Commission on International Trade and State Sovereignty

Minutes of the 10/30/2007 public hearing on
the effects of international free trade agreements on Vermont businesses competitiveness.

Approved 12/18/2007.

Members Present                  Rep. Kathleen Keenan, commission co-chair; Sen. Virginia Lyons, commission co-chair; David Anger; John Boomhover; Lawrence Bruce; Dan Brush; Elliot Burg; Dana Eidsness

Members Absent                   All members were present.

Also Present                           Legislative counselors Al Boright and Sam Burr, staff Nedene Martin.  CCTV channel 17 at the Commission’s request, videotaping the public hearing.  Witness sign-up sheet attached. 

Recording                               CD 2007-20, 2007-21 & 2007-22

Convene

            Rep. Keenan called the public hearing to order at 1:15 in a conference room at The DoubleTree Hotel in South Burlington and welcomed those attending.  All commissioners introduced themselves.  Senator Lyons explained that the Commission has worked for about a year to try to understand the development and effects of free trade agreements and will be gathering Vermont-specific information in four particular areas:  business competition, health care delivery and insurance, agriculture, and environmental laws and zoning.  She stressed the importance to the Commission of gathering information from people actually experiencing the effects of international trade agreements.  She explained that the Commission’s goal is to provide input into policy and regulatory development at the federal and state levels.

Presentation

            Legislative Councilor Sam Burr explained the genesis of the Commission and requested citizen help in getting others interested and involved in the issues.  He stressed that the Commission’s charge is to pinpoint ways that the state, through its sovereignty, can help businesses and people involved in issues that are related to international free trade agreements.  Mr. Burr narrated a PowerPoint presentation (available at http://www.leg.state.vt.us/WorkGroups/Trade/OverviewIntlTrade.PPT) on international trade issues related to business competitiveness in Vermont.  He discussed the evolution from bilateral agreements to increasingly diffuse multi-lateral agreements.  He pinpointed the 1974 “Fast Track” agreement as a turning point because to expedite trade agreements, Congress gave up the right to be involved in their negotiation and retained only the right to vote them up or down as negotiated by the administrative branch.  Mr. Burr said that a major issue for states and for Congress, as a result, is how they can make their concerns and interests known and incorporated into trade agreements.  He stated that international trade agreements are administered through the President’s appointed U.S. Trade Representative and that Commissioner Eidsness is Vermont’s point of contact to the federal government for trade.  The Intergovernmental Policy Advisory Committee on Trade (IGPAC) is supposed to notify Ms. Eidsness as trade agreements are being negotiated, so that Vermont’s concerns and interests can be represented.  With 149 World Trade Organization members, agreements have become exponentially more complex than they were in the era of bilateral negotiations, Mr. Burr noted.  Mr. Burr stated that agreements with Peru and Panama that were negotiated prior to the expiration of Fast Track authority, are coming up for consideration by Congress.

            Mr. Burr said that Vermont exports $3.8 billion dollars worth of goods annually.  That money plus its multiplier effect is a significant element of the state’s economy, he said.  Our geographic situation adjacent to Canada enhances our international possibilities, he said, and international trade agreements present both opportunities and concerns.  Significant numbers of Vermonters are involved in international trade, he explained; however, Vermont jobs can be lost to foreign competition as a direct result of elements of trade agreements. 

            Mr. Burr noted that the impact of international agreements on the state’s legal authority is an issue for the legislative council and for the state’s office of Attorney General.  He stated that dispute resolution panels in the international trade arena raise concerns about how to protect state sovereignty while pursuing international trade.  Dispute resolution panelists are appointive international trade lawyers, he said.  He noted that there are particular concerns about investor rights, with some agreements providing expanded levels of legal protection for foreign investors than are enjoyed by domestic investors.

            Senator Lyons opened the floor to questions for Mr. Burr.  As there were none, the Commission commenced taking public testimony. 

