BILL ANALYSIS Ó
AJR 12
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Date of Hearing: August 12, 2013
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
AJR 12 (Gatto) - As Introduced: February 6, 2013
SUBJECT : Minimum wage and foreign treaties
SUMMARY : Memorializes the California Legislature's request to the
U.S. President to include a provision within future international
treaties, trade agreements, and other international protocols relating
to the raising of foreign minimum wages. Specifically, this bill :
1)Makes a variety of declarations that include:
a) Unemployment remains too high in the United States and that one
significant cause is the "outsourcing" of quality trades,
manufacturing, and service industry jobs to nations where workers
are paid minuscule wages for their labor;
b) In an age of "globalization" many American industries have
suffered due to competition from foreign employers who pay wages
well below the U.S. federal minimum wage;
c) A standardized international minimum wage would ensure that
American workers and firms compete on a "level playing field" in
the global market, raise the standard of living for billions of
people worldwide, and open new markets to American exports; and
d) The U.S. has a long history of stimulating beneficial policies
abroad when negotiating treaties and trade agreements, including,
inter alia, demanding free elections, protecting American patents,
prohibiting nuclear testing, requiring currency stabilization, and
requiring environmental safeguards, as a condition for peaceable
relations, open trade, and robust commerce with the United States.
2)Resolves that the California State Assembly and Senate call on the
U.S. President to include the raising of foreign minimum wages in
future treaties, trade agreements, and other international protocols;
and that the U.S. Senate decline to ratify agreements that fail to
include such provisions.
FISCAL EFFECT : None
COMMENTS :
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1)Author's Purpose : "Many U.S. industries have struggled to compete
with foreign employers who pay wages well below what U.S. workers
make. As a result, quality trades, manufacturing and service industry
jobs have been outsourced to nations where workers earn minuscule
wages for their labor, causing the U.S. economy to continue to suffer
from higher unemployment as companies cut costs to remain
competitive.
A standardized worldwide minimum wage would ensure U.S. workers and
businesses compete on a level playing field in the global market. A
rising minimum wage would also benefit workers in foreign countries
by improving the standard of living for billions of people around the
world and opening new markets to American exports. Reducing poverty
would make developing countries less reliant on U.S. foreign aid and
able to create more stable societies less prone towards wars or
terrorism.
The United States is in a unique position to affect global policies
by utilizing its treaty powers to require foreign nations to stop
exploiting low wages for competitive advantage. Throughout its
history, America has stimulated beneficial policies abroad when
negotiating treaties and trade agreements, including calling for free
elections, protecting U.S. patents and requiring environmental
safeguards. It is in this spirit that this resolution hopes to follow
- influencing the world community to improve the quality of life for
those less fortunate than us."
2)Framing the Policy Issue : This resolution expresses the California
Legislature's position that the U.S. should pursue an international
trade policy that more accurately reflects current global economic
conditions and advantages available to the U.S. with higher foreign
minimum wages.
Economic development practices that promote strategies that increase
worker wages are sometimes referred to as investments in the virtuous
cycle. In a virtuous cycle, wage growth leads to healthy consumer
demand, which encourages business investment, which drives
productivity growth, which then supports wage growth. Wage increases
among lower income workers have been found to be particularly
effective in spurring economic growth because these workers have a
higher propensity than other workers to spend the full amount of the
wage increase.
As the global leader in trade, foreign investment, and business
development, the resolution would express the California
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Legislature's belief that the U.S.' position on employment
compensation, especially in emerging markets, could play a
significant role in improving workers' quality of life, hastening the
development of their middle class, helping to develop a new
consumer-base of U.S. products, and reducing the flow of industries
fleeing the U.S. and other industrialized nations in search of
cheaper labor. The analysis includes information on U.S. trade
policy, the importance of trade within the California economy, and
trends in global development standards.
3)U.S. Trade Policy and the State Consultation Process : The U.S.
Constitution grants the federal executive branch the power to
negotiate treaties and trade agreements. Ratification, however, is
vested in the U.S. Congress upon a two-thirds vote of approval.
Under "Fast Track" trade authority, Congress is prohibited from
making amendments to a trade agreement, however, it is not uncommon
for related bills to accompany the passage of a trade agreement that
include mitigation provisions for economically impacted communities,
workers, and businesses.
