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BEFORE THE SUBCOMMITTEE ON INTERSTATE COMMERCE, TRADE, AND TOURISM COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION TESTIMONY OF JAMES P. HOFFA, GENERAL PRESIDENT INTERNATIONAL BROTHERHOOD OF TEAMSTERS HEARING ON TRADE RELATIONS WITH CHINA JULY 25, 2007 at 2:30 253 RUSSELL SENATE OFFICE BUILDING Chairman Dorgan, Ranking Member DeMint, and Members of the Subcommittee, thank you for inviting me to testify today on behalf of the 1.4 million union members of the International Brotherhood of Teamsters on this important issue. Under my leadership at the International Brotherhood of Teamsters, the issue of trade and how it impacts workers, families, and our national security has always been a top priority. Our workers have seen directly the impact that our trade policies, especially with China, have had on them. This hearing is especially timely, not only because I have recently returned from my first trip to China, but also in light of all of the alarming news recently regarding Chinese imports, and the fact that China legislation is expected to be considered soon. Ideally, trade and globalization policies should be used as a tool to advance the priorities of the American people, the worker, and American foreign policy and national security interests. In reality, U.S. trade policies have not achieved this; in fact, our trade policies have achieved the opposite effect in all areas, especially with respect to trade with China. Visit to China My fact-finding visit to China in May included stops in Hong Kong, Shanghai and Beijing. Our delegation included Teamster Vice Presidents Chuck Mack from Oakland, California and John Coli from Chicago as well as Andy Stern of SEIU, Arturo Rodriguez from the United Farm Workers, Edgar Romney from UNITEHERE, and Anna Burger and Greg Tarpinian from Change to Win. I went because I wanted to learn first-hand about challenges that working people face in China. I wanted to know more about working conditions, pay and benefits, and worker organizations. I know that corporations operating globally are profiting handsomely from expanded operations in China, but what about workers? China is now a global economic powerhouse and I wanted to take a fresh look at what that means for Teamsters. I believe that a constructive China policy can unite workers in the United States, China and around the world, all of whom have an interest in stopping the race to the bottom. Many of us in the labor movement are seeking alternatives to the flawed “free trade vs. protectionism” debate seeking new ideas about how the U.S. should respond to globalization. We met with the All China Federation of Trade Unions – ACFTU, the only legally sanctioned trade union body in China. We also met with union leaders and academics that are critical of that union and of the current government. We met with advocacy organizations that are documenting the poor working conditions of millions of Chinese workers in the special economic zones that are set up on China’s east coast. We met with Teamster employers with subsidiaries in China, and with the American Chamber of Commerce in Beijing. We visited key infrastructure facilities including Shanghai’s new deep water port and air hub distribution facilities. We were only there for ten days so by no means do I claim to be any sort of expert, but I came away from the trip with some very clear impressions. My clearest impression is that economic growth is the top priority for the Chinese government. We visited the Yangshan Deepwater Port and Container Terminal. A twenty-mile causeway from Shanghai leads to the port which was inaugurated in 2005 and is now by some measures the second largest port in the world. The Port management and union welcomed us by advising that they had set a world production record the prior evening in our honor. Our questions about what happened to the residents of the fishing village that formerly occupied the island were simply not understood. Any rights of those residents meant nothing in the push for economic growth. We were briefed on large-scale highway projects, bridges, tunnels, electric generation plants, dams, and railways. Parts of Beijing seemed like one big construction project as hotels and sports complexes were being erected in preparation for the 2008 Olympics. But when we asked about the residents whose homes and livelihoods were displaced by these projects we were given vague, unconvincing answers about new housing projects. I had an image of folks all wearing the same design and color clothes and riding bicycles. This was not the reality in the cities I visited. I sat in heavy traffic with lots of late model cars. There are clearly a number of Chinese benefiting from the growth in trade. My impression was that while immigrants from the countryside to large cities and manufacturing areas along the east coast of China were living somewhat better than they did on the farm, Chinese workers linked to the globalized export economy are not getting their fair share of the wealth being