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July 07, 2011

Liveblogging dueling congressional hearings on 3 NAFTA deals

President Obama has decided to introduce NAFTA-style deals with Panama, Colombia and Korea to Congress, bowing to pressure from corporations and Republicans.

Recognizing that the deals would cost jobs, the administration also agreed with House Republicans to cut (but partially renew) trade adjustment assistance (TAA) for workers displaced by trade.

Republicans, after getting what they want, are now threatening to block or muddle the push on the FTAs, because TAA was not cut enough, or out of concerns that pairing TAA with the FTAs backs up the notion that trade deals cost jobs. Well, yes.

The three deals will be considered under Fast Track trade promotion authority, which means that normal congressional procedures and debate are suspended. As we state in our book on the topic:

Core Aspects of Fast Track Trade-Authority Delegation

  • Allowed the executive branch to select countries for, set the substance of, negotiate and then sign trade agreements – all before Congress had a vote on the matter.
  • Required the executive branch to notify Congress 90 calendar days before signing and entering into an agreement.127
  • Empowered the executive branch to write lengthy implementing legislation for each pact on its own, without committee mark ups. That is to say, the process circumvented normal congressional processes. These executive-authored bills altered wide swaths of U.S. law to conform domestic policy to each agreement's requirements, and formally adopted the agreement texts as U.S. law. As a concession to congressional decorum, the executive branch agreed to participate in "non" or "mock" hearings and markups of the legislation by the trade committees. However, this is a practice, not a requirement.

Today, we will attempting to live-blog the simultaneous mock markups in the Senate Finance and House Ways & Means Committees. I'll be focusing on the latter. [My comments will be in brackets; unless noted by quotes, all notes are paraphrased from actual statements.]

++

Chairman Dave Camp (R-Mich.): We obtained significant reductions in TAA. But the agreement was on substance, not process.

[See statement here. Camp has a key misrepresentation in his opening statement:

"The three trade agreements are a sure-fire way to create American jobs by growing U.S. exports of goods and services – and they do not require one dime of new government spending.  The independent U.S. International Trade Commission estimates that the three pending trade agreements together would increase U.S. exports by at least $13 billion.  These agreements will create and support jobs here in the United States – 250,000 jobs, using the President’s own measure."

This is a serious misrepresentation. In fact, consistent use of this methodology here would show a job loss from the trade deals, not a job gain.

And it's misleading to suggest that these deals don't cost money. In fact, as the Congressional Budget Office estimates have shown, the U.S. government will lose billions in tariff revenue from implementing the deals.

Korea FTA itself: $7,355 million over 2011-2021

Colombia FTA itself: $1,400 million over 2011-2021

Panama FTA itself: $6 million over 2011-2021]

++

Ranking Member Sander Levin (D-Mich.): Urging a "no" vote on mock markup of the 3 FTAs if his amendment to include TAA is not included. Is asking for a certification to be required that Colombia has met its action plan requirements before the agreement enters into force. Urging a no vote if this amendment to require certification fails.

[This Action Plan fails to accomplish the most important labor rights objective: requiring an end to unionist killings on the ground. It also falls far short of the extensive benchmarks laid out by Democratic labor rights leaders.]

++

10:30 am:

Rep. Jim McDermott (D-Wash.): Without TAA, it will be impossible for me to support any of the FTAs. It's good that trade agreements help make businesses more money, but workers have to be protected. It will cost the Republicans nothing, except their ideology. I hope we can make economic policy that is not based on a dead economic philosophy that has failed our country again and again.

[Wow, wouldn't that failed philosophy include the failed NAFTA model?]

The Committee is proceeding to consider Camp's substitute for the administration's draft implementing legislation, which strips TAA from the Korea implementing bill.

Rep. Charles Rangel (D-N.Y.): Most members have probably already made up their mind on these agreements. Are we going to have to go through these provisions section by section? Can we instead focus on the differences we have on TAA?

Camp: We'll begin with Panama, and consider each separately. The administration can send up TAA separately, and we will mark it up at that time.