Public Testimony

            Rep. Keenan called John O’Kane of IBM to testify.  Mr. O’Kane identified himself as manager of government relations for IBM in Essex Junction.  He framed his overall message in terms of the need to avoid unintended consequences of Vermont’s efforts to protect the environment and labor, consequences that might interfere with “free and unencumbered” international trade.  Mr. O’Kane said that 60% of IBM’s business is non-U.S. and most of its profit is made overseas.  IBM does business with or in 140 countries, he said, much of it based on services rather than goods.  Limits on the flow of information can make it difficult to operate in the new global businesses model he said.  He explained that IBM has international work teams and is involved in collaborative projects in which companies from other countries are in‑sourcing work to the U.S.  As examples, he cited companies in Japan and Malaysia that have employees working in the IBM facility in Essex Junction. 

            Though the number is exaggerated by some degree of double-counting as goods move from country to country, he said, IBM has 3 billion imports and exports a year.  The ability to move goods in a time-dependent way is critical to IBM’s financial success, he said.

            Mr. O’Kane addressed the issue of state sovereignty, cautioning that if states have 50 different ways of doing things, it creates a competitive problem for companies doing business in many states.  He urged the Commissioners to “beware of lose/lose propositions” in which one restriction may lead to a retaliatory restriction.  He cautioned that there is nothing Vermont makes that will keep undying loyalty from consumers if the same product can be made elsewhere at a lower cost.

            Mr. O’Kane stated that the Congressional delegation should be encouraged to support the Peru trade agreement, which he characterized as “a step forward” because it presented a fast-track way to deal with labor and environmental concerns.

            Mr. Burg asked Mr. O’Kane whether IBM has taken a position on the question of differential investor rights accorded by free trade agreements to the detriment of state sovereignty.  Mr. O’Kane responded that he was not familiar enough with the issue to comment at this time and did not know whether IBM has taken a position.

            The Commission called Mike Crouchley to testify.  Mr. Crouchley stated that he is employed at The Lane Press in South Burlington and that he primarily came to listen.  Mr. Crouchley said that his company’s international trade primarily involves mailing and shipping, which it does to 140 countries, through the U.S. Postal Service and a freight company in New Jersey.  

            Rep. Keenan called William Driscoll to testify.  Mr. Driscoll identified himself as speaking for Associated Industries of Vermont, representing manufacturers.  Mr. Driscoll stated that it is not sufficient for trade agreements to break down barriers and burdens put forward by other countries; he said that Vermont must minimize burdens on companies trying to do business within the state because it affects their competitiveness in the international arena.

            Mr. Driscoll asked for more clarity in what the Commission hopes to accomplish.  Mr. Burr explained that the Commission is tasked to conduct an annual assessment of the effects of international trade and that in order to do so it needs members of the public to detail their successes and problems.  Mr. Burr noted that the Commission is also charged with making recommendations at all levels of government about ways to protect Vermont’s sovereignty from any negative effects of trade agreements. 

            Sen. Lyons stated that the Commission has endeavored to influence trade agreements as they are being negotiated, by talking with the office of the U.S. Trade Representative.  For example, she said, when a trade agreement was going to affect preferred drug lists for health insurance programs and could have changed what Vermont employers could offer to their employees, Vermont was able to intervene.  Also in the health care arena, Vermont’s standards of professional licensure may be affected by trade agreements, which would be of concern to physicians, hospitals, and other professionals involved in the provision of care in Vermont, she said; the Commission hopes to hear about that during its public hearing on health care.  Sen. Lyons said that the Commission’s goal is to work together with members of the public to enhance trade opportunities and mitigate negative effects of trade agreements.

            Mr. Boright acknowledged that issues of international trade and state sovereignty are relatively new to the legislative council staff and that input from more experienced members of the public is actively sought and welcomed.  If there are errors, omissions or imbalance in the staff’s technical analyses, Mr. Boright said, it would be helpful to have them pointed out.

            Ms. Eidsness noted that the federal-state consultation process involving the U.S. Trade Representative is, in her opinion, “broken.”  Updates should be coming to her as the “state point of contact” before agreements have been set in stone, she said, but instead the notification comes to her more in the form of a newsletter after the fact, when it is too late to look at and comment on the implications for businesses in the Vermont.  Ms. Eidsness said the Commission understands that it needs to work cooperatively with other states to try to identify common issues that can be brought to IGPAC and communicated to the U.S. Trade Representative.