generated. While we met with some workers whose wages and benefits were steadily improving, we also spoke to workers earning well below the minimum wage while working sixty and more hours a week with no holidays or vacations; all violations of local labor laws. The health care and pension systems do not afford basic benefits to the vast majority of workers and make it very difficult for workers to plan for the future. China will overtake Germany as the world’s third largest economy by the end of this year, this growth was a great source of pride for the government and union officials we met. We challenged our Chinese union counterparts to seek improvements in the wages and benefits for their members so prosperity is shared and growth can be sustained. China is currently not building a middle class capable of sustaining economic growth through a domestic consumer market. China is setting the global norm for working standards around the world; my conclusion is that those standards are much too low for workers in the U.S. and workers in China. We plan to work with all of the worker advocates we met to improve those standards. We learned about very weak enforcement of laws and regulations and that corruption in business and government are rampant and getting worse. These conditions make it even harder for workers to organize and demand their fair share in economic development. Labor Law Reforms in China China’s repression of labor rights has suppressed wages, thus subsidizing its exports and making them artificially cheap. This Administration has consistently failed to raise the issue of workers’ rights violations in China. Worker’s rights is just as much an economic issue as currency manipulation or illegal subsidies. This was also an area that we were supposed to see drastic improvement according to PNTR supporters—workers rights and human rights would be improved with China’s accession to the WTO. Unfortunately, this has not been the case. In fact, increased trade and investment have only promoted the continuation of workers’ rights violations, and rising worker unrest. In China, we had extensive discussions regarding the recently approved reforms to the Contract Labor Law. These modest reforms were proposed to address the widespread exploitation of workers who are often cheated out of wages due them. The reforms are intended to enforce employment contracts, protect temporary workers, limit employer rights to fire at will, enhance severance pay and require transparent workplace rules. I was extremely disappointed to learn that US companies actively opposed these modest changes. All of the corporate talk about raising standards through investing in China is hollow rhetoric. Instead of using their influence as a force for democracy and social justice, U.S. companies are pursuing the low road. There was a time when U.S. multinational companies joined with the labor movement to actively oppose apartheid in South Africa and under military dictatorships in Latin America. Worker organizing and unions were encouraged at their facilities, unions were considered to be incubators for building democracy. And now there is a need, a movement to make drastic changes in China’s contract labor laws and yet US multinational corporations have resisted these reforms and have even been successful in weakening the modest reforms. Some have even threatened to move to Vietnam, another country that Congress recently granted PNTR status. Global Labor Strategies has an excellent report on this issue titled “Undue Influence: Corporations Gain Ground in Battle over China’s New Labor Law”. I urge Senators to read the report. An important action that Congress can immediately take to remove any incentive a country, including China, may have to manufacture and import goods made under terrible working conditions, is to pass S. 367, the Decent Working Conditions and Fair Competition Act, introduced by Senator Dorgan. This legislation bans the importation or sale of products made in factories under sweatshop conditions. Such “sweatshop conditions” include gross violations of the wages, hours, health and safety laws of the country where the labor is performed. Also, we must demand that any future Administration accepts a Section 301 petition on labor rights in China. If China does not comply with basic internationally recognized worker’s rights, the U.S. should pursue remedies against China. It is as simple as that, however this Administration refuses to act. Current U.S. Trade Policies with China Hurts U.S. Workers While China’s need for legal reform has hurt U.S. jobs, that is only a piece of the challenges we face with respect to trade with China and trade overall. Our nation’s flawed trade policies contribute to the anxiety and uncertainty many Americans feel about their jobs, their future, and even their children’s future. The public has lost confidence in our trade policies. U.S. trade policies lately seem to be more about the number of trade agreements signed rather than the results they achieve. Sound trade policy means job creation and strong