to move their operations to the Far
East, where fewer U.S. components would be used.
Adjustment Provisions in the NAFTA
We agree that even if the FTA results in a net positive
effect on U.S. employment, we should ensure that the FTA contain
adjustment provisions to avert injurious shocks or sudden
dislocations that may arise as a result of FTA liberalization.
Your letter urges inclusion of three important types of
provisions that can be used to address these concerns. Our
position on these issues is discussed at greater length at Tab 2,
but let me summarize our objectives here.
1. Safeguard Mechanism
We agree that it is essential to include provisions in the
agreement that allow us to respond effectively and quickly if
there are import surges from Mexico or Canada in any industry or
farm sector. If Mexico and Canada are partly responsible for a
general import surge, we must retain the ability to limit Mexican
and Canadian products as part of a safeguard action on imports
from all sources.
Beyond that general right, we should have the ability,
during a transition period, to act quickly against only Mexico or
Canada if injury to some sector is caused by a concession granted
in the FTA. We believe such a safeguard mechanism should allow
us to suspend preferential trade treatment under the NAFTA
(including reimposition of duties) for periods up to three years
if necessary. Producers of perishable agricultural commodities
might have particular problems that need special additional
mechanisms, such as a "snap-back" provision that was provided in
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6
the U.S. - Canada agreement and will be available for twenty
years.
2. Rules of Origin
We share your views on the need for strict rules of origin
in the NAFTA. The benefits of an FTA should flow to the
countries that are parties to the FTA, and not to the products of
other countries that have been only slightly processed in North
America. We will work with all concerned private sector
interests and with the Congress on rules of origin that ensure
that Mexico will not become a mere platform for third country
exports.
We should draw on our experience with the strong rules of
origin in the U.S. - Canada FTA, recognizing that changes might
be necessary to meet trade conditions in Mexico. We believe for
example that we should seek in the NAFTA to strengthen the
required North American content for assembled automotive
products.
3. Transition
To allow concerned industries and farmers time to adjust to
potential increased competition from Mexico, we will provide in
the FTA for a transition period in which sensitive duties and
other barriers would be phased out in small increments. As in
the case of the U.S. - Canada FTA, the longest transition should
be provided for those producers most sensitive to competition
from Mexico. The Administration would be prepared to consider
transition periods beyond those provided in the U.S. - Canada
FTA. of course, in deciding on our negotiating position with
regard to each product, we will draw heavily on advice from the
private sector and the Congress.
We can expect that Mexico will also want transition periods
for sensitive Mexican industries. Although transition rules in
that sense serve to delay benefits of trade liberalization, we
share your view that transitions offer important assurances to
industries concerned about imports. As you also note, we may be
able in the future to accelerate tariff reductions where we see
substantial benefits as the FTA operates. Coupled with
appropriate rules of origin and escape clause provisions, we see
transition rules as protection against sudden dislocations while
still allowing us to achieve benefits of trade liberalization.
Domestic Worker Adjustment Programs
Beyond including adjustment provisions in the FTA itself,
there is an obvious need to assist any workers dislocated,
regardless of cause, who may have adjustment difficulties. An
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effective program is already in place to address this need should
dislocations occur: the Economic Dislocation and Worker
Adjustment Assistance (EDWAA) program which complements the
benefits under the unemployment insurance system. A detailed
discussion of EDWAA is included at Tab 2.
EDWAA was established in the 1988 Trade Act as Title III of
the Job Training Partnership Act. It has been successfully
applied to such major industries as autos, timber, electronics,
copper, food processing, aerospace, defense, and steel. During
the three years since its inception, it will have served an
estimated 700,000 workers. Almost 70 percent of the participants
served have been placed in jobs, identified by the local business
community, at an average wage exceeding $7.50 per hour. Funding
for program year 1991 was increased to $527 million, up from $284
million in 1989. This reflects the widely-held view that EDWAA
works. It also reflects the Administration's commitment to
adequate long-term funding.
A key reason for EDWAA's success is that eligibility for the
program is broad-based and can be determined without the need for
time-consuming certifications. It offers a comprehensive set of
flexible services including: 1) rapid response to plant closings
and mass layoffs; 2) basic adjustment services to help the
dislocated worker seek new work; 3) retraining services for those
seeking new skills; and 4) needs related payments to enable those
who have exhausted their unemployment insurance to participate in
training.
EDWAA uses a local delivery system to meet the unique needs
of different states and communities. Eighty percent of the funds
are allocated to states, which allocate the majority to sub-state
areas. Governors have the discretion to reserve part of the
allotment to fund programs to aid especially hard-hit industries.
Twenty percent of funds are retained for discretionary use by the
Secretary of Labor to assist workers affected by multi-state or
industry-wide dislocations and for areas of special need.
We believe EDWAA offers a comprehensive and effective
program for addressing any possible worker dislocation. This
program, together with the adjustment provisions we will seek in
the FTA itself, should fully meet any adjustment concerns.
Labor Mobility
You also raised the issue of labor mobility. We fully
appreciate the sensitivity of this issue in Congress and the
private sector. Accordingly, we have agreed that NAFTA
negotiations will not to address large-scale labor mobility. We
wish to consult carefully even with regard to provisions such as
those in the U.S.- Canada FTA, which facilitate temporary entry
of a narrow group of professionals and managers in accordance
with existing U.S. law. In general, we believe that current U.S.
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8
immigration policy is sound, and we do not contemplate any
provisions in an FTA that would require changing our basic policy
or immigration laws. Further, we believe that improvement of
living standards in Mexico, which the FTA will foster, will
encourage Mexicans to seek employment opportunities at home.
President Salinas has made clear that Mexico wants to export
goods, not workers.
Worker Rights and Labor Standards
Mexico has strong labor protections in its constitution and
laws. The Mexican government has a strong political commitment
to promoting the rights and interests of workers, including
increasing standards of living and a safe and healthy workplace.
Enforcement problems have resulted largely from inadequate
resources. By promoting economic growth in Mexico, the FTA will
generate greater prosperity and resources that Mexico can devote
to improving the situation of workers.
A discussion of current labor law and practice in Mexico is
included at Tab 3. As this discussion demonstrates, the
fundamental rights of Mexican workers are already well-protected.
These rights and protections include:
Constitutional and statutory guarantees of the freedom
of association and the right to organize, to bargain
collectively and to strike, and to establish trade
unions.
Ratification of 73 ILO Conventions regarding workers
rights and labor standards which have the force of law.
Unionization of approximately 30 percent of the total
workforce and more than 90 percent of industrial
production workers in firms with more than 25 employees
-- both substantially higher than in the United States.
Prohibition of forced or compulsory labor.
A minimum age of 14 for employment plus special legal
protections and shorter working hours for children
between the ages of 14 and 16.
Constitutionally established principles regarding
conditions of employment, including a minimum wage, an
eight-hour work day, a seven-hour shift for night work,
and a maximum work week of six days. The same rights
apply throughout Mexico, including the maquiladoras.
Mexican legislation on safety and health sets out
substantial protection for workers. In 1978 the Government
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9
instituted a major revision of the Federal Labor Law
incorporating ILO obligations on occupational safety and health.
Revisions provided that the safety of the workplace is the direct
responsibility of the employer, who must report accidents, create
health and safety committees to review working conditions and
train workers to prevent job-related injuries. Health and safety
regulations are implemented through a Federal/State/local system
of tripartite commissions which supplement legal provisions, and
plant-level committees with equal representation of employers and
workers that are responsible for overseeing health and safety on
the factory floor.
Future U.S. - Mexico Cooperation on Labor Matters
There are a number of labor areas where Mexico and the
United States could benefit from cooperation. As set out fully
in Tab 3, we intend to pursue bilateral cooperation on labor
issues with Mexico through the framework of the existing U.S. -
Mexico Binational Commission (BNC) As a first step in this
cooperation, the Department of Labor and the Mexican Secretariat
of Labor and Social Welfare have initialled, and are prepared to
sign on behalf of their governments, a Memorandum of
Understanding (MOU).
This MOU (included in Tab 3) provides a framework for
mutual cooperation between the Department and the Secretariat in
the areas of health and safety measures; general work conditions,
including labor standards and their enforcement; resolution of
labor conflicts; labor statistics; and other areas of concern to
the United States and Mexico.
In addition, as indicated in the action plan in Tab 3, U.S.
and Mexican delegations have met and have agreed upon specific
projects in the areas of occupational health and safety, child
labor and improvement of labor statistics.
The understanding reached between the Department and the
Secretariat represent significant steps forward in cooperation
between our two nations in addressing labor issues of common
concern. In conjunction with the agreed specific projects, the
MOU and its implementation hold great promise for progress on a
number of labor fronts.
We intend to pursue work under the MOU on a schedule,
jointly determined with Mexico, that will permit Congress to
assess progress on labor matters in the same time frame as it
considers implementation of the FTA.
Human Rights
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10
As you note, the Salinas government has moved vigorously to
curb human rights abuses, establishing in May 1990 the
prestigious National Commission on Human Rights. The Commission
is politically independent. With strong support from President
Salinas and the Mexican public, the Commission has actively
investigated cases and worked effectively to reduce all forms of
human rights abuses. The Commission has received wide support
for its work; its efforts have been applauded by groups such as
Amnesty International. In addition, in October 1990, President
Salinas announced a twelve-point plan to ensure that the Mexican
police respect human rights in their treatment of persons
arrested. This plan and the Commission's ongoing work appear to
have resulted in a significant reduction in violations over the
pst several months.
In its effort to reform and modernize Mexican society, the
Salinas Administration is well aware of the critical contribution
continued progress on human rights will make to Mexico's
development. Indeed, negotiation of an FTA strengthening
Mexico's ties with Canada and the United States will be an
effective way of reinforcing this progress.
Environmental Concerns
Mexico and the United States agree that efforts to increase
growth through a free-trade agreement should be complemented by
cooperative efforts to enhance environmental protection. A
strong economy and a healthy environment are mutually supportive.
Tab 4 outlines Mexico's existing programs for environmental
protection, our cooperative efforts to date, and our action plan
for the future. I would like to highlight a few points.
1. Mexico's Commitment to Environmental Protection
President Salinas has made clear on numerous occasions that
Mexico has no interest in being a pollution-haven for North
America. Mexico's comprehensive environmental law of 1988, based
in large part on U.S. law and experience, has provided the legal
framework for tackling its environmental problems. All new
investments are being held to the higher standards set forth in
this law, and an environmental impact assessment is required to
show how they will comply. But the Mexicans also need the
economic growth that an FTA would provide to generate resources
to transform this commitment into an effective program of
regulation, enforcement and public support.
We recognize that enforcement has in the past been a key
problem. But notwithstanding limited means, Mexico's enforcement
record has been improving. The Mexican Government has imposed
some 980 temporary or permanent closures on industrial facilities
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for failing to comply with environmental laws. In 1990, Mexico
made the multi-billion dollar decisions to phase out leaded
gasoline and to order that all new cars, including over 40,000
Mexico City taxis, be equipped with catalytic converters. The
government also shut down all 24 military industrial
installations in the Mexico City area because of potential
environmental risks.
Most dramatically, President Salinas announced last month
the permanent closure of Mexico's largest oil refinery for
environmental reasons. The refinery had been responsible for an
estimated 15 percent of Mexico City's industrial air pollutants.
The estimated cost of that shut-down is some $500 million and up
to 5000 jobs.
The Mexican Government continues to increase resources
devoted to enforcement of environmental requirements. The budget
of the Mexican environmental agency, SEDUE, has been increased
almost eight-fold between 1989 and 1991 (from $5 million to $39
million). In anticipation of a World Bank Loan, SEDUE has
announced Mexican counterpart funding for 50 new inspectors at
the border and 50 in Mexico City.
Given rising environmental standards and increasing
enforcement, particularly for new investments, firms would be
ill-advised to seek out Mexico as a pollution haven for new
investment.
2. Addressing Environmental Trade Issues in the FTA
We will work within the FTA negotiations to set forth
environmental safeguards. For example, we will maintain the
right in the FTA to exclude any products that do no meet our
health and safety requirements, and we will enforce those
requirements. Likewise we will ensure the continued right to
limit trade in items or products protected by international
treaties such as endangered species. At the same time, we would
like to work with Mexico and Canada to enhance standards, subject
to full public and scientific scrutiny of any changes before they
would be implemented, to ensure that human, plant and animal
health and the environment are safeguarded.
During the negotiation of any environment-related
provisions, we will ensure the participation of those U.S.
officials who are technically competent in the subject matter and
who are responsible for maintaining the integrity of the U.S.
regulations.
We can assure the Congress that we will do nothing in the
FTA to weaken our environmental laws or to diminish our right to
protect the health, safety and environment of Americans.
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3. Joint Environmental Initiatives
In addition to environmental safeguards within the FTA, we
will pursue with Mexico an ambitious environmental program as
described in the action plan at Tab 4. We intend to build on an
already impressive record of cooperation in such areas as
protecting the border environment and conservation of wildlife
and marine resources. New joint U.S. - Mexican initiatives will
include:
Design and implementation of an integrated border
environment plan, in a time frame parallel to
implementation of the FTA. This plan will address air
and water pollution, hazardous wastes, chemical spills,
pesticides and enforcement.
During the design phase, there will be an opportunity
for public comment and hearings on the border plan;
during implementation there will be comprehensive
periodic review.
Consultations on implementation, enforcement and
enhancement of respective environmental standards and
regulatory regimes, including an opportunity for the
public to submit data on alleged non-compliance.
Expansion of cooperative enforcement activities, such
as coordinated targeting of potential environmental
violators.
Technical cooperation and training, including the
sharing of best available technology for pollution
abatement and other environmental needs.
Establishment of a consultation mechanism to address
technical aspects of environmental and conservation
issues; and to address future environmental problems
which could arise.
As is the case with our labor initiatives, it is our
intention to implement these programs on a schedule, jointly
determined with Mexico, that will permit Congress to assess
progress in the environmental area in the same time frame as it
considers implementation of the FTA.
4. Informed Policy Making and Public Participation
As a result of our consultations to date, I am convinced
that we need to broaden the participation in our private sector
advisory process to ensure that our efforts to enhance trade and
growth are consistent with sound environmental practices. To
this end, we intend to seek out and include on a number of those
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committees individuals who can bring both an environmental
perspective and substantive expertise.
In addition, drawing on the resources of agencies with
environmental expertise and in consultation with interested
members of the public, we intend to undertake a study of U.S. -
Mexico environmental issues with particular emphasis on the
possible environmental effects of the NAFTA. This will be done
in a timely fashion so as to permit U.S. officials to consider
the results of that study during the FTA negotiations and other
bilateral efforts.
We have consulted with many Members of Congress and leaders
of private environmental groups about the FTA negotiations and
the environment. I think it is fair to say most share our
conviction that an FTA can help environmental efforts by
increasing economic growth and available resources. While there
have been many misconceptions about Mexican laws and some
misinformation, I think that as these Members and leaders have
learned the facts there has been recognition that President
Salinas has been taking significant steps toward a better
environment in Mexico and at the border. We see FTA
negotiations, together with our action plan, as supportive of
these efforts.
GATT URUGUAY ROUND
You have also asked about the Uruguay Round. Tab 5 sets
forth our full response to your specific questions. As stated in
President's report to Congress of March 1, progress in the
negotiations has been uneven due to the linkages of negotiating
issues and the lack of substantial progress in the agriculture
negotiations. We are not yet satisfied with the state of the
draft agreements. It should be clear from our actions in
Brussels in December that we will not settle for an agreement
that fails to meet our objectives. In Brussels we decided that
it was preferable to end the ministerial meeting without results
rather than accept minimal Uruguay Round agreements that fell
short of our ambitions.
Your letter questions specifically progress to date on two
particular objectives established in the 1988 Act: expanding
worker rights and gaining market access for high technology
products. Both subjects are addressed at length at Tab 5. Let
me say here that no GATT Contracting Party has worked or will
work harder than the United States to ensure that these
objectives are adequately addressed.
You also raised dispute settlement. I certainly share your
view that we should not adopt a strong dispute resolution
mechanism unless the underlying agreements in each of the 14
other negotiating areas are completely acceptable. However, if
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we are successful in concluding the Uruguay Round with acceptable
rules in all areas, we will need improved dispute settlement
procedures to enforce those rules. I am sure you would agree
that international trade rules are only as effective as the
mechanism by which they are enforced.
I can assure you that we will not "trade away" section 301
or any other remedy under U.S. trade law. Section 301 obviously
is necessary to enable private parties to petition their
government to enforce U.S. rights through dispute resolution
mechanisms. Similarly, the Administration is committed to
ensuring that other provisions of U.S. trade law -- including the
antidumping and countervailing duty laws -- continue to provide
effective tools to address unfair trade practices. We regard
remedies in these areas as essential to maintaining a vigorous
manufacturing sector in the United States, a top priority of the
President.
Once we have completed negotiations in all areas of the
Uruguay Round we will have to review the agreement as a whole,
just as you suggest. We will not bring home an agreement unless
it enhances our international competitiveness. I hope that we
can continue to work together to realize the full potential of
these important negotiations.
CONCLUSION
Mr. Leader, we have heard your concerns. They are our
concerns as well.
My Administration and Congress both want trade agreements
that will enhance the well-being of the people of the United
States. We both want trade agreements that will enable us
successfully to face the challenges of the next century. We both
know that the American people and American business have the
courage, the will and the ability to meet those challenges.
With the support of you and your colleagues -- and only with
that support -- we can negotiate such agreements. But if you and
your colleagues vote against the extension of fast track, you
will deny the Administration and the American people the
opportunity to reach such agreements.
A rejection of fast track would signal a retreat from the
world trading system precisely at the time when U.S. growth is
critically dependent on export growth. A rejection of fast track
-- and any prospect for an FTA -- would set back immeasurably any
efforts to work together on precisely those issues you and others
have rightly identified as critical. Finally, a rejection of
fast track is a vote of no-confidence: no confidence in American
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farmers, American workers, and American entrepreneurs. They
deserve better.
For our part, I can assure you that my Administration is
committed to making the fast track work. The fast track, as
conceived by Congress and implemented by both the Executive and
Congress, is a genuine partnership between the two branches. We
will take the time necessary to arrive at agreements that are
truly and substantially in the economic interest of the United
States. We will take the time needed to consider all relevant
issues and to consult fully with Congress and the private sector.
Until we arrive at good agreements -- ones that we believe you
will agree are good -- there will be no agreements.
We will work together in preparing for negotiations, in the
negotiations themselves, and in fashion implementing legislation.
If we do our job right, if the fast track consultative process
works as it should, then trade agreements and their implementing
legislation should be approved overwhelmingly by the Congress.
If we do not, then Members of Congress retain the unqualified
right to vote the agreement down by simple majority. An
extension of fast track in no way impairs any Member's ability to
exercise that right.
In preparing my response to your letter, I have consulted
with each agency with responsibility for the matters you raised.
The answers to your questions reflect their views. More than
that, those answers and the plans I have outlined reflect the
commitment of this Administration systematically to work toward
achieving the goals I know we both share in the trade,
environment and labor areas.
I appreciate the opportunity your thoughtful letter has
given me to set out the Administration's views. My
Administration looks forward to working with you as we, together,
craft agreements that will ensure a healthy, prosperous twenty-
first century for the United States.
Sincerely,
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202-228-0100
RICHARD A GEPHARDT
MISSOURI
MAJORITY LEADER
Congress of the United States
Bouse of Representatives
Office of the Majority Kraber
Mashington, BC 20515-6502
March 27, 1991
President George Bush
The White House
Washington, D.C.
Dear Mr. President:
I am writing to respond to your letter seeking my support for renewal of authority
to speed Congressional approval of future trade agreements, the so-called fast track
procedures. Congressman Rostenkowski and Senator Bentsen have already provided you
with the benefit of their expertise on this issue. But, as Majority Leader in the House,
I am designated under the law to introduce the implementing legislation for the GATT
Uruguay Round and a possible U.S.-Mexico agreement. Consequently, I thought it might
be useful to share with you some of my own views on this important issue.
I am prepared to lend my full support to a North American Free Trade Zone if
the agreement fights for American jobs and exports, preserves the world's environment,
and defends the rights of Mexican workers. As one who cares deeply about the effect
of trade policies on working Americans, my concern is that our trade negotiators keep
uppermost in their minds the impact of this Agreement on American jobs, American
companies and American exports.
Therefore, my support for the Administration's proposed North American Free
Trade Area is contingent upon the inclusion of assurances that American jobs will not
be lost in droves.
Like you, I want the Mexican economy to flourish and grow. Relying on low
wages and unside working conditions as comparative advantages to lure away high-paying
American jobs will not save the Mexican economy - but it will further weaken the
American economy. In order for Mexico to prosper, America must prosper. So for a
free trade agreement to be a meaningful benefit to both nations, it must contain
provisions that will stem any hemorrhage of American jobs across the border.
For that reason I request that you not limit the talks to what used to be
traditionally known as "trade issues" - tariffs, trade-related investment restrictions, dispute
resolution and the like - but rather that we address North American Free Trade
systematically.
President Bush
March 27, 1991
Page 2
To do so will require discussing issues like transition measures, wage disparity,
environmental protection and worker rights. Neither Mexico nor Canada nor America
is benefitted by a system that benignly looks on massive air pollution, poisonous
pesticides and child labor as "comparative advantages." And I cannot imagine that
Congress would approve an agreement that did.
The grant of authority to proceed with negotiations under the fast track procedure
is an extremely important one for Congress to make. I understand the increased
complexity and difficulty of negotiating an agreement with & trading partner or a number
of trading partners without the ability to proceed under the fast track procedure. At the
same time, I am unwilling to support an extension of fast track without assurances that
Congress and the Administration are true partners in these negotiations rather than
adversaries.
Thus, I am writing to outline what I believe we should be seeking to achieve both
in the current GATT Uruguay Round as well as the possibly upcoming U.S.-Mexico-
Canada North American Free Trade Agreement (NAFTA) negotiations. Negotiated
properly, these agreements will enhance economic opportunity and growth in this country
and around the world. But negotiated poorly, they could cause U.S. workers and
exporters to suffer grievously in economic terms.