Rep. Kevin Brady (R-Texas): Panama has been removed from OECD grey list, and changed its labor laws. Why has consideration taken four years?

[Actually, while Panama has moved off the OECD gray list, the agency has noted the inadequacy of that metric. As a result, they've established a more substantial peer review process, to ensure that tax havens are complying with the full spirit of transparency. Panama has yet to graduate from Phase 1 of the Peer Review process, unlike even the notorious Cayman Islands tax haven.]

10:50 am:

Rep. McDermott: Have any changes been made to Panama FTA?

USTR General Counsel Tim Reif: This agreement was changed in May 2007, and there was also improvements in Panama's tax laws.

[Long aside. Actually, this is a bit misleading. The Bush administration announced that it had begun preliminary discussion on a tax information exchange agreement [TIEA] with Panamanian authorities in January 2002. The TIEA was only completed in November 2010 - over eight years later. It went into effect in April 2011.

Article 6 of the TIEA on "Possibility of Declining a Request." It allows either party to decline to assist the other "where the disclosure of the information requested would be contrary to the public policy of the requested Party." This language is particularly problematic in the case of Panama, whose public policy is to facilitate tax and regulatory haven activities.

The weakness of the TIEA framework was noted by the IRS and Sen. Carl Levin (D-Mich.), who have been contemplating (along with key tax justice groups) a move towards automatic exhange of tax information.

See comment from IRS Commissioner Doug Shulman, June 2010:  “It often takes a long time to get the requested information from partners; and the information may also be incomplete. There are also very strict rules and you may have to jump through a lot of hoops to get the information you need."

Or comment by Sen. Carl Levin (D-Mich.), March 2009: “the Administration may want to consider finalizing a regulation proposed by the Clinton Administration years ago. That regulation would allow the United States to engage in automatic information exchanges of account    information with countries on a reciprocal basis for tax enforcement purposes. Right now, the only automatic tax information exchanges we engage in are with Canada. A lot more countries may be willing to participate. The resulting account data could produce     new information identifying U.S. tax dodgers.”

Indeed, automatic exchange of info is the emerging norm and best practice in Europe, North America, and the Nordic countries. The UN Stiglitz Commission has called for it to be implemented, and the OECD has even helpfully laid out templates for how it can be enacted. (The Tax Justice Network has pretty good introductions to these issues here, here and here.)

Panama approved "Know Your Client" legislation in February 2011. This legislation (or any other) did not require the immobilization of bearer shares, but set up a process whereby (in certain instances) registered agents are supposed to be able to identify their owners. Panama’s recent actions give little hope of the government’s good faith in making these changes. In January 2011, Panamanian official Frank de Lima bragged to a reporter that little would change with the TIEA: “We’ll maintain competitive advantages like bearer shares (other jurisdictions have eliminated them) and we won’t immobilize bearer shares as other jurisdictions have done.”

Moreover, the National Assembly watered down the Martinelli administration proposal (itself a watering down of what tax justice groups have called for) in several ways.

First, registered agents in Panama that violated the Know Your Client legislation saw their period of debarment shrink from 1-3 years in the Martinelli proposal, to as little as three months in the National Assembly approved legislation (see Article 20, as amended). So, after a little slap on the wrist, a lawyer could return to offering untransparent services to anonymous tax dodgers, assuming the laws are enforced in the first place.

Second, the Martinelli proposal required resident agents to 1. identify their clients and verify that identity through a paper trail; 2. ascertain the purpose for the creation of the corporate entity, and 3. share information with the government under certain extenuating circumstances. But the National Assembly scaled this back so that, in order to comply with item 2, "the resident agent shall not have the obligation to carry out any proactive step or verification of the information provided by the client." (Article 3, as amended). In other words, trust, but do not verify.

Moreover, the fines for failing to preserve financial secrecy under the Know Your Client legislation are as much as five times larger than the sanctions for failing to cooperate with the legislation’s limited information gathering and cooperation mandates. The Martinelli administration signed the weak bill into law on February 1.]