communities. It impacts whether or not we have an industrial base that can supply the materials needed to defend our nation or whether we need to depend on other countries to do so for us; it impacts whether our communities have a good public school for our children or one that is struggling and in desperate need of basic resources because the town’s factory has shut down and moved offshore to China taking with it the community’s tax base; it impacts whether the future jobs of this country will be technology based or burger flipping based. Mostly as a result of our trade policies, especially with China, we have lost more than 3 million manufacturing jobs since 2000. One in six manufacturing jobs has disappeared. This poses a serious threat, not just to the many families and communities who have been crushed as a result of this loss, but also our research and development capacity as a country. We are losing our capability to supply our military troops with uniforms, ammunition, and other essential items. If this trend continues, we will be completely dependent on other countries to provide everything to us. Our manufacturing loss is, in fact, a matter of national security. We are seeing first hand the limitations that our energy dependence has created with respect to our foreign policy and national security -- we should not continue to follow down the same path of dependence and depend on China and others to supply us with all of our defense, food, and manufacturing needs. In 2000 when China PNTR passed, I said it then and I say it now--- China PNTR has nothing to do with access for our U.S. businesses to sell goods to China, and everything to do with moving U.S. companies and jobs out of the U.S. and into China in order to take advantage of workers in China and lax labor laws in China. It has always been about investment there, no matter what the consequences brought upon our workers. The crisis we face now is what I and the Chairman knew would occur back in 2000 during the China PNTR debate. Almost 60 percent of China’s exports come out of foreign-invested firms, not Chinese firms. And yet we have laws on the books that provide tax preferences for companies to move offshore. These preferences must be eliminated. China’s entry into the WTO was touted as a mechanism to bring it into compliance with an enforceable, rules-based regime, which would require that it open its markets to imports from the U.S. and other nations. However the WTO and China’s entrance to the WTO failed to include the necessary protections to improve or even maintain labor or environmental standards, which have resulted in an unfair playing field favoring large multinationals against domestic workers. Proponents of China’s entry into the WTO, just like proponents of every Free Trade Agreement from CAFTA to the pending Peru and Panama FTAs have claimed that it would create jobs in the Unites States, increase U.S. exports, and improve the trade deficit with China. We have seen only the opposite occur. In fact, we have seen the global race-to-the-bottom accelerate forcing the closure of thousands of U.S. factories, and the decimation of our manufacturing base in the U.S. The U.S. trade deficit with China has increased from $50 billion in 1997 to $235 billion in 2006, an increase of $185 billion. Between 1997 and 2001, before China’s entry into the WTO, the deficit increased $9 billion per year on average. Between 2001 and 2006, after China entered the WTO, the deficit increased $38 billion per year on average. According to the Economic Policy Institute, growth in trade deficits with China has reduced demand for goods produced in every region of the United States and has led to job displacement. The dramatic increase in the trade deficit with China between 1997 and 2006 has displaced production that could have supported 2,166,000 U.S. jobs. More than 1.8 million of these jobs have been lost since China entered the WTO in 2001. The U.S. Must Enforce and Strengthen Our Trade Laws The problem we have with China is not only that we have a one-way trade relationship, but also there is a disregard of the rule of law and international commitments that have been made, and a lack of enforcement on our part, all of which have been devastating to workers. China provides significant subsidies to its companies to give them an advantage over all competitors which prevents our businesses from selling their products to China and floods our markets with their products. The U.S. government must use existing trade enforcement rules aggressively and apply the remedies. We have failed to do this. When China entered the WTO it agreed to conditions, but it has consistently refused to grant access to its markets that we provide to it, and has done so in a way that one would call cheating. But the U.S. government is also guilty because it has allowed the cheating to occur by never utilizing the legal actions we have available to address illegal subsidies, dumping, dangerous imports, and currency manipulation. The U.S. government should be bringing more cases to address