I am hopeful that you will respond specifically to the issues outlined in my letter
so that we can work together towards a GATT and North American Free Trade
Agreement.
GATT Uruguay Round
I believe, as you do, that the GATT Uruguay Round could provide the U.S. and
the world with a vastly improved international trading system. The possibility of
achieving more uniform rules of trade in each of the negotiating areas could provide
enormous benefits to U.S. workers, farmers and businesses.
The 1988 Omnibus Trade Act outlined 16 negotiating objectives for the Uruguay
Round [19 U.S.C. 2901] and requires the Administration to report on your progress in
achieving them. Despite the assurances in reports that your Administration has
forwarded to Congress, I cannot now determine what progress has been made on many
of these objectives.
President Bush
March 27, 1991
Page 3
And, based on press reports, discussions with Administration officials and
representatives of our trading partners, I cannot now define what specific actions your
Administration is contemplating in the GATT Uruguay Round to fulfill the Congressional
objectives
Indeed, in several areas, progress within the GATT Uruguay Round has been less
than anticipated by Congress when it stated its objectives in the 1988 Act. For example,
little or no progress has been made as part of the GATT Uruguay Round in expanding
worker rights or in gaining access to markets for our high-technology products.
We must judge a GATT Agreement as a whole. At the same time, we must be
unwilling to settle for an Agreement that does not enhance the international
competitiveness of our economy, ranging from agriculture to services to manufacturing.
We must reject any efforts to diminish the effectiveness of those U.S. trade laws that
are already on the books.
Upon its completion, we must look at how an Agreement is to be implemented
and enforced based on the possibility of new dispute resolution provisions. In the past,
there has been a dramatic difference between the way that Congress and the
Administration view our trade laws: The Administration views the U.S. as a defendant
while the Congress views the U.S. as a plaintiff.
As a result of these different views, we should be wary of a strong dispute
resolution mechanism if the underlying agreements in each of the 14 negotiating areas
aren't completely acceptable. If a strong dispute resolution mechanism is combined with
weak agreements, a lower standard is locked-in which, in essence, thereby diminishes our
ability to protect the rights of American workers, farmers and businesses.
Finally, I must emphasize that the U.S. should not trade away any provision of our
trade law such as dumping/countervall, Section 301 or the other vital tools that Congress
has provided to work for a more level playing field.
North American Free Trade Agreement
I believe a negotiation with Mexico and Canada that will result in a North
American Free Trade Agreement could be in our country's best interests. At the same
time, I am deeply concerned about what the possible effects of an agreement could be.
The economic studies that have been published on a possible agreement not only
are tentative in their conclusions but are based on assumptions that may have no
connection with reality. It is disturbing that the Administration has yet to produce an
economic impact analysis and, it appears from a number of discussions, has no intention
of producing an impact analysis.
President Bush
March 27, 1991
Page 4
An official analysis by the Administration is really the only way we can truly judge
what the effects of an agreement might be. Unless a study is based on the assumptions
of those who are in fact negotiating the Agreement, the study will not assist us in our
debates.
One of the most comprehensive studies done to date was published recently by
the International Trade Commission. In its study, the ITC indicated:
"(T)he Commission analysis suggests that an FTA with Mexico
will benefit the U.S. economy overall by expanding trade
opportunities, lowering prices, increasing competition, and
improving the ability of U.S. firms to exploit economies of
scale. Since these gains are likely to outweigh the costs. the
U.S. economy will probably gain on net."
This is not exactly a ringing endorsement of the idea of proceeding with an
agreement. I truly want to assist Mexico and the Mexican people in terms of expanding
economic growth and opportunity. But I refuse to accept the notion that the American
worker should shoulder the burden of reaching an agreement. For this reason, I
respectfully request that you direct the appropriate officials to provide me with the
economic analysis on which you based your decision to proceed with the negotiations of
a NAFTA. Congress and the American people have a right to know what is at stake
before entering into negotiations under the limitations of the fast track.
I understand that your present intention is to proceed with a negotiation with as
limited an agenda as possible. But, we must not exclude those issues which will help
determine the competitive nature of our future relations or that will help to improve the
quality of life in our countries.
Those issues that appear to be on the agenda are tariffs, intellectual property,
trade-related investment restrictions and dispute resolution. While we must have the
best possible provisions in a final agreement in each of these areas, this list is simply not
sufficiently comprehensive to address the issues that are most important to our bilateral
economic future.
Let me also share with you my thoughts on which issues should be addressed as
part of a negotiation:
SS:51 16, 22 MAR
President Bush
March 27, 1991
Page 5
Escape Clause:
The prospect for potential job loss exists in a number of important Industrial
sectors. Because there has been no officially released Administration study of the impact
of a proposed NAFTA, it is difficult to project what impact on jobs and our industrial
base there will be.
Accordingly, it is important that a comprehensive escape clause provision be
included as part of the negotiating framework that can act as a stop-gap measure to
stem the loss of jobs and business opportunities if there is a hemorrhaging in any one
sector. This provision should have an effective trigger that will allow us to ameliorate
any negative impact on a sector and reassess what course of action to take.
I cannot stress strongly enough how important this issue is. We must be prepared
to continuously examine and reexamine the progress of a NAFTA to ensure that the
interests of American farmers and workers are protected.
Rules of Origin:
I assume that the discussion of rules of origin would be included as part of the
NAFTA negotiations. I want to comment specifically, however, on how Important I
believe a strict standard for any rule of origin proposal is to a successful agreement.
Our nation faces an historic trade deficit. Industry after industry has faced the
onslaught of fierce foreign competition that has forced many firms to close or request
government help in opening markets and fighting unfair competition at home.
As we enter into negotiations on a NAFTA we must not allow Mexico to become
an export platform for the products of third countries to flood our markets.
Development of business opportunities by third countries that is designed to aid the
Mexican economy rather than fill the coffers of the foreign parent company should be
our goal.
Accordingly, I believe that we must have a very strict rule of origin standard
regarding production in Mexico.
Transitions
Every study that has been done on the effects of a NAFTA recognizes that there
will be dislocations in our labor market resulting from an agreement. I do not believe
that the American worker should have to shoulder the cost of providing economic growth
and opportunity to Mexico and its people.
President Bush
March 27, 1991
Page 6
Even in the absence of economic analysis, it is implausible that transition relief
will not be needed by workers in industries harmed by the NAFTA. Accordingly, I
believe that you must make a commitment to providing help to those who might be
disadvantaged as a result of an agreement. This includes not only a commitment to
expanded unemployment insurance for these individuals, but also appropriate training
and retraining programs.
Additionally, transition relief measures should be examined that will allow
companies adversely affected by a NAFTA to receive government help in finding new
markets for their products and converting to new lines of business.
This must be a commitment not only to providing the governmental support
mechanisms that are necessary, but also to funding these programs as well. American
workers and American firms deserve no less.
Additionally, we must recognize that the US-Canada FTA will be phased in over
a ten-year period. It is possible that we may need to allow for as long if not longer,
a phase in period in the case of Mexico. We may also want to examine the possibility
of phasing in the provisions of a final agreement based on increasing standards of living
in Mexico. This will provide the Mexican government with the incentives to continue
with their liberalization programs as well as providing U.S. workers with a greater
protection against a competitive policy based on wage differentials alone. At the same
time, if we see substantial benefits, as in the US-Canada FTA, we may wish to
accelerate the phase in process.
Wage Disparity:
One of the principal issues that is raised by the NAFTA is the question of how
we address the substantial wage and standard of living disparity that exists between our
two countries. Our goal must be to raise the wages and standard of living of Mexicans,
not lower our own.
I am interested as to what steps might be taken to address this issue - perhaps
the most important issue involved in these negotiations.
Environment:
Without a provision on environmental controls, this agreement is likely to increase
pollutants in and from Mexico and drain jobs from the U.S. needlessly.
President Bush
March 27, 1991
Page 7
Last year, with your help, Congress passed an historic Clean Air Act. In this
legislation we committed ourselves to increasing environmental quality in this country
while striking a balance between environmental quality and economic growth. Similar
legislative action has occurred in the areas of water quality and pesticide residues, and
in many other important areas.
In discussions with members of your Administration as well as Mexican
authorities, I have noted a reluctance on the part of these officials to address important
environmental concerns as part of the scope of these negotiations. I believe that these
concerns must be part of the negotiating agenda. The more than 1700 businesses
currently operating in the maquiladora program are threatening both the environment as
well as the health of countless people on both sides of the border. Additionally, studies
have shown that emissions from industries in other parts of Mexico have affected areas
far beyond our common border.
The Clean Air Act and other U.S. environmental laws do add to the cost of doing
business. In addition to the health and quality of life impact of Mexico's more lax
environmental standards and enforcement, I am concerned that many American
companies may relocate their operations because of this "comparative advantage." We
must not allow this to happen. It would not be in the United States' or Mexico's best
interest.
Indeed, it is tough for U.S. companies to compete against firms that operate
under more lax environmental enforcement schemes. This laxity can, in fact, operate as
a subsidy.
A number of Members of Congress have requested that an environmental
assessment of a NAFTA be conducted. I would also ask that environmental issues be
included on the negotiating agenda.
As part of this, I would hope that the question of pesticide use by Mexican
farmers be given appropriate attention. While our farmers can compete against the best
any country has to offer, they can not and should not have to compete against farmers
who use pesticides that fail to meet U.S. standards. While we certainly can reduce the
risks to our citizens through inspection of all agricultural products crossing our border,
a better approach would be to agree to eliminate the use of these pesticides and harmful
chemicals, thereby protecting the health and safety of our consumers and allowing for a
freer flow of goods. This will help protect the health of the Mexican people as well.
President Bush
March 27, 1991
Page 8
Worker Rights:
A final agreement must include provisions that protect the fundamental rights of
workers. Parties to the NAFTA must recognize that all countries have a common
interest in respecting the fundamental rights of workers, in the achievement and
maintenance of fair labor standards, and in the improvement of wages and working
conditions. Among the provisions that a NAFTA should include are:
Respect for freedom of association.
Respect for the right to organize and bargain collectively, including on a
regional basis across national boundaries.
Prohibition of the use of any form of forced or compulsory labor.
Establishment of a minimum age for the employment of children.
Acceptable conditions with respect to wages and hours of work.
We must recognize the role that the NAFTA can play in promoting worker rights.
We must refuse to accept an agreement that fails to provide real economic opportunity
to the Mexican people. We must address both the substantive law and the procedural
safeguards in this important area.
As part of this negotiation, we must also include the provision of proper health
and safety standards for workers. We should seek to establish appropriate health and
safety provisions that will prohibit accelerated development from occurring at the cost
of worker's health and safety.
Labor Mobility:
I believe that the issue of labor mobility must be carefully considered. As we
look to the future, we must understand the pressure that may be exerted on the wages
of lower-skilled workers in this country if the issue of labor mobility is not critically
addressed.
More specifically, I am very concerned about the prospect of substantial numbers
of Mexican workers entering the U.S. labor market, even if only on a temporary basis.
As you know, the U.S.-Canada FTA established procedures for temporary entry of
Canadian citizen business persons into the United States and to facilitate temporary
entry on a reciprocal basis between the U.S. and Canada.
Since the regulations were first issued in this area, there has been a considerable
liberalization of the regulations to allow for new classes of entrants under the agreement.
While the impact has been marginal, the possible impact under a NAFTA is much
greater, if similar rules are applied to Mexico.
President Bush
March 27, 1991
Page 9
Indeed, as part of Mexico's submission in the GATT Uruguay Round, the
government stated "The expansion of the service exports of developing countries and
their increased participation in world trade in services depends on the liberalization of
cross border movements of personnel covering unskilled, semi-skilled, and skilled labor,
and that effective access to markets for their service exports can mainly be realized
through this mode of delivery."
Human Rights:
The Salinas government has begun to move against police and government
officials accused of human rights violations. We must commend the Salinas government.
But, we must also use the NAFTA negotiations as a means of support for the Salinas
government to make further efforts to curb human rights abuses.
Conclusion
In conclusion, I believe strongly in the goal of assisting Mexico and its people in
terms of economic development and opportunity. But, we must not be willing to
sacrifice the jobs and livelihood of American workers.
I believe an agreement can be reached that is in all of our best interests. We
must not rush - the stakes are too high. But, we must not be reluctant to accept the
challenges.
If the areas I have outlined above are among the issues included in North
American Free Trade Agreement negotiations, I believe that we should proceed. We
must, however, be flexible and recognize that issues such as governmental ownership,
debt relief, transportation regulation, exchange rates, subsidies and many others may arise
that need to be addressed as well.
Ambassador Hills has raised the question of whether it would be acceptable for
certain issues to be raised on a parallel track to the "core" negotiations. This depends
on the commitment and intentions of your Administration and the Mexican Government.
If the intention is simply to allow these negotiations to occur on a parallel track and
allow them to die on the vine, that is unacceptable. If there is a true commitment to
address these issues, then I am open to discussion as to the format under which the
negotiations should occur. While certain issues might be addressed on a parallel track,
Congress must be presented with a single piece of implementing legislation at the end
of the process incorporating final agreements in all areas. We will also be looking for
assurances as to what commitments the Mexican government will undertake. When
Congress votes at the end of this process, it must see tangible results.
** PAGE 7010L **
President Bush
March 27, 1991
Page 10
Roughly two-thirds of all Mexican exports are purchased in the United States.
Conversely, Mexico purchases only about six percent of our exported products. We must
understand the power of this fact as we enter into negotiations. We both have a great
deal to gain, but we must not rush blindly towards an agreement.
Congress must be a partner in these negotiations. If we are able to agree on the
scope of the negotiations, that will only start, not end the process. I look forward to
working with you and members of your Administration throughout this period and
beyond with the goal of reaching a final agreement.
Yours very truly,
Ruhard a. Siphardt
Richard A. Gephardt
RAG:mrw
MAR 27 '91 15:57
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DRAFT 19 APRIL 9:00 AM
[Identical letter to Chairman Bentsen]
The Honorable Dan Rostenkowski
DECLASSIFIED
Chairman
PER NSC WAIVER, 1500 2021-02
Committee on Ways and Means
By SS NARA, Date 12/1/23
U.S. House of Representatives
Washington, DC 20515
Dear Mr. Chairman:
Thank you for your letter outlining concerns expressed by
Members of Congress about the extension of the fast track
procedures, particularly as it relates to free trade negotiations
with Mexico.
Let me assure you that our most important concern in
negotiating a North American Free Trade Agreement will be its
effect on American jobs, American companies, and American
exports. We seek an agreement precisely because we are convinced
that it will advance these American interests. We know that it
is on this basis that our efforts will be judged.
At the same time, you and many of your colleagues have
identified a number of specific concerns, such as environmental
and labor matters, that warrant our attention. We believe that
trade negotiations with Mexico afford us an opportunity to move
forward on our broader bilateral agenda to address these issues
of common interest.
We will use this opportunity. Our efforts to increase
growth and prosperity through economic integration will be
complemented by a joint effort to enhance environmental
protection. Likewise, we believe progress in the economic sphere
must be accompanied by cooperative efforts and concrete
initiatives in the labor area, including worker health and
safety.
I agree with you that Congress and the Administration must
be true partners in trade negotiations. For our part we are
committed to making that partnership work. We need your
continued support, advice, and counsel.
And we need the fast track. As you state in your letter,
fast track is essential to our credibility in negotiations.
Without fast track, the United States will not be able to realize
the enormous benefits we all agree trade negotiations can
achieve.
In this letter and its attachments we set forth our views
and plans with respect to matters you and your colleagues raised.
I believe our response supports the conclusion that the pursuit
of the NAFTA is overwhelmingly in the interests of the United
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States. Further, I believe you will find that our plans for
addressing environmental and labor matters hold much promise for
progress in these areas as well.
NORTH AMERICAN FREE TRADE AGREEMENT
We have seen a remarkable transformation in Mexico away from
statist, protectionist policies toward a more open trade and
investment regime. Without these changes, there would be no
basis for a North American Free Trade Agreement (NAFTA). We can
seize the opportunity created by Mexico's own initiatives to
negotiate an agreement creating the largest market in the world:
360 million consumers and a total output of $6 trillion. Such an
agreement would eliminate trade barriers and inefficiencies with
our first and third-largest trading partners. In 1990 alone our
three-way trade amounted to $327 billion.
You and others in the Congress and the private sector have
expressed concerns about the economic impact of a NAFTA.
Concerns have also been expressed about such issues as the
environment, health and safety, and labor, including worker
rights. I would like to address each of these issues.
Economic Impact of the NAFTA
We are convinced that a North American Free Trade Agreement
will result in greater prosperity for U.S. workers, farmers,
businesses and consumers. The factual record since 1986, when
Mexico began opening its market, shows what can happen when trade
barriers are lowered between the United States and Mexico. From
1986 to 1990:
O
Exports more than doubled, rising from $12.4 billion to
$28.4 billion last year -- nearly twice the rate of
overall growth in U.S. exports during this period.
o
Manufacturing exports went from $10 to $22.5 billion.
Agricultural exports more than doubled to $2.5 billion
in 1990 -- our fourth largest market for agricultural
commodities.
This expansion of U.S. exports to Mexico has added an
estimated 300,000 export-related jobs in the United States.
Further, as a result of increased exports, our trade deficit
with Mexico has been cut by two-thirds; excluding petroleum
trade, the United States ran a trade surplus of about $2.7
billion with Mexico in 1990.
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Under the NAFTA, we can do even better. We can expand our
access to Mexico's growing market and solidify the access
obtained in recent years. Mexico's trade-weighted average tariff
is still 10 percent, 2 1/2 times higher than that of the United
States. Moreover, in the absence of an FTA, Mexico would retain
the right under the GATT unilaterally to raise its top tariff
rate back to 50 percent. Significant non-tariff barriers also
persist. For example, the volume of our agricultural exports is
less than it could be because restrictive Mexican import licenses
still apply to 40 percent of the value of U.S. agricultural
exports; trade in some manufactured goods is distorted by
licensing and performance requirements.
An FTA can be expected to raise average productivity and
real wages in both countries. We can expect to benefit from the
economic growth and increased purchasing power of our neighbor.
For each dollar Mexico spends on imports, seventy cents is spent
on U.S. goods. For each dollar of growth in Mexico, fifteen
cents is spent on U.S. goods.
In addition to what past experience shows, all three major
economic analyses that have been done to date conclude that the
U.S. economy will benefit from a NAFTA in terms of exports,
output and employment. 1 Attached at Tab 1 is a discussion of
these studies, our assessment of the FTA's projected economic
impact on the United States, as well as our analysis of the
impact of the FTA on U.S. investment in Mexico.
We will continue to draw on the best analyses during the
negotiations. I have asked the International Trade Commission
(ITC) to analyze the probable economic effect on U.S. industries
and consumers of eliminating tariffs and nontariff trade measures
between the United States and Mexico. I also have asked for an
analysis of the effect of such actions on our trade with Canada.
Further, the ITC is continuing work on a computable general
equilibrium (CGE) model for examining the economic impacts of a
NAFTA. We will draw on the ITC's further analyses as well as
ongoing work in academia and the private sector. Our goal is to
use the best analyses from a variety of sources to help guide us
in crafting an agreement that is in this nation's interest.
1 The Clopper Almon Study, commissioned by the U.S.
Department of Labor, Industrial Effects of a Free Trade Agreement
between Mexico and the USA; the KPMG Peat Marwick Study (Policy
Economics Group), contracted for by the U.S. Council of the
Mexico - U.S. Business Committee; and the International Trade
Commission Investigation study entitled The Likely Impact on the
United States of a Free Trade Agreement with Mexico, requested by
Chairman Bentsen and Chairman Rostenkowski.
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Beyond econometric analysis, we will rely on the advice and
experience of our private sector. Econometric models can be
useful tools but their findings must be considered in conjunction
with the expertise of our private sector.
The Impact of a NAFTA on U.S. Jobs
Fears that the NAFTA will result in massive job flight or
job loss are unwarranted for a number of reasons. First, of the
three completed studies described above, only one -- the Clopper
Almon study -- deals with the impact of an FTA on overall U.S.
employment. That study estimates that an FTA would result in net
creation of up to 64,000 jobs over ten years with most of those
in the manufacturing sector.
Second, Mexico's economy is 1/25 the size of the U.S.
economy. Its exports to the United States amount to only 6
percent of U.S. imports. Therefore, scenarios of mass
dislocations resulting from reduced U.S. trade barriers are not
realistic. Any concerns in this regard are further reduced given
our intention, as discussed below, to include adequate transition
and adjustment measures in the FTA itself.
Third, the United States is already relatively open to
Mexican imports, yet we have not seen a flight of jobs or
investment. As noted above, Mexico's average trade-weighted
tariff is 2 1/2 times higher than that of the United States and
numerous non-tariff barriers exist which limit U.S. exports.
Given that our market is already open, certainly it makes sense
to lower Mexican trade barriers to increase our export
opportunities.
Indeed, we would expect a NAFTA to increase investment in
the United States. For example, current Mexican performance
requirements compel some U.S. firms to invest in and export from
Mexico in order to gain access to the internal Mexican market.
If such requirements were eliminated in a NAFTA, some firms could
expand their U.S. investment to serve the Mexican market through
exports from the United States. In general, increased export
opportunities to Mexico mean increased investment in the United
States.
Fourth, the mere fact that wages are lower in Mexico does
not mean that manufacturing jobs will flee to Mexico. Wage
disparities between Mexico and the United States largely reflect
the disparity in productivity. On average, the U.S. worker is
seven times more productive than his Mexican counterpart. Our
advantage in productivity results from factors such as education,
higher technology, better transportation, communication and
overall infrastructure. Hence, wage disparity itself is a
misleading factor in assessing any potential employment losses.
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Fifth, trade liberalization is not a zero-sum game in which
the benefit for one side necessarily entails a loss for the
other. As noted, Mexican growth contributes to U.S. growth
because 70 cents of every Mexican import dollar is spent in the
United States, and 15 cents of every dollar of Mexican income
growth flows back to the United States.
