SECOND IN A SERIES OF THREE HEARINGS ON THE PENDING, JOB-CREATING TRADE AGREEMENTS: PANAMA TRADE PROMOTION AGREEMENT
SUBCOMMITTEE ON TRADE
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
March 30, 2011
Printed for the use of the Committee on Ways and Means
COMMITTEE ON WAYS AND MEANS
GEOFF DAVIS, Kentucky
|JIM MCDERMOTT, Washington
RICHARD E. NEAL, Massachusetts
LLOYD DOGGETT, Texas
JOSEPH CROWLEY, New York
JOHN B. LARSON, Connecticut
C O N T E N T S
PANEL 1:, Deputy U.S. Trade Representative, Office of the United States Trade Representative
PANEL 2:Doug Oberhelman, Chairman and Chief Executive Officer, Caterpillar Inc., on behalf of Caterpillar Inc., the U.S. Chamber of Commerce, the National Association of Manufacturers, the Business Roundtable and the Latin America Trade Coalition
Gary LaGrange, President and Chief Executive Officer, Port of New Orleans
Doug Wolf, President, National Pork Producers Council
Jasper Sanfilippo, President and Chief Operating Officer, John B. Sanfilippo & Son, Inc.
Hal S. Shapiro, Partner, Akin Gump Strauss Hauer & Feld LLP, Testifying in an individual capacity
SECOND IN A SERIES OF THREE HEARINGS ON THE PENDING,
JOB-CREATING TRADE AGREEMENTS: PANAMA TRADE PROMOTION AGREEMENT
U.S. House of Representatives,
Committee on Ways and Means,
The subcommittee met, pursuant to call, at 2:10 p.m., in Room 1100, Longworth House Office Building, Hon. Kevin Brady [chairman of the subcommittee] presiding.
[The advisory of the hearing follows:]
Chairman Brady. Good afternoon.
I would like to welcome you all here, including the Panamanian Ambassador.
This is the second in a series of three hearings: Panama, Colombia, and South Korea. It is no secret that I strongly believe we should consider all three pending agreements by July 1st. There are bipartisan calls in Congress to do that. And we are hopeful the President moves forward with all three.
He has already talked about and made the case why we should move the Panama and Colombia agreements now. As you know, on his recent trip to Latin America, the President noted that we export three times more to Latin America than to China because of our trade agreements across the region. He also stated, “Our exports to the region will soon support more than 2 million U.S. jobs.”
And yet, even though the President explained why we need to move forward with the agreements, we wait. In the case of Panama, it has been almost 4 years.
Not only has the delay caused American companies, workers, farmers, and ranchers to miss opportunities to sell more to Panama, we also run the risk of falling behind. Panama has concluded trade agreements with our major competitors, such as Canada and the European Union, and more are in the pipeline. If these agreements go into effect before ours, we will face even greater competitive challenges.
And the opportunities lost to these competitors could be gone for a very long time. Panama is experiencing an infrastructure building boom due to $5.25 billion investment in the expansion of the Panama Canal and Panama’s growing role as a logistics hub for Latin America. If U.S. companies lose out on th0se infrastructure contracts, they cannot hope to bid again later. These contract opportunities will be lost for good.
Panama’s expansion as a logistics hub also offers unique opportunities for American service providers in addition to our manufacturers. Services already make up over 75 percent of Panama’s economy. This sector will swell as Panama develops greater capabilities in information technology, finance, and insurance. U.S. service providers are well‑positioned to meet this growing demand, but their market access depends on having our agreement in place.
The economic reasons for the Panama agreement are, by themselves, significant, but the need to strengthen our relationship with Panama and engagement in the region is just as compelling. I was heartened by the President’s trip to Latin America and his words about the importance of Latin America to the United States, but we need to provide tangible evidence of our commitment.
Panama is obviously a vital ally in terms of port and maritime security. It is also an important partner in combatting drug trafficking and terrorism. And, of course, there is the Panama Canal. The United States is the largest user of the Canal, and Canal security is paramount to our national security and broadly to open sea routes. Panama’s cooperation in maintaining security of the canal has been vital to our security in the region.
The significance of our relationship with Panama is obvious. Now is the time for action and for the President to send the Panama agreement to Congress.
Ambassador, I was encouraged by your positive remarks regarding the status of the Panama agreement in our last hearing, but we have yet to hear from the Administration a defined timetable for bringing this agreement into force.
But, in the meantime, Panama has made extraordinary strides in meeting U.S. demands. First of all, the Panamanian legislature approved the agreement to include the provisions of the bipartisan May 10th, 2007, deal back in July of 2007. Then there were concerns raised regarding Panama’s tax transparency, and, in response, Panama signed a TIEA with us in November and passed all implementing legislation. Concerns have been raised about Panama’s labor law, and Panama has implemented substantial labor protections and is undertaking even more just this week in its legislature.
In my opinion, the substantive action by Panama is more than enough to allow congressional consideration of the agreement.
Ambassador Sapiro, I want to ask you again, just as I did 2 weeks ago at our previous hearing, to present us a specific timetable as to how the administration plans to proceed. In addition, I would call again on the administration to begin the technical drafting with us on the Panama and Colombia agreements, just as we have begun with the South Korea agreement.
I would like to welcome all of our witnesses today and thank them for being with us. I look forward to the testimony.
At this time, I will yield to Ranking Member McDermott for the purposes of an opening statement.
Mr. McDermott. Thank you very much, Mr. Chairman.
At our last hearing on the Colombia Free Trade Agreement, I expressed my disappointment that we were not holding a mock markup on the Korean Free Trade Agreement. I am even more disappointed today that 2 weeks have gone by and the Republican leadership is still blocking the Korean FTA. This Korean FTA is done. It has the support of business, labor, Democrats, Republicans, and the administration.
We should have had a mock markup of the Korean Free Trade Agreement weeks ago. Every week that the Republicans wait costs Americans jobs and jeopardizes our global competitiveness. Every week the Republicans wait is more pain on American families and hurts our geo‑strategic interests with Korea and across Asia.
While we are here to talk about Panama, the Republicans are silent on helping middle‑class Americans with renewing trade adjustment assistance programs, the Andean preference programs, and the general system of preferences. The Republicans are also doing nothing on the miscellaneous tariff bill or on currency legislation. They have decided that we can’t do anything on trade until Colombia FTA is ready. That makes them really important.
And if stopping the entire legislative agenda on trade is not enough, the Senate Republicans have announced they intend to block the appointment of trade‑related officials, even Cabinet secretaries, until the Colombia Free Trade Agreement is passed.
While I wish we were moving the Korean Free Trade Agreement and a real job agenda forward, we are here talking about Panama’s FTA today. The administration’s work on the Panama FTA, like its work on the Korean FTA, is an example of how to do a trade agreement right.
There were legitimate and serious concerns with Panama’s status as a tax haven and with the fact that Panama’s labor laws fell short of international standards. Rather than ignoring those concerns, the Obama administration addressed them. For example, the United States and Panama finally signed a tax information exchange agreement last November after 8 years of negotiation. And Panama has made a number of changes to its labor laws already.
Still, Panama needs to ratify that tax agreement and make a few important changes in labor laws. Panama is our partner and understands what it needs to do. It is willing to make the necessary changes to the laws, and it is expected to do so very soon.
Congress would undermine the administration’s effort to resolve the outstanding issues if it were to consider the FTA before Panama takes action. On the flip side, once Panama takes action, the Panama FTA should be submitted to Congress without delay, not held hostage to unrelated issues that are outside Panama’s control.
Panama and Korea FTAs provide a clear roadmap for the Colombia FTA. Rather than setting artificial deadlines and ignoring serious breaches, such as labor‑related violence and impunity, those issues should be resolved before the agreement moves forward.
Many Republicans criticize the administration for taking the time to get the substance right on all three of these trade agreements. They want to just get them done with quickly, rather than get them done right. They wanted to pass the Korea deal before the auto provisions were fixed. They wanted to ignore the fact that Panama was a tax haven. And they want to ignore the fact that murdering union organizers and human rights activists in Colombia goes unpunished. I don’t understand that, and I really don’t think the American people do either.
The American people expect us to work to lift the labor standards of our trading partners, to insist that our trading partners not operate as tax havens, and to ensure that our trade agreements do all they can to ensure two‑way trade, as the administration did with the Korean auto deal.
In my view, this is the best way to rebuild strong and lasting support for trade agreements, and I hope my Republican colleagues will support that effort.
The rules require a week’s notice for a hearing, so I just want to encourage the Republicans to schedule this mock markup for the Korean Free Trade Agreement for next Wednesday.
I yield back the balance of my time.
Chairman Brady. Today, we will have two panels of witnesses. The first panel is compromised of our witness from the administration, Ambassador Miriam Sapiro, Deputy U.S. Trade Representative from the Office of the U.S. Trade Representative.
