William T. Pryce, Vice President
Washington Operations, Council of the Americas

Testimony Before the Subcommittee on Trade
of the House Committee on Ways and Means

Hearing on the Free Trade Area of the Americas

July 22, 1997

Good morning, Mr. Chairman and Members of the Committee. I am Bill Pryce, Vice President of the Council of the Americas in charge of our Washington operations. I appreciate the opportunity to testify before you today regarding a Free Trade Area of the Americas.

The Council of the Americas is a business organization dedicated to promoting regional economic integration, free trade, open markets and investment, and the rule of law throughout the Western Hemisphere.

The Council of the Americas supports these policies in the belief that they provide the most effective means of achieving the economic growth and prosperity on which the business interests of its members depend - and on which the United States depends.

The Council of the Americas has been and is a strong proponent of both NAFTA and a Free Trade Area of the Americas. In an effort to provide additional useful information on the results of the most recently negotiated free trade agreement, the Council commissioned reports to review the impact that NAFTA has had on the economies of 21 individual states.

The results are in. They show that NAFTA has produced benefits for every state studied. Exports to Mexico and Canada have grown significantly since NAFTA was implemented - despite the peso devaluation in Mexico.

Let me just quote a few figures. Between 1993 and 1996, Michigan's exports to Mexico grew 146 percent. In 1996, Michigan sold $3.2 billion worth of goods, including transportation equipment, industrial machinery, fabricated metal products and electronic equipment to Mexico. Iowa's exports to Mexico increased 78.3 percent, including $171 million worth of agricultural and food products; and, Louisiana's exports to Mexico increased 136.8 percent. California's exports to Mexico grew 38.9 percent, reaching $9.1 billion in 1996. Exports from New York and New Jersey to both Canada and Mexico represented 1996 exports.

Despite these very positive figures, we are concerned. Why? Because somehow the perception among significant segments of the American population is that NAFTA has been an economic failure and that, at the end of the day, the United States and the majority of Americans have suffered economically. Our studies show that this is a mistaken conclusion.

However, perceptions are important, and misconceptions like the one cited above could impede the President's ability to negotiate additional free trade agreements to benefit the American consumer and strengthen our economy. That is why we are worried.

If there were no NAFTA and if there is no Free Trade Area of the Americas, would the United States stop trading? No!

But, with NAFTA and a Free Trade Area of the Americas, we would trade with countries in the Hemisphere on a basis that is more beneficial for the vast majority of Americans because it is less encumbered by tariffs and other non-tariff barriers. As a result, we - the American people - would reap the benefits of free trade.

What are those benefits? First and perhaps most important, the benefits enable any American to buy a multitude of goods for lower prices.

Second, our producers have a larger market for their goods. The market is not limited to the 50 states. For example, because Mexico has lowered or eliminated its taxes on U.S. imports, our goods can more easily be made available to the very attractive market of 92 million Mexicans.

With a FTAA, the potential market is 800 million people. That is good for our producers - both the large producers like Ford Motor Co. in Michigan and the small producers like Milagro Trading Co. in Florida and O.G. Bell Company in Ohio.

Ford's sales to Mexico increased 1,600 percent in one year - from the export of only 1,762 automobiles in 1993 to the export of 30,138 automobiles in 1994. And, after just one year, Milagro Trading now has a $1.2 million relationship with a shoe-part manufacturer in Mexico, which has enabled that firm to add two new people to its three-person payroll. O.G. Bell manufactures machine tools, which it started to export to Mexico in December 1995. Now, Mexico makes up one quarter of its total sales, and the company's workforce was increased 25 percent in 1996, when the company hired three new people. These are success stories, which affect both large and small companies.

And, I would like to point out two related aspects involved in this lowering of tariffs and increased markets.

First, since our tariffs are lower than most countries, our trading partners generally make much larger cuts than we do. For example, prior to implementation of NAFTA, U.S. tariffs averaged 2.07 percent, while Mexico's average tariff rate was 10 percent. With NAFTA's implementation, Mexico reduced its tariffs 7.1 percent to 2.9 percent, while we reduced our tariffs only 1.4 percent to 0.65 percent. That's a darned good deal!

U.S. tariffs were not affected as dramatically because they were not as high to begin with. However, on the day NAFTA went into effect, Mexico eliminated tariffs on 70 percent of U.S. exports of computer equipment and software, on 55 percent of U.S. exports of pharmaceuticals, on 58 percent of U.S. exports of chemical products and on 80 percent of U.S. exports of telecommunication equipment. These reductions especially benefited states like Florida, Massachusetts and New Jersey.

In order for the United States to be able to get more good deals like this in the future, the President needs to have the authority to negotiate them effectively and that is why he and our country need Fast Track.

A second point is that many of the goods we sell abroad are high technology or manufactured products. Broadening the markets for these goods translates into the need for more workers in these industries. And, according to the U.S. Department of Commerce, wages for U.S. workers in the export sector are 12-15 percent higher than overall wages. Therefore, growing export markets for a country like the United States mean more jobs in the higher paid industries.

In May of this year in Belo Horizonte, Brazil, the 34 trade ministers from the Western Hemisphere met for the third time since the 1994 Summit of the Americas in Miami to prepare the way for the beginning of negotiations for a FTAA in Santiago next April.

At the Americas Business Forum held concurrently in Belo Horizonte, Brazil, our members had a unified and clear message for the U.S. Government and the 33 other trade ministers meeting in Brazil. They are excited about the prospect of FTAA and would like the negotiations to begin as soon as possible. Frankly, our members are eagerly looking to the Administration and the other democracies in the Hemisphere to make a commitment to FTAA by initiating the negotiations and making some limited commitments now - such as promising not to raise any new barriers to trade.

But, in Brazil, business representatives from Latin America warned us repeatedly that they seriously doubted whether the United States was going to be able to negotiate seriously any time soon. And, while their first choice for business partnerships is the United States, they are looking in other directions.

We are getting left out, and we will be even more left out if the President does not have fast track authority. The countries of the Hemisphere are negotiating free trade agreements without us. Just this month, Canada and Chile implemented a free trade agreement that eliminates Chile's 11 percent across-the-board tariff on imports from Canada. As this subcommittee learned in March, Canada's Northern Telecom won a $200 million telecommunications equipment contract over U.S. companies partly as a result. In addition, U.S.-based Caterpillar and other world manufacturers have been put at a competitive disadvantage to Canadian mining truck and motor grader manufacturers who now can offer goods to Chile at prices, which do not include the 11 percent duty.

Similarly, Brazil has waived some of its non-tariff barriers for its MERCOSUR partners - Argentina, Paraguay and Uruguay - and associate members - Chile and Bolivia. But, in the meantime, American producers function without these same privileges.

Fast track authority leading the way to FTAA negotiations will enable U.S. producers to receive the benefits accruing to other countries in the Hemisphere who are moving ahead with free trade arrangements.

In conclusion, I want to emphasize that this free trade debate is about more than NAFTA and more than FTAA. It is about American leadership. Is the United States going to act with the confidence it should as the strongest, most productive economy in the world, ready to compete across the board in the global marketplace and with the conviction that it will do well? Are we going to keep our mantle as the world leader in promoting open healthy competition, which benefits our consumers and consumers worldwide? Or, is the United States going to shrink from this leadership role and turn timid and inward in the belief that its economic growth can be fostered without the global economy?

The Council of the Americas hopes that the answer is that the United States will continue to be at the forefront of trade liberalization - for the benefit of American consumers and American producers. And, the Council of the Americas hopes that this committee will recommend that the President be given the authority to make it happen -that he will be given fast track authority - and soon. Thank you.