Sixth, reduction of barriers on both sides of the border
will spur economic integration that strengthens the global
competitiveness of U.S. firms. By increasing efficiency and
lowering the cost of inputs, higher value and higher wage U.S.
manufacturing operations will be better positioned to take on
competition from Europe and Japan.
A 1988 study by the ITC supports this conclusion. The ITC
found that the vast majority of responses from 323 U.S. firms
stated that their Mexican assembly operations increased the
competitiveness of their U.S. production. These assembly
operations were integrated with high wage manufacturing
operations in the United States. Most firms indicated that the
alternative to moving part of their labor-intensive assembly
operations to Mexico, where a substantial amount of U.S.
components were used, was to move their operations to the Far
East, where fewer U.S. components would be used.
Adjustment Provisions in the NAFTA
Even though we are convinced that the FTA will result in a
net positive effect on U.S. employment, we should ensure that the
FTA contains adjustment provisions to avert injurious shocks or
sudden dislocations that may arise as a result of FTA
liberalization. Our position on these issues is discussed at
greater length at Tab 2, but let me summarize our objectives
here.
1. Safeguard Mechanism
We believe that it is essential to include provisions in the
agreement that allow us to respond effectively and quickly if
there are injurious import surges from Mexico or Canada in any
industry or farm sector. If Mexico and Canada are partly
responsible for a general import surge, we must retain the
ability to limit Mexican and Canadian products as part of a
safeguard action on imports from all sources.
Beyond that general right, we should have the ability,
during a transition period, to act quickly against only Mexico or
Canada if injury to some sector is caused by a concession granted
in the FTA. We believe such a safeguard mechanism should allow
us to suspend preferential trade treatment under the NAFTA
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(including reimposition of duties) for periods up to three years
if necessary. Producers of perishable agricultural commodities
might have particular problems that need special additional
mechanisms, such as a "snap-back" provision that was provided in
the U.S. - Canada agreement and will be available for twenty
years.
2. Rules of Origin
We will seek strict rules of origin in the NAFTA. The
benefits of an FTA should flow to the countries that are parties
to the FTA, and not to the products of other countries that have
been only slightly processed in North America. We will work with
all concerned private sector interests and with the Congress on
rules of origin that ensure that Mexico will not become a mere
platform for third-country exports.
We should draw on our experience with the strong rules of
origin in the U.S. - Canada FTA, recognizing that changes might
be necessary to meet trade conditions in Mexico. We believe for
example that we should seek in the NAFTA to strengthen the
required North American content for assembled automotive
products.
3. Transition
To allow concerned industries and farmers time to adjust to
potential increased competition from Mexico, we will provide in
the FTA for a transition period in which sensitive duties and
other barriers would be phased out in small increments. As in
the case of the U.S. - Canada FTA, the longest transition should
be provided for those producers most sensitive to competition
from Mexico. The Administration would be prepared to consider
transition periods beyond those provided in the U.S. - Canada
FTA. of course, in deciding on our negotiating position with
regard to each product, we will draw heavily on advice from the
private sector and the Congress.
We can expect that Mexico will also want transition periods
for sensitive Mexican industries. Although transition rules in
that sense serve to delay benefits of trade liberalization,
transitions offer important assurances to industries concerned
about imports. Coupled with appropriate rules of origin and
escape clause provisions, we see transition rules as protection
against sudden dislocations while still allowing us to achieve
benefits of trade liberalization.
Domestic Worker Adjustment Programs
Beyond including adjustment provisions in the FTA itself,
there is an obvious need to assist any workers dislocated,
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regardless of cause, who may have adjustment difficulties. An
effective program is already in place to address this need should
dislocations occur: the Economic Dislocation and Worker
Adjustment Assistance (EDWAA) program which complements the
benefits under the unemployment insurance system. A detailed
discussion of EDWAA is included at Tab 2.
EDWAA was established in the 1988 Trade Act as Title III of
the Job Training Partnership Act. It has been successfully
applied to such major industries as autos, timber, electronics,
copper, food processing, aerospace, defense, and steel. During
the three years since its inception, it will have served an
estimated 700,000 workers. Almost 70 percent of the participants
served have been placed in jobs, identified by the local business
community, at an average wage exceeding $7.50 per hour. Funding
for program year 1991 was increased to $527 million, up from $284
million in 1989. This reflects the widely-held view that EDWAA
works. It also reflects the Administration's commitment to
adequate long-term funding.
A key reason for EDWAA's success is that eligibility for the
program is broad-based and can be determined without the need for
time-consuming certifications. It offers a comprehensive set of
flexible services including: 1) rapid response to plant closings
and mass layoffs; 2) basic adjustment services to help the
dislocated worker seek new work; 3) retraining services for those
seeking new skills; and 4) needs related payments to enable those
who have exhausted their unemployment insurance to participate in
training.
EDWAA uses a local delivery system to meet the unique needs
of different states and communities. Eighty percent of the funds
are allocated to states, which allocate the majority to sub-state
areas. Governors have the discretion to reserve part of the
allotment to fund programs to aid especially hard-hit industries.
Twenty percent of funds are retained for discretionary use by the
Secretary of Labor to assist workers affected by multi-state or
industry-wide dislocations and for areas of special need.
We believe EDWAA offers a comprehensive and effective
program for addressing any possible worker dislocation. This
program, together with the adjustment provisions we will seek in
the FTA itself, should fully meet any adjustment concerns.
Labor Mobility
We fully appreciate the sensitivity of the labor mobility
issue in Congress and the private sector. Accordingly, we have
agreed that NAFTA negotiations will not to address large-scale
labor mobility. We wish to consult carefully even with regard to
provisions such as those in the U.S. - Canada FTA, which
facilitate temporary entry of a narrow group of professionals and
managers in accordance with existing U.S. law. In general, we
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8
believe that current U.S. immigration policy is sound, and we do
not contemplate any provisions in an FTA that would require
changing our basic policy or immigration laws. Further, we
believe that improvement of living standards in Mexico, which the
FTA will foster, will encourage Mexicans to seek employment
opportunities at home. President Salinas has made clear that
Mexico wants to export goods, not workers.
Worker Rights and Labor Standards
Mexico has strong labor protections in its constitution and
laws. The Mexican government has a strong political commitment
to promoting the rights and interests of workers, including
increasing standards of living and a safe and healthy workplace.
Enforcement problems have resulted largely from inadequate
resources. By promoting economic growth in Mexico, the FTA will
generate greater prosperity and resources that Mexico can devote
to improving the situation of workers.
A discussion of current labor law and practice in Mexico is
included at Tab 3. As this discussion demonstrates, the
fundamental rights of Mexican workers are already well-protected.
These rights and protections include:
Constitutional and statutory guarantees of the freedom
of association and the right to organize, to bargain
collectively and to strike, and to establish trade
unions.
Ratification of 73 ILO Conventions regarding workers
rights and labor standards which have the force of law.
Unionization of approximately 30 percent of the total
workforce and more than 90 percent of industrial
production workers in firms with more than 25 employees
-- both substantially higher than in the United States.
Prohibition of forced or compulsory labor.
A minimum age of 14 for employment plus special legal
protections and shorter working hours for children
between the ages of 14 and 16.
Constitutionally established principles regarding
conditions of employment, including a minimum wage, an
eight-hour work day, a seven-hour shift for night work,
and a maximum work week of six days. The same rights
apply throughout Mexico, including the maquiladoras.
Mexican legislation on safety and health sets out
substantial protection for workers. In 1978 the Government
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9
instituted a major revision of the Federal Labor Law
incorporating ILO obligations on occupational safety and health.
Revisions provided that the safety of the workplace is the direct
responsibility of the employer, who must report accidents, create
health and safety committees to review working conditions and
train workers to prevent job-related injuries. Health and safety
regulations are implemented through a Federal/State/local system
of tripartite commissions which supplement legal provisions, and
plant-level committees with equal representation of employers and
workers which are responsible for overseeing health and safety on
the factory floor.
Future U.S. - Mexico Cooperation on Labor Matters
There are a number of labor areas where Mexico and the
United States could benefit from cooperation. As set out fully
in Tab 3, we intend to pursue bilateral cooperation on labor
issues with Mexico through the framework of the existing U.S. -
Mexico Binational Commission (BNC). As a first step in this
cooperation, the Department of Labor and the Mexican Secretariat
of Labor and Social Welfare have initialled, and are prepared to
sign on behalf of their governments, a Memorandum of
Understanding (MOU).
This MOU (included in Tab 3) provides a framework for
mutual cooperation between the Department and the Secretariat in
the areas of health and safety measures; general work conditions,
including labor standards and their enforcement; resolution of
labor conflicts; labor statistics; and other areas of concern to
the United States and Mexico.
In addition, as indicated in the action plan in Tab 3, U.S.
and Mexican delegations have met and have agreed upon specific
projects in the areas of occupational health and safety, child
labor and improvement of labor statistics.
The understanding reached between the Department and the
Secretariat represent significant steps forward in cooperation
between our two nations in addressing labor issues of common
concern. In conjunction with the agreed specific projects, the
MOU and its implementation hold great promise for progress on a
number of labor fronts.
We intend to pursue work under the MOU on a schedule,
jointly determined with Mexico, that will permit Congress to
assess progress on labor matters in the same time frame as it
considers implementation of the FTA.
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Environmental Concerns
Mexico and the United States agree that efforts to increase
growth through a free-trade agreement should be complemented by
cooperative efforts to enhance environmental protection. A
strong economy and a healthy environment are mutually supportive.
Tab 4 outlines Mexico's existing programs for environmental
protection, our cooperative efforts to date, and our action plan
for the future. I would like to highlight a few points.
1. Mexico's Commitment to Environmental Protection
President Salinas has made clear on numerous occasions that
Mexico has no interest in being a pollution-haven for North
America. Mexico's comprehensive environmental law of 1988, based
in large part on U.S. law and experience, has provided the legal
framework for tackling its environmental problems. All new
investments are being held to the higher standards set forth in
this law, and an environmental impact assessment is required to
show how they will comply. But the Mexicans also need the
economic growth that an FTA would provide to generate resources
to transform this commitment into an effective program of
regulation, enforcement and public support.
We recognize that enforcement has in the past been a key
problem. But notwithstanding limited means, Mexico's enforcement
record has been improving. The Mexican Government has imposed
some 980 temporary or permanent closures on industrial facilities
for failing to comply with environmental laws. In 1990, Mexico
made the multi-billion dollar decisions to phase out leaded
gasoline and to order that all new cars, including over 40,000
Mexico City taxis, be equipped with catalytic converters. The
government also shut down all 24 military industrial
installations in the Mexico City area because of potential
environmental risks.
Most dramatically, President Salinas announced last month
the permanent closure of Mexico's largest oil refinery for
environmental reasons. The refinery had been responsible for an
estimated 15 percent of Mexico City's industrial air pollutants.
The estimated cost of that shut-down is some $500 million and up
to 5000 jobs.
The Mexican Government continues to increase resources
devoted to enforcement of environmental requirements. The budget
of the Mexican environmental agency, SEDUE, has been increased
almost eight-fold between 1989 and 1991 (from $5 million to $39
million). In anticipation of a World Bank Loan, SEDUE has
announced Mexican counterpart funding for 50 new inspectors at
the border and 50 in Mexico City.
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11
Given rising environmental standards and increasing
enforcement, particularly for new investments, firms would be
ill-advised to seek out Mexico as a pollution haven for new
investment.
2. Addressing Environmental Trade Issues in the FTA
We will work within the FTA negotiations to set forth
environmental safeguards. For example, we will maintain the
right in the FTA to exclude any products that do no meet our
health and safety requirements, and we will enforce those
requirements. Likewise we will ensure the continued right to
limit trade in items or products protected by international
treaties such as endangered species. At the same time, we would
like to work with Mexico and Canada to enhance standards, subject
to full public and scientific scrutiny of any changes before they
would be implemented, to ensure that human, plant and animal
health and the environment are safeguarded.
During the negotiation of any environment-related
provisions, we will ensure the participation of those U.S.
officials who are technically competent in the subject matter and
who are responsible for maintaining the integrity of the U.S.
regulations.
We can assure the Congress that we will do nothing in the
FTA to weaken our environmental laws or to diminish our right to
protect the health, safety and environment of Americans.
3. Joint Environmental Initiatives
In addition to environmental safeguards within the FTA, we
will pursue with Mexico an ambitious environmental program as
described in the action plan at Tab 4. We intend to build on an
already impressive record of cooperation in such areas as
protecting the border environment and conservation of wildlife
and marine resources. New joint U.S. - Mexican initiatives will
include:
Design and implementation of an integrated border
environment plan, in a time frame parallel to
implementation of the FTA. This plan will address air
and water pollution, hazardous wastes, chemical spills,
pesticides and enforcement.
During the design phase, there will be an opportunity
for public comment and hearings on the border plan;
during implementation, there will be comprehensive
periodic reviews.
Consultations on implementation, enforcement and
enhancement of respective environmental standards and
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regulatory regimes, including an opportunity for the
public to submit data on alleged non-compliance;
Expansion of cooperative enforcement activities such as
coordinated targeting of potential environmental
violators.
Technical cooperation and training, including the
sharing of best available technology for pollution
abatement and other environmental needs.
Establishment of a consultation mechanism to address
technical aspects of environmental and conservation
issues; and to address future environmental problems
which could arise.
As is the case with our labor initiatives, it is our
intention to implement these programs on a schedule, jointly
determined with Mexico, that will permit Congress to assess
progress in the environmental area in the same time frame as it
considers implementation of the FTA.
4. Informed Policy Making and Public Participation
As a result of my consultations to date, I am convinced that
we need to broaden the participation in our private sector
advisory process to ensure that our efforts to enhance trade and
growth are consistent with sound environmental practices. To
this end, I intend to seek out and include on a number of those
committees individuals who can bring both an environmental
perspective and substantive expertise.
In addition, drawing on the resources of agencies with
environmental expertise and in consultation with interested
members of the public, we intend to undertake a study of U.S. -
Mexico environmental issues with particular emphasis on the
possible environmental effects of the NAFTA. This will be done
in a timely fashion so as to permit U.S. officials to consider
the results of that study during the FTA negotiations and other
bilateral efforts.
We have consulted with many Members of Congress and leaders
of private environmental groups about the FTA negotiations and
the environment. I think it is fair to say most share our
conviction that an FTA can help environmental efforts by
increasing economic growth and available resources. While there
have been many misconceptions about Mexican laws and some
misinformation, I think that as these Members and leaders have
learned the facts there has been recognition that President
Salinas has been taking significant steps toward a better
environment in Mexico and at the border. We see FTA
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13
negotiations, together with our action plan, as supportive of
these efforts.
CONCLUSION
Mr. Chairman, we have heard your concerns and those of your
colleagues. They are our concerns as well.
My Administration and Congress both want trade agreements
that will enhance the well-being of the people of the United
States. We both want trade agreements that will enable us
successfully to face the challenges of the next century. We both
know that the American people and American business have the
courage, the will and the ability to meet those challenges.
With the support of you and your colleagues -- and only with
that support -- we can negotiate such agreements. But if the
Congress votes against the extension of fast track, it will have
denied the Administration and the American people the opportunity
to reach such agreements.
A rejection of fast track would signal a retreat from the
world trading system precisely at the time when U.S. growth is
critically dependent on export growth. A rejection of fast track
-- and any prospect for an FTA -- would set back immeasurably any
efforts to work together on precisely those issues you and others
have rightly identified as critical. Finally, a rejection of
fast track is a vote of no-confidence: no confidence in American
farmers, American workers, American entrepreneurs. They deserve
better.
For our part, I can assure you that this Administration is
committed to making the fast track work. The fast track, as
conceived by Congress and implemented by both the Executive and
Congress, is a genuine partnership between the two branches. We
will take the time necessary to arrive at agreements that are
truly and substantially in the economic interest of the United
States. We will take the time needed to consider all relevant
issues and to consult fully with Congress and the private sector.
Until we arrive at good agreements -- ones that we believe you
will agree are good -- there will be no agreements.
We will work together in preparing for negotiations, in the
negotiations themselves, and in fashion implementing legislation.
If we do our job right, if the fast track consultative process
works as it should, then trade agreements and their implementing
legislation should be approved overwhelmingly by the Congress.
If we do not, then Members of Congress retain the unqualified
right to vote the agreement down by simple majority. An
extension of fast track in no way impairs any Member's ability to
exercise that right.
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14
In preparing my response to your letter, I have consulted
with each agency with responsibility for the matters you raised.
The answers to your questions reflect their views. More than
that, those answers and the plans I have outlined reflect the
commitment of this Administration systematically to work toward
achieving the goals I know we both share in the trade,
environmental and labor areas.
I appreciate the opportunity your thoughtful letter has
given me to set out the Administration's views. I value your
leadership and my Administration looks forward to continuing to
work with you as we, together, craft agreements that will ensure
a healthy and prosperous twenty-first century for the United
States.
Sincerely,
-CONFIDENTIAL
Congress of the United States
Washington, DC 20515
March 7, 1991
The President
The White House
Washington, D.C. 20500
Dear Mr. President:
on March 1, you officially notified the Congress of your
request to extend the so-called fast-track procedures for imple-
mentation of trade agreements. As you know, unless either the
House of Representatives or the Senate passes a disapproval reso-
lution before June 1, 1991, such procedures would be automatically
extended for agreements entered into during a two-year period
ending on June 1, 1993. This authority would be applicable to
bilateral or multilateral trade agreements, including the proposed
North American free trade agreement and completion of the Uruguay
Round.
We recognize that extension of such authority is necessary if
the Administration is to have any credibility in pursuing negotia-
tions within either a multilateral or bilateral context. You
should be aware, however, that this process will not be easy.
A number of Members of Congress have expressed concern about
the proposed extension of fast-track authority, particularly as it
applies to the proposed free trade agreement with Mexico. They
have identified a number of legitimate concerns that, in our
judgment, should be addressed in a meaningful way before Congress
considers the extension of fast-track authority. Specific
concerns include the disparity between the two countries in the
adequacy and enforcement of environmental standards, health and
safety standards and worker rights.
While we recognize that issues such as these are not
typically addressed in a trade agreement, we believe that such
issues need to be addressed in this case, either within the agree-
ment itself or through some appropriate alternative context,
within the same time frame as the trade negotiations.
The time period for Committee deliberations on the issue of
the proposed extension of fast-track procedures expires on May 15.
We, therefore, request that you provide us, by May 1, your
The President
March 7, 1991
Page 2
thoughts on how the Administration intends to address these and
other relevant issues. Such an action plan is essential to the
Congress as we deliberate on your fast-track request. More-
importantly, successful implementation of such an action plan is
likely to be exceedingly critical when and if the Congress
considers approval of any trade agreement which results from the
negotiations. Whether such an agreement is ultimately approved by
the Congress will depend on an assessment of whether the agreement
has a net positive effect on jobs and wages in the United States.
We also strongly believe that the Administration should not
commit itself to an unrealistic time frame to conclude the negoti-
ations. Some Administration officials have publicly stated that
they expect the negotiations with Mexico and Canada to be con-
cluded by the end of this year. We do not believe that such a
time frame recognizes the complexity of the issues that need to be
addressed. Thus, we urge the Administration to use whatever time
period may be necessary to resolve the numerous issues critical to
the economic interests of the United States, which will serve to
maximize Congressional support for the ultimate agreement.
Finally, as you know, it is absolutely essential that the
Administration consult fully with the Congress on these and other
important issues throughout the negotiations.
We look forward to working with you on these important
issues.
Sincerely yours,
Layd United Committee Lloyd Bentsen, States on Finance Senate Bentsen Chairman
Dan Rostenkowski, Choirman
Committee on Ways and Means
U.S. House of Representatives
Withdrawal/Redaction Sheet
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Economic Impact of NAFTA (19 pp.)
n.d.
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Tab 1
ECONOMIC IMPACT OF A NAFTA
INTRODUCTION
Trade liberalization has been a major factor contributing to
unprecedented growth of the U.S. and global economies during the
last 4 decades. Global tariff averages have fallen from 40
percent to 4 percent since 1947. While much remains to be done,
past barrier reductions have greatly stimulated the expansion of
trade. This rapid trade expansion has in turn encouraged
investment, employment, technological development, and economic
growth in the United States and abroad.
A North American Free Trade Area (NAFTA) would expand
opportunities in all three participant countries -- the United
States, Canada and Mexico -- to increase trade further,
strengthen competitiveness and enhance growth, employment and
living standards. Mexico is the United States' 3rd largest
trading partner -- one with which the United States has had
historically close trade relations. A NAFTA would strengthen
these relations.
A NAFTA also makes good sense because of the increased importance
of exports to U.S. economic growth. Over the last 4 years, U.S.
merchandise exports have increased by $178 billion (to $424
billion, in constant 1982 dollars) and accounted for over 40
percent of 4-year U.S. GNP growth. In 1990, export expansion
accounted for 84 percent of U.S. GNP growth. Strong export
expansion this year and beyond can help to restore and sustain
the healthy growth of the U.S. economy and jobs. A NAFTA would
boost U.S. exports further.
This paper discusses the impact of an NAFTA on the U.S. economy
and on U.S. investment in Mexico. Recently completed analyses
concur in finding that a NAFTA would be beneficial to the U.S.
economy and its workers. The discussion focuses on the U.S.-
Mexico aspects of a North American Free Trade Agreement. This
orientation reflects the focus of the studies reviewed and the
fact that the United States already enjoys a free trade
arrangement with Canada.
2
I.
A NORTH AMERICAN FREE TRADE AGREEMENT WILL BENEFIT THE U.S.
ECONOMY
A.
Trade liberalization in Mexico has already begun to
increase U.S. exports and expand export-related U.S.
jobs.
Since the mid 1980s, Mexico has embarked on a program of
economic reform aimed at reducing the state's role in the
economy and allowing market forces to operate more freely.
Trade policy reforms under this program have transformed
Mexico's economy from one of the world's most protected to a
relatively open market.