++

Camp: I will mark up the FTAs and TAA on the same day.

Rep. Xavier Becerra (D-Calif.): Where in agreement is the TIEA? It's not in implementing legislation.

Reif: It's a separate agreement. The U.S. does not need to make changes to laws to implement it. It was an essential condition for moving forward with the FTA.

Rep. Becerra: It's not in agreement.

Rep. Charles Boustany (R-La.): What are benefits from this deal for small and medium businesses?

Ways & Means Trade Counsel Angela Ellard: Well, they can use the investor-state system...

Rep. Brady: Quotes Geithner on TIEA "ushering in a new era for tax transparency."

[Actually, as noted above, even Geithner's IRS commissioner has noted that TIEAs are cumbersome, and very much an old era.]

11:12 am

Rep. Lloyd Doggett (D-Texas): I hope to share Brady's conclusions. But it's taken 7 years to get there. I would like to have seen more comprehensive action, similar to the one we have with Canada.

We have now had an agreement with Australia for seven years. have there been any problems with it?

Reif: No significant problems.

Doggett: But in these three trade deals, we included the investor-state system from CAFTA. But we did not do that in Australia.

Reif: The investor state provisions are similar to our trade agreements.

Doggett: We even included it with Korea, which has a developed court system. If you have a choice between having our investor relying on our court system, or using arbitration panels, the USTR position is use the latter.

Reif: Well, we wanted to give investors the option...

Doggett: but it was not necessary in Korea. We feel that the investor state system is preferential to foreign investors. The Obama administration position is 100% the same as President Bush.

Reif: They were negotiated by the previous administration. The Obama administration believes that investors need protections...

Doggett: And this is the same as the Bush administration, is it not? It's a simple question. I'll ask you again when we get to the Colombia agreement section.

 11:15 am

Rep. Pat Tiberi (R-Ohio): Canada is better at exporting than us. Have they pushed trade deals?

Ellard: Canada has a signed trade deal with Panama.

Rep. Richard Neal (D-Mass.): If the committee took leadership on including TAA, it would happen.

11:27 am

Rep. McDermott: We have seen so many job losses in manufacturing, and now in services. Without protecting them, "we're saying that profits are more important than what happen to our own workers. We have millions of unemployed people in this country... By passing these agreements, we'll say that we're more interested in creating jobs overseas." Businesses look out in America, and say that there is no demand. Without TAA, we're saying "we don't care about you." "If you lose your job because of trade, tough luck." "This is a social justice amendment, and everyone ought to vote for it."

Rep. Bill Pascrell (D-N.J.): "Hopefully, we will end the assault on workers promptly." Even if you are of the opinion that every single trade deal is the greatest thing for the economy since sliced bread, you have to recognize that they can cost jobs. "these agreements will not create jobs, when you add them all up." We're not adding jobs, "the only thing that would add jobs is getting China to stop manipulating its currency!"

Levin: This issue is non-negotiable. We're not going to leave it up to the Speaker to decide what will happen. It's been said that there's a deal. Now we're told that it's a deal on substance, not on process. But that's not a deal. To separately mark up TAA and FTAs, we say that we've been down the road before, and it won't work. Those that do not vote for this, are saying "we'll leave it to chance. But when it comes to American workers and jobs, chance isn't good enough." "As trade expands, and you're the loser, we're not going to help you become the winner."

Camp: We still don't have an agreement on the process.

Tiberi: I'm glad that the president reversed himself on his commitment to renegotiate NAFTA. We need to stop blaming job loss on trade, when it's the fault of the Southern states and technology.

11:45 am

Rep. Ron Kind (D-Wis.): If we agree on the TAA package, we could vote on the FTAs next week. As long as trade is a two way street, there will be an adverse impact on workers. I want to be supportive of these trade agreements, and think that they will create jobs.

[In fact, the deal is projected by the official U.S. government numbers to increase our trade deficit.]

11:55 am

Rep. Geoff Davis (R-Ky.): One of the inferences from this discussion is that trade destroys jobs. Nothing could be farther from the truth. Technology and innovation are leading to changes. It's a result of our high productivity that we're shedding jobs.

