Free Trade Agreements

November 2003

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Since the adoption of NAFTA in 1994, the United States has adopted a series of additional free trade that include immigration-related provisions.  While trade agreements are designed to lower barriers to free trade, the immigration-related provisions open up American jobs to foreign competition. 

Fast Track Authority

Although the United States has pursued a strategy of lowering trade barriers through international negotiations since the end of the Second World War,¹ the era of free trade agreements ² (FTAs) for the United States was launched with a bilateral agreement with Israel in 1985. ³  This agreement also ushered in a “fast-track” procedure, in which Congress agreed in advance not to amend a FTA treaty and instead only to vote for or against it as submitted by the Executive Branch.  Subsequently, FTAs and fast track authority have been used to adopt a bilateral FTA with Canada ⁴ (the most comprehensive bilateral free trade agreement until the North American Free Trade Agreement, or NAFTA ⁵), and more recently with Singapore and Chile. Similar negotiations are in progress with a number of countries.

Bilateral and Multilateral Agreements

North American Free Trade Agreement (NAFTA)

NAFTA was the first trade agreement to include immigration-related provisions that opened up foreign competition for American jobs.  NAFTA expanded free trade provisions that had previously existed between the United States and Canada to include Mexico.  It also established provisions for a broadly defined list of professional workers to work temporarily among the three countries. Mexico’s economy, however, is very dissimilar to ours and Canada’s, so the implications of expanding free trade and immigration provisions was highly controversial and would have led to efforts to restrict or eliminate these treaty provisions had it not been for the fast-track authority which limited Congress to only an up-or-down vote.

To allay Congress’ concern over a NAFTA provision allowing unlimited entry of professional temporary workers, U.S. negotiators included a phased-in provision for Mexicans.  For the first ten years, the number of visas for Mexican professional workers was set at 5,500, not including any accompanying immediate family members.  After that period—beginning in January 2004—the number of Mexicans who may get visas to work as professionals in the United States (on TN-visas) becomes unlimited.⁶   Even with this phased-in provision, the agreement was hard fought, but eventually passed the House by a close vote of 234-200.  During the ten-year phase-in, admissions were fewer than the limit.

Chile and Singapore Free Trade Agreements

Most recently, the Bush Administration obtained a new fast track negotiating authority from Congress for agreements with Chile and Singapore, both of which passed Congress in 2003 despite concerns regarding the visa provisions incorporated into the two virtually identical agreements.  The agreements provide for an annual admission of specialty workers (1,400 for Chile and 5,400 for Singapore).  The terms are largely in accord with those of the H-1B visa category and are included within the H-1B ceiling, except that the specialty workers may have their visas renewed indefinitely rather than the single renewal allowed in the H-1B rules.  

Both agreements bind the United States to a continued unlimited admission of L-1 intra-company transferees without regard to prevailing U.S. wages, with no restrictions on replacing U.S. workers with these foreign workers, or any other form of protection of American jobs.  The agreements do not preclude third-country nationals hired by a company or U.S. subsidiary based in Singapore or Chile from being issued these visas.  This means that a company in Singapore with branch operation in the United States can hire Chinese workers and subsequently transfer them to the United States with L-1 visas.  The branch operation of the Singapore subsidiary in the United States could use those foreign employees to do contract work that would undercut prevailing wages and cost Americans their jobs. ⁷

Future Trade Agreements

Negotiations are in progress by the U.S. Special Trade Representative for  FTAs with Central America (CAFTA), Australia, and Morocco.  In addition, plans have been announced for beginning negotiations with a regional group of Southern African countries, and rumors persist that the Bush Administration is exploring FTA negotiations with India, the largest source of the high tech workers who have been replacing American workers.

Global Agreements

General Agreement on Trade in Services (GATS)

Until the General Agreement on Trade in Services (GATS) entered into force in 1995, global trade agreements had dealt exclusively with trade in goods and services.  However, GATS introduced provisions regulating visas for foreign workers in global trade agreements.

The GATS treaty, like NAFTA, included provisions that committed the United States to admitting nonimmigrant specialty workers — both in technology and other professions — as well as intra-company transfer employees.  Visas for these types of workers are regulated in U.S. immigration laws by the provisions for H-1B visas (specialty workers) and L-1 visas (intra-company transfers).  The H-1B visa is authorized in U.S. law with a ceiling of 65,000 visas, with the stay limited to three years (renewable for an additional three years), while the L-1 visas are unlimited in number and allow a stay of five to seven years.  