Mexico joined the General Agreement on Tariffs and Trade
(GATT) in 1986. In joining the GATT, Mexico accepted the
permanent obligation to reduce its top tariff rate from 100
percent to 50 percent. However, Mexico went even further.
It lowered its top rate to 20 percent. As a result, the
average Mexican tariff applied to imports from the United
States (weighted by the volume of trade) has fallen by more
than half, from 25 percent in 1985 to about 10 percent
currently.
In addition to reducing tariffs, Mexico has sharply reduced
its use of non-tariff barriers restricting imports. Import
licensing, which was formerly used to limit imports in all
12,000 items of Mexico's tariff schedule, is now mandatory
for just 230 products, narrowly concentrated in agriculture
a few manufacturing sectors.
Exports from the United States have benefitted significantly
from lower Mexican barriers. Specifically:
O
From 1986 to 1990, U.S. merchandise exports to Mexico
are up nearly 130 percent, from $12.4 billion to $28.4
billion. This rate is almost twice as rapid as the
increase in U.S. exports to the world, up 73 percent.
-- U.S. agricultural exports to Mexico, our 4th
largest market for agricultural products, totalled
$2.5 billion in 1990. Agricultural exports to
Mexico have risen 134 percent since 1986.
-- Consumer goods exports from the United States to
Mexico have tripled since 1986, rising from $1
billion to $3 billion.
-- U.S. exports of capital goods to Mexico have grown
from $5 billion in 1986 to about $9.5 billion last
year.
3
The Department of Commerce estimates that the expansion
of U.S. exports to Mexico over the period 1986 to 1990
has added 300,000 export-related jobs in the United
States.
The U.S. merchandise trade deficit with Mexico has
fallen from $4.9 billion in 1986 to $1.8 billion in
1990. For non-petroleum trade, the U.S. bilateral
balance with Mexico has moved from a deficit of $1.5
billion in 1986 to a surplus of $2.8 billion in 1990.
B.
A NAFTA would lock in the process of trade
liberalization in Mexico and assure even greater access
for U.S. exports in the future.
Even given Mexico's recent record of lowering trade
barriers, there is much more it could do to open its market,
and thus create new opportunities for U.S. exporters. An
FTA with Mexico would expand access to Mexico's growing
market for U.S. exports, and secure the access obtained in
recent years. Specifically:
o
Many individual Mexican barriers remain high. Mexico's
trade-weighted average tariff is 2-1/2 times higher
than that of the United States.
--
Mexican tariffs for telecommunications equipment,
computers, pharmaceutical and auto parts all fall
in a range of 10 percent to 20 percent.
O
In addition, in sectors where non-tariff barriers
persist, they are significant.
--
40 percent of the value of U.S. agricultural
exports to Mexico are impeded by restrictive
import licensing requirements
-- Export performance requirements and minimum local
content requirements still limit U.S. motor
vehicle exports to Mexico.
--
Foreign investors are still excluded from or
limited to minority shares in "strategic" sectors
of the Mexican economy (e.g. petroleum, primary
petrochemicals, banking).
An FTA would also secure access to Mexican markets by
preventing possible future movement toward more
protectionist policies.
4
-- Without an FTA, Mexico would retain the right
under GATT to raise its top tariff rate
unilaterally back to 50 percent.
By providing a guarantee against future
protectionist trade policies, an FTA would improve
confidence in the Mexican economy, boosting
Mexican growth and demand for imports,
particularly from the United States.
C.
Economic studies find that an FTA with Mexico would
generate overall benefits to the U.S. economy in the
short to medium term.
In the past year, three comprehensive analyses of the
economic effects of an FTA with Mexico have been conducted.
All three conclude that the U.S. economy would benefit from
the creation of a free trade area with Mexico -- in terms of
exports, output, and employment. Their major findings are
summarized below.
1.
The ITC Study
Origin:
In September 1990, the House Committee on Ways and
Means and the Senate Finance Committee requested that
the International Trade Commission (ITC) conduct an
investigation of the likely economic impact on the
United States of an FTA with Mexico. The study was
completed in February 1991.
Description:
The study covers in summary form sectoral, regional,
and general economic effects of an FTA with Mexico on
the U. S. economy. Broad labor market effects were
estimated using a formal mathematical ("computable
general equilibrium") model. In contrast, more
detailed sectoral analyses were based on 1) single
sector ("partial equilibrium") quantitative analysis of
the price and trade effects of an FTA; 2) interviews
with experts; and 3) qualitative assessments of non-
price factors affect individual sectors (e.g.,
investment restrictions). The study did not report
quantitative estimates because the Commission was
requested by the Committees to present analytical
results in qualitative terms only.
5
Conclusions:
For the United States, an FTA with Mexico would
expand trade opportunities, lower prices, increase
competition and result in savings from larger
scale production. Because such gains outweigh
estimated costs, the U.S. economy would gain from
an FTA.
Real output and the real wages of both higher and
lower skilled workers in the United States would
increase as a result of the FTA.
Because the Mexican economy is small relative to
the United States and trade barriers are already
quite low, benefits to the U.S. economy overall
will be moderate in the near to medium term.
The FTA could cause some minor shifts among
occupations in the United States (generally from
lower to higher skill employment).
The FTA could have moderate to significant effects
on trade for a number of the U.S. industries
covered by the ITC study. However, the ITC
concluded that such bilateral trade gains or
losses would have negligible effects on levels of
production of U.S. industries, nationally or
regionally.
2.
The Clopper Almon Study
Origin:
Commissioned by the Department of Labor, Industrial
Effects of a Free Trade Agreement Between Mexico and
the USA is a joint study by groups at the University of
Maryland (INFORM) and the University of Guanajuato,
Mexico (CIMAT). Dr. Clopper Almon of the University of
Maryland was the project director. The study was
released in September 1990.
1 As reported in a letter of April 4, 1991, from ITC
Chairman Anne Brunsdale to House Ways and Means Committee
Chairman Dan Rostenkowski, updating findings in the original ITC
Report on the basis of new empirical data.
6
Description:
The study is based on linking a 78-sector model of the
U.S. economy with a 74-sector model of the Mexican
economy. Each model forecasts employment, production,
prices, exports, and imports in all sectors for the
period 1989 to 2000. The effects of a U.S./Mexico FTA
are expressed as the difference between a baseline
forecast (without an FTA) and forecasts of two FTA
scenarios, 1) tariff elimination only and 2)
elimination of tariffs and major non-tariff barriers.
The study does not factor in possible effects of an FTA
on foreign investment.
Conclusions:
U.S. real GNP, exports, and employment all
increase moderately due to an FTA.
An FTA that reduces both tariff and non-tariff
barriers would increase real U.S. exports by an
additional $10 billion a year (at 1990 prices) by
the end of 10 years. Real U.S. exports to Mexico
would be roughly 28 percent higher in the year
2000 due to an FTA. U.S. imports from Mexico
would increase by slightly more than $3 billion
and would be 7 percent higher in the year 2000 due
to an FTA.
Over 10 years, the net employment effect of the
FTA would be the creation of 64,000 jobs in the
United States. Sectors in the United States which
would experience a net increase in employment from
an FTA add 88,000 jobs over 10 years. Deducted
from this are 24,000 jobs which would be lost in
other sectors over the ten year period (an average
of 2,400 per year). 2
The trade intensive sectors of the U.S. economy
(manufacturing and agriculture) will gain the
most employment from a U.S. Mexico FTA. of the
64,000 net increase in jobs, 48,000 would be
additional jobs in the U.S. manufacturing sector
and nearly 12,000 new jobs would be in U.S.
agriculture.
2 In many cases, the jobs "lost" due to an FTA are actually
small reductions in the growth of sectoral employment that would
take place over 10 years, not absolute reductions in jobs.
7
3.
The Peat Marwick Study
Origin:
The U.S. Council of the Mexico-U.S. Business Committee
recently contracted for a study of the effects of a
U.S. -Mexico FTA from the accounting firm of KPMG Peat
Marwick (Policy Economics Group). An executive summary
of this study reporting broad conclusions of the
analysis has been released, and the full study is due
to be released later in 1991.
Description:
The Peat Marwick study, like the ITC, presents results
from a "computable general equilibrium" model. Taking
1988 as a base year, the Peat Marwick study examines
how employment, wages, incomes, rates of return on
capital, exports, and imports would have been different
in 1988 had an FTA been in effect in that year (all
dollar values in constant 1988 dollars).
Conclusions:
The executive summary reports results on the basis of
two scenarios, 1) not allowing for additional invested
capital in Mexico as a result of the FTA and 2)
allowing for such additional capital.
Scenario 1 (no additional capital):
Real income, wages, and return on capital in the
United States improve modestly.
Real U.S. exports to Mexico would rise by 5.4
percent, while real U.S. imports from Mexico would
rise by 4.2 percent.
O
The U.S. bilateral trade deficit with Mexico would
increase slightly (by 2 percent) 3 However, the
U.S. trade deficit with the world, including
Mexico, would decline slightly.
³with U.S. exports to Mexico rising by a somewhat greater
percentage than U.S. imports from Mexico, it is unclear why the
U.S. trade deficit with Mexico would increase, rather than
decrease slightly. A larger base value for imports than exports
could produce such a result as could other factors in the Peat
Marwick study not fully explained in the executive summary.
8
Scenario 2 ($25 billion additional capital) : 4
The improvement in real U.S. income, wages and
return on capital is greater than in the first (no
additional capital) scenario.
Real U.S. exports to Mexico rise by somewhat less
than under the no additional capital scenario.
Real U.S. imports would increase by more than in
the first (no additional capital) scenario.
The U.S. bilateral trade deficit with Mexico,
however, would increase by 21 percent. With the
world, the U.S. trade deficit still declines
slightly.
Peat Marwick's finding with respect to the second
(additional capital) scenario should be interpreted
carefully. Because the model compares an actual to a
hypothetical final state of the economy in 1988 after
all adjustments to an FTA, it does not examine the
actual process of adjustment for the U.S. or Mexican
economies to an FTA.
Any additional capital inflows to Mexico are likely to
finance the increase of imports which Mexico, as a
developing country, needs badly. U.S. producers who
currently supply 70 percent of Mexico's imports would
be well positioned to supply the lion's share of such
an increase in Mexican imports. As a result,
additional capital inflows to Mexico from the United
States or elsewhere could well lead to a concurrent
strengthening of the U.S. trade balance with Mexico.
D.
These studies underestimate the benefits from free
trade, particularly in the longer run.
As is well known to trade economists, formal modeling of the
effects of trade liberalization routinely underestimates the
economic gains. This underestimation reflects both the
restricted scope of the models employed and the technical
difficulties of modeling certain important types of gains
from trade.
4 The Peat Marwick study estimates that $25 billion in
additional capital stock in Mexico is the amount that would have
been required to hold the return on capital in Mexico unchanged
after the hypothetical full adjustment to an FTA in 1988.
9
Thus, the quantifications of potential benefits for the
United States in the above mentioned studies are likely to
underestimate the benefits from an FTA. Because of economic
gains not captured by these studies, the benefits may well
be substantially larger, particularly in the longer term.
Underestimation can occur for several of the following
reasons:
The models measure the increase in economic efficiency
that results when free trade shifts resources and
output between sectors. The models do not, however,
measure increased efficiencies and potential economic
gains available through production sharing and other
forms of specialization in the intermediates steps of
production.
The models do not measure the "dynamic" gains from
freeing trade. Economists argue that the dynamic gains
outside the scope of these models are potentially much
larger than the gains which the models actually do
measure. Such dynamic gains arise from any aspect of
trade liberalization which would increase saving and
investment and thus lead to higher rates of economic
growth over the medium to long term.
-- For example, freeing up international trade and
investment promotes more efficient use of
resources. To the extent that capital becomes
more efficient and profitable, investing in new
capital becomes more attractive. Market-opening
initiatives can improve the investment climate,
thereby promoting investment and spurring growth.
-- In addition, dynamic gains can come from increased
investment in R&D. The level of investment in R&D
in the United States is strongly influenced by
investors' expected rate of return from such
investment. R&D intensive products generally
enjoy intellectual property protection for a
specified number of years. Investors' rate of
return is, therefore, significantly influenced by
the size of the market in which the product can be
sold. By expanding market size on the one hand
and better protecting intellectual property on the
other, an FTA could increase investors' expected
rate of return, the nation's level of investment
in R&D and thus the economic growth rate.
"Static" gains from trade result from the increased
efficiency with which the nation's current capital and
labor resources can be employed in a more ópen world
market. Greater export opportunity encourages the
10
expansion of America's most productive firms and
industries and the jobs they provide. Such gains from
trade liberalization are considered a "one-time"
adjustment and do not capture dynamic growth effects on
the nation's GNP over time. Computable general
equilibrium models such as those used in the Peat
Marwick study and for part of the ITC Report are
"comparative static" and do not capture dynamic gains.
Although Clopper Almon's is a dynamic model, it does
not capture some important sources of dynamic trade
gains.
The studies do not capture all the forms of
liberalization which are likely to take place in an
FTA. The Clopper Almon study, for example, models the
elimination of tariffs and four major non-tariff
barriers (Mexican barriers against agricultural
products, computers and motor vehicles, and U.S.
barriers against apparel imports). Other non-tariff
barriers (e.g. services trade barriers, investment
performance requirements) are not included in his
study. Similar limitations apply to the Peat Marwick
study. The ITC Report considered a broad range of
possible policy changes from an FTA. It is doubtful,
however, that the ITC analysis reflected all likely
policy adjustments.
-- An opening of government procurement in Mexico,
for example, would be of substantial benefit to
U.S. engineering and construction firms because of
the poor state of Mexican infrastructure. This
and many other possible elements of an FTA are not
captured in the studies.
These studies do not in general consider gains arising
from the capture of increased economies of scale in
production (or the reduction in unit production costs
made possible by large scale production) or increased
competition among producers. Such factors tend to
amplify both the static and dynamic gains from trade
liberalization.
Finally, quantitative estimates in the studies do not
include additional gains from the inclusion of Canada
in a NAFTA. Larger economies of scale within North
American business enterprises, greater cost-saving and
intra-firm trade between different divisions of North
American firms and the ability to perform R&D,
engineering, product design and marketing more
effectively on a continental basis would raise the
global competitiveness of all three NAFTA countries and
further enhance their growth potential.
11
E.
U.S. farmers and especially manufacturers would benefit
from free trade with Mexico.
Each study examined the effects of free trade with Mexico on
specific sectors and the economy as a whole. They concluded
that U.S. manufacturing and agricultural sectors will
benefit the most from an FTA.
1.
ITC Study
The ITC Report concluded that among the U.S. industrial
sectors that would gain most from an FTA with Mexico
would be:
Grains and Oilseeds
Electronic Equipment
Machinery
Steel
Chemicals
(The ITC did not provide quantitative estimates.)
2.
The Clopper Almon Study
The Clopper Almon study concludes that the FTA would
act to increase U.S. jobs principally in the
manufacturing sector (and to a lesser extent in
agriculture). Among the principal beneficiaries would
be:
O
Motor Vehicles
-- 4,900
additional
U.S. jobs, $999
million
increase in
U.S. exports to
Mexico
Computers
-- 2,400
additional
jobs, $734
million
increase in
exports
12
O
Communications Equipment
-- 5,300
additional
jobs, $576
million
increase in
exports
O
Non Electrical Machinery
-- 7,900
additional
jobs, $312
million
increase in
exports
O
Rubber and Plastic Products
--
6,300
additional
jobs, $581
million
increase in
exports
O
Agriculture
-- 11,700
additional
jobs, $675
million
increase in
exports
(Estimates of the increase in U.S. jobs and exports are
relative to trend in the year 2000, the 10th year
following hypothetical trade liberalization. Export
values are reported in 1977 prices. This substantially
understates the value in current dollars).
3. The Peat Marwick Study
The Peat Marwick study concludes that among the sectors
with the largest gains in output and employment in 1988
would have been:
O
Optical & Other Instruments --
11,000
additional U.S.
jobs, $1.3
billion
increase in
U.S. output
O
Machinery and Equipment
-- 3,600
additional
jobs, $700
13
million output
increase
Motor Vehicles and Bodies
-- 1,700
additional
jobs, $300
million output
increase
Chemicals
-- 1,000
additional
jobs, $400
million output
increase
Food
--
600 additional
jobs, $197
million output
increase
(Increases represent the extent to which the study
estimated that jobs and output would have been higher
in 1988 had an FTA been in place with all adjustments
complete; output values are reported in 1988 prices.)
II. U.S. WORKERS AND FIRMS ARE WELL POSITIONED TO ADJUST TO FREE
TRADE WITH MEXICO
A.
While free trade with Mexico will expose some U.S.
industries to increased competition, U.S. workers are
well-positioned to adjust to this competition from
Mexico.
There is little cause for concern that an FTA with Mexico
will require adjustments by large numbers of U.S. workers.
U.S. labor should have little problem adjusting to increased
competition from Mexico for the following reasons.
Total Mexican output is currently only 4% of U.S.
output. Thus, the extent to which Mexican
competition can displace U.S. workers is sharply
limited.
U.S. barriers to Mexican imports are already very
low -- the average U.S. tariff on Mexican imports
is under 4%. Also, a substantial portion of U.S.
imports from Mexico enter the United States free
of duty (under provisions of the Generalized
System of Preferences and Harmonized Tariff
Schedule subheading 9802 otherwise referred to as
14
"American goods returned). In short, U.S. firms
and workers already compete successfully with
Mexican labor every day.
U.S. workers are on average roughly 7 times more
productive (as measured by Gross Domestic Product
per worker) than their Mexican counterparts due to
greater skills, education, higher technology, and
better transportation, communication and other
infrastructure in the United States. This is why
they are so successful in current head-to-head
competition.
Wage disparities between U.S. and Mexican
workers in large part reflect differences in
labor productivity between the two countries.
High wages in the United States result from
much higher labor productivity in the United
States and, therefore, do not represent an
overall competitive disadvantage for U.S.
workers.
The trade effects of an FTA would tend to
expand higher productivity job opportunities
in both countries. The results of an FTA
would, therefore, be to raise average real
wages and living standards in both countries.
Furthermore, estimates show that Mexicans
spend 15 cents of every dollar of additional
income on imports from the United States -- a
factor which should tend to further ease any
adjustment pressures on U.S. workers.
As discussed in detail in Tab 2, Facilitating
Adjustment, an FTA with Mexico will contain
provisions that ease labor adjustment, further
reducing the potential for the dislocation of U.S.
workers:
--
Trade barriers will be reduced only gradually
(the Canada FTA reduced them over a 10 year
period)
The agreement will contain a special
safeguard mechanism that allows for the
temporary re-imposition of tariffs for
industries hurt by surges in imports.
Workers and their families are also consumers.
The lower U.S. import prices which would result
from an FTA with Mexico would increase the real
15
purchasing power of working families in the United
States.
B.
Economic studies conclude that dislocations will be
minimal, even in the most affected sectors.
O
All three studies conclude that in sectors which
would experience reductions in output or
employment, those losses will be extremely small
relative to sector size and would be spread out
over time.
For example, apparel was found to be a
manufacturing sector found among the most affected
in both the Clopper Almon and Peat Marwick
studies. The Almon study found an average of
about 700 jobs lost per year for 10 years. These
losses are less than 1/20 of one percent (0.05
percent) of total sectoral employment per year,
far below the natural rate of attrition in the
sector. The Peat Marwick study suggests a total
loss of 4,400 jobs over a number years. (The
number of years required for full adjustment to an
FTA is not determined in a "comparative static"
model such as the one employed by Peat Marwick.)
III. FEARS THAT A NAFTA WOULD RESULT IN LARGE DISPLACEMENT OF
U.S. PRODUCTION TO MEXICO ARE UNFOUNDED. ADDITIONAL
INVESTMENT FLOWS TO MEXICO WOULD BE MODERATE AND BENEFIT THE
U.S. ECONOMY
A.
Economic Analysis of Mexico's economy conclude that its
capacity to absorb new capital is limited.
The three studies already completed on the impact of an FTA
and, to the best of our knowledge, other multi-sector,
economy-wide, econometric studies in progress are not
specifically designed to quantify the impact of a FTA on
foreign investment in Mexico. 5 The problems of formally
assessing the impact of a NAFTA on foreign investment in
Mexico appear to be ones of both modeling and data
availability.
Other analysis, however, suggests the conclusion that a
NAFTA would not cause any large displacement of U.S.
⁵The Peat Marwick study includes the effects of increasing
investment in Mexico, but does not formally model the amount.
16
production to Mexico. Total foreign direct investment
inflows to Mexico in 1990 were just $2.6 billion from all
countries. Of this amount, an estimated $1.6 billion was by
U.S. firms. 6 Even if the effect of a NAFTA were to double
direct investment flows to Mexico, total direct investment
would reach no more than about $5 billion a year, with
roughly $3 billion of that from U.S. firms. While these
figures are large relative to Mexico's $250 billion economy,
they are extremely small in terms of the $5.2 trillion U.S.
economy.
Even if U.S. direct investment flows to Mexico
increased to $3 billion over the next several years,
this amount would represent just 0.4 percent of current
investment in the United States ($750 billion).
Last year, direct investment flows to Mexico
represented just 3.8 percent of U.S. direct investment
flows to all countries.
Moreover, a large share of increased U.S. direct investment
flows to Mexico would come from the reinvestment of profits
earned by U.S. subsidiaries in Mexico, rather than from new
flows of investment from the United States. In 1989, over
70 percent of new U.S. direct investment in Mexico was in
this form.
Foreign direct investment in Mexico could be expected to
increase in the coming years even in the absence of a NAFTA.
Foreign direct investment has already increased
substantially in recent years as result of increased foreign
confidence in the Mexican economy. Investment inflows
tripled to $1.5 billion in 1986, the year of Mexican
accession the GATT, and have continued to rise in tandem
with the Mexican government's on-going economic reform
efforts. Moreover, even without a NAFTA, barriers to the
entry into the United States of goods produced in Mexico are
already so low as to pose little overall impediment to
foreign investors in Mexico producing to serve the U.S.
market.