In recognition of this inability to modify specific elements of
already negotiated trade agreements and their far reaching impact on
state and local economies, Congress has directed the U.S. Trade
Representative (USTR) to seek advice from states during the
negotiation process through a Governor appointed State Point of
Contract (SPOC). With the recent resignation of the Deputy Director
of International Affairs and Foreign Investments, California
currently has no SPOC.
In addition to the SPOC process, the USTR maintains nearly 30
trade-related advisory committees, including the Intergovernmental
Policy Advisory Committee on Trade (IGPAC). The IGPAC is currently
comprised of 24 state and local officials, including members of state
legislatures, state trade directors, and related national
associations. Former State Senator and now Los Angeles City
Councilmember Curren Price and Carlos J. Valderrama, who represents
the Los Angeles Area Chamber of Commerce, are members of IGPAC.
The U.S. has trade agreements in force with 20 countries including
Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican
Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea,
Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore. In
addition, the U.S. is negotiating the Trans-Pacific Partnership,
which includes 12 countries, and has recently (July 2013) initiated
discussions on an agreement with the European Union.
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In addition to trade agreements, the U.S. maintains a number of trade
preference programs that allow special access to U.S. markets for
countries that are considered developing markets and/or where the
U.S. wants to cultivate a stronger relationship. The Andean Trade
Preference Act (ATPA) and the Andean Trade Promotion and Drug
Eradication Act (ATPDEA) are examples of two such trade programs
which assist Bolivia, Colombia, Ecuador, and Peru in promoting
"broad-based economic development, diversification of exports,
consolidation of democracy, and to help defeat the scourge of drug
trafficking by providing sustainable economic alternatives to
drug-crop production in beneficiary countries." AJR 12 proposes that
these types of trade agreements and trade preference programs include
policies that require the development and continuing increase of
minimum wages within their broader economic development framework.
4)California's Role in Foreign Trade Agreements : Over the years
Members have expressed concerns regarding the California
Legislature's involvement in what they deem to be federal issues.
Some have commented that these types of discussions, international
trade agreements as an example, distract Members from their core
responsibilities of approving and overseeing the implementation of
legislation and the state budget.
Other Members, however, believe that the U.S. trade model clearly
envisions the role of state consultation by establishing the SPOC and
IGPAC consultation process as means for states to engage the USTR.
The relevance of individual state engagement on trade issues has
increased over the past decade as foreign trade agreements have
expanded beyond the direct import or export of a ready for sale
product and now include rules on issues within the traditional
purview of states including public procurement, professional
licensing, and investor rights. Under reciprocity standards, state
laws relating to environmental standards, hiring local workers, and
buying local products, can and, in some cases have, been challenged
by foreign companies.
In the last few years, California Legislative Members and stakeholder
groups have emphasized the importance of California's engagement on
trade agreements in order to ensure California communities are not
disadvantaged. As an example, in 2011 the Legislature adopted AJR 15
(Alejo), which urged the U.S. government to consider the potential
negative economic impact of the Colombian Free Trade Agreement on the
California economy, especially as it related to the California
floriculture industry. The issue was raised, not from a
protectionist perspective, but based on the U.S.' significant
involvement under the ATPA and the ATPDEA in the development of the
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Colombian cut flower industry. Today, the Colombian cut flower
industry, with its U.S. subsidized infrastructure and $333 (589,500
pesos) per month minimum wage, competes directly with California
producers.
As illustrated in the Colombian example, the U.S. economy is
increasingly entwined with business and consumer markets in other
counties and that trade agreements and other trade policies can have
direct economic impacts on domestic workers and businesses. AJR 12
proposes that the U.S. take a more comprehensive view of the policies
and practices of other countries in order to ensure not just a better
quality of life for their workers, but to also provide the economic
foundation for the long-term development of consumers of California
and U.S. products and services.
5)Fast Track and Calls to Update U.S. Trade Framework : At its core,
AJR 12 is proposing an update to the U.S. trade framework. Developed
decades ago, the framework for U.S. trade agreements has not been
comprehensively reviewed even as significant new elements have been
added such as public procurement, service industries, and
investments. Limited solutions have been developed to address
domestic related economic issues, such as trade adjustment assistance
for workers who have lost jobs due to globalization and, in
particular, to the impacts of trade agreements. These updates,
however, are only a piecemeal approach and have left a number of
domestic economic issues unresolved.