China’s refusal to fully and faithfully implement its WTO commitments. Also, before any additional preferences are given to China or any other country in future WTO or Doha negotiations, countries must live up to and implement their existing promises. China Currency Foreign ownership of U.S. debt has reached more than $3 trillion, a dangerous level that is another potential threat to our national security. China alone holds $353.6 billion of U.S. Treasury securities. Conceivably, it could cash out anytime and leave us in a financial crisis. Unfortunately, some have used this as a reason to not enforce existing trade laws, specifically China’s undervaluing of its currency. Our indebtedness to China should not delay efforts to offset trade imbalances aggravated by exchange-rate misalignment of the undervalued yuan. This enables Chinese exporters to gain up to a 40 percent price advantage over their competitors in the U.S. domestic industry. In essence, China’s undervalued yuan is effectively a 40 percent tax on all U.S. agriculture and manufacturing exports and a 40% subsidy for china’s exports to our market. The reason for inaction is not that we do not have rules in place. We do have statutory and regulatory authority to address this problem. The World Trade Organization (WTO) and the International Monetary Fund (IMF) also have the rules in place to prevent countries from gaining an unfair advantage through exchange rate action. Yet our own government is not willing to implement the necessary provisions of the law to protect our workers and our manufacturing sector because they do not want to offend or upset China. This Administration has yet to even identify China’s currency manipulation as a problem. The President rejected recommendations from the U.S. International Trade Commission (USITC) under Section 421 of the Trade Act to grant import relief to U.S. industries facing market disruption from Chinese imports. As you are well aware, Section 421 of the Trade Act of 1974 was added to US trade law during the China PNTR debate in order to ensure protection to US industries in the case of surging imports. Specifically, Section 421 allows US domestic industries to obtain relief should an investigation by the USITC finds that Chinese products are imported into the US in such increased quantities as to cause a market disruption. Recently, the Administration has rejected for the third time since 2003 a Section 301 petition by lawmakers demanding action by the Administration against China for subsidizing its exports by keeping its currency exchange rate artificially low which is in violation of international trade laws. As you are well aware, Section 301 of the Trade Act of 1974 allows the Office of the U.S. Trade Representative to initiate investigations of other countries' trade practices and impose sanctions for discriminatory behavior. The USTR and the Department of Treasury continue to tell us that instead of acting to address China’s currency manipulation, diplomacy mechanisms need to be used to address this concern. Diplomacy has obviously not worked. Congressional action is needed in order to ensure that change occurs. The Teamsters are a member of the China Currency Coalition. We believe that it is imperative that Congress pass the Stabenow-Bunning-Bayh-Snowe bill, S. 796, and its counterpart in the House, the Ryan-Hunter bill, H.R. 782. These bills recognize that undervalued exchange-rate misalignment by China or any other country is a countervailable prohibited export subsidy under U.S. and international law, and ensures that finally action will be taken. The bill does the following: - Recognizes currency manipulation as a government subsidy and allows a U.S. industry to use the anti-subsidy (counterveiling duty) law to seek relief from the injury caused by imports that benefit from a subsidy in the form of foreign exchange-rate misalignment. This is important because an undervalued currency allows foreign producers to price their products more cheaply than would be the case if the currency were properly valued. This applies equally to any country, whether a market or non-market economy, whose exchange-rate is found to be unfairly aligned.
- Clarifies that China’s exchange-rate misalignment is a condition to be considered under Section 421 of the Trade Act of 1974. This holds China accountable to its market-disruption agreements made as a condition to its accession into the WTO in 2001.
- Protects our national security and defense industrial base by prohibiting the Department of Defense procurement of Chinese imports that compete with our domestic defense industrial base if China’s currency misalignment is determined to be contributing to the disruption of the U.S. industry that manufactures those products.
- Requires the Secretary of the Treasury to analyze semi-annually whether there is a fundamental misalignment or exchange-rate manipulation by any trading partner, and bars the Administration from supporting increased voting rights in international financial institution such as the IMF for such violators.