There are a number of additional reasons for concluding
that, even under the most extreme of circumstances, an FTA
with Mexico would not cause a large capital outflow from the
United States.
⁶For 1989, the latest year for which U.S. bilateral direct
investment data are available, U.S. direct investment flows to
Mexico totaled $1.4 billion or roughly 60 percent of 1989 direct
investment to Mexico from all countries.
17
Some of the new U.S. investment in Mexico would be
diverted from other developing countries. The types of
investments that can be profitably undertaken in Mexico
are the types which U.S. firms already are making in
other developing countries. Investments in Mexico are
much less likely to substitute for investments for
which a highly educated labor force and highly
developed infrastructure (as in the United States) are
needed.
Increased efficiency and growth will generate new
investment funds. Expanding the investment pie can
increase investment in Mexico without decreasing it in
the United States.
As noted above, there are few barriers in most sectors
to prevent investment in Mexico now, so long as the
output is intended for export markets in the United
States or elsewhere.
U.S. investment in Mexico is likely to grow only
modestly over time because factors such as Mexico's
poor infrastructure and its large external debt will
continue to limit investment.
Moreover, some aspects of a NAFTA may work to decrease
certain types of U.S. investment in Mexico. For example,
current Mexican performance requirements compel some U.S.
firms to invest in Mexico to gain access to the Mexican
market. If such requirements were eliminated in a NAFTA,
firms could reduce such investments, or decrease their rates
of new investment, and serve the Mexican market with
increased exports from the United States.
B.
The new U.S. investment which does flow to Mexico will
benefit the U.S. as well as the Mexican economy.
U.S. investment in Mexico tends to take place in sectors
where competition from Asia is fiercest (e.g., autos,
electronics). Much of this investment is for assembly
operations or other forms of production sharing (which serve
to enhance the competitiveness of both Mexican and U.S.
firms and workers).
Investment in production sharing in Mexico has the
effect of displacing U.S. imports from Asia, or
displacing investment in Asia. For example, in
response to a poll conducted by the ITC, a large
majority of 900 U.S. companies located in Mexico
responded that location in Mexico helped them to
compete against imports into the United States.
18
Also, in a free market environment many U.S. firms
would prefer to invest in Mexico rather than in Asia.
Proximity, opportunity and knowledge of economic
environment will attract U.S. firms that otherwise
would look elsewhere to rationalize their production.
Workers and firms in the United States benefit from
"rationalizing" production between the two markets. In
looking to co-production arrangements between the United
States and Mexico, U.S. firms would be seeking the same
advantages that Japanese firms are finding in Asia and
German firms in Spain to improve competitiveness against
third party suppliers.
Home country workers -- be they Japanese, German or
American -- benefit from the gradual shift toward more
productive, better paid and more secure employment
which is induced by such co-production arrangements.
The firms, by rationalizing their production
internationally, tend to "grow the market," creating
jobs, and raising incomes and living standards in both
their home and host countries.
Co-production in the North American Market is likely to
increase the competitiveness of all three countries --
the United States, Mexico and Canada -- vis a vis other
countries. North American products should, as a
result, compete more successfully in foreign export
markets and against third country imports into the
North American market.
Also, firms in Mexico are far more likely to source
capital goods and components from the United States
than from firms in other foreign countries. 70 percent
of all Mexico's imports are now from the United States,
and 74 percent of Mexico's imports of capital goods are
from the United States.
New capital flows to Mexico will stimulate U.S. exports to
Mexico, creating thousand of new jobs in the United States.
Foreign investment provides Mexico with the dollar
purchasing power needed to buy U.S. products.
In developing countries, like Mexico, any additional
foreign capital inflows result in increased imports of
nearly the same amount. Since 70 percent of Mexico's
imports now come from the United States (an even
greater portion would likely come from the United State
under a NAFTA), increased capital inflows into Mexico
19
could result in large increases in U.S. exports to
Mexico.
The United States, with its strong export advantage in
capital equipment and many agricultural products will
be well positioned to supply Mexico's development
needs. If net capital inflows to Mexico from all
sources increased by $5 billion annually in the next
half decade and 70 percent of the associated increase
in Mexican imports were from U.S. suppliers, this
factor alone would create 70,000 more export-related
jobs in the United States over the period.
CONFIDENTIAL
Tab 2
FREE TRADE NEGOTIATIONS WITH MEXICO
DECLASSIFIED
FACILITATING ADJUSTMENT
PER NSC WAIVER, 1500 2021-02
By SS NARA, Date12/1/23
Based on economic analysis and on experience, we expect a
North American Free Trade Agreement (NAFTA) to benefit the U.S.
economy, including the manufacturing sector. As Mexico has
reduced trade barriers over the last five years, U.S. exports
have increased dramatically, including sectors such as steel and
textiles. Economic studies using different models and
assumptions have all projected that an FTA with Mexico would have
a net positive effect on the U.S. economy and that adjustment
problems are not likely to be substantial in the United States.
These studies show greater job creation than job loss.
There are few products for which existing U.S. tariffs pose
a significant barrier to Mexican exports. The average U.S.
tariff on Mexican imports is under four percent. The U.S. tariff
on autos, for example, is only 2.5 percent. Forty-five percent
of Mexican goods already enter the United States duty-free.
Nonetheless, there has been concern that the NAFTA will lead
to job dislocations in the United States. We believe these
concerns are greatly overstated. Moreover, it is important to
remember that trade agreements are phased-in gradually, that
mechanisms are included to prevent serious injury to U.S. firms
and workers, and that adjustment programs are in place to assist
in retraining and job placement should dislocations occur.
As the NAFTA is phased-in, it is our expectation that the
Mexican economy will continue to expand and that wage,
environmental, and occupational health and safety standards in
Mexico will continue to rise, consistent with the long-term
objectives of the Mexican Government.
Tariffs on import-sensitive products will be phased-out
gradually over a sufficient transition period to enable domestic
industries to adjust. Moreover, a safeguard provision will be
included in the NAFTA to prevent or remedy serious injury to U.S.
industries. We also intend to include a special provision to
provide expeditious provisional relief to growers of perishable
agricultural products, who, because of the seasonal nature of
their business, are especially vulnerable to injury caused by
sudden import surges.
If dislocations do occur, the Administration is firmly
committed to effective programs for worker adjustment and
retraining. While we are convinced that the best adjustment
program is a healthy and expanding U.S. economy, we recognize
that effective retraining and adjustment programs facilitate
smooth adaptation to ongoing shifts in technology and industrial
competitiveness.
CLASSIFIED BY Janes OADR
CONFIDENTIAL
DECLASSIFIED ON
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2
In crafting the Omnibus Trade and Competitiveness Act of
1988, the Executive Branch and the Congress worked together to
create a new and innovative approach to worker adjustment. The
result of these joint efforts was the Economic Dislocation and
Worker Adjustment Act (EDWAA), which was designed to address the
serious deficiencies that had become apparent in the existing
Trade Adjustment Assistance (TAA) program. EDWAA funding has
been increased from $284 million in 1989 to $527 million in 1991.
This reflects the widely-held view that EDWAA works. It also
reflects the Administration's commitment to adequate long-term
funding for the EDWAA program.
This paper outlines measures that would be included in the
NAFTA itself to facilitate adjustment, as well as a description
of our major programs to assist any worker dislocation that might
occur.
Provisions in NAFTA
1.
Staged Elimination of Tariffs and Non-Tariff Measures
One of the principal objectives of a free-trade agreement is
the elimination of tariffs among the FTA parties in products
originating in those countries. However, to avoid dislocations
that could arise if duties on import-sensitive products were
removed abruptly, we will provide for appropriate transition
periods in which duties on sensitive products are reduced in
small increments. Such transition periods allow domestic
industries, including farmers, time to adjust gradually to trade
liberalization. Given its greater likelihood of experiencing
disruption due to tariff elimination, Mexico is also likely to
seek flexible transition measures.
The length of the transition period should take account of
the sensitivity of the tariff and the U.S. industry. In the
U.S. - Canada free-trade agreement, for example, tariff rates
already set at zero remained as such, and some additional tariffs
were eliminated immediately. For the remaining products, tariffs
were scheduled to be eliminated over three-, five-, or ten-year
periods. That schedule was negotiated to account for the
relative sensitivity of bilateral trade in various products with
Canada; our negotiations with Mexico are likely to produce
different schedules and time periods to correspond to differences
in import sensitivities.
The Administration will be prepared to consider staging
periods beyond those provided in the U.S. - Canada FTA. We have
requested the U.S. International Trade Commission, which is an
independent agency, to provide advice on the probable economic
effects of any tariff changes and to identify import-sensitive
products. We will draw heavily on this advice as well as advice
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3
we receive from the private sector in establishing our position
on staging decisions on particular products. Moreover, we will
consult closely on this matter with the Congress prior to and
during the negotiations.
Another important U.S. objective in the FTA negotiations
will be the liberalization and elimination of measures other than
tariffs imposed by Mexico that inhibit market access for U.S.
exporters. These non-tariff measures (NTMs) include practices
such as quantitative restrictions, licensing, import charges,
technical barriers to trade and restrictive government
procurement policies.
Mexico will undoubtedly seek the elimination of NTMs
maintained by the United States, as well. We will ensure that
any agreed liberalization is staged over time to the extent
necessary for U.S. producers to adjust.
2. Safeguard Mechanism
A fundamental part of transition rules must be an effective
safeguard mechanism. A safeguard mechanism can be included in
the NAFTA, which serves as a backstop to transition rules,
providing further assurance within the trade agreement itself
against injurious dislocations as a result of trade
liberalization. We believe that sudden surges of injurious
imports from Mexico are unlikely, given that tariffs --especially
on import sensitive products -- will be gradually phased-out over
a number of years. Nevertheless, we believe that there should be
an effective, transparent safeguard mechanism to enable prompt
and effective temporary relief in the event of such an injurious
surge.
Section 201 of the Trade Act of 1974, as amended, sets out
specific criteria for taking such an action. It authorizes the
President to impose temporary global import restrictions, if the
U.S. International Trade Commission determines that increased
imports are a substantial cause of serious injury to a domestic
industry. Import relief provided by the President, usually in
the form of increased tariffs or quantitative restrictions, is
designed to prevent or remedy serious injury and to facilitate
adjustment of the domestic industry. Specific factors examined
in determining serious injury include significant unemployment or
underemployment and the significant idling of productive
facilities (including plant closings) in the affected industry.
Our existing free trade agreements with Canada and Israel
include an additional bilateral escape clause provision as
described above. We will seek a similar provision in the NAFTA.
This provision would permit the suspension of preferential trade
treatment under the NAFTA for periods of up to three years, if
necessary, if increased imports from the FTA partner are a
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4
substantial cause of serious injury, or threat, thereof to a
domestic industry. Such a period would enable our domestic
producers, including workers, to take necessary steps so that
they will be better positioned to compete when the import relief
expires.
Import relief should be timely, where it is necessary. We
are aware that in instances where imports surge, delay in taking
action while a full investigation is completed may compound the
problem facing the domestic industry, particularly in the case of
perishable agricultural products. We will seek the right under
the NAFTA to take provisional safeguard measures quickly, before
a full investigation is completed, when there are critical
circumstances where delay would cause damage difficult to repair.
Moreover, we will seek a provision to permit the temporary re-
imposition of duties on perishable agricultural products if
imports of these products surge. A similar "snap-back" provision
in the U.S.-Canada FTA will be available for 20 years.
The trigger for allowing safeguard actions should be aimed
at preventing serious injury, but should not be set so low as to
enable import restrictions to be imposed lightly. We must bear
in mind that an excessively low trigger could lead to Mexican
actions against our own export industries when they increase
exports to Mexico. Such a low trigger level might also make
Mexico less willing to make tariff concessions, for fear that
liberal use of safeguard actions by the United States will
subsequently undo U.S. tariff reductions.
Finally, we intend to maintain the right to restrict imports
of Mexican and Canadian products along with the products of other
countries in so-called "global" safeguard actions, if Mexican and
Canadian products are contributing to serious injury to the
relevant U.S. industry. As in the case of the U.S. - Canada FTA,
we are prepared to contemplate exemptions for our FTA partners,
on a reciprocal basis, if their products are not part of the
import problem. However, we must have the flexibility to include
in global restrictions products of FTA partners, when those
products are part of the problem, even at the price of a
comparable right for escape clause action on our exports.
3. Rules of Origin
Rules of origin are used to determine which goods imported
by one FTA party into the customs territory of another should
benefit from the preferential treatment accorded under the
agreement. Rules of origin are not an adjustment mechanism, but
properly designed rules help avoid adjustment problems. Rules of
origin are intended to prevent products of third countries from
using Mexico as a pass-through for duty-free entry to the U.S.
market.
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5
The primary purpose of rules of origin is to ensure that the
benefits of an FTA will accrue principally to the FTA parties
rather than to countries that are not parties to the FTA.
However, rules of origin cannot be so restrictive that they force
parties exclusively to use materials solely indigenous to an FTA
country, thereby mitigating the benefits of the FTA. Properly
designed rules of origin are fair and predictable, prevent other
countries from using our FTA partners as a pass-through into the
United States, but allow use of third country materials that have
been substantially transformed by significant processing
operations.
We believe we should draw on our experience with the strong
rules of the U.S. - Canada FTA in negotiating the NAFTA, but we
should be sensitive to changes as necessary to meet trade
conditions with Mexico. We believe, for example, that we should
strengthen the required North American content for assembled
automotive products in the case of a NAFTA.
As was the case in the U.S. - Canada FTA, workable rules of
origin can be negotiated only in cooperation with the affected
domestic industries. Through our consultations with the Congress
and private sector advisors, we will seek to craft rules of
origin that are clear, tough and predictable.
Worker Adjustment
The Economic Dislocation and Worker Adjustment Assistance
Act (EDWAA--Title III of JTPA) is a flexible, comprehensive
program with a wide range of services for all dislocated workers
whose employment loss (for any reason) means they are unlikely to
return to their previous industries or occupations.
EDWAA was crafted with broad bi-partisan Congressional and
Administration support as part of the Omnibus Trade and
Competitiveness Act of 1988, the same statute that established
present U.S. trade negotiating objectives. This program was
created in part in recognition of the serious flaws of the Trade
Adjustment Assistance (TAA) program.
Eligibility
All workers who have been terminated or have received a
notice of termination, and who are unlikely to return to their
previous occupation or industry, are eligible for EDWAA services.
Any worker in any company is eligible for EDWAA,
without certification. Services are provided to
primary, secondary and tertiary workers.
Establishing eligibility for TAA requires a lengthy,
cumbersome certification process. Eligibility is
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6
limited to workers who lose their jobs as a direct
result of increased imports of strictly comparable
products. Job loses caused by the relocation of a
plant from the United States to Mexico would not be a
condition for TAA eligibility.
Under TAA, displaced workers who had worked for the
same employer may be treated differently -- some may be
certified as eligible for benefits, while others may be
deemed ineligible.
Timing
Adjustment assistance under EDWAA is available immediately,
often before job loss occurs.
Advance notice of a plant closing or a major layoff is
provided to EDWAA staff under the 1988 Worker
Adjustment and Retraining Notification Act (WARN) Act,
which stimulates early action.
In a typical situation, the announcement of a layoff
will bring a State "Rapid Response" team to the
worksite, where they will design a range of services to
meet the needs of displaced workers. Often
arrangements will be made to assess and enroll workers
into EDWAA and unemployment insurance (UI) programs at
the plant site.
Under TAA, lengthy certification delays can mean that
some workers have exhausted their 26 weeks of UI before
becoming eligible for benefits.
Program Design
EDWAA offers a wide range of services when the probability
of success is greatest. It is a nationwide program with a
flexible, local delivery system.
Eighty percent of all EDWAA funds are distributed
annually, by formula, to States and substate areas.
Formula funds are available to every State, county and
Congressional District.
Twenty percent of EDWAA funds are reserved by the
Secretary of Labor to make discretionary grants to aid
especially hard-hit workers, industries and areas.
Services Provided
The specific EDWAA set of services includes:
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CONI IDENTIAL
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7
Rapid Response: on-site rapid response to plant
closings and mass layoffs, often before actual layoffs
occur.
Re-Employment Services: outreach, development of
individual readjustment plans, labor market
information, job development, job search and placement,
supportive services such as relocation assistance and
pre-dislocation readjustment programs.
Retraining Services: includes classroom, occupational
skills, and/or on-the-job training, basic and remedial
education, and entrepreneurial training.
Needs-Related Payments: Dislocated workers who have
exhausted UI may receive needs-related payments to help
complete training if they were enrolled in training by
the 13th week of their initial UI benefit period (thus
training begins while the individual is receiving UI).
Payments may not exceed the individual's UI amount or
the poverty level, whichever is higher. An eligible
worker who does not qualify for UI must be
participating in a training or education program.
Recent research suggests that workers enroll in TAA training
programs simply to continue receiving cash benefits. This tends
to limit sharply the program's effectiveness while driving up TAA
costs.
Results
EDWAA is a highly successful program. In its first three
years of operation, it will serve some 700,000 workers, placing
almost 70 percent in jobs identified by the local business
community. On average, hourly wages in these jobs exceed $7.50.
EDWAA program costs average $1,700 per participant.
TAA costs are much higher, and its job placement rate
is below 40 percent.
Funding commitments reflect the consensus opinion that
EDWAA is a program that works. Since EDWAA began in
July, 1989, funding has doubled, rising from $284
million in 1989 to $527 million in 1991. The
Administration is committed to adequate long-term
funding for EDWAA.
EDWAA has helped displaced workers in a diverse set of
industries, including autos, timber, electronics,
copper, food processing, aerospace, defense and steel.
CONFIDENTIAL
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
Subject/Title of Document
Date
Restriction
Class.
and Type
06. Paper
Free Trade Negotiations with Mexico - Labor Standards,
n.d.
P-5
Worker Health and Safety Concerns, and Worker Rights (19
pp.)
Collection:
Record Group:
Bush Presidential Records
Office:
Chief of Staff, White House Office of
Open on Expiration of PRA
Series:
Sununu, John, Files
(Document Follows)
Subseries:
Issues Files
By If (NLGB) on 10/28/05
WHORM Cat.:
File Location:
Fast Track 1991 [3]
Date Closed:
1/4/2005
OA/ID Number:
29156-003
FOIA/SYS Case #:
1998-0004-F[2]
Appeal Case #:
Re-review Case #:
2005-0426-S
Appeal Disposition:
P-2/P-5 Review Case #:
Disposition Date:
AR Case #:
MR Case #:
AR Disposition:
MR Disposition:
AR Disposition Date:
MR Disposition Date:
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P-1 National Security Classified Information [(a)(1) of the PRA]
(b)(1) National security classified information [(b)(1) of the FOIA]
P-2 Relating to the appointment to Federal office [(a)(2) of the PRA]
(b)(2) Release would disclose internal personnel rules and practices of an
P-3 Release would violate a Federal statute [(a)(3) of the PRA]
agency [(b)(2) of the FOIA]
P-4 Release would disclose trade secrets or confidential commercial or
(b)(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information, [(a)(4) of the PRA]
(b)(4) Release would disclose trade secrets or confidential or financial
P-5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
(b)(6) Release would constitute a clearly unwarranted invasion of
P-6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
(b)(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of
(b)(8) Release would disclose information concerning the regulation of
gift.
financial institutions [(b)(8) of the FOIA]
(b)(9) Release would disclose geological or geophysical information
PRM. Removed as a personal record misfile.
Tab 3
FREE TRADE NEGOTIATIONS WITH MEXICO
LABOR STANDARDS, WORKER HEALTH AND SAFETY CONCERNS,
AND WORKER RIGHTS
Introduction
Mexico and the United States share a commitment to the
maintenance and enforcement of fair labor standards, the
promotion of safety and health in the workplace, and worker
rights. Implementation of these goals requires both political
will and adequate resources. Both of these requisites can best
be addressed as our relationship, based on mutual respect,
deepens through the Free Trade Agreement (FTA).
As Part I of this attachment shows, Mexico has strong labor
protections which are integral to its Constitution and laws. The
Mexican Government has a strong political commitment to promoting
the rights and interests of workers, including increasing
standards of living and a safe and healthy workplace. By
promoting economic growth in Mexico, the FTA will generate
greater prosperity and resources that Mexico could devote to
improving the situation of workers.
As described in Part II of this attachment, the U.S. and
Mexico have reached agreement to collaborate in a number of
labor-related areas, including labor standards and their
enforcement. Specific initiatives have already been identified
including information sharing and cooperation in areas of concern
such as occupational safety and health, child labor, and
improvement of labor statistics. Implementation of this
agreement holds much promise for progress over the near term.
I.
Current Labor Law and Practice in Mexico
Overview
Mexico's labor standards are comparable to those in the
United States, Europe and other industrialized countries. The
Mexican Constitution of 1917, as implemented through various
pieces of legislation, provides a comprehensive set of rights
and standards for workers in all sectors of Mexico, including the
maquiladoras. During the dictato ship of Porfirio Diaz at the
end of the nineteenth century, WO kers and peasants were often
held in peonage and their rights abused. It was in reaction to
these abuses that the post-revolution Constitution included
provisions guaranteeing worker rights and providing a framework
for free trade unionism in both the public and private sectors.
2
Mexican Constitution
Many of the rights of workers flow directly from Title VI of
the Mexican Constitution, entitled "Labor and Social Security,"
also referred to as Article 123. For example, Article 123
guarantees workers the right to form unions and join professional
associations of their own choosing. Workers are protected
against anti-union discrimination. Other provisions specify
rights regarding such issues as the length of the work day (eight
hours), maternity leave, minimum wages, overtime pay, strikes,
child labor, and forced labor. The applicable provisions of the
Constitution function as a series of statutes which authorize the
government to take many actions on behalf of workers.