Rep. John Lewis (D-Ga.): The time is always right to do right.

Levin: I very much favor trade, but it's a mistake to say it doesn't cost jobs sometimes. Otherwise we wouldn't have TAA. Trade destroys jobs, and it creates them.

Rep. Becerra: Even when trade is done right, it can cause dislocation.

12:11 pm

Doggett: We've heard a lot of good commitments from President Obama on a 21st century trade policy. "It's been heavier on speeches than on changes to policy." Clearly the preferential opportunities given to investors ... you cannot tell the difference between the policies of the prior administration and the Obama administration. Past trade agreements have not lived up to their promise, and have created more jobs abroad than here. I hope we see more change in trade policy.

McDermott: My support for international trade is without question. I respect Chairman Camp, but I don't think he's in on the deal.

[They are taking the roll call on this amendment. It looks like it is going down. Indeed, every GOP voted against including a TAA burial insurance program in the job-killing trade deals. 15 ayes (all Dems) to 22 nos (all GOP). No more amendments. The Committee passes the draft Panama FTA and rejects the amendment on a party line vote. Now they are moving onto consideration of Korea FTA.]

Rep. Dave Reichert (R-Wash.): The 70,000 jobs estimate does not include service sector changes, isn't that right?

Ellard: It could be up to 250,000.

Reif: The ITC method does not allow us to estimate this, but we know it's a large services market that we're opening.

Pascrell: The record of past trade agreements is not very impressive. Cites an EPI study.

Reif: The jobs created by these three agreements are impressive. There's a wide range of studies that make different conclusions.

Pascrell: My understanding is that 65% of a car could be made in China, and still be allowed duty-free entry into the U.S. We cannot continue to pursue policies that give China advantages, whether in autos or widgets. I'm concerned that auto companies in both the U.S. and Korea will send more jobs overseas, in an effort to lower their costs at the expense of good paying jobs in the U.S.

Reif: There's two important requirements. The auto must be produced in the U.S. or Korea. At least 35% of the content must be made in either country. This is specifically designed in consultation with auto companies to increase sales into Korea. As you know, the auto workers support this.

12:40 pm

Camp: And there was a supplemental auto deal.

[Camp cites a supplemental USITC report, but misrepresents its findings. In fact, as we wrote here, the latest study confirms that, even with the supplemental agreement, very few U.S. autos will be sold in Korea, and a huge increase in Korean auto imports into the U.S. is predicted. Moreover, the new study did not alter the previous findings that the bilateral and global balance in autos will worsen under this agreement, nor that the U.S. will see an increase in its overall global trade deficit. And the attempts to model the weakening of auto safety standards was completely flawed.]

Levin: Because of failure to include TAA, I'll be voting against an agreement I helped shape. Because of the changes I was able to shape, we can export more U.S. products to Korea. Would you spell out changes in the exchange of letters? It was such a meaningful change, and I just want you to explain it.

Reif: Wendy Cutler will explain these "landmark changes."

Cutler, USTR: Describes safety and environmental exemptions.

[In December 2010, the Obama administration got Korea to agree to exemptions from safety standards for U.S. automakers that sell below 25,000 cars a year in the Korean market and the exemptions from environmental standards from 2012 to 2015. Actually, given that Koreans already are disinclined to buy foreign cars, a high-profile exemption of U.S. cars from having to meet Korea’s strong safety and environmental standards will only exacerbate Korean consumers’ notions that imports are inferior. So this could actually lead to weakened sales of U.S.-made cars in Korea.]

McDermott: Asked if lack of inclusion of May 10 IPR provisions in the Korea FTA was a signal that May 10 IPR provisions would be weakened in the Trans-Pacific FTA.

Reif: This was not what I was trying to signal.

Rangel: IF TAA is not approved, you put some of us in an awkward position. What assurances can you give us that TAA will be included in final bill? Why didn't you include the Speaker? I understand why you excluded DEmocrats.