This resolution is timely as President Obama is currently seeking
authorization from the U.S. Congress for Presidential Trade Promotion
Authority (also known as Fast Track). As noted above, Fast Track
trade legislation allows the White House to submit trade deals to
Congress for straight up-or-down votes without any amendments. It
was last passed by Congress in 2002 and expired in 2007. In
exchange for Fast Track, authority it would be expected that federal
lawmakers would use the opportunity to set negotiating objectives
including those that would be applied to the Trans-Pacific
Partnership and the proposed European Union agreement.
Further debate over Fast Track is expected to be significant. The
National Conference of State Legislators has previously conditioned
its approval of Fast Track on having enforceable labor and
environmental standards, as well as:
Granting "no greater rights" to foreign investors than are
granted to U.S. citizens;
Protecting state policy and regulatory authorities;
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"Grandfathering" existing state laws;
Utilizing an "opt in" or "positive list" process for making
commitments relative to state-level authorities or interests;
Fully indemnifying the states for any monetary claims brought
against the United States under an agreement as a result of state
action;
Requiring express congressional action to legitimize preemption
of a state law to comply with a trade agreement; and
Requiring federal or other reimbursement of state expenses
incurred in trade disputes.
In March 2013, more than 400 groups urged the replacement of the U.S.
Fast Track trade authority and the current trade framework used in
the Trans-Pacific Partnership Free Trade Agreement. Among other
criticism, the 15 million combined members and supporters stated that
the current U.S. framework is outdated, that negotiations are being
undertaken in secrecy, and that the purpose of the agreements should
be to advance a more just and sustainable global economy. Key
elements proposed by the groups for a more comprehensive update to
the U.S. trade framework would include:
Prioritize human and labor rights;
Respect local development goals and the procurement policies
that deliver them;
No elevation of corporations to equal terms with governments;
Protect food sovereignty, including programs that ensure
farmers and workers receive fair compensation;
Access to affordable medicine;
Safeguards against currency manipulation;
Space for robust financial regulations and public services; and
Improved consumer and environmental standards.
Among the 400+ groups signing onto the letter and new trade framework
are: Earthjustice, Equal Exchange, Global Exchange, International
Brotherhood of Electrical Workers, International Brotherhood of
Teamsters, Maquiladora Health & Safety Support Network, National
Alliance of Latin American and Caribbean Communities, National Nurses
United, Public Citizen, Rainforest Action Network, Sierra Club, and
the United Steelworkers.
The committee may want to consider expanding the scope of AJR 12 to
include a call for a comprehensive review of the nation's trade
framework and the development of a broader set of core economic and
policy elements that can better serve the U.S. in the new globally
connected economy.
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1)Wage Rates around the World : In January 2013, U.S. President Barack
Obama called for the raising of the U.S. minimum wage from $7.25 to
9.00 per hour by 2015. Compared to other industrialized nations, the
Organization for Economic Co-operation and Development (OECD) ranks
the U.S. as ninth behind Canada ($8.04), United Kingdom ($8.53), New
Zealand ($8.63), Belgium ($9.52), Australia ($9.54), France ($10.02),
Ireland ($10.81), and Luxembourg ($11.36).
In viewing the minimum wage rates for these developed counties, it is
important to also consider the highly integrated global economy
whereby raw materials, research, production, assembly, and
distribution networks often cross a variety of national boundaries
within both industrialized and developing nations. Product origin
labels are based on percentages of where labor and materials are
sourced, reflecting the reality of multiple-sourced products. For
many workers who are employed in countries with lesser developed
commercial and industrial sectors there are no minimum wage rate and
the recession has worsened their economic conditions. In the 2012/13
study by the International Labor Organization (ILO), wage growth is
reported to have remained significantly below pre-recession levels
and has especially dropped in developing countries and among certain
regions. As an example the ILO reports that "a worker in the
manufacturing sector in the Philippines took home $1.40 for every
hour worked, compared to less than $5.50 in Brazil, $13.00 in Greece,
$23.00 in the U.S., and $35 in Denmark."