Legislation
In 1931, the Federal Congress enacted Mexico's first
comprehensive Federal Labor Code and established the Federal
Labor Court to resolve labor disputes. Today, labor relations
are governed by the Federal Labor Law (Ley Federal del Trabajo)
of May 1, 1970, and its subsequent amendments. This law is
comprehensive and regulates labor contracts, minimum wages, hours
of work and legal rest days, paid vacations, employment of women
and minors, labor unions, collective bargaining, strikes, labor
courts, occupational risks, apprenticeship, profit sharing,
dismissal compensation, and conditions of work in specified
fields. For example, the law explicitly grants both workers and
employers freedom of association and the right to establish trade
unions without prior authorization.
In 1978, the Mexican Government revised the Federal Labor
Law to bring it into conformity with various International Labor
Organization (ILO) conventions which Mexico had ratified and to
modify previous statutes that had become obsolete due to new
technologies. This legislation contained a number of
improvements related to occupational safety and health. Mexico
has ratified 73 ILO Conventions (out of a total of 171), that in
Mexico carry the force of law.
Enforcement
Title VI*of the Constitution stipulates that the States are
responsible for enforcement of labor laws in their respective
jurisdictions, but that Federal authorities have exclusive
jurisdiction over most matters relating to industrial endeavors,
including the following sectors: textiles, electricity
generation, cinematography, rubber, sugar refining, mining,
metals, steel, petroleum, petrochemicals, cement, limestone
quarrying, automotive manufacturing, chemicals and
pharmaceuticals, paper and pulp, vegetable oils and greases, food
processing, beverage bottling, railroads, lumber and woodworking,
glass making, and tobacco.
3
At the Federal level, Mexican labor law is administered by
the Secretariat of Labor and Social Welfare (Secretaria del
Trabajo y Prevision Social). Enforcement is supplemented by
tripartite commissions, including representatives of government,
business and labor. The Secretariat sets and enforces provisions
relating to industrial health and safety, employment of women and
minors, and minimum wages.
Disputes involving alleged violations of labor law or
collective bargaining contracts are settled through Mexico's dual
federal/state system of conciliation and arbitration boards, or
"labor courts" which operate in each of the thirty-one Mexican
states.
Federal law requires most enterprises to set up plant-level
health and safety monitoring bodies, on which labor is
represented, that report monthly to the Secretariat of Labor and
Social Welfare. It is the job of these commissions to report on
health and safety violations by individual factories and
businesses.
Labor Practices
About 30 percent of the Mexican workforce is unionized. In
the industrial sector, most workers are represented by unions.
The Congress of Labor, with about 8 million members, is an
overall loose coordinating body grouping 36 labor confederations
and independent unions under its umbrella. The Confederation of
Mexican Workers (CTM) is the largest trade union confederation,
with more than 5 million members.
The available evidence points to considerable compliance
with labor standards in large firms and where there are strong
trade unions. As in other developing and developed countries,
compliance with labor standards is a problem in small- and
medium-sized firms, particularly in the informal sector (i.e.,
economic activities performed outside of the legal environment).
Detailed Analysis of Labor and Practice
In what follows, more detailed information is presented on
Mexican labor 'law and practice in the following areas:
(1) freedom of association;
(2) the right to organize and bargain collectively;
(3) forced labor;
(4) child labor; and
4
(5) acceptable conditions of work, e.g., with regard to (a)
minimum wage, hours of work, paid vacations, and
holidays; and (b) occupational safety and health.
1.
Freedom of Association
Constitutional and Statutory Framework
The rights of Mexican workers to organize are guaranteed
under the Federal Constitution. Article 123 guarantees workers
the right to form unions and professional associations of their
own choosing. The Federal Labor Act of 1970 expressly grants
both workers and employers freedom of association and the right
to establish trade unions without prior authorization. It states
that "[n]obody shall be obliged to join or abstain from joining
a trade union. Mexico has ratified ILO Convention 87 regarding
freedom of association and the right to organize.
To obtain the right to represent workers, to negotiate a
contract, and to engage in other legally protected activities, a
union must have a minimum of 20 members and be officially
registered by the Associational Registry of the Ministry of Labor
and Social Welfare. Mexican unions may, without prior
authorization, freely form federations or associations and belong
to international organizations.
The right of association also includes the right of workers
to strike. Strikes are a guaranteed right of Mexican workers
under article 123 of the Federal Constitution. Article 123
specifies that "differences or disputes between capital and labor
shall be subject to the decisions of a Conciliation and
Arbitration Board, consisting of an equal number of
representatives of workmen and employers, with one from the
government."
The Federal Labor Law of 1931, as amended in 1971, sets
forth procedures requiring notification and conciliation for
calling a legal strike. Notice of the intent to strike must be
filed 6 to 10 days in advance, and efforts at conciliation,
mediation and arbitration between the parties in dispute are
required before a legal strike can take place.
The Labor Act of 1970 states that a "justified strike is one
the causes of which can be ascribed to the employer. " Though no
majority strike vote is needed for a strike to be called, it does
need majority backing to exist for legal purposes. If a labor
judge declares a strike legal, workers are entitled to partial
wages (by law, 50 percent of their pay retroactively) An
employer who dismisses a worker based on the worker's union
membership or participation in a lawful strike must either
indemnify the worker with three months' wages, or fulfill the
contract, depending upon the preference of the employee.
5
In the case of illegal (or wildcat) strikes, the employer may use
strike-breakers or dismiss striking workers after proper notice.
Mechanism for Enforcement of Legal Rights
Title VI of the Constitution stipulates that the States are
responsible for the enforcement of labor laws in their respective
jurisdictions, but that Federal authorities have exclusive
jurisdiction over matters relating to most industrial endeavors,
including those in the majority of key industries. The Federal
government also exercises jurisdiction over enterprises
administered directly or indirectly by the Federal government,
and otherwise under Federal jurisdiction.
Disputes involving alleged violations of labor law or
alleged violations of collective bargaining agreements are
settled by Mexico's dual federal-state system of conciliation and
arbitration boards. In addition to the conciliation and
arbitration boards, Mexico has a Federal Labor Court, which has
jurisdiction over disputes of right, and in some circumstances
over disputes of interest.
The Federal Labor Court also has a significant role to play
with respect to strikes. Notice of the intent to strike must be
submitted to the Court at least six days prior to the expected
date of suspension of work. After notice is received, the
chairperson of the appropriate Federal Labor Court is directed to
send a copy to the employer, who is required to send a written
reply within 48 hours. The Federal Court then summons the
parties in dispute to a conciliation hearing.
Labor Practices: Historical Experience
Registration requirements for unions are not onerous.
Approximately 30 percent of the total Mexican labor force,
estimated to be about 28.4 million, is unionized. A pluralistic
trade union movement exists, including numerous trade union
confederations, independent unions, and a variety of employer
organizations. In the industrial sector, excluding the
maquiladoras, more than 90 percent of the production workers in
establishments employing over 25 workers are organized.
The Congress of Labor (Congreso de Trabajo) is an overall
coordinating body that groups together 36 PRI-affiliated labor
confederations and independent unions. The Congress, established
in 1966, has some 8 million members. It includes all of the
major trade union confederations in Mexico, in particular the CTM
with 5 million members, the Federation of Civil Service Unions
(FSTSE) with 1.8 million members, the Revolutionary Confederation
of Workers and Peasants (CROC) with 600,000 members, the Regional
Mexican Workers Confederation (CROM) with 250,000 members, and
other smaller confederations as well as some independent PRI-
6
affiliated individual unions. There are also numerous
independent unions that exist outside of the Congress of Labor.
The presidency of the Congress of Labor is rotated among the
member confederations for 8-9 month periods; however, the CTM,
with it substantial membership and enduring strong leader (Fidel
Velazquez), dominates the Congress.
There are several international trade union organizations
active in Mexico. The most active is the ORIT (Organizacion
Regional Interamericana de Trabajadores), which is the Inter-
American affiliate of the ICFTU (International Confederation of
Free Trade Unions), headquartered in Brussels. ORIT's
headquarters are located in Mexico city; the CTM is one of the
strongest Latin American members of ORIT. Other less active
international trade union organizations operating in Mexico
(however, with no major Mexican trade union affiliates) include
the CPUSTAL (Confederacion Panamericana Unica de Sindicatos de
Trabajadores de America Latina), which is also headquartered in
Mexico and is the Latin American regional organization of the
communist World Federation of Trade Unions (WFTU) based in
Prague, and the CLAT (Confederacion Latino Americana de
Trabajadores), the Latin American regional organization of the
World Confederation of Labor (WCL) based in Brussels.
Freedom of association in maquiladoras: Maquiladora workers
have the same rights, which are protected under the Federal
Constitution, as other workers to organize and join trade unions
of their choice.
Only a small percentage of maquiladora workers are
organized: approximately 10-20 percent compared to more than 90
percent of the workers in similar non-maquiladora industrial
enterprises. However, the motor trucking industry, which serves
most of the maquiladoras with vital land transport to and from
the U.S. border, is completely organized by the CTM.
As one moves from west to east along the northern Mexican
border, the share of maquiladora firms that are organized
increases. Nearly all the maquiladoras in the northeastern state
of Tamaulipas are organized, primarily by the CTM. Local and
regional labor leaders in the State of Tamaulipas (especially in
the Matamoros, Reynosa, and Nuevo Laredo areas) take an active
part in and promote the organization of maquiladora workers.
Strikes are infrequent in maquiladoras, but some have been
called for economic and non-economic reasons. In the few recent
cases where strikes have been attempted, most have been resolved
within a few days. Most strikes in maquiladoras have been over
increased wages or fringe benefits. However, in some cases
strikes have also been called to challenge or protest the
membership of some maquiladora employees in rival unions, usually
7
the result of one union leader attempting to extend his power or
control. In still other cases, strikes have been called by
maquiladora workers to protect their rights when a firm has
announced plans to shut down operations.
In 1988, the CTM and the AFL-CIO formed a high level joint
commission (headed by AFL-CIO President Lane Kirkland and CTM
Secretary General Fidel Velazquez) to study the labor-related
problems of the maquiladora sector. Subcommittees of the
Commission have been established on the textile, automobile,
electronics, and land transport industries. Two particular aims
of this joint CTM/AFL-CIO Commission are to encourage
unionization of the maquiladora workforce and to seek to improve
wages and work conditions in the maquiladora sector.
2.
Right to Organize and Bargain Collectively
Constitutional and Statutory Framework
The right to organize and to bargain collectively is
guaranteed under Article 123 of the Federal Constitution and
affirmed in Mexican labor law. The Federal Labor Law of 1970
(Part VII, Chapter 387) specifies that "[e]very employer of
persons who belong to a trade union shall be bound to conclude a
collective agreement with such trade union if the union asks him
to do so."
In workplaces under federal jurisdiction, a union must have
a minimum of 20 members and be officially registered by the
Associational Registry of the Ministry of Labor and Social
Welfare to obtain the right to represent workers, to negotiate a
contract, and to engage in other legally-protected activities.
The Federal Labor Act of 1970 specifies that collective
bargaining agreements be in writing, and that a copy of each
agreement be sent to the federal or local conciliation and
arbitration board. The agreements are required by statute to
contain the names and addresses of the contracting parties, the
undertakings and establishments covered, the duration of the
agreement or a statement explaining that it is for a specified or
unspecified piece of work, the hours of work, rest days and
vacation leave, wage rates and any other stipulations agreed to
by the parties. Statutory provisions apply if hours, rest days
or vacation leave are not explicitly specified by contract.
However, if wage rates are not specified, the agreement is void.
In addition, a valid collective Margaining agreement must put
workers in a position better thai or equal to their position
prior to the agreement.
A collective bargaining agreement may contain a "closed
shop" union security provision, as long as non-union employees
employed prior to the agreement are not "prejudiced." However,
8
an agreement can lawfully contain a clause which requires the
employer to dismiss workers who resign or are expelled from the
union, albeit with some procedural safeguards. Federal labor
legislation dictates that the provisions of a collective
agreement must be extended to every worker in an establishment,
regardless of whether they are members of the union.
If no union contract exists, individual labor contracts must
be signed by each worker after a 30-day trial period on the job.
These contracts establish the basic rules for the provision of
personal services as well as the rights of the employer and
employee. By signing a labor contract, workers cannot waive
their rights that are guaranteed to them under the law.
A collective contract can assume different forms. One or
several unions may enter into industry-wide collective contracts,
known as "contrato-ley," with various employers or employers'
organizations. Labor law sanctions industry-wide contracts when
two-thirds of the workers in a given industry (or trade) approve.
The results of such an action are binding on all employers and
workers, whether or not they participated in the process. Once
in place, these agreements become mandatory (for the affected
industry) by federal decree.
Mechanism for Enforcement of Legal Rights
Disputes concerning alleged violations of labor law or
alleged violations of collective bargaining agreements are
settled by Mexico's dual federal-state system of conciliation and
arbitration boards. These boards are also known as "labor
courts" because they often function as judicial entities. They
are located throughout the country, are composed of government,
union and management representatives, and operate on a permanent
basis. The boards have additional statutory responsibilities,
such as the registration of collective bargaining agreements
reached between labor and management. Because collective
bargaining agreements contain grievance procedures, recourse to
the labor courts is generally a last resort for the parties to a
dispute.
In addition to the conciliation and arbitration boards,
Mexico relies, on the Federal Labor Court to resolve disputes
submitted by a labor organization. Employers do not have
statutory power to bring a labor dispute before the court. The
court has jurisdiction over disputes of right, and in some
circumstances over disputes of interest. Most of the court's
work seems to concern individual disputes, and covers issues such
as accident compensation, unjustified dismissals, and termination
of a worker's employment contract.
9
Labor Practices: Historical Experience
Collective bargaining is common, particularly in industry.
Agreements customarily augment the minimum legally required
benefits and may include provisions for additional holidays,
higher wages, further education and training, health clinics,
recreational facilities, and retirement benefits. They usually
include detailed provisions for grievance procedures, seniority,
and job security.
Bargaining agreements are revised every two years, although
contract wage increase provisions are usually renegotiated
annually, and are rarely canceled once signed. Industry-wide
bargaining is practiced in the textile, sugar, petroleum, and
certain other industries.
Cases brought before the conciliation and arbitration boards
range from individual grievances to collective worker actions
that seek protection of worker rights and remuneration provided
under the labor law.
Right to organize and bargain collectively in maquiladoras:
As applies generally throughout Mexico, the tripartite boards of
conciliation and arbitration have responsibility for registering
individual labor contracts (or collective bargaining agreements
where they exist) in the maquiladora sector.
In Matamoros, where all maquiladora workers are unionized
and are covered by collective bargaining agreements, the CTM-
affiliated FRTM has won a 40-hour work week and higher salaries
than prevail elsewhere in the maquiladora sector. In Ciudad
Juarez, unionized workers covered by collective bargaining
agreements have won fringe benefits worth 15 to 20 percent above
those offered by non-union facilities. In addition, union
members are given preference in receiving housing under the
federal government's INFONAVIT program. In cities other than
Matamoros, maquiladora management often attempts to entice
workers from seeking union affiliation by offering a substantial
package of fringe benefits.
3.
Forced or Compulsory Labor
Mexico is a signatory to the ILO conventions regarding the
prohibition of forced or compulsory labor. Such practices are
prohibited by Mexican law.
Workers in Mexico are free to terminate their employment
following a reasonable period of notice. Workers are not
prevented from leaving the premises at the end of the normal
workday (though they may be searched when leaving the plant for
security reasons or to ensure that they are not removing
materials or products without proper authorization).
10
4.
Minimum Age for Employment of Children
The minimum legal age for employment is 14 years. Children
between the ages of 14 and 16 may work but are subject to special
legal protection of the Labor Inspection Office and shorter
working hours than adults. They are required to obtain a medical
certificate showing their ability to work and submit to periodic
medical examinations ordered by the Labor Inspection Office.
Employers are not permitted to employ minors without the required
medical certificate.
Minors between the ages of 14 and 16 cannot be employed in
places where alcoholic beverages are sold for immediate
consumption, in work that may affect their morals or good habits,
in work below the ground or under water, in dangerous or
unhealthy jobs, in work which is excessive for their strength and
might prevent or delay their normal physical development, and in
non-industrial establishments after 10:00 p.m. They cannot be
employed more than 6 hours a day, divided into periods not
exceeding three hours, with one hour of rest between work
periods.
Child labor laws are observed in large- and medium-sized
manufacturing and commercial establishments. They are less well
observed in small shops and factories, and there is a serious
problem in the informal sector, including street vendors, many of
whom are children. Informal sector activities generally do not
produce goods or services that enter international trade.
As is the case in other developing countries, violations of
child labor laws in Mexico result from poverty and state and
federal authorities have had inadequate resources to effectively
enforce the laws.
The workforce of maquiladoras tends to be young. As a rule,
the minimum age requirements specified in Mexican labor
legislation are observed by maquiladora employers. Age is
normally verified prior to employment in maquiladoras (in many
cases, a school diploma is shown as proof of age).
5. (a)
Minimum Wage, Hours of Work, Paid Vacations, and
Holidays
Article 123 of the Mexican Constitution establishes certain
principles regarding conditions of employment, including a
minimum wage, an eight-hour work day, a seven-hour shift for
night work, and a maximum work week of six days. The same rights
and laws apply throughout Mexico, including the maquiladoras.
11
Minimum Wage
Workers are guaranteed a minimum wage sufficient to meet
normal subsistence levels. Three minimum wage zones, based on
cost of living (about a 20 percent differential between the
highest and lowest zones), are used to compute the average
minimum wage throughout the nation.
Unlike U.S. law, which sets the minimum wage rate by the
hour, Mexico's minimum wage is set for a day's work (an 8-hour
work shift). Mexican law stipulates that employees' wages are
protected from all attachments, liens, or other reductions,
except for child support, and apprentices cannot be paid less
than the minimum wage.
As of December 1990, the national average daily minimum wage
was $3.64 (10,786 pesos). By comparison, however, the average
manufacturing sector wage in Mexico was approximately $6.85 per
day, nearly twice the minimum wage. If fringe benefits are
included, average total compensation of workers in the
manufacturing sector rises to approximately $9.85 per day. An
estimated 30-35 percent of the total compensation package for
Mexican workers is comprised of fringe benefits.
About 92 percent of manufacturing workers are wage and
salary employees, while 83 percent of service sector workers are
paid workers (paid workers include self-employed plus wage and
salary workers). It has been estimated that less than 25 percent
of the labor force earns the minimum wage, with the remainder
earning above the minimum.
The government, in trying to raise wages, has usually found
itself in the difficult position of having to balance its desire
to improve the social condition of the workers with its desire to
retain employers who might otherwise go elsewhere. Minimum wages
rose by 18 percent in 1990. Since 1980, the real minimum wage--
adjusted for inflation--has dropped by over 50 percent. This
decline in the real wage is a reflection of Mexico's past
hyperinflation. Currently, Mexico's annual inflation rate is
below 30 percent, compared with over 100 percent in 1987 and
1988. Real wages in the manufacturing sector grew by 8.7 percent
in 1989 and by 6.3 percent between January and July 1990.
Fringe benefits received by workers in the maquiladora
sector are quite significant. Total compensation in this sector,
while low by U.S. standards, is considered to be higher than that
in comparable non-export Mexican firms. According to data
provided by the U.S. Chamber of Commerce in Mexico City, total
compensation--including fringe benefits--for both maquiladora
workers and blue collar workers average about $10.15 per day and
$9.85 per day, respectively. The difference is largely due to
12
substantial non-taxable fringe benefits and other subsidies
offered maquiladora workers.
A practice of using apprenticeship contracts to employ young
workers in maquiladoras for less than the minimum wage has been
abolished. However, there still is a 30-day trial period before
permanent contracts (with full benefits and rights) are signed.
Hours of Work, Paid Vacations, and Holidays
The Federal Labor Law of 1970, as amended, governs hours of
work, legal rest days, and paid vacations.
Hours of work: By law, the maximum length of the workweek
in Mexico is 48 hours. In practice, the workweek is usually 44
to 48 hours in maquiladoras and 42 to 43 hours in other firms.
In Matamoros, where all maquiladora workers are unionized and
covered by a collective bargaining agreement, the union has won a
40 hour work week for 48 hours pay.
Overtime (up to 3 hours per day, but not more than 3 times a
week) must be paid at double-time rate; overtime worked beyond
this limit (plus work on Sunday and 7 official holidays), must be
paid at triple-time rate. Workers employed on the second and
third shifts (as in the case of many maquiladoras) must receive
the same pay but work fewer hours.
Paid vacations and holidays: All employees are entitled
each year to 6 days of paid vacation plus a cash bonus of 25
percent of the amount of pay for six-days work. Workers are also
entitled to 7 paid official holidays and to 15 days of pay as a
Christmas bonus.
5. (b)
Occupational Safety and Health Standards
Constitutional and Statutory Framework
Mexican legislation on safety and health, like much of
Mexican labor law, is relatively advanced and provides
substantial protection for workers. Article 123 of the
Constitution sets the foundation from which all regulations and
administrative guidelines pertaining to occupational health and
safety are derived. It also establishes the jurisdiction of
state and federal authorities in the enforcement of health and
safety legislation.
The intent and implementing details of Article 123 are
carried out primarily in two laws: the Federal Labor Law (Ley
Federal del Trabajo) and the Social Security Law (Ley del Seguro
Social), the latter a comprehensive measure that also includes
health care and workers' disability compensation.
13
In 1978 the Government instituted a major revision of the
Federal Labor Law dealing with occupational safety and health to
incorporate its obligations under International Labor
Organization conventions. Revisions provide that the safety of
the workplace is the direct responsibility of the employer, who
must report accidents, create health and safety committees to
review working conditions, and train workers to prevent job-
related injuries.
At the same time that the Government revised the Federal
labor law, it enacted the General Regulations for Occupational
Health and Safety, an updated version of previous statutes. This
comprehensive set of regulations covers virtually all aspects of
occupational health and safety for industries, including
standards for buildings and worksites; fire prevention; the
operation and maintenance of industrial equipment; the handling,
transportation, and warehousing of flammable, combustible,
explosive, corrosive, irritative or toxic substances; noise;
labeling of radioactive materials; workplace temperature,
ventilation and lighting; personal safety equipment for head,
ears, face, eyes, body and limbs; respiratory protection;
workplace hygiene; the establishment of health and safety
committees in each workplace; the establishment of a national
consultative commission on health and safety; and administrative
procedures for the enforcement of labor regulations.