Reif: We're in ongoing discussions about how to move the ball forward...

Rangel: So you're confident that the Speaker will support the Chairman?

Reif: I cannot announce the Speaker's position.

1:10 pm

Becerra: Weren't there some improvements in the labor requirements in the Korea FTA?

Reif: yes, the agreement requires the U.S. to adopt and maintain in their domestic practices the five core labor standards.

[Actually, one of the key demands was to eliminate the Korea FTA's ban on incorporation of the ILO core standards themselves, instead of the non-binding declaration. See here: "The obligations set out in Article 19.2, as they relate to the ILO, refer only to the ILO Declaration."]

1:18 pm

[On party line vote, again, the Korea FTA passes the vote in mock mark up. 22-15.]

3:00 pm - hearing reconvenes.

Rep. Wally Herger (R-Calif.): Cites USITC estimates on bilateral exports.

[Again, the relevant point is the USITC's estimate on global net exports, which show a decline, not increase.]

Rep. Rangel: I'm impressed by the tariff reductions, but I'm even more impressed by how violent Colombia is for workers. Everyone agrees about this violence, but it's not a part of the bill.

Reif: It cannot be a part of the FTA, because it would eliminate Fast Track rules.

Rangel: But the Korean agreement was reopened...

Reif: Actually, we didn't reopen the Korea agreement...

RangeL: I don't want to get started there... How can we explain this vote back home? Is it possible that someone can vote for the agreement and know that the action plan is a part of it?

Reif: The president has said that...

Rangel: The reason I'm so rudely interupting is that the president says a lot... A lot of members aren't going to vote for the agreement because they can't rely on what the president says... We cannot guarantee this committee that it will be included at this time in place... Is that accurate?

Reif: The action plan is being executed...

Rangel: Can this action plan be included in the FTA?

Reif: The action plan is being frontloaded...

Rangel: Can it be included in the FTA?

Reif: It's not included in the implementing bill, because Korea...

Rangel: No, no no. My time has expired, and I'm glad...

Levin: Mr. Rangel has put his finger on an important issue... we'll have an amendment on this...

3:22 pm

Camp: Trumpets lack of murder of 10,000 activists in a security program.

[Wow. I didn't know that the fact that 10,000 unionists have survived would constitute a talking point.]

Camp: How many core ILO standards have they implemented vs. how many have we implemented?

Bennet Harman, USTR: They've implemented all 8 of them, we've implemented 2.

[Another disappointing talking point.]

Ellard: Notes that Colombia removed from ILO watchlist.

Camp: are there any labor union leaders that have endorsed the FTA?

Ellard: 14 of Colombia's union leaders have endorsed the trade agreement.

Camp: I understand that one of the labor unions has described the action plan as the most significant labor acheivement in a generation.

Ellard: Yes.

Levin: No one is denying that action plan is a step forward, but only whether the action plan is incorporated into the FTA... Was there ever any draft that included reference to the action plan? I think the answer is yes.

Reif: The answer is no. There is nothing about the action plan that refers to a need to an action that the US government needs to take.

Levin: there's no reason why this can't be included. There was something that was proposed by the president, but it was rejected by the Republicans. That's the facts.

Camp: I do have to correct the record. There was no formal submission of language, and there was no rejection by the Republicans. That's just wrong, and I think I would know.

Levin: Then accept the amendment.

Camp: We're not going to do it.

Lewis: Shouldn't our trade policy be a reflection of our values? What's the redeeming economic value of the FTA with Colombia?

Reif: The administration believes that trade policy should reflect American values, and you can see that from our labor case under CAFTA against Guatemala, the development of the action plan with Colombia, and said that the action plan is a precondition for the FTA with Colombia.

Ellard: Entering into a trade agreement by itself raises labor standards. There is evidence for that.

Lewis: how can we be assured that violence will cease?

Reif: We agree, and steps are being taken to do that.

Harman: the homicide rate for unionists has gone down since 2007.

Camp: Is it lower for unionists than for general population?

Harman: yes.