In an effort to address the most extreme economic-based challenges
the United Nations adopted a set of comprehensive economic, social,
and environmental thresholds, in the late 1990s called the Millennium
Development Goals (MDGs). Among other strategies, the United Nations
is relying on improving economic opportunities within developing
nations, as a central means of raising and maintaining MDG objectives
in the long term. As an example, one of MDG's strategy is to halve
the proportion of people who live below the global extreme poverty
rate of less than $1.25 a day by 2015. This MDG was achieved five
years early as the rate fell from 47% in 1990 to 22% in 2010, meaning
700 million fewer people lived in conditions of extreme poverty in
2010 than in 1990. China, still considered a developing country even
though it is a top U.S. trade partner, saw the greatest drop in
extreme poverty rates: dropping from 60% in 1990, to 16% in 2005, and
12% reported for 2010.
In addition to MDG progress on health indicators such as access to
safe drinking water and mortality rates from malaria and
tuberculosis, goal eight proposes the establishment of a global
economic partnership that supports an open, rule-based, predictable,
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non-discriminatory trading and financial system. In the 2013 report,
export revenues were reported as up in 2010, duty-free market access
reached 80% of exports in developing countries, and average tariffs
are reported to be at an all-time low.
Economic progress, however, has not been across the board. While the
United Nations estimates that 233 million people gained employment
since 1990, allowing them to move above the global extreme poverty
rate, much of this progress (58%) has been in employment that provide
little long-term job security and pay very low wages. These working
environments can lead workers to accept substandard wages and
unhealthy working conditions. A recent example of this can be found
in the collapse of the Bangladeshi Rana Plaza factory building which
resulted in 1,129 people being killed and the Tazreen factory fire in
November 2012 that killed 112. As a result of these instances, the
U.S. suspended Bangladesh's trade privileges until certain specific
steps were taken to address the labor and public safety deficiencies.
The United Nations estimates that there are still over a billion
people in the world having an inability to obtain basic food,
shelter, health care, and education.
2)Free Markets, Trade Agreements, and Economic Growth : Rising incomes,
job creation and real wages are strongly linked to GDP and the pace
of economic growth. According to the OECD, numerous reviews of
literature have found a fairly consistent pattern that trade can be a
key factor in promoting national economic growth. Challenging these
positive forces of globalization and trade are advances in
technology, growing discrepancy between incomes, and demographic
shifts that will place higher demands on a limited number of workers.
As an example, the McKinsey Global Institute (MGI) anticipates a
shortage of both high- and medium-skilled workers in the coming
decades.
--------------------------------------------------------------
| Global Workforce Outlook |
--------------------------------------------------------------
-------------------------------------------------------------
| High-Skilled Workers | Medium Skilled Workers |
-------------------------------------------------------------
|----------+----------+---------+----------+---------+--------|
|Geographic| Workers | Unmet |Geographic| Workers | Unmet |
| Location | | Demand | Location | | Demand |
|----------+----------+---------+----------+---------+--------|
| Total | 38 to 41 | 13% | Total | 45 | 15% |
| Shortage | million | | Shortage | million | |
-------------------------------------------------------------
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| In | 16 to 18 | 10% | In India | 13 | 10% |
| advanced | million | | | million | |
|economies | | | | | |
|----------+----------+---------+----------+---------+--------|
| In China | 23 | 16% | In young | 31 | 19% |
| | million | |developing| million | |
| | | | | | |
| | | |economies | | |
-------------------------------------------------------------
--------------------------------------------------------------
| Source: PowerPoint Slide of Dr. Koehler from JEDE 4/4/13 |
|hearing sourced from McKinsey Global Institute |
--------------------------------------------------------------
In a globalized society, trade agreements represent the foundational
rules for business and workforce development. AJR 12 proposes to
include minimum wage rates and policies that encourage increasing
minimum wage rates within those foundational trade principles.
3)California's Trade-based Economy : International trade is an
important component of California's $1.9 trillion economy. If
California were a country, its $162 billion in exports would place
the state as the 11th largest exporter in the world. Exports from
California accounted for over 10.5% ($162 billion) of total U.S.
exports in goods, shipping to over 220 foreign destinations in 2012.