- Strengthens the definition of misalignment in order to make it tougher for the Treasury to avoid giving that label to China’s actions. This is critical in light of the fact that the Treasury Department recently admitted that there exists 'heavy foreign exchange market intervention by China's central bank to manage the currency.' Yet Treasury still refuses to officially identify China as a currency manipulator, despite this evidence that the Chinese government is continuing to undervalue its exchange rate against the U.S. dollar. They fail to call it as they see it and this provision ensures that this will no longer be the case.
I understand that the House Ways and Means Committee plans to introduce legislation and act on this issue in September. It should be the Ryan-Hunter bill or at the minimum consist of all of the essential provisions I have just listed. I am also pleased at the willingness of both the Senate Banking and Senate Finance Committees to each act on a currency bill. While both the Senate Finance and Senate Banking bills are not perfect, they take a step in the right direction to ensure action on currency manipulation bilaterally, at the IMF, and the World Bank. However, we need to ensure that the President cannot just avoid taking action on currency manipulation by creating loopholes that could potentially leave us in the same bind we are in now, where the Administration just does not act which is a potential problem in the Baucus-Grassley bill. Also, both bills at the moment do not recognize currency manipulation as a countervailing duty or subsidy which is important in addition to using an anti-dumping remedy. I am pleased to see that action on currency is imminent. It is critical that whatever passes and finally becomes law is strong, real, and not an attempt to placate our concerns or put a temporary meaningless band aid on a gaping wound---there is just too much at stake. Ensuring that this issue is finally acted upon can make the difference between having one’s job disappear to China; the difference of having health insurance provided for one’s family, and quite frankly about having an economically stable middle class. Food and Product Import Crisis Food imports constitute a growing share of what Americans eat and what we see on the shelves of our grocery stores. I care about this issue as a consumer, and as a President of a union that has food processing workers and farmworkers. Food imports are more than four times greater today than what they were in 1996. Our Food and Drug Administration inspects less than 1 percent of imports. That means that 99 percent of our imports are entering our nation unmonitored. This is especially troublesome when the bottom-line is put ahead of safety. Senators on the Committee have heard the stories. * Family pets have died from pet food containing wheat gluten that contained melamine. * Concentrations of Carbon Monoxide are found in seafood imports coming in from Asia. Carbon Monoxide treatment makes seafood appear fresh, regardless of its condition. Residues of antibiotics have also been found in seafood imports from China. For now, the Food and Drug Administration has acted and banned the imports of shrimp, catfish, and other seafood from China. * Poisoned toothpaste from China, laced with diethylene glycol which is a chemical most often found in antifreeze and was substituted for the more expensive ingredient glycerin, has been imported into the U.S. I find it especially troublesome that China has stated that in small doses diethylene glycol is harmless, especially in light of the fact that cough syrup laced with diethylene glycol from China killed 100 people in Panama last year. * And its not just hazardous food and toothpaste being imported--Thomas the Tank engines made in China have been recalled for using lead paint. * As many as one million defective Chinese tires were sold in the U.S. China has taken extreme and shocking action recently by executing its former head of its Food and Drug agency, Zheng Xiaoyu, as a response to this crisis. This is by no means consoling or the end to our troubles. It is up to us to take responsibility and act thoroughly and quickly. The United States government has not done enough to keep dangerous Chinese products out of the U.S. Products manufactured in China have so far accounted for more than 60 percent of the Federal Consumer Product Safety Commission’s 178 recalls so far in 2007. Congress needs to pass legislation by Senator Brown and Senator Durbin that gives the FDA the authority to approve or disapprove of countries eligible to import into the U.S. We need to re-examine and make changes to our country-of-origin rules. For example, the Netherlands is the principal source of wheat gluten imports, but most of it initially comes in from China—actually over 80 percent of wheat gluten in the world comes from China. The bags of wheat gluten can simply state that the supplier was in Amsterdam-Holland for example. Since food processors are not required to inform consumers of the origin of its ingredients, it