When the U.S. agreed to the GATS provisions, it incorporated the existing provisions for 65,000 H-1B foreign workers each year and an unlimited number of L-1 workers into the treaty.  In doing so, the United States bound itself by international agreement not to restrict either of these visa programs in the future, regardless of the state of the U.S. economy or the level of unemployment of similarly qualified U.S. workers.  The intra-company transfer provisions of GATS do not contain any provisions that protect American workers from these foreign temporary managers, executives, and specialists.  The GATS provisions governing specialty occupation visas, however, contain protections that are more stringent than those in the current U.S. law governing the H-1B program⁸,  with the exception of a limited number of “H-1B dependent” employers (a category adopted in 2000 to apply to “body shops” set up to supply contract workers to employers).

Congressional Response to Immigration Provisons of FTAs

Because of record unemployment of high tech workers, many members of Congress expressed concern about the immigration provisions of the Singapore and Chile FTAs.  However, the up-or-down “fast track” vote restriction led to passage of both agreements (272-155 for the Singapore FTA and 270-156 for the Chile FTA in the House, and by slightly more than two to one for both agreements in the Senate).  This result, similar to the vote on NAFTA, demonstrates the difficulty of protecting American jobs from being sacrificed to foreign workers as part of the effort to promote freer international trade.

The conviction that these and future FTAs infringe on the immigration policy authority of Congress led a bipartisan group of twelve senators to sponsor a sense of the Senate resolution (S.Res. 211) stating: “(1) trade agreements are not the appropriate vehicle for enacting immigration-related laws or modifying current immigration policy; and (2) future trade agreements to which the United states is a party and the legislation implementing the agreements should not contain immigration-related provisions.”   The resolution was adopted unanimously.  

Because a sense of the Congress resolution is non-binding, Senator Dianne Feinstein (D-CA) acted to put some teeth to the message by introducing an amendment to an appropriations bill that prohibits the expenditure of any funds by the Special Trade Representative on negotiations involving any immigration provisions.  That amendment was adopted in committee, but still awaits full Senate and House action before it can become law.⁹

Implications for American Workers

Commitments such as GATS and the FTAs have not been conditioned by what Congress might decide is in the national interest at some point in the future.

If the United States entered a recession with mass lay-offs of American workers, as has been the case recently, the GATS provision requires that the United States not eliminate the foreign temporary workers programs, nor drop the annual ceiling of 65,000 new foreign H-1B workers, nor establish a limit on the number of arriving L-1 foreign workers, nor require that these intra-company transferees be paid prevailing U.S. wages.  This U.S. commitment allows these foreign workers to compete for a shrinking number of remaining jobs.  In practice, this is happening at the present time, and it has resulted in documented instances of American workers being required to train foreign workers to do their jobs before they are laid off.

If Congress were to choose to abolish or lower the limits on H-1B and L-1 visas or to enact greater protections for American workers (as has been proposed in the legislation before the current Congress), the less restrictive measures agreed to in the FTAs would constitute a loophole in any new standards.  Therefore, it is not enough that the STR desist from negotiating new similar provisions in future STRs; to plug the loophole, the STR will need to reopen earlier agreements and obtain amendments to them to incorporate whatever new provisions are adopted by Congress.  

Another aspect of globalization is the outsourcing of work by American companies to foreigners who work abroad, costing American workers their jobs—a problem receiving growing attention in the U.S..  What is often ignored is that both the H-1B and L-1 visas provide a major impetus to this outsourcing process, because the visa programs bring foreign workers to the U.S., where they are trained in the operations of a company in order to facilitate outsourcing contracts with that company when they return abroad.

As long as immigration provisions continue to admit foreign workers without adequate protection for American workers, as is the case currently with the L-1 and H-1B visas, American jobs will be lost to the process of globalization.  This is not because foreign workers are more highly educated or skilled, but simply because they are willing to work for lower wages and working conditions.  Because, there are millions of technically qualified persons around the globe who are anxious to take jobs in our country, even if they are paid less than American workers, the effect of this opening of the U.S. job market is inevitably a downward pressure on U.S. wages and working conditions.