            Mr. Driscoll stated that AIV represents companies employing 36-37,000 manufacturing workers in Vermont as well as companies in related realms.  It is of concern to AIV when it loses member companies or when its member companies have to lay off workers because they have lost out to competition, domestic or foreign.  He noted that in the question of international trade, attention tends to focus on wages but that wages are not the whole story; if they were, he said, there would not be any successful businesses in Vermont.  He said that Vermont companies can pay high wages and provide good benefits and still be internationally competitive if they are able to control other costs.

            Rep. Keenan called upon Cathy Davis of the Lake Champlain Regional Chamber of Commerce and the Greater Burlington Industrial Corporation, who resopnded that she would be happy to answer questions but had come principally to listen.  Sen. Lyons asked if Ms. Davis knew whether Vermont’s level of international business has increased due to trade agreements or whether LRCC members had qualified for federal TAA assistance.  Ms. Davis said she could not provide any positive or negative statistics, but that she could make inquiries and report back.  Mr. Boomhover asked whether LCRCC or GBIC receive inquiries about doing business internationally, and if so, what recommendations are made.  Ms. Davis said that inquiries do come in and are forwarded to Ms. Eidsness’s office.

            Rep. Keenan called Bill Zuccareno to testify.  He identified himself as Chief International Officer at the Economic Development Council of Northern Vermont and head of the Northern Vermont‑Quebec Trade Coalition, the first cross-border trade development group in the U.S.  Mr. Zuccareno said was employed for 5 years with the Vermont World Trade Office, working with about 600 exporters and 1,100 importers, many of whom he met with on-site to discuss and assess their situations.  He said that his professional experiences show that it is not regulations that negatively affect Vermont businesses’ ability to succeed internationally, but rather their lack of preparedness for the competitive international arena. 

            Mr. Zuccareno referred to a 2004 statistical analysis his office conducted of Vermont exports.  He said that, even having removed IBM from export statistics, Vermont had the fastest-growing international trade sector of any state, amounting to 12-15% growth during a 12-15-year period.  These companies’ products cost below $2,500 so the export revenue they generate is not tracked by the federal government, he said.  He said the analysis showed that Vermont small-to-medium-sized businesses export $1.3 - $1.9 billion of product annually. 

            Mr. Zuccareno stated that he had helped two small-to-mid-sized companies save more than $1 million each per year by analyzing trade regulations and agreements and identifying more beneficial locations for sourcing some of their production.  Many European and Asian companies out-source elements of their production and are therefore more competitive, he said.  Helping Vermont companies change their mind-set to be less protective of their domestic market and more focused on international possibilities is critical, he said. 

            In terms of Vermont’s environmental concerns and international trade agreements, Mr. Zuccareno said that it is critical for Vermont to become actively involved.  The states that are most successful in getting their sovereignty issues addressed in trade agreements are those that have a strong, active lobbying presence in Washington, D.C., he said.  He said Vermont’s Congressional delegation is very strongly involved and he expressed satisfaction that the Commission is becoming active.

            Sen. Lyons encouraged Mr. Zuccareno to contact legislative council staff to discuss his method of analyzing trade agreements to determine which elements are helpful to smaller companies, so that the Commission might be able to formulate recommendations for Vermont’s Congressional delegation.

            Mr. Burg asked for clarification about the types of regulatory issues that impede Vermont companies from being competitive in world markets:  was it state regulation or federal regulation that Mr. Zuccareno was referring to.  Mr Zuccareno said both are issues.  An example of state regulations that pose barriers are the weight limits on our highways that cause many companies to choose to ship through Maine, New York or New Hampshire.  He noted that new trade agreements are taking effect so quickly that it is very difficult to keep up with them.  He applauded Ms. Eidsness’s work to educate and help Vermont businesses in the international arena.

            Rep. Keenan asked whether Vermont is having border crossing issues that are disadvantaging our businesses.  Vermont has the most border crossings of any state in New England, he said, virtually equal to the number in New York state.  He suggested that these crossings should present enormous economic opportunities but instead are creating barriers, particularly for trade flowing between Canada and lower New England and the eastern seaboard.  Trade is like water, he said, and will flow through the easiest channel.  He noted that UPS, for instance, relocated its facilities out of Norton, Vermont on route 114 at the Canadian border to Champlain, New York.  He said that Vermont’s lack of east-west corridors for the flow of goods also

            Mr. O’Kane testified a second time, focusing on border crossing issues.  In general, he said, the U.S. has a clear and smooth border crossing system in place for handling the shipment of goods, involving pre-clearance and expedited lanes at customs.  However, when security concerns cause a back-up in processing people at the border, goods get caught in the tie-up because the trucks cannot get to the expedited lanes through the miles of backed-up traffic, he said.  He noted that IBM ships goods on a just-in-time delivery basis and a several hour delay at the border can lead to a 36-48 hour delay at an assembly or manufacturing plant in Asia, causing thousands of dollars of lost revenues or missed‑deadline penalties.