Ambassador Sapiro, welcome again. And we look forward to your testimony. As always, I am going to ask you to keep your testimony to 5 minutes. And your written statement ‑‑ that goes for all the witnesses ‑‑ will be made part of the record. And you are recognized for 5 minutes.
STATEMENT OF AMBASSADOR MIRIAM SAPIRO, DEPUTY U.S. TRADE REPRESENTATIVE, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE
Ms. Sapiro. Thank you. And good afternoon, Chairman Brady, Ranking Member McDermott, members of the committee. It is a great pleasure to be back here and to testify today about the U.S.‑Panama Trade Promotion Agreement.
Two weeks ago, I highlighted the importance of a robust trade policy that creates jobs for America’s workers and advances the President’s goal of doubling exports by the end of 2014. We would like to see all three pending agreements, once their outstanding issues have been addressed, approved by Congress as early as possible this year.
Earlier this month, we notified the full committee that we are ready to begin work on the text of the implementing bill for the Korea FTA as soon as you are able to schedule those sessions. We are working to advance the Panama agreement, too, within the broadest possible bipartisan and stakeholder support so that its true importance to the United States will be apparent to all.
Panama is one of the fastest‑growing economies in Latin America, expanding by over 6 percent in 2010. Its strategic location as a major shipping route is clear. Approximately two‑thirds of the 14,000 annual transits through the Panama Canal are bound to or from U.S. ports.
Currently, the U.S. market is already largely open to imports from Panama. This agreement will level the playing field by giving American workers, farmers, ranchers, and businesses greater reciprocal access to Panama’s growing market, including nearly $10 billion in new infrastructure projects and an $18 billion services market.
As important as these benefits are, President Obama has made it clear that any trade agreement we present to Congress must be consistent with our key values and in the clear interests of Americans. The administration has therefore been working very hard with Congress and with stakeholders since they came into office to identify specific steps that Panama could take to improve its protection of internationally recognized labor rights.
As a result of this work, Panama has taken several steps to address our concerns. With respect to enforcement of its labor laws, Panama has issued executive decrees to address the misuse of subcontracting and temporary work contracts, to strengthen collective bargaining and the right to strike, and to prevent employer interference in union activities. In addition, Panama’s Labor Ministry has issued a resolution to increase labor inspections in the maritime sector and to ensure that maritime workers are aware of their rights and the means to address any problems.
As Panama has strived to improve its tax transparency practices, we have worked with its government to address impediments in its domestic law that have prevented the conclusion of a tax information exchange agreement, known as a TIEA, with the United States. Such an agreement was signed in November and is consistent with internationally agreed standards as established by the OECD. We expect that Panama will ratify the TIEA in the near future.
On February 9th, Ambassador Kirk announced that we would intensify our efforts and our discussions with Panama to complete remaining work. And we have done so. I am pleased to announce that Panama is now in the process of completing work on the last few steps.
The government introduced legislation this week to ensure that companies in the Baru Special Economic Zone will no longer be exempt from key labor rights provisions. Also pending before Panama’s National Assembly is legislation to ensure labor rights are respected in export‑processing zones and to eliminate restrictions on collective bargaining in companies less than 2 years old. Last evening, both pieces of legislation passed their second reading.
Once all of the outstanding issues are addressed, the administration will be ready to prepare the agreement for congressional consideration. Together, we will ensure that American workers enjoy a level playing field with a trading partner that has adopted strong worker protections and sound tax transparency policies.
I also want to update you briefly on our efforts to intensify our work with Colombia to address outstanding concerns regarding the protection of internationally recognized labor rights, the prevention of violence against labor leaders, and impunity from prosecution. I am pleased to say that this afternoon I will resume high‑level discussions with senior advisors from President Santos’ administration on how best to advance these goals.
In the meantime, I ask you to keep faith with America’s workers by renewing trade adjustment assistance as soon as possible. I urge you also to renew the GSP and the ATPA programs for as long as possible.
We look forward to working with all of you on the aspects of our trade agenda in a manner that builds bipartisan support and that creates new opportunities for the Americans that we serve.
[The statement of Ms. Sapiro follows:]
Chairman Brady. Ambassador, thank you.
For planning purposes for the lawmakers, witnesses, and the audience, we will be recessing now so that Members can attend the bipartisan classified briefing on Libya conducted by the Administration’s Cabinet.
We will reconvene promptly at 3:30. And, Ambassador, thank you for your willingness to hang tight with us. And then we will go to questions. And then, at 4:15, we will bring the second panel forward. Again, Ambassador, thank you for your flexibility today.
So we will recess until 3:30.
Chairman Brady. Thank you. The hearing will convene. Thank you again for your patience.
The chair recognizes Ranking Member McDermott.
Mr. McDermott. Madam Ambassador, I have a practical question. We are trying to ramp up exports in this country. And there is a certain feeling that public employees are of no use to the people of America, that we really could get rid of the government and we would still have a system that functioned.
And I would like you to explain what goes on when somebody wants to export something from the United States of America to any country. Can they just walk down to a boat and throw it up on the boat and away it goes? Or do they have to get documents from public officials?
I am thinking in terms of the government shutdown that we are moving toward here shortly. Some people are acting as though that doesn’t mean anything. And I remember a call I got in 1995 from a guy who was trying to export grass seed to Saudi Arabia and was going to lose a $500,000 line of credit because he couldn’t get one simple export document from the Department of State.
I would like to hear what actually goes into exporting things and what role government employees play in that.
Ms. Sapiro. Thank you, Congressman.
We are also keeping an eye on the possibility of a shutdown with some concern, as we are working intensively to be able to resolve the outstanding issues with respect to both Panama and also Colombia and hopefully be in a position to present these agreements to the Congress for their consideration.
So we hope very much, for a variety of reasons ‑‑ and this, obviously, is just one small part of the government, but it is an important priority right now at USTR. So we certainly are keeping an eye on the budget talks and hope that they will be successful so that we will be able to keep working on these FTAs at an intensive pace.
You are quite right, Congressman, that exporting a commodity, for example, from the United States is not as simple as putting it on a boat headed toward Panama or any other country. One of the many benefits of a free‑trade agreement is the ability to streamline that process and to make it easier for our exporters, whether they be farmers or ranchers or businesses, to be able to take advantage of the tremendous opportunities that we see in markets in Latin America and elsewhere.
So we, like you, are keeping an eye on the budget talks and hope very much that there will be a resolution soon.
Mr. McDermott. What does you mean, to streamline the process? What are you thinking? I mean, now we have a free‑trade agreement, so if I want to ship something to Oman or Israel or someplace, I just take it down and put it on the ship, right? It is a free‑trade agreement; I can send it anywhere I want anytime I want, right?
Ms. Sapiro. Well, there are customs rules and forms. And what we do through our free‑trade agreements is try to standardize those so that it is easier to have convergence between our systems and the system of the foreign trade partner. So we do a variety of things to make sure that, actually, at the border the process is facilitated; we call it customs facilitation.
We also want to make sure that, for example, with respect to an agricultural commodity, that this is something that the other country has already agreed to accept, that it meets certain SPS ‑‑ sanitary and phytosanitary standards.
And so, as you know, a tremendous amount of effort goes into making sure that the process works as smoothly as possible. But it is complex, and these free‑trade agreements do play a role in simplifying the procedures and ensuring common standards in both countries so that we can boost our exports and we can meet the target that the President has set for us.
Mr. McDermott. What does it mean to the country if the government shuts down, if the ports shut down their ability to move goods for a week or a month?
Ms. Sapiro. It could certainly be challenging, quite challenging.
Mr. McDermott. Is that all you think, is just challenging? There would be no economic consequences of that?
Ms. Sapiro. I believe that there would be. And, as I mentioned, I am concerned about it with respect to the specific issue of the work we are trying to accomplish at USTR but, also, obviously, the broader implications for our economy.
Mr. McDermott. Thank you.
Chairman Brady. The chair recognizes Mr. Doggett.
Mr. Doggett. Thank you, Mr. Chairman.
And thank you, Ambassador.
Is it correct that we have been attempting to get a tax exchange agreement with Panama since 2002?
Ms. Sapiro. That is correct, Congressman.
Mr. Doggett. And as of today, we don’t have an agreement that is ratified.
Ms. Sapiro. We signed ‑‑ the Department of Treasury ‑‑
Mr. Doggett. Right.
Ms. Sapiro. ‑‑ Secretary Geithner, did sign the TIEA ‑‑
Mr. Doggett. Yes, I read his announcement about it. But the Panamanians have not ratified it.
Ms. Sapiro. The Panamanians have informed us that they are taking steps to ratify that, and ‑‑
Mr. Doggett. Well, they have had it ‑‑
Ms. Sapiro. ‑‑ they expect to ‑‑ if I may finish, sir ‑‑
Mr. Doggett. Surely.