Mechanism for Enforcement of Legal Rights
Mexican health and safety regulations are implemented
through a Federal/State/local system of tripartite advisory
commissions which supplement and elaborate on legal provisions,
and plant level committees with equal representation from
employers and workers which are responsible for overseeing health
and safety on the factory floor. The Secretariat of Labor and
Social Welfare is ultimately responsible for enforcement.
The General Regulations for Occupational Health and Safety
also provide that a National Consultative Commission on
Occupational Health and Safety be created and comprised of
members from the Secretariat of Labor and Social Welfare, the
Secretariat of Health, and the Mexican Institute of Social
Security as well as six members each from the national
organizations of workers and employers. The Commission is
charged with authorizing health and safety studies, considering
their conclusions and presenting them to the Secretariat of
Labor. The Commission can also tablish subcommittees to study
specific areas. Each state and tederal district has counterparts
to the national commission presided by the governor or federal
district administrator. The membership is also tripartite. The
state commissions have responsibilities similar to the national
commission.
14
In addition to the State and Federal National Commissions,
the General Regulations provide that internal Committees on
Occupational Health and Safety be organized at each workplace no
later than 30 days after initiation of activities and must be
comprised of an equal number of employers and workers. The
employer names half of those on the Committee and the union, or
in the absence of one, a majority of workers, designate the other
half. All must work at the firm.
The Committees cooperate with labor authorities in
investigating accidents and provide recommendations to management
for avoiding them. The Committees conduct a physical inspection
of the workplace at least once a month noting any hazards
observed; they promote health and safety awareness to the labor
force and meet and provide written reports on their activities,
inspections and decisions.
Employer, worker and labor authorities also promote a
preventive medical service at each workplace under the
supervision of a medical doctor to assess and improve the general
health of the work force. The medical service investigates
environmental conditions of the workplace, attempts to detect the
outbreak of illness, trains workers in the application of first
aid, and provides initial medical attention to injured or sick
workers.
Firms employing more than 300 workers are required by law to
set up their own health clinics at company expense to supplement
the social security health care system. Employers are also
required to keep records of accidents and illnesses in the
workplace. These statistics are published by labor authorities
on an annual basis.
There are two bodies responsible for enforcing the
occupational and safety regulations. The Secretariat of Labor
and Social Welfare's Directorate General of Federal Labor
Inspection and Directorate General of Medicine and Safety in the
Workplace.
The Directorate of Federal Labor Inspections, an agency
within the Secretariat of Labor and Social Welfare, has the power
for enforcement of labor regulations, guidelines and associated
manuals, notices, etc., with assistance from state and federal
district governments. Federal and State inspectors, in addition
to enforcing the regulations, provide technical information and
advice to workers and employers on how to comply with the
regulations. The regulations call for inspectors to visit
workplaces at least once every six months, whenever a visit is
specifically requested by an interested party, or whenever an
accident has occurred.
15
Employers are required to inform labor authorities whenever
an accident has occurred, permit inspectors to enter the premises
of the workplace, make available all records on health and
safety, and present to the inspectors samples of substances or
materials used in the workplace.
If an inspection results in the discovery of unsafe
conditions or practices, the employer will be given a reasonable
period of time to rectify it. If the employer fails to comply, a
penalty will be imposed and an additional period for compliance
determined. If the problem has not been corrected, the labor
authorities may impose additional fines and close the workplace
until the unsafe condition is eliminated.
Fines range from 3 to 315 times the daily minimum salary in
effect in the place and time of the infraction. There is an
administrative procedure where interested parties may contest the
conclusions of the inspection. The fine is doubled for failure
to rectify the irregularity within the allotted time.
Labor Practices: Historical Experience
The enforcement of Mexican workplace safety and health laws
and regulations depends on the vigilance and quality of the local
workplace safety committees, as these committees generate most of
the inspections. The safety committees tend to be most effective
in large firms with stronger union representation. Some firms,
particularly those of small and medium size, do not have such
committees. As a consequence, the incidence of industrial
accidents appears to be higher at small firms and construction
sites, reflecting a lack of sufficient inspection personnel,
acting independently of complaints from labor representatives.
The Mexican preference is for negotiated rather than imposed
solutions to potential violations of safety and health
regulations. The majority of cases are resolved in negotiations
between unions and employers.
Safety and health in maquiladoras: Most maquiladoras are
located in modern industrial structures that have adequate
lighting and ventilation, not much different than those found in
the United States. Proper handling of hazardous substances in
maquiladoras has been identified as an area of concern. In
general, foreign firms (mostly from the U.S.) typically adhere to
labor standards and practices consistent with those of their home
countries and, in general, have fewer violations than domestic
firms.
Conclusion
In the context of developing societies, Mexico has an
exemplary set of labor laws and standards and has ratitied 73 ILO
16
Conventions, which in Mexico carry the force of law. The
available evidence points to considerable compliance with labor
standards in large firms and where there are strong trade unions.
Like other developing and developed countries, compliance with
labor standards is a problem in small- and medium-sized
businesses, particularly in the informal sector.
II. U.S.-Mexico Cooperation on Labor Matters
The United States and Mexico will pursue bilateral
cooperation on labor issues through the framework of the existing
U.S. -Mexico Binational Commission (BNC). In March 1991, the two
governments agreed to create a Working Group on Labor issues
under the BNC; the Working Group, chaired by the Secretary of
Labor and the Mexican Secretary of Labor and Social Welfare, will
hold its first formal meeting in August 1991.
The Department of Labor and the Mexican Secretaria del
Trabajo y Prevision Social (Secretariat of Labor and Social
Welfare, STPS) have initialled a memorandum of understanding
(MOU) related to cooperation and information exchanges
(attached). The MOU was negotiated and initialled during a March
26-28 working visit to Mexico City by the Deputy Secretary of
Labor.
The MOU sets the bases for mutual cooperation and exchanges
of information between the two institutions in the areas, inter
alia, of health and safety measures; general work conditions,
including labor standards and their enforcement; resolution of
labor conflicts; labor statistics; and other areas of concern to
the Administration, Congress and the Mexican government.
At subsequent discussions held April 9-10 with a mission
from the STPS, specific areas of cooperation and information
exchange under the MOU were agreed to. We expect to sign the MOU
in the very near future and to commence work on specific
projects.
The understandings reached between the Department of Labor
and the STPS represent a significant step forward in cooperation
between the two nations in addressing labor issues of common
concern. When viewed in conjunction with specific projects for
collaboration, the MOU and its implementation hold great promise
for progress on a number of labor fronts.
As discussed below, the U.S. and Mexico have agreed at this
time to pursue a number of initiatives in the areas of
occupational safety and health, child labor, and improvement of
labor statistics.
17
Occupational Safety and Health
Mexican law on occupational safety and health is relatively
advanced and provides substantial protection for workers. As is
the experience in the U.S., however, standards in Mexico tend to
be better enforced in larger firms, with a higher incidence of
industrial accidents in small- and medium-sized firms and at
construction sites.
As part of its procedures for enforcing health and safety
standards, Mexico has institutionalized tripartite (labor,
management, and government) commissions, although reportedly
these commissions tend to be present mostly in unionized
enterprises.
We have agreed with Mexico to pursue under the MOU the
following initiatives:
1.
The Occupational Safety and Health Administration (OSHA) and
STPS will jointly carry out a comparative technical analysis
and review of occupational safety and health authorities,
regulations, enforcement procedures, accident and illness
reporting requirements, and methods of identifying those
industries with high hazards in both countries.
2.
OSHA and STPS will jointly organize a technical seminar to
present and discuss the findings of the comparative
technical analysis and review of safety and health
authorities, regulations, enforcement procedures, accident
and illness reporting, and methods of identifying those
industries with high hazards, with the emphasis on
disseminating information about preventive measures in both
countries.
3.
OSHA will lend technical assistance to STPS in the design
and establishment of an industrial hygiene laboratory which
will analyze samples of workplace conditions to evaluate
occupational health exposures so as to verify compliance
with rules, procedures and methods in the areas of
occupational safety and health.
4.
OSHA and STPS will jointly develop a methodology for
analysis of specialized industrial hygiene workplace samples
when needed to assist in enforcement of Mexican law and
regulations.
5.
OSHA and STPS will jointly organize a technical seminar to
exchange experiences and information about systems to
prevent workplace accidents in specific high hazard
industries and about cases where the incidence of
occupational illness and injuries has been successfully
abated.
18
6.
OSHA and STPS will exchange information regarding training
systems, protocols and occupational safety and health
educational strategies directed at preventing workplace
accidents, injuries, and illnesses in hazardous operations
such as the operation of machinery and equipment;
application of systems to prevent fires, explosions, and
emergencies; and the exposure of workers to hazardous
chemicals and toxic materials. OSHA and STPS will also
exchange specific technical, informational, educational,
instructional and bibliographic materials.
Child Labor
Improving compliance with child labor laws is a priority of
the Government of Mexico. We will seek to assist Mexico in
addressing this problem area through the following initiatives:
1.
The Employment Standards Administration (ESA) will establish
a working group -- in cooperation with the U.S. Department
of Education, STPS and the Mexican Ministry of Education --
that would identify, in both countries, incentives for
encouraging students to stay in school.
2.
ESA and STPS will undertake a study on the participation of
children in the Mexican economy, with particular emphasis
on: (a) the self-employment of children in the informal
economy, and the benefits of an improved economy in
addressing that situation; and (b) the possible illegal
employment of children in the formal economy.
3.
ESA and STPS will arrange a meeting of U.S. and Mexican
enforcement officials with responsibilities in the area of
child labor, to share techniques of achieving enforcement
and employer compliance with child labor standards.
Labor Statistics
The current institutional capacity to collect data on wages,
prices, and productivity in Mexico is reportedly inadequate. The
Bureau of Labor Statistics (BLS) will organize jointly with STPS
and the Instituto Nacional de Estadistica, Geografia e
Informatica (INEGI) a high-level meeting to improve cooperation
between the two countries in labor statistics. This meeting will
help determine the best means of providing assistance by the BLS
in improving the design, collection, preparation, and
dissemination of labor statistics, including:
1.
Jointly develop a program for the exchange of publications
on labor statistics and statistical methods and exchange of
bibliographic materials on employment, wages, collective
19
bargaining, workplace accidents and illnesses, and
periodical publications of interest to both countries.
2.
BLS will provide to STPS and INEGI technicians access to the
international courses that BLS offers on labor statistics.
--
BLS will organize a course on methods of analysis of
labor markets as well as a course on development of
productivity indicators at the major sector and
industry- or firm-specific levels, to be given to INEGI
and STPS staff.
--
Other seminars may also be organized by BLS, INEGI, or
STPS for Mexican and U.S. staff on topics to improve
statistics developed by these organizations.
3.
BLS will provide technical advice to INEGI and STPS to carry
out projects in such areas as labor force, employment and
unemployment statistics, collection of statistics from small
economic units and productivity statistics. In particular,
the BLS and STPS will cooperate in the exchange of
information on improvement of statistical systems on
workplace safety, accidents and illnesses.
Memorandum of Understanding
between
The Department of Labor
of the United States of America
and
The Secretariat of Labor and Social Welfare
of the United Mexican States,
Hereinafter Referred to as "The Parties. "
I. The Parties share a concern for promoting the
rights and interests of workers in the two countries,
including the raising of their standard of living, a safe
and healthy workplace, with adequate social security medical
and financial benefits, all within the democratic framework
that is an essential condition for both countries.
II. The Parties desire to promote appropriate
cooperation between their labor groups, to explore solutions
of mutual interest through common efforts, and to share and
exchange information on the effectiveness of their programs
and services.
III. In so doing, the Parties are taking into
consideration the differences that for the present are
evident between their two economic systems and labor
regimes, by which they understand that in any case the
following should be taken into account:
(a) The United States system of labor relations
is based on the existence of federal and state laws and, in
addition, a large body of federal and state judicial and
administrative case law, including the decisions of the
National Labor Relations Board. In addition, the U.S.
Government is a party to several conventions of the
International Labor Organization.
(b) The Mexican system of labor relations is
based in the first instance on the Constitution and, in
particular (although not the only labor provision), on
Article 123, which essentially provides a set of minimum
rights and maximum obligations of workers. These rights are
regulated by the Federal Labor Law, enacted by the Congress.
The States do not have their own labor legislation and
neither does the Federal District. There is, in addition, a
large body of case law produced by the Supreme Court of
Justice of the Nation and by the Circuit Courts, together
with the conventions of the International Labor Organization
signed by Mexico which have within Mexico the force of
implementing regulations of the Constitution.
(c) Because of their great importance in
understanding the actual social and labor situation in
Mexico and in the United States of America, it is
appropriate to analyze the collective bargaining agreements
containing work conditions in each country, together with
their social security systems.
The Parties have agreed, in principle, on the
following:
1. To achieve the benefits derived from this
memorandum Parties will develop the activities specified
below or as may be agreed subsequently, all in the utmost
spirit of cooperation.
2. The Parties agree to undertake exchanges of
information and other forms of cooperation described below
within the context of the activities of the United States of
America-Mexico Binational Commission.
3. The areas of cooperation and exchange of
information will include the following:
(a) Health and safety measures.
(b) General work conditions, including labor
standards and their enforcement.
(c) Resolution of labor conflicts.
(d) Collective bargaining agreements for
improvement of work conditions.
(e) Social security systems.
(f) Credit institutions for workers to purchase
consumer durables and housing.
(g) Labor statistics.
(h) Other areas that may be mutually agreed upon.
4.
Cooperative activities initiated under this
memorandum shall be conducted in accordance with the
principles of equity, equality, and mutual benefit. This
cooperation may be implemented through: (a) exchanges of
delegations, professionals, and specialists, for purposes of
studying both labor systems; (b) exchanges of information on
averages, standards, and procedures, including publications
and monographs; (c) organization of conferences, seminars,
workshops, and meetings; (d) development of collaborative
projects or demonstrations; (e) joint research projects; or
(f) other forms of cooperation that may be mutually agreed
upon.
5. All activities undertaken pursuant to this
memorandum shall be subject to the respective laws and other
applicable provisions in force in the United States of
America and in Mexico. This memorandum does not create or
imply any legal obligations under international law.
6. The nature and extent of the cooperative
activities undertaken pursuant to this memorandum shall be
determined by agreement and shall be subject to the
availability of personnel and funds duly authorized and
appropriated for the purposes in question. Each Party shall
bear the costs derived from its own participation, unless
otherwise agreed.
7. General coordination of the work shall rest, for
the United States with the Bureau of International Affairs
of the Department of Labor and, for Mexico with the
Commission designated by the Secretariat of Labor and Social
Welfare.
8. Representatives of the above mentioned offices
shall meet as often as necessary to review the
implementation of what has been agreed upon and to develop
future activities within the framework of this memorandum.
Both Parties will designate coordinators for each
cooperative activity that is undertaken. The coordinators
shall serve as the initial point of contact for the
formalization and development of the joint activities.
9. This memorandum shall take effect from the date of the
last signature and shall remain in force for a period of
five years. It may be amended or extended by written
agreement of the Parties. Either Party may terminate this
memorandum 120 days after written notification to the other
Party of its intention to do so.
Done at Washington, D.C. on
, and at
Mexico, D.F. on
,
1991, respectively, in
the English and Spanish language, both texts being equally
authentic.
For the Department of Labor For the Secretariat of Labor
of the
and Social Welfare
United States of America:
of the United Mexican States:
Lynn Martin
Arsenio Farell Cubillas
Secretary
Secretary
CONFIDENTIAL
TAB 4
FREE TRADE NEGOTIATIONS WITH MEXICO
ENVIRONMENTAL MATTERS
DECLASSIFIED
PER NSC WAIVER, 1500 2021-02
By, SS NARA, Date 12/1/23
Introduction
Mexico and the United States are committed to a cooperative
program that will encourage sustained economic growth and
environmental protection in both countries. President Bush and
President Salinas believe that the two are complementary and must
be pursued together.
The Government of Mexico knows it faces major environmental
problems that threaten the health and well-being of millions of
Mexicans.
In recent years, Mexico has taken significant steps to
address its environmental problems. Indeed, the Salinas
Administration has begun to put in place the legal structure to
protect the environment. But the Mexicans also need economic
growth to generate resources to transform this commitment into an
effective program of regulation, enforcement, and public support.
Mexico has over one-third of the U.S. population, but its economy
is only one- twenty-fifth the size of ours.
The United States can help in two ways:
(1) We can build on our existing program of environmental
cooperation (as Part I shows, we are already doing much
more than is generally known).
(2) We can negotiate an FTA that will help Mexico grow,
contributing to the capabilities and resources it
needs. (As indicated in Part II, certain environmental
issues will be addressed in the FTA.)
Rejection of the FTA will in fact hurt those pressing Mexico
to adopt a new environmental approach:
:
The Government of Mexico will be less likely to get
support from most Mexicans for environmental protection
if they are struggling to find work or are eking out
their existence.
-- Rejecting the FTA will confirm the suspicions of those
who argue that the U.S. and other developed countries
are using environmental issues to perpetuate
dependency.
The FTA is part of President Salinas' strategy of orienting
Mexico toward North America. This is an historic opportunity.
Trade, not aid, will draw our two nations closer together as
CLASSIFIED BY
you
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DECLASSIFIED ON
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2
neighbors with mutual respect for one another. Our economic
integration will give added momentum to cooperative efforts on a
number of other common problems including the environment.
This paper is organized into five sections:
I.
Ongoing Mexican Environmental Efforts and U.S.-Mexican
Cooperation to Protect the Environment
II. Increasing Informed Public Participation
III. Informed Policy Making: Environmental Review
IV. Environmental Trade Issues in the Free Trade Agreement
V.
Future Cooperative Efforts to Protect the Environment
I.
Ongoing Mexican Environmental Efforts and U.S.-Mexican
Cooperation to Protect the Environment
1. General
Mexico has established a good basis for progress on
environmental protection and conservation of natural resources.
President Salinas has stated that, while seeking to stimulate
foreign investment, Mexico will not accept investments that have
been rejected by the United States or Canada for environmental
reasons.
A key first step of the new Mexican program has been to
create a legal framework to address environmental problems.
Mexico is also taking steps to improve its enforcement
capabilities and increase the resources dedicated to
environmental enforcement.
Both Mexico and the United States recognize there is more to
do.
2.
Mexico's Environmental Law
In March 1988, Mexico enacted its General Law for Ecological
Equilibrium and Environmental Protection. It is a comprehensive
statute designed to ensure that there is an adequate legal basis
for protecting the environment. Indeed, the law is based in
large part on U.S. law and experience.
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A central element of the 1988 law is the requirement for
environmental impact assessments to be completed on all new
investment projects, in both the public and private sectors. To
ensure they comply with these requirements, many privately owned
companies have already created special environmental offices to
analyze the environmental impacts of proposed business
activities.
The General Law covers air, water, and soil pollution,
contamination by hazardous materials and wastes, pesticides and
toxic substances, the conservation of ecosystems and the rational
use of natural resources. Mexico has also established
administrative sanctions and judicial penalties for
non-compliance with environmental statutes.
3.
Implementing and Enforcing Environmental Regulations
Mexico has lacked the resources to fully enforce its
environmental regulations. The government has made clear that
improving enforcement is the next key step. These are not hollow
promises: between 1989 and the beginning of 1991, the Government
of Mexico imposed some 980 temporary industrial closures for
non-compliance. As part of their continuing enforcement
initiative, many additional closings have been imposed in 1991.
The Mexican Government has been increasing funding for this
program. The environmental budget for SEDUE, Mexico's Ministry
for the Environment, grew from $5 million in 1989 to $39 million
in 1991, an almost eight-fold increase. A large percentage of
this increase will be used to enhance enforcement efforts and
develop additional environmental regulations.
Mexico is also negotiating an $84 million loan from the
World Bank that will be used in large part to enhance industrial
inspections. Anticipating early approval of the loan, SEDUE
recently announced the commitment of Mexican counterpart funds to
create 50 new inspector positions for Mexico City and 50 for the
U.S.-Mexico border.
SEDUE recently announced plans to create an Office of
Environmental Inspection for Industry to oversee and control
industries violating environmental standards. This Office will
also be empowered to impose punitive sanctions on violators.
The U.S. and Mexico began cooperative enforcement activities
in the 1980's. Since then, EPA and SEDUE have conducted on-site
inspections and sponsored technical workshops to improve the
level of technical expertise among enforcement officials
inspecting the maquila industries.
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4.
Strategy to Combat Mexico City Air Pollution
President Salinas has put a high priority on cleaning up air
pollution in Mexico City.
In 1988, the Salinas Administration committed to invest a
total of more than $3.5 million over four years (1988-1992) in a
comprehensive plan for air pollution abatement projects in Mexico
City. Projects range from supplying unleaded gasoline to
instituting a "One day without a car" program to increased
spending on public transportation, such as adding 35 miles of new
subway lines and retrofitting city buses. This program was
partially financed by a new tax on gasoline consumption.
In 1990, as part of the comprehensive plan, Mexico
instituted interim proposals to reduce traffic and industrial
activity during periods of serious air pollution in Mexico City.
Last year, Mexico also made the multi-billion dollar decision to
phase out leaded gasoline and ordered all new cars to be equipped
with catalytic converters, including over 40,000 operating city
taxis. The Government has also shut down all 24 military
industrial installations in the Mexico City area because of
potential environmental risks.
In March, President Salinas ordered Mexico's largest oil
refinery to shut down permanently. The PEMEX oil refinery, which
accounted for 8 percent of the country's distillation capacity,
was responsible for up to 15 percent of Mexico City's industrial
air pollution emissions. The cost of shutting down the refinery
is estimated to be $500 million and could cost as many as 5000
jobs.
Mexico and the United States signed an agreement on
technical cooperation related to Mexico City pollution in 1989.