[This is a bogus comparison, comparing apples to bloody oranges. People getting targetted for assasination because of their political activites is a very different matter than generalized violence, which is not directed by companies or the state and is more a result of poverty.]

3:44 pm

Pascrell: I see that unionist murders have gone up to 51 from 2010, up from 49 in 2007. Are my numbers wrong?

Reif: Some of the results of action plan are becoming evident.

Pascrell: We don't want to hear talk. Things were promised with Mexico under NAFTA. That dog doesn't hunt anymore.

Camp: I believe the numbers that Pascrell are coming from the ENS, but the official record is held with the Colombian government.

Becerra: The ILO and our government cites both figures, just a clarification. Santos has moved the country forward, and it's important to recognize that. Mr. Reif, you leave the impression that no conversation has taken place with respect to including action plan in implementing legislation. Are you saying that?

Reif: There were proposals tabled during staff conversations...

Becerra: I understand, but was this ever proposed?

Reif: What occurred was...

Becerra: I don't want to hear about "occurred"... It's a yes or no question. You're familiar with action plan?

Reif: Yes.

Becerra: Was there any conversation about including this?

Reif: Yes, from Mr. Levin's staff.

Becerra: that's a yes. At some point, that decision was set aside, correct?

Reif: There was.

Becerra: If we said that 50 people who testified before COngress were going to be killed, we'd be having a very different conversation. In Colombia, you need armored guards to protect workers. If they don't have rights, they're probably not getting good wages. If they're not, then this will hurt U.S. workers. That's why it's so important to include action plan in the implementing legislation.

Doggett: I was not aware of that. I always feel very inspired when I hear Obama's speeches on trade, but nothing actually changes. Aren't over 90 percent of cases not resulting in any prosecutions at all?

Reif: The action plan is an effort at systemtic plan...

Doggett: I understand what the action plan is. I like it so much, I'd like to see it incorporated into the implementing legislation. Isn't it true that less than 10 percent of the cases result in convictions?

Harman: Yes.

Doggett: These people have made progress, but they haven't been in power very long, and we don't know if they can keep it up. We have many concerns, and I'm not sure that the action plan addresses it all. When you won't even include Mr. Levin's modest proposal, it's clear that trade policy is all talk and no action.

4:06 pm

Blumenauer: I have been encouraged by what has happended in Colombia. It is different than what it was. We have destabilized that country. It has been wrenching for Colombia. It is breakdowns in law and order in our country that has created the mess.

It looks like we're goign to have some aggressive penetration of some sectors, that millions of peasants are going to be affected, perhaps moving back into illicit cultivation practices. Can you give me some sense of what we have done to provide protection for this vulnerable population?

Reif: There are long phase-out period. On the ground, we have APHIS staff to help develop their exports to the U.S. market.

Blumenauer: Are we being as aggressive as in other deals?

Reif: At least as much. We have 10 different employees on the ground.

Harman: We're helping them meet our requirements. And the Colombian negotiators had long phase out periods.

4:13 pm

Rep. John Larson (D-Conn.): I'm scratching my head as to why the administration would resist an amendment to agree to what both sides have already agreed to. Is the administration saying to Democrats on this committee to vote against Chairman Levin's proposal?

Reif: We're not in support of this proposal.

Larson: I don't understand that. As things ebb and flow in this place, fine, that's all part of the process. There is something about the integrity of this place with respect to the executive branch and the Senate. When a colleague who we all hold in high esteem puts forward an innocuous proposal that simply codifies what we've already agreed to, we should stand up for the House.

4:34 pm

Lewis: President Obama will not be president forever, nor will Santos. That's why labor rights must be included in the agreement.

Doggett: I don't believe the action plan does enough to deal with paramilitary successor organizations. Cites February 2011 ILO vist that expressed continued concerns about Colombia...

5:06 pm

McDermott: We'd like to be a part of this... write down the labor commitments.

5:27 pm

[On party line vote, the Levin proposal to incorporate the Action plan was rejected on a party line vote. The U.S.-Colombia deal mark up was adopted.]

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