Ms. Sapiro. ‑‑ they expect to do that soon.
Mr. Doggett. Well, they have had it there since November. When you say “soon,” they will be completing their current session in April. Will they have it ratified in April?
Ms. Sapiro. I have every reason to believe that Panama will ratify the TIEA as part of its broader efforts to remove itself from the OECD list of gray zones, and that they will do it promptly.
Mr. Doggett. All right. And so, are you expecting them to complete it before they recess at the end of April?
Ms. Sapiro. I have every reason to believe that they will do it before they recess.
Mr. Doggett. Great. Because if we were to seek information from them today, we would be in no better position than we were in 2002, would we, without the ratification of that agreement?
Ms. Sapiro. That is an interesting question, Congressman. They have taken steps to enact laws with respect to bearer shares. And, also, they have enacted a law that they call “Know Your Client,” which enables them to exchange information with other governments that they had not previously been able to.
So I would have to look a little bit further into that to give you a more precise answer to your question.
Mr. Doggett. Okay, I welcome you doing that, because I don’t believe, without an information exchange agreement, that unless we wanted to go into Panamanian courts and attempt to enforce our rights there, that we would be in any different position than 7 years through which the Panamanians have drug this thing out.
And you mentioned their desire to get out of the gray zone with OECD. They do not have a tax information exchange agreement with any country other than ours, do they?
Ms. Sapiro. My understanding, Congressman, is that they have negotiated almost a dozen treaties already. Most of them are called double‑taxation treaties ‑‑
Mr. Doggett. Right, those are tax treaties. But they don’t ‑‑ and they incorporate a tax exchange provision similar to this, but we chose not to go that route since they apparently have little, if any, taxes on foreign entities in Panama, correct?
Ms. Sapiro. I would have to refer that question, Congressman, to the Department of the Treasury because of its relationship to our Tax Code and tax policies.
Mr. Doggett. You don’t know what the status is, then, with reference to OECD that you referenced earlier.
Ms. Sapiro. What I was suggesting we respectfully ask the Department of Treasury to address is the decision to pursue a TIEA rather than a double‑taxation treaty.
With respect to the OECD list, my understanding is that, when a country negotiates and signs a total of 12 tax transparency agreements, which I believe can be defined either as double taxation or as a TIEA as long as they deal with the transparency question, then such a country is removed from the list. My understanding, in addition, is that Panama has come very close because it has already signed a total of 11 agreements and has already negotiated an additional 4 agreements that await signature. So I would anticipate that they may well be off the list in the near future.
Mr. Doggett. Do those agreements require ratification?
Ms. Sapiro. I can’t speak to the nature of those agreements with other countries. I do know that, in the case of the TIEA, the Department of Treasury concluded it as an executive agreement. Panama does need to go through a ratification process, which it has, I am pleased to say, already started.
Mr. Doggett. Okay. And one last question in a different area: From your experience there at USTR, are you aware of any experience that would suggest that public interest representatives, to the modest extent that they have been involved in industry trade advisory committees, have ever caused a problem for USTR or any of its goals?
Ms. Sapiro. We share, Congressman, your goal of ensuring that there is broad representation across the ITACs, the advisory committees. And we have been working closely with your staff on some concrete recommendations in order to achieve that goal. We already have an unprecedented formal and informal way of ensuring that we include a broad range of voices in our policies ‑‑
Mr. Doggett. That wasn’t my question, though. I just wanted to know if you have experienced any problem ‑‑
Chairman Brady. If I may, since time has expired, perhaps, Ambassador, if you could complete your response in writing to Mr. Doggett.
Ms. Sapiro. I would be happy to do that.
Chairman Brady. Thank you.
Ms. Jenkins is recognized.
Ms. Jenkins. Thank you, Mr. Chairman.
And thank you, Ambassador, for being back to join us again.
As you know, when the U.S.‑Panama agreement goes into effect, more than half of current U.S. farm exports will become duty‑free immediately. The American Farm Bureau estimates that U.S. farm exports to Panama will then exceed $195 million, doubling our U.S. exports. And as you well know, many of the items that will benefit are processed or semi‑processed products, such as high‑quality beef, chicken, pork, soybeans, and wheat.
Now, in Kansas, we raise a lot of high‑quality beef, chicken, pork, soybeans, and wheat. In fact, we pride ourselves on feeding the world. So I am anxious to see these agreements, as well as the agreements with Colombia and South Korea, approved as soon as possible.
But my question is, how does reducing tariffs on these products prevent U.S. agriculture exports from losing market share to exporters from other countries like Canada, Brazil, and Argentina, as they have done in the case of Colombia? And how will this agreement ensure U.S. competitiveness in years to come?
Ms. Sapiro. Thank you very much, Congresswoman, for that question. I am very glad that you didn’t ask me to compare beef from Kansas to beef from Texas. I was very ‑‑
Chairman Brady. And you know the answer to that.
Ms. Jenkins. Yeah, we tried that the last time.
Ms. Sapiro. I remember. And, fortunately, none of you asked me for my opinion, so I am going to stay neutral. I enjoy beef from all States in our country that produce it.
But, no, you are quite right to point out the benefits to our agriculture sector from this agreement. It is not currently a two‑way street, because much of what Panama exports to us comes in duty‑free because it is a CBI beneficiary, whereas our farmers and ranchers face tariffs on their exports to Panama.
So when this agreement is in force, they will benefit greatly, especially in the beef area. The high cuts of beef are going to be duty‑free immediately, and additional beef exports will become duty‑free over time. So this is an important agreement for your State, in particular.
Ms. Jenkins. Okay. Thank you for that.
As we have seen with Colombia, it is clear that U.S. agriculture producers and exporters will lose valuable markets if these trade agreements are not passed, which will most certainly hurt farmers, ranchers, and other workers in the agriculture sector.
And while the agriculture industry has been one of the few bright spots in our economy, a further delay in implementing these pending agreements will impact not only that industry but also rural America as a whole. In places like my little hometown of Holton, Kansas, a strong agriculture industry is the basis of our economy. And that includes businesses ranging from those that sell and repair equipment, to the Holton Country Mart, Ron’s IGA, and Barbara’s Beauty Bar.
Can you explain to us what the effect is likely to be on all of those businesses and small communities like my little hometown if we don’t pass these agreements?
Ms. Sapiro. This agreement will benefit U.S. exporters, whether they are large, established companies or small and medium enterprises struggling to get a foothold.
One of the things that the President feels very strongly about is making sure that we have a national export initiative that cuts across all sectors of the economy as well as embraces the SMEs that sometimes can otherwise get left out. So USTR, for example, works closely with SBA and also with Ex‑Im and other parts of our government, especially the Department of Commerce, to make sure that we are not overlooking the smaller companies and that, whether they are small farms or they are service providers, if they want to establish a market overseas, that we have the ability to help them do that.
And we would very much like to see the small and medium enterprises across our country reach out to more markets. And for those companies that already are in a market, they typically have only one customer. We would very much like to work with them and see if we can’t double, triple, or quadruple the number of customers they have as well as the number of countries that they are exporting to.
Ms. Jenkins. Well, thank you. And I just hope you will be mindful of the effect that these trade agreements have on rural America. We all struggle with the whole issue of rural economic development, and these free‑trade agreements will have such a compounding effect in many small, rural communities all across this Nation. They are critical.
So, with that, I would yield back. Thank you.
Chairman Brady. Thank you.
The chair recognizes Mr. Smith.
Mr. Smith. Thank you. And I appreciate the opportunity to have a dialogue here.
I would like to begin by associating my concerns with my colleague from Kansas, knowing that we probably have a good partnership in producing high‑quality beef, among other products ‑‑ I guess we will leave it at that.
Now, in technical respects, what would you say are the major differences between the South Korea Trade Agreement and the Panama Trade Agreement?
Ms. Sapiro. I would say that both agreements embrace high standards across the board. The Panama agreement, in particular, I think, will benefit the relationship because of the infrastructure projects that Panama is already beginning with respect to the Canal and the additional infrastructure projects that we see coming down the road.
There is also a growing market for service providers. And, frankly, Panama has a growth rate that I am envious of. It is one of the fastest‑growing economies in Latin America and Central America today.
So I think there is great potential for our exporters from Nebraska, from Kansas, from Texas, from other States to really make the most of this agreement once it ‑‑
Mr. Smith. Right. I mean, you suggested that there are high standards in both agreements. Are there not high enough standards, then, to buy in here so that we can get this passed?
Ms. Sapiro. We are working very hard, as I mentioned, to be able to present these agreements to Congress for your consideration.
With respect to the labor chapter of the Panama agreement, there were some concerns, which are now being addressed, with regard to their enforcement in certain sectors, such as maritime, construction, and a few other sectors as well. I am pleased to say that Panama has been addressing those concerns and is even now taking legislative action that, once completed, will put it in a very good position to be able to easily implement the labor chapter.