EPA and SEDUE administer action programs dealing with air and
water pollution, hazardous waste, and environmental health
issues. In addition, the U.S. Department of Energy and the
Mexican Petroleum Institute are conducting a multi-million dollar
computer model study to understand the pattern of air pollution
in Mexico City.
5.
Cooperative Efforts to Protect the Border Environment
(a) International Boundary and Water Commission:
The International Boundary and Water Commission (IBWC),
established over 100 years ago, has set a strong example for our
cooperative efforts to protect the border environment. IBWC,
operating under a 1944 treaty in which the U.S. and Mexico direct
the Commission "to give preferential attention to the solution of
all border sanitation problems" is actively engaged in addressing
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cross-border water pollution issues, coordinating with EPA and
SEDUE on many projects. The Commission is currently constructing
major sewage collection and treatment systems at:
-- Tijuana/San Diego: estimated cost $187 million
-- Nogales: estimated cost $11.7 million
-- Nuevo Laredo: estimated cost $35-44 million
(b) 1983 Border Environment Agreement:
In 1983, Mexico and the United States established a new
framework for cooperation on border environmental pollution in
the La Paz Agreement, supplementing the IBWC by tackling a
broader range of pollution problems. Serving as national
coordinators, EPA and SEDUE oversee work done under five annexes
on air and water pollution, hazardous waste, and accidental
spills in the border area.
(c) 1990 Comprehensive Border Environmental Plan:
The two governments expanded their cooperative efforts on
the border for a third time in November 1990. Presidents Bush
and Salinas called for a new comprehensive long-term border plan
which will parallel and complement the FTA. Based on an
evaluation of the progress made under the 1983 Border Agreement,
it is to address problems of air and water pollution, hazardous
wastes, chemical spills, pesticides, and enforcement. The plan
is to be completed by the end of 1991.
(d) Multilateral Cooperation:
The Pan American Health Organization (PAHO), in close
cooperation with U.S. Public Health Service and the Mexican
Ministry of Health, is developing a plan to assess priority
public health problems along the border. Important among these
are environmental health problems related to air pollution, water
pollution, and hazardous wastes.
6.
U.S.- - Mexican Cooperation on Conservation
The U.S. and Mexico have a long history of cooperating on
wildlife protection and the conservation of natural resources.
(a) Wildlife Conservation:
The U.S. and Mexico have been partners in conservation since
1936. More recently, the U.S. Fish and Wildlife Service (FWS)
entered a cooperative agreement with SEDUE, its Mexican
counterpart, in 1975. At present there are nearly 100 projects
being done under FWS/SEDUE arrangements. The projects range from
conservation and management of migratory bird habitats to
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protecting endangered species (such as the jaguar in the Calakmul
Preserve) to research on the quetzal, a rare tropical bird of
cultural importance to the peoples of the region.
(b) International Wildlife Trade:
The two countries also cooperate extensively on regulating
wildlife trade. Mexico has announced it intends to join CITES,
an international convention for the protection of endangered
species.
(c) Parks:
Mexico has also established 44 national parks, 8 reserves,
and 14 biosphere reserves, totalling 5.7 million hectares (2.8%
of Mexico's territory). The U.S. National Park Service has had a
cooperative arrangement with SEDUE since 1987. They have agreed
to 8 joint projects which range from studies of the black bear
and peregrine falcon to firefighter training.
(d) Tropical Forests:
The U.S. Forest Service has had a cooperative agreement with
Mexico's Forest Service since 1985. Cooperative work is also
done under the auspices of the North American Forest Commission
(NAFC), involving the U.S., Mexico and Canada. Joint projects
include, for example, firefighter training, cooperative research
on insects and pest control, protecting migratory bird habitats,
and remote sensing inventories of Mexico's forests.
(e) Marine Resources:
The United States and Mexico are working together in
multilateral fora to place stringent restrictions on wastes
generated from the normal operation of ships in the Gulf of
Mexico. We are operating two cooperative fishery science and
research programs -- MEXUS-Gulf and MEXUS-Pacifico -- on fishing
technology, endangered species and shared fishery resources.
We are also cooperating in programs to reduce the incidental
take of dolphins and sea turtles in Mexican fisheries. While we
recognize the need to do more, as a result of Mexico's efforts,
dolphins killed per net deployed were down 58 percent between
1986 and 1989. President Salinas announced in 1990 that Mexico
would end its commercial harvest of sea turtles, a traditional
fishery that employed 400 families. He also announced that
Mexican fisheries would use sea turtle protection devices.
(f) Atmospheric Resources:
Relations between the U.S. and Mexican meteorological
services are excellent. There are long-standing cooperative
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agreement which support the operation of several Mexican
meteorological and hydrological sites, and provides for the open
exchange of data. These cooperative efforts improve our
capability to predict the weather, in particular to provide early
warnings of violent storms such as hurricanes.
II. Increasing Informed Public Participation
We believe it is important to increase our understanding of
the relation between trade and environmental protection. To this
end, USTR will include a representative of the non-governmental
environmental organizations on the Advisory Committee on Trade
Policy and Negotiations (ACTPN).
Environmental representatives also will be invited to
participate in the following policy advisor committees:
-Intergovernmental Policy Advisory Committee (IGPAC)
--Services Policy Advisory Committee (SPAC)
-Investment Policy Advisory Committee (INPAC)
-Industry Policy Advisory Committee (IPAC)
--Agriculture Policy Advisory Committee (APAC)
These environmental representatives will assist us in our
negotiations on a Free Trade Agreement with Mexico and in future
trade negotiations.
In addition, EPA will consult closely with non-governmental
organizations on environmental issues as they arise in the
context of ongoing U.S.-Mexico environmental relations.
III. Informed Policy Making: Environment Review
We believe that a review of U.S.-Mexico environmental issues
is appropriate as we embark upon closer economic integration.
Such a study should appropriately include possible environmental
effects of a free trade agreement, in particular drawing on our
analysis of border environmental issues.
Accordingly, USTR will coordinate an interagency review,
drawing on the resources of agencies with environmental expertise
and in consultation with interested members of the public. It is
our understanding that the Government of Mexico will conduct a
study focusing on similar issues, including the likely
environmental effects in Mexico of a free trade agreement. We
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would encourage it to do so and will offer to make available such
technical expertise as it may find useful.
To prepare the study, we propose to initiate the following
process:
We will consult with interested members of the public.
We will include the results of the study in a report
addressing U.S. -Mexico environmental issues generally,
including border environmental issues.
The report addressing environmental issues concerning
the United States and Mexico, including possible
environmental effects of the FTA, will be published in
a timely fashion so that the information obtained may
be taken into account, in particular, by U.S. officials
in connection with the FTA negotiations and other
consultations.
IV. Environmental Trade Issues in the Free Trade Agreement
We intend to include environmental issues related to trade
in the FTA.
In our negotiations on the FTA with Mexico, we will be
guided by the following principles:
The United States will not agree to weaken U.S.
environmental and health laws or regulations as part of
the FTA and maintain enforcement of them.
The United States will not agree to weaken existing
U.S. pesticide, energy conservation, toxic waste or
health and safety standards in the FTA.
Maintain the right of each party to undertake any
verifying measures necessary for the enforcement of
technical regulations and standards to protect human
health and environment, consistent with principles of
non-discrimination.
The United States will maintain the integrity of the
U.S. regulatory process, which is based on available
scientific evidence and is consistent with the
principle of non-discrimination.
Further, in keeping with existing trade agreements and based
on our experience with those agreements, our position will be to
negotiate the following elements as integral parts of the FTA:
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(1) Reaffirmation of our continued right to limit trade in
items or products protected by international treaties
to which the U.S. is party, including:
Trade in an endangered species pursuant to the
Convention on International Trade in Endangered
Species (CITES).
Trade in whale products pursuant to the
International Whaling Convention.
Trade in CFCs and other ozone-depleting substances
pursuant to the Montreal Protocol to the Vienna
Convention for the Protection of the Ozone Layer.
Trade in hazardous wastes pursuant to the Basel
Convention on the Disposal of Hazardous Wastes.
(2)
Reaffirm a country's right to prohibit the entry of
goods that do not meet its health, safety, pesticide,
food and drug, and environmental regulations, etc., so
long as such regulations do not arbitrarily
discriminate against imports or constitute a
"disguised" trade barrier.
(3) Work together to enhance environmental, health and
safety regulatory standards based on sound scientific
evidence.
Share scientific and technical information to
develop an improved common basis for health,
safety and environmental standards.
Assure public participation in the regulatory
process.
(4)
Promote improved enforcement of standards:
Hold joint meetings to discuss enhancement of
enforcement capability, quality assurance
programs, inspection training and monitoring and
verification.
Exchange information in areas including analytical
methodologies and the interpretation of laboratory
results.
Assist in training programs to instill Good
Laboratory Practicies, and to help implement other
aspects of sound inspection and compliance
programs.
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10
V.
Future Cooperative Efforts to Protect the Environment
As outlined in Part I, we already have a good network of
cooperative environmental arrangements with Mexico upon which we
can build for the future.
It would be a great mistake to replace this increasingly
successful cooperative approach with a series of dictates that
would establish the "admission price" for economic cooperation.
Such a demand will have the opposite effect from what we hope:
the Mexican people, who today want to clean up their environment
because they recognize it is in their own interest, will resent
and resist environmental dictates that they may perceive as
impugning their own commitment and as a new form of
eco-protectionism.
In parallel with our negotiations on the FTA, we intend to
expand our cooperative programs under existing arrangements. We
also expect to take new initiatives. We want to proceed, as we
have in the past, in the spirit of cooperation, reciprocity, and
mutual respect.
We envisage entering into discussions with Mexico on the
following cooperative environmental arrangements:
1.
Environment
(a) Border Issues
(b) Enforcement
(c) Technical Cooperation and Training
2.
Conservation
(a) Wildlife Conservation
(b) Parks and Natural Preserves
(c) Forests and Forest Management
(d) Living Marine Resources
(e) MEXUS Youth Conservation Corps
3.
Information Sharing and Public Participation
(a) Public Release of Data
(b) Procedures for Research
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4.
Dispute Settlement
1. ENVIRONMENT
In general, we will seek consultative procedures to address
activities in one country that might cause environmental damage
in the other country. We will also seek agreement to periodic
consultations on evolving environmental laws and regulations.
(a) Border Issues
There are concerns that a Free Trade Agreement could result
in a dramatic increase in economic activity along the border,
burdening the environmental infrastructure and leading to
additional pollution problems. These concerns appear to be
misplaced since under the FTA companies will no longer have a
special incentive to locate production operations in
maquiladoras, many of which are located in the border area, in
order to receive favorable tariff treatment. Nevertheless,
improvements in conditions along the border are in the interest
of both countries. In this respect, our existing arrangements
provide the foundation for future cooperative work on border
environmental issues.
In particular, we will seek to:
Prepare a long-term integrated Border Environmental
Plan by the end of 1991, prior to the completion of FTA
negotiations. Its implementation would largely
parallel and complement the FTA, which would probably
have a transition period of approximately the same
duration. (The U.S.-Canada FTA has a 10-year
transition period.)
The Border Environmental Plan will address border
environmental problems related to:
-- Air and water pollution
-- Hazardous waste
-- Chemical spills
-- Pesticides
-- Enforcement
In addition, we want to:
-- Establish a process for public comment on the Border
Environmental Plan and its implementation.
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--
Commit to prepare a comprehensive review of the Border
Environmental Plan periodically. This review will
include consideration of whether the Plan should be
modified to include other border environmental
problems.
Strengthen procedures for monitoring of and emergency
response to transboundary pollution episodes.
Continue to mobilize and assess future resources for
border pollution control.
(b) Enforcement
Both countries would benefit from enhanced enforcement
activities and cooperation. We envisage entering into
discussions on the feasibility of developing cooperative
enforcement arrangements, to enhance the enforcement capabilities
of both countries.
Establish a process of consultation on the
implementation of our cooperative arrangements and our
respective environmental standards.
--
Provide the opportunity for the public to submit
data to appropriate national authorities on
alleged non-compliance.
Expand cooperative enforcement activities, including:
Coordinated targetting of potential environmental
violators where there are significant adverse
transboundary impacts.
Cooperative enforcement actions in areas such as
the disposal and transportation of hazardous
waste.
Establish procedures for enforcement actions related to
transboundary pollution episodes.
Enforcement-specific technical cooperation and training
--
Enhance the Emergency Response Plan for Mexico and
the U.S. border area.
--
Assess the feasibility of developing a system to
ensure the safe transportation of hazardous
materials across the border.
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--
Strengthen procedures for the exchange of
monitoring equipment.
-
Coordinate procedures and training for
equipment use.
(c) Technical Cooperation and Training
Personnel must be adequately trained and equipped.
Therefore, it is important that we improve the exchange between
experts of both countries. To this end, we plan to enter
discussions to:
Establish a "business committee" to assist small to
medium sized Mexican businesses in meeting standards:
--
Including, inter alia, sharing experience and
expertise, preparing plans for bringing plants and
operations up to current requirements, seminars,
and technical exchanges.
Establish a system-wide exchange of relevant
scientific/technical data and information.
Establish a process for assessing the need for
technical assistance.
Facilitate the transfer of technology for the
environment.
Promote development of technology for the environment.
Enhance consideration of potential health problems and
environmental risk.
--
Review the current U.S. program implementing
regulations addressing border health problems with
a view to providing additional assistance to
environmentally threatened border areas with low
population densities.
Improve the public health infrastructure in the border
area, emphasizing capacity building, training, and
operation of data systems.
Expand cooperative training programs.
Establish a cooperative program for sharing laboratory
facilities.
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U.S. agencies are already deeply involved in technical
cooperation to overcome Mexico City pollution; but we would like
to improve on existing arrangements. To this end, we hope to
establish:
Procedures for assessing ongoing efforts to combat
Mexico City air pollution.
The feasibility of undertaking pilot projects to
address multi-media pollution, such as air, water and
waste.
2.
CONSERVATION
The Government of Mexico has established a sound
conservation record. Yet we believe our existing cooperative
efforts can be expanded. We seek a joint effort with Mexico on
the following items:
(a) Wildlife Conservation
Encourage Mexico to sign the Convention on
International Trade in Endangered Species (CITES).
Enhance cooperative efforts to stem trade in endangered
and threatened species.
Enhance cooperative efforts on North American migratory
bird programs.
Expand cooperative training programs utilizing the new
Fish and Wildlife Service training laboratory.
(b) Parks and Natural Preserves
Commit to establish counterpart parks or natural
preserves along the border adjacent to existing U.S.
National Parks.
Undertake studies to assess the feasibility of
establishing new parks along the border in the U.S.
(c) Forests and Forest Management
Improve cooperative use of remote sensing efforts to
inventory Mexico's tropical forests.
Undertake efforts related to tropical forests.
(d)
Living Marine Resources
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OUN IDENTIAL
15
Expand existing cooperative research efforts on
transboundary species as a basis for sound fisheries
management.
Consult on principles and methodologies for seafood
inspection to ensure safety and quality of products.
(e) Establish a Mexico-United States (MEXUS) Youth
Conservation Corps
3.
INFORMATION SHARING AND PUBLIC PARTICIPATION
Broad public participation and the full and open access to
information is an essential element of any effort to protect the
environment. Therefore, we will:
o
Commit to the public release of data and information
related to environmental and conservation issues,
consistent with existing laws and regulations on
confidentiality.
Facilitate procedures for scientific, environmental and
conservation research activities.
4.
DISPUTE SETTLEMENT/CONSULTATION MECHANISM
Discuss establishing a dispute resolution mechanism, with
particular emphasis on technical aspects of environmental and
conservation issues.
CONFIDENTIAL
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
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Date
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08. Paper
The Uruguay Round of Multilateral Negotiations (4 pp.)
n.d.
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Date Closed:
1/4/2005
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29156-003
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1998-0004-F[2]
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TAB 5
THE URUGUAY ROUND
OF MULTILATERAL NEGOTIATIONS
The Uruguay Round of Multilateral Trade Negotiations hold
enormous potential for the growth of our domestic economy and the
future of multilateral economic cooperation. That is why the
Administration requested an extension of fast track procedures so
that we may complete the job we started when the Uruguay Round
was launched in 1986.
Progress to Date
As stated in the President's report to Congress of March 1,
progress in the negotiations has been uneven due to the linkages
of negotiating issues and the lack of substantial progress in the
agriculture negotiations. We are not yet satisfied with the
state of the draft agreements. They do not yet fully address all
the negotiating objectives that Congress established in the 1988
legislation, enacted after the negotiations were formally
launched. It should be clear from our actions in Brussels in
December that we will not settle for an agreement that fails to
meet our objectives. In Brussels we decided that it was
preferable to end the ministerial meeting without results rather
than accept minimal Uruguay Round agreements that fell far short
of our ambitions.
Your letter takes issue with our progress to date on two
particular objectives established in the 1988 Act: expanding
worker rights and gaining market access for high technology
products.
Worker Rights
This Administration and the previous Administration have
argued vigorously since 1986 for inclusion of worker rights as an
agenda item in the Uruguay Round and we have urged that the GATT
focus on the relationship between worker rights and trade.
Congressional leaders and our private sector advisors from the
Labor Advisory Committee have worked hand in hand with us in
developing proposals and discussing this issue in person with our
negotiating partners. Together we pressed for its inclusion in
the Uruguay Round as the negotiations were launched and since
that time, to support the objectives established in the 1988 Act.
Strong opposition to addressing the relationship between
worker rights and trade in the GATT remains. This subject
continues to evoke highly emotional and political responses not
generally seen in the GATT, most particularly from the developing
countries. Some fear that GATT intervention in this area will
raise fundamental human rights issues better addressed in other
fora, including the International Labor Organization.
2
With the help of our advisors and Congressional leaders we
have tried to be sensitive to these concerns while pressing
forward in efforts to build the consensus necessary to begin GATT
work on this issue. We will continue to do so, and appreciate
the continued support of the private sector and Congress in this
effort.
Market Access for High Technology Products
We are committed to achieving greater market access for our
high technology products in foreign markets. Early in these
negotiations, we found that high technology issues cut across a
number of negotiating areas. I believe that successful
conclusion of the negotiations could result in substantial
improvements to the benefit of U.S. high technology interests.
We are actively engaged in negotiations in many areas, including
GATT rules, the new issues of services, investment and
intellectual property protection, as well as the more traditional
GATT areas of market access (tariffs and non-tariff measures).
Progress is evident in a number of these areas:
In government procurement, a successful
agreement will expand the coverage of
procurement to include key areas of interest
to high technology producers in the
telecommunications sector;
In intellectual property negotiations, an
agreement should significantly expand the
protection of our high technology industries from
theft and piracy;
In market access negotiations, we have worked
closely with the private sector in advancing
a "zero-for-zero" tariff initiative in key
high technology sectors. The worldwide
elimination of tariffs on high technology
products should significantly benefit U.S.
exporters particularly because U.S. tariffs
are already low;
At Brussels, agreement was reached in the
rules of origin negotiations, a technical but
vital area of interest to U.S. high
technology producers competing abroad. By
ensuring that rules of origin are transparent
and predictable, the agreement assures that
such rules can not be used as disguised
barriers to trade.
3
Now that the negotiations have resumed in all areas, we
intend to pursue our negotiating strategies in each of these
areas to achieve agreements that meet our objectives. This means
hard bargaining, completing the technical work in key areas such
as agriculture, services and market access, and continuing our
close consultations with the Congress and the private sector.
Dispute Settlement
We share the view that we should not adopt a strong dispute
resolution mechanism unless the underlying agreements in each of
the 14 other negotiating areas are completely acceptable.
However, if we are successful in concluding the Uruguay Round
with acceptable rules in all areas, we will need improved dispute
settlement procedures to enforce those rules. International
trade rules are only as effective as the mechanism by which they
are enforced.
In the Round we are seeking procedures that could result in
automatic adoption of panel reports with a right of appeal to a
standing tribunal, and a process by which the right to retaliate
would be automatically granted if a losing party has not complied
with panel findings (or paid compensation) within a reasonable
time. Such automaticity, if adopted, would vastly improve the
enforcement of new GATT rules, and the credible threat of
retaliation should result in prompt compliance with dispute panel
findings. We are also seeking tight time limits for the dispute
settlement process, consistent with the time frame permitted
under section 301 of the Trade Act of 1974, as amended.
Section 301 and other U.S. Trade Law Remedies
The Administration is committed to ensuring that U.S. trade
law -- including section 301 and the antidumping and
countervailing duty laws -- continue to provide effective tools
to address unfair trade practices. We regard remedies in those
areas as essential to maintaining a vigorous manufacturing sector
in the United States, a top priority of the President.
In particular, with respect to section 301, our negotiating
partners have expressed serious concern about the authority that
section 301 gives us to determine unilaterally that another
country has violated its GATT obligations. Therefore, they are
seeking a commitment from us that we will use the GATT dispute
settlement mechanism to determine whether there has been a GATT
violation, and that we will not use section 301 authority to
respond to a GATT violation without first completing the dispute
settlement process. We have responded that such a commitment
could only be made where there are clear substantive rules in all
areas, enforceable through a dispute settlement mechanism that
eliminates the possibility of blockage or delay at every stage of
the process.
4
If we obtain a procedure that results in prompt compliance
with panel findings or authority to retaliate, then we believe
we should exhaust that procedure before we retaliate under
section 301; but we certainly will not "trade away" section 301
or any other remedy under U.S. trade law. Section 301 obviously
is necessary to enable private parties to petition their
government to enforce U.S. rights through dispute resolution
mechanisms. Moreover, where a foreign unfair practice is not
covered by multilateral rules (and therefore no dispute
settlement mechanism is available), we will continue to use
section 301 for leverage in bilateral negotiations.
Once we have completed negotiations in all areas of the
Uruguay Round together we will have to review the agreement as a
whole, just as you suggest. We will not bring home an agreement
unless it enhances our international competitiveness. We are
committed to working with the Congress and the private sector to
realize the full potential of these important negotiations.