            Mr. Zuccareno again testified, responding to questions from Mr. Boomhower regarding highway 35 in Canada and a proposed tri-state east-west throughway system.  Mr. Zuccareno noted that the corridor from the Port of Montreal down highway 35 to I-89 and to southern markets is increasingly important to Vermont.  He believes funds have been set aside for improvements to highway 35 and that the engineering has been done but that construction has not begun, in part because of a shift in political power in Canada.  Vermont has 11 road border crossings, he said, but only 3 are commercial ports of entry and the others all require permits.  Making ballpark estimates, he said Vermont companies held about 9,000 permits but since those permits were voided by the new port director in St. Albans who oversees all Vermont ports; companies had to reapply, he said, and only 1,000 new permits have been issued.  This has forced companies that previously benefited from the convenience and efficiency of nearby border crossings to travel hundreds of miles out of their way, causing financial losses for the companies and costing individual truckers to lose income as well.  He cited one trucking company that lost $80,000 last year and said the salaries of some truckers working for that company, who are paid by the load, decreased by 66%.  He reported that some 300,000 containers per year come from the Port of Montreal through Vermont to market.  He said that Maine Department of Transportation estimates that each container represents $44,000 taxable income either from goods sold in the state or from the licensing, registration and related costs.  Thus, he said, every container that passes through Champlain rather than passing through Vermont, the state is losing revenue.  By 2015 the number of containers heading south from Montreal is expected to double, he said.  Mr. Zuccareno stressed that trade agreements need to be coordinated with infrastructure analysis and policy analysis.

            The current even exchange rate with Canada presents golden opportunities for Vermont, said Mr. Zuccareno, but we need the highways and railroads to accommodate the flow of goods to market.

            Rep. Keenan announced the schedule of the remaining hearings and encouraged people to attend.

            Mr. Burg invited the speakers to provide further detail in written testimony.

            Ted Brady, field Representative from U.S. Senator Patrick Leahy’s office, was asked to provide an update, particularly as relates to “fast track” legislation and to any congressional effort to address the issues of state sovereignty that are being surfaced through the implementation of trade agreements, such as the question of requiring a presumption of validity for state regulations.  Mr. Brady stated that Sen. Leahy’s office is receiving many calls and e-mails about the Peru trade agreement.  He said that any progress on state sovereignty issues is “percolating behind the scenes.”  Regarding the “western hemisphere travel initiative” that would require U.S. citizens to show either a passport or a pass card to cross the Canada-U.S. border, he said it is to take effect no sooner than January 2008 and no later than June 2009.  Mr. Brady reported that the passport requirement has been pushed back to June 2008 but that the enhanced drivers’ licenses will not be available until at least November 2008, so may not provide a solution to the border crossing issues.  He said there is no immediate action expected on fast track legislation.

            Mary Sprayregen of U.S. Representative Peter Welch’s office was also invited to comment.  She said that legislation to expand and revamp Trade Adjustment Assistance is expected to come up for rules consideration, perhaps within the week.

            Mr. Burr remarked that recent reported comments from Senator Leahy indicated that the U.S. Senate Agriculture Committee may need to deal with dramatic changes to MILC support prices (Milk Income Loss Contract) as a result of decisions made by the WTO.  He said it would be helpful for the commissioners to learn Sen. Leahy’s perspective on where support programs may be going in the future.  Mr. Brady said that he would be happy to set up an opportunity for this discussion.

            Mr. Boright remarked that it appears that the Peru agreement focuses on each country enforcing its federal environmental laws.  He said the commission tasked him recently with researching consumer and food product safety issues as they may be affected by trade agreements.  He observed that consumer and environmental protections both depend on a web of federal, state, and local rules and regulations and that neither people nor resources are adequately protected if international trade agreements only honor certain strands of that web.  He suggested that Vermont’s congressional delegation keep an eye on this area.  Mr. Brady acknowledged that trade agreements do not allow for consideration of some factors that should be considered.  He said that it was not clear whether the solutions would come from the State Points of Contact, the U.S. Trade Representative, or Congress but that he would convey the Commission’s concern to Sen. Leahy.