Mr. Smith. Is it conceivable that we could get this passed by July 1st?
Ms. Sapiro. We are working very hard, and so is Panama. The ball is really in their court right now. And I am very encouraged by the actions that they took as late as last evening. So I think they are working at a quick clip. And we are doing everything possible that we can to support them doing that, because this is an agreement that is important to many exporters in this country.
Mr. Smith. And, finally, do you feel that there might be some downside to delaying?
Ms. Sapiro. Our market share in Panama has been remarkably stable over the last few years. Our closest competitors are Canada and Europe, and their share is currently a lot lower than ours.
But we are not sitting back, I assure you, Congressman, we are not sitting back and celebrating those statistics. We are working very hard because we share your sense of urgency. This agreement and the other agreements are important to Americans who export.
So we are doing everything possible to work with Congress, to work with our stakeholders, to address the issues that had been identified earlier and that we believe the Panamanian Government is now taking steps to address, and believe that they will do so fairly soon.
Mr. Smith. Okay. All right.
Thank you, Mr. Chairman. I yield back.
Chairman Brady. Thank you.
Mr. Buchanan. Yes, thank you, Mr. Chairman, for holding this.
And, Ambassador, I appreciate your coming.
I represent part of Florida, but being the only Ways and Means member in Florida, we have 14 ports; exports are a huge part of our business there. I know, in my port, it is the closest port to the Panama Canal. We think we can create 20,000 more jobs just out of our port in Manatee County.
I have been down there; we have met with the Ambassador at the port. I have been down to Panama. I met with the President down in Panama. But it just seems like it has gone on for 4 years, not just this administration but the last 2 years before that.
They seem like they have jumped through a lot of hoops. They love America. They want to do business. They have done a full‑court press in terms of this trade agreement. And it seems like it is just some special interests, you know, on our side that are driving the agenda.
And we keep moving the goal post. I mean, you talk about human rights, and I know that is important to everybody, but, at the same token, you could throw that out anyplace, anytime, anywhere. And, obviously, the unions are concerned.
But I can tell you, for States like Florida and Texas, we need to have Panama on line in a bigger way. And we are really losing our credibility, frankly, down there. I have been in business 30 years; I am not a career politician. But if it takes 4 years to get something done, there has to be a question of good faith on our part. And it is really more of a political agenda than it is about doing what is right.
So I don’t want to ramble on, but I want to get your comments on that.
Ms. Sapiro. Thank you, Congressman, for your question.
We share your sense of urgency, and we do want to see this done as quickly as possible. Since we took office in 2009, we have been working with the Panamanian Government to identify the issues of concern. And some of it was with respect to enforcement in the subcontracting area, with respect to temporary workers, and I mentioned maritime workers.
They have been working diligently to address the issues that they could through administrative decrees. There are a few issues that they needed to address through legislation, and they are now in a position where they can move that legislation forward. And I believe they will be able to do so fairly quickly.
One of the laws refers to Baru, which is the special economic development zone where they had had certain exemptions from core labor provisions. And they are now taking steps to remedy that.
Mr. Buchanan. What time frame do you feel like, realistically, we are talking about given where we are with Korea? Korea looks like that is going to get done, we are going to get something here to the Congress. But in terms of Panama, you know, can we get that done before June. Will you get it back to us? I mean, what time frame are we on?
Because I am concerned, if it gets past this summer and August recess, this thing is going to get much more political and it is not going to get done. Then we drag it on another year and a half. And I just think it is the wrong direction.
Do you have a sense, what would be your commitment or your sense of when we can get this done?
Ms. Sapiro. Congressman, we would like to see Panama take these final steps as soon as possible, and I have every reason to believe that they are doing so. I believe we are pushing on an open door, as the saying goes, and that they are working rapidly.
The fact that the Baru legislation and the other piece of legislation dealing with export‑processing zones and some restrictions in place on companies that are less than 2 years old, these two pieces of legislation are now moving very quickly through their national assembly. So I am hopeful that they will be able to ‑‑
Mr. Buchanan. Well, I came here in 2007, and we have been talking about Panama ever since I have been here. And I think it is really a shame that we are not finding a way to, you know, put this thing together. And I would be very, very disappointed if this thing ran on, because it would affect a lot of jobs. Florida has 12 percent unemployment; the country has 9 percent. We need those good‑paying jobs. We need to get this deal wrapped up with Panama. We needed it yesterday.
It would be great if we could do it with Korea. I think the mindset is, for one reason or another, you are not going to do it that way. But we need to get this done. It means a lot of jobs to Florida. Export opportunities for Florida companies, small and large, are huge. And I hear that from so many people all over the State. I can’t tell you the level of frustration among the business community in Florida at our lack of ability to get this thing wrapped up.
Ms. Sapiro. We share your concern and fully appreciate how important this agreement is, in particular, to Florida.
Mr. Buchanan. Okay. Are you going to give me a time frame? Are you going to tell me when we are going to get it done?
Ms. Sapiro. We are working quickly. The ball right now is in Panama’s court.
Mr. Buchanan. How about May?
Ms. Sapiro. I don’t want to give you a date and be wrong. Let me just assure you that we share your sense of urgency and we are working, sometimes around the clock, to encourage Panama to take these final steps. And we believe they will do so.
Mr. Buchanan. We really need it for jobs.
I appreciate the opportunity. Thank you, Mr. Chairman. I yield back.
Chairman Brady. Thank you.
She is dying to say it will be here by July 1st for consideration, so we will just assume that that is the answer.
And, obviously, the reason you get bipartisan support for moving all three is, together, they represent $13 billion in new sales for American companies and farmers and workers. And, you know, in this economy, every customer counts, every sale counts, every job counts. And so the goal of continuing to move all three is because, together, all three are very important to our economy.
Let me ask you, on labor issues, you made reference to Panama having laws made more than a dozen changes to its labor ‑‑ first, it reopened the agreement, signed and included the bipartisan May 10th agreement on labor, environment, and there were other issues. It has made more than a dozen changes to its labor code; is in the process of moving legislation, as you said, to address other issues. So, clearly, Panama is making additional commitments, and impressive commitments, on labor.
But on tax information and transparency issues, my understanding is that, since 2002, Panama has been a committed jurisdiction, according to OECD, which means they are cooperative regarding tax information. We have had a longstanding mutual legal assistance treaty that covers the exchange of tax information if the question is effectively tied to illegal activities.
Panama has signed a TIEA, has begun to implement it, is in the process of creating a new international tax unit, a unit for international exchange of tax information. It is enhancing its cooperation with double‑taxation agreements with 15 countries, sharing tax information. Secretary Geithner recently remarked, with the signing of the TIEA, “this ushers in a new era of openness and transparency for tax information between the United States and Panama.”
So, in your view, is Panama taking impressive strides to improve tax transparency?
Ms. Sapiro. Panama has taken very important steps in the right direction. And I believe that they will follow through on what they have promised to do with respect to the TIEA and with respect to completing the other taxation treaties that will then enable them to be off of the gray list.
We are truly encouraged by their progress, no doubt in part not just because of the FTA but because of the emphasis that the G‑20, with U.S. leadership, has put on the need to fight tax havens around the world.
So Panama, for its own reasons, is taking very important steps. And we do welcome what they have done. And we do believe that they will quickly be able to finish their work, both with respect to tax transparency issues and also with respect to the labor code changes that are important to see done.
Chairman Brady. Thank you, Ambassador. Panama really is a key trading ally, and the improvements they have made and commitments they have made are impressive. And, again, our goal is to accelerate the passage and implementation of all three agreements, and look forward to working with you to do so this summer.
So thank you again for being with us today.
Ms. Sapiro. Thank you, Mr. Chairman.
Chairman Brady. At this point, since votes have been called and it is a fairly long series of votes, we will recess this hearing until immediately after the last vote and proceed with the second panel.
Chairman Brady. The subcommittee will reconvene.
I would like to welcome our second panel. And thank you for your patience today. We don’t always control our voting schedule nor the classified briefings, but thank you. We know how busy ‑‑ Mr. McDermott and I know how busy your lives are, so thank you for sharing time with us today.
Our first witness will be Doug Oberhelman, chairman and chief executive officer of Caterpillar, Inc. He is also testifying on behalf of the U.S Chamber of Commerce, the National Association of Manufacturers, the Business Roundtable, and the Latin American Trade Coalition.
After him, we will hear from Mr. Gary LaGrange, president and chief executive officer of the Port of New Orleans.
Our third witness will be Mr. Doug Wolf, President of the National Pork Producers Council and also owner and operator of Wolf L&G Farms.
Fourth, we will hear from Mr. Jasper Sanfilippo, president and chief operating officer of John B. Sanfilippo & Son, Incorporated.