California's land, sea, and air ports of entry (POE) serve as key
international commercial gateways for products entering and exiting
the country. The Port of Los Angeles continues to rank as the
nation's most significant POE in terms of two-way trade valued at
$273.6 billion in 2011. It is followed by JFK International Airport
($192.3 billion) and the Port of Houston ($168.8 billion). In terms
of global container activity, the Los Angeles-Long Beach container
port ranked 8th globally, behind Shanghai, China; Singapore, The
Republic of Singapore; Hong Kong, China; Shenzhen, China; Busan,
South Korea; Ningbo, China; and Guangzhou, China.
California is also home to other major POEs including: Long Beach
($94.7 billion, ranked 9th); LAX ($84.6 billion, ranked 12th); San
Francisco International Airport ($50.5 billion, ranked 21st); Port of
Oakland ($45.8 billion, ranked 24th); Otay Mesa Station ($34.2
billion, ranked 30th).
Mexico is California's top trading partner, receiving $26 billion
(16%) in goods in 2012. The state's second and third largest trading
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partners are Canada and China with $17.3 billion (11%) and $14
billion (9%) in exports respectively. Other top-ranking export
destinations include Japan, South Korea, Hong Kong, Taiwan, Germany,
the Netherlands and the United Kingdom.
California's top five exports in 2012 were: Computer & Electronic
Products ($44.6 billion); Transportation Equipment ($16 billion);
Machinery, Except Electrical ($14.9 billion); Miscellaneous
Manufactured Commodities ($13.9 billion); and Chemicals ($12.8
billion). The state's top five imports in 2012 were: Computer and
Electronic Products ($112 billion); Transportation Equipment ($60
billion); Oil & Gas ($32 billion); Miscellaneous Manufactured
Commodities ($19.4 billion); and Apparel Manufacturing Products
($18.8 billion) for a total of $376 billion in imported products.
4)Related Legislation: Below is a list of related legislation.
a) AB 2443 (V. Manuel Pérez) State Point of Contact on Trade :
This bill would have required the State Point of Contact to
provide specified Legislative committees with copies of any
official position taken or comments that any entity within the
executive branch of state government provided to the USTR relating
to a pending trade agreement. Status: Vetoed by the Governor, in
2010.
b) AB 1276 (Skinner) Binding the State to Foreign Trade
Agreements : This bill would have prohibited a state official,
including the Governor, from binding the state, or giving consent
to the federal government to bind the state to provisions of a
proposed International Trade Agreement, including the government
procurement rules, unless a statute is enacted that explicitly
authorizes a state official to bind the state or to give consent
to bind the state to that trade agreement. Status: Vetoed by the
Governor in 2009.
c) AJR 27 (Torrico) Colombian Free Trade Agreement : This
resolution memorializes that the California Legislature opposes
the United States-Colombia Trade Promotion Agreement. The primary
basis for this position, as documented through bill analyses, was
Colombia's record on human rights, particularly as it related to
trade unionists. This resolution proposes that the Legislature
transmit additional information to the U.S. Government and the
President relative to the Colombia Agreement. In the case of AJR
27, the new information focuses on the potential negative impact
to the domestic cut flower industry, its workers, and the
communities in which they are located stemming from the Colombia
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Agreement. Status: Adopted, Resolution Chapter 145, Statutes of
2010.
d) AJR 55 (Villines) Colombian Free Trade Agreement : This
resolution would have memorialized Congress that the California
Legislature supports the United States-Colombia Trade Promotion
Agreement. Status: The measure was refused adoption in the
Assembly Committee on Jobs, Economic Development, and the Economy
in 2008.
e) SB 1762 (Figueroa) Binding the State to Foreign Trade
Agreements : This bill would have prohibited the Governor from
binding California to provisions of international trade agreements
without consent from the Legislature. Status: The measure was
held in the Assembly Committee on Jobs, Economic Development and
the Economy in 2006.
REGISTERED SUPPORT / OPPOSITION :
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Support
American Federation of State, County and Municipal Employees, AFL-CIO
California Federal of Teachers
Worldwide Minimum Wage Project
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916) 319-2090