            The co-chairs thanked all those who attended and adjourned the public hearing portion of the meeting.

Commission Meeting

           Minutes

           John Boomhover moved approval of the minutes of the meeting of 9/11/2007.  The motion was seconded and approved on a unanimous voice vote.

Regional Meeting

           Mr. Burr announced that Peter Riggs of the Forum on Democracy and Trade indicated in an e-mail received today that there is space and funding available for members of Vermont’s Commission to join their counterparts from Maine, New Hampshire, and Massachusetts to attend a regional conference in Portsmouth, N.H. on November 18 and 19, 2007.  The goals of the conference will be to allow commissioners to discuss common regional interests, assess effectiveness, and gain expertise in organizing and running effective public hearings.  Expecting to attend are Sen. Lyons, Ms. Eidsness, Mr. Brush, Mr. Burg, Mr. O’Grady and possibly Mr. Burr.  Rep. Keenan and Mr. Burr may instead be at the National Conference of Insurance Legislators. 

           John Boomhover indicated an interest in convening a day-long meeting of all the commissions in the region to increase familiarity with each other’s structure and share information about issues on which each is working.  Sen. Lyons said that she would convey this desire to the group in Portsmouth.

Other Business

           Sen. Lyons announced that Peter Riggs is expecting to come to Montpelier around January 19, 2008 to give a presentation for legislators and the general public on the basics of international trade and free trade agreements and the importance of state legislatures’ involvement in the issues.

           Discussion ensued about the possibility of releasing the Commission’s annual report and recommendations in conjunction with Peter Riggs’ visit.  Mr. Burr noted that in the Commission’s charge, formal recommendations for action are distinct from the annual report, so they need not necessarily be prepared or released simultaneously.  Ms. Eidsness said she expects to devote much of December to writing the Commission’s report.  It was generally agreed that ascertaining what possible recommendations may emerge will be easier once the hearings have been concluded.

           The Commissioners requested that copies of Mr. Boright’s analysis of consumer safety issues be made available in hard copy to the commissioners in advance of the next meeting so that they can vote on what action they may wish to take.

           Mr. Burr suggested that future meeting agendas include a list of possible areas in which the Commission may wish to make recommendations.

           Mr. Boright suggested that the Commission consider establishing a process by which decisions are made about what materials appear on its web site.  As possibilities to consider, the said, the Commission could choose to put on the web site public documents that are generated by staff, restrict web site documents to those reviewed and approved by the entire commission, authorize the chairs to approve placement of documents on the site, or adopt some other method of web site control. 

           Mr. Burg suggested that legislative council staff follow up with a letter to each of today’s three main witnesses requesting their written response to the question of what major hurdles they face in doing business in Vermont under free trade agreements.  Mr. Boomhover suggested asking all attendees which specific trade agreements their companies are taking advantage of, to help the commission get a better sense of where Vermont companies are doing business and what help and information they may need.  He has the sense, from his own professional experience, that many Vermont companies doing international business are unaware of the price advantages they would realize if they operated through available international trade agreements.  It was agreed that staff will follow up with today’s guests.

           Mr. Boright indicated that he anticipates basing his environmental presentation for the next public hearing on the presentation that Mr. Burr used for today’s, with topic-specific modifications.

           Ms. Eidsness suggested that for future public hearings the Commission more clearly frame for the public what it hopes to learn from them.  Mr. Anger said that the key point to clarify for the public is:  “why are we here?”  The public needs to understand ahead of time what the commission wants from them and what the Commission intends to do with the information it gathers.  Mr. Boright indicated that he will frame his presentation to put the Commission’s charge up front, and in lay person’s terms.

           Mr. Boright suggested that the commission send notification about the public hearings to the standing legislative committees handling each topic area.  Commissioners indicated they thought this was already being done.  Staff agreed to ensure that this notification occurs for future hearings.

Adjourn

           By consent, the meeting adjourned at 4:05.

Respectfully submitted,

/s/ Nedene Martin

Committee Staff