And, last, we will hear from Mr. Hal Shapiro, who is a partner at Akin Gump Strauss Hauer & Feld.
Before we begin, I understand that our colleague Mr. Schock, who has been a tremendous advocate in the trade area, would like to give further introduction to Mr. Oberhelman, who is from his district.
Mr. Schock. Thank you, Chairman Brady.
I have the great pleasure this afternoon to introduce to the committee a great friend of my hometown from Peoria, the chairman and CEO of Catepillar, Doug Oberhelman.
Doug joined Caterpillar fresh out of college as a financial analyst. And, over his 35‑year career, he has held a variety of positions, including senior finance representative based in South America, district manager for the company’s North American Commercial Division, and managing director and vice general manager for strategic planning at Caterpillar Japan, Limited, in Tokyo, Japan.
He was elected as vice president and chief financial officer in 1995. In 1998, he became vice president with responsibility for Caterpillar’s engine business. He became a group president and member of Caterpillar’s executive office in 2002. And, as group president, he had responsibility for a vast number of functions, from financial products to HR to remanufacturing, just to name a few.
In October 2009, he was named vice chairman and CEO‑elect. During this time, he led a team that developed the future strategic plan for the company. And, in 2010, Doug was elected chairman and chief executive officer.
In addition to his work at Caterpillar, he serves as a director for the boards of Eli Lilly and Company, World Resources Institute, Wetlands America Trust, and The Nature Conservancy’s Illinois chapter. He is also a member of the board of directors of the Association of Equipment Manufacturers and the Manufacturing Institute. In addition, he is vice chairman and a member of the executive committee of the National Association of Manufacturers.
On a personal note, Doug and Caterpillar have been great citizens of Peoria and the State of Illinois. They take their corporate citizenship responsibility seriously and have provided a foundation for employment in Peoria, Illinois, and our country for decades. In fact, Caterpillar employs 23,000 of its 104,000 employees worldwide in Illinois, with many living and working in the Peoria area. And if you have ever traveled to Peoria ‑‑ I would encourage to you do so, if you haven’t ‑‑ there is no doubt that their positive presence is felt and seen all over our community.
The truth is, Caterpillar has been an integral part of our country since the company’s founding. Cat is the world’s largest manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel electric locomotives. Cat products touch every continent, serving 180 countries. So there may not be a better representative to have before us today to attest to the success of open markets and free trade than Caterpillar.
Once against, Mr. Oberhelman, I appreciate your willingness to testify before our committee. And I look forward to the conversation this committee will have you with about the significance of the U.S.‑Panama Free Trade Agreement.
Thank you, Mr. Chairman.
Chairman Brady. Thank you, Mr. Schock.
We also have another key leader of the House Ways and Means Committee, Dr. Boustany, whom I have asked to say a few words to introduce his home State witness, Mr. LaGrange.
Mr. Boustany. Well, Chairman Brady, thank you. It is a great privilege to introduce a real leader in the State of Louisiana.
Gary LaGrange has served as president and CEO of the Port of New Orleans since 2001. And, under his direction, we have seen a tremendous expansion of the port activities, despite a number of adversities, including something called Hurricane Katrina. In fact, Gary, with his leadership on the ground, got that port back up and operational within 2 weeks of the hurricane coming through, which was vital to getting New Orleans relief and moving the city forward in a recovery effort.
Gary has overseen a number of many expansions since taking his lead position at the Port of New Orleans, but he has also held a number of leadership positions at the State and national level, as well, including chairman of the National Waterways Conference; he serves on the board of the Waterways Council, as well. He is past chairman of the American Association of the Port Authorities, which is an alliance of 350 ports in the Western Hemisphere; serves on the board of Gulf Ports Association of the Americas and is past chairman and past president of the Gulf Intracoastal Canal Association.
He also was named to the Federal Reserve Bank of Atlanta’s Advisory Council on Trade and Transportation. And Gary has also received international recognition, in that he was named to the Hall of Fame by the International Maritime Association at the United Nations.
Gary has been a great leader on maritime issues and international trade.
And it is a real privilege, Gary, to have you here today. Thank you.
Chairman Brady. Thank you, Dr. Boustany.
And, welcome, Mr. LaGrange.
We welcome all of you, look forward to your testimony. I would also ask our witnesses to keep their testimony to 5 minutes.
Mr. Oberhelman, your written statement, like all those of the witnesses, will be made part of the record. And you are recognized for 5 minutes.
STATEMENT OF DOUGLAS R. OLBERHELMAN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, CATERPILLAR, INC., ON BEHALF OF CATERPILLAR, INC., THE U.S. CHAMBER OF COMMERCE, THE NATIONAL ASSOCIATION OF MANUFACTURERS, THE BUSINESS ROUNDTABLE, AND THE LATIN AMERICA TRADE COALITION
Mr. Oberhelman. Thank you, Chairman Brady and Ranking Member McDermott, Congressman Schock, for that very warm welcome and support of our initiatives, including trade and beyond trade, for Caterpillar. We really appreciate that from all of you.
In recent months, Caterpillar has been identified in the press as the company leading the charge to ensure that the Obama administration and Congress enact all three ‑‑ I repeat all three ‑‑ pending free‑trade agreements, not just Korea but also Colombia and Panama. I would like to begin by saying, that is a fair characterization and one we are quite proud to accept. In fact, our support for expanding trade goes beyond the pending free‑trade agreements. We also strongly support completing the WTO Doha round, finishing the Trans‑Pacific Partnership, and bringing Russia into the WTO as well.
But for today’s purposes, I want to focus on the pending Latin American agreements, with special emphasis on Panama.
You may have seen Politico.com today. We ran an ad; it features four of our machines. All four were made in the State of Illinois. It appears there is a generator set off to the side, which was made in the State of Indiana. And, with any luck at all, the ocean freighter passing through the canal would have auxiliary power from Caterpillar made in Indiana, as well. So, just a reminder of how important this really is, and I would like to add this to the record, if I could.
Mr. Oberhelman. Caterpillar and the organizations I represent strongly support the U.S.‑Panama Free Trade Agreement, as well as Colombia and Korea, because they promote sustainable economic growth, both at home and abroad.
In Latin America, we now have agreements with Mexico, Chile, Central America, the Dominican Republic, and Peru. I am pleased to report that Caterpillar exports have dramatically increased following the approval of these free‑trade agreements. Since the agreements have gone into effect, Caterpillar exports last year are up fivefold to Mexico, threefold to Chile, and up by more than 60 percent to Peru.
Other have benefited, as well, and not just from the Latin agreements, but from all of them. Allow me to explain: It is no secret that the United States consistently runs a trade surplus in services and agriculture. But what the public and many policymakers don’t realize is that the U.S. also runs a trade surplus in manufactured goods, but only with thte 17 countries, as a group, that have implemented free‑trade agreements with the United States.
The important fact is that free‑trade surplus gets lost in the discussion because there is a large trade imbalance for manufactured goods from non‑free‑trade‑agreement partners, but the message about the success of free‑trade agreement is ‑‑ excuse me ‑‑ is too important to get lost.
It is proof that American manufacturers can compete with anyone, provided they have open markets and a level playing field. That is exactly what trade agreements like the ones with Panama, Colombia, and Korea will provide.
In addition to helping U.S. manufacturers of industrial goods, the Panama Free Trade Agreement will substantially improve market access for American farm products, including pork, consumer goods, and services. It will bolster the rule of law, investor protections, internationally recognized workers’ rights, transparency, and intellectual property protections.
Some dismiss Panama as a small country that should not be a U.S. trade priority. Others take trade with Latin America for granted. We think that is incredibly shortsighted. Last year, Caterpillar exported more products to Panama than Korea. We exported more products to Colombia than India or Germany. And, as a region, last year, Caterpillar exports to Latin America increased 58 percent, which is more than any other region of the world. Today, 6 of our 10, at Caterpillar, largest export markets are in Latin America. They are great friends of the United States, as well.
We are pleased that Congress and many in the administration now recognize the importance of trade with Latin America. To demonstrate that commitment, we hope the first order of business will be passing the agreements with Colombia and Panama as well as the agreement with Korea.
I would be remiss if I didn’t also emphasize the other reasons to support the Panama trade agreement. Most importantly, Panama, like Colombia and Korea, is an ally and friend to the United States. It has major ports to both the Atlantic and Pacific, and the Canal is a major transit point for world trade.
Panama is a good place to invest. One‑third of its population speaks English, it is a fully dollarized economy, and it is strategically located, which makes it a good place to locate logistics and customer support operations, which we have done. At Cat, we are pleased with the success of our investments in Panama and with the high quality of our Panamanian workforce.
For Caterpillar, the Canal expansion is particularly exciting. The expansion is one of the biggest public works projects in the world in years. We are doing our best to earn business associated with the Canal and all other infrastructure projects being built in Panama.