is especially difficult for Americans to know where exactly the ingredients were produced and to seek damages from companies that sell products whose ingredients have harmed. And in cases where they do, the protections are not in place to ensure consumer safety. This brings me back to the tire case. When the National Highway Traffic Safety Administration told the importer of defective tires that they must recall the tires, the company declared bankruptcy. When U.S. distributors rely on cheap imports to then sell back to U.S. consumers, they should be bonded to ensure that there our U.S. consumers are protected. We need more comprehensive food and ingredient labeling on products. Furthermore, the final purchasers of pet foods, meat, fish, and all consumer goods quite frankly, should be provided with the correct source of the goods. The FDA should implement new rules that require all food, vitamins, and other consumer products to list out the origin of all ingredients that come from outside the United States. I was pleased to see that late last week the 2002 law requiring country-of-origin labeling for meat might finally be implemented. Animals born, raised, and slaughtered in the United States will be labeled “Product of the U.S.” The 2002 Farm bill also requires country-of-origin- labeling for fresh fruits and vegetables—hopefully this too will finally become a reality. Only a minimal fraction of the 25,000 daily food shipments are ever tested by a government laboratory. We need to ensure that shipments of food and consumer products and ingredients are more readily tested, which is currently not the case. The U.S. government has a responsibility to its people to ensure that the safety and health of its families are not threatened by contaminated and sub-standard bad food and product imports. The U.S. government has a responsibility that China’s development does not come at the expense of America’s domestic workforce, and national security. I hope to see immediate action taken to reflect this. Conclusion While the Chinese government may disagree, I believe that our current trade relationship with China is not just bad for the U.S. and our workers, but also bad for China. China has become dependent on the U.S. consumer market for employment, has suppressed the purchasing power of its own middle class with a weak currency, and have held hundreds of billions of hard-currency reserves in low yielding, risky assets, instead of investing them in public goods. Unfortunately, the reality is that many of the U.S. jobs that have been lost are not coming back. But addressing all of the concerns that I have discussed and implementing actual reforms in China could help create new jobs in the U.S. It is not that the Teamsters Union or the American people are against trade, its that the our major trading partners are not abiding by the rules of trade, and we are not requiring them to either. Once we finally see the field leveled, the right rules in place and enforced, and actual good-paying jobs created, that will be a win-win for U.S. workers and families. You can be guaranteed that the American people will support expanded trade, but until this happens you will continue to sense the unease that currently exists and the strong opposition that we put forth when more FTAs are passed. Congress must take bold steps and big initiatives to address this current globalization crisis. Mr. Chairman, the title of your book comes to mind with what our current trade policies are about—“Take this job and Ship it—How Corporate Greed and Brain-Dead Politics Are Selling Out America.” U.S. families can no longer afford to continue down this path of “Shipping jobs” and “Brain Dead Politics.” We can no longer allow our trade deficit with China to continue to skyrocket; we can no longer allow rules to be broken, or fool ourselves that our current trade policies will create jobs here at home when they are just about investing abroad. Congress is actually set to pass two more Free Trade Agreements with Peru and Panama using more or less the same model that has been used. Yes, the labor chapter is improved and that is a great and significant step, but that will not ensure the creation of U.S. jobs, and certainly will not stem the loss of them. It is China’s right as a nation to develop and gain economically, but it is our right and duty as a nation to ensure that if we are to continue to have expanded trade with China to the extent that we do, we must enforce our trade laws and implement new rules and protections necessary for our own economic development. We need to demand access to their markets because so far, it is just one-way trade. I like the Chinese and wish them well, but I love and fight for U.S. workers and it is time that this Administration and all of us in this room take control of our globalization policies to ensure that our workers benefit and our families are kept safe. Thank you again for the opportunity to testify. I look forward to your questions and comments.
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