If we can sell our U.S.‑produced products to Panama duty‑free, it will help our customers provide us with a competitive edge over products made elsewhere, like China and Japan. In practical terms, the agreement means that Panama’s 10 percent duty on off‑highway trucks built in Decatur, Illinois, motor graders built in Arkansas, scrapers built in Decatur, and diesel engines in Indiana would be eliminated.
What does the U.S. have to do in return, as it relates to mining and construction equipment? The answer is ‑‑
Chairman Brady. Mr. 0berhelman, I apologize ‑‑
Mr. Oberhelman. That is okay.
Chairman Brady. ‑‑ since you have waited and been patient all day. I would like to give you some time during my questioning to be able to ‑‑
Mr. Oberhelman. I understand fully.
Chairman Brady. No, thank you. You all are so very kind.
[The statement of Mr. Oberhelman follows:]
Chairman Brady. Mr. LaGrange?
STATEMENT OF GARY P. LAGRANGE, PRESIDENT AND CHIEF EXECUTIVE OFFICER, PORT OF NEW ORLEANS
Mr. LaGrange. Thank you, Mr. Chairman. We certainly appreciate the opportunity to be here and speaking on behalf of all of the ports in the United States, some 160 strong, not just New Orleans.
In recent studies completed by Parsons Brinckerhoff, Booz Allen Hamilton, the AT Carney Group, and the Marbridge Group ‑‑ four different studies ‑‑ all studies pointed out that, with the expansion of the Panama Canal by 2014, we can expect incremental increases in containers coming through the Canal at a rate of about 25 million new TEUs by the year 2028.
The Port of New Orleans firmly and publicly supports the U.S.‑Panama agreement to enhance trade and investment activities with Panama. Panama has been a longstanding strategic partner of the United States, and, as a strong ally of our country, the U.S.‑Panama agreement will further strengthen our economic relationship with an important regional partner and protect our critical strategic interests associated with the Canal.
Through its direct facilitation of trade and commerce, the Port of New Orleans is one of the primary economic engines of the gulf coast, along with Houston and the Port of Houston, of course, and serves as a key gateway to the mouth of the Mississippi River system for international and domestic trade. Three hundred and eighty thousand jobs are accountable because of the Port of New Orleans alone. That is direct employment, by the way.
Approximately $37 billion in national economic benefits comes from the transportation and the manufacturing of goods that flow through the port. As a container and general cargo port, the Port of New Orleans serves approximately 30 States in mid‑America, the Midwest, and up the Ohio River Valley on a navigable waterway that consists of 14,500 miles. The port is also the home of six Class I railroads, which came in the early part of last year when they realized the connectivity due to the waterway.
Mr. Chairman, the continuing development of the American export market would be enhanced through the implementation of the U.S.‑Panama agreement. International agreements that help facilitate trade are a significant benefit to our Nation’s ports. According to the American Association of Port Authorities, United States ports are responsible for moving 99 percent of all of our overseas cargo in America. And more than 13 million Americans are working in port‑related jobs. The completion of the pending agreement with Panama will increase the cargo movement through these ports and improve employment opportunities for American workers.
With respect to Panama, American ports play an integral trade role, which would be expanded even more under the pending agreement. The United States is a dominant trading partner for Panama. In 2009, the United States exports to Panama were valued at $4.3 billion, and almost 30 percent of Panama’s imports came from the United States. As exports increased from the United States to Panama, the Port of New Orleans and other U.S. ports will be called upon to help meet the increase transportation needs.
A review of the agricultural product trade provides ‑‑ and I am going to yield to my colleagues up here some insight as to how the U.S.‑Panama agreement would contribute to domestic economic growth. For example, the U.S. Farm Bureau estimates that U.S. agricultural exports alone could be increased by more than $195 million annually with the implementation of the pact.
Such exports,the United States International Trade Commission has predicted that the largest growth will accrue in U.S. exports for rice to Panama, which are expected to increase by approximately 145 percent. Other U.S. export gains could be expected in the oil, machinery, and other key market areas that already contribute to a robust trade with Panama. In fact, estimates show that, when the U.S.‑Panama agreement is fully implemented, U.S. exports to Panama of passenger vehicles would increase by 43 percent; U.S. exports of beef and pork, 94 and 96 percent, respectively.
Significantly, when discussions concern Panama, they must necessarily address the impact of the expansion of the Panama Canal, as mentioned earlier, on international trade. A significant amount of commercial vessel traffic passing through the Canal is engaged in trading activities with the United States.
Furthermore, the Port of New Orleans, in collaboration with other river ports, ocean‑going, and inland waterway vessel operators, manufacturers, agricultural interests, and other groups have been working strenuously to ensure that product dimensions in the lower Mississippi River navigation channel are properly maintained by the Army Corps of Engineers to meet the commercial vessel transportation needs of the United States in the future.
Currently, over 500 million tons of cargo moves from the inland waterways of America through New Orleans, and that is why we have to keep that plug open in the bathtub.
I want to thank you for your time on behalf of all of American and United States ports, Mr. Chairman. It has been a pleasure to be here. And I really appreciate all of you taking this matter so seriously as you are. It is a huge shot in the arm at a time that we all need it.
[The statement of Mr. LaGrange follows:]
Chairman Brady. Thank you for joining us.
STATEMENT OF DOUG WOLF, PRESIDENT, NATIONAL PORK PRODUCERS COUNCIL
Mr. Wolf. Good afternoon, Chairman Brady, Ranking Member McDermott, and distinguished members of the Subcommittee on Trade. I am Doug Wolf, president of the National Pork Producers Council and a pork producer from Lancaster, Wisconsin. I appreciate the opportunity to appear before the committee today.
The future of the U.S. pork industry and the future of America’s family hog farms like mine depend on continued expansion of exports. I am highly dependent on exports as a revenue source. Without industry wide exports, the price I would receive for my hogs would not allow me to remain in business. In fact, for every hog marketed in 2010, approximately $56 was due to export revenue.
The U.S. is now the low‑cost producer of the safest, most nutritious pork in the world, which has established us as the number‑one global exporter. Last year, nearly 20 percent of the pork produced in the United States was exported, compared with only 6 percent in 2000. In 2010, the United States exported more than 1.9 million metric tons of pork, valued at $4.8 billion.
There is no disputing that trade agreements have been a major factor in the rapid growth in U.S. pork exports over the last two decades. For example, since the year before NAFTA was implemented in 1994, U.S. pork exports to Mexico have increased 780 percent, now valued at $986 million. Similar growth has been seen with Australia, CAFTA, and Peru trade partners.
Increasing pork exports is important to many more Americans than just pork producers. The U.S. pork industry supports an estimated 550,000 domestic jobs; 110,000 of these result from U.S. pork exports. Just last year, U.S. pork exports grew by almost $500 million.
The USDA estimates that each $1 billion in additional agricultural exports generates approximately 8,400 new U.S. jobs. For the meat sector, however, USDA puts the job‑creating number at more than 12,000. So the increase in pork exports last year created an additional 6,000 new jobs.
According to Iowa State University economist Dermot Hayes, the Panama trade promotion agreement, when fully implemented, will increase U.S. live hog prices by 20 cents per animal and create approximately 213 full‑time positions in the pork industry. We market over 100 million hogs annually in the United States. That means that this agreement will generate over 20 million additional dollars in the U.S. pork industry.
I think it would be in the interest of the committee to also know that Dermot Hayes, Dr. Hayes, found that both the Colombia and Korean FTA, combined, would increase live hog prices by $11.15 per animal and create over 10,000 direct pork‑industry jobs.
If we fail to implement the FTA with Panama, and Canada implements an FTA with Panama, Dr. Hayes says the U.S. will be out of the Panama market in 10 years. Likely, we will be out of the Korean market in 10 years and the Colombian market in 10 years if the U.S. fails to implement these agreements because of FTAs that those nations have concluded with the EU and Canada respectively.
The Panama trade promotion agreement will create important new opportunities for U.S. pork producers by providing immediate duty‑free treatment of certain pork products while other pork products will receive immediate expanded market access through tariff‑rate quotas. In addition to favorable market access provisions, significant sanitary and technical issues have been resolved that ensure that U.S. pork exports will not be blocked by unnecessary sanitary barriers.
Pork producers are joined by virtually all U.S. food and agriculture producers in supporting the Panama FTA. By a letter dated February 14th, 2011, which is included in our submitted statement, 50 agricultural trade associations expressed strong support for the Panama agreement. Plain and simple, the Panama FTA is good for pork producers, good for U.S. Agriculture, and good for the United States.
At this time of very tight budgets, America’s pork producers are not asking for U.S. tax dollars. We are simply asking for the opportunity to compete. The National Pork Producers Council calls on the Obama administration to send up the implementing legislation soon, and urges Congress to approve the Panama trade promotion agreement and other pending FTAs before the end of the summer.
[The statement of Mr. Wolf follows:]
Chairman Brady. Thank you, sir.
STATEMENT OF JASPER SANFILIPPO, JR., PRESIDENT AND CHIEF OPERATING OFFICER, JOHN B. SANFILIPPO & SON, INC.
Mr. Sanfilippo. Good afternoon, Chairman Brady, Ranking Member McDermott, members of the subcommittee. I am Jasper Sanfilippo, president and chief operating officer of John B. Sanfilippo & Son. And I am honored to testify before the Subcommittee on Trade regarding the benefits of the pending free‑trade agreement with Panama.
My company strongly supports passage of the agreement, which we believe will allow us to reach new customers by removing barriers to trade and investment.
In 1922, John B. Sanfilippo & Son began as a pecan‑shelling company in Chicago, Illinois. Over the last 85 years, our company has diversified production to include a wide variety of nuts and other snack products, both through private label and brands like our Fisher Nuts and Orchard Valley Harvest. Headquartered in Elgin, Illinois, we employ over 1,500 people. With facilities located in Gustine, California; Selma, Texas; Bainbridge, Georgia; and Garysburg, North Carolina, JBS is a public company with annual sales of over $600 million.
Our company plays an important role between growers and consumers as we handle nuts throughout the supply chain, from shelling, blanching, roasting, canning, packaging, and distribution. We purchase raw walnuts, almonds, pecans, and peanuts from over a thousand growers from suppliers in California and throughout the lower southern United States, including Florida, Texas, and Kansas.
Our company began as a small storefront operation, but we are now selling to over 50 countries worldwide. Like many American companies, JBS sees exports as one of our greatest opportunities for growth. Today, exports represent about 10 percent of our total sales. Our long‑term corporate objective is to diversify globally and increase our sales to about 25 percent. We believe our brand, innovation, and our reputation for quality will help us accomplish this goal.
In addition, we have also implemented a strategy to grow with our domestic partners as they enter new international markets. For example, Walmart, one of our largest retail customers, has a retail presence in 14 international markets, offering a global platform for market penetration that otherwise does not exist in our industry.
Twelve years ago, we began selling to Walmart in Mexico, and today we are exporting to its stores in Central America, Japan, China, and Brazil. In addition to Walmart, we are now selling to Comercial Mexicana and Chedraui, local Mexican retail chains that may not have considered our products if they had not seen them on a Walmart shelf.
International growth has been positive, increasing demand for our 1,000 growers and suppliers. Over the last 15 years, we have increased our staff by 700 people and we have modernized four facilities.
Despite this success, we continue to face barriers to exports. Tariff and non‑tariff barriers often affect our ability to compete globally. Tariffs range from 15 percent in Panama to 14 percent in Brazil and to over 50 percent for some products in China. These duties translate to a significant price premium on the retail shelf, often making our products considered a luxury.
We are pleased, therefore, that the United States has negotiated a comprehensive free‑trade agreement with Panama. Panama is currently one of our best markets in Central America due largely to the purchasing power of the customers in the country, the lack of currency fluctuations, and the relatively strong recognition of our Fisher brand. We have been in the market for 11 years and currently export between $500,000 to $750,000 annually.
Under the agreement, duties on our products will be eliminated within 10 years of implementation. Several categories, such as almonds and walnuts, will receive immediate duty‑free treatment. This will allow us to price our products competitively in the market and enable us to reach a new class of customers at that lower price. Our experience in the Dominican Republic proves that; since the CAFTA‑DR went into effect, our sales have grown around 20 percent annually.
The Panama agreement will also allow us to compete more effectively with our Asian competitors, who often enjoy a price advantage due to currency fluctuations or the cost of labor or other inputs. Likewise, we face increased competition from the EU as it negotiates its own agreements with Panama and Colombia.
The Panama agreement will also eliminate restrictions on foreign investment on multi‑brand retailers. Currently, foreign retailers are prohibited from investing in the grocery retail sector. We are hopeful that removing this restriction will allow some of our business partners to open stores in Panama so that we can grow and follow them with their business.
Thank you for the opportunity to present our views before this committee. We strongly believe that free‑trade agreements will help our company to compete in global markets. We hope the committee will have the opportunity to consider and pass this agreement this summer.
[The statement of Mr. Sanfilippo follows:]
Chairman Brady. Thank you, sir.
STATEMENT OF HAL S. SHAPIRO, PARTNER, AKIN GUMP STRAUSS HAUER & FELD, LLP
Mr. Shapiro. Thank you, Mr. Chairman.
Chairman Brady, Ranking Member McDermott, members of the committee, it is an honor to appear before you today. My name is Hal Shapiro, and I am a partner at the law firm of Akin Gump in Washington, D.C. I formally served as associate general counsel in the Office of the U.S. Trade Representative and as senior advisor for international economic affairs at the National Economic Council.
I think, but I am not sure, the reason I am here today is because I wrote a book on fast‑track and U.S. trade agreements that skyrocketed into the top 4 million of the Amazon.com best‑seller list. And, Mr. Chairman, for the record, my wife didn’t even make it through the first chapter, so you can imagine how excited I am that someone would actually hear my views on this subject.
Mr. Chairman, when we gather here today at the most promising moment in years to advance the U.S. international trade agenda, our economy is emerging from a deep and painful recession, restoring the confidence needed for the United States to lead market‑opening initiatives. President Obama has mobilized his administration through the National Export Initiative in order to double U.S. exports by 2014. At the end of 2010, U.S. exports had grown by 17 percent, and administration officials believe the country is on track to meet the President’s challenge.
As this committee well knows, three pending bilateral free‑trade agreements ‑‑ those with Korea, Colombia, and the one we are here today to discuss, Panama ‑‑ are central elements in the U.S. trade agenda.
The Korea agreement would be the United States’ most commercially significant free‑trade agreement since NAFTA. The ITC has estimated that the reduction of Korean tariffs and TRQs on goods would annually add $10 billion to $12 billion to U.S. GDP and roughly $10 billion to our exports to Korea. Under the agreement, 95 percent of bilateral trade would become duty‑free within 3 years. Thus, swift action on that agreement would be one of the most effective ways to help our economy grow more rapidly.
As Ambassador Sapiro testified earlier today, the administration is also continuing to work with the Governments of Colombia and Panama to resolve all outstanding issues. Ambassador Sapiro explained that U.S. and Panamanian negotiators met in February and agreed upon actions that, when taken by Panama, will ready the agreement for congressional consideration.
Before turning to the specifics of the Panama agreement, allow me, as a former U.S. trade official who has written and taught on the subject, to say that I believe U.S. international trade agreements should serve three aims: They should enhance our national security, they should strengthen our economy, and they should promote our values. And these three aims are best achieved when our agreements have bipartisan input and support. In my view, when work on the Panama agreement is completed, it will satisfy all of these points.
First, in terms of our national security, Panama is an important and dependable ally of the United States in a critical part of the world. The United States and Panama have shared a geopolitical and economic interest dating back to the 1800s and to the opening of the Panama Canal in 1914. Panama has proved to be a steadfast friend to the United States at a time when relations with some countries in Latin America have been uneven. The agreement would serve to make our ties to Panama stronger and more enduring.
Second, in terms of economics, the United States has much to gain from the agreement. Panama has a rapidly growing economy and is one of the few Latin American countries with which the United States has a merchandise trade surplus, the largest in the region. When the Panama agreement enters into force, 88 percent of U.S. merchandise exports will enter Panama duty‑free, with remaining tariffs phased out over 5 to 10 years. The ITC has found that the agreement’s main effect would be to increase U.S. exports, while causing little growth in U.S. imports from Panama.
Third, the negotiations appear to address elements that should allow the Panama agreement to garner bipartisan support and reflect a wide range of values Members on both sides of the aisle represent. For example, concerns have been raised here and in the past about the transparency of tax information and labor laws in Panama.
On taxes, as we have discussed today, Panama and the United States have entered into a tax information exchange agreement. Panama has not yet ratified that agreement, but I hope it will do so very soon. And Ambassador Sapiro indicated that may occur.
On labor and environment, the Panama agreement does not just seek to lock in existing standards, as some past U.S. agreements have done. Rather, it calls for enhanced standards, subject to strong enforcement mechanisms. Panama has worked hard to make progress in the labor area, and I trust it will continue to do that rapidly.
Panama deserves credit for working diligently with the administration to address these issues. It is my hope that the remaining steps outlined by the administration are taken swiftly and the agreement will forge even closer bonds between the United States and this important strategic partner.
[The statement of Mr. Shapiro follows:]
Chairman Brady. Thank you very much.
Great testimony all around.
Mr. Shapiro, you outlined the importance of the relationship with Panama. They are working diligently with us and the White House to address labor concerns. The protections, the enhanced labor and environmental standards are subject to strong enforcement mechanisms. In fact, Panama ‑‑ this agreement has the same enforceable labor and environmental standards as Peru, which passed Congress with very strong bipartisan support, and the Korea agreement and the Colombia agreement. So, thank you for your comments.
Mr. Sanfilippo, Mr. Wolf, you made great points about the importance to small businesses, agriculture, farmers, food and processors in this agreement and the cost of delay and the damage from competitive disadvantage.
Mr. LaGrange, you pointed out the importance of the agreement not just to the Port of New Orleans but to many U.S. Ports.
And, Mr. Oberhelman, thank you for outlining the benefits of all three agreements, both to Caterpillar and broadly to our economy.
I want to give you a chance to make your final point, Mr. Oberhelman, about manufacturing and mining, but let me ask you this. You know, Panama is undergoing an infrastructure boom. Caterpillar isn’t selling copy paper that you reorder every quarter. You are selling major pieces of equipment, with, my guess is, service contracts and supply contracts that last for years and years and years.
So, when you miss the opportunity to bid and win contracts on a bridge, on a canal, on a road, on any major project what is the damage? How long does it take you ‑‑ when you miss that opportunity, how long does it take you to rebid and catch up?
Mr. Oberhelman. Yeah, thank you, Mr. Chairman. It is a great point, because, in our case, we will sell a machine, which may live 10 years and actually generate about triple its initial value in parts and service volume, which would be exports from the U.S. over its lifetime in that 10‑year period.
We are there in Panama today. Every single day, we see a foreign competitor trying to compete for those trucks, those tractors, whatever it is we sell. If we miss it today, we may not get another round for 3 or 4 years. Obviously, the Canal is kind of a one‑time‑only, but there is a subway system, there is lots of development going on in Panama, that if we miss this, we may not get another opportunity in Panama. I go back to Peoria or Decatur or Aurora, Illinois, where these plants are located, and I tell our hourly workers, “Sorry, we missed the order. We don’t make that tractor today to ship.”
Final point: About 90 percent of our heavy volume machines today from Illinois are exported. So those machines ‑‑
Chairman Brady. Run that by me again?
Mr. Oberhelman. The machines that run down our assembly lines in Aurora, Decatur, and Peoria, Illinois, between 80 and 90 percent right now are exported. And we put a flag on each side of those machines with the destination they are going, and it is something to be very proud of.
But we talk to our people about that all the time. If we didn’t have that order and we lost it to a Chinese or Japanese competitor, we wouldn’t make that machine today. So it is important to us, important to our hourly workers, our 23,000 people in Illinois and elsewhere, 47,000 in the United States.
Chairman Brady. Right. Thank you.
I would note, when I was in Panama City, from my hotel window, I stopped counting at 20 cranes in construction of various buildings, both residential, commercial, looked like civic municipal buildings as well. So it is a tremendous, dynamic market there.
Mr. Oberhelman. Yeah. A lot of those cranes are built in Wisconsin. We don’t own that company; we know them. Same story would apply. Fairly massive pieces of equipment that generate lots of parts and service for Wisconsin employees, in this case, for those companies.
Chairman Brady. Is there anything you are not manufacturing in Wisconsin? It sounds like you have the bases covered.
Mr. Schock, do you have a question?
Mr. Schock. Well, I think, for my hometown’s sake, Mr. Oberhelman, you did a fine job of clearly articulating why these agreements are so important. I was going to ask you about how significant Latin America is to Caterpillar, but I jotted down some of your statistics. A 58 percent increase in Latin America alone last year ‑‑ that is huge. And 6 of your 10 largest markets are in Latin America.
I guess, to follow up on your earlier remarks that Chairman Brady asked about, missing the sale, or the potential for that, what are your concerns about the penetration of some of your competitors? For example, China, I know, is pretty aggressive. But I know, when I talk to the ag community, it is Canada’s trade agreement right now with Colombia, for example, that is going to risk our wheat market. But I know inaction means that you are put at a competitive disadvantage with some of your world competitors.
Maybe you could speak a little bit about the competitive threats in Latin America with some of your competitors.
Mr. Oberhelman. Thank you, Congressman Schock, and I will.
The interesting thing is that, where we have free‑trade agreements, we can be the favored price leader among those other competitors that don’t have free‑trade agreements. It works the other way, as well.
For our mining equipment going to Panama and Columbia, which are huge markets for us, all Illinois‑built machines for the most part, if we don’t have the free‑trade agreement and Japan would, which houses our number‑one competitor, the famous Komatsu, we would be price disadvantaged from 5 to 15 percent on every product going in if they sign an agreement with Japan, which we know they are negotiating. And I am very worried about that, because, once we are out of those mines in Colombia and Panama, it is hard to get back in, because we like our customers to standardize on our engines, our parts supply, our technicians and mechanics.
So there is only one way to go in Latin America for us, and that is down, if we don’t do free‑trade agreements like we have in Peru and Chile and elsewhere that have served us so well over time. We can be the leader and continue to be for a long time in the future, especially that generates jobs for our hourly workers in Illinois.
Mr. Schock. Uh‑huh. Very well said.
The only other question I would have ‑‑ I know how much work you do educating the employees of Caterpillar, which I think is so important as we muster the political support out here in Washington, D.C., in favor of trade agreements.
I am curious, to the other panelists here, if you might speak to, whether it is Mr. LaGrange or whether it is the pork or ag witness, what do you do to help educate your employees or your members on the significance of these trade agreements to their livelihoods?
Mr. LaGrange. Well, we work in concert with a number of other entities: our board of trade, the World Trade Center in New Orleans. We also work with a number of entities here at the Washington level through the American Association of Port Authorities, which consists of 164 ports in the United States. It is through those organizations we have educational committees that meet on a routine basis throughout the United States. And we use that as a vehicle or as a mechanism to indicate what the benefits are from a free‑trade agreement in terms of what that equates to in total tonnage, in total dollar amounts, and total volume coming in and out of your port.
We know for a fact that the increase, as I alluded to four studies earlier, the increase in cargo incrementally from the Panama Canal alone ‑‑ there was an another subpart to that. With the passage of Colombia and Panama free‑trade agreements, that subpart also included an incremental amount of 38 percent in the way of exports being increased from the east coast and gulf coast ports.
So it is a good number and it is one that we seize every opportunity we possibly can to get out and mix with the guy on the street, the businesspeople, through all of other organizations, from the Chamber of Commerce, World Trade Center, Board of Trade, and then again across the country through our other sister ports.
Mr. Schock. That is great.
Mr. Wolf. If I can, in the pork industry, we have always tried to explain the value of our export markets by the increased value to each producer. And it was a little bit hard to get everybody to understand it, until 2008 when H1N1 hit and our export markets were stopped and our prices dropped about 30 to 40 percent. We lost a fair number of producers due to that economic falldown. So it put things in reality of how important these export markets are, so we keep pushing that and use that as our example.
Mr. Sanfilippo. With us, when we talk to our staff, we really drive home the fact that we need to remain competitive, both domestically and globally. And when we look at our operations and trying to reduce expenses, you know, we will communicate to them the fact that, through our exports, you know, we do have things like tariffs that represent a much higher percent of what we could ever drive out of our manufacturing operations. So they are educated on that.
But they recognize, like we do, that, you know, these things are important and they need to be handled in a different level other than the facility. But, clearly, the more volume that we run through our facilities, the better off they are and the more people we hire.
Mr. Schock. Okay.
Thank you, Mr. Chairman.
Chairman Brady. Thank you, Mr. Schock.
We just received word that the Colombian Constitutional Court has given its approval to the Colombia‑Canada trade agreement. That ruling marked the last procedural step to clear the way for implementation of that agreement on July 1st. This development highlights the urgency that we face.
Colombia ‑‑ this agreement is a good, solid agreement that levels the playing field for our workers and exporters and respects the rights of workers and cements relationships with a loyal ally and drives home, I think, the point the witnesses made today that the pending trade agreement with Panama offers significant benefits, as well as the pending South Korea and Colombia agreements. Continued delay will only hurt American interests in the region and the ability of American workers, businesses, and farmers to compete in these markets as our competitors move ahead.
I hope the Administration will lay out a clear action plan and timetable for considering the Panama agreement. I strongly believe we should consider all three by July 1st. I hope we can all work together to make that happen.
I want to thank the witnesses today, the Members for their thoughtful questions.
I would note that Members of Congress may submit questions to you for the record. I would encourage you to respond promptly.
Chairman Brady. Again, thank you so much for your patience today and insight that you provided in this agreement.
But, for now, the committee is adjourned.
[Whereupon, at 6:02 p.m., the subcommittee was adjourned.]
SUBMISSION